EXHIBIT 10.1
 
STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (the “Agreement”) is made and entered into as of
the 16th day of May 2012 by and among Lux Digital Pictures, Inc., a Wyoming
corporation (“Lux”), Lux Digital Pictures GmbH Partners, a California
partnership (the “Seller”), and Michael Hill, an individual (the “Buyer”), with
respect to the following facts:

RECITALS

A.   
Lux is a publicly held corporation fully compliant with all regulatory filings
and in good standing, whose securities are quoted on the Bulletin Board and the
OTC:QB exchanges under the trading symbol LUXD.OB.

B.   
By filing a Certificate of Designation authorized by its Board of Directors, Lux
is designating Series A Convertible Preferred Stock, a copy of which is attached
to this Agreement as Exhibit A.

C.   
Buyer owns the assets listed in Exhibit C of this Agreement (collectively, the
“Assets”), and desires to convey the Assets to Lux in consideration for the
shares of common stock of Lux to be transferred by the Seller to the Buyer,
representing a controlling interest in Lux.

D.   
Seller owns or controls 103,290,000 shares of outstanding common stock (the
“Shares”) or approximately 68% of the total issued and outstanding capital stock
of Lux on a fully diluted basis.

E.   
The Buyer desires to acquire from Seller and Seller desires to sell to the Buyer
103,290,000 Shares of the common stock of Lux in consideration for (i) the
conveyance of the Assets by the Buyer to Lux, (ii) the issuance by Lux to the
Seller of 100 shares of Series A Convertible Preferred Stock, convertible into a
number of shares of Lux common stock equal to 10% of the total issued and
outstanding shares of Lux common stock on a fully diluted basis, assuming the
conversion of all outstanding convertible securities of Lux, including without
limitation the conversion of the outstanding Series A Convertible Preferred
Stock, and (iii) the covenants, terms and conditions contained in that certain
binding Letter of Intent by and between Lux and Radio Loyalty, Inc., dated of
even date herewith (the “LOI”), a copy of which is attached hereto as Exhibit F
and incorporated herein by reference.

F.   
Lux currently (prior to the Closing) has cash and owns securities, intellectual
property, motion pictures, contracts, accounts receivable, trademarks, domain
names, goodwill and any and all other tangible and intangible assets including
those disclosed in Lux’s consolidated financial statements (collectively, the
“Lux Assets” being utilized in the “Lux Business”).  As additional consideration
for the conveyance of the Shares by the Seller to the Buyer on behalf of Lux in
order to enable Lux to acquire the Assets, on the Closing Lux agrees to
immediately convey all of the Lux Business and Lux Assets to the Seller, subject
to the assumption by Seller of all liabilities of the Lux Business except those
held by Asher Enterprises, as evidenced by the documents attached to this
Agreement as Exhibit D, but including without limitation those listed in Exhibit
E of this Agreement.

 
 
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NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged by the parties to this Agreement, and in light
of the above recitals to this Agreement, the parties to this Agreement hereby
agree as follows:

1.
Sale and Purchase.

1.1           Sale and Purchase of Stock.  In consideration for the Purchase
Price (as defined in Section 1.2 of this Agreement) and the other covenants of
Lux and the Buyer in this Agreement, Seller hereby agrees to convey to the Buyer
all of the Shares on the Closing Date (as defined in Section 3.1 of this
Agreement).  On the Closing Date Lux will issue to Seller 100 shares of its
Series A Convertible Preferred Stock (the “Lux Stock”) so that upon its
conversion, the Seller will beneficially own 10% of the total issued and
outstanding shares of common stock of Lux on a fully diluted basis, assuming the
conversion of all outstanding convertible securities of Lux, including without
limitation the conversion of the outstanding shares of Series A Convertible
Preferred Stock.  The issuance of the Lux Stock to the Seller is consideration
for the Seller’s sale of the Shares to the Buyer as payment of the Purchase
Price on behalf of Lux so Lux can acquire the Assets pursuant to this Agreement.

1.2           Purchase Price.  As consideration for the sale by Seller of the
Shares to the Buyer on the Closing Date, the Buyer will convey good title to the
Assets to Lux on the Closing Date, free and clear of all claims, liens or
encumbrances (the “Purchase Price”).  As consideration for Seller’s sale of the
Shares to Buyer on behalf of Lux, Lux agrees to issue to the Seller, on the
Closing Date, 100 shares of its Series A Convertible Preferred Stock,
convertible into 10% of the total issued and outstanding shares of common stock
of Lux on a fully diluted basis, assuming the conversion of all outstanding
convertible securities of Lux, including without limitation the conversion of
the outstanding shares of Series A Convertible Preferred Stock.  The Lux Stock
will be allocated among the designees of the Seller as listed in Exhibit B of
this Agreement.  The certificates evidencing the Shares and the Lux Stock will
have the following legend affixed to them:

“THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THAT ACT OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.”

1.3           Conveyance of Lux Business to Seller.  As additional consideration
for the conveyance of the Shares by the Seller to the Buyer on behalf of Lux in
order to enable Lux to acquire the Assets, on the Closing Lux agrees to
immediately convey all of the Lux Business and Lux Assets to the Seller, subject
to the assumption by Seller of all liabilities of the Lux Business, including
without limitation those liabilities listed in Exhibit E of this Agreement, but
not including the liabilities owed by Lux to Asher Enterprises, as evidenced by
the documents attached to this Agreement as Exhibit D.  Accordingly, on the
Closing, Lux and the Seller covenant that Lux will have no liabilities other
than those listed in Exhibit D of this Agreement, and Buyer acknowledges and
agrees that Lux will have no material assets other than the Assets being
acquired from Buyer.

1.4           Letter of Intent.  Simultaneously with the execution and Closing
of this Agreement, Lux and Radio Loyalty, Inc. agree to execute the LOI and
deliver it to each other and to the parties to this Agreement.  A copy of the
LOI is attached hereto as Exhibit F, the terms and conditions of which are
incorporated herein by reference in their entirety, and which are being relied
upon by the Seller as a material inducement to its entering into this Agreement.
 
 
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2.
Appointment of New Director.

Upon the Closing, the current director of Lux, Ingo Jucht, will appoint Michael
Hill as the Chairman of the Board of Directors on Lux’s Board of Directors,
which will then appoint Michael Hill as the Chief Executive Officer of Lux to
replace Ingo Jucht and T. Joseph Coleman, who will resign from all officer
positions that they hold with Lux.  Michael Hill will have the ability to cast a
deciding vote of the Board of Directors in the event that the Board of Directors
is dead-locked on any decision, for as long as Michael Hill and Ingo Jucht are
the only two directors of the Company.  Michael Hill may appoint all other
executive officers of Lux to replace Ingo Jucht and T. Joseph Coleman.  On a
date ten (10) days after the filing and mailing of Schedule 14f with the
Securities and Exchange Commission by Lux, Ingo Jucht will resign as a director
of Lux and Michael Hill may thereafter appoint any persons he chooses to fill
the vacancies on the Lux Board of Directors.

3.
Closing and Further Acts.

3.1           Time and Place of Closing.  Upon satisfaction or waiver of the
conditions set forth in Section 6 of this Agreement, the closing of the
transactions between the Buyer, Lux, and the Seller contemplated by this
Agreement (the “Closing”) will take place at the law offices of Richardson &
Associates at 1453 Third Street Promenade, Suite 315, Santa Monica, California
90401 at 1:00 p.m. (local time) on the date that the parties may mutually agree
in writing, but in no event later than as of May 17, 2012 (the “Closing Date”),
unless extended by the mutual written agreement of the parties.

3.2           Actions at the Closing.  At the Closing, the following actions
will take place:

(a)      The Seller will tender to the Buyer certificates and stock powers
evidencing the conveyance of the Shares to Buyer.

(b)      The Buyer will deliver to Lux a Bill of Sale, assignments in recordable
form, where appropriate, and other documents necessary or appropriate in order
to evidence the conveyance to Lux of all right, title and interest in and to the
Assets, free and clear of all claims, liens or encumbrances.

(c)      Lux will deliver to Seller certificates evidencing the issuance of the
Lux Stock to the designees of the Seller, allocated among such designees as
indicated in Exhibit B of this Agreement.

(d)      Lux will deliver to Buyer and Seller copies of necessary resolutions of
the Board of Directors of Lux authorizing the execution, delivery, and
performance of this Agreement and the other agreements contemplated by this
Agreement for Lux’s execution, and consummation of the transactions contemplated
by this Agreement.

(e)      Lux will deliver to Seller a Bill of Sale, assignments in recordable
form, where appropriate, and all other documents necessary or appropriate in
order to evidence the conveyance to Seller of all right, title and interest in
and to the Lux Assets and the Lux Business, and the assumption by Seller of the
related liabilities as required by Section 1.3 of this Agreement.

(f)       Lux and Radio Loyalty, Inc. will execute and deliver to each other and
to the parties to this Agreement executed copies of the LOI.

(g)      Lux will deliver to the Buyer true and complete copies of its Articles
of Incorporation and a Certificate of Good Standing from the State of Wyoming.

(h)      Any additional documents or instruments as a party may reasonably
request or as may be necessary to evidence and effect the transactions
contemplated by this Agreement.
 
 
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3.3           Conduct of Lux Business Prior to Closing.  After the execution of
this Agreement by the Buyer and until the Closing, Lux will:

(a)      maintain the books, accounts and records of Lux using Lux’s normal
business practices consistently applied, including recognition of revenues and
expenses, continue to collect accounts receivable and pay accounts payable
utilizing normal procedures and without discontinuing or accelerating payment of
such accounts and comply with all contractual and other obligations applicable
to the Lux; and

(b)      not incur any indebtedness for borrowed money except in the ordinary
course of business, and not pledge or grant liens or security interests in any
of the Lux’s assets; and

(c)      not sell, transfer or dispose of any assets except for sales in the
ordinary course of business.

3.4           No Solicitation and Due Diligence of Lux. Lux will not, nor will
Lux encourage, facilitate, solicit, or authorize any of its shareholders,
directors, officers, employees, agents or representatives to solicit or enter
into any discussion (or continue any discussion) with any third party (including
the provision of any information to a third party), or enter into any agreement
or understanding of any kind regarding the purchase, sale, lease, assignment,
conveyance or other disposition or acquisition of all or any portion of its
assets, or any capital stock of Lux, for the period commencing on the date first
above written and extending until May 17, 2012.  During this period and until
the Closing or termination of this Agreement, Lux and Seller will fully
cooperate with the Buyer and its representatives, and Buyer will fully cooperate
with the Seller and its representatives, to enable them to conduct complete due
diligence of Lux, its business and the books, records and documents relating to
Lux and its business, and of the Assets being conveyed by the Buyer to Lux
pursuant to this Agreement.

4.
Representations and Warranties of Lux and Seller.

Lux and Seller represent and warrant to Buyer as follows:

4.1           Power and Authority; Binding Nature of Agreement.  Lux and Seller
have full power and authority to enter into this Agreement and to perform their
obligations hereunder.  The execution, delivery, and performance of this
Agreement by Lux have been duly authorized by all necessary action on its
part.  Assuming that this Agreement is a valid and binding obligation of each of
the other parties hereto, this Agreement is a valid and binding obligation of
Lux and Seller.

4.2           Subsidiaries.  There is no corporation, general partnership,
limited partnership, joint venture, association, trust or other entity or
organization that Lux directly or indirectly controls or in which Lux directly
or indirectly owns any equity or other interest, other than those interests and
holdings disclosed in Lux’s consolidated financial statements.

4.3           Good Standing.  Lux (i) is duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated,
(ii) has all necessary power and authority to own its assets and to conduct its
business as it is currently being conducted, and (iii) is duly qualified or
licensed to do business and is in good standing in every jurisdiction (both
domestic and foreign) where such qualification or licensing is required.

4.4           Charter Documents and Corporate Records.  Lux has delivered to
Buyer complete and correct copies or provided Buyer with the right to inspect
true and complete copies of all (i) the articles of incorporation, bylaws and
other charter or organizational documents of Lux, including all amendments
thereto, (ii) the stock records of Lux, and (iii) the minutes and other records
of the meetings and other proceedings of the shareholders and directors of
Lux.  Lux is not in violation or breach of (i) any of the provisions of its
articles of incorporation, bylaws or other charter or organizational documents,
or (ii) any resolution adopted by its shareholders or directors, as available.

 
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4.5           Financial Statements.  Lux has delivered to Buyer the following
financial statements relating to Lux prior to the Closing (the “Lux Financial
Statements”):  (i) the unaudited balance sheet of Lux as of February 29, 2012
and (ii) the audited balance sheet and operating statements  for the year ended
August 31, 2011.  Except as stated therein or in the notes thereto, the Lux
Financial Statements:  (a) present fairly the financial position of Lux as of
the respective dates thereof and the results of operations and changes in
financial position of Lux for the respective periods covered thereby; and (b)
have been prepared in accordance with Lux’s normal business practices applied on
a consistent basis throughout the periods covered.

4.6           Capitalization.  The authorized capital stock of Lux consists of
1,000,000,000 shares of common stock, par value $0.001 per share, of which, as
of May 14, 2012, approximately 152,100,547 shares are issued and outstanding,
and 10,000,000 shares of  preferred stock, par value $0.001 per share, of which
none are issued or outstanding.  All of the outstanding shares of the capital
stock of Lux are validly issued, fully paid and nonassessable, and have been
issued in full compliance with all applicable federal, state, local and foreign
securities laws and other laws.  Lux covenants not to issue any shares of its
common or preferred stock from the date of this Agreement until the Closing
Date, other than those contractually obligated to be issued by Lux pursuant to
its outstanding convertible promissory notes payable to Asher Enterprises, Inc.,
copies of which are attached to this Agreement as Exhibit D.

4.7           Absence of Changes.  Except as otherwise set forth on Schedule 4.7
hereto or otherwise disclosed to Buyer in writing prior to the Closing, since
February 29, 2012:

(a)      There has not been any material adverse change in the business,
condition, assets, operations or prospects of Lux and no event has occurred or,
to Lux’s knowledge, is expected to occur after the Closing that might have a
material adverse effect on the business, condition, assets, operations or
prospects of Lux.

(b)      Lux has not (i) declared, set aside or paid any dividend or made any
other contribution in respect of any shares of capital stock, nor (ii)
repurchased, redeemed or otherwise reacquired any shares of capital stock or
other securities.

(c)      Lux has not amended its articles of incorporation, bylaws or other
charter or organizational documents, nor has it effected or been a party to any
merger, recapitalization, reclassification of shares, stock split, reverse stock
split, reorganization or similar transaction.

(d)      Lux has not formed any subsidiary or contributed any funds or other
assets to any subsidiary.

(e)      Lux has not purchased or otherwise acquired any assets, nor has it
leased any assets from any other person, except in the ordinary course of
business consistent with past practice.

(f)       Lux has not made any capital expenditure outside the ordinary course
of business or inconsistent with past practice, or in an amount exceeding
twenty-five thousand dollars ($25,000) singly or in excess of fifty thousand
dollars ($50,000) in the aggregate, without Buyer’s consent.

(g)      Lux has not sold or otherwise transferred any assets to any other
person, except in the ordinary course of business consistent with past practice
and at a price equal to the fair market value of the assets transferred.

(h)     There has not been any material loss, damage or destruction to any of
the properties or assets of Lux (whether or not covered by insurance).

(i)       Lux has not written off as uncollectible any indebtedness or accounts
receivable, except for write offs that were made in the ordinary course of
business consistent with past practice and that involved less than $25,000
singly and less than $50,000 in the aggregate.

(j)       Lux has not leased any assets to any other person except in the
ordinary course of business consistent with past practice and at a rental rate
equal to the fair rental value of the leased assets.

 
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(k)      Lux has not mortgaged, pledged, hypothecated or otherwise encumbered
any assets, except in the ordinary course of business consistent with past
practice.

(l)       Lux has not entered into any contract, or incurred any debt, liability
or other obligation (whether absolute, accrued, contingent or otherwise), except
for (i) contracts that were entered into in the ordinary course of business
consistent with past practice, and (ii) current liabilities incurred in the
ordinary course of business consistent with the past practice.

(m)     Lux has not made any loan or advance to any other person, except for
advances that have been made to customers in the ordinary course of business
consistent with past practice and that have been properly reflected as “accounts
receivables.”

(n)      Other than annual raises or bonuses paid or provided consistent with
past business practices, Lux has not paid any bonus to, or increased the amount
of the salary, fringe benefits or other compensation or remuneration payable to,
any of the directors, officers or employees of Lux.

(o)      No contract or other instrument to which Lux is or was a party or by
which Lux or any of its assets are or were bound has been materially amended or
terminated, except in the ordinary course of business consistent with past
practice.

(p)      Lux has not discharged any lien or discharged or paid any indebtedness,
liability or other obligation, except for current liabilities that (i) are
reflected in the Lux Financial Statements as of February 29, 2012 or have been
incurred since February 29, 2012 in the ordinary course of business consistent
with past practice, and (ii) have been discharged or paid in the ordinary course
of business consistent with past practice.

(q)      Lux has not forgiven any debt or otherwise released or waived any right
or claim, except in the ordinary course of business consistent with past
practice.

(r)       Lux has not changed its methods of accounting or its accounting
practices in any respect.

(s)      Lux has not entered into any transaction outside the ordinary course of
business or inconsistent with past practice.

(t)       Lux has not agreed or committed (orally or in writing) to do any of
the things described in clauses (b) through (s) of this Section 4.7.

4.8           Absence of Undisclosed Liabilities.  Lux has no debt, liability or
other obligation of any nature (whether due or to become due and whether
absolute, accrued, contingent or otherwise) that is not reflected or reserved
against in the Lux Financial Statements as of February 29, 2012, except for
obligations incurred since February 29, 2012 in the ordinary and usual course of
business consistent with past practice.  On the Closing in accordance with the
covenants in Section 1.3 of this Agreement, Seller will assume all liabilities
of Lux including but not limited to those listed in Exhibit E of this Agreement
and the convertible note referenced in Section 7.4 of this Agreement, except for
Lux’s liability to Asher Enterprises evidenced by the convertible promissory
notes attached to this Agreement as Exhibit D, which will remain a liability of
Lux.  Buyer specifically acknowledges and agrees that Lux will remain obligated
after the Closing on the convertible promissory notes in the aggregate
outstanding principal amount, as of May 14, 2012, of approximately $125,000
payable to Asher Enterprises.  Seller will assume and pay in full on the Closing
Date the outstanding convertible promissory note referenced in and in accordance
with Section 7.4 of this Agreement.

4.9           Full Disclosure.  Neither this Agreement (including the exhibits
hereto) nor any statement, certificate or other document delivered to Buyer by
or on behalf of Lux or Seller contains any untrue statement of a material fact
or omits to state a material fact necessary to make the representations and
other statements contained herein and therein not misleading.
 
 
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4.10         Representations True on Closing Date. The representations and
warranties of Lux and the Seller set forth in this Agreement are true and
correct on the date hereof, and will be true and correct on the Closing Date as
though such representations and warranties were made as of the Closing
Date.  Buyer’s knowledge will not act as a waiver of any breach of the
representations and warranties contained herein by Lux or Seller.

4.11         Tax Advice.  Lux and Seller hereby represent and warrant that they
have sought their own independent tax advice regarding the transactions
contemplated by this Agreement and neither Lux nor Seller have relied on any
representation or statement made by Buyer or his representatives regarding the
tax implications of such transactions.

4.12         Non-Distribtion Intent.  The Lux Stock being acquired by Seller
pursuant to this Agreement is not being acquired by Seller with a view to the
public distribution of them.

5.
Representations and Warranties of Buyer.

Buyer represents and warrants to Seller and Lux as follows:

5.1           Power and Authority; Binding Nature of Agreement.  Buyer has full
power and authority to enter into this Agreement and to perform his obligations
hereunder.  The execution, delivery and performance of this Agreement by Buyer
have been duly authorized by all necessary action on its part.  In particular,
Buyer has full power and authority to cause full compliance by Buyer with the
Buyer’s covenants in this Agreement.  Assuming that this Agreement is a valid
and binding obligation of each of the other parties hereto, this Agreement is a
valid and binding obligation of Buyer.

5.2           Approvals.  No authorization, consent or approval of, or
registration or filing with, any governmental authority or any other person is
required to be obtained or made by Buyer in connection with the execution,
delivery or performance of this Agreement, other than in connection with the
performance of Buyer’s covenants in Section 7.2 of this Agreement.

5.3           Title to Assets.  Buyer will convey good, valid and marketable
title to, and all rights and interests in, the Assets to Lux at the Closing,
free and clear of any claims, liens or encumbrances.

5.4           Representations True on the Closing Date.  The representations and
warranties of Buyer set forth in this Agreement are true and correct on the date
hereof, and will be true and correct on the Closing Date as though such
representations and warranties were made as of the Closing Date.

5.5           Non-Distributive Intent.  The Shares being purchased by the Buyer
pursuant to this Agreement are not being acquired by the Buyer with a view to
the public distribution of them.

5.6           Non Contravention.  Neither the execution and delivery of this
Agreement nor the performance of this Agreement will contravene or result in a
material violation of any of the provisions of any other agreement or obligation
of the Buyer.

 
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6.
Conditions to Closing.

6.1           Conditions Precedent to Buyer’s Obligation To Close. Buyer’s
obligation to close the stock purchase as contemplated in this Agreement is
conditioned upon the occurrence or waiver by Buyer of the following with respect
to the Closing:

(a)      Seller has delivered to the Buyer all certificates and related stock
powers evidencing Seller’s conveyance of 103,290,000 Shares of Lux common stock
to Buyer.

(b)      All taxes (except corporate income taxes) due and payable by Lux
without regard to any deferral by reason of extension, payment programs, or any
other reason, must have been paid in full.  Any taxes accrued but not yet
payable must be reflected on Lux’s balance sheet delivered to Buyer.

(c)      The financial condition of Lux must be as set forth in the Lux
Financial Statements as of February 29, 2012, except for changes arising in the
ordinary course of the conduct of Lux’s business since February 29, 2012.

(d)      The current director of Lux shall duly appoint (effective as of the
Closing) Michael Hill to fill one of the vacancies on Lux’s Board of Directors
as its Chairman of the Board.

(e)      Lux must have delivered to Buyer copies of corporate resolutions
adopted by the Board of Directors of Lux authorizing the appropriate officers of
Lux to execute and deliver this Agreement and all other agreements, documents
and instruments executed by Lux pursuant hereto, and to consummate the
transactions contemplated herein.

(f)       The Buyer must be reasonably satisfied with its due diligence of Lux,
including but not limited to financial, legal and business affairs of Lux.

(g)      All representations and warranties of Lux and Seller made in this
Agreement or in any exhibit or schedule hereto delivered by Lux or Seller must
be true and correct as of the Closing Date with the same force and effect as if
made on and as of that date.

(h)      Lux and Seller must have performed and complied with all agreements,
covenants and conditions required by this Agreement to be performed or complied
with by Lux or the Seller prior to or at the Closing Date.

6.2           Conditions Precedent to Lux’s and Seller’s Obligation To
Close.  Seller’s and Lux’s obligation to close the transactions as contemplated
in this Agreement is conditioned upon the occurrence or waiver by Lux and Seller
of the following with respect to the Closing:

(a)      Buyer must have delivered to Lux a Bill of Sale, assignments in
recordable form, if appropriate, and other documents necessary or reasonably
appropriate in order to cause and to evidence the conveyance to Lux of all
right, title and interest in and to the Assets, free and clear of claims, liens
or encumbrances.  Seller must be reasonably satisfied with its due diligence of
the Assets and Radio Loyalty, Inc.

(b)      Lux must have delivered to Seller a Bill of Sale, assignments in
recordable form, if appropriate, and other documents necessary or reasonably
appropriate in order to cause and to evidence the conveyance to Seller of all
right, title and interest in and to the Lux Assets and the Lux Business, subject
to the assumption of related liabilities as required by Section 1.3 of this
Agreement.

 
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(c)      Lux and Radio Loyalty, Inc. have executed and delivered to each other
and to the parties to this Agreement a copy of the LOI.

(d)      Lux has delivered to Seller stock certificates, each registered in the
appropriate name of each designee of the Seller for the appropriate amount,
evidencing the issuance of the Lux Stock to the Seller’s designees.

(e)      All representations and warranties of Buyer made in this Agreement or
in any exhibit hereto delivered by Buyer must be true and correct on and as of
the Closing Date with the same force and effect as if made on and as of that
date.

(f)       Buyer must have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by Buyer
prior to or at the Closing Date.

6.3           Notice Requirement. Seller or Lux will give prompt written notice
to Buyer of any development occurring after the date of this Agreement, or any
item about which Lux did not have actual knowledge on the date of this
Agreement, which causes or reasonably could be expected to cause a breach of any
of the representations and warranties in Section 4 of this Agreement.  Buyer
will give prompt written notice to Seller of any development occurring after the
date of this Agreement, or any item about which Buyer did not have actual
knowledge on the date of this Agreement, which causes or reasonably could be
expected to cause a breach of any of the representations and warranties in
Section 5 of this Agreement.

7.
Further Assurances and Post Closing Covenants and Obligations.

7.1           Right to Inspect Records.  Following the Closing, Buyer shall,
whenever reasonably requested by Seller (including reasonable prior notice to
Buyer) and during normal business hours, permit Seller or their respective
representatives to have access to such business records (including without
limitation computer files) turned over to Buyer pursuant to this Agreement as
may be required by Seller.  Buyer shall use commercially reasonable efforts to
preserve and maintain Lux’s shareholder records for each fiscal year until the
expiration of the statute of limitations (and any waivers or extensions thereof)
for tax purposes relating to such year, and all other records relating to the
Lux business for at least three years after the Closing Date.

7.2           Cooperation.  Lux covenants to fully cooperate with the Seller
after the Closing to facilitate the lifting of restrictive transfer legends on
the Lux Stock to the extent requested by Seller, subject to and in accordance
with all of the provisions of Rule 144 of the Securities Act of 1933, as
amended, and other applicable federal and state rules, laws and regulations.

7.3           Antidilution.  Buyer covenants not to cause Lux, and Lux will not,
for a period of ninety (90) days after the conversion of all outstanding Series
A Convertible Preferred Stock, issue any additional shares of its common or
preferred stock or securities convertible into Lux common or preferred stock,
that would cause Seller’s percentage beneficial ownership of the issued and
outstanding capital stock of Lux to be less than Seller’s percentage beneficial
ownership of Lux’s outstanding capital stock on the date all outstanding Series
A Convertible Preferred Stock are converted into common stock, without the
express prior written approval of Seller, which will not be unreasonably
withheld by it, except for shares issued by Lux for the following transactions:
(a) to raise capital for itself, or (b) issuances for reasonable compensation
for employee or consultant services rendered for Lux in the ordinary course of
its business, (c) to acquire a new business from a third party, in each case of
(a), (b) and (c), for fair value in bona fide transactions, or (d) if necessary,
sufficient shares of common stock to ensure that the shareholders of Radio
Loyalty, Inc. under the LOI own no less than 90% of the total issued and
outstanding common stock of Lux immediately upon the closing of the acquisition
of Radio Loyalty, Inc. by Lux in accordance with the LOI, and the conversion of
all outstanding shares of Lux’s Series A Convertible Preferred Stock on a fully
diluted basis, subject to the limitations, terms and conditions of the LOI.

7.4           Payment of Note by Seller.  Seller will, on or before the issuance
of the Lux Stock to Seller, pay in full the outstanding interest bearing
convertible promissory note in the original principal amount of $17,979.00
payable by Lux to Mark J. Richardson on demand.
 
 
9

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7.5           Buyer’s Covenants.  After the Closing and for at least one year
after the conversion of all outstanding Series A Convertible Preferred Stock,
Buyer covenants to cause Lux to pay all of the costs and to take all of the
action necessary or reasonably appropriate to cause Lux to be current in all of
its reporting requirements with the Securities and Exchange Commission, to pay
all amounts owed to Lux’s transfer agent that accrue after May 1, 2012, and to
provide or arrange for Lux to have sufficient funds for those purposes.  Buyer
also covenants to cause Lux to close the acquisition of RLI under the LOI on or
before October 1, 2012.

7.6           Voting Control Over Series A Convertible Preferred Stock.  The
Seller and its designees listed in Exhibit B of this Agreement hereby give the
Buyer an irrevocable proxy to vote all of the outstanding shares of the Series A
Convertible Preferred Stock for a term commencing on the date they are issued
and ending on the earlier of (i) the closing of the acquisition of Radio
Loyalty, Inc. by Lux as contemplated in the LOI, or (ii) October 1, 2012.

8.
Survival of Representations and Warranties.

All representations and warranties made by each of the parties hereto with
respect to the Closing will survive the Closing for a period of three years
after the Closing Date.

9.
Indemnification.

9.1           Indemnification by Seller.  Seller agrees to indemnify, defend and
hold harmless Buyer and its subsidiaries against any and all claims, demands,
losses, costs, expenses, obligations, liabilities and damages, including
interest, penalties and attorney’s fees and costs, incurred by Buyer arising,
resulting from, or relating to any misrepresentation of a material fact or
omission to disclose a material fact made by Seller or Lux in this Agreement, in
any exhibits to this Agreement or in any other document furnished or to be
furnished by Seller or Lux under this Agreement, or any breach of, or failure by
Lux or Seller to perform, any of their representations, warranties, covenants or
agreements in this Agreement or in any exhibit or other document furnished or to
be furnished by Lux or Seller under this Agreement.

9.2           Indemnification by Buyer.  Buyer agrees to indemnify, defend and
hold harmless Seller against any and all claims, demands, losses, costs,
expenses, obligations, liabilities and damages, including interest, penalties
and attorneys’ fees and costs incurred by Seller arising, resulting from or
relating to any misrepresentation of a material fact or omission to disclose a
material fact made by Buyer in this Agreement, in any exhibits to this Agreement
or in any other document furnished or to be furnished by Buyer under this
Agreement, or any breach of, or failure by Buyer to perform, any of its
representations, warranties, covenants or agreements in this Agreement or in any
exhibit or other document furnished or to be furnished by Buyer under this
Agreement.

9.3           Procedure for Indemnification Claims.

(a)           Whenever any parties become aware that a claim (an “Underlying
Claim”) has arisen entitling them to seek indemnification under this Section 9
of the Agreement, such parties (the “Indemnified Parties”) shall promptly send a
notice (“Notice”) to the parties liable for such indemnification (the
“Indemnifying Parties”) of the right to indemnification (the “Indemnity Claim”);
provided, however, that the failure to so notify the Indemnifying Parties will
relieve the Indemnifying Parties from liability under this Agreement with
respect to such Indemnity Claim only if, and only to the extent that, such
failure to notify the Indemnifying Parties results in the forfeiture by the
Indemnifying Parties of rights and defenses otherwise available to the
Indemnifying Parties with respect to the Underlying Claim.  Any Notice pursuant
to this Section 9.3(a) shall set forth in reasonable detail, to the extent then
available, the basis for such Indemnity Claim and an estimate of the amount of
damages arising therefrom.

(b)           If an Indemnity Claim does not result from or arise in connection
with any Underlying Claim or legal proceedings by a third party, the
Indemnifying Parties will have thirty (30) calendar days following receipt of
the Notice to issue a written response to the Indemnified Parties, indicating
the Indemnifying Parties’ intention to either (i) contest the Indemnity Claim or
(ii) accept the Indemnity Claim as valid.  The Indemnifying Parties’ failure to
provide such a written response within such thirty (30) day period shall be
deemed to be an acceptance of the Indemnity Claim as valid.  In the event that
an Indemnity Claim is accepted as valid, the Indemnifying Parties shall, within
fifteen (15) Business Days thereafter, pay the damages incurred by the
Indemnified Parties in respect of the Underlying Claim in cash by wire transfer
of immediately available funds to the account or accounts specified by the
Indemnified Parties.  To the extent appropriate, payments for indemnifiable
damages made pursuant to Section 9 of the Agreement will be treated as
adjustments to the Purchase Price.

 
10

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(c)           In the event an Indemnity Claim results from or arises in
connection with any Underlying Claim or legal proceedings by a third party, the
Indemnifying Parties shall have fifteen (15) calendar days following receipt of
the Notice to send a Notice to the Indemnified Parties of their election to, at
their sole cost and expense, assume the defense of any such Underlying Claim or
legal proceeding; provided that such Notice of election shall contain a
confirmation by the Indemnifying Parties of their obligation to hold harmless
the Indemnified Parties with respect to damages arising from such Underlying
Claim.  The failure by the Indemnifying Parties to elect to assume the defense
of any such Underlying Claim within such fifteen (15) day period shall entitle
the Indemnified Parties to undertake control of the defense of the Underlying
Claim on behalf of and for the account and risk of the Indemnifying Parties in
such manner as the Indemnified Parties may deem appropriate, including, but not
limited to, settling the Underlying Claim.  However, the parties controlling the
defense of the Underlying Claim shall not settle or compromise such Underlying
Claim without the prior written consent of the other parties, which consent
shall not be unreasonably withheld or delayed.  The non-controlling parties
shall be entitled to participate in (but not control) the defense of any such
action, with their own counsel and at their own expense.

(d)          The Indemnifying Parties and the Indemnified Parties will cooperate
reasonably, fully and in good faith with each other, at the sole expense of the
Indemnifying Parties, in connection with the defense, compromise or settlement
of any Underlying Claim including, without limitation, by making available to
the other parties all pertinent information and witnesses within their
reasonable control.

10.
Equitable Relief.

10.1           Damages Inadequate.  Each party acknowledges that it would be
impossible to measure in money the damages to the other party if there is a
failure to comply with any covenants or provisions of this Agreement, and agrees
that in the event of any breach of any covenant or provision, the other party to
this Agreement will not have an adequate remedy at law.

10.2           Equitable Relief.  It is therefore agreed that the other party to
this Agreement who is entitled to the benefit of the covenants or provisions of
this Agreement which have been breached, in addition to any other rights or
remedies which they may have, will be entitled to immediate injunctive or other
equitable relief to enforce such covenants and provisions, and that in the event
that any such action or proceeding is brought in equity to enforce them, the
defaulting or breaching party will not urge a defense that there is an adequate
remedy at law.  No party to this Agreement who seeks an equitable remedy
hereunder shall be required to post a surety bond as a condition of or in
connection with the assertion of such remedy.

11.
Further Assurances.

Following the Closing, each party to this Agreement shall furnish to the other
party or parties such instruments and other documents as the other party or
parties may reasonably request for the purpose of carrying out or evidencing the
transactions contemplated by this Agreement.

12.
Fees and Expenses.

Buyer will pay all fees, costs and expenses incurred by Buyer and Lux up to a
fixed fee of $15,000 for counsel in connection with the negotiation and
preparation of this Agreement and related work.

13.
Waivers.

If any party at any time waives any rights hereunder resulting from any breach
by the other party of any of the provisions of this Agreement, such waiver is
not to be construed as a continuing waiver of other breaches of the same or
other provisions of this Agreement.  Resort to any remedies referred to herein
will not be construed as a waiver of any other rights and remedies to which such
party is entitled under this Agreement or otherwise.
 
 
11

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14.
Successors and Assigns.

Each covenant and representation of this Agreement will inure to the benefit of
and be binding upon each of the parties, their personal representatives, assigns
and other successors in interest.

15.
Entire and Sole Agreement.

This Agreement and that certain binding Letter of Intent (the “LOI”) among the
parties to this Agreement, dated of even date herewith, constitute the entire
agreement between the parties and supersedes all other agreements,
representations, warranties, statements, promises and undertakings, whether oral
or written, with respect to the subject matter of this Agreement.  This
Agreement may be modified or amended only by a written agreement signed by the
parties against whom the amendment is sought to be enforced.

16.
Attorneys Fees and Costs.

In the event that any party must resort to legal action in order to enforce the
provisions of this Agreement or to defend such suit, or to seek any legal or
equitable remedies hereunder, the prevailing party will be entitled to receive
reimbursement from the non-prevailing party for all attorneys' fees and all
other costs incurred in commencing or defending such suit or action, including
but not limited to post judgment fees and costs.

17.
Governing Law and Arbitration.

This Agreement will be governed by the laws of California without giving effect
to applicable conflict of law provisions.  With respect to any disputes arising
out of or relating to this Agreement, each party agrees that any disputes that
are not resolved by the parties will be submitted to binding arbitration with
the American Arbitration Association located in Los Angeles County, California;
provided, that any party may seek equitable remedies under this Agreement
without referring them to binding arbitration.

18.
Counterparts.

This Agreement may be executed simultaneously in any number of counterparts,
each of which counterparts will be deemed to be an original, and such
counterparts will constitute but one and the same instrument.

19.
Assignment.

This Agreement may not be assigned by any party without the prior written
consent of the other parties, which consent will not be unreasonably withheld.

20.
Remedies.

Except as otherwise expressly provided herein, none of the remedies set forth in
this Agreement are intended to be exclusive, and each party will have all other
remedies now or hereafter existing at law, in equity, by statute or
otherwise.  The election of any one or more remedies will not constitute a
waiver of the right to pursue other available remedies.

21.
Section Headings.

The section headings in this Agreement are included for convenience only, are
not a part of this Agreement and will not be used in construing it.

 
12

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22.
Severability.

In the event that any provision or any part of this Agreement is held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability will not affect the validity or enforceability of any other
provision or part of this Agreement.

23.
Notices.

Each notice or other communication hereunder must be in writing by mail,
personal delivery, facsimile or email, and will be deemed to have been duly
given on the earlier of (i) the date on which such notice or other communication
is actually received by the intended recipient thereof, or (ii) the date five
(5) days after the date such notice or other communication is mailed by
registered or certified mail (postage prepaid) to the intended recipient at the
following address (or at such other address as the intended recipient will have
specified in a written notice given to the other parties hereto):

 
If to Lux:
Lux Digital Pictures, Inc.
12021 Wilshire Boulevard, Suite 450
Los Angeles, California 90025

Attention:  Ingo Jucht, Chief Executive Officer

Telephone No.:  (501) 498-4000
Facsimile No.:  (501) 498-4000
Email Address:  tjc@luxdigitalpictures.com

 
 
If to Seller:
Lux Digital Pictures GmbH Partners
12021 Wilshire Boulevard, Suite 450
Los Angeles, California 90025

Attention: T. Joseph Coleman, Partner

Telephone Number:  (501) 498-4000
Facsimile Number:  (501) 498-4000
Email Address: tjc@luxdigitalpictures.com

 
 
If to Buyer: 
Michael Hill
345 Chapala Street
Santa Barbara, California 93101

Telephone No.:  (805) 259-9657
Facsimile No.:  (805) 308-9152
Email Address:  mhill@lencomedia.com

 
 
13

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24.
Publicity.

Except as may be required in order for a party to comply with applicable laws,
rules, or regulations or to enable a party to comply with this Agreement, or
necessary for Lux or the Buyer to prepare and disseminate any private or public
placements of its securities or to communicate with its shareholders, no press
release, notice to any third party or other publicity concerning the
transactions contemplated by this Agreement will be issued, given or otherwise
disseminated without the prior approval of each of the parties hereto; provided,
however, that such approval will not be unreasonably withheld.

25.
Termination.

Any party may terminate this Agreement upon the occurrence of any of the
following events prior to the Closing:

(a)      The mutual written agreement of each of the parties to this Agreement.

(b)      The failure of the Closing to occur by May 17, 2012, unless such date
is extended by the mutual written agreement of the parties to this Agreement.

(c)      A material breach of this Agreement by one or more parties hereto and
the failure of the breaching party or parties to cure the breach within ten (10)
days after delivery of written notice of the breach to them by any of the other
parties to this Agreement.

Upon a valid termination of this Agreement, none of the parties shall have any
further obligation to the other parties under this Agreement, except as provided
in Section 12 of this Agreement.  Upon the Closing, the termination provisions
of Section 25 of this Agreement no longer apply.

26.
Legal Representation.

Buyer hereby acknowledges that Richardson & Associates owns shares of common
stock of Lux and also has performed legal work for Lux.  Richardson & Associates
is also legal counsel to Radio Loyalty, Inc.  Richardson & Associates is not
legal counsel to and does not represent the Seller or the Buyer nor has it
performed legal work for the Seller or the Buyer.  Lux and Radio Loyalty, Inc.
(to the extent the Buyer is affiliated with Radio Loyalty, Inc.) hereby
acknowledge that they have been advised by Richardson & Associates to seek
separate independent legal counsel to represent them under this Agreement, and
that if they do not obtain separate legal counsel, they expressly waive the
conflicts of interest that will be experienced by Richardson & Associates in
performing legal work for the Agreement for the benefit of both Lux and Radio
Loyalty, Inc.  Richardson & Associates will have a conflict of interest in
advocating any position in the Agreement for either Lux or Radio Loyalty, Inc.

 
14

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IN WITNESS WHEREOF, this Agreement has been entered into as of the date first
above written.
 
[img002.jpg]
 
15

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EXHIBIT A

CERTIFICATE OF DESIGNATION FOR
SERIES A CONVERTIBLE PREFERRED STOCK

 
 
 
 
 
 
 
 
A-1

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CERTIFICATE OF DESIGNATION
of
SERIES A CONVERTIBLE PREFERRED STOCK
for
LUX DIGITAL PICTURES, INC.

LUX DIGITAL PICTURES, Inc., a Wyoming corporation (the “Company”), does hereby
make this Certificate of Designation and does hereby state and certify that
pursuant to the authority expressly vested in the Board of Directors of the
Company by the Articles of Incorporation of the Company, the Board of Directors,
without any shareholder action, which action was not required to be taken, duly
adopted the following resolutions, which resolutions remain in full force and
effect as of the date hereof:

RESOLVED, that, pursuant to Article Three of the Articles of Incorporation of
the Company, the Board of Directors hereby authorizes the issuance of, and fixes
the designation of preferences and relative, participating, optional, and other
special rights, qualifications, limitations and restrictions, of a series of
Preferred Stock consisting of one hundred (100) shares, $0.001 par value, to be
designated “Series A Convertible Preferred Stock” (the “Series A Stock”).

RESOLVED, that each share of the Series A Convertible Preferred Stock shall rank
equally in all aspects and shall be subject to the following terms and
provisions:

1.           Preference on Liquidation.   In the event of any voluntary or
involuntary liquidation, distribution of assets (other than the payment of
dividends), dissolution or winding-up of the Company, Series A Convertible
Preferred Stock shall have no preferential rights to the Company’s common stock
(the “common stock”), and shall share in liquidation proceeds with the common
stock on an as converted basis.

2.           Voting Rights.  The Series A Convertible Preferred Stock shall have
voting rights.  Voting will be on the basis of each share of Series A
Convertible Preferred Stock, which shall each have voting rights equal to the
voting equivalent of the common stock into which it is convertible at the time
of the vote.  Such voting rights shall exist for all matters necessary under the
Wyoming General Corporation Law where shareholder approval or vote could be
necessary, or is allowable under law.  The holders of the Series A Stock will
vote as a single class with the holders of the common stock.

3.           Conversion and Non-Dillution.  The holders of the Series A Stock
shall have the following rights (the “Conversion Rights”) with respect to the
conversion of the Series A Convertible Preferred Stock (a “Conversion”):

(a)      Conversion.  Each share of Series A Preferred Stock is convertible, at
the election of the holder exerciseable at any time from the date of issuance
until converted, into one-tenth of one percent (0.1%) of the then total issued
and outstanding shares of the Company’s common stock on a fully diluted basis,
including the Series A Stock on an as converted basis and assuming the complete
conversion of all other outstanding convertible securities of the Company.
 
(b)      Mandatory Conversion.  All outstanding shares of Series A Convertible
Preferred Stock shall automatically convert into common stock on the first
business day (the “Conversion Date”) after the closing date of the acquisition
by the Company of 100% of the total issued and outstanding capital stock of
Radio Loyalty, Inc., a California corporation (the “RLI Acquisition”).  The
number of shares of common stock into which the Series A Stock is converted is
calculated as follows:  Each share of Series A Preferred Stock is converted into
the number of shares of common stock equal to one tenth of one percent (0.1%) of
the then total issued and outstanding shares of the Company’s common stock on a
fully diluted basis, including the Series A Stock on an as converted basis and
assuming the complete conversion of all other outstanding convertible securities
of the Company.
 
 
 

--------------------------------------------------------------------------------

 
 
(c)      Mechanics of the Conversion.  Upon a Conversion, the holder of Series A
Convertible Preferred Stock shall surrender the applicable certificate
therefore, duly endorsed, at the office of the Company, and shall give written
notice to the Company of the Conversion and the number of shares of Series A
Convertible Preferred Stock being converted.  Thereupon, the Company shall
promptly issue and deliver to such holder a certificate for the number of shares
of common stock to which such holder is entitled.  A Conversion shall be deemed
to have been made at the close of the first business day after the date both
notice has been given and the applicable share certificate or certificates have
been delivered to the Company, provided, however, if the foregoing occurs on a
business day, before the close of business, the Conversion shall be deemed to
have occurred at the close of business on that day (the “Conversion Date”).  The
person entitled to receive the shares of common stock issuable upon a Conversion
shall be treated for all purposes as the record holder of such shares of common
stock on such date.
 
(d)      Non-Dilutability. All such Series A Stock shall not be dilutable
through the issuance of any common shares of the Company once this share class
is executed and authorized. At all times each such one share of Series A shall
represent one-tenth of one percent of all convertible Preferred shares and
common shares then issued and outstanding in the Company.
 
(e)      No Impairment.  The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company but will
at all times in good faith assist in the carrying out of all the provisions of
Section 3 of this Certificate and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the holder
of the Series A Stock against impairment.

4.          Dividends.  In the event of the declaration and payment of a
dividend by the Company to the holders of any outstanding class of securities of
the Company, then the holders of the Series A Stock shall be entitled to be paid
their pro rata share of the dividend on an as converted basis, equivalent to
assuming that all of the Series A Stock is converted into common stock.
 
 
 

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This Certificate of Designation has been executed and adopted on behalf of the
Company as of May 14, 2012.
 

 
LUX DIGITAL PICTURES, INC.
          [img003.jpg]  

 
 
 
 

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EXHIBIT B

DESIGNEES OF SELLER FOR
ALLOCATION OF LUX STOCK
(Section 2(a) of the Agreement)

Name, Address and Tax Identification Number of Designee
 
Percentage of Shares of Lux Stock After Closing
         
Lux Digital Pictures GmbH Partners
    99 %
Tax ID # 45-3194266
       
12021 Wilshire Boulevard
       
Suite 450
       
Los Angeles, California 90025
                 
Mark J. Richardson
    1 %
Tax ID # ###-##-####
       
1453 Third Street Promenade, Suite 315
       
Santa Monica, California  90401
               
Total:
    100 %

 
 
B-1

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EXHIBIT C

LIST OF ASSETS
 

Item  
Owner
 
Title
            1.
Watchthis.com Domain Name
 
Michael Hill
 
Free & Clear
            2.
Patent Pending
 
Michael Hill
 
Free & Clear
 
“System and Method for Providing
     
*Patent still pending
 
Media Content”
     
review and approval
 
Application Number -12146922
                    3.
Graphic Rendition of Website
 
Michael Hill
 
Free & Clear
            4.
Database, Repositories, Digital
 
Michael Hill
 
Free & Clear
 
Assets
                    5.
Work Product, Goodwill, Ideas, Business
 
Michael Hill
 
Free & Clear
 
Plan Presentations Associated
         
with Watchthis.
                    6.
Hardware List.xlsx
 
Michael Hill
 
Free & Clear

 
 
C-1

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EXHIBIT D

PROMISSORY NOTE PAYABLE TO ASHER ENTERPRISES
 
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
 

Principal Amount: $78,500.00 Issue Date: September 19, 2011 Purchase Price:
$78,500.00  

 
CONVERTIBLE PROMISSORY NOTE
 
FOR VALUE RECEIVED, LUX DIGITAL PICTURES, INC., a Wyoming corporation
(hereinafter called the “Borrower”), hereby promises to pay to the order of
ASHER ENTERPRISES, INC., a Delaware corporation, or registered assigns (the
“Holder”) the sum of $78,500.00 together with any interest as set forth herein,
on June 21, 2012 (the “Maturity Date”), and to pay interest on the unpaid
principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”)
per annum from the date hereof (the “Issue Date”) until the same becomes due and
payable, whether at maturity or upon acceleration or by prepayment or
otherwise.  This Note may not be prepaid in whole or in part except as otherwise
explicitly set forth herein. Any amount of principal or interest on this Note
which is not paid when due shall bear interest at the rate of twenty two percent
(22%) per annum from the due date thereof until the same is paid (“Default
Interest”).  Interest shall commence accruing on the Issue Date, shall be
computed on the basis of a 365-day year and the actual number of days
elapsed.  All payments due hereunder (to the extent not converted into common
stock, $0.001 par value per share (the “Common Stock”) in accordance with the
terms hereof) shall be made in lawful money of the United States of
America.  All payments shall be made at such address as the Holder shall
hereafter give to the Borrower by written notice made in accordance with the
provisions of this Note.  Whenever any amount expressed to be due by the terms
of this Note is due on any day which is not a business day, the same shall
instead be due on the next succeeding day which is a business day and, in the
case of any interest payment date which is not the date on which this Note is
paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on such date.  As
used in this Note, the term “business day” shall mean any day other than a
Saturday, Sunday or a day on which commercial banks in the city of New York, New
York are authorized or required by law or executive order to remain
closed.  Each capitalized term used herein, and not otherwise defined, shall
have the meaning ascribed thereto in that certain Securities Purchase Agreement
dated the date hereof, pursuant to which this Note was originally issued (the
“Purchase Agreement”).
 
 
D-1

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This Note is free from all taxes, liens, claims and encumbrances with respect to
the issue thereof and shall not be subject to preemptive rights or other similar
rights of shareholders of the Borrower and will not impose personal liability
upon the holder thereof.
 
The following terms shall apply to this Note:
 
ARTICLE I. CONVERSION RIGHTS
 
1.1     Conversion Right.  The Holder shall have the right from time to time,
and at any time during the period beginning on the date which is one hundred
eighty (180) days following the date of this Note and ending on the later of:
(i) the Maturity Date and (ii) the date of payment of the Default Amount (as
defined in Article III) pursuant to Section 1.6(a) or Article III, each in
respect of the remaining outstanding principal amount of this Note to convert
all or any part of the outstanding and unpaid principal amount of this Note into
fully paid and non- assessable shares of Common Stock, as such Common Stock
exists on the Issue Date, or any shares of capital stock or other securities of
the Borrower into which such Common Stock shall hereafter be changed or
reclassified at the conversion price  (the Conversion Price) determined as
provided herein (a Conversion); provided, however, that in no event shall the
Holder be entitled to convert any portion of this Note in excess of that portion
of this Note upon conversion of which the sum of (1) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Notes or the unexercised or
unconverted portion of any other security of the Borrower subject to a
limitation on conversion or exercise analogous to the limitations contained
herein) and (2) the number of shares of Common Stock issuable upon the
conversion of the portion of this Note with respect to which the determination
of this proviso is being made, would result in beneficial ownership by the
Holder and its affiliates of more than 4.99% of the outstanding shares of Common
Stock.  For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined  in  accordance  with  Section  13(d) 
of  the  Securities  Exchange  Act  of  1934,  as amended  (the  Exchange 
Act),  and  Regulations  13D-G  thereunder,  except  as  otherwise provided in
clause (1) of such proviso, provided, further, however, that the limitations on
conversion may be waived by the Holder upon, at the election of the Holder, not
less than 61 days prior notice to the Borrower, and the provisions of the
conversion limitation shall continue to apply until such 61st day (or such later
date, as determined by the Holder, as may be specified in such notice of
waiver)..  The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing the Conversion Amount
(as defined below) by the applicable Conversion Price then in effect on the date
specified in the notice of conversion, in the form attached hereto as Exhibit A
(the Notice of Conversion), delivered to the Borrower by the Holder in
accordance with Section 1.4 below; provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or reasonably expected
to result  in,  notice)  to  the  Borrower  before  6:00  p.m.,  New  York, 
New  York  time  on  such conversion date (the Conversion Date).  The term
Conversion Amount means, with respect to any conversion of this Note, the sum of
(1) the principal amount of this Note to be converted in such conversion plus
(2) at the Borrowers option, accrued and unpaid interest, if any, on such
principal amount at the interest rates provided in this Note to the Conversion
Date, provided, however, that the Company shall have the right to pay any or all
interest in cash plus (3) at the Borrowers option, Default Interest, if any, on
the amounts referred to in the immediately preceding clauses (1) and/or (2) plus
(4) at the Holders option, any amounts owed to the Holder pursuant to Sections
1.3 and 1.4(g) hereof.
 
 
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1.2     Conversion Price.
 
(a)      Calculation of Conversion Price.   The conversion price (the Conversion
Price) shall equal the Variable Conversion Price (as defined herein)(subject to
equitable  adjustments  for  stock  splits,  stock  dividends  or  rights 
offerings  by the  Borrower relating to the Borrowers securities or the
securities of any subsidiary of the Borrower, combinations, recapitalization,
reclassifications, extraordinary distributions and similar events). The
"Variable Conversion Price" shall mean 61% multiplied by the Market Price (as
defined herein)(representing a discount rate of 39%). Market Price means the
average of the lowest five (5) Trading Prices (as defined below) for the Common
Stock during the ten (10) Trading Day period ending one Trading Day prior to the
date the Conversion Notice is sent by the Holder to the Borrower via facsimile
(the Conversion Date).  Trading Price means, for any security as of any date,
the closing price on the Over-the-Counter Bulletin Board, or applicable trading
market  (the  OTCBB)  as  reported  by  a  reliable  reporting  service 
(Reporting  Service) mutually acceptable to Borrower and Holder and hereafter
designated by Holders of a majority in interest of the Notes and the Borrower
or, if the OTCBB is not the principal trading market for such security, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded or, if no closing bid
price of such security is available in any of the foregoing manners, the average
of the closing bid prices of any market makers for such security that are listed
in the pink sheets by the National Quotation Bureau, Inc.  If the Trading Price
cannot be calculated for such security on such date in the manner provided
above, the Trading Price shall be the fair market value as mutually determined
by the Borrower and the holders of a majority in interest of the Notes being
converted for which the calculation of the Trading Price is required in order to
determine the Conversion Price of such Notes.  Trading Day shall mean any day on
which the Common Stock is traded for any period on the OTCBB, or on the
principal securities exchange or other securities market on which the Common
Stock is then being traded.
 
(b)       Conversion Price During Major Announcements.  Notwithstanding anything
contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes
a public announcement that it intends to consolidate or merge with any other
corporation (other than a merger in which the Borrower is the surviving or
continuing corporation and its capital stock is unchanged) or sell or transfer
all or substantially all of the assets of the Borrower or (ii) any person, group
or entity (including the Borrower) publicly announces a tender offer to purchase
50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the
date of the announcement referred to in clause (i) or (ii) is hereinafter
referred to as the  “Announcement Date”), then the Conversion Price shall,
effective upon the Announcement Date and continuing through the Adjusted
Conversion Price Termination Date (as defined below), be equal to the lower of
(x) the Conversion Price which would have been applicable for a Conversion
occurring on the Announcement Date and (y) the Conversion Price that would
otherwise be in effect. From and after the Adjusted Conversion Price Termination
Date, the Conversion Price shall be determined as set forth in this Section
1.2(a).  For purposes hereof,  “Adjusted Conversion Price Termination Date”
shall mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this Section
1.2(b) has been made, the date upon which the Borrower (in the case of clause
(i) above) or the person, group or entity (in the case of clause (ii) above)
consummates or publicly announces the termination or abandonment of the proposed
transaction or tender offer (or takeover scheme) which caused this Section
1.2(b) to become operative.
 
 
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1.3     Authorized Shares.  The Borrower covenants that during the period the
conversion right exists, the Borrower will reserve from its authorized and
unissued Common Stock a sufficient number of shares, free from preemptive
rights, to provide for the issuance of Common Stock upon the full conversion of
this Note issued pursuant to the Purchase Agreement. The Borrower is required at
all times to have authorized and reserved three times the number of shares that
is actually issuable upon full conversion of the Note (based on the Conversion
Price of the Notes in effect from time to time)(the “Reserved Amount”).  The
Reserved Amount shall be increased from time to time in accordance with the
Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement.  The
Borrower represents that upon issuance, such shares will be duly and validly
issued, fully paid and non-assessable.  In addition, if the Borrower shall issue
any securities or make any change to its capital structure which would change
the number of
shares  of  Common  Stock  into  which  the  Notes  shall  be  convertible  at  the  then  current
Conversion Price, the Borrower shall at the same time make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Notes.  The Borrower (i) acknowledges that it has irrevocably
instructed its transfer agent to issue certificates for the Common Stock
issuable upon conversion of this Note, and (ii) agrees that its issuance of this
Note shall constitute full authority to its officers and agents who are charged
with the duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock in accordance with the terms and
conditions of this Note.
 
If, at any time a Holder of this Note submits a Notice of Conversion, and the
Borrower does not have sufficient authorized but unissued shares of Common Stock
available to effect such conversion in accordance with the provisions of this
Article I (a Conversion Default), the Borrower shall issue to the Holder all of
the shares of Common Stock which are then available to effect such conversion. 
The portion of this Note which the Holder included in its Conversion Notice and
which exceeds the amount which is then convertible into available shares of
Common Stock (the Excess Amount) shall, notwithstanding anything to the contrary
contained herein, not be convertible into Common Stock in accordance with the
terms hereof until (and at the Holders option at any time after) the date
additional shares of Common Stock are authorized by the Borrower to permit such
conversion, at which time the Conversion Price in respect thereof shall be the
lesser of (i) the Conversion Price on the Conversion Default Date (as defined
below) and (ii) the Conversion Price on the Conversion Date thereafter elected
by the Holder in respect thereof.   In addition, the Borrower shall pay to the
Holder payments (Conversion Default Payments) for a Conversion Default in the
amount of (x) the sum of (1) the then outstanding principal amount of this Note
plus (2) accrued and unpaid interest on the unpaid principal amount of this Note
through the Authorization Date (as defined below) plus (3) Default Interest, if
any, on the amounts referred to in clauses (1) and/or (2), multiplied by (y)
.24, multiplied by (z) (N/365), where N = the number of days from the day the
holder submits a Notice of Conversion giving rise to a Conversion Default (the
Conversion Default Date) to the date (the Authorization Date) that the Borrower
authorizes a sufficient number of shares of Common Stock to effect conversion of
the full outstanding principal balance of this Note.  The Borrower shall use its
best efforts to authorize a sufficient number of shares of Common Stock as soon
as practicable following the earlier of (i) such time that the Holder notifies
the Borrower or that the Borrower otherwise becomes aware that there are or
likely will be insufficient authorized and  unissued  shares  to  allow  full 
conversion  thereof  and  (ii)  a  Conversion  Default.    The Borrower shall
send notice to the Holder of the authorization of additional shares of Common
Stock,  the  Authorization  Date  and  the  amount  of  Holders  accrued 
Conversion  Default Payments.  The accrued Conversion Default Payments for each
calendar month shall be paid in cash or shall be convertible into Common Stock
(at such time as there are sufficient authorized shares of Common Stock) at the
applicable Conversion Price, at the Borrowers option, as follows:
 
 
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(a)       In  the event Holder elects to take such payment in cash,  cash
payment shall be made to Holder by the fifth (5th) day of the month following
the month in which it has accrued; and
 
(b)       In the event Holder elects to take such payment in Common Stock, the
Holder may convert such payment amount into Common Stock at the Conversion Price
(as in effect at the time of conversion) at any time after the fifth day of the
month following the month in which it has accrued in accordance with the terms
of this Article I (so long as there is then a sufficient number of authorized
shares of Common Stock).
 
The Holder’s election shall be made in writing to the Borrower at any time prior
to 6:00 p.m., New York, New York time, on the third day of the month following
the month in which Conversion Default payments have accrued.  If no election is
made, the Holder shall be deemed to have elected to receive cash.  Nothing
herein shall limit the Holder’s right to pursue actual damages (to the extent in
excess of the Conversion Default Payments) for the Borrower’s failure to
maintain a sufficient number of authorized shares of Common Stock, and each
holder shall have the right to pursue all remedies available at law or in equity
(including degree of specific performance and/or injunctive relief).
 
1.4     Method of Conversion.
 
(a)       Mechanics of Conversion.  Subject to Section 1.1, this Note may be
converted by the Holder in whole or in part at any time from time to time after
the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by
facsimile or other reasonable means of communication dispatched on the
Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to
Section 1.4(b), surrendering this Note at the principal office of the Borrower.
 
 
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(b)       Surrender of Note Upon Conversion.  Notwithstanding anything to the
contrary set forth herein, upon conversion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this Note
to the Borrower unless the entire unpaid principal amount of this Note is so
converted.  The Holder and the Borrower shall maintain records showing the
principal amount so converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the Holder and the Borrower, so as
not to require physical surrender of this Note upon each such conversion.  In
the event of any dispute or discrepancy, such records of the Borrower shall,
prima facie, be controlling and determinative in the absence of manifest
error.  Notwithstanding the foregoing, if any portion of this Note is converted
as aforesaid, the Holder may not transfer this Note unless the Holder first
physically surrenders this Note to the Borrower, whereupon the Borrower will
forthwith issue and deliver upon the order of the Holder a new Note of like
tenor, registered as the Holder (upon payment by the Holder of any applicable
transfer taxes) may request, representing in the aggregate the remaining unpaid
principal amount of this Note.  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 represented by this Note may be less
than the amount stated on the face hereof.
 
(c)       Payment of Taxes.  The Borrower shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock or other securities or property on conversion
of this Note in a name other than that of the Holder (or in street name), and
the Borrower shall not be required to issue or deliver any such shares or other
securities or property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be held for the
Holder’s account) requesting the issuance thereof shall have paid to the
Borrower the amount of any such tax or shall have established to the
satisfaction of the Borrower that such tax has been paid.
 
(d)       Delivery of Common Stock Upon Conversion.   Upon receipt by the
Borrower from the Holder of a facsimile transmission (or other reasonable means
of communication) of a Notice of Conversion meeting the requirements for
conversion as provided in this Section 1.4, the Borrower shall issue and deliver
or cause to be issued and delivered to or upon the order of the Holder
certificates for the Common Stock issuable upon such conversion within three (3)
business days after such receipt (and, solely in the case of conversion of the
entire unpaid principal amount hereof, surrender of this Note) (such second
business day being hereinafter referred to as the “Deadline”) in accordance with
the terms hereof and the Purchase Agreement (including, without limitation, in
accordance with the requirements of [Section 2(g)] of the Purchase Agreement
that certificates for shares of Common Stock issued on or after the effective
date of the Registration Statement upon conversion of this Note shall not bear
any restrictive legend).
 
 
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(e)       Obligation of Borrower to Deliver Common Stock.  Upon receipt by the
Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder
of record of the Common Stock issuable upon such conversion, the outstanding
principal amount and the amount of accrued and unpaid interest on this Note
shall be reduced to reflect such conversion, and, unless the Borrower defaults
on its obligations under this Article I, all rights with respect to the portion
of this Note being so converted shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets, as herein
provided, on such conversion.  If the Holder shall have given a Notice of
Conversion as provided herein, the  Borrowers  obligation  to  issue  and 
deliver  the  certificates  for Common  Stock  shall  be absolute and
unconditional, irrespective of the absence of any action by the Holder to
enforce the same, any waiver or consent with respect to any provision thereof,
the recovery of any judgment against any person or any action to enforce the
same, any failure or delay in the enforcement of any other obligation of the
Borrower to the holder of record, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder of any
obligation to the Borrower, and irrespective of any other circumstance which
might otherwise limit such obligation of the Borrower to the Holder in
connection with such conversion.  The Conversion Date specified in the Notice of
Conversion shall be the Conversion Date so long as the Notice of Conversion is
received by the Borrower before 6:00 p.m., New York, New York time, on such
date.
 
(f)       Delivery of Common Stock by Electronic Transfer.   In lieu of
delivering physical certificates representing the Common Stock issuable upon
conversion, provided  the  Borrowers  transfer  agent  is  participating  in 
the  Depository  Trust  Company (DTC) Fast Automated Securities Transfer (FAST)
program, upon request of the Holder and its compliance with the provisions
contained in Section 1.1 and in this Section 1.4, the Borrower shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the account of Holders
Prime Broker with DTC through its Deposit Withdrawal Agent Commission (DWAC)
system.
 
(g)       Failure to Deliver Common Stock Prior to Deadline.  Without in any way
limiting the Holder’s right to pursue other remedies, including actual damages
and/or equitable relief, the parties agree that if delivery of the Common Stock
issuable upon conversion of this Note is more than three (3) business days after
the Deadline (other than a failure due to the circumstances described in Section
1.3 above, which failure shall be governed by such Section) the Borrower shall
pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that
the Borrower fails to deliver such Common Stock.  Such cash amount shall be paid
to Holder by the fifth day of the month following the month in which it has
accrued or, at the option of the Holder (by written notice to the Borrower by
the first day of the month following the month in which it has accrued), shall
be added to the principal amount of this Note, in which event interest shall
accrue thereon in accordance with the terms of this Note and such additional
principal amount shall be convertible into Common Stock in accordance with the
terms of this Note.  The per date charge referred to in this subparagraph shall
apply only if the Borrowers acts in a negligent or willful manner and as a
result the shares contemplated by this transaction are not timely
delivered.  The Borrower hereby expressly warrants that it will take all
reasonable and prudent efforts to assure the delivery of stock to the Holder as
contemplated herein.
 
 
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1.5     Concerning the Shares.   The shares of Common Stock issuable upon
conversion of this Note may not be sold or transferred unless  (i) such shares
are sold pursuant to an effective registration statement under the Act or (ii)
the Borrower or its transfer agent shall have been furnished with an opinion of 
counsel (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that the shares
to  be  sold  or  transferred  may  be  sold  or  transferred  pursuant  to  an 
exemption  from  such mregistration or (iii) such shares are sold or transferred
pursuant to Rule 144 under the Act (or a successor rule) (Rule 144) or (iv) such
shares are transferred to an affiliate (as defined in Rule 144) of the Borrower
who agrees to sell or otherwise transfer the shares only in accordance with this
Section 1.5 and who is an Accredited Investor (as defined in the Purchase
Agreement). Except as otherwise provided in the Purchase Agreement (and subject
to the removal provisions set forth below), until such time as the shares of
Common Stock issuable upon conversion of this Note have been registered under
the Act or otherwise may be sold pursuant to Rule 144 without any restriction as
to the number of securities as of a particular date that can then be immediately
sold, each certificate for shares of Common Stock issuable upon conversion of
this Note that has not been so included in an effective registration statement
or that has not been sold pursuant to an effective registration statement or an
exemption that permits removal of the legend, shall bear a legend substantially
in the following form, as appropriate:
 
NEITHER  THE  ISSUANCE  AND  SALE  OF  THE  SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH  THESE  SECURITIES  ARE  EXERCISABLE 
HAVE  BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE
HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION  IS  NOT  REQUIRED 
UNDER  SAID  ACT  OR  (II)  UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
 
The legend set forth above shall be removed and the Borrower shall issue to the
Holder a new certificate therefore free of any transfer legend if (i) the
Borrower or its transfer agent shall have received an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Common Stock
may be made without registration under the Act and the shares are so sold or
transferred,  (ii)  such  Holder  provides  the  Borrower  or  its  transfer 
agent  with  reasonable assurances that the Common Stock issuable upon
conversion of this Note (to the extent such securities are deemed to have been
acquired on the same date) can be sold pursuant to Rule 144 or (iii) in the case
of the Common Stock issuable upon conversion of this Note, such security is
registered for sale by the Holder under an effective registration statement
filed under the Act or otherwise may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can then
be immediately sold.
 
 
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1.6     Effect of Certain Events.
 
(a)     Effect of Merger, Consolidation, Etc.  At the option of the Holder, the
sale, conveyance or disposition of all or substantially all of the assets of the
Borrower, the effectuation by the Borrower of a transaction or series of related
transactions in which more than 50% of the voting power of the Borrower is
disposed of, or the consolidation, merger or other business combination of the
Borrower with or into any other Person (as defined below) or Persons when the
Borrower is not the survivor shall either:  (i) be deemed to be an Event of
Default (as defined in Article III) pursuant to which the Borrower shall be
required to pay to the Holder upon the consummation of and as a condition to
such transaction an amount equal to the Default Amount (as defined in Article
III) or (ii) be treated pursuant to Section 1.6(b) hereof. Person shall mean any
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization.  The terms and conditions of this
subparagraph will be waived by the Holder, provided that if the Borrower
acquires by merger, consolidation or otherwise one or more separate entities and
that the reconstituted entity assumes, undertakes and obligates itself to all of
the obligations of the Borrower under this Note and companion loan documents.
 
(b)     Adjustment Due to Merger, Consolidation, Etc.   If, at any time when
this Note is issued and outstanding and prior to conversion of all of the Notes,
there shall be  any  merger,  consolidation,  exchange  of  shares, 
recapitalization,  reorganization,  or  other similar event, as a result of
which shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another entity, or in case of any sale or conveyance of all or
substantially all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower, then the Holder of this Note shall
thereafter have the right to receive upon conversion of this Note, upon the
basis and upon the terms and conditions specified herein and in lieu of the
shares  of  Common  Stock  immediately  theretofore  issuable  upon 
conversion,  such  stock, securities or assets which the Holder would have been
entitled to receive in such transaction had this Note been converted in full
immediately prior to such transaction (without regard to any limitations on
conversion set forth herein), and in any such case appropriate provisions shall
be made with respect to the rights and interests of the Holder of this Note to
the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Price and of the number of shares issuable upon
conversion of the Note) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter deliverable upon
the conversion hereof.  The Borrower shall not affect any transaction described
in this Section 1.6(b) unless (a) it first gives, to the extent practicable,
thirty (30) days prior written notice (but in any event at least fifteen (15)
days prior written notice) of the record date of the special meeting of
shareholders to approve, or if there is no such record date, the consummation 
of,  such  merger,  consolidation,  exchange  of  shares,  recapitalization,
reorganization or other similar event or sale of assets (during which time the
Holder shall be entitled to convert this Note) and (b) the resulting successor
or acquiring entity (if not the Borrower) assumes by written instrument the
obligations of this Section 1.6(b).  The above provisions shall similarly apply
to successive consolidations, mergers, sales, transfers or share exchanges.
 
 
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(c)      Adjustment Due to Distribution.  If the Borrower shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a dividend, stock repurchase, by way of return of capital or
otherwise (including any dividend or distribution to the Borrower’s shareholders
in cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be
entitled, upon any conversion of this Note after the date of record for
determining shareholders entitled to such Distribution, to receive the amount of
such assets which would have been payable to the Holder with respect to the
shares of Common Stock issuable upon such conversion had such Holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
 
(d)     Adjustment Due to Dilutive Issuance.   If, at any time when any Notes
are issued and outstanding, the Borrower issues or sells, or in accordance with
this Section 1.6(d) hereof is deemed to have issued or sold, any shares of
Common Stock for no consideration or for a consideration per share (before
deduction of reasonable expenses or commissions or underwriting discounts or
allowances in connection therewith) less than the Conversion Price in effect on
the date of such issuance (or deemed issuance) of such shares of Common Stock (a
Dilutive Issuance), then immediately upon the Dilutive Issuance, the Conversion
Price will be reduced to the amount of the consideration per share received by
the Borrower in such Dilutive Issuance.
 
The Borrower shall be deemed to have issued or sold shares of Common Stock if
the Borrower in any manner issues or grants any warrants, rights or options (not
including employee stock option plans), whether or not immediately exercisable,
to subscribe for or to purchase Common Stock or other securities convertible
into or exchangeable for Common Stock (“Convertible Securities”) (such warrants,
rights and options to purchase Common Stock or Convertible Securities are
hereinafter referred to as “Options”) and the price per share for which Common
Stock is issuable upon the exercise of such Options is less than the Conversion
Price then in effect, then the Conversion Price shall be equal to such price per
share.   For purposes of the preceding sentence, the “price per share for which
Common Stock is issuable upon the exercise of such Options” is determined by
dividing (i) the total amount, if any, received or receivable by the Borrower as
consideration for the issuance or granting of all such Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Borrower
upon the exercise of all such Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Options, the minimum aggregate
amount of additional consideration payable upon the conversion or exchange
thereof at the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Options (assuming full conversion of
Convertible Securities, if applicable).   No further adjustment to the
Conversion Price will be made upon the actual issuance of such Common Stock upon
the exercise of such Options or upon the conversion or exchange of Convertible
Securities issuable upon exercise of such Options.
 
 
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Additionally, the Borrower shall be deemed to have issued or sold shares of
Common Stock if the Borrower in any manner issues or sells any Convertible
Securities, whether  or  not  immediately  convertible  (other  than  where 
the  same  are  issuable  upon  the exercise of Options), and the price per
share for which Common Stock is issuable upon such conversion or exchange is
less than the Conversion Price then in effect, then the Conversion Price shall
be equal to such price per share.   For the purposes of the preceding sentence,
the price per share for which Common Stock is issuable upon such conversion or
exchange is determined by dividing (i) the total amount, if any, received or
receivable by the Borrower as consideration for the issuance or sale of all such
Convertible Securities, plus the minimum aggregate  amount  of  additional 
consideration,  if  any,  payable  to  the  Borrower  upon  the conversion or
exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities.  No further adjustment to the Conversion Price will be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
 
(e)      Purchase Rights.   If, at any time when any Notes are issued and
outstanding, the Borrower issues any convertible securities or rights to
purchase stock, warrants, securities or other property (the Purchase Rights) pro
rata to the record holders of any class of Common  Stock,  then  the  Holder 
of  this  Note  will  be  entitled  to  acquire,  upon  the  terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Note (without regard to any limitations on
conversion contained herein) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
 
(f)        Notice of Adjustments.  Upon the occurrence of each adjustment or
readjustment of the Conversion Price as a result of the events described in this
Section 1.6, the Borrower, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to the Holder of a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based.  The Borrower
shall, upon the written request at any time of the Holder, furnish to such
Holder a like certificate setting forth (i) such adjustment or readjustment,
(ii) the Conversion Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of the Note.
 
 
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1.7     Trading Market Limitations.  Unless permitted by the applicable rules
and regulations of the principal securities market on which the Common Stock is
then listed or traded, in no event shall the Borrower issue upon conversion of
or otherwise pursuant to this Note and the other Notes issued pursuant to the
Purchase Agreement more than the maximum number of shares of Common Stock that
the Borrower can issue pursuant to any rule of the principal United States
securities market on which the Common Stock is then traded (the Maximum Share
Amount), which shall be 4.99% of the total shares outstanding on the Closing
Date (as defined in the Purchase Agreement), subject to equitable adjustment
from time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring after
the date hereof.  Once the Maximum Share Amount has been issued (the date of
which is hereinafter referred to as the Maximum Conversion Date), if the
Borrower fails to eliminate any prohibitions under applicable law or the rules
or regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Borrower or any of its
securities on the Borrowers ability to issue shares of Common Stock in excess of
the Maximum Share Amount (a Trading Market Prepayment Event), in lieu of any
further right to convert this Note, and in full satisfaction of the Borrowers
obligations under this Note, the Borrower shall pay to the Holder, within
fifteen (15) business days of the Maximum Conversion Date (the Trading Market
Prepayment Date), an amount equal to 150% times the sum of (a) the then
outstanding principal amount of this Note immediately following the Maximum
Conversion Date, plus (b) accrued and unpaid interest on the unpaid principal
amount of this Note to the Trading Market Prepayment Date, plus (c) Default
Interest, if any, on the amounts referred to in clause (a) and/or (b) above,
plus (d) any optional amounts that may be added thereto at the Maximum
Conversion Date by the Holder in accordance  with  the  terms  hereof  (the 
then  outstanding  principal  amount  of  this  Note immediately following the
Maximum Conversion Date, plus the amounts referred to in clauses (b), (c) and
(d) above shall collectively be referred to as the Remaining Convertible
Amount). In the event that the sum of (x) the aggregate number of shares of
Common Stock issued upon conversion of this Note and the other Notes issued
pursuant to the Purchase Agreement plus (y) the aggregate number of shares of
Common Stock that remain issuable upon conversion of this Note and the other
Notes issued pursuant to the Purchase Agreement, represents at least one hundred
percent (100%) of the Maximum Share Amount (the Triggering Event), the Borrower
will use its best efforts to seek and obtain Shareholder Approval (or obtain
such other relief as will allow conversions hereunder in excess of the Maximum
Share Amount) as soon as practicable following the Triggering Event and before
the Maximum Conversion Date.  As used herein, Shareholder Approval means
approval by the shareholders of the Borrower to authorize the issuance of the
full number of shares of Common Stock which would be issuable upon full
conversion of the then outstanding Notes but for the Maximum Share Amount.
 
1.8     Status as Shareholder.  Upon submission of a Notice of Conversion by a
Holder, (i) the shares covered thereby (other than the shares, if any, which
cannot be issued because their issuance would exceed such Holder’s allocated
portion of the Reserved Amount or Maximum Share Amount) shall be deemed
converted into shares of Common Stock and (ii) the Holder’s rights as a Holder
of such converted portion of this Note shall cease and terminate, excepting only
the right to receive certificates for such shares of Common Stock and to any
remedies provided herein or otherwise available at law or in equity to such
Holder because of a failure by the Borrower to comply with the terms  of this
Note.  Notwithstanding the foregoing, if a Holder has not received certificates
for all shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Deadline with respect to a conversion of any portion of this
Note for any reason, then (unless the Holder otherwise elects to retain its
status as a holder of Common Stock by so notifying the Borrower) the Holder
shall regain the rights of a Holder of this Note with respect to such
unconverted portions of this Note and the Borrower shall, as soon as
practicable, return such unconverted Note to the Holder or, if the Note has not
been surrendered, adjust its records to reflect that such portion of this Note
has not been converted.  In all cases, the Holder shall retain all of its rights
and remedies (including, without limitation, (i) the right to receive Conversion
Default Payments pursuant to Section 1.3 to the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii) the right to
have the Conversion Price with respect to subsequent conversions determined in
accordance with Section 1.3) for the Borrower’s failure to convert this Note.
 
 
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1.9     Prepayment.   Notwithstanding anything to the contrary contained in this
Note, at any time during the period beginning on the Issue Date and ending on
the date which is thirty (30) days following the issue date, the Borrower shall
have the right, exercisable on not less than three (3) Trading Days prior
written notice to the Holder of the Note to prepay the outstanding Note
(principal and accrued interest), in full, in accordance with this Section 1.9.
Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be
delivered to the Holder of the Note at its registered addresses and shall state:
(1) that the Borrower is exercising its right to prepay the Note, and (2) the
date of prepayment which shall be not more than three (3) Trading Days from the
date of the Optional Prepayment Notice.  On the date fixed for
prepayment  (the  “Optional  Prepayment  Date”),  the  Borrower  shall  make  payment  of  the
Optional Prepayment Amount (as defined below) to or upon the order of the Holder
as specified by the Holder in writing to the Borrower at least one (1) business
day prior to the Optional Prepayment Date.   If the Borrower exercises its right
to prepay the Note, the Borrower shall make payment to the Holder of an amount
in cash (the “Optional Prepayment Amount”) equal to 125%, multiplied by the sum
of: (w) the then outstanding principal amount of this Note plus (x) accrued and
unpaid interest on the unpaid principal amount of this Note to the Optional
Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in
clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections
1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice
and fails to pay the Optional Prepayment Amount due to the Holder of the Note
within two (2) business days following the Optional Prepayment Date, the
Borrower shall forever forfeit its right to prepay the Note pursuant to this
Section 1.9.
 
Notwithstanding anything to the contrary contained in this Note, at any time
during the period beginning  on the date which is thirty-one  (31) days
following the issue date and ending on the date which is sixty (60) days
following the issue date, the Borrower shall have the right, exercisable on not
less than three (3) Trading Days prior written notice to the Holder of the Note
to prepay the outstanding Note (principal and accrued interest), in full, in
accordance with this Section 1.9.  Any Optional Prepayment Notice shall be
delivered to the Holder of the Note at its registered addresses and shall state:
(1) that the Borrower is exercising its right to prepay the Note, and (2) the
date of prepayment which shall be not more than three (3) Trading Days from the
date of the Optional Prepayment Notice.  On the Optional Prepayment Date, the
Borrower shall make payment of the Second Optional Prepayment Amount (as defined
below) to or upon the order of the Holder as specified by the Holder in writing
to the Borrower at least one (1) business day prior to the Optional Prepayment
Date.  If the Borrower exercises its right to prepay the Note, the Borrower
shall make payment to the Holder of an amount in cash (the Second Optional
Prepayment Amount) equal to 130%, multiplied by the sum of: (w) the then
outstanding principal amount of this Note plus (x) accrued and unpaid interest
on the unpaid principal amount of this Note to the Optional Prepayment Date plus
(y) Default Interest, if any, on the amounts referred to in clauses (w) and (x)
plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g)
hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay
the Second Optional Prepayment Amount due to the Holder of the Note within  two 
(2)  business  days  following  the  Optional  Prepayment  Date,  the  Borrower 
shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
 
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Notwithstanding anything to the contrary contained in this Note, at any time
during the period beginning  on the date which is sixty-one  (61) days following
the issue date and ending on the date which is ninety (90) days following the
issue date, the Borrower shall have the right, exercisable on not less than
three (3) Trading Days prior written notice to the Holder of the Note to prepay
the outstanding Note (principal and accrued interest), in full, in accordance
with this Section 1.9.   Any Optional Prepayment Notice shall be delivered to
the Holder of the Note at its registered addresses and shall state: (1) that the
Borrower is exercising its right to prepay the Note, and (2) the date of
prepayment which shall be not more than three (3) Trading Days from the date of
the Optional Prepayment Notice.  On the Optional Prepayment Date, the Borrower
shall make payment of the Third Optional Prepayment Amount (as defined below) to
or upon the order of the Holder as specified by the Holder in writing to the
Borrower at least one (1) business day prior to the Optional Prepayment Date. 
If the Borrower exercises its right to prepay the Note, the Borrower shall make
payment to the Holder of an amount in cash (the Third Optional Prepayment
Amount) equal to 135%, multiplied by the sum of: (w) the then outstanding
principal amount of this Note plus (x) accrued and unpaid interest on the unpaid
principal amount of this Note to the Optional Prepayment Date plus (y) Default
Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any
amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the
Borrower delivers an Optional Prepayment Notice and fails to pay the Third
Optional Prepayment Amount due to the Holder of the Note within  two  (2) 
business  days  following  the  Optional  Prepayment  Date,  the  Borrower 
shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
Notwithstanding any to the contrary stated elsewhere herein, at any time during
the period beginning on the date that is ninety-one  (91) day from the issue
date and ending one hundred  twenty  (120)  days  following  the  issue  date, 
the  Borrower  shall  have  the  right, exercisable on not less than three (3)
Trading Days prior written notice to the Holder of the Note to prepay the
outstanding Note (principal and accrued interest), in full, in accordance with
this Section 1.9.  Any Optional Prepayment Notice shall be delivered to the
Holder of the Note at its registered addresses and shall state: (1) that the
Borrower is exercising its right to prepay the Note, and (2) the date of
prepayment which shall be not more than three (3) Trading Days from the date of
the Optional Prepayment Notice.  On the Optional Prepayment Date, the Borrower
shall make payment of the Fourth Optional Prepayment Amount (as defined below)
to or upon the order of the Holder as specified by the Holder in writing to the
Borrower at least one (1) business day prior to the Optional Prepayment Date. 
If the Borrower exercises its right to prepay the Note, the Borrower shall make
payment to the Holder of an amount in cash (the Fourth Optional Prepayment
Amount) equal to 140%, multiplied by the sum of: (w) the then outstanding
principal amount of this Note plus (x) accrued and unpaid interest on the unpaid
principal amount of this Note to the Optional Prepayment Date plus (y) Default
Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any
amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the
Borrower delivers an Optional Prepayment Notice and fails to pay the Fourth
Optional Prepayment Amount due to the Holder of the Note within  two  (2) 
business  days  following  the  Optional  Prepayment  Date,  the  Borrower 
shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
 
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Notwithstanding any to the contrary stated elsewhere herein, at any time during
the period beginning on the date that is one hundred twenty-one  (121) day from
the issue date and ending one hundred fifty (150) days following the issue date,
the Borrower shall have the right, exercisable on not less than three (3)
Trading Days prior written notice to the Holder of the Note to prepay the
outstanding Note (principal and accrued interest), in full, in accordance with
this Section 1.9.  Any Optional Prepayment Notice shall be delivered to the
Holder of the Note at its registered addresses and shall state: (1) that the
Borrower is exercising its right to prepay the Note, and (2) the date of
prepayment which shall be not more than three (3) Trading Days from the date of
the Optional Prepayment Notice.  On the Optional Prepayment Date, the Borrower
shall make payment of the Fifth Optional Prepayment Amount (as defined below) to
or upon the order of the Holder as specified by the Holder in writing to the
Borrower at least one (1) business day prior to the Optional Prepayment Date.  
If the Borrower exercises its right to prepay the Note, the Borrower shall make
payment to the Holder of an amount in cash (the Fifth Optional Prepayment
Amount) equal to 145%, multiplied by the sum of: (w) the then outstanding
principal amount of this Note plus  (x) accrued  and unpaid interest on  the
unpaid  principal amount of this Note to the Optional Prepayment Date plus (y)
Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus
(z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. 
If the Borrower delivers an Optional Prepayment Notice and fails to pay the
Fifth Optional Prepayment Amount due to the Holder of the Note within two (2)
business days following the Optional Prepayment Date, the Borrower shall forever
forfeit its right to prepay the Note pursuant to this Section 1.9.
 
Notwithstanding any to the contrary stated elsewhere herein, at any time during
the period beginning on the date that is one hundred fifty-one  (151) day from
the issue date and ending one hundred eighty (180) days following the issue
date, the Borrower shall have the right, exercisable on not less than three (3)
Trading Days prior written notice to the Holder of the Note to prepay the
outstanding Note (principal and accrued interest), in full, in accordance with
this Section 1.9.  Any Optional Prepayment Notice shall be delivered to the
Holder of the Note at its registered addresses and shall state: (1) that the
Borrower is exercising its right to prepay the Note, and (2) the date of
prepayment which shall be not more than three (3) Trading Days from the date of
the Optional Prepayment Notice.  On the Optional Prepayment Date, the Borrower
shall make payment of the Sixth Optional Prepayment Amount (as defined below) to
or upon the order of the Holder as specified by the Holder in writing to the
Borrower at least one (1) business day prior to the Optional Prepayment Date.  
If the Borrower exercises its right to prepay the Note, the Borrower shall make
payment to the Holder of an amount in cash (the Sixth Optional Prepayment
Amount) equal to 150%, multiplied by the sum of: (w) the then outstanding
principal amount of this Note plus  (x) accrued  and unpaid interest on  the
unpaid  principal amount of this Note to the Optional Prepayment Date plus (y)
Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus
(z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. 
If the Borrower delivers an Optional Prepayment Notice and fails to pay the
Sixth Optional Prepayment Amount due to the Holder of the Note within two (2)
business days following the Optional Prepayment Date, the Borrower shall forever
forfeit its right to prepay the Note pursuant to this Section 1.9.
 
After the expiration of one hundred eighty (180) following the date of the Note,
the Borrower shall have no right of prepayment.
 
 
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ARTICLE II. CERTAIN COVENANTS
 
2.1     Distributions on Capital Stock.  So long as the Borrower shall have any
obligation under this Note, the Borrower shall not without the Holders written
consent (a) pay, declare or set apart for such payment, any dividend or other
distribution (whether in cash, property or other securities) on shares of
capital stock other than dividends on shares of Common Stock solely in the form
of additional shares of Common Stock or (b) directly or indirectly or through
any subsidiary make any other payment or distribution in respect of its capital
stock except for distributions pursuant to any shareholders rights plan which is
approved by a majority of the Borrowers disinterested directors.
 
2.2     Restriction on Stock Repurchases.  So long as the Borrower shall have
any obligation under this Note, the Borrower shall not without the Holders
written consent redeem, repurchase or otherwise acquire (whether for cash or in
exchange for property or other securities or otherwise) in any one transaction
or series of related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such shares.
 
2.3     INTENTIONALLY DELETED
 
2.4     Sale of Assets.  During the period that Borrower has any obligations
under the Note, Borrower will not sell, dispose of,  liquidate or transfer a
substantial majority of its assets nor will the Company the effect of which
would result in the Company being defined as a Shell Company as defined in the
Securities Exchange Acts.
 
2.5     INTENTIONALLY DELETED
 
2.6     INTENTIONALLY DELETED
 
 
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ARTICLE III.  EVENTS OF DEFAULT
 
If any of the following events of default (each, an “Event of Default”) shall
occur:
 
3.1     Failure to Pay Principal or Interest. The  Borrower  fails  to  pay  the
principal hereof or interest thereon when due on this Note, whether at maturity,
upon a Trading Market Prepayment Event pursuant to Section 1.7, upon
acceleration or otherwise;
 
3.2     Conversion and the  Shares. The  Borrower  fails  to  issue  shares  of
Common Stock to the Holder (or announces or threatens that it will not honor its
obligation to do so) upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Note, fails to transfer or cause its
transfer agent to transfer (electronically or in certificated form) any
certificate for shares of Common Stock issued to the Holder upon conversion of
or otherwise pursuant to this Note as and when required by this Note, or fails
to remove any restrictive legend (or to withdraw any stop transfer instructions
in respect thereof) on any certificate for any shares of Common Stock issued to
the Holder upon conversion of or otherwise pursuant to this Note as and when
required by this Note (or makes any announcement, statement or threat that it
does not intend to honor the obligations described in this paragraph) and any
such failure shall continue uncured (or any announcement, statement or threat
not to honor its obligations shall not be rescinded in writing) for three (3)
days after the Borrower shall have been notified thereof in writing by the
Holder;
 
3.3     Breach of Covenants.  The Borrower breaches any material covenant or
other material term or condition contained in this Note and any collateral
documents including but not limited to the Purchase Agreement and such breach
continues for a period of ten (10) days after written notice thereof to the
Borrower from the Holder;
 
3.4     Breach  of  Representations and Warranties.  Any  representation  or
warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Purchase Agreement), shall be false or
misleading in any material respect when made and the breach of which has (or
with the passage of time will have) a material adverse effect on the rights of
the Holder with respect to this Note or the Purchase Agreement;
 
3.5     Receiver or Trustee.  The Borrower or any subsidiary of the Borrower
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial part of
its property or business, or such a receiver or trustee shall otherwise be
appointed;
 
3.6     Judgments. Any money judgment, writ or similar process shall be entered
or filed against the Borrower or any subsidiary of the Borrower or any of its
property or other assets for more than $250,000, and shall remain unvacated,
unbonded or unstayed for a period of twenty (20) days unless otherwise consented
to by the Holder, which consent will not be unreasonably withheld;
 
3.7     Bankruptcy.  Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings, voluntary or involuntary, for relief under any
bankruptcy law or any law  for the relief of debtors  shall  be instituted  by
or against  the Borrower or any subsidiary of the Borrower;
 
3.8     Delisting of Common Stock.  The Borrower shall fail to maintain the
listing of the Common Stock on at least one of the OTCBB or an equivalent
replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market,
the New York Stock Exchange, or the American Stock Exchange;
 
 
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3.9     Failure to Comply with the Exchange Act.  The Borrower shall fail to
comply with the reporting requirements of the Exchange Act; and/or the Borrower
shall cease to be subject to the reporting requirements of the Exchange Act; or
 
3.10   Liquidation.  Any dissolution, liquidation, or winding up of Borrower or
any substantial portion of its business.
 
3.11   Cessation of Operations.  Any cessation of operations by Borrower or
Borrower admits it is otherwise generally unable to pay its debts as such debts
become due, provided, however, that any disclosure of the Borrowers ability to
continue as a going concern shall not be an admission that the Borrower cannot
pay its debts as they become due.
 
3.12   Maintenance of Assets. The  failure  by  Borrower  to  maintain  any
material intellectual property rights, personal, real property or other assets
which are necessary to conduct its business (whether now or in the future).
 
3.13   Financial Statement Restatement.   The   restatement   of   any  
financial statements filed by the Borrower with the SEC for any date or period
from two years prior to the Issue Date of this Note and until this Note is no
longer outstanding, if the result of such restatement would, by comparison to
the unrestated financial statement, have constituted a material adverse effect
on the rights of the Holder with respect to this Note or the Purchase Agreement.
 
3.14   Reverse Splits.   The  Borrower  effectuates  a  reverse  split  of  its
Common Stock without twenty (20) days prior written notice to the Holder.
 
3.15   Replacement of Transfer Agent. In the event that the Borrower proposes to
replace its transfer agent, the Borrower fails to provide, prior to the
effective date of such replacement, a fully executed Irrevocable Transfer Agent
Instructions in a form as initially delivered pursuant to the Purchase Agreement
(including but not limited to the provision to irrevocably reserve shares of
Common Stock in the Reserved Amount) signed by the successor transfer agent to
Borrower and the Borrower.
 
3.16     Cross-Default.  Notwithstanding anything to the contrary contained in
this Note or the other related or companion documents, a breach or default by
the Borrower of any covenant or other term or condition contained in any of the
Other Agreements, after the passage of all applicable notice and cure or grace
periods, shall, at the option of the Borrower, be considered a default under
this Note and the Other Agreements, in which event the Holder shall be entitled
(but in no event required) to apply all rights and remedies of the Holder under
the terms of this Note and the Other Agreements by reason of a default under
said Other Agreement or  hereunder. Other  Agreements  means,  collectively, 
all  agreements  and  instruments between, among or by: (1) the Borrower, and,
or for the benefit of, (2) the Holder and any affiliate of the Holder,
including, without limitation, promissory notes; provided, however, the term
Other Agreements shall not include the related or companion documents to this
Note. Each of the loan transactions will be cross-defaulted with each other loan
transaction and with all other existing and future debt of Borrower to the
Holder.
 
 
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Upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1 (solely with respect to failure to pay the principal
hereof or interest thereon when due at the Maturity Date), the Borrower shall
pay to the Holder, in full satisfaction of its obligations hereunder, an amount
equal to the Default Sum (as defined herein).  Upon the occurrence and during
the continuation of any Event of Default specified in Sections 3.1 (solely with
respect to failure to pay the principal hereof or interest thereon when due on
this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon
acceleration), 3.2, 3.3, 3.4, 3.6, or 3.8 exercisable through the delivery of
written notice to the Borrower by such Holders (the Default Notice), and upon
the occurrence of an Event of Default specified the remaining sections of
Articles III (other than failure to pay the principal hereof or interest thereon
at the Maturity Date specified in Section 3,1 hereof), the Note shall become
immediately due and payable and the Borrower shall pay to the Holder, in full
satisfaction of its obligations hereunder, an amount equal to the greater of (i)
135% times the sum of (w) the then outstanding principal amount of this Note
plus (x) accrued and unpaid interest on the unpaid principal amount of this Note
to the date of payment (the Mandatory Prepayment Date) plus (y) Default
Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z)
any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the
then outstanding principal amount of this Note to the date of payment plus the
amounts referred to in clauses (x), (y) and (z) shall collectively be known as
the Default Sum) or (ii) the parity value of the Default Sum to be prepaid,
where parity value means (a) the highest number of shares of Common Stock
issuable upon conversion of or otherwise pursuant to such Default Sum in
accordance with Article I, treating the Trading Day immediately preceding the
Mandatory Prepayment Date as the Conversion Date for purposes of determining the
lowest applicable Conversion Price, unless the Default Event arises as a result
of a breach in respect of a specific Conversion Date in which case such
Conversion Date shall be the Conversion Date), multiplied by (b) the highest
Closing Price for the Common Stock during the period beginning on the date of
first occurrence of the Event of Default and ending one day prior to the
Mandatory Prepayment Date (the Default Amount) and all other amounts payable
hereunder  shall  immediately become  due  and  payable,  all  without  demand, 
presentment  or notice, all of which hereby are expressly waived, together with
all costs, including, without limitation, legal fees and expenses, of
collection, and the Holder shall be entitled to exercise all other rights and
remedies available at law or in equity.

 
If the Borrower fails to pay the Default Amount within five (5) business days of
written notice that such amount is due and payable, then the Holder shall have
the right at any time, so long as the Borrower remains in default (and so long
and to the extent that there are sufficient authorized shares), to require the
Borrower, upon written notice, to immediately issue, in lieu of the Default
Amount, the number of shares of Common Stock of the Borrower equal to the
Default Amount divided by the Conversion Price then in effect.
 
 
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ARTICLE IV. MISCELLANEOUS
 
4.1     Failure or Indulgence Not Waiver.  No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges.   All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
 
4.2      Notices.  All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice.  Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following  the  date  of 
mailing  by  express  courier  service,  fully  prepaid,  addressed  to  such
address, or upon actual receipt of such mailing, whichever shall first occur. 
The addresses for such communications shall be:
 
If to the Borrower, to:
 
LUX DIGITAL PICTURES, INC.
12021 Wilshire Boulevard – Suite 450
Los Angeles, CA 90025
Attn: INGO JUNCT, President facsimile: 510-948-4000 x2
 
With a copy by fax only to (which copy shall not constitute notice): Mark J
Richardson
 
Richardson & Associates
1453 Third Street Promenade
Suite 315
Santa Monica, CA. 90401
 
If to the Holder:
 
ASHER ENTERPRISES, INC.
1 Linden Pl., Suite 207
Great Neck, NY. 11021
Attn: Curt Kramer, President facsimile: 516-498-9894
 
With a copy by fax only to (which copy shall not constitute notice): Naidich
Wurman Birnbaum & Mayday LLP
 
80 Cuttermill Road, Suite 410
Great Neck, NY 11021
Attn: Bernard S. Feldman, Esq. facsimile: 516-466-3555
 
 
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4.3     Amendments.  This Note and any provision hereof may only be amended by
an instrument in writing signed by the Borrower and the Holder.  The term Note
and all reference thereto, as used throughout this instrument, shall mean this
instrument (and the other Notes issued pursuant to the Purchase Agreement) as
originally executed, or if later amended or supplemented, then as so amended or
supplemented.
 
4.4     Assignability.  This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to be the benefit of the Holder and its
successors and assigns.  Each transferee of this Note must be an accredited
investor (as defined in Rule 501(a) of the 1933 Act).   Notwithstanding anything
in this Note to the contrary, this Note may be pledged  as  collateral  in 
connection  with  a  bona  fide  margin  account  or  other  lending
arrangement.
 
4.5     Cost of Collection.   If default is made in the payment of this Note,
the Borrower shall pay the Holder hereof costs of collection, including
reasonable attorneys fees.
 
4.6     Governing  Law.  This  Note  shall  be  governed  by  and  construed  in
accordance with the laws of the State of New York without regard to principles
of conflicts of laws.   Any action brought by either party against the other
concerning the transactions contemplated by this Note shall be brought only in
the state courts of New York or in the federal courts located in the state and
county of Nassau.   The parties to this Note hereby irrevocably waive any
objection to jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or based upon
forum non conveniens. The Borrower and Holder waive trial by jury.  The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs.  In the event that any provision of this
Note or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law.  Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.  
Each party hereby irrevocably waives personal service of process and consents to
process being served in any suit, action or proceeding in connection with this
Agreement or any other Transaction Document by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing contained herein shall be deemed to limit
in any way any right to serve process in any other manner permitted by law.
 
4.7     Certain  Amounts.   Whenever  pursuant  to  this  Note  the  Borrower 
is required to pay an amount in excess of the outstanding principal amount (or
the portion thereof required to be paid at that time) plus accrued and unpaid
interest plus Default Interest on such interest, the Borrower and the Holder
agree that the actual damages to the Holder from the receipt of cash payment on
this Note may be difficult to determine and the amount to be so paid by the
Borrower represents stipulated damages and not a penalty and is intended to
compensate the Holder in part for loss of the opportunity to convert this Note
and to earn a return from the sale of shares of Common Stock acquired upon
conversion of this Note at a price in excess of the price paid for such shares
pursuant to this Note.  The Borrower and the Holder hereby agree that such
amount of stipulated damages is not plainly disproportionate to the possible
loss to the Holder from the receipt of a cash payment without the opportunity to
convert this Note into shares of Common Stock.
 
 
D-21

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4.8     Purchase Agreement.  By its acceptance of this Note, each party agrees
to be bound by the applicable terms of the Purchase Agreement.
 
4.9     Notice of Corporate Events.  Except as otherwise provided below, the
Holder of this Note shall have no rights as a Holder of Common Stock unless and
only to the extent that it converts this Note into Common Stock. The Borrower
shall provide the Holder with prior notification of any meeting of the Borrowers
shareholders (and copies of proxy materials and other information sent to
shareholders).   In the event of any taking by the Borrower of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation,
reclassification or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Borrower or any proposed liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time.  The Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this Section
4.10.
 
4.10   Remedies. The  Borrower  acknowledges  that  a  breach  by  it  of  its
obligations hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby.  Accordingly, the
Borrower acknowledges that the remedy at law for a breach of its obligations
under this Note will be inadequate and agrees, in the event of a breach or
threatened breach by the Borrower of the provisions of this Note, that the
Holder shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Note and to
enforce specifically the terms and provisions thereof, without the necessity of
showing economic loss and without any bond or other security being required.
 
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by
its duly authorized officer this September 19, 2011.
 
LUX DIGITAL PICTURES, INC.
 
By: ______________________
INGO JUNCT,  President
 
 
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EXHIBIT A:  NOTICE OF CONVERSION
 
The undersigned hereby elects to convert $___________ principal amount of the
Note (defined below) into that number of shares of Common Stock to be issued
pursuant to the conversion of the Note (“Common Stock”) as set forth below, of
LUX DIGITAL PICTURES, INC., a Wyoming corporation (the “Borrower”) according to
the conditions of the convertible note of the Borrower dated as of September 19,
2011 (the “Note”), as of the date written below.   No fee will be charged to the
Holder for any conversion, except for transfer taxes, if any.
 
Box Checked as to applicable instructions:
 
o        The Borrower shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC
Transfer”).
 
Name of DTC Prime Broker: __________
Account Number:_________________
 
o       The  undersigned  hereby  requests  that  the  Borrower  issue  a  certificate  or
certificates for the number of shares of Common Stock set forth below (which
numbers are based on the Holder’s calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an
attachment hereto:
 
ASHER ENTERPRISES, INC.
 
1 Linden Pl., Suite 207
Great Neck, NY. 11021
Attention: Certificate Delivery
(516) 498-9890
 

Date of Conversion:   Applicable Conversion Price:  $ Number of Shares of Common
Stock to be Issued Pursuant to Conversion of the Notes:   Amount of Principal
Balance Due remaining Under the Note after this conversion:  

 
ASHER ENTERPRISES, INC.
 
By:_______________________
Name: Curt Kramer,  President
Date:_____________________
1 Linden Pl., Suite 207
Great Neck, NY. 11021
 
 
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NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
 

Purchase Price: $78,500.00 Issue Date: December 28, 2011 Principal Amount:
$78,500.00  

 
CONVERTIBLE PROMISSORY NOTE
 
FOR VALUE RECEIVED, LUX DIGITAL PICTURES, INC., a Wyoming corporation
(hereinafter called the “Borrower”), hereby promises to pay to the order of
ASHER ENTERPRISES, INC., a Delaware corporation, or registered assigns (the
“Holder”) the sum of $78,500.00 together with any interest as set forth herein,
on September 30, 2012 (the “Maturity Date”), and to pay interest on the unpaid
principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”)
per annum from the date hereof (the “Issue Date”) until the same becomes due and
payable, whether at maturity or upon acceleration or by prepayment or
otherwise.  This Note may not be prepaid in whole or in part except as otherwise
explicitly set forth herein. Any amount of principal or interest on this Note
which is not paid when due shall bear interest at the rate of twenty two percent
(22%) per annum from the due date thereof until the same is paid (“Default
Interest”).  Interest shall commence accruing on the Issue Date, shall be
computed on the basis of a 365-day year and the actual number of days
elapsed.   All payments due hereunder (to the extent not converted into common
stock, $0.001 par value per share (the “Common Stock”) in accordance with the
terms hereof) shall be made in lawful money of the United States of
America.   All payments shall be made at such address as the Holder shall
hereafter give to the Borrower by written notice made in accordance with the
provisions of this Note.  Whenever any amount expressed to be due by the terms
of this Note is due on any day which is not a business day, the same shall
instead be due on the next succeeding day which is a business day and, in the
case of any interest payment date which is not the date on which this Note is
paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on such date.  As
used in this Note, the term “business day” shall mean any day other than a
Saturday, Sunday or a day on which commercial banks in the city of New York, New
York are authorized or required by law or executive order to remain
closed.   Each capitalized term used herein, and not otherwise defined, shall
have the meaning ascribed thereto in that certain Securities Purchase Agreement
dated the date hereof, pursuant to which this Note was originally issued (the
“Purchase Agreement”).
 
 
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This Note is free from all taxes, liens, claims and encumbrances with respect to
the issue thereof and shall not be subject to preemptive rights or other similar
rights of shareholders of the Borrower and will not impose personal liability
upon the holder thereof.

The following terms shall apply to this Note:
 
ARTICLE I. CONVERSION RIGHTS
 
1.1       Conversion Right.  The Holder shall have the right from time to time,
and at any time during the period beginning on the date which is one hundred
eighty (180) days following the date of this Note and ending on the later of:
(i) the Maturity Date and (ii) the date of payment of the Default Amount (as
defined in Article III) pursuant to Section 1.6(a) or Article III, each in
respect of the remaining outstanding principal amount of this Note to convert
all or any part of the outstanding and unpaid principal amount of this Note into
fully paid and non- assessable shares of Common Stock, as such Common Stock
exists on the Issue Date, or any shares of capital stock or other securities of
the Borrower into which such Common Stock shall hereafter be changed or
reclassified at the conversion price  (the Conversion Price) determined as
provided herein (a Conversion); provided, however, that in no event shall the
Holder be entitled to convert any portion of this Note in excess of that portion
of this Note upon conversion of which the sum of (1) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Notes or the unexercised or
unconverted portion of any other security of the Borrower subject to a
limitation on conversion or exercise analogous to the limitations contained
herein) and (2) the number of shares of Common Stock issuable upon the
conversion of the portion of this Note with respect to which the determination
of this proviso is being made, would result in beneficial ownership by the
Holder and its affiliates of more than 4.99% of the outstanding shares of Common
Stock.  For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined  in  accordance  with  Section  13(d) 
of  the  Securities  Exchange  Act  of  1934,  as amended  (the  Exchange 
Act),  and  Regulations  13D-G  thereunder,  except  as  otherwise provided in
clause (1) of such proviso, provided, further, however, that the limitations on
conversion may be waived by the Holder upon, at the election of the Holder, not
less than 61 days prior notice to the Borrower, and the provisions of the
conversion limitation shall continue to apply until such 61st day (or such later
date, as determined by the Holder, as may be specified in such notice of
waiver)..  The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing the Conversion Amount
(as defined below) by the applicable Conversion Price then in effect on the date
specified in the notice of conversion, in the form attached hereto as Exhibit A
(the Notice of Conversion), delivered to the Borrower by the Holder in
accordance with Section 1.4 below; provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or reasonably expected
to result  in,  notice)  to  the  Borrower  before  6:00  p.m.,  New  York, 
New  York  time  on  such conversion date (the Conversion Date).  The term
Conversion Amount means, with respect to any conversion of this Note, the sum of
(1) the principal amount of this Note to be converted in such conversion plus
(2) at the Borrowers option, accrued and unpaid interest, if any, on such
principal amount at the interest rates provided in this Note to the Conversion
Date, provided, however, that the Company shall have the right to pay any or all
interest in cash plus (3) at the Borrowers option, Default Interest, if any, on
the amounts referred to in the immediately preceding clauses (1) and/or (2) plus
(4) at the Holders option, any amounts owed to the Holder pursuant to Sections
1.3 and 1.4(g) hereof.
 
 
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1.2       Conversion Price.
 
(a)      Calculation of Conversion Price.   The conversion price (the Conversion
Price) shall equal the Variable Conversion Price (as defined herein)(subject to
equitable  adjustments  for  stock  splits,  stock  dividends  or  rights 
offerings  by the  Borrower relating to the Borrowers securities or the
securities of any subsidiary of the Borrower, combinations, recapitalization,
reclassifications, extraordinary distributions and similar events). The
"Variable Conversion Price" shall mean 61% multiplied by the Market Price (as
defined herein)(representing a discount rate of 39%). Market Price means the
average of the lowest five (5) Trading Prices (as defined below) for the Common
Stock during the ten (10) Trading Day period ending one Trading Day prior to the
date the Conversion Notice is sent by the Holder to the Borrower via facsimile
(the Conversion Date).  Trading Price means, for any security as of any date,
the closing bid price on the Over-the-Counter Bulletin Board, or applicable
trading market (the OTCBB) as reported by a reliable reporting service
(Reporting Service) mutually acceptable to Borrower and Holder and hereafter
designated by Holders of a majority in interest of the Notes and the Borrower
or, if the OTCBB is not the principal trading market for such security, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded or, if no closing bid
price of such security is available in any of the foregoing manners, the average
of the closing bid prices of any market makers for such security that are listed
in the pink sheets by the National Quotation Bureau, Inc.  If the Trading Price
cannot be calculated for such security on such date in the manner provided
above, the Trading Price shall be the fair market value as mutually determined
by the Borrower and the holders of a majority in interest of the Notes being
converted for which the calculation of the Trading Price is required in order to
determine the Conversion Price of such Notes.  Trading Day shall mean any day on
which the Common Stock is traded for any period on the OTCBB, or on the
principal securities exchange or other securities market on which the Common
Stock is then being traded.
 
(b)      Conversion Price During Major Announcements.  Notwithstanding anything
contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes
a public announcement that it intends to consolidate or merge with any other
corporation (other than a merger in which the Borrower is the surviving or
continuing corporation and its capital stock is unchanged) or sell or transfer
all or substantially all of the assets of the Borrower or (ii) any person, group
or entity (including the Borrower) publicly announces a tender offer to purchase
50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the
date of the announcement referred to in clause (i) or (ii) is hereinafter
referred to as the  “Announcement Date”), then the Conversion Price shall,
effective upon the Announcement Date and continuing through the Adjusted
Conversion Price Termination Date (as defined below), be equal to the lower of
(x) the Conversion Price which would have been applicable for a Conversion
occurring on the Announcement Date and (y) the Conversion Price that would
otherwise be in effect. From and after the Adjusted Conversion Price Termination
Date, the Conversion Price shall be determined as set forth in this Section
1.2(a).  For purposes hereof,  “Adjusted Conversion Price Termination Date”
shall mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this Section
1.2(b) has been made, the date upon which the Borrower (in the case of clause
(i) above) or the person, group or entity (in the case of clause (ii) above)
consummates or publicly announces the termination or abandonment of the proposed
transaction or tender offer (or takeover scheme) which caused this Section
1.2(b) to become operative.
 
 
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1.3      Authorized Shares.  The Borrower covenants that during the period the
conversion right exists, the Borrower will reserve from its authorized and
unissued Common Stock a sufficient number of shares, free from preemptive
rights, to provide for the issuance of Common Stock upon the full conversion of
this Note issued pursuant to the Purchase Agreement. The Borrower is required at
all times to have authorized and reserved three times the number of shares that
is actually issuable upon full conversion of the Note (based on the Conversion
Price of the Notes in effect from time to time)(the “Reserved Amount”).  The
Reserved Amount shall be increased from time to time in accordance with the
Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement.  The
Borrower represents that upon issuance, such shares will be duly and validly
issued, fully paid and non-assessable.  In addition, if the Borrower shall issue
any securities or make any change to its capital structure which would change
the number of
shares  of  Common  Stock  into  which  the  Notes  shall  be  convertible  at  the  then  current
Conversion Price, the Borrower shall at the same time make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Notes.  The Borrower (i) acknowledges that it has irrevocably
instructed its transfer agent to issue certificates for the Common Stock
issuable upon conversion of this Note, and (ii) agrees that its issuance of this
Note shall constitute full authority to its officers and agents who are charged
with the duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock in accordance with the terms and
conditions of this Note.
 
If, at any time a Holder of this Note submits a Notice of Conversion, and the
Borrower does not have sufficient authorized but unissued shares of Common Stock
available to effect such conversion in accordance with the provisions of this
Article I (a “Conversion Default”), the Borrower shall issue to the Holder all
of the shares of Common Stock which are then available to effect such
conversion.  The portion of this Note which the Holder included in its
Conversion Notice and which exceeds the amount which is then convertible into
available shares of Common Stock (the “Excess Amount”) shall, notwithstanding
anything to the contrary contained herein, not be convertible into Common Stock
in accordance with the terms hereof until (and at the Holder’s option at any
time after) the date additional shares of Common Stock are authorized by the
Borrower to permit such conversion, at which time the Conversion Price in
respect thereof shall be the lesser of (i) the Conversion Price on the
Conversion Default Date (as defined below) and (ii) the Conversion Price on the
Conversion Date thereafter elected by the Holder in respect thereof.   In
addition, the Borrower shall pay to the Holder payments (“Conversion Default
Payments”) for a Conversion Default in the amount of (x) the sum of (1) the then
outstanding principal amount of this Note plus (2) accrued and unpaid interest
on the unpaid principal amount of this Note through the Authorization Date (as
defined below) plus (3) Default Interest, if any, on the amounts referred to in
clauses (1) and/or (2), multiplied by (y) .24, multiplied by (z) (N/365), where
N = the number of days from the day the holder submits a Notice of Conversion
giving rise to a Conversion Default (the “Conversion Default Date”) to the date
(the “Authorization Date”) that the Borrower authorizes a sufficient number of
shares of Common Stock to effect conversion of the full outstanding principal
balance of this Note.  The Borrower shall use its best efforts to authorize a
sufficient number of shares of Common Stock as soon as practicable following the
earlier of (i)such time that the Holder notifies the Borrower or that the
Borrower otherwise becomes aware that there are or likely will be insufficient
authorized and unissued shares to allow full conversion thereof and (ii) a
Conversion Default.The Borrower shall send notice to the Holder of the
authorization of additional shares of Common Stock,the Authorization Date and
the  amount of Holders accrued Conversion Default Payments. The accrued
Conversion Default Payments for each calendar month shall be paid in cash or
shall be convertible into Common Stock (at such time as there are sufficient
authorized shares of Common Stock) at the applicable Conversion Price, at the
Borrowers option, as follows:
 
 
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(a)       In  the event Holder elects to take such payment in cash,  cash
payment shall be made to Holder by the fifth (5th) day of the month following
the month in which it has accrued; and
 
(b)       In the event Holder elects to take such payment in Common Stock, the
Holder may convert such payment amount into Common Stock at the Conversion Price
(as in effect at the time of conversion) at any time after the fifth day of the
month following the month in which it has accrued in accordance with the terms
of this Article I (so long as there is then a sufficient number of authorized
shares of Common Stock).
 
The Holder’s election shall be made in writing to the Borrower at any time prior
to 6:00 p.m., New York, New York time, on the third day of the month following
the month in which Conversion Default payments have accrued.  If no election is
made, the Holder shall be deemed to have elected to receive cash.  Nothing
herein shall limit the Holder’s right to pursue actual damages (to the extent in
excess of the Conversion Default Payments) for the Borrower’s failure to
maintain a sufficient number of authorized shares of Common Stock, and each
holder shall have the right to pursue all remedies available at law or in equity
(including degree of specific performance and/or injunctive relief).
 
1.4       Method of Conversion.
 
(a)       Mechanics of Conversion.  Subject to Section 1.1, this Note may be
converted by the Holder in whole or in part at any time from time to time after
the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by
facsimile or other reasonable means of communication dispatched on the
Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to
Section 1.4(b), surrendering this Note at the principal office of the Borrower.
 
 
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(b)       Surrender of Note Upon Conversion.  Notwithstanding anything to the
contrary set forth herein, upon conversion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this Note
to the Borrower unless the entire unpaid principal amount of this Note is so
converted.  The Holder and the Borrower shall maintain records showing the
principal amount so converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the Holder and the Borrower, so as
not to require physical surrender of this Note upon each such conversion.  In
the event of any dispute or discrepancy, such records of the Borrower shall,
prima facie, be controlling and determinative in the absence of manifest
error.  Notwithstanding the foregoing, if any portion of this Note is converted
as aforesaid, the Holder may not transfer this Note unless the Holder first
physically surrenders this Note to the Borrower, whereupon the Borrower will
forthwith issue and deliver upon the order of the Holder a new Note of like
tenor, registered as the Holder (upon payment by the Holder of any applicable
transfer taxes) may request, representing in the aggregate the remaining unpaid
principal amount of this Note.  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 represented by this Note may be less
than the amount stated on the face hereof.

 
(c)       Payment of Taxes.  The Borrower shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock or other securities or property on conversion
of this Note in a name other than that of the Holder (or in street name), and
the Borrower shall not be required to issue or deliver any such shares or other
securities or property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be held for the
Holder’s account) requesting the issuance thereof shall have paid to the
Borrower the amount of any such tax or shall have established to the
satisfaction of the Borrower that such tax has been paid.
 
(d)       Delivery of Common Stock Upon Conversion.   Upon receipt by the
Borrower from the Holder of a facsimile transmission (or other reasonable means
of communication) of a Notice of Conversion meeting the requirements for
conversion as provided in this Section 1.4, the Borrower shall issue and deliver
or cause to be issued and delivered to or upon the order of the Holder
certificates for the Common Stock issuable upon such conversion within three (3)
business days after such receipt (and, solely in the case of conversion of the
entire unpaid principal amount hereof, surrender of this Note) (such second
business day being hereinafter referred to as the “Deadline”) in accordance with
the terms hereof and the Purchase Agreement (including, without limitation, in
accordance with the requirements of [Section 2(g)] of the Purchase Agreement
that certificates for shares of Common Stock issued on or after the effective
date of the Registration Statement upon conversion of this Note shall not bear
any restrictive legend).
 
 
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(e)       Obligation of Borrower to Deliver Common Stock.  Upon receipt by the
Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder
of record of the Common Stock issuable upon such conversion, the outstanding
principal amount and the amount of accrued and unpaid interest on this Note
shall be reduced to reflect such conversion, and, unless the Borrower defaults
on its obligations under this Article I, all rights with respect to the portion
of this Note being so converted shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets, as herein
provided, on such conversion.  If the Holder shall have given a Notice of
Conversion as provided herein, the  Borrowers  obligation  to  issue  and 
deliver  the  certificates  for Common  Stock  shall  be absolute and
unconditional, irrespective of the absence of any action by the Holder to
enforce the same, any waiver or consent with respect to any provision thereof,
the recovery of any judgment against any person or any action to enforce the
same, any failure or delay in the enforcement of any other obligation of the
Borrower to the holder of record, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder of any
obligation to the Borrower, and irrespective of any other circumstance which
might otherwise limit such obligation of the Borrower to the Holder in
connection with such conversion.  The Conversion Date specified in the Notice of
Conversion shall be the Conversion Date so long as the Notice of Conversion is
received by the Borrower before 6:00 p.m., New York, New York time, on such
date.
 
(f)       Delivery of Common Stock by Electronic Transfer.   In lieu of
delivering physical certificates representing the Common Stock issuable upon
conversion, provided  the  Borrowers  transfer  agent  is  participating  in 
the  Depository  Trust  Company (DTC) Fast Automated Securities Transfer (FAST)
program, upon request of the Holder and its compliance with the provisions
contained in Section 1.1 and in this Section 1.4, the Borrower shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the account of Holders
Prime Broker with DTC through its Deposit Withdrawal Agent Commission (DWAC)
system.
 
(g)       Failure to Deliver Common Stock Prior to Deadline.  Without in any way
limiting the Holders right to pursue other remedies, including actual damages
and/or equitable relief, the parties agree that if delivery of the Common Stock
issuable upon conversion of this Note is more than three (3) business days after
the Deadline (other than a failure due to the circumstances described in Section
1.3 above, which failure shall be governed by such Section) the Borrower shall
pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that
the Borrower fails to deliver such Common Stock.  Such cash amount shall be paid
to Holder by the fifth day of the month following the month in which it has
accrued or, at the option of the Holder (by written notice to the Borrower by
the first day of the month following the month in which it has accrued), shall
be added to the principal amount of this Note, in which event interest shall
accrue thereon in accordance with the terms of this Note and such additional
principal amount shall be convertible into Common Stock in accordance with the
terms of this Note.  The per date charge referred to in this subparagraph shall
apply only if the Borrowers acts in a negligent or willful manner and as a
result the shares contemplated by this transaction are not timely delivered. 
The Borrower hereby expressly warrants that it will take all reasonable and
prudent efforts to assure the delivery of stock to the Holder as contemplated
herein.
 
 
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1.5      Concerning the Shares.   The shares of Common Stock issuable upon
conversion of this Note may not be sold or transferred unless  (i) such shares
are sold pursuant to an effective registration statement under the Act or (ii)
the Borrower or its transfer agent shall have been furnished with an opinion of 
counsel (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that the shares
to  be  sold  or  transferred  may  be  sold  or  transferred  pursuant  to  an 
exemption  from  such registration or (iii) such shares are sold or transferred
pursuant to Rule 144 under the Act (or a successor rule) (Rule 144) or (iv) such
shares are transferred to an affiliate (as defined in Rule 144) of the Borrower
who agrees to sell or otherwise transfer the shares only in accordance with this
Section 1.5 and who is an Accredited Investor (as defined in the Purchase
Agreement). Except as otherwise provided in the Purchase Agreement (and subject
to the removal provisions set forth below), until such time as the shares of
Common Stock issuable upon conversion of this Note have been registered under
the Act or otherwise may be sold pursuant to Rule 144 without any restriction as
to the number of securities as of a particular date that can then be immediately
sold, each certificate for shares of Common Stock issuable upon conversion of
this Note that has not been so included in an effective registration statement
or that has not been sold pursuant to an effective registration statement or an
exemption that permits removal of the legend, shall bear a legend substantially
in the following form, as appropriate:

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933,AS AMENDED,OR APPLICABLE STATE
SECURITIES LAWS.THE SECURITIES MAY NOT BE OFFERED FOR SALE,SOLD,TRANSFERRED OR
ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
 
The legend set forth above shall be removed and the Borrower shall issue to the
Holder a new certificate therefore free of any transfer legend if (i) the
Borrower or its transfer agent shall have received an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Common Stock
may be made without registration under the Act and the shares are so sold or
transferred,  (ii)  such  Holder  provides  the  Borrower  or  its  transfer 
agent  with  reasonable assurances that the Common Stock issuable upon
conversion of this Note (to the extent such securities are deemed to have been
acquired on the same date) can be sold pursuant to Rule 144 or (iii) in the case
of the Common Stock issuable upon conversion of this Note, such security is
registered for sale by the Holder under an effective registration statement
filed under the Act or otherwise may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can then
be immediately sold.
 
 
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1.6       Effect of Certain Events.
 
(a)        Effect of Merger, Consolidation, Etc.  At the option of the Holder,
the sale, conveyance or disposition of all or substantially all of the assets of
the Borrower, the effectuation by the Borrower of a transaction or series of
related transactions in which more than 50% of the voting power of the Borrower
is disposed of, or the consolidation, merger or other business combination of
the Borrower with or into any other Person (as defined below) or Persons when
the Borrower is not the survivor shall either:  (i) be deemed to be an Event of
Default (as defined in Article III) pursuant to which the Borrower shall be
required to pay to the Holder upon the consummation of and as a condition to
such transaction an amount equal to the Default Amount (as defined in Article
III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean
any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.  The terms and conditions of
this subparagraph will be waived by the Holder, provided that if the Borrower
acquires by merger, consolidation or otherwise one or more separate entities and
that the reconstituted entity assumes, undertakes and obligates itself to all of
the obligations of the Borrower under this Note and companion loan documents.
 
(b)       Adjustment Due to Merger, Consolidation, Etc.   If, at any time when
this Note is issued and outstanding and prior to conversion of all of the Notes,
there shall
be  any  merger,  consolidation,  exchange  of  shares,  recapitalization,  reorganization,  or  other
similar event, as a result of which shares of Common Stock of the Borrower shall
be changed into the same or a different number of shares of another class or
classes of stock or securities of the Borrower or another entity, or in case of
any sale or conveyance of all or substantially all of the assets of the Borrower
other than in connection with a plan of complete liquidation of the Borrower,
then the Holder of this Note shall thereafter have the right to receive upon
conversion of this Note, upon the basis and upon the terms and conditions
specified herein and in lieu of the
shares  of  Common  Stock  immediately  theretofore  issuable  upon  conversion,  such  stock,
securities or assets which the Holder would have been entitled to receive in
such transaction had this Note been converted in full immediately prior to such
transaction (without regard to any limitations on conversion set forth herein),
and in any such case appropriate provisions shall be made with respect to the
rights and interests of the Holder of this Note to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares issuable upon conversion of the
Note) shall thereafter be applicable, as nearly as may be practicable in
relation to any securities or assets thereafter deliverable upon the conversion
hereof.  The Borrower shall not affect any transaction described in this Section
1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days
prior written notice (but in any event at least fifteen (15) days prior written
notice) of the record date of the special meeting of shareholders to approve, or
if there is no such record date, the
consummation  of,  such  merger,  consolidation,  exchange  of  shares,  recapitalization,
reorganization or other similar event or sale of assets (during which time the
Holder shall be entitled to convert this Note) and (b) the resulting successor
or acquiring entity (if not the Borrower) assumes by written instrument the
obligations of this Section 1.6(b).  The above provisions shall similarly apply
to successive consolidations, mergers, sales, transfers or share exchanges.
 
 
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(c)       Adjustment Due to Distribution.  If the Borrower shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a dividend, stock repurchase, by way of return of capital or
otherwise (including any dividend or distribution to the Borrower’s shareholders
in cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e., a spin-off)) (a “Distribution”), then the Holder of this Noteshall be
entitled, upon any conversion of this Note after the date of record for
determining shareholders entitled to such Distribution, to receive the amount of
such assets which would have been payable to the Holder with respect to the
shares of Common Stock issuable upon such conversion had such Holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
 
(d)       Adjustment Due to Dilutive Issuance.   If, at any time when any Notes
are issued and outstanding, the Borrower issues or sells, or in accordance with
this Section 1.6(d) hereof is deemed to have issued or sold, any shares of
Common Stock for no consideration or for a consideration per share (before
deduction of reasonable expenses or commissions or underwriting discounts or
allowances in connection therewith) less than the Conversion Price in effect on
the date of such issuance (or deemed issuance) of such shares of Common Stock (a
“Dilutive Issuance”), then immediately upon the Dilutive Issuance, the
Conversion Price will be reduced to the amount of the consideration per share
received by the Borrower in such Dilutive Issuance.
 
The Borrower shall be deemed to have issued or sold shares of Common Stock if
the Borrower in any manner issues or grants any warrants, rights or options (not
including employee stock option plans), whether or not immediately exercisable,
to subscribe for or to purchase Common Stock or other securities convertible
into or exchangeable for Common Stock (“Convertible Securities”) (such warrants,
rights and options to purchase Common Stock or Convertible Securities are
hereinafter referred to as “Options”) and the price per share for which Common
Stock is issuable upon the exercise of such Options is less than the Conversion
Price then in effect, then the Conversion Price shall be equal to such price per
share.   For purposes of the preceding sentence, the “price per share for which
Common Stock is issuable upon the exercise of such Options” is determined by
dividing (i) the total amount, if any, received or receivable by the Borrower as
consideration for the issuance or granting of all such Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Borrower
upon the exercise of all such Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Options, the minimum aggregate
amount of additional consideration payable upon the conversion or exchange
thereof at the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Options (assuming full conversion of
Convertible Securities, if applicable).   No further adjustment to the
Conversion Price will be made upon the actual issuance of such Common Stock upon
the exercise of such Options or upon the conversion or exchange of Convertible
Securities issuable upon exercise of such Options.
 
 
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Additionally, the Borrower shall be deemed to have issued or sold shares of
Common Stock if the Borrower in any manner issues or sells any Convertible
Securities, whether  or  not  immediately  convertible  (other  than  where 
the  same  are  issuable  upon  the exercise of Options), and the price per
share for which Common Stock is issuable upon such conversion or exchange is
less than the Conversion Price then in effect, then the Conversion Price shall
be equal to such price per share.   For the purposes of the preceding sentence,
the price per share for which Common Stock is issuable upon such conversion or
exchange is determined by dividing (i) the total amount, if any, received or
receivable by the Borrower as consideration for the issuance or sale of all such
Convertible Securities, plus the minimum aggregate  amount  of  additional 
consideration,  if  any,  payable  to  the  Borrower  upon  the conversion or
exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities.  No further adjustment to the Conversion Price will be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
 
(e)       Purchase Rights.   If, at any time when any Notes are issued and
outstanding, the Borrower issues any convertible securities or rights to
purchase stock, warrants, securities or other property (the Purchase Rights) pro
rata to the record holders of any class of Common  Stock,  then  the  Holder 
of  this  Note  will  be  entitled  to  acquire,  upon  the  terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Note (without regard to any limitations on
conversion contained herein) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
 
(f)        Notice of Adjustments.  Upon the occurrence of each adjustment or
readjustment of the Conversion Price as a result of the events described in this
Section 1.6, the Borrower, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to the Holder of a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based.  The Borrower
shall, upon the written request at any time of the Holder, furnish to such
Holder a like certificate setting forth (i) such adjustment or readjustment,
(ii) the Conversion Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of the Note.

 
 
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1.7       Trading Market Limitations.  Unless permitted by the applicable rules
and regulations of the principal securities market on which the Common Stock is
then listed or traded, in no event shall the Borrower issue upon conversion of
or otherwise pursuant to this Note and the other Notes issued pursuant to the
Purchase Agreement more than the maximum number of shares of Common Stock that
the Borrower can issue pursuant to any rule of the principal United States
securities market on which the Common Stock is then traded (the Maximum Share
Amount), which shall be 4.99% of the total shares outstanding on the Closing
Date (as defined in the Purchase Agreement), subject to equitable adjustment
from time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring after
the date hereof.  Once the Maximum Share Amount has been issued (the date of
which is hereinafter referred to as the Maximum Conversion Date), if the
Borrower fails to eliminate any prohibitions under applicable law or the rules
or regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Borrower or any of its
securities on the Borrowers ability to issue shares of Common Stock in excess of
the Maximum Share Amount (a Trading Market Prepayment Event), in lieu of any
further right to convert this Note, and in full satisfaction of the Borrowers
obligations under this Note, the Borrower shall pay to the Holder, within
fifteen (15) business days of the Maximum Conversion Date (the Trading Market
Prepayment Date), an amount equal to 150% times the sum of (a) the then
outstanding principal amount of this Note immediately following the Maximum
Conversion Date, plus (b) accrued and unpaid interest on the unpaid principal
amount of this Note to the Trading Market Prepayment Date, plus (c) Default
Interest, if any, on the amounts referred to in clause (a) and/or (b) above,
plus (d) any optional amounts that may be added thereto at the Maximum
Conversion Date by the Holder in accordance  with  the  terms  hereof  (the 
then  outstanding  principal  amount  of  this  Note immediately following the
Maximum Conversion Date, plus the amounts referred to in clauses (b), (c) and
(d) above shall collectively be referred to as the Remaining Convertible
Amount). In the event that the sum of (x) the aggregate number of shares of
Common Stock issued upon conversion of this Note and the other Notes issued
pursuant to the Purchase Agreement plus (y) the aggregate number of shares of
Common Stock that remain issuable upon conversion of this Note and the other
Notes issued pursuant to the Purchase Agreement, represents at least one hundred
percent (100%) of the Maximum Share Amount (the Triggering Event), the Borrower
will use its best efforts to seek and obtain Shareholder Approval (or obtain
such other relief as will allow conversions hereunder in excess of the Maximum
Share Amount) as soon as practicable following the Triggering Event and before
the Maximum Conversion Date.  As used herein, Shareholder Approval means
approval by the shareholders of the Borrower to authorize the issuance of the
full number of shares of Common Stock which would be issuable upon full
conversion of the then outstanding Notes but for the Maximum Share Amount.
 
1.8       Status as Shareholder.  Upon submission of a Notice of Conversion by a
Holder, (i) the shares covered thereby (other than the shares, if any, which
cannot be issued because their issuance would exceed such Holder’s allocated
portion of the Reserved Amount or Maximum Share Amount) shall be deemed
converted into shares of Common Stock and (ii) the Holder’s rights as a Holder
of such converted portion of this Note shall cease and terminate, excepting only
the right to receive certificates for such shares of Common Stock and to any
remedies provided herein or otherwise available at law or in equity to such
Holder because of a failure by the Borrower to comply with the terms  of this
Note.  Notwithstanding the foregoing, if a Holder has not received certificates
for all shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Deadline with respect to a conversion of any portion of this
Note for any reason, then (unless the Holder otherwise elects to retain its
status as a holder of Common Stock by so notifying the Borrower) the Holder
shall regain the rights of a Holder of this Note with respect to such
unconverted portions of this Note and the Borrower shall, as soon as
practicable, return such unconverted Note to the Holder or, if the Note has not
been surrendered, adjust its records to reflect that such portion of this Note
has not been converted.  In all cases, the Holder shall retain all of its rights
and remedies (including, without limitation, (i) the right to receive Conversion
Default Payments pursuant to Section 1.3 to the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii) the right to
have the Conversion Price with respect to subsequent conversions determined in
accordance with Section 1.3) for the Borrower’s failure to convert this Note.
 
 
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1.9       Prepayment.   Notwithstanding anything to the contrary contained in
this Note, at any time during the period beginning on the Issue Date and ending
on the date which is thirty (30) days following the issue date, the Borrower
shall have the right, exercisable on not less than three (3) Trading Days prior
written notice to the Holder of the Note to prepay the outstanding Note
(principal and accrued interest), in full, in accordance with this Section
1.9.Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall
be delivered to the Holder of the Note at its registered addresses and shall
state: (1) that the Borrower is exercising its right to prepay the Note, and (2)
the date of prepayment which shall be not more than three (3) Trading Days from
the date of the Optional Prepayment Notice.  On the date fixed for
prepayment  (the  “Optional  Prepayment  Date”),  the  Borrower  shall  make  payment  of  the
Optional Prepayment Amount (as defined below) to or upon the order of the Holder
as specified by the Holder in writing to the Borrower at least one (1) business
day prior to the Optional Prepayment Date.   If the Borrower exercises its right
to prepay the Note, the Borrower shall make payment to the Holder of an amount
in cash (the “Optional Prepayment Amount”) equal to 125%, multiplied by the sum
of: (w) the then outstanding principal amount of this Note plus (x) accrued and
unpaid interest on the unpaid principal amount of this Note to the Optional
Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in
clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections
1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice
and fails to pay the Optional Prepayment Amount due to the Holder of the Note
within two (2) business days following the Optional Prepayment Date, the
Borrower shall forever forfeit its right to prepay the Note pursuant to this
Section 1.9.
 
Notwithstanding anything to the contrary contained in this Note, at any time
during the period beginning  on the date which is thirty-one  (31) days
following the issue date and ending on the date which is sixty (60) days
following the issue date, the Borrower shall have the right, exercisable on not
less than three (3) Trading Days prior written notice to the Holder of the Note
to prepay the outstanding Note (principal and accrued interest), in full, in
accordance with this Section 1.9.  Any Optional Prepayment Notice shall be
delivered to the Holder of the Note at its registered addresses and shall state:
(1) that the Borrower is exercising its right to prepay the Note, and (2) the
date of prepayment which shall be not more than three (3) Trading Days from the
date of the Optional Prepayment Notice.  On the Optional Prepayment Date, the
Borrower shall make payment of the Second Optional Prepayment Amount (as defined
below) to or upon the order of the Holder as specified by the Holder in writing
to the Borrower at least one (1) business day prior to the Optional Prepayment
Date.  If the Borrower exercises its right to prepay the Note, the Borrower
shall make payment to the Holder of an amount in cash (the “Second Optional
Prepayment Amount”) equal to 130%, multiplied by the sum of: (w) the then
outstanding principal amount of this Note plus (x) accrued and unpaid interest
on the unpaid principal amount of this Note to the Optional Prepayment Date plus
(y) Default Interest, if any, on the amounts referred to in clauses (w) and (x)
plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g)
hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay
the Second Optional Prepayment Amount due to the Holder of the Note
within  two  (2)  business  days  following  the  Optional  Prepayment  Date,  the  Borrower  shall
forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
 
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Notwithstanding anything to the contrary contained in this Note, at any time
during the period beginning  on the date which is sixty-one  (61) days following
the issue date and ending on the date which is ninety (90) days following the
issue date, the Borrower shall have the right, exercisable on not less than
three (3) Trading Days prior written notice to the Holder of the Note to prepay
the outstanding Note (principal and accrued interest), in full, in accordance
with this Section 1.9.   Any Optional Prepayment Notice shall be delivered to
the Holder of the Note at its registered addresses and shall state: (1) that the
Borrower is exercising its right to prepay the Note, and (2) the date of
prepayment which shall be not more than three (3) Trading Days from the date of
the Optional Prepayment Notice.  On the Optional Prepayment Date, the Borrower
shall make payment of the Third Optional Prepayment Amount (as defined below) to
or upon the order of the Holder as specified by the Holder in writing to the
Borrower at least one (1) business day prior to the Optional Prepayment
Date.  If the Borrower exercises its right to prepay the Note, the Borrower
shall make payment to the Holder of an amount in cash (the “Third Optional
Prepayment Amount”) equal to 135%, multiplied by the sum of: (w) the then
outstanding principal amount of this Note plus (x) accrued and unpaid interest
on the unpaid principal amount of this Note to the Optional Prepayment Date plus
(y) Default Interest, if any, on the amounts referred to in clauses (w) and (x)
plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g)
hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay
the Third Optional Prepayment Amount due to the Holder of the Note
within  two  (2)  business  days  following  the  Optional  Prepayment  Date,  the  Borrower  shall
forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
Notwithstanding any to the contrary stated elsewhere herein, at any time during
the period beginning on the date that is ninety-one  (91) day from the issue
date and ending one
hundred  twenty  (120)  days  following  the  issue  date,  the  Borrower  shall  have  the  right,
exercisable on not less than three (3) Trading Days prior written notice to the
Holder of the Note to prepay the outstanding Note (principal and accrued
interest), in full, in accordance with this Section 1.9.  Any Optional
Prepayment Notice shall be delivered to the Holder of the Note at its registered
addresses and shall state: (1) that the Borrower is exercising its right to
prepay the Note, and (2) the date of prepayment which shall be not more than
three (3) Trading Days from the date of the Optional Prepayment Notice.  On the
Optional Prepayment Date, the Borrower shall make payment of the Fourth Optional
Prepayment Amount (as defined below) to or upon the order of the Holder as
specified by the Holder in writing to the Borrower at least one (1) business day
prior to the Optional Prepayment Date.  If the Borrower exercises its right to
prepay the Note, the Borrower shall make payment to the Holder of an amount in
cash (the “Fourth Optional Prepayment Amount”) equal to 140%, multiplied by the
sum of: (w) the then outstanding principal amount of this Note plus (x) accrued
and unpaid interest on the unpaid principal amount of this Note to the Optional
Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in
clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections
1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice
and fails to pay the Fourth Optional Prepayment Amount due to the Holder of the
Note
within  two  (2)  business  days  following  the  Optional  Prepayment  Date,  the  Borrower  shall
forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
 
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Notwithstanding any to the contrary stated elsewhere herein, at any time during
the period beginning on the date that is one hundred twenty-one  (121) day from
the issue date and ending one hundred fifty (150) days following the issue date,
the Borrower shall have the right, exercisable on not less than three (3)
Trading Days prior written notice to the Holder of the Note to prepay the
outstanding Note (principal and accrued interest), in full, in accordance with
this Section 1.9.  Any Optional Prepayment Notice shall be delivered to the
Holder of the Note at its registered addresses and shall state: (1) that the
Borrower is exercising its right to prepay the Note, and (2) the date of
prepayment which shall be not more than three (3) Trading Days from the date of
the Optional Prepayment Notice.  On the Optional Prepayment Date, the Borrower
shall make payment of the Fifth Optional Prepayment Amount (as defined below) to
or upon the order of the Holder as specified by the Holder in writing to the
Borrower at least one (1) business day prior to the Optional Prepayment
Date.   If the Borrower exercises its right to prepay the Note, the Borrower
shall make payment to the Holder of an amount in cash (the “Fifth Optional
Prepayment Amount”) equal to 145%, multiplied by the sum of: (w) the then
outstanding principal amount of this Note plus  (x) accrued  and unpaid interest
on  the unpaid  principal amount of this Note to the Optional Prepayment Date
plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and
(x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g)
hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay
the Fifth Optional Prepayment Amount due to the Holder of the Note within two
(2) business days following the Optional Prepayment Date, the Borrower shall
forever forfeit its right to prepay the Note pursuant to this Section 1.9.
 
Notwithstanding any to the contrary stated elsewhere herein, at any time during
the period beginning on the date that is one hundred fifty-one  (151) day from
the issue date and ending one hundred eighty (180) days following the issue
date, the Borrower shall have the right, exercisable on not less than three (3)
Trading Days prior written notice to the Holder of the Note to prepay the
outstanding Note (principal and accrued interest), in full, in accordance with
this Section 1.9.  Any Optional Prepayment Notice shall be delivered to the
Holder of the Note at its registered addresses and shall state: (1) that the
Borrower is exercising its right to prepay the Note, and (2) the date of
prepayment which shall be not more than three (3) Trading Days from the date of
the Optional Prepayment Notice.  On the Optional Prepayment Date, the Borrower
shall make payment of the Sixth Optional Prepayment Amount (as defined below) to
or upon the order of the Holder as specified by the Holder in writing to the
Borrower at least one (1) business day prior to the Optional Prepayment
Date.   If the Borrower exercises its right to prepay the Note, the Borrower
shall make payment to the Holder of an amount in cash (the “Sixth Optional
Prepayment Amount”) equal to 150%, multiplied by the sum of: (w) the then
outstanding principal amount of this Note plus  (x) accrued  and unpaid interest
on  the unpaid  principal amount of this Note to the Optional Prepayment Date
plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and
(x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g)
hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay
the Sixth Optional Prepayment Amount due to the Holder of the Note within two
(2) business days following the Optional Prepayment Date, the Borrower shall
forever forfeit its right to prepay the Note pursuant to this Section 1.9.

After the expiration of one hundred eighty (180) following the date of the Note,
the Borrower shall have no right of prepayment.
 
 
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ARTICLE II. CERTAIN COVENANTS

2.1       Distributions on Capital Stock.  So long as the Borrower shall have
any obligation under this Note, the Borrower shall not without the Holder’s
written consent (a) pay, declare or set apart for such payment, any dividend or
other distribution (whether in cash, property or other securities) on shares of
capital stock other than dividends on shares of Common Stock solely in the form
of additional shares of Common Stock or (b) directly or indirectly or through
any subsidiary make any other payment or distribution in respect of its capital
stock except for distributions pursuant to any shareholders’ rights plan which
is approved by a majority of the Borrower’s disinterested directors.
 
2.2       Restriction on Stock Repurchases.  So long as the Borrower shall have
any obligation under this Note, the Borrower shall not without the Holder’s
written consent redeem, repurchase or otherwise acquire (whether for cash or in
exchange for property or other securities or otherwise) in any one transaction
or series of related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such shares.
 
2.3       INTENTIONALLY DELETED
 
2.4       Sale of Assets.  During the period that Borrower has any obligations
under the Note, Borrower will not sell, dispose of,  liquidate or transfer a
substantial majority of its assets nor will the Company the effect of which
would result in the Company being defined as a “Shell Company” as defined in the
Securities Exchange Acts.
 
2.5       INTENTIONALLY DELETED
 
2.6       INTENTIONALLY DELETED
 
 
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ARTICLE III.  EVENTS OF DEFAULT

If any of the following events of default (each, an “Event of Default”) shall
occur:

3.1      Failure  to  Pay  Principal  or
 Interest.    The  Borrower  fails  to  pay  the principal hereof or interest
thereon when due on this Note, whether at maturity, upon a Trading Market
Prepayment Event pursuant to Section 1.7, upon acceleration or otherwise;
 
3.2      Conversion  and  the
 Shares.    The  Borrower  fails  to  issue  shares  of Common Stock to the
Holder (or announces or threatens that it will not honor its obligation to do
so) upon exercise by the Holder of the conversion rights of the Holder in
accordance with the terms of this Note, fails to transfer or cause its transfer
agent to transfer (electronically or in certificated form) any certificate for
shares of Common Stock issued to the Holder upon conversion of or otherwise
pursuant to this Note as and when required by this Note, or fails to remove any
restrictive legend (or to withdraw any stop transfer instructions in respect
thereof) on any certificate for any shares of Common Stock issued to the Holder
upon conversion of or otherwise pursuant to this Note as and when required by
this Note (or makes any announcement, statement or threat that it does not
intend to honor the obligations described in this paragraph) and any such
failure shall continue uncured (or any announcement, statement or threat not to
honor its obligations shall not be rescinded in writing) for three (3) days
after the Borrower shall have been notified thereof in writing by the Holder;
 
3.3      Breach of Covenants.   The Borrower breaches any material covenant or
other material term or condition contained in this Note and any collateral
documents including but not limited to the Purchase Agreement and such breach
continues for a period of ten (10) days after written notice thereof to the
Borrower from the Holder;
 
3.4      Breach  of  Representations  and
 Warranties.     Any  representation  or warranty of the Borrower made herein or
in any agreement, statement or certificate given in writing pursuant hereto or
in connection herewith (including, without limitation, the Purchase Agreement),
shall be false or misleading in any material respect when made and the breach of
which has (or with the passage of time will have) a material adverse effect on
the rights of the Holder with respect to this Note or the Purchase Agreement;
 
3.5      Receiver or Trustee.   The Borrower or any subsidiary of the Borrower
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial part of
its property or business, or such a receiver or trustee shall otherwise be
appointed;
 
3.6      Judgments.  Any money judgment, writ or similar process shall be
entered or filed against the Borrower or any subsidiary of the Borrower or any
of its property or other assets for more than $250,000, and shall remain
unvacated, unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be unreasonably
withheld;
 
3.7      Bankruptcy.    Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings, voluntary or involuntary, for relief under any
bankruptcy law or any law  for the relief of debtors  shall  be instituted  by
or against  the Borrower or any subsidiary of the Borrower;
 
3.8      Delisting of Common Stock.   The Borrower shall fail to maintain the
listing of the Common Stock on at least one of the OTCBB or an equivalent
replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market,
the New York Stock Exchange, or the American Stock Exchange;
 
 
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3.9      Failure to Comply with the Exchange Act. The Borrower shall fail to
comply with the reporting requirements of the Exchange Act; and/or the Borrower
shall cease to be subject to the reporting requirements of the Exchange Act; or
 
3.10    Liquidation.  Any dissolution, liquidation, or winding up of Borrower or
any substantial portion of its business.
 
3.11    Cessation of Operations. Any cessation of operations by Borrower or
Borrower admits it is otherwise generally unable to pay its debts as such debts
become due, provided, however, that any disclosure of the Borrower’s ability to
continue as a “going concern” shall not be an admission that the Borrower cannot
pay its debts as they become due.
 
3.12    Maintenance of Assets. The  failure  by  Borrower  to  maintain  any
material intellectual property rights, personal, real property or other assets
which are necessary to conduct its business (whether now or in the future).
 
3.13    Financial Statement
Restatement. The   restatement   of   any   financial statements filed by the
Borrower with the SEC for any date or period from two years prior to the Issue
Date of this Note and until this Note is no longer outstanding, if the result of
such restatement would, by comparison to the unrestated financial statement,
have constituted a material adverse effect on the rights of the Holder with
respect to this Note or the Purchase Agreement.
 
3.14    Reverse Splits. The  Borrower  effectuates  a  reverse  split  of  its
Common Stock without twenty (20) days prior written notice to the Holder.
 
3.15    Replacement of Transfer Agent. In the event that the Borrower proposes
to replace its transfer agent, the Borrower fails to provide, prior to the
effective date of such replacement, a fully executed Irrevocable Transfer Agent
Instructions in a form as initially delivered pursuant to the Purchase Agreement
(including but not limited to the provision to irrevocably reserve shares of
Common Stock in the Reserved Amount) signed by the successor transfer agent to
Borrower and the Borrower.
 
3.16    Cross-Default.  Notwithstanding anything to the contrary contained in
this Note or the other related or companion documents, a breach or default by
the Borrower of any covenant or other term or condition contained in any of the
Other Agreements, after the passage of all applicable notice and cure or grace
periods, shall, at the option of the Borrower, be considered a default under
this Note and the Other Agreements, in which event the Holder shall be entitled
(but in no event required) to apply all rights and remedies of the Holder under
the terms of this Note and the Other Agreements by reason of a default under
said Other Agreement or  hereunder. Other  Agreements  means,  collectively, 
all  agreements  and  instruments between, among or by: (1) the Borrower, and,
or for the benefit of, (2) the Holder and any affiliate of the Holder,
including, without limitation, promissory notes; provided, however, the term
Other Agreements shall not include the related or companion documents to this
Note. Each of the loan transactions will be cross-defaulted with each other loan
transaction and with all other existing and future debt of Borrower to the
Holder.
 
 
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Upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1 (solely with respect to failure to pay the principal
hereof or interest thereon when due at the Maturity Date), the Borrower shall
pay to the Holder, in full satisfaction of its obligations hereunder, an amount
equal to the Default Sum (as defined herein).  Upon the occurrence and during
the continuation of any Event of Default specified in Sections 3.1 (solely with
respect to failure to pay the principal hereof or interest thereon when due on
this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon
acceleration), 3.2, 3.3, 3.4, 3.6, or 3.8 exercisable through the delivery of
written notice to the Borrower by such Holders (the “Default Notice”), and upon
the occurrence of an Event of Default specified the remaining sections of
Articles III (other than failure to pay the principal hereof or interest thereon
at the Maturity Date specified in Section 3,1 hereof), the Note shall become
immediately due and payable and the Borrower shall pay to the Holder, in full
satisfaction of its obligations hereunder, an amount equal to the greater of (i)
135% times the sum of (w) the then outstanding principal amount of this Note
plus (x) accrued and unpaid interest on the unpaid principal amount of this Note
to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default
Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z)
any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the
then outstanding principal amount of this Note to the date of payment plus the
amounts referred to in clauses (x), (y) and (z) shall collectively be known as
the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid,
where parity value means (a) the highest number of shares of Common Stock
issuable upon conversion of or otherwise pursuant to such Default Sum in
accordance with Article I, treating the Trading Day immediately preceding the
Mandatory Prepayment Date as the “Conversion Date” for purposes of determining
the lowest applicable Conversion Price, unless the Default Event arises as a
result of a breach in respect of a specific Conversion Date in which case such
Conversion Date shall be the Conversion Date), multiplied by (b) the highest
Closing Bid Price for the Common Stock during the period beginning on the date
of first occurrence of the Event of Default and ending one day prior to the
Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable
hereunder shall immediately become due and payable, all without demand,
presentment or notice, all of which hereby are expressly waived, together with
all costs, including, without limitation, legal fees and expenses, of
collection, and the Holder shall be entitled to exercise all other rights and
remedies available at law or in equity.
 
If the Borrower fails to pay the Default Amount within five (5) business days of
written notice that such amount is due and payable, then the Holder shall have
the right at any time, so long as the Borrower remains in default (and so long
and to the extent that there are sufficient authorized shares), to require the
Borrower, upon written notice, to immediately issue, in lieu of the Default
Amount, the number of shares of Common Stock of the Borrower equal to the
Default Amount divided by the Conversion Price then in effect.
 
 
D-42

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ARTICLE IV. MISCELLANEOUS

4.1      Failure or Indulgence Not Waiver.  No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges.   All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
 
4.2      Notices.  All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice.  Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following  the  date  of 
mailing  by  express  courier  service,  fully  prepaid,  addressed  to  such
address, or upon actual receipt of such mailing, whichever shall first occur. 
The addresses for such communications shall be:
 
If to the Borrower, to:
         
LUX DIGITAL PICTURES, INC.
   
12021 Wilshire Boulevard – Suite 450
   
Los Angeles, CA 90025
   
Attn: INGO JUNCT, President
    facsimile: 510-948-4000 x2         With a copy by fax only to (which copy
shall not constitute notice):         Mark J Richardson    
Richardson & Associates
   
1453 Third Street Promenade
   
Suite 315
   
Santa Monica, CA. 90401
        If to the Holder:        
ASHER ENTERPRISES, INC.
   
1 Linden Pl., Suite 207
   
Great Neck, NY. 11021
   
Attn: Curt Kramer, President
    facsimile: 516-498-9894         With a copy by fax only to (which copy shall
not constitute notice):         Naidich Wurman Birnbaum & Mayday LLP    
80 Cuttermill Road, Suite 410
   
Great Neck, NY 11021
   
Attn: Bernard S. Feldman, Esq.
    facsimile: 516-466-3555  

 
 
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4.3      Amendments.  This Note and any provision hereof may only be amended by
an instrument in writing signed by the Borrower and the Holder.  The term “Note”
and all reference thereto, as used throughout this instrument, shall mean this
instrument (and the other Notes issued pursuant to the Purchase Agreement) as
originally executed, or if later amended or supplemented, then as so amended or
supplemented.
 
4.4      Assignability.   This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to be the benefit of the Holder and its
successors and assigns.  Each transferee of this Note must be an accredited
investor (as defined in Rule 501(a)of the 1933 Act). Notwithstanding anything in
this Note to the contrary, this Note may be pledged as collateral in connection
with a bona fide margin account or other lending arrangement.
 
4.5      Cost of Collection.   If default is made in the payment of this Note,
theBorrower shall pay the Holder hereof costs of collection,
including reasonable attorneys’ fees.
 
4.6      Governing
 Law.    This  Note  shall  be  governed  by  and  construed  in accordance with
the laws of the State of New York without regard to principles of conflicts of
laws.   Any action brought by either party against the other concerning the
transactions contemplated by this Note shall be brought only in the state courts
of New York or in the federal courts located in the state and county of
Nassau.   The parties to this Note hereby irrevocably waive any objection to
jurisdiction and venue of any action instituted hereunder and shall not assert
any defense based on lack of jurisdiction or venue or based upon
forum non conveniens. The Borrower and Holder waive trial by jury.  The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs.  In the event that any provision of this
Note or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law.  Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any
agreement.   Each party hereby irrevocably waives personal service of process
and consents to process being served in any suit, action or proceeding in
connection with this Agreement or any other Transaction Document by mailing a
copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof.  Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other
manner permitted by law.
 
4.7      Certain
 Amounts.    Whenever  pursuant  to  this  Note  the  Borrower  is required to
pay an amount in excess of the outstanding principal amount (or the portion
thereof required to be paid at that time) plus accrued and unpaid interest plus
Default Interest on such interest, the Borrower and the Holder agree that the
actual damages to the Holder from the receipt of cash payment on this Note may
be difficult to determine and the amount to be so paid by the Borrower
represents stipulated damages and not a penalty and is intended to compensate
the Holder in part for loss of the opportunity to convert this Note and to earn
a return from the sale of shares of Common Stock acquired upon conversion of
this Note at a price in excess of the price paid for such shares pursuant to
this Note.  The Borrower and the Holder hereby agree that such amount of
stipulated damages is not plainly disproportionate to the possible loss to the
Holder from the receipt of a cash payment without the opportunity to convert
this Note into shares of Common Stock.
 
 
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4.8      Purchase Agreement.  By its acceptance of this Note, each party agrees
to be bound by the applicable terms of the Purchase Agreement.
 
4.9      Notice of Corporate Events.   Except as otherwise provided below, the
Holder of this Note shall have no rights as a Holder of Common Stock unless and
only to the extent that it converts this Note into Common Stock. The Borrower
shall provide the Holder with prior notification of any meeting of the
Borrower’s shareholders (and copies of proxy materials and other information
sent to shareholders).   In the event of any taking by the Borrower of a record
of its shareholders for the purpose of determining shareholders who are entitled
to receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation,
reclassification or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Borrower or any proposed liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time.  The Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this Section
4.10.
 
4.10    Remedies. The  Borrower  acknowledges  that  a  breach  by  it  of  its
obligations hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby.  Accordingly, the
Borrower acknowledges that the remedy at law for a breach of its obligations
under this Note will be inadequate and agrees, in the event of a breach or
threatened breach by the Borrower of the provisions of this Note, that the
Holder shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Note and to
enforce specifically the terms and provisions thereof, without the necessity of
showing economic loss and without any bond or other security being required.
 
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by
its duly authorized officer this December 28, 2011.
 
LUX DIGITAL PICTURES, INC.
 
By: ______________________
INGO JUNCT, President
 
 
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EXHIBIT A:   NOTICE OF CONVERSION
 
The undersigned hereby elects to convert $ _________ principal amount of the
Note (defined below) into that number of shares of Common Stock to be issued
pursuant to the conversion of the Note (“Common Stock”) as set forth below, of
LUX DIGITAL PICTURES, INC., a Wyoming corporation (the “Borrower”) according to
the conditions of the convertible note of the Borrower dated as of December 28,
2011 (the “Note”), as of the date written below.   No fee will be charged to the
Holder for any conversion, except for transfer taxes, if any.
 
Box Checked as to applicable instructions:
 
o  The Borrower shall electronically transmit the Common Stock issuable pursuant
to this Notice of Conversion to the account of the undersigned or its nominee
with DTC through its Deposit Withdrawal Agent Commission system (“DWAC
Transfer”).
 
Name of DTC Prime Broker: _____________
Account Number:____________________
 
o  The  undersigned  hereby  requests  that  the  Borrower  issue  a  certificate  or
certificates for the number of shares of Common Stock set forth below (which
numbers are based on the Holder’s calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an
attachment hereto:
 
ASHER ENTERPRISES, INC.
 
1 Linden Pl., Suite 207
Great Neck, NY. 11021
Attention: Certificate Delivery
(516) 498-9890
 

Date of Conversion:   Applicable Conversion Price: $ Number of Shares of Common
Stock to be Issued Pursuant to Conversion of the Notes:  
Amount of Principal Balance Due remaining Under the Note after this conversion:
 

 
ASHER ENTERPRISES, INC.
 
By: __________________________
Name: Curt Kramer,  President
Date:_________________________
1 Linden Pl., Suite 207
Great Neck, NY. 11021
 
 
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EXHIBIT E
 
LIABILITIES INCURRED AND ASSUMED BY SELLER
SECTION 4.8 OF THE AGREEMENT

All liabilities to the Lux Assets at the time of the Closing of the Agreement,
including but not limited to the convertible promissory note in the original
principal amount of $17,979.00 payable to Mark J. Richardson, but expressly
excluding only those Lux liabilities and obligations (i) evidenced by the
Convertible Promissory Notes payable to Asher Enterprises, (ii) Lux’s Agreement
with Manhattan Transfer Registrar Company commencing May 1, 2012, and (iii) all
Lux corporate maintenance costs accruing after the Closing including state
filing fees (paid to May 2013), legal, accounting and public company filing
expenses.
 
 
E-1

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EXHIBIT F

LETTER OF INTENT BY AND BETWEEN LUX DIGITAL PICTURES, INC. AND RADIO LOYALTY,
INC. DATED MAY 16, 2012
 
 
 
 
 
 
 
 
 
 
 
 
F-1

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Lux Digital Pictures, Inc.
12021 Wilshire Boulevard, Suite 450
Los Angeles, California 90025
Telephone: (501) 498-4000

--------------------------------------------------------------------------------

May 16, 2012
 
Via U.S. Mail
 
Michael Hill, President
Radio Loyalty, Inc.
345 Chapala Street
Santa Barbara, California 93101

 
Re:
Binding Letter of Intent Regarding Proposed Business Combination of Lux Digital
Pictures, Inc. and Radio Loyalty, Inc.
 

Dear Mr. Hill:

Lux Digital Pictures, Inc., a Wyoming corporation (“Lux”), is pleased to confirm
to the management of Radio Loyalty, Inc., a California corporation (“RLI”), the
terms under which it will acquire and engage in a business combination with RLI
pursuant to which RLI will become a 100% wholly-owned subsidiary of Lux, and the
outstanding common stock of Lux will be approximately 90% owned by the security
holders of RLI, as provided in this agreement between RLI and Lux (the
“Transaction”).  This letter of intent (“LOI”) is intended to be binding between
RLI and Lux and shall serve as an outline of the principle terms and conditions
regarding the Transaction, but is subject to the execution of a definitive
agreement (the “Definitive Agreement”) by the parties to this LOI, if a
Definitive Agreement is made.  After the closing of the Transaction, Lux will to
change its name to one selected by RLI, and will change its trading symbol,
address, telephone number, website address and other appropriate items to
reflect the new business of RLI.  A copy of a summary of RLI’s business plan is
attached to this LOI as Exhibit A.

1.       Share Exchange.  RLI agrees to become a wholly owned subsidiary of Lux
and Lux agrees to issue a sufficient amount of equity to the shareholders of RLI
such that upon the closing (the “Closing”) of the Transaction, (a) Lux will have
a market capitalization of at least $14,500,000 (the “Valuation”), and (b) the
shareholders of RLI and their affiliates will collectively own, including
capital stock of Lux already owned by shareholders of RLI and their affiliates
prior to the Closing, 90% of the total issued and outstanding capital stock of
Lux on a fully diluted basis, and (c) the holders of the outstanding shares of
Series A Convertible Preferred Stock of Lux (the “Lux Partners”) will, upon the
conversion of all those shares into common stock, collectively own no less than
10% of the total issued and outstanding common stock of Lux on a fully diluted
basis, provided, in the case of subparagraphs (b) and (c) above, that the Lux
Partners and RLI shareholders will at that time bear the dilution of the
unaffiliated float (i.e. the outstanding shares of Lux held by persons not
affiliated with the Lux Partners or the RLI shareholders) on a pro rata
basis.  The Transaction will be implemented as follows: Lux will acquire RLI
with RLI as the surviving entity at the Closing, in which the shareholders of
RLI will be issued a sufficient number of shares of the capital stock of Lux
subject to the Valuation so that at the Closing, they will collectively
(including capital stock of Lux already owned by such shareholders and their
affiliates) own 90% of the total issued and outstanding capital stock of Lux on
a fully diluted basis.  RLI covenants to use its best efforts to cause its
shareholders to participate in the Transaction.

2.       Board of Directors and Executive Officers.  On the Closing, the then
Board of Directors of Lux will appoint RLI designated members to the Lux Board
of Directors and RLI designated executive officers of Lux to replace them, as
designated in writing by RLI, and the existing directors and officers of Lux
will resign simultaneously unless requested by RLI in writing to remain.  The
new Board of Directors will designate the executive officers of Lux moving
forward.  Lux directors Michael Hill and, if he is still a director, Ingo Jucht,
will vote to approve and close the Transaction, provided it is in substantial
compliance with this LOI.

 
 

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Michael Hill, President
Radio Loyalty, Inc.
May 16, 2012
Page 2
 
3.       Timing.  Lux is prepared to expeditiously complete its due diligence of
RLI.  Upon execution of this LOI by all parties, RLI will provide Lux with all
information and make available all RLI personnel required by Lux to complete
Lux’s due diligence of RLI.  Lux will also provide RLI with all information and
make available all Lux personnel required by RLI to complete RLI’s due diligence
of Lux.  Upon satisfactory completion by RLI and Lux of due diligence, Lux will
deliver to RLI a draft of the Definitive Agreement to be executed by the
parties, which will contain the terms described herein, and such
representations, warranties and indemnification provisions and other terms as
are customary for transactions similar to this Transaction.  RLI covenants to
close the Transaction on or before October 1, 2012.

4.       Conditions of Closing.  This LOI shall be construed as a legally
binding obligation of the parties hereto; provided, however, that the Closing of
the Transaction will be subject to conditions customary or appropriate for
transactions of this type, including without limitation: (i) obtaining all
governmental, regulatory, and third party consents and approvals necessary or
desirable to facilitate consummation of the Transaction; (ii) in Lux’s
reasonable discretion, satisfaction (which satisfaction Lux must confirm in
writing prior to the Closing of the Transaction) with a full and complete due
diligence investigation of all available information regarding RLI including
financial, legal, and business affairs; (iii) in RLI’s reasonable discretion,
satisfaction (which satisfaction RLI must confirm in writing prior to the
Closing of the Transaction) with a full and complete due diligence investigation
of all available information regarding Lux including financial, business and
legal affairs; (iv) execution of affirmative consents by the holders of the
requisite number of the outstanding shares of RLI; (v) transfer of ownership to
Lux of 100% of the outstanding shares of RLI, free and clear of any liens,
claims and encumbrances; (vi) receipt by Lux of a written representation from
RLI that no material adverse change has occurred to RLI between the date of
execution of this LOI and the Closing of the Transaction; (vii) completion of
audited financial statements of RLI necessary to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and (viii)
approval of the Transaction by the Boards of Directors of RLI and Lux,
respectively.

5.       Conduct of Business.  Prior to the Closing of the Transaction, RLI will
conduct its business only in the ordinary course, consistent with past practice,
and will use its best efforts to maintain the value of the business as a going
concern.

6.       Pre-Closing Cooperation.  From the date of execution of this LOI until
the Closing of the Transaction, each party agrees to provide the other party and
its designated representatives with access to all reasonably relevant
information regarding the party that the other party requests.  Neither party
will make any announcement about the Transaction to the public, to the customers
of either party, employees of either party, or to any other person or entity
(nor will they permit any of their affiliates to do so), except on a “need to
know” basis or as required by law, including without limitation the rules and
regulations of the Securities and Exchange Commission, without the prior written
consent of the other party.

7.       Expense.  Each party will bear its own expenses in connection with the
transaction contemplated hereby, including without limitation, legal and
accounting fees.

8.       Confidentiality.  Any information, including but not limited to data,
business information (including customer lists and prospects), technical
information, computer programs and documentation, programs, files,
specifications, drawings, sketches, models, samples, tools or other data, oral,
written or otherwise (hereinafter called “Information”), furnished or disclosed
by one party to the other for the purpose of the contemplated transaction
herein, will remain the disclosing party’s property until the closing of the
Transaction, at which time all such Information will become the property of
Lux.  All copies of such Information in written, graphic or other tangible form
must be returned to the disclosing party immediately upon written request if the
transaction contemplated herein is not consummated.  Unless such Information was
previously known to receiving party free of any obligation to keep it
confidential, or has been or is subsequently made public by the disclosing party
or a third party, it must be kept confidential by the receiving party, will be
used only in performing due diligence for the Transaction, and may not be used
for other purposes except upon such terms as may be agreed upon between Lux and
RLI in writing

 
 

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Michael Hill, President
Radio Loyalty, Inc.
May 16, 2012
Page 3
 
9.       Exclusively.  In consideration hereof and of the time and resources
that Lux will devote to the Transaction, RLI agrees that until 180 days from the
date of this LOI (such date, the “End of the Exclusivity Period”), RLI and its
respective affiliates, directors, officers, employees, representatives and
agents will not, directly or indirectly, solicit, initiate, enter into or
continue any discussions or transactions with, or encourage, or provide any
information to any person or entity (other than RLI and RLI’s designees),
concerning any sale of its stock other than in a private placement to raise
capital or as otherwise contemplated in Paragraph 1 of this LOI, whether
specifically or as part of a transaction involving other assets of RLI.  RLI
represents that neither RLI, nor any of its affiliates, is party to or bound by
any agreement with respect to any such transaction other than as contemplated by
this LOI.

10.     Entire Agreement.  This LOI and the SPA constitute the entire agreement
among Lux, RLI, and their respective affiliates, and supersedes all prior
communications, agreements, and understandings, written or oral, with respect to
the Transaction.

11.     Governing Law.  This LOI and the SPA will be governed by the laws of the
State of California, and will bind and inure to the benefit of the parties and
their respective successors and assigns.

12.     Executive Summary.  Attached to this LOI as Exhibit A is a summary of
RLI’s business plan.  Lux has received and reviewed another expanded Executive
Summary of RLI previously delivered by RLI to Lux, and has utilized it in
analyzing RLI.  These Executive Summaries contain forward looking statements
based on estimates and assumptions made by RLI management that may prove to be
incorrect.  There is no assurance that RLI will achieve any of the results
expressed or implied in forward looking statements.  The Executive Summaries are
not meant to be the complete due diligence information of RLI.

13.     Severability.  If any provision of this LOI is held to be invalid or
unenforceable by a court of competent jurisdiction, this LOI shall be
interpreted and enforceable as if such provision were severed or limited, but
only to the extent necessary to render such provision and this LOI enforceable.

14.     Rights Cumulative.  All rights and remedies under this LOI are
cumulative, and none is intended to be exclusive of another. No delay or
omission in insisting upon the strict observance of performance of any provision
of this LOI, or in exercising any right or remedy, shall be construed as a
waiver or relinquishment of such provision, nor shall it impair such right or
remedy. Every right and remedy may be exercised from time to time and as often
as deemed expedient.

15.     Legal Representation.  RLI hereby acknowledges that Richardson &
Associates owns shares of common stock of Lux and also has performed legal work
for Lux.  Richardson & Associates is also legal counsel to RLI.  Lux and RLI
hereby acknowledge that they have been advised by Richardson & Associates to
seek separate independent legal counsel to represent them in this Transaction,
and that if they do not obtain separate legal counsel, they expressly waive the
conflicts of interest that will be experienced by Richardson & Associates in
performing legal work for the Transaction for the benefit of both Lux and
RLI.  Richardson & Associates will have a conflict of interest in advocating any
position in the Transaction for either Lux or RLI.

If the foregoing is in accordance with your understanding, please sign this LOI
in the space indicated below and return it to us for receipt no later than 6:00
p.m. (Pacific Daylight Savings Time) on May 17, 2012 (the “Execution Date”),
whereupon this LOI will become a binding obligation between the parties to the
extent provided herein, and also send an original executed counterpart of this
LOI to us by overnight courier.  This LOI will expire unless we receive an
executed copy by you within the time period provided in the previous sentence.

 
 

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Michael Hill, President
Radio Loyalty, Inc.
May 16, 2012
Page 4
 
If the foregoing is in accordance with your understanding, please sign this LOI
in the space indicated below and return it to us for receipt no later then 6:00
p.m (Pacific Daylight Savings Time) on May 17, 2012 ( the Execution Date),
whereupon this LOI will become a binding obligation between the parties to the
extent provided herein, and also send an original executed counterpart of this
LOI to us by overnight courier. This LOI will expire unless we receive an
executed copy by you within the time period provide in the previous sentence.
 

   
Sincerely,
             
Lux Digital Pictures, Inc.
           
By:
 
[img004.jpg]                      
ACKNOWLEDGED AND AGREED:
             
Radio Loyalty, Inc.
           
By:
 
[img005.jpg]  

 
 
 

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EXHIBIT A

EXECUTIVE SUMMARY OF RLI
 
 
 
 
 
 
 
 
 
 
 
 
 

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[img001.jpg]

 
RadioLoyalty Inc. Executive Summary

RadioLoyalty Inc. provides key support services for both mobile and online
content, using proprietary platforms developed by us over the last five
years.  We provide content owners a managed service that enables them to stream
their content via the internet. We also provide advertisers with a platform that
serves display, pre-roll and in-stream video through the RadioLoyaltyTM
platform. Our platform includes key features such as a configurator for
broadcasters to setup stations, a robust administration interface, detailed
reporting engine and more, list management intake and outtake for database
management.  Our mission is to make internet and mobile radio broadcasting
profitable for our broadcasters and advertisers, and offer the best listening
experience possible for our users.

Target Markets

We have identified a number of market opportunities where, using our technical
platforms, we are able to aggregate audiences and serve advertisements.

Our initial focus has been on the entertainment sector, where we have been able
to offer our solutions to the 57,000 small and medium sized radio stations that
currently, in the aggregate, have substantial audiences but individually realize
less than $1.25 million per year in radio revenues. Currently, these stations
incur both capital expenditures and operating expense to stream their content
over the internet.  At the same time, they are not able to generate meaningful
revenue from their streaming audience. Also national advertisers cannot
distribute display or video ads to this audience without having to deal with
hundreds or thousands of individual stations and no standard advertising
inventory.

Other market dynamics:
•    
There is at least 1.2 billion hours of internet radio listening/month

•    
10,000+ terrestrial stations in the U.S.

•    
10,000+ terrestrial stations outside the U.S.

•    
49,000+ internet only stations listed in the Shoutcast guide, with 500,000
simultaneous listeners

•    
Online display, rich media and video market: $9.8b+/15% CAGR

•    
Mobile advertising market: $877 million+/67% CAGR

•    
Radio advertising market: $13.4 billion+/0% CAGR

•    
Pandora is forecasting $410-420 million in sales for 2012, up from $137 million
in 2010. 85% of Pandora’s revenue is from ad sales.

 
 

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Proprietary and Unique Technology Platform

RadioLoyalty has developed a set of technologies that, taken together, have the
potential to transform the economics of streaming content over the internet. The
UniversalPlayer™ is a client-based media player which provides standardized
impression landing areas and formats for serving both online and mobile
advertisements. In addition, RadioLoyalty has developed a comprehensive
broadcaster platform which provides a radio station with a full suite of
capabilities that are required to stream content over the internet and serve
advertisements. This broadcaster platform runs in RadioLoyalty’s data centers in
Santa Barbara and Los Angeles, and is offered to radio stations on a managed
service basis for no fee.  The system that enables the broadcaster platform is
designed to handle up to 250,000 simultaneous listeners across any number of
individual stations.  RadioLoyalty expects to be able to drive significant
economies of scale with respect to operating costs, and aggregate the audiences
of the individual stations.

Strong Value Proposition

For the radio stations, RadioLoyalty offers a “no-brainer” value proposition:

Ø  
Simplifies online and mobile content delivery by providing streaming, a mobile
app, ad insertion, a loyalty program, content, player development, listener
support, royalty reporting, SEO and expanded distribution in one integrated,
easy-to-use solution for no out of pocket cost.

Ø  
Eliminates the several thousands of dollars per month that small and medium
sized broadcasters incur in operating expense to stream their content over the
internet.

Ø  
Converts low demand in-stream audio avails into high demand in-stream video
avails, leading to far higher CPM’s, thereby increasing a station’s monthly
revenue.

Ø  
Provides monetization of the available ad inventory through RadioLoyalty’s
relationships with large ad networks and brands.

For advertisers, RadioLoyalty offers a means to access an audience that was
previously inaccessible:
 
Ø  
Standardizes the way online and mobile radio ads are served and sold.

Ø  
Monetizes online and mobile radio via advertising at premium rates. For
advertisers, it is difficult to buy video and display impressions that reach
large, engaged audiences at cost effective CPMs.  RadioLoyalty removes this
issue for advertisers by offering a large and interactive audience at very
attractive rates.

 
For listeners, RadioLoyalty provides unlimited access to free streaming music,
news, sports, and talk radio.

Ø  
Listen to their favorite radio programs at home, and at work.

Ø  
Use the UniversalPlayer™ to perform internet searches, shares music, “thumbs up
or down” a song, earn points for listening that can be redeemed in the
RadioLoyalty store, interact with the widgets provided, take surveys, etc.

Advertising Business Model will Allow Superior Growth and High Margins

In return for providing the broadcasting platform and streaming service at no
fee, the station agrees to: i) use the RadioLoyalty UniversalPlayer™
exclusively; and ii) share the advertising revenue that RadioLoyalty generates
from serving ads to the UniversalPlayer™.  RadioLoyalty obtains both “owned” and
“network” inventory which we then sell to advertisers, in much the same way that
Google does. Because we have aggregated the audience of many small stations, we
are able to sell advertising at higher CPM’s to national advertisers.

The RadioLoyalty Media business model, then, is very simple. We need to increase
the aggregate number of total time spent listening (“TTSL”), which provides us
with the inventory to place ads, and optimize the realized CPM by selling as
much of the higher margin in-stream video advertisements as possible.

 
 

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Since RadioLoyalty operates the streaming service out of a centralized data
center, the company will enjoy significant operating leverage as it brings more
stations onto the platform, which brings more listeners and ultimately more
inventory which it can monetize.  Also, since we are not operating our own radio
station we incur no royalty costs for the content.  Our platform is highly
scalable and therefore should enable RadioLoyalty to realize exceptional
operating margins once we achieve scale.

The same platform serves content to both online and mobile phones, thereby
achieving technical economies of scale.  The UniversalPlayer™ runs on PCs and
mobile devices.  To reach mobile listeners, RadioLoyalty has successfully
launched iPhone and Android app versions of its RadioLoyalty™ consumer portal
that enables consumers to reach hundreds of online and terrestrial radio
stations with this number increasing as more stations utilize the
UniversalPlayer™.

Execution Plan

RadioLoyalty released the production version of the broadcaster platform on
September 9, 2011. Since that time, we have grown revenues considerably. As of
September 9, 2011 the system operated to its design specifications, which now
enables us to aggressively solicit and onboard radio broadcasters to our
platform.

RadioLoyalty has divided the target market into four segments: i) large “pure
play” internet stations; ii) small "pure play” internet stations; iii) large
terrestrial stations who stream over the internet; and iv) small terrestrial
stations who stream over the internet.  We will deploy a multichannel sales
strategy to reach each of the segments. The large "pure play" and terrestrial
stations are owned by approximately 60 broadcasting networks. We have began to
reach out to these networks We have an internal telemarketing sales force which
calls on the small "pure play" and terrestrial stations. In addition, we have
established channel partner relationships with some of the most well-established
radio station representative groups.

Given the significant and compelling value that we offer to stations, we do not
expect sales cycles to be long.  In addition, the on-boarding of stations is
very simple and takes a few hours, as a station owner simply uses the
broadcaster configurator portion of the UniversalPlayer™ to establish their
station on our platform.  We presently have 100+ stations in the on-boarding
process.

RadioLoyalty currently secures its advertising impressions from advertisers,
agencies and the top worldwide ad exchanges. As we scale the number of listening
hours, we intend to selectively hire advertising sales people who will solicit
brands and agencies directly.

Other current information regarding the business:
 
•  
1325 Broadcasters/2,220 stations total

•  
378 Broadcasters/1,253 stations active.

•  
#1 Ranked Comscore in Entertainment Radio (ComScore April)

–  
31MM Unique - United States

–  
72MM Unique - Worldwide

•  
2+ Hours Average listening time

•  
40,000+ Mobile App Downloads

•  
65,943 Registered members

•  
Average listener does 5.27 interactions per visit within the player

 

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