[FORM OF SENIOR SECURED CONVERTIBLE NOTE]
 
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 TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD OR ELIGIBLE TO BE 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. ANY TRANSFEREE OF THIS NOTE SHOULD
CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 19(a)
HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE
SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.
 
Magnum d’Or Resources, Inc.
 
Senior Secured Convertible Note
 
Issuance Date:  December __, 2009
Original Principal Amount: U.S. $____

FOR VALUE RECEIVED, Magnum d’Or Resources, Inc., a Nevada corporation (the
“Company”), hereby promises to pay to the order of [CRANSHIRE CAPITAL
L.P.][OTHER BUYERS]or registered assigns (“Holder”) the amount set out above as
the Original Principal Amount (as reduced pursuant to the terms hereof pursuant
to redemption, conversion or otherwise, the “Principal”) when due, whether upon
the Maturity Date, on any Installment Date with respect to the Installment
Amount due on such Installment Date (each as defined below), acceleration,
redemption or otherwise (in each case in accordance with the terms hereof) and
to pay interest (“Interest”) on any outstanding Principal (as defined below) at
the applicable Interest Rate (as defined below) from the date set out above as
the Issuance Date (the “Issuance Date”) until the same becomes due and payable,
whether upon an Interest Date (as defined below), any Installment Date or the
Maturity Date or acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof). This Senior Secured Convertible Note
(including all Senior Secured Convertible Notes issued in exchange, transfer or
replacement hereof, this “Note”) is one of an issue of Senior Secured
Convertible Notes issued pursuant to the Securities Purchase Agreement (as
defined below) on the Closing Date (as defined below) (collectively, the “Notes”
and such other Senior Secured Convertible Notes, the “Other Notes”). Certain
capitalized terms used herein are defined in Section 29.

 

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1.           PAYMENTS OF PRINCIPAL. On each Installment Date (which includes the
Maturity Date), the Company shall pay to the Holder an amount equal to the
Installment Amount due on such Installment Date in accordance with Section 8.
Other than as specifically permitted by this Note, the Company may not prepay
any portion of the outstanding Principal, accrued and unpaid Interest or accrued
and unpaid Late Charges on Principal and Interest, if any.
 
2.           INTEREST; INTEREST RATE. Interest on this Note shall commence
accruing on the Issuance Date, shall accrue daily at the Interest Rate on the
outstanding Principal amount from time to time, shall be computed on the basis
of a 360-day year comprised of twelve (12) thirty (30) day months and shall be
payable in arrears for each Quarter on the first Installment Date immediately
following the end of such Quarter during the period beginning on the Issuance
Date and ending on, and including, the Maturity Date (each, an “Interest Date”),
with the first Interest Date being April 1, 2010. Interest shall be payable to
the record holder of this Note on each Interest Date in accordance with Section
8 as part of the applicable Installment Amount due on the applicable Interest
Date. From and after the occurrence and during the continuance of any Event of
Default, the Interest Rate shall automatically be increased to eighteen percent
(18%). In the event that such Event of Default is subsequently waived or cured,
the increase referred to in the preceding sentence shall cease to be effective
as of the date of such waiver or cure, it being understood that the Interest as
calculated and unpaid at such increased rate during the continuance of such
Event of Default shall continue to apply to the extent relating to the days
after the occurrence of such Event of Default through and including the date of
such waiver or cure of such Event of Default.
 
3.           CONVERSION OF NOTES. This Note and any amounts hereunder shall be
convertible into shares of Common Stock (as defined below), on the terms and
conditions set forth in this Section 3.
 
(a)          Conversion Right. Subject to the provisions of Section 3(d), at any
time or times on or after the Issuance Date, the Holder shall be entitled to
convert any portion of the outstanding and unpaid Conversion Amount (as defined
below) into fully paid and nonassessable shares of Common Stock in accordance
with Section 3(c), at the Conversion Rate (as defined below).  The Company shall
not issue any fraction of a share of Common Stock upon any conversion.  If the
issuance would result in the issuance of a fraction of a share of Common Stock,
the Company shall round such fraction of a share of Common Stock up to the
nearest whole share. The Company shall pay any and all transfer, stamp, issuance
and similar taxes that may be payable with respect to the issuance and delivery
of Common Stock upon conversion of any Conversion Amount.
 
(b)          Conversion Rate. The number of shares of Common Stock issuable upon
conversion of any Conversion Amount pursuant to Section 3(a) shall be determined
by dividing (x) such Conversion Amount by (y) the Conversion Price (the
“Conversion Rate”).
 
(i)           “Conversion Amount” means the portion of the Principal to be
converted, redeemed or otherwise with respect to which this determination is
being made, plus all accrued and unpaid Interest with respect to such portion of
the Principal amount and accrued and unpaid Late Charges with respect to such
portion of such Principal and such Interest.

 
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(ii)           “Conversion Price” means, as of any Conversion Date or other date
of determination, $1.21, subject to adjustment as provided herein.
 
(c)          Mechanics of Conversion.
 
(i)           Optional Conversion. To convert any Conversion Amount into shares
of Common Stock on any date (a “Conversion Date”), the Holder shall (A) deliver
(whether via facsimile or otherwise), for receipt on or prior to 11:59 p.m., New
York time, on such date, a copy of an executed notice of conversion in the form
attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B) if
required by Section 3(c)(iii), surrender this Note to a nationally recognized
overnight delivery service for delivery to the Company (or an indemnification
undertaking with respect to this Note in the case of its loss, theft or
destruction as contemplated by Section 19(b)).  On or before the first (1st)
Trading Day following the date of receipt of a Conversion Notice, the Company
shall transmit by facsimile or electronic mail an acknowledgment of confirmation
of receipt of such Conversion Notice to the Holder and the Company’s transfer
agent (the “Transfer Agent”). On or before the second (2nd) Trading Day
following the date of receipt of a Conversion Notice (the “Share Delivery
Date”), the Company shall (1) provided that the Transfer Agent is participating
in The Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer
Program, credit such aggregate number of shares of Common Stock to which the
Holder shall be entitled to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal at Custodian system or (2) if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer
Program, issue and deliver (via reputable overnight courier) to the address as
specified in the Conversion Notice, a certificate, registered in the name of the
Holder or its designee, for the number of shares of Common Stock to which the
Holder shall be entitled. If this Note is physically surrendered for conversion
at the option of the Holder in accordance with Section 3(c)(iii) and the
outstanding Principal of this Note is greater than the Principal portion of the
Conversion Amount being converted, then the Company shall as soon as practicable
and in no event later than five (5) Business Days after receipt of this Note and
at its own expense, issue and deliver to the Holder (or its designee) a new Note
(in accordance with Section 19(d)) representing the outstanding Principal not
converted. The Person or Persons entitled to receive the shares of Common Stock
issuable upon a conversion of this Note shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on the Conversion Date.
In the event of a partial conversion of this Note pursuant hereto, the Principal
amount converted shall be deducted from the Installment Amount(s) relating to
the Installment Date(s) as set forth in the applicable Conversion Notice.

 
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(ii)           Company’s Failure to Timely Convert. If the Company shall fail,
for any reason or for no reason (other than as a result of a dispute as
contemplated in Section 3(c)(iv) below (but then only with respect to the
disputed number of shares) or as a result of the limitations set forth in
Section 3(d) below), to issue to the Holder within five (5) Trading Days after
the Company’s receipt of a Conversion Notice (whether via facsimile or
otherwise), a certificate for the number of shares of Common Stock to which the
Holder is entitled and register such shares of Common Stock on the Company’s
share register or to credit the Holder’s or its designee’s balance account with
DTC for such number of shares of Common Stock to which the Holder is entitled
upon the Holder’s conversion of any Conversion Amount (as the case may be) (a
“Conversion Failure”), then, in addition to all other remedies available to the
Holder, (1) the Company shall pay in cash to the Holder on each day after such
fifth (5th) Trading Day that the issuance of such shares of Common Stock is not
timely effected an amount equal to 1% of the product of (A) the sum of the
number of shares of Common Stock not issued to the Holder on a timely basis and
to which the Holder is entitled multiplied by (B) the Closing Sale Price of the
Common Stock on the Trading Day immediately preceding the last possible date
which the Company could have issued such shares of Common Stock to the Holder
without violating Section 3(c)(i) and (2) the Holder, upon written notice to the
Company, may void its Conversion Notice with respect to, and retain or have
returned (as the case may be) any portion of this Note that has not been
converted pursuant to such Conversion Notice, provided that the voiding of a
Conversion Notice shall not affect the Company’s obligations to make any
payments which have accrued prior to the date of such notice pursuant to this
Section 3(c)(ii) or otherwise. In addition to the foregoing, if within three (3)
Trading Days after the Company’s receipt of a Conversion Notice (whether via
facsimile or otherwise), the Company shall fail to issue and deliver a
certificate to the Holder and register such shares of Common Stock on the
Company’s share register or credit the Holder’s or its designee’s balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder’s conversion hereunder (as the case may be), and if on
or after such third (3rd) Trading Day the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of shares of Common Stock issuable upon such conversion that
the Holder anticipated receiving from the Company, then, in addition to all
other remedies available to the Holder, the Company shall, within three (3)
Business Days after the Holder’s request and in the Holder’s discretion, either
(i) pay cash to the Holder in an amount equal to the Holder’s total purchase
price (including brokerage commissions and other out-of-pocket expenses, if any)
for the shares of Common Stock so purchased (the “Buy-In Price”), at which point
the Company’s obligation to deliver such certificate (and to issue such shares
of Common Stock) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such shares of
Common Stock or credit the Holder’s balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
conversion hereunder (as the case may be) and pay cash to the Holder in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Stock multiplied by (B) the Closing Sale Price
of the Common Stock on the Trading Day immediately preceding the Conversion
Date.

 
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(iii)           Book-Entry. Notwithstanding anything to the contrary set forth
herein, upon conversion of any portion of this Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender this Note to
the Company unless (A) the full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting
reissuance of this Note upon physical surrender of this Note. The Holder and the
Company shall maintain records showing the Principal, Interest and Late Charges
converted and/or paid (as the case may be) and the dates of such conversions
and/or payments (as the case may be) or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require physical
surrender of this Note upon conversion.
 
(iv)           Pro Rata Conversion; Disputes. In the event that the Company
receives a Conversion Notice from more than one holder of Notes for the same
Conversion Date and the Company can convert some, but not all, of such portions
of the Notes submitted for conversion, the Company, subject to Section 3(d),
shall convert from each holder of Notes electing to have Notes converted on such
date a pro rata amount of such holder’s portion of its Notes submitted for
conversion based on the principal amount of Notes submitted for conversion on
such date by such holder relative to the aggregate principal amount of all Notes
submitted for conversion on such date. In the event of a dispute as to the
number of shares of Common Stock issuable to the Holder in connection with a
conversion of this Note, the Company shall issue to the Holder the number of
shares of Common Stock not in dispute and resolve such dispute in accordance
with Section 24.
 
(d)           Limitations on Conversions. Notwithstanding anything to the
contrary contained in this Note, this Note shall not be convertible by the
Holder hereof, and the Company shall not effect any conversion of this Note or
otherwise issue any shares of Common Stock pursuant to Section 8 hereof, to the
extent (but only to the extent) that the Holder or any of its affiliates would
beneficially own in excess of [4.9%][9.9%] (the “Maximum Percentage”) of the
Common Stock. To the extent the above limitation applies, the determination of
whether this Note shall be convertible (vis-à-vis other convertible, exercisable
or exchangeable securities owned by the Holder) shall, subject to such Maximum
Percentage limitation, be determined on the basis of the first submission to the
Company for conversion, exercise or exchange (as the case may be). No prior
inability to convert this Note, or to issue shares of Common Stock, pursuant to
this paragraph shall have any effect on the applicability of the provisions of
this paragraph with respect to any subsequent determination of convertibility.
For purposes of this paragraph, beneficial ownership and all determinations and
calculations (including, without limitation, with respect to calculations of
percentage ownership) shall be determined in accordance with Section 13(d) of
the 1934 Act (as defined in the Securities Purchase Agreement) and the rules and
regulations promulgated thereunder. The provisions of this paragraph shall be
implemented in a manner otherwise than in strict conformity with the terms of
this paragraph to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Maximum Percentage beneficial
ownership limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such Maximum Percentage
limitation. The limitations contained in this paragraph shall apply to a
successor Holder of this Note. The holders of Common Stock shall be third party
beneficiaries of this paragraph and the Company may not waive this paragraph
without the consent of holders of a majority of its Common Stock. For any reason
at any time, upon the written or oral request of the Holder, the Company shall
within one (1) Business Day confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding, including by virtue of any
prior conversion or exercise of convertible or exercisable securities into
Common Stock, including, without limitation, pursuant to this Note or securities
issued pursuant to the Securities Purchase Agreement.

 
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4.           RIGHTS UPON EVENT OF DEFAULT.
 
(a)          Event of Default.  Each of the following events shall constitute an
“Event of Default”:
 
(i)           the failure of the applicable Registration Statement (as defined
in the Registration Rights Agreement) to be filed with the SEC on or prior to
the date that is ten (10) days after the applicable Filing Deadline (as defined
in the Registration Rights Agreement) or the failure of the applicable
Registration Statement to be declared effective by the SEC on or prior to the
date that is twenty (20) days after the applicable Effectiveness Deadline (as
defined in the Registration Rights Agreement);
 
(ii)          while the applicable Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights Agreement,
the effectiveness of the applicable Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or such
Registration Statement (or the prospectus contained therein) is unavailable to
any holder of Registrable Securities (as defined in the Registration Rights
Agreement) for sale of all of such holder’s Registrable Securities in accordance
with the terms of the Registration Rights Agreement, and such lapse or
unavailability continues for a period of five (5) consecutive Trading Days or
for more than an aggregate of ten (10) Trading Days in any 365-day period
(excluding days during an Allowable Grace Period (as defined in the Registration
Rights Agreement));
 
(iii)        the suspension (or threatened suspension) from trading or the
failure (or threatened failure) of the Common Stock to be trading or listed (as
applicable) on an Eligible Market for a period of five (5) consecutive Trading
Days or for more than an aggregate of ten (10) Trading Days in any 365-day
period;
 
(iv)         the Company’s (A) failure to cure a Conversion Failure or a
Delivery Failure (as defined in the Warrants) by delivery of the required number
of shares of Common Stock within five (5) Trading Days after the applicable
Conversion Date or exercise date (as the case may be) or (B) notice, written or
oral, to any holder of the Notes or Warrants, including, without limitation, by
way of public announcement or through any of its agents, at any time, of its
intention not to comply, as required, with a request for conversion of any Notes
into shares of Common Stock that is requested in accordance with the provisions
of the Notes, other than pursuant to Section 3(d), or a request for exercise of
any Warrants for Warrant Shares in accordance with the provisions of the
Warrants;

 
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(v)          at any time following the tenth (10th) consecutive day that the
Holder’s Authorized Share Allocation is less than the number of shares of Common
Stock that the Holder would be entitled to receive upon a conversion of the full
Conversion Amount of this Note (without regard to any limitations on conversion
set forth in Section 3(d) or otherwise);
 
(vi)         the Company’s or any Subsidiary’s failure to pay to the Holder any
amount of Principal, Interest, Late Charges or other amounts when and as due
under this Note (including, without limitation, the Company’s or any
Subsidiary’s failure to pay any redemption payments or amounts hereunder) or any
other Transaction Document (as defined in the Securities Purchase Agreement) or
any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated hereby and thereby, except, in the
case of a failure to pay Interest and Late Charges when and as due, in which
case only if such failure remains uncured for a period of at least five (5)
days;
 
(vii)        the Company fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the Holder upon conversion
or exercise (as the case may be) of any Securities acquired by the Holder under
the Securities Purchase Agreement (including this Note) as and when required by
such Securities or the Securities Purchase Agreement, unless otherwise then
prohibited by applicable federal securities laws, and any such failure remains
uncured for at least five (5) days;
 
(viii)       the occurrence of any default under, redemption of or acceleration
prior to maturity of any Indebtedness (as defined in the Securities Purchase
Agreement) of the Company or any of its Subsidiaries, other than with respect to
(A) Permitted Company Senior Indebtedness, (B) Permitted Subsidiary Senior
Indebtedness and (C) any Other Notes;
 
(ix)          bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for the relief of debtors shall be instituted by or against
the Company or any Subsidiary and, if instituted against the Company or any
Subsidiary by a third party, shall not be dismissed within thirty (30) days of
their initiation;
 
(x)           the commencement by the Company or any Subsidiary of a voluntary
case or proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree, order, judgment or other similar document in respect of
the Company or any Subsidiary in an involuntary case or proceeding under any
applicable federal, state or foreign bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition of debts, or the
occurrence of any other similar federal, state or foreign proceeding, or the
admission by it in writing of its inability to pay its debts generally as they
become due, the taking of corporate action by the Company or any Subsidiary in
furtherance of any such action or the taking of any action by any Person to
commence a UCC foreclosure sale or any other similar action under federal, state
or foreign law;

 
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(xi)          the entry by a court of (i) a decree, order, judgment or other
similar document in respect of the Company or any Subsidiary of a voluntary or
involuntary case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or (ii) a decree,
order, judgment or other similar document adjudging the Company or any
Subsidiary as bankrupt or insolvent, or approving as properly filed a petition
seeking liquidation, reorganization, arrangement, adjustment or composition of
or in respect of the Company or any Subsidiary under any applicable federal,
state or foreign law or (iii) a decree, order, judgment or other similar
document appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree, order, judgment or other
similar document or any such other decree, order, judgment or other similar
document unstayed and in effect for a period of thirty (30) consecutive days;
 
(xii)         a final judgment or judgments for the payment of money aggregating
in excess of $100,000 are rendered against the Company and/or any of its
Subsidiaries and which judgments are not, within thirty (30) days after the
entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within thirty (30) days after the expiration of such stay; provided,
however, any judgment which is covered by insurance or an indemnity from a
credit worthy party shall not be included in calculating the $100,000 amount set
forth above so long as the Company provides the Holder a written statement from
such insurer or indemnity provider (which written statement shall be reasonably
satisfactory to the Holder) to the effect that such judgment is covered by
insurance or an indemnity and the Company or such Subsidiary (as the case may
be) will receive the proceeds of such insurance or indemnity within thirty (30)
days of the issuance of such judgment;
 
(xiii)        the Company and/or any Subsidiary, individually or in the
aggregate, either (i) fails to pay, when due, or within any applicable grace
period, any payment with respect to any Indebtedness in excess of $150,000 due
to any third party (other than, with respect to unsecured Indebtedness only,
payments contested by the Company and/or such Subsidiary (as the case may be) in
good faith by proper proceedings and with respect to which adequate reserves
have been set aside for the payment thereof in accordance with GAAP) or is
otherwise in breach or violation of any agreement for monies owed or owing in an
amount in excess of $300,000, which breach or violation permits the other party
thereto to declare a default or otherwise accelerate amounts due thereunder, or
(ii) suffer to exist any other circumstance or event that would, with or without
the passage of time or the giving of notice, result in a default or event of
default under any agreement binding the Company or any Subsidiary, which default
or event of default would or is likely to have a material adverse effect on the
business, assets, operations (including results thereof), liabilities,
properties, condition (including financial condition) or prospects of the
Company or any of its Subsidiaries, individually or in the aggregate;

 
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(xiv)       other than as specifically set forth in another clause of this
Section 4(a), the Company or any Subsidiary breaches any representation,
warranty, covenant or other term or condition of any Transaction Document
(including, without limitation, the Security Documents and the Guaranties),
except, in the case of a breach of a covenant or other term or condition that is
curable, only if such breach remains uncured for a period of five (5) Business
Days following notice from the Holder;
 
(xv)        any breach or failure in any respect by the Company or any
Subsidiary to comply with any provision of either of Sections 8 or 14 of this
Note;
 
(xvi)       a false or inaccurate certification (including a false or inaccurate
deemed certification) by the Company that the Equity Conditions are satisfied,
that there has been no Equity Conditions Failure, Dollar Failure or Volume
Failure, that the Holder Pro Rata Portion of the Installment Volume Limitation
will not be exceeded or as to whether any Event of Default has occurred;
 
(xvii)      any Material Adverse Effect (as defined in the Securities Purchase
Agreement) occurs;
 
(xviii)     any provision of any Transaction Document (including, without
limitation, the Security Documents and the Guaranties) shall at any time for any
reason (other than pursuant to the express terms thereof) cease to be valid and
binding on or enforceable against the parties thereto, or the validity or
enforceability thereof shall be contested by any party thereto, or a proceeding
shall be commenced by the Company or any Subsidiary or any governmental
authority having jurisdiction over any of them, seeking to establish the
invalidity or unenforceability thereof, or the Company or any Subsidiary shall
deny in writing that it has any liability or obligation purported to be created
under any Transaction Document (including, without limitation, the Security
Documents and the Guaranties);
 
(xix)        the Security Documents shall for any reason fail or cease to create
(1) a valid and perfected and, except to the extent permitted by the terms
hereof or thereof, first priority Lien on any of the Collateral (as defined in
the Security Agreements) (other than on the Colorado Collateral (as defined in
the U.S. Security Agreement)) or (2) a valid and perfected and, except to the
extent permitted by the terms hereof or thereof, third-priority lien on any of
the Colorado Collateral, in each case, in favor of each of the Secured Parties
(as defined in the Security Agreements); or
 
(xx)         any Event of Default (as defined in the Other Notes) occurs with
respect to any Other Notes.

 
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(b)           Redemption Right. Promptly upon the occurrence of an Event of
Default with respect to this Note or any Other Note, but in no event later than
one (1) Business Day after the earlier to occur of (i) knowledge thereof by any
Senior Officer and (ii) the date on which any Senior Officer should have had
knowledge thereof, the Company shall deliver written notice thereof via
facsimile and overnight courier (with next day delivery specified) (an “Event of
Default Notice”) to the Holder. At any time after the earlier of the Holder’s
receipt of an Event of Default Notice and the Holder becoming aware of an Event
of Default, the Holder may require the Company to redeem (regardless of whether
such Event of Default has been cured) all or any portion of this Note by
delivering written notice thereof (the “Event of Default Redemption Notice”) to
the Company, which Event of Default Redemption Notice shall indicate the portion
of this Note the Holder is electing to redeem. Each portion of this Note subject
to redemption by the Company pursuant to this Section 4(b) shall be redeemed by
the Company at a price equal to the greater of (i) the product of (A) the
Conversion Amount to be redeemed multiplied by (B) the Redemption Premium and
(ii) the product of (X) the Conversion Rate with respect to the Conversion
Amount in effect at such time as the Holder delivers an Event of Default
Redemption Notice multiplied by (Y) the product of (1) the Equity Value
Redemption Premium multiplied by (2) the greatest of (I) the Closing Sale Price
of the Common Stock on the date immediately preceding such Event of Default,
(II) the Closing Sale Price of the Common Stock on the date immediately after
such Event of Default and (III) the Closing Sale Price of the Common Stock on
the date the Holder delivers an Event of Default Redemption Notice with respect
to such Event of Default (the “Event of Default Redemption Price”). Redemptions
required by this Section 4(b) shall be made in accordance with the provisions of
Section 12. To the extent redemptions required by this Section 4(b) are deemed
or determined by a court of competent jurisdiction to be prepayments of this
Note by the Company, such redemptions shall be deemed to be voluntary
prepayments. Notwithstanding anything to the contrary in this Section 4, but
subject to Section 3(d), until the Event of Default Redemption Price (together
with any Late Charges thereon) is paid in full, the Conversion Amount submitted
for redemption under this Section 4(b) (together with any Late Charges thereon)
may be converted, in whole or in part, by the Holder into Common Stock pursuant
to Section 3. In the event of a partial redemption of this Note pursuant hereto,
the Principal amount redeemed shall be deducted from the Installment Amount(s)
relating to the applicable Installment Date(s) as set forth in the Event of
Default Redemption Notice. In the event of the Company’s redemption of any
portion of this Note under this Section 4(b), the Holder’s damages would be
uncertain and difficult to estimate because of the parties’ inability to predict
future interest rates and the uncertainty of the availability of a suitable
substitute investment opportunity for the Holder. Accordingly, any redemption
premium due under this Section 4(b) is intended by the parties to be, and shall
be deemed, a reasonable estimate of the Holder’s actual loss of its investment
opportunity and not as a penalty.
 
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5.           RIGHTS UPON FUNDAMENTAL TRANSACTION.

(a)           Assumption. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Note and the other Transaction
Documents in accordance with the provisions of this Section 5(a) pursuant to
written agreements in form and substance satisfactory to the Holder and approved
by the Holder prior to such Fundamental Transaction, including agreements to
deliver to each holder of Notes in exchange for such Notes a security of the
Successor Entity evidenced by a written instrument substantially similar in form
and substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts then outstanding and the
interest rates of the Notes held by such holder, having similar conversion
rights as the Notes and having similar ranking to the Notes, and satisfactory to
the Holder and (ii) the Successor Entity (including its Parent Entity) is a
publicly traded corporation whose common stock is quoted on or listed for
trading on an Eligible Market. Upon the occurrence of any Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of
this Note and the other Transaction Documents referring to the “Company” shall
refer instead to the Successor Entity), and may exercise every right and power
of the Company and shall assume all of the obligations of the Company under this
Note and the other Transaction Documents with the same effect as if such
Successor Entity had been named as the Company herein. Upon consummation of a
Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon conversion or redemption of this
Note at any time after the consummation of such Fundamental Transaction, in lieu
of the shares of the Company’s Common Stock (or other securities, cash, assets
or other property (except such items still issuable under Sections 6 and 16,
which shall continue to be receivable thereafter) issuable upon the conversion
or redemption of the Notes prior to such Fundamental Transaction, such shares of
the publicly traded common stock (or their equivalent) of the Successor Entity
(including its Parent Entity) which the Holder would have been entitled to
receive upon the happening of such Fundamental Transaction had this Note been
converted immediately prior to such Fundamental Transaction (without regard to
any limitations on the conversion of this Note), as adjusted in accordance with
the provisions of this Note. The provisions of this Section 5 shall apply
similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion of this Note.

 
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(b)           Redemption Right. No sooner than twenty (20) Trading Days nor
later than ten (10) Trading Days prior to the consummation of a Fundamental
Transaction, but not prior to the public announcement of such Fundamental
Transaction, the Company shall deliver written notice thereof via facsimile and
overnight courier to the Holder (a “Fundamental Transaction Notice”). At any
time during the period beginning after the Holder’s receipt of a Fundamental
Transaction Notice and ending on the later of twenty (20) Trading Days after (A)
consummation of such Fundamental Transaction or (B) the date of receipt of such
Fundamental Transaction Notice, the Holder may require the Company to redeem all
or any portion of this Note by delivering written notice thereof (“Fundamental
Transaction Redemption Notice”) to the Company, which Fundamental Transaction
Redemption Notice shall indicate the Conversion Amount the Holder is electing to
redeem.  The portion of this Note subject to redemption pursuant to this Section
5 shall be redeemed by the Company in cash at a price equal to the greater of
(i) the product of (w) the Fundamental Transaction Redemption Premium multiplied
by (x) the Conversion Amount being redeemed and (ii) the product of (y) the
Equity Value Redemption Premium multiplied by (z) the product of (1) the
Conversion Amount being redeemed multiplied by (2) the quotient of (A) the
aggregate cash consideration and the aggregate cash value of any non-cash
consideration per share of Common Stock to be paid to the holders of the shares
of Common Stock upon consummation of such Fundamental Transaction (any such
non-cash consideration constituting publicly-traded securities shall be valued
at the highest of the Closing Sale Price of such securities as of the Trading
Day immediately prior to the consummation of such Fundamental Transaction, the
Closing Sale Price of such securities on the Trading Day immediately following
the public announcement of such proposed Fundamental Transaction and the Closing
Sale Price of such securities on the Trading Day immediately prior to the public
announcement of such proposed Fundamental Transaction) divided by (B) the
Conversion Price then in effect (the “Fundamental Transaction Redemption
Price”). Redemptions required by this Section 5 shall be made in accordance with
the provisions of Section 12 and shall have priority to payments to stockholders
in connection with such Fundamental Transaction. To the extent redemptions
required by this Section 5(b) are deemed or determined by a court of competent
jurisdiction to be prepayments of this Note by the Company, such redemptions
shall be deemed to be voluntary prepayments. Notwithstanding anything to the
contrary in this Section 5, but subject to Section 3(d), until the Fundamental
Transaction Redemption Price (together with any Late Charges thereon) is paid in
full, the Conversion Amount submitted for redemption under this Section 5(b)
(together with any Late Charges thereon) may be converted, in whole or in part,
by the Holder into Common Stock pursuant to Section 3. In the event of a partial
redemption of this Note pursuant hereto, the Principal amount redeemed shall be
deducted from the Installment Amount(s) relating to the applicable Installment
Date(s) as set forth in the Fundamental Transaction Redemption Notice. In the
event of the Company’s redemption of any portion of this Note under this Section
5(b), the Holder’s damages would be uncertain and difficult to estimate because
of the parties’ inability to predict future interest rates and the uncertainty
of the availability of a suitable substitute investment opportunity for the
Holder. Accordingly, any redemption premium due under this Section 5(b) is
intended by the parties to be, and shall be deemed, a reasonable estimate of the
Holder’s actual loss of its investment opportunity and not as a penalty.
 
6.           RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.
 
(a)           Purchase Rights. In addition to any adjustments pursuant to
Section 7 below, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
“Purchase Rights”), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete conversion of this Note (without taking into
account any limitations or restrictions on the convertibility of this Note)
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 (provided, however, to the extent that the
Holder’s right to participate in any such Purchase Right would result in the
Holder exceeding the Maximum Percentage, then the Holder shall not be entitled
to participate in such Purchase Right to such extent (or beneficial ownership of
such shares of Common Stock as a result of such Purchase Right to such extent)
and such Purchase Right to such extent shall be held in abeyance for the Holder
until such time, if ever, as its right thereto would not result in the Holder
exceeding the Maximum Percentage).

 
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(b)           Other Corporate Events. In addition to and not in substitution for
any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for shares of
Common Stock (a “Corporate Event”), the Company shall make appropriate provision
to insure that the Holder will thereafter have the right to receive upon a
conversion of this Note (i) in addition to the shares of Common Stock receivable
upon such conversion, such securities or other assets to which the Holder would
have been entitled with respect to such shares of Common Stock had such shares
of Common Stock been held by the Holder upon the consummation of such Corporate
Event (without taking into account any limitations or restrictions on the
convertibility of this Note) or (ii) in lieu of the shares of Common Stock
otherwise receivable upon such conversion, such securities or other assets
received by the holders of shares of Common Stock in connection with the
consummation of such Corporate Event in such amounts as the Holder would have
been entitled to receive had this Note initially been issued with conversion
rights for the form of such consideration (as opposed to shares of Common Stock)
at a conversion rate for such consideration commensurate with the Conversion
Rate. The provisions of this Section 6 shall apply similarly and equally to
successive Corporate Events and shall be applied without regard to any
limitations on the conversion or redemption of this Note.
 
7.           RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
 
(a)           Adjustment of Conversion Price upon Issuance of Common Stock.  If
and whenever on or after the Subscription Date the Company issues or sells, or
in accordance with this Section 7(a) is deemed to have issued or sold, any
shares of Common Stock (including the issuance or sale of shares of Common Stock
owned or held by or for the account of the Company, but excluding any Excluded
Securities (as defined in the Securities Purchase Agreement) issued or sold or
deemed to have been issued or sold) for a consideration per share (the “New
Issuance Price”) less than a price equal to the Conversion Price in effect
immediately prior to such issue or sale or deemed issuance or sale (such
Conversion Price then in effect is referred to herein as the “Applicable Price”)
(the foregoing a “Dilutive Issuance”), then, immediately after such Dilutive
Issuance, the Conversion Price then in effect shall be reduced to an amount
equal to the New Issuance Price. For purposes of determining the adjusted
Conversion Price under this Section 7(a), the following shall be applicable:

 
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(i)           Issuance of Options.  If the Company in any manner grants or sells
any Options and the lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 7(a)(i), the “lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the granting or sale of the Option, upon exercise
of the Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option. Except as contemplated below, no
further adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock or of such Convertible Securities upon
the exercise of such Options or upon the actual issuance of such share of Common
Stock upon conversion, exercise or exchange of such Convertible Securities.
 
(ii)           Issuance of Convertible Securities.  If the Company in any manner
issues or sells any Convertible Securities and the lowest price per share for
which one share of Common Stock is issuable upon the conversion, exercise or
exchange thereof is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities for
such price per share.  For the purposes of this Section 7(a)(ii), the “lowest
price per share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to one share of Common Stock upon the issuance or sale of the
Convertible Security and upon conversion, exercise or exchange of such
Convertible Security. Except as contemplated below, no further adjustment of the
Conversion Price shall be made upon the actual issuance of such share of Common
Stock upon conversion, exercise or exchange of such Convertible Securities, and
if any such issue or sale of such Convertible Securities is made upon exercise
of any Options for which adjustment of the Conversion Price has been or is to be
made pursuant to other provisions of this Section 7(a), except as contemplated
below, no further adjustment of the Conversion Price shall be made by reason of
such issue or sale.
 
(iii)           Change in Option Price or Rate of Conversion. If the purchase or
exercise price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exercise or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exercisable or exchangeable for shares of Common Stock increases or decreases
at any time, the Conversion Price in effect at the time of such increase or
decrease shall be adjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities provided for such
increased or decreased purchase price, additional consideration or increased or
decreased conversion rate (as the case may be) at the time initially granted,
issued or sold. For purposes of this Section 7(a)(iii), if the terms of any
Option or Convertible Security that was outstanding as of the Subscription Date
are increased or decreased in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the shares of Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 7(a) shall be made if such adjustment would
result in an increase of the Conversion Price then in effect.

 
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(iv)           Calculation of Consideration Received. In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01.  If any shares
of Common Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received therefor will
be deemed to be the net amount received by the Company therefor. If any shares
of Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration received by the
Company will be the fair value of such consideration, except where such
consideration consists of publicly traded securities, in which case the amount
of consideration received by the Company for such securities will be the average
VWAP of such security for the five (5) Trading Day period immediately preceding
the date of receipt. If any shares of Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such shares of Common Stock, Options or Convertible Securities (as the case may
be). The fair value of any consideration other than cash or publicly traded
securities will be determined jointly by the Company and the Holder. If such
parties are unable to reach agreement within ten (10) days after the occurrence
of an event requiring valuation (the “Valuation Event”), the fair value of such
consideration will be determined within five (5) Trading Days after the tenth
(10th) day following such Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the Holder. The determination of such
appraiser shall be final and binding upon all parties absent manifest error and
the fees and expenses of such appraiser shall be borne by the Company.
 
(v)           Record Date. If the Company takes a record of the holders of
shares of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase shares of Common
Stock, Options or Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase (as the case may be).

 
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(b)           Adjustment of Conversion Price upon Subdivision or Combination of
Common Stock.  If the Company at any time on or after the Subscription Date
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time on or
after the Subscription Date combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior to
such combination will be proportionately increased. Any adjustment pursuant to
this Section 7(b) shall become effective immediately after the effective date of
such subdivision or combination. If any event requiring an adjustment under this
Section 7(b) occurs during the period that a Conversion Price is calculated
hereunder, then the calculation of such Conversion Price shall be adjusted
appropriately to reflect such event.
 
(c)           Other Events. In the event that the Company (or any direct or
indirect Subsidiary thereof) shall take any action to which the provisions
hereof are not strictly applicable, or, if applicable, would not operate to
protect the Holder from dilution or if any event occurs of the type contemplated
by the provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company’s board of directors shall in good faith determine and implement an
appropriate adjustment in the Conversion Price so as to protect the rights of
the Holder, provided that no such adjustment pursuant to this Section 7(c) will
increase the Conversion Price as otherwise determined pursuant to this Section
7, provided further that if the Holder does not accept such adjustments as
appropriately protecting its interests hereunder against such dilution, then the
Company’s board of directors and the Holder shall agree, in good faith, upon an
independent investment bank of nationally recognized standing to make such
appropriate adjustments, whose determination shall be final and binding and
whose fees and expenses shall be borne by the Company.
 
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8.           COMPANY INSTALLMENT CONVERSION OR REDEMPTION.

(a)           General. On each applicable Installment Date, the Company shall
pay to the Holder of this Note the applicable Installment Amount due on such
date by converting such Installment Amount in accordance with this Section 8 (a
“Company Conversion”); provided, however, the Company may, at its option as
described below, pay all or any part of such Installment Amount by redeeming
such Installment Amount in cash (a “Company Redemption”) or by any combination
of a Company Conversion and a Company Redemption so long as the entire amount of
such Installment Amount due shall be converted and/or redeemed by the Company on
the applicable Installment Date, subject to the provisions of this Section 8,
provided further that the Company shall not be entitled to elect a Company
Conversion with respect to any portion of such Installment Amount and shall be
required to elect and to pay the entire amount of such Installment Amount in
cash pursuant to a Company Redemption if on the applicable Installment Notice
Due Date or on the applicable Installment Date (as the case may be) there is an
Equity Conditions Failure, a Dollar Failure or a Volume Failure or such Company
Conversion would result in the Holder Pro Rata Amount of the applicable
Installment Volume Limitation being exceeded. On or prior to the date which is
the twenty-fifth (25th) Trading Day prior to each Installment Date (each, an
“Installment Notice Due Date”), the Company shall deliver written notice (each,
a “Company Installment Notice” and the date all of the holders receive such
notice is referred to as to the “Company Installment Notice Date”), to each
holder of Notes and such Company Installment Notice shall (i) either (A) confirm
that the applicable Installment Amount of such holder’s Note shall be converted
in whole pursuant to a Company Conversion or (B) (1) state that the Company
elects to redeem, or is required to elect and redeem in accordance with the
provisions of the Notes, in whole or in part, the applicable Installment Amount
pursuant to a Company Redemption and (2) specify the portion of the applicable
Installment Amount which the Company elects, or is required to elect and redeem,
pursuant to a Company Redemption (such amount to be redeemed in cash, the
“Company Redemption Amount”) and the portion of the applicable Installment
Amount, if any, that the Company elects, and is permitted, to convert pursuant
to a Company Conversion (such amount of the applicable Installment Amount so
elected to be so converted pursuant to this Section 8 is referred to herein as
the “Company Conversion Amount”), which amounts when added together, must equal
the entire applicable Installment Amount and (ii) if the applicable Installment
Amount is to be paid, in whole or in part, pursuant to a Company Conversion,
certify that there is not then an Equity Conditions Failure, a Dollar Failure or
a Volume Failure and that the Holder Pro Rata Amount of the applicable
Installment Volume Limitation would not be exceeded, in each case, as of the
date of the Company Installment Notice. Each Company Installment Notice shall be
irrevocable and may not be revoked by the Company. If the Company does not
timely deliver a Company Installment Notice in accordance with this Section 8,
then the Company shall be deemed to have delivered an irrevocable Company
Installment Notice confirming a Company Conversion and shall be deemed to have
certified that there is not then an Equity Conditions Failure, a Dollar Failure
or a Volume Failure and that the Holder Pro Rata Amount of the applicable
Installment Volume Limitation would not be exceeded, in each case, in connection
with such Company Conversion. No later than two (2) Trading Days after delivery
of the applicable Company Installment Notice setting forth a Company Conversion
Amount, the Company shall deliver to the Holder’s account with DTC such number
of shares of Common Stock (the “Pre-Installment Conversion Shares”) equal to the
quotient of (x) such Company Conversion Amount divided by (y) the
Pre-Installment Conversion Price, and as to which the Holder shall be the owner
thereof as of such time of delivery or deemed delivery (as the case may be) of
such Company Installment Notice. Except as expressly provided in this Section
8(a), the Company shall convert and/or redeem the applicable Installment Amount
of this Note pursuant to this Section 8 and the corresponding Installment
Amounts of the Other Notes pursuant to the corresponding provisions of the Other
Notes in the same ratio of the applicable Installment Amount being converted
and/or redeemed hereunder. The applicable Company Conversion Amount (whether set
forth in the applicable Company Installment Notice or by operation of this
Section 8) shall be converted in accordance with Section 8(b) and the applicable
Company Redemption Amount shall be redeemed in accordance with Section 8(c).

 
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(b)           Mechanics of Company Conversion. Subject to Section 3(d), if the
Company delivers a Company Installment Notice and elects, or is deemed to have
delivered a Company Installment Notice and deemed to have elected, in whole or
in part, a Company Conversion in accordance with Section 8(a), then the
remainder of this Section 8(b) shall apply. The applicable Company Conversion
Amount, if any, which remains outstanding as of the applicable Installment Date
shall be converted as of the applicable Installment Date by converting on such
Installment Date such Company Conversion Amount at the Company Conversion Price
and the Company shall, on the applicable Installment Date, deliver to the
Holder’s account with DTC such shares of Common Stock issued upon such
conversion (subject to the reduction contemplated by the immediately following
sentence and, if applicable, the last sentence of this Section 8(b)), provided
that the Equity Conditions are then satisfied (or waived in writing by the
Holder) on such Installment Date and a Company Conversion is not otherwise
prohibited under any other provision of this Note (including, without
limitation, as a result of the occurrence of a Dollar Failure or a Volume
Failure or as a result of the Holder Pro Rata Amount of the Installment Volume
Limitation being exceeded (each determined as of the applicable Installment
Date)). The number of shares of Common Stock to be delivered upon such Company
Conversion shall be reduced by the number of any Pre-Installment Conversion
Shares delivered in connection with such Installment Date. If an Event of
Default occurs during any applicable Company Conversion Measuring Period, then
either (i) the Holder shall return any Pre-Installment Conversion Shares
delivered in connection with the applicable Installment Date or (ii) the
Conversion Amount used to calculate the Event of Default Redemption Price shall
be reduced by the product of (x) the Company Conversion Amount applicable to
such Installment Date multiplied by (y) the Conversion Share Ratio (as defined
below). If any of the Equity Conditions are not satisfied (or waived in writing
by the Holder) on such Installment Date or a Company Conversion is not otherwise
permitted under any other provision of this Note (including, without limitation,
as a result of the occurrence of a Dollar Failure or a Volume Failure or as a
result of the Holder Pro Rata Amount of the Installment Volume Limitation being
exceeded (each determined as of the applicable Installment Date)), then, at the
option of the Holder designated in writing to the Company, the Holder may
require the Company to do any one or more of the following: (i) the Company
shall redeem all or any part designated by the Holder of the unconverted Company
Conversion Amount (such designated amount is referred to as the “Designated
Redemption Amount”) and the Company shall pay to the Holder within three (3)
days of such Installment Date, by wire transfer of immediately available funds,
an amount in cash equal to 135% of such Designated Redemption Amount, and/or
(ii) the Company Conversion shall be null and void with respect to all or any
part designated by the Holder of the unconverted Company Conversion Amount and
the Holder shall be entitled to all the rights of a holder of this Note with
respect to such designated part of the Company Conversion Amount; provided,
however, the Conversion Price for such designated part of such unconverted
Company Conversion Amount shall thereafter be adjusted to equal the lesser of
(A) the Company Conversion Price as in effect on the date on which the Holder
voided the Company Conversion and (B) the Company Conversion Price that would be
in effect on the date on which the Holder delivers a Conversion Notice relating
thereto as if such date was an Installment Date. In addition, if any of the
Equity Conditions are not satisfied (or waived in writing by the Holder) on such
Installment Date or a Company Conversion is not otherwise permitted under any
other provision of this Note (including, without limitation, as a result of the
occurrence of a Dollar Failure or a Volume Failure or as a result of the Holder
Pro Rata Amount of the Installment Volume Limitation being exceeded (each
determined as of the applicable Installment Date)), then, at the Holder’s
option, either (I) the Holder shall return any Pre-Installment Conversion Shares
delivered in connection with the applicable Installment Date or (II) the
applicable Designated Redemption Amount shall be reduced by the product of (X)
the Company Conversion Amount applicable to such Installment Date multiplied by
(Y) the Conversion Share Ratio. If the Company fails to redeem any Designated
Redemption Amount by the third (3rd) day following the applicable Installment
Date by payment of such amount on the applicable Installment Date, then the
Holder shall have the rights set forth in Section 12(a) as if the Company failed
to pay the applicable Company Installment Redemption Price (as defined below)
and all other rights under this Note (including, without limitation, such
failure constituting an Event of Default described in Section 4(a)(xv)).
Notwithstanding anything to the contrary in this Section 8(b), but subject to
3(d), until the Company delivers Common Stock representing the Company
Conversion Amount to the Holder, the Company Conversion Amount may be converted
by the Holder into Common Stock pursuant to Section 3. In the event that the
Holder elects to convert the Company Conversion Amount prior to the applicable
Installment Date as set forth in the immediately preceding sentence, the Company
Conversion Amount so converted shall be deducted from the Installment Amount(s)
relating to the applicable Installment Date(s) as set forth in the applicable
Conversion Notice. If, with respect to an Installment Date, the number of
Pre-Installment Conversion Shares delivered to the Holder exceeds the number of
Post-Installment Conversion Shares with respect to such Installment Date, then
the number of shares of Common Stock equal to such excess shall constitute a
credit against the number of shares of Common Stock to be issued to such Holder
pursuant to Sections 3 and 8(a) hereof and shall reduce the number of shares of
Common Stock required to be actually issued by the Company to the Holder under
such sections on a share-for-share basis until such time as the number of shares
that would have been issued by the Company to such Holder (not taking account of
such credit) equals the amount of such excess.

 
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(c)           Mechanics of Company Redemption. If the Company elects, or is
required to elect, a Company Redemption, in whole or in part, in accordance with
Section 8(a), then the Company Redemption Amount, if any, which is to be paid to
the Holder on the applicable Installment Date shall be redeemed by the Company
on such Installment Date, and the Company shall pay to the Holder on such
Installment Date, by wire transfer of immediately available funds, in an amount
in cash (the “Company Installment Redemption Price”) equal to 110% of the
applicable Company Redemption Amount. If the Company fails to redeem the
applicable Company Redemption Amount on the applicable Installment Date by
payment of the Company Installment Redemption Price on such date, then, at the
option of the Holder designated in writing to the Company (any such designation
shall be a “Conversion Notice” for purposes of this Note), the Holder may
require the Company to convert all or any part of the Company Redemption Amount
at the Company Conversion Price (determined as of the date of such designation).
Conversions required by this Section 8(c) shall be made in accordance with the
provisions of Section 3(c). Notwithstanding anything to the contrary in this
Section 8(c), but subject to Section 3(d), until the Company Installment
Redemption Price (together with any Late Charges thereon) is paid in full, the
Company Redemption Amount (together with any Late Charges thereon) may be
converted, in whole or in part, by the Holder into Common Stock pursuant to
Section 3. In the event the Holder elects to convert all or any portion of the
Company Redemption Amount prior to the applicable Installment Date as set forth
in the immediately preceding sentence, the Company Redemption Amount so
converted shall be deducted from the Installment Amounts relating to the
applicable Installment Date(s) as set forth in the applicable Conversion Notice.
With respect to each Company Redemption, (I) the portion of the applicable
Company Installment Redemption Price that is equal to applicable Principal
Reduction Amount is the only amount that shall applied against the Principal
amount due under this Note, (II) the portion of the applicable Company
Installment Redemption Price that is equal to Interest accrued through the
applicable Installment Date (but only if such Installment Date is also an
Interest Date) plus Late Charges accrued through the applicable Installment Date
shall be applied against such accrued Interest and Late Charges (as the case may
be) and (III) the portion of the applicable Company Installment Redemption Price
remaining after application of clauses (I) and (II) above shall be applied as a
redemption premium to the Holder. In the event of the Company’s redemption of
any portion of this Note under this Section 8(c), the Holder’s damages would be
uncertain and difficult to estimate because of the parties’ inability to predict
future interest rates and the uncertainty of the availability of a suitable
substitute investment opportunity for the Holder. Accordingly, any redemption
premium due under this Section 8(c) is intended by the parties to be, and shall
be deemed, a reasonable estimate of the Holder’s actual loss of its investment
opportunity and not as a penalty.
 
9.           REDEMPTION AT OPTION OF THE COMPANY.
 
(a)           Right to Cause Redemption. If at any time after the Effective Date
(as defined in the Registration Rights Agreement) of the initial Registration
Statement required to be filed by the Company pursuant to Section 2(a) of the
Registration Rights Agreement (the “Company Optional Redemption Eligibility
Date”), (i) the Common Stock trades on an Eligible Market for no less than $2.42
per share (as adjusted for stock splits, combinations and the like occurring
after the Issuance Date) (the “Trigger Price”) for a period of twenty (20)
consecutive Trading Days commencing after the Company Optional Redemption
Eligibility Date, (ii) the average daily dollar trading volume (as reported on
Bloomberg) of the Common Stock on the applicable Eligible Market over the twenty
(20) consecutive Trading Day period ending on the Trading Day immediately
preceding the Company Optional Redemption Notice Date (as defined below) exceeds
$400,000 per day and (iii) no Equity Conditions Failure has occurred, the
Company shall have the right to redeem all, but not less than all, of the
then-remaining amounts outstanding under this Note (all of such then-remaining
amounts are referred to herein as the “Company Optional Redemption Amount”) on
the Company Optional Redemption Date (as defined below) (the “Company Optional
Redemption”).

 
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(b)           Mechanics of Redemption at Option of the Company. The Company may
exercise its right to require redemption under this Section 9 by delivering, no
later than ten (10) days following the date of satisfaction of all the
conditions set forth in Section 9(a) above, a written notice thereof by
facsimile and overnight courier to all, but not less than all, of the holders of
Notes (the “Company Optional Redemption Notice” and the date all of the holders
of Notes received such notice is referred to as the “Company Optional Redemption
Notice Date”). The Company Optional Redemption Notice shall (x) state the date
on which the Company Optional Redemption shall occur (the “Company Optional
Redemption Date”), which date shall not be less than twenty (20) Trading Days
nor more than sixty (60) Trading Days following the Company Optional Redemption
Notice Date, (y) certify that there has been no Equity Conditions Failure and
(z) state the Company Optional Redemption Amount. The Company Optional
Redemption Notice shall be irrevocable.
 
(c)           Payment of Optional Redemption Price. The redemption price shall
be determined as of the Company Optional Redemption Date and shall be an amount
equal to 110% of all of the remaining amounts outstanding under this Note as of
the Company Optional Redemption Date (the “Company Optional Redemption Price”).
The Company Optional Redemption Price shall be payable in cash to the Holder on
the Company Optional Redemption Date. To the extent redemptions required by this
Section 9 are deemed or determined by a court of competent jurisdiction to be
prepayments of this Note by the Company, such redemptions shall be deemed to be
voluntary prepayments. Notwithstanding anything to the contrary in this Section
9, but subject to Section 3(d) and the last sentence of this Section 9(c), until
the Company Optional Redemption Price (together with any Late Charges thereon)
is paid in full, the Company Optional Redemption Amount subject to redemption
under this Section 9 (together with any Late Charges thereon) may be converted,
in whole or in part, by the Holder into shares of Common Stock pursuant to
Section 3, and all such amounts so converted shall reduce the Company Optional
Redemption Amount required to be redeemed on the Company Optional Redemption
Date. In the event of the Company’s redemption of any portion of this Note under
this Section 9, the Holder’s damages would be uncertain and difficult to
estimate because of the parties’ inability to predict future interest rates and
the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any redemption premium due under this
Section 9 is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder’s actual loss of its investment opportunity and not as a
penalty. In the event that the Company does not pay to the Holder the Company
Optional Redemption Price on the Company Optional Redemption Date, then, in
addition to all other rights and remedies available to the Holder, the Holder
shall have the right to void the redemption pursuant to Section 12(a) with the
term “Company Optional Redemption Price” being substituted for “Redemption
Price” and “Company Optional Redemption Notice” being substituted for
“Redemption Notice,” shall have all rights of the Holder under Section 12(a) as
if they were part of this Section 9 and applied solely to this Section 9 and the
Company shall pay to the Holder Late Charges in respect of the Company Optional
Redemption Price until paid in full. Notwithstanding anything contained in this
Section 9 to the contrary, if (i) the VWAP of the Common Stock on any Trading
Day during the period commencing on the Company Optional Redemption Notice Date
and ending on the date on which the Company Optional Redemption Price is paid in
full in cash to the Holder is less than the Trigger Price; (ii) the average
daily dollar trading volume (as reported on Bloomberg) of the Common Stock on
the applicable Eligible Market over the period commencing on the Company
Optional Redemption Notice Date and ending on the Trading Day immediately
preceding the date on which the Company Optional Redemption Price is paid in
full in cash to the Holder is less than $8,000,000; or (iii) an Equity
Conditions Failure occurs on any day during the period commencing on the Company
Optional Redemption Notice Date and ending on the date on which the Company
Optional Redemption Price is paid in full in cash to the Holder which failure
has not been waived by the Holder, then the Company Optional Redemption Notice
delivered to the Holder shall be null and void ab initio and such Company
Optional Redemption shall not occur.

 
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 (d)           Pro Rata Redemption Requirement. If the Company elects to cause a
Company Optional Redemption pursuant to this Section 12, then it must
simultaneously take the same action with respect to all of the Other Notes.
 
10.           NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation (as defined in
the Securities Purchase Agreement), Bylaws (as defined in the Securities
Purchase Agreement) or through any reorganization, transfer of assets,
consolidation, merger, scheme of arrangement, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Note, and will at all times in good
faith carry out all of the provisions of this Note and take all action as may be
required to protect the rights of the Holder of this Note. Without limiting the
generality of the foregoing, the Company (i) shall not increase the par value of
any shares of Common Stock receivable upon conversion of this Note above the
Conversion Price then in effect, (ii) shall take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the conversion of this
Note, and (iii) shall, so long as any of the Notes are outstanding, take all
action necessary to reserve and keep available out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Notes, the maximum number of shares of Common Stock as shall
from time to time be necessary to effect the conversion of the Notes then
outstanding (without regard to any limitations on conversion).
 
11.           RESERVATION OF AUTHORIZED SHARES.
 
  (a)           Reservation. The Company shall initially reserve out of its
authorized and unissued Common Stock a number of shares of Common Stock for each
of the Notes equal to 133% of the entire Conversion Rate with respect to the
entire Conversion Amount of each such Note as of the Issuance Date.  So long as
any of the Notes are outstanding, the Company shall take all action necessary to
reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes, 133% of the
number of shares of Common Stock as shall from time to time be necessary to
effect the conversion of all of the Notes then outstanding, provided that at no
time shall the number of shares of Common Stock so reserved be less than the
number of shares required to be reserved by the previous sentence (without
regard to any limitations on conversions) (the “Required Reserve Amount”).  The
initial number of shares of Common Stock reserved for conversions of the Notes
and each increase in the number of shares so reserved shall be allocated pro
rata among the holders of the Notes based on the original principal amount of
the Notes held by each holder on the Closing Date or increase in the number of
reserved shares (as the case may be) (the “Authorized Share Allocation”). In the
event that a holder shall sell or otherwise transfer any of such holder’s Notes,
each transferee shall be allocated a pro rata portion of such holder’s
Authorized Share Allocation. Any shares of Common Stock reserved and allocated
to any Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.

 
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(b)           Insufficient Authorized Shares. If, notwithstanding Section 11(a),
and not in limitation thereof, at any time while any of the Notes remain
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon conversion of the Notes at least a number of shares of Common
Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then
the Company shall immediately take all action necessary to increase the
Company’s authorized shares of Common Stock to an amount sufficient to allow the
Company to reserve the Required Reserve Amount for the Notes then outstanding.
Without limiting the generality of the foregoing sentence, as soon as
practicable after the date of the occurrence of an Authorized Share Failure, but
in no event later than sixty (60) days after the occurrence of such Authorized
Share Failure, the Company shall hold a meeting of its stockholders for the
approval of an increase in the number of authorized shares of Common Stock.  In
connection with such meeting, the Company shall provide each stockholder with a
proxy statement and shall use its best efforts to solicit its stockholders’
approval of such increase in authorized shares of Common Stock and to cause its
board of directors to recommend to the stockholders that they approve such
proposal.
 
12.          HOLDER’S REDEMPTIONS.
 
(a)           Mechanics. The Company shall deliver the applicable Event of
Default Redemption Price to the Holder in cash within five (5) Business Days
after the Company’s receipt of the Holder’s Event of Default Redemption Notice.
If the Holder has submitted a Fundamental Transaction Redemption Notice in
accordance with Section 5(b), the Company shall deliver the applicable
Fundamental Transaction Redemption Price to the Holder in cash concurrently with
the consummation of such Fundamental Transaction if such notice is received
prior to the consummation of such Fundamental Transaction and within five (5)
Business Days after the Company’s receipt of such notice otherwise. The Company
shall deliver the applicable Company Installment Redemption Price to the Holder
in cash on the applicable Installment Date. In the event of a redemption of less
than all of the Conversion Amount of this Note, the Company shall promptly cause
to be issued and delivered to the Holder a new Note (in accordance with Section
19(d)) representing the outstanding Principal which has not been redeemed. In
the event that the Company does not pay the applicable Redemption Price to the
Holder within the time period required, at any time thereafter and until the
Company pays such unpaid Redemption Price in full, the Holder shall have the
option, in lieu of redemption, to require the Company to promptly return to the
Holder all or any portion of this Note representing the Conversion Amount that
was submitted for redemption and for which the applicable Redemption Price
(together with any Late Charges thereon) has not been paid. Upon the Company’s
receipt of such notice, (x) the applicable Redemption Notice shall be null and
void with respect to such Conversion Amount, (y) the Company shall immediately
return this Note, or issue a new Note (in accordance with Section 19(d)), to the
Holder, and in each case the principal amount of this Note or such new Note (as
the case may be) shall be increased by an amount equal to the difference between
(1) the applicable Event of Default Redemption Price or Fundamental Transaction
Redemption Price (as the case may be) minus (2) the Conversion Amount submitted
for redemption and (z) the Conversion Price of this Note or such new Notes (as
the case may be) shall be adjusted with respect to each conversion effected
thereafter by the Holder to the lowest of (A) the Conversion Price as in effect
on the date on which the applicable Redemption Notice is voided, (B) 85% of the
lowest Closing Bid Price of the Common Stock during the period beginning on and
including the date on which the applicable Redemption Notice is delivered to the
Company and ending on and including the date on which the applicable Redemption
Notice is voided and (C) 85% of the VWAP for the five (5) Trading Day period
immediately preceding the Conversion Date of the applicable conversion. The
Holder’s delivery of a notice voiding a Redemption Notice and exercise of its
rights following such notice shall not affect the Company’s obligations to make
any payments of Late Charges which have accrued prior to the date of such notice
with respect to the Conversion Amount subject to such notice.

 
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(b)           Redemption by Other Holders. Upon the Company’s receipt of notice
from any of the holders of the Other Notes for redemption or repayment as a
result of an event or occurrence substantially similar to the events or
occurrences described in Section 4(b) or Section 5(b) (each, an “Other
Redemption Notice”), the Company shall immediately, but no later than one (1)
Business Day of its receipt thereof, forward to the Holder by facsimile a copy
of such notice. If the Company receives a Redemption Notice and one or more
Other Redemption Notices, during the eleven (11) Business Day period beginning
on and including the date which is five (5) Business Days prior to the Company’s
receipt of the Holder’s applicable Redemption Notice and ending on and including
the date which is five (5) Business Days after the Company’s receipt of the
Holder’s applicable Redemption Notice and the Company is unable to redeem all
principal, interest and other amounts designated in such Redemption Notice and
such Other Redemption Notices received during such eleven (11) Business Day
period, then the Company shall redeem a pro rata amount from each holder of the
Notes (including the Holder) based on the principal amount of the Notes
submitted for redemption pursuant to such Redemption Notice and such Other
Redemption Notices received by the Company during such eleven (11) Business Day
period.
 
13.          VOTING RIGHTS. The Holder shall have no voting rights as the holder
of this Note, except as required by law (including, without limitation, Chapters
78 and 92A of the Nevada Revised Statutes) and as expressly provided in this
Note.
 
14.          COVENANTS. Until all of the Notes have been converted, redeemed or
otherwise satisfied in accordance with their terms:
 
(a)           Rank. All payments due under this Note (a) shall rank pari passu
with all Other Notes, (b) shall be senior to all other Indebtedness of the
Company other than Permitted Company Senior Indebtedness and (c) shall be senior
to all other Indebtedness of the Subsidiaries other than Permitted Subsidiary
Senior Indebtedness.
 
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(b)           Incurrence of Indebtedness. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, incur or
guarantee, assume or suffer to exist any Indebtedness, other than (i) the
Indebtedness evidenced by this Note and the Other Notes and (ii) Permitted
Indebtedness.
 
(c)           Existence of Liens. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, directly or indirectly, allow or suffer
to exist any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract
rights) owned by the Company (other than Permitted Company Liens) or any of its
Subsidiaries (other than Permitted Subsidiary Liens) (collectively, “Liens”).
 
(d)           Restricted Payments. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Indebtedness (other than Permitted Company Senior Indebtedness and Permitted
Subsidiary Senior Indebtedness), whether by way of payment in respect of
principal of (or premium, if any) or interest on, such Indebtedness if at the
time such payment is due or is otherwise made or, after giving effect to such
payment, (i) an event constituting an Event of Default has occurred and is
continuing or (ii) an event that with the passage of time and without being
cured would constitute an Event of Default has occurred and is continuing.
 
(e)           Restriction on Redemption and Cash Dividends. The Company shall
not, and the Company shall cause each of its Subsidiaries to not, directly or
indirectly, redeem, repurchase or declare or pay any cash dividend or
distribution on any of its capital stock without the prior express written
consent of the Holder.
 
(f)           Restriction on Transfer of Assets. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
sell, lease, license, assign, transfer, convey or otherwise dispose of any
assets or rights of the Company or any Subsidiary owned or hereafter acquired
whether in a single transaction or a series of related transactions, other than
(i) sales, leases, licenses, assignments, transfers, conveyances and other
dispositions of such assets or rights by the Company and its Subsidiaries that,
in the aggregate, do not have a fair market value in excess of $250,000 in any
twelve (12) month period; (ii) sales of inventory in the ordinary course of
business; and (iii) sales of obsolete or worn out equipment that, in the
aggregate, do not have a fair market value in excess of $250,000 in any twelve
(12) month period. The Company shall not, and the Company shall cause each of
its Subsidiaries (other than Magnum Recycling Canada, Inc.) to not, directly or
indirectly, own or acquire any assets located outside of the United States. The
Company shall cause Magnum Recycling Canada, Inc. to not, directly or
indirectly, own or acquire any assets located outside of the Province of Quebec,
Canada.
 
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(g)           Maturity of Indebtedness. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, permit any
Indebtedness of the Company or any of the Subsidiaries to mature or accelerate
prior to the Maturity Date, other than Permitted Company Senior Indebtedness and
Permitted Subsidiary Senior Indebtedness.
 
(h)           New Subsidiaries. Simultaneously with the acquisition or formation
of each New Subsidiary, the Company shall cause such New Subsidiary to execute,
and deliver to each holder of Notes, all Security Documents (as defined in the
Securities Purchase Agreement) and Guaranties (as defined in the Securities
Purchase Agreement) that the Current Subsidiaries are required to execute in
connection with the transactions contemplated by the Securities Purchase
Agreement.
 
(i)           Change in Nature of Business. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
engage in any material line of business substantially different from those lines
of business conducted by the Company and each of its Subsidiaries on the
Issuance Date or any business substantially related or incidental thereto.  The
Company shall not, and the Company shall cause each of its Subsidiaries to not,
directly or indirectly, modify its or their corporate structure or purpose.
 
(j)           Net Cash Balance Test. The Company shall maintain a Net Cash
Balance in excess of the applicable Reserved Amount (the “Net Cash Balance
Test”). If the Company fails (a “Failure Date”) to satisfy the Net Cash Balance
Test as of any date, the Company promptly shall provide to the Holder a
certification, executed on behalf of the Company by the Chief Financial Officer
of the Company, as to the amount of the Net Cash Balance as of the Failure Date,
and immediately publicly disclose (on a Current Report on Form 8-K or otherwise)
such material non-public information.
 
15.          SECURITY. This Note and the Other Notes are secured to the extent
and in the manner set forth in the Transaction Documents (including, without
limitation, the Security Agreements, the other Security Documents and the
Guaranties).
 
16.          PARTICIPATION. In addition to any adjustments pursuant to Section
7, the Holder, as the holder of this Note, shall be entitled to receive such
dividends paid and distributions made to the holders of Common Stock to the same
extent as if the Holder had converted this Note into Common Stock (without
regard to any limitations on conversion herein or elsewhere) and had held such
shares of Common Stock on the record date for such dividends and distributions.
Payments under the preceding sentence shall be made concurrently with the
dividend or distribution to the holders of Common Stock (provided, however, to
the extent that the Holder’s right to participate in any such dividend or
distribution would result in the Holder exceeding the Maximum Percentage, then
the Holder shall not be entitled to participate in such dividend or distribution
to such extent (or the beneficial ownership of any such shares of Common Stock
as a result of such dividend or distribution to such extent) and such dividend
or distribution to such extent shall be held in abeyance for the benefit of the
Holder until such time, if ever, as its right thereto would not result in the
Holder exceeding the Maximum Percentage).
 
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17.          AMENDING THE TERMS OF THIS NOTE. The prior written consent of the
Holder shall be required for any change or amendment to this Note. No
consideration shall be offered or paid to the Holder to amend or consent to a
waiver or modification of any provision of this Note unless the same
consideration is also offered to all of the holders of the Other Notes. The
Holder shall be entitled, at its option, to the benefit of any amendment to any
of the Other Notes.
 
18.          TRANSFER. This Note and any shares of Common Stock issued upon
conversion of this Note may be offered, sold, assigned or transferred by the
Holder without the consent of the Company, subject only to the provisions of
Section 2(g) of the Securities Purchase Agreement, provided that the Holder
shall pay for any reasonable and customary costs associated with any offer,
sale, assignment or transfer by the Holder pursuant to this Section 18 and shall
reimburse the Company for any such costs that the Company incurs as a result of
taking any actions expressly requested by the Holder (other than any actions
required to be taken by the Company pursuant to the terms of the Transaction
Documents) in any such offer, sale, assignment or transfer.
 
19.          REISSUANCE OF THIS NOTE.
 
(a)           Transfer. If this Note is to be transferred, the Holder shall
surrender this Note to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the Holder a new Note (in accordance with Section
19(d)), registered as the Holder may request, representing the outstanding
Principal being transferred by the Holder and, if less than the entire
outstanding Principal is being transferred, a new Note (in accordance with
Section 19(d)) to the Holder representing the outstanding Principal not being
transferred. The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of Section 3(c)(iii)
following conversion or redemption of any portion of this Note, the outstanding
Principal represented by this Note may be less than the Principal stated on the
face of this Note.
 
(b)           Lost, Stolen or Mutilated Note. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note (as to which a written certification and the
indemnification contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of this Note, the Company shall
execute and deliver to the Holder a new Note (in accordance with Section 19(d))
representing the outstanding Principal.
 
(c)           Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in accordance with Section 19(d) and in
principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender. Holder shall pay for any reasonable and customary costs
associated with any such exchange of this Note and shall reimburse the Company
for any such costs that the Company incurs in connection with any such exchange.
 
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(d)           Issuance of New Notes. Whenever the Company is required to issue a
new Note pursuant to the terms of this Note, such new Note (i) shall be of like
tenor with this Note, (ii) shall represent, as indicated on the face of such new
Note, the Principal remaining outstanding (or in the case of a new Note being
issued pursuant to Section 19(a) or Section 19(c), the Principal designated by
the Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued and unpaid
Interest and Late Charges on the Principal and Interest of this Note, from the
Issuance Date.
 
20.          REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note and any of the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder’s right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note.  The Company covenants to the
Holder that there shall be no characterization concerning this instrument other
than as expressly provided herein. Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the Holder and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required. The Company shall provide all
information and documentation to the Holder that is requested by the Holder to
enable the Holder to confirm the Company’s compliance with the terms and
conditions of this Note (including, without limitation, compliance with Section
7).
 
21.          PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS.  If (a) this
Note is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors’ rights and
involving a claim under this Note, then the Company shall pay the actual costs
incurred by the Holder for such collection, enforcement or action or in
connection with such bankruptcy, reorganization, receivership or other
proceeding, including, without limitation, reasonable attorneys’ fees and
disbursements.
 
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22.          CONSTRUCTION; HEADINGS.  This Note shall be deemed to be jointly
drafted by the Company and the Holder and shall not be construed against any
Person as the drafter hereof. The headings of this Note are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Note. Terms used in this Note but defined in the other Transaction Documents
shall have the meanings ascribed to such terms on the Closing Date in such other
Transaction Documents unless otherwise consented to in writing by the Holder.
 
23.          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 privilege. No waiver shall be effective unless it is
in writing and signed by an authorized representative of the waiving party.
 
24.          DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Conversion Price, the Closing Bid Price, the Closing Sale
Price or fair market value (as the case may be) or the arithmetic calculation of
the Conversion Rate or the applicable Redemption Price (as the case may be), the
Company or the Holder (as the case may be) shall submit the disputed
determinations or arithmetic calculations (as the case may be) via facsimile (i)
within two (2) Business Days after receipt of the applicable notice giving rise
to such dispute to the Company or the Holder (as the case may be) or (ii) if no
notice gave rise to such dispute, at any time after the Holder learned of the
circumstances giving rise to such dispute (including, without limitation, as to
whether any issuance or sale or deemed issuance or sale was an issuance or sale
or deemed issuance or sale of Excluded Securities). If the Holder and the
Company are unable to agree upon such determination or calculation within two
(2) Business Days of such disputed determination or arithmetic calculation (as
the case may be) being submitted to the Company or the Holder (as the case may
be), then the Company shall, within two (2) Business Days, submit via facsimile
(a) the disputed determination of the Conversion Price, the Closing Bid Price,
the Closing Sale Price or fair market value (as the case may be) to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or
any Redemption Price (as the case may be) to the Company’s independent, outside
accountant. The Company shall cause at its expense the investment bank or the
accountant (as the case may be) to perform the determinations or calculations
(as the case may be) and notify the Company and the Holder of the results no
later than ten (10) Business Days from the time it receives such disputed
determinations or calculations (as the case may be). Such investment bank’s or
accountant’s determination or calculation (as the case may be) shall be binding
upon all parties absent demonstrable error.
 
25.          NOTICES; PAYMENTS.
 
(a)           Notices. Whenever notice is required to be given under this Note,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Note,
including in reasonable detail a description of such action and the reason
therefore. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen (15) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the Common Stock, (B) with respect to any
grant, issuances, or sales of any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property to holders of shares of
Common Stock or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation, provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder.
 
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(b)           Payments. Whenever any payment of cash is to be made by the
Company to any Person pursuant to this Note, unless otherwise expressly set
forth herein, such payment shall be made in lawful money of the United States of
America by a certified check drawn on the account of the Company and sent via
overnight courier service to such Person at such address as previously provided
to the Company in writing (which address, in the case of each of the Buyers,
shall initially be as set forth on the Schedule of Buyers attached to the
Securities Purchase Agreement), provided that the Holder may elect to receive a
payment of cash via wire transfer of immediately available funds by providing
the Company with prior written notice setting out such request and the Holder’s
wire transfer instructions. 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 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. Any amount of
Principal or other amounts due under the Transaction Documents which is not paid
when due (after expiration of any applicable cure periods) shall result in a
late charge being incurred and payable by the Company in an amount equal to
interest on such amount at the rate of eighteen percent (18%) per annum from the
date such amount was due until the same is paid in full (“Late Charge”).
 
26.          CANCELLATION. After all Principal, accrued Interest, Late Charges
and other amounts at any time owed on this Note have been paid in full, this
Note shall automatically be deemed canceled, shall be surrendered to the Company
for cancellation and shall not be reissued.
 
27.          WAIVER OF NOTICE.  To the extent permitted by law, the Company
hereby irrevocably waives demand, notice, presentment, protest and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement of this Note and the Securities Purchase Agreement.
 
28.          GOVERNING LAW.  This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) (other than Sections 5-1401 and 5-1402 of the New York General
Obligations Law) that would cause the application of the laws of any
jurisdictions other than the State of New York. The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.  In the event
that any provision of this Note 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 this Note. Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action
against the Company in any other jurisdiction to collect on the Company’s
obligations to the Holder, to realize on any collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor of
the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION
CONTEMPLATED HEREBY.
 
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29.          CERTAIN DEFINITIONS. Capitalized terms used but not otherwise
defined herein shall have the meanings ascribed thereto in the Securities
Purchase Agreement. For purposes of this Note, the following terms shall have
the following meanings:
 
(a)           “Bloomberg” means Bloomberg, L.P.
 
(b)           “Business Day” means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.
 
(c)           “Canadian Security Agreements” means those certain security
agreements, dated as of the Closing Date and governed by Quebec law, by and
among the Company and/or the Subsidiaries party thereto (as applicable) and the
initial holders of the Notes, as may be amended from time to time.
 
(d)           “Closing Bid Price” and “Closing Sale Price” means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price
(as the case may be) then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the “pink sheets” by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price (as the case may be) of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved in accordance with the
procedures in Section 24. All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar
transaction during such period.
 
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(e)           “Closing Date” shall have the meaning set forth in the Securities
Purchase Agreement, which date is the date the Company initially issued Notes
pursuant to the terms of the Securities Purchase Agreement.
 
(f)           “Common Stock” means (i) the Company’s shares of common stock,
$0.001 par value per share, and (ii) any capital stock into which such common
stock shall have been changed or any share capital resulting from a
reclassification of such common stock.
 
(g)           “Company Conversion Price” means, with respect to a particular
date of determination, the lower of (i) the Conversion Price then in effect and
(ii) the price which shall be computed as 85% of the quotient of (I) the sum of
each of the five (5) lowest Trading Day VWAPs of the Common Stock during the
twenty (20) consecutive Trading Day period immediately preceding the applicable
Installment Date (each such period, a “Company Conversion Measuring Period”)
divided by (II) five (5). All such determinations to be appropriately adjusted
for any stock split, stock dividend, stock combination or other similar
transaction during any such Company Conversion Measuring Period.
 
(h)           “Conversion Share Ratio” means as to any applicable Installment
Date, the quotient of (i) the number of Pre-Installment Conversion Shares
delivered in connection with such Installment Date divided by (ii) the number of
Post-Installment Conversion Shares applicable to such Installment Date.
 
(i)           “Convertible Securities” means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for shares of Common Stock.
 
(j)           “Current Subsidiaries” means any Person in which the Company on
the Subscription Date, directly or indirectly, (i) owns any of the outstanding
capital stock or holds any equity or similar interest of such Person or (ii)
controls or operates all or any part of the business, operations or
administration of such Person, and each of the foregoing, individually, a
“Current Subsidiary.”
 
(k)           “Dollar Failure” means, with respect to a particular date of
determination, that the aggregate dollar trading volume (as reported on
Bloomberg) of the Common Stock on the Eligible Market on which the Common Stock
is listed or designated for quotation as of such date of determination over the
twenty (20) consecutive Trading Day period ending on the Trading Day immediately
preceding such date of determination is less than $3,000,000.
 
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(l)           “Eligible Market” means The New York Stock Exchange, Inc., the
Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market
or the Principal Market.

(m)           “Equity Conditions” means: (i) on each day during the period
beginning one month prior to the applicable date of determination and ending on
and including the applicable date of determination either (x) the applicable
Registration Statement filed pursuant to the Registration Rights Agreement shall
be effective and the prospectus contained therein shall be available for the
resale by the Holder of all of the Registrable Securities (which, solely for
clarification purposes, includes all shares of Common Stock issuable upon
conversion of this Note, including, without limitation, under Sections 3 and 8)
in accordance with the terms of the Registration Rights Agreement and there
shall not have been during such period any Grace Periods (as defined in the
Registration Rights Agreement) or (y) all Registrable Securities shall be
eligible for sale without restriction under Rule 144 (including, without
limitation, volume restrictions) and without the need for current public
information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) and
without the need for registration under any applicable federal or state
securities laws (in each case, disregarding any limitation on conversion of the
Notes and exercise of the Warrants); (ii) on each day during the period
beginning three months prior to the applicable date of determination and ending
on and including the applicable date of determination (the “Equity Conditions
Measuring Period”), the shares of Common Stock (including all Registrable
Securities) are listed or designated for quotation on an Eligible Market and
shall not have been suspended from trading on an Eligible Market (other than
suspensions of not more than two (2) days and occurring prior to the applicable
date of determination due to business announcements by the Company) nor shall
delisting or suspension by an Eligible Market have been threatened or pending
(with a reasonable prospect of delisting occurring) either (A) in writing by
such Eligible Market or (B) by falling below the minimum listing maintenance
requirements of the Eligible Market on which the shares of Common Stock are then
listed; (iii) on each day during the Equity Conditions Measuring Period, the
Company shall have delivered all shares of Common Stock issuable upon conversion
of this Note on a timely basis as set forth in Section 3 hereof and all other
shares of capital stock required to be delivered by the Company on a timely
basis as set forth in the other Transaction Documents; (iv) any shares of Common
Stock to be issued in connection with the event requiring determination may be
issued in full without violating Section 3(d) hereof; (v) any shares of Common
Stock to be issued in connection with the event requiring determination may be
issued in full without violating the rules or regulations of the Eligible Market
on which the Common Stock is then listed; (vi) on each day during the Equity
Conditions Measuring Period, no public announcement of a pending, proposed or
intended Fundamental Transaction shall have occurred which has not been
abandoned, terminated or consummated; (vii) the Company shall have no knowledge
of any fact that would reasonably be expected to cause (1) the applicable
Registration Statement required to be filed pursuant to the Registration Rights
Agreement to not be effective or the prospectus contained therein to not be
available for the resale of at least all of the Registrable Securities in
accordance with the terms of the Registration Rights Agreement or (2) any
Registrable Securities to not be eligible for sale without restriction pursuant
to Rule 144 under the 1933 Act (as defined in the Securities Purchase Agreement)
and any applicable state securities laws (in each case, disregarding any
limitation on conversion or exercise); (viii) the Holder shall not be in (and no
other Buyer shall be in) possession of any material, non-public information
provided to any of them by the Company or any of its affiliates; (ix) on each
day during the Equity Conditions Measuring Period, the Company otherwise shall
have been in compliance with and shall not have breached any provision,
covenant, representation or warranty of any Transaction Document; and (x) on
each day during the Equity Conditions Measuring Period, there shall not have
occurred an Event of Default or an event that with the passage of time or giving
of notice would constitute an Event of Default.
 
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(n)           “Equity Conditions Failure” means that (i) on any day during the
period commencing twenty (20) Trading Days prior to the applicable Company
Installment Notice Date through the later of the applicable Installment Date and
the date on which the applicable shares of Common Stock are actually delivered
to the Holder or (ii) on any day during the period commencing twenty (20)
Trading Days prior to the Company Optional Redemption Notice Date through later
of the Company Optional Redemption Date and the date on which the Company
Optional Redemption Price is paid in full in cash to the Holder (as applicable),
the Equity Conditions have not been satisfied (or waived in writing by the
Holder).
 
(o)           “Equity Value Redemption Premium” means 135%.

(p)           “Fundamental Transaction” means that (i) the Company shall,
directly or indirectly, in one or more related transactions, (1) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (2) sell, lease, license, assign, transfer, convey or
otherwise dispose of all or substantially all of the properties or assets of the
Company or any material Subsidiary to another Person, or (3) allow another
Person to make a purchase, tender or exchange offer that is accepted by the
holders of more than 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the Person or Persons making or
party to, or associated or affiliated with the Persons making or party to, such
purchase, tender or exchange offer), or (4) consummate a stock or share purchase
agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination), or (5) reorganize,
recapitalize or reclassify its Common Stock, or (ii) any “person” or “group” (as
these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act)
is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the
1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock.
 
(q)           “Fundamental Transaction Redemption Premium” means 135%.
 
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(r)            “GAAP” means United States generally accepted accounting
principles, consistently applied.
 
(s)           “Holder Pro Rata Amount” means a fraction (i) the numerator of
which is the original Principal amount of this Note on the Closing Date and (ii)
the denominator of which is the aggregate original principal amount of all Notes
issued to the initial purchasers pursuant to the Securities Purchase Agreement
on the Closing Date.
 
(t)           “Installment Amount” means (i) with respect to any Installment
Date other than the Maturity Date, the lesser of (A) the product of (I)
$350,000, multiplied by (II) Holder Pro Rata Amount and (B) the Principal amount
under this Note as of such Installment Date, and (ii) with respect to the
Installment Date that is the Maturity Date, the Principal amount under this Note
as of such Installment Date (the amounts described under clauses (i) and (ii)
are referred to herein as the “Principal Reduction Amount”), in each case, as
any such Installment Amount may be reduced pursuant to the terms of this Note,
whether upon conversion, redemption or otherwise, together with, in each case of
clauses (i) and (ii), the sum of any accrued and unpaid Interest as of such
Installment Date under this Note (if such Installment Date is also an Interest
Date) and accrued and unpaid Late Charges, if any, under this Note as of such
Installment Date. In the event the Holder shall sell or otherwise transfer any
portion of this Note, the transferee shall be allocated a pro rata portion of
the each unpaid Installment Amount hereunder.
 
(u)           “Installment Date” means each of the following dates: (i) April 1,
2010, (ii) May 1, 2010, (iii) June 1, 2010, (iv) July 1, 2010, (v) August 1,
2010, (vi) September 1, 2010, (vii) October 1, 2010, (viii) November 1, 2010,
(ix) December 1, 2010 and (x) the Maturity Date.
 
(v)           “Installment Volume Limitation” means 35% of the aggregate dollar
trading volume (as reported on Bloomberg) of the Common Stock on the Principal
Market over the twenty (20) consecutive Trading Day period ending on the Trading
Day immediately preceding the applicable Installment Notice Date.
 
(w)           “Interest Rate” means nine percent (9%) per annum.
 
(x)           “Maturity Date” shall mean December ___, 2010; provided, however,
the Maturity Date may be extended at the option of the Holder (i) in the event
that, and for so long as, an Event of Default shall have occurred and be
continuing or any event shall have occurred and be continuing that with the
passage of time and the failure to cure would result in an Event of Default or
(ii) through the date that is twenty (20) Business Days after the consummation
of a Fundamental Transaction in the event that a Fundamental Transaction is
publicly announced or a Fundamental Transaction Notice is delivered prior to the
Maturity Date, provided further that if a Holder elects to convert some or all
of this Note pursuant to Section 3 hereof, and the Conversion Amount would be
limited pursuant to Section 3(d) hereunder, the Maturity Date shall
automatically be extended until such time as such provision shall not limit the
conversion of this Note.
 
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(y)           “Net Cash Balance” means, at any date, (i) an amount equal to the
aggregate amount of cash (but not including any restricted cash) that would be
classified as “cash” in accordance with GAAP on a balance sheet as of such date
minus (ii) all Indebtedness of the Company and its Subsidiaries (including, for
purposes of this clause (ii), trade payables but excluding, for purposes of this
clause (ii), Indebtedness under the Notes).
 
(z)            “New Subsidiaries” means, as of any date of determination, any
Person in which the Company after the Subscription Date, directly or indirectly,
(i) owns or acquires any of the outstanding capital stock or holds any equity or
similar interest of such Person or (ii) controls or operates all or any part of
the business, operations or administration of such Person, and each of the
foregoing, individually, a “New Subsidiary.”
 
(aa)         “Options” means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
 
(bb)         “Parent Entity” of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.

(cc)         “Permitted Indebtedness” means (i) total Indebtedness of the
Company and the Subsidiaries not to exceed $1,000,000 in the aggregate
(excluding Indebtedness specified in, and permitted by, clauses (ii) through
(vi) below) outstanding at any time; provided, however, such Indebtedness shall
be made expressly subordinate in right of payment to the Indebtedness evidenced
by the Notes, as reflected in a written agreement acceptable to the Required
Holders and approved by the Required Holders in writing, and which Indebtedness
does not provide at any time for the payment, prepayment, repayment, repurchase
or defeasance, directly or indirectly, of any principal or premium, if any,
thereon until ninety-one (91) days after the Maturity Date or later; (ii)
equipment leases and purchase money obligations of the Company not to exceed
$5,000 in the aggregate outstanding at any time; (iii) equipment leases and
purchase money obligations of the Subsidiaries not to exceed $245,000 in the
aggregate outstanding at any time; (iv) Indebtedness evidenced by this Note and
the Other Notes; (v) Indebtedness of the Company owed to the Persons identified
on Schedule 3(s) to the Securities Purchase Agreement, and any renewal or
refinancing thereof (provided that such renewal or refinancing does not increase
or decrease the length of the term thereof, increase any amounts due thereunder,
increase the interest rate thereunder or amend or modify any other material term
thereof); (vi) total Indebtedness of the Company and the Subsidiaries pursuant
to promissory notes not exceeding $5,000,000 in the aggregate outstanding at any
time; provided, however, such Indebtedness (A) shall be made expressly
subordinate in right of payment to the Indebtedness evidenced by the Notes, as
reflected in a written agreement acceptable to the Required Holders and approved
by the Required Holders in writing, and which Indebtedness does not provide at
any time for the payment, prepayment, repayment, repurchase or defeasance,
directly or indirectly, of any principal or premium, if any, thereon until
ninety-one (91) days after the Maturity Date or later and (B) shall not be,
directly or indirectly, exercisable for, convertible into or otherwise
exchangeable for any securities of the Company or any of its Subsidiaries
(including, without limitation, Convertible Securities or Options); and (vii)
unsecured Indebtedness in the aggregate amount of $2,100,000 related to the
obligation owed by Magnum Recycling Canada, Inc. pursuant to the lease of its
facility located at 2935 Rue René Patenaude, Magog, QC J1X 7J2.
 
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(dd)         “Permitted Company Liens” means, with respect to the Company, (i)
any Lien for taxes not yet due or delinquent or being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of
business by operation of law with respect to a liability that is not yet due or
delinquent, (iii) any Lien created by operation of law, such as materialmen’s
liens, mechanics’ liens and other similar liens, arising in the ordinary course
of business with respect to a liability that is not yet due or delinquent or
that are being contested in good faith by appropriate proceedings, (iv) Liens
securing the Company’s obligations under the Notes and the other Transaction
Documents (other than the Warrants) and (v) any Lien securing Permitted Company
Senior Indebtedness.
 
(ee)          “Permitted Company Senior Indebtedness” means the Indebtedness
described in clauses (ii) and (v) of Permitted Indebtedness.
 
(ff)           “Permitted Subsidiary Liens” means, with respect to each
Subsidiary, (i) any Lien for taxes not yet due or delinquent or being contested
in good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, (ii) any statutory Lien arising in the
ordinary course of business by operation of law with respect to a liability that
is not yet due or delinquent, (iii) any Lien created by operation of law, such
as materialmen’s liens, mechanics’ liens and other similar liens, arising in the
ordinary course of business with respect to a liability that is not yet due or
delinquent or that are being contested in good faith by appropriate proceedings,
(iv) Liens securing each Subsidiary’s obligations under the Guaranties and (v)
any Lien securing Permitted Subsidiary Senior Indebtedness.
 
(gg)         “Permitted Subsidiary Senior Indebtedness” means the Indebtedness
described in clause (iii) of Permitted Indebtedness.
 
(hh)         “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity or a government or any department or agency
thereof.
 
(ii)           “Pre-Installment Conversion Price” means, with respect to a
particular date of determination, the lower of (i) the Conversion Price then in
effect and (ii) the price which shall be computed as 85% of the quotient of (I)
the sum of each of the five (5) lowest Trading Day VWAPs of the Common Stock
during the twenty (20) consecutive Trading Day period immediately preceding the
delivery or deemed delivery of the applicable Company Installment Notice divided
by (II) five (5). All such determinations to be appropriately adjusted for any
stock split, stock dividend, stock combination or other similar transaction
during any such measuring period.
 
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(jj)           “Principal Market” means the OTC Bulletin Board.
 
(kk)         “Post-Installment Conversion Shares” means that number of shares of
Common Stock that would be required to be delivered pursuant to Section 8 on an
applicable Installment Date without taking into account the delivery of any
Pre-Installment Conversion Shares.
 
(ll)           “Quarter” means each of: (i) the period beginning on and
including January 1 and ending on and including March 31; (ii) the period
beginning on and including April 1 and ending on and including June 30; (iii)
the period beginning on and including July 1 and ending on and including
September 30; and (iv) the period beginning on and including October 1 and
ending on and including December 31.
 
(mm)       “Redemption Notices” means, collectively, the Event of Default
Redemption Notice and the Fundamental Transaction Redemption Notice, and each of
the foregoing, individually, a “Redemption Notice.”
 
(nn)           “Redemption Premium” means (i) in the case of the Events of
Default described in Section 4(a) (other than Sections 4(a)(ix) through
4(a)(xi)), 135% or (ii) in the case of the Events of Default described in
Sections 4(a)(ix) through 4(a)(xi), 100%.
 
(oo)           “Redemption Prices” means, collectively, the Event of Default
Redemption Price, the Fundamental Transaction Redemption Price and the Company
Installment Redemption Price, and each of the foregoing, individually, a
“Redemption Price.”
 
(pp)         “Registration Rights Agreement” means that certain registration
rights agreement, dated as of the Closing Date, by and among the Company and the
initial holders of the Notes relating to, among other things, the registration
of the resale of the Common Stock issuable upon conversion of the Notes and
exercise of the Warrants, as may be amended from time to time.
 
(qq)         “Reserved Amount” means, as of any date of determination, (i) at
all times after the first Installment Date so long as (1) the Company timely
effects a Company Conversion with respect (I) to the entire Installment Amount
due on the first Installment Date and (II) each entire Installment Amount due on
each Installment Date thereafter and (2) the Company is at all times in
compliance with Section 8, an amount equal to 33% of the aggregate Principal
amount then-outstanding under all of the Notes or (ii) at all times when clause
(i) does not apply, $1,166,667 (as applicable).
 
(rr)           “Required Holders” means the holders of Notes representing at
least a majority of the aggregate principal amount of the Notes then
outstanding.
 
(ss)         “SEC” means the United States Securities and Exchange Commission or
the successor thereto.
 
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(tt)           “Securities Purchase Agreement” means that certain securities
purchase agreement, dated as of the Subscription Date, by and among the Company
and the initial holders of the Notes pursuant to which the Company issued the
Notes and Warrants, as may be amended from time to time.
 
(uu)         “Security Agreements” means, collectively, the U.S. Security
Agreement and the Canadian Security Agreements.
 
(vv)         “Senior Officer” means any chairman, chief executive officer, chief
financial officer, chief operating officer, chief accounting officer, president
or vice president in charge of a principal business unit, division or function
(such as sales, administration or finance) of the Company or any of its
Subsidiaries or any other officer who performs a policy making function or any
other Person who performs similar policy making functions for the Company or any
of its Subsidiaries.
 
(ww)        “Subscription Date” means December 21, 2009.
 
(xx)          “Subsidiaries” means, as of any date of determination,
collectively, all Current Subsidiaries and all New Subsidiaries, and each of the
foregoing, individually, a “Subsidiary.”
 
(yy)         “Successor Entity” means the Person (or, if so elected by the
Holder, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Holder, the
Parent Entity) with which such Fundamental Transaction shall have been entered
into.

(zz)          “Trading Day” means any day on which the Common Stock is traded on
the Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded, provided that
“Trading Day” shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time) unless such day is otherwise designated
as a Trading Day in writing by the Holder.
 
(aaa)       “U.S. Security Agreement” means that certain security agreement,
dated as of the Closing Date and governed by New York law, by and among the
Company, the Subsidiaries party thereto and the initial holders of the Notes, as
may be amended from time to time.
 
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(bbb)      “VWAP” means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market (or, if
the Principal Market is not the principal trading market for such security, then
on the principal securities exchange or securities market on which such security
is then traded) during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its
“Volume at Price” function or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the “pink sheets” by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.). If the VWAP cannot be calculated
for such security on such date on any of the foregoing bases, the VWAP of such
security on such date shall be the fair market value as mutually determined by
the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
in accordance with the procedures in Section 24. All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during such period.
 
(ccc)       “Volume Failure” means, with respect to a particular date of
determination, the average daily volume (as reported on Bloomberg) of the Common
Stock on the Eligible Market on which the Common Stock is listed or designated
for quotation as of such date of determination over the twenty (20) consecutive
Trading Day period ending on the Trading Day immediately preceding such date of
determination is less than 200,000 shares per day (adjusted for any stock
dividend, stock split, stock combination or other similar transaction during
such period).
 
(ddd)      “Warrants” has the meaning ascribed to such term in the Securities
Purchase Agreement, and shall include all warrants issued in exchange therefor
or replacement thereof.
 
30.          DISCLOSURE. Upon receipt or delivery by the Company of any notice
in accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
non-public information relating to the Company or any of its Subsidiaries, the
Company shall within one (1) Business Day after any such receipt or delivery
publicly disclose such material, non-public information on a Current Report on
Form 8-K or otherwise. In the event that the Company believes that a notice
contains material, non-public information relating to the Company or any of its
Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the
Holder shall be allowed to presume that all matters relating to such notice do
not constitute material, non-public information relating to the Company or its
Subsidiaries. Nothing contained in this Section 30 shall limit any obligations
of the Company, or any rights of the Holder, under Section 4(i) of the
Securities Purchase Agreement.
 
[signature page follows]

 
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
the Issuance Date set out above.

Magnum d’Or Resources, Inc.
 
By:
   
Name:
 
Title:

 

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EXHIBIT I

 
MAGNUM D’OR RESOURCES, INC.
CONVERSION NOTICE
 
Reference is made to the Senior Secured Convertible Note (the “Note”) issued to
the undersigned by Magnum d’Or Resources, Inc. (the “Company”). In accordance
with and pursuant to the Note, the undersigned hereby elects to convert the
Conversion Amount (as defined in the Note) of the Note indicated below into
shares of Common Stock, $0.001 par value per share (the “Common Stock”), of the
Company, as of the date specified below.
 
Date of Conversion:
     
Aggregate Conversion Amount to be converted:
     
Please confirm the following information:
 
Conversion Price:
     
Number of shares of Common Stock to be issued:
     
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
 
Issue to:
                     
Facsimile Number:
     
Authorization:
     
By:
     
Title:
     
Dated:
     
Account Number:
 
  (if electronic book entry transfer)
     
Transaction Code Number:
 
  (if electronic book entry transfer)
 
Installment Amount(s) to be reduced (and corresponding Installment Date(s)) and
amount of reduction:
  _________________________________

 

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ACKNOWLEDGMENT
 
The Company hereby acknowledges this Conversion Notice and hereby directs
_________________ to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated _____________, 2009
from the Company and acknowledged and agreed to by ________________________.

Magnum d’Or Resources, Inc.
   
By:
   
Name:
 
Title:

 

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