Exhibit 10.5
 
SUBSCRIPTION AGREEMENT
 
To: 
Boomerang Systems, Inc.

355 Madison Avenue
Morristown NJ 07960
 
Ladies and Gentlemen:

1.           Purchase and Sale of the Note and Warrants
 
(a)          The undersigned hereby tenders this subscription and applies for
the purchase of (i) $_____________ principal amount of 6% convertible promissory
notes due _____, 2016, in the form attached as Exhibit A hereto (the “Note”),
and (ii) warrants, in the form attached as Exhibit B hereto (the “Warrants” and
together with the Note, the “Offering Securities”), to purchase the number
(equal to the principal amount of the Note divided by $4.25 (the initial
conversion  price of the Note)) of shares (the “Warrant Shares”) of the common
stock (the “Common Stock”), par value $0.001 per Share, of Boomerang Systems,
Inc. (the “Company”) at a price of $4.25, subject to adjustment.  Together with
this Subscription Agreement, the undersigned is delivering to the Company funds
by check or by wire transfer in accordance with the instructions provided by the
Company, in the full amount of the purchase price for the Note and Warrants
which the undersigned is subscribing for pursuant hereto.
 
(b)          The Offering Securities are being issued to investors (the
“Subscribers”) pursuant to a term sheet (the “Term Sheet”) and series of
Subscription Agreements in connection with a private offering (the “Offering”)
of the Offering Securities by the Company to certain accredited investors, and
includes those Notes and Warrants to be issued in connection with the Offering
to certain holders of outstanding debt of the Company in exchange for
cancellation of outstanding notes or debentures of the Company.  The Company has
retained Gilford Securities Incorporated (“Gilford”) as Placement Agent in
connection with the Offering and will pay compensation to Gilford as described
in the Term Sheet.  The closing of the purchase and sale of the Securities to be
acquired by the undersigned from the Company under this Subscription Agreement
shall take place at the offices of Wilk Auslander LLP, 1515 Broadway, 43rd
Floor, New York, NY 10036 (the “Closing”) at 10:00 a.m., New York time on (i)
the date on which the last to be fulfilled or waived of the conditions set forth
in Section 5 hereof and applicable to such Closing shall be fulfilled or waived
in accordance herewith or (ii) at such other time and place or on such date as
the Subscribers and the Company may agree upon (the “Closing Date”).  The
undersigned acknowledges there may be multiple Closings with other Subscribers
that occur prior to, or subsequent to the Closing under this Subscription
Agreement.
 
 
 

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

 
 
(c)          If the undersigned is paying the purchase price of the Offering
Securities through the cancellation of Company debt currently outstanding, check
the following box and provide the information below.  o
 
List the amount of principal and accrued interest to be cancelled in connection
with the  purchase of the Offering Securities:

Principal Amount
$ 
_______________
     
Accrued Interest
$ 
_______________

By checking the box above and executing this Subscription Agreement, the
undersigned: (i) acknowledges that the note representing the debt referenced
above will be cancelled as of the Closing Date and the undersigned will no
longer have any rights with respect to such cancelled note, (ii) agrees to
deliver such note to the  Company within 3 business days of executing and
delivering to the Company this Subscription Agreement, (iii) agrees to indemnify
the Company with respect to any claims against payment on the note once it has
been cancelled,  (iv) covenants and agrees with the Company that the undersigned
will not exercise the “cashless exercise” provision of any warrant to purchase
Common Stock that was issued to the undersigned, unless and until the average
daily trading volume of the Company’s Common Stock equals or exceeds 10,000
shares of Common Stock during at least five (5) of the ten (10) consecutive
Trading Days (as defined in the Warrants) immediately preceding the date of the
exercise notice and (v) acknowledges that the Company will not effectuate an
exercise prohibited by clause (iv) above.

2.           Representations, Warranties and Agreements of the Subscriber.  The
undersigned represents and warrants to the Company as of the date set forth
below:
 
(a)          The undersigned acknowledges that the undersigned has access to and
has reviewed copies of (i) the Company’s filings with the Securities and
Exchange Commission (the “SEC”) via EDGAR, consisting of the following:  the
Company’s Form 10-K for the fiscal year ended September 30, 2010 (including all
of the exhibits thereto and incorporated therein); Quarterly Report on Form 10-Q
(and any amendments thereto) for the fiscal quarters ended December 31, 2010,
March 31, 2011 and June 30, 2011; the Current Reports on Form 8-K (including, in
each case, as amended, and all of the exhibits thereto) filed with the SEC on
October 7, 2010, January 4, 2011, April 1, 2011 and  June 21, 2011; and the
Company’s definitive information statements filed with the SEC on October 12,
2010 and February 14, 2011 (collectively, the “SEC Reports”), and the
undersigned has performed its own due diligence in connection with its
subscription for the Note and Warrants and has had a reasonable opportunity to
ask questions of and receive answers from representatives of the Company
concerning the business and financial condition of the Company, the terms and
conditions of this Subscription Agreement, and all of such questions have been
answered to the satisfaction of the undersigned.
 
(b)          The undersigned is an “accredited investor,” as such term is
defined in Regulation D of the Rules and Regulations promulgated under the
Securities Act of 1933, as amended (the “Act”).  The undersigned is not a
registered broker dealer registered under Section 15(a) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), or a member of the
Financial Industry Regulatory Authority, Inc. or an entity engaged in the
business of being a broker dealer.  The undersigned is not affiliated with any
broker dealer registered under Section 15(a) of the Exchange Act, or a member of
the Financial Industry Regulatory Authority, Inc. or an entity engaged in the
business of being a broker dealer.
 
 
2

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

 
 
(c)          The undersigned understands that the Company has determined that
the exemption from the registration provisions of the Act, which is based upon
non-public offerings are applicable to the offer and sale of the Note and
Warrants based, in part, upon the representations, warranties and agreements
made by the undersigned herein.
 
(d)          The undersigned understands that (A) none of the Note, Warrants,
shares of Common Stock issuable upon conversion of the Notes (the “Conversion
Shares”) or Warrant Shares (collectively, the “Securities”) have been registered
under the Act or the securities laws of any state, based upon an exemption from
such registration requirements for non-public offerings pursuant to Regulation D
under the Act; (B) the Securities are and will be “restricted securities,” as
said term is defined in Rule 144 of the Rules and Regulations promulgated under
the Act; (C) unless they have been first registered under the Act and all
applicable state securities laws, the Securities may only be offered, sold or
otherwise transferred (1) to the Company, (2) pursuant to the exemption from
registration under the Act provided by Rule 144, or (3) pursuant to another
exemption from registration after providing a satisfactory legal opinion to the
Company; (D) the Company is under no obligation to register any of the
Securities under the Act or any state securities laws, or to take any action to
make any exemption from any such registration provisions available; (E) the
certificates for the Securities will bear the legend set forth in Section 2(r);
and (F) stop transfer instructions will be placed with the transfer agent for
the Common Stock.
 
(e)          The undersigned is acquiring the Note and Warrants in the ordinary
course of business for its own account and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered under the Act or under an exemption from such
registration and in compliance with applicable federal and state securities
laws, and the undersigned does not have a present arrangement to effect any
distribution of the Securities to or through any person or entity in violation
of the Act or any applicable state securities laws.
 
(f)           The undersigned, either alone or together with its representatives
has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the
prospective investment in the Note and Warrants, and has so evaluated the merits
and risks of such investment.  The undersigned understands that it must bear the
economic risk of this investment in the Note and Warrants indefinitely, and is
able to bear such risk and is able to afford a complete loss of such investment.
 
(g)          The undersigned is acquiring the Note and Warrants solely for the
account of the undersigned, for investment purposes only, and not with a view
towards the resale or distribution thereof within the meaning of the Act.
 
(h)          The undersigned has full power and authority to execute and deliver
this Subscription Agreement and to perform the obligations of the undersigned
hereunder; and this Subscription Agreement is a legally binding obligation of
the undersigned in accordance with its terms.
 
 
3

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

 
 
(i)           The address set forth below is the undersigned’s true and correct
residence, and the undersigned has no present intention of becoming a resident
of any other state or jurisdiction.  (If a corporation, trust or partnership,
the undersigned has its principal place of business at the address set forth
below and was not organized (or has the jurisdiction of its organization and the
address of its investment manager as set forth on the signature page) for the
specific purpose of subscribing to this offering).
 
(j)           The undersigned does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Securities for which
the undersigned is subscribing.
 
(k)          The foregoing representations, warranties and agreements shall
survive the execution, delivery and acceptance of this Subscription Agreement
and the closing of the sale of the Note and Warrants and shall continue in full
force and effect notwithstanding any subsequent disposition by the undersigned
of any of the Securities.
 
(l)           The undersigned acknowledges that it has access to and has
reviewed the SEC Reports and has been afforded:  (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from, the
Company and its representatives concerning the terms and conditions of the
offering of the Note and Warrants and the merits and risks of investing in the
Note and Warrants; (ii) access to information (other than material non-public
information) about the Company and Subsidiaries (as defined herein) and their
respective financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment.  Neither such inquiries nor any other investigation conducted by or
on behalf of the undersigned or its representatives or counsel shall modify,
amend or affect the undersigned’s right to rely on the truth, accuracy and
completeness of the SEC Reports and the Company’s representations and warranties
contained in this Subscription Agreement.
 
(m)         The undersigned is not purchasing the Note and Warrants as a result
of any advertisement, article, notice or other communication regarding the Note
and Warrants published in any newspaper, magazine or similar media, broadcast
over television or radio, disseminated over the Internet or presented at any
seminar or, to its knowledge, any other general solicitation or general
advertisement.
 
(n)          The execution, delivery and performance by the undersigned of this
Subscription Agreement and the consummation by the undersigned of the
transactions contemplated hereby will not (i) result in a violation of the
organizational documents of the undersigned (if the undersigned is not a natural
person) or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the undersigned is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws) applicable to the undersigned,
except in the case of clauses (ii) and (iii) above, for such that are not
material and do not otherwise affect the ability of the undersigned to
consummate the transactions contemplated hereby.
 
 
4

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

 
 
(o)          Neither the undersigned, directly or indirectly, nor any Person
acting on behalf of or pursuant to any understanding with the undersigned, has
engaged in any purchases or sales of any securities, including any derivatives,
of the Company (including, without limitation, any Short Sales involving any of
the Company’s securities) (a “Transaction”) since the time that the undersigned
was first contacted by the Company or any other Person regarding an investment
in the Company.  The undersigned covenants that neither it nor any Person acting
on its behalf or pursuant to any understanding with the undersigned will engage,
directly or indirectly, in any Transactions prior to the time the transactions
contemplated by this Subscription Agreement are publicly disclosed.  The term
“Short Sales” shall have the meaning as defined in Rule 200 promulgated under
Regulation SHO under the Exchange Act.
 
(p)          The undersigned understands that (i) this subscription is not
binding upon the Company until the Company accepts it, which acceptance is to be
evidenced by the Company’s execution of this Subscription Agreement where
indicated and (ii) the Company may, in its sole discretion, reject this
subscription, in which case this Subscription Agreement shall be null and void
or reduce this Subscription in any amount.
 
(q)          The undersigned understands that neither this Subscription
Agreement nor any of the rights of the undersigned hereunder may be transferred
or assigned by the undersigned prior to the Closing.
 
(r)           (i)           The undersigned agrees to the imprinting of the
legend set forth (i) on Exhibit A on the Note, (ii) on Exhibit B on the Warrants
and (iii) below (or a substantially similar) on any certificate representing the
Conversion Shares or Warrant Shares:
 
THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”) OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT
(i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR (ii) UPON THE DELIVERY BY THE HOLDER TO THE
COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS IS AVAILABLE FOR THE OFFER AND SALE OF SUCH
SHARES.
 
3.           Representations and Warranties of the Company.  The Company hereby
makes the following representations and warranties to the undersigned as of the
Closing Date.  Each of the representations and warranties are qualified in their
entirety by the information contained in the SEC Reports and Disclosure
Schedules hereto.
 
 
5

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

 
 
(a)          SEC Reports; Term Sheet.  As of their respective dates, each of the
SEC Reports, as any of such documents may have been subsequently amended by
filings made by the Company with the SEC prior to the Closing Date, complied in
all material respects with the requirements of the Exchange Act and the
applicable rules and regulations of the SEC thereunder and none of the SEC
Reports contains, and on the Closing Date, none of the SEC Reports will contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.  The financial statements of the
Company included in the SEC Reports comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles (“GAAP”) applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary
statements), and fairly present in all material respects the financial position
of the Company and its Subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
 
(b)          Organization; Good Standing.  The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full power and authority, corporate and other to own or lease, as
the case may be, and operate its properties, whether tangible or intangible, and
to conduct its business as described in the SEC Reports and is duly qualified as
a foreign corporation to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a Material Adverse Effect
(as defined herein) on the Company. “Material Adverse Effect” or “Material
Adverse Change” means any effect or change, or any development that could result
in a material adverse effect, on the business or business prospects, properties,
assets, operations, results of operations or condition (financial or otherwise)
of the Company or the Subsidiaries taken as a whole whether or not arising in
the ordinary course of business, or on the transactions contemplated by this
Subscription Agreement, the Registration Rights Agreement between the Company
and the Subscribers dated as of the Closing Date (the “Registration Rights
Agreement”), the Notes, the Warrants or any other document delivered in
connection with the Offering (collectively, the “Transaction
Documents”).  Except as set forth in the SEC Reports, there has been no
obligation, contingent or otherwise, directly or indirectly incurred by the
Company or any Subsidiary.
 
(c)          Subsidiaries.  The Company’s subsidiaries are set forth in Exhibit
21 to the Company’s Annual Report on Form 10-K for the fiscal year ended
September 30, 2010 (the “Subsidiaries”).  Unless the context requires otherwise,
all references to the Company include the Subsidiaries.  Each Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation as set forth in the Disclosure Schedules, with
full power and authority, corporate and other, to own or lease, as the case may
be, and operate its properties, whether tangible or intangible, and to conduct
its business as currently conducted and as described in the SEC Reports.  Each
Subsidiary is duly qualified as a foreign corporation to transact business and
is in good standing in each jurisdiction in which the conduct of its business or
the ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect on the Company and the Subsidiaries taken as a
whole.  The Company owns all of the issued and outstanding shares of capital
stock (or other equity or ownership interests) of each Subsidiary, such
ownership is free and clear of any security interests, liens, encumbrances,
claims and charges, and all of such shares have been duly authorized and validly
issued, and are fully paid and nonassessable.
 
 
6

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

 
 
(d)          Capitalization.  The authorized capital stock of the Company
conforms in all material respects to the description thereof contained in the
SEC Reports and such description conforms in all material respects to the rights
in the instruments defining the same.  The issued and outstanding capital stock
of the Company is as set forth in the Disclosure Schedules.  No shares of Common
Stock are entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
except as set forth in the SEC Reports there are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the
Company.  Except for customary transfer restrictions contained in agreements
entered into by the Company in order to sell restricted securities or as
provided in the SEC Reports the Company is not a party to any agreement granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. The Company is not a party to, and it has no
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company.  Except as set forth in the SEC Reports, the
offer and sale of all capital stock, convertible securities, rights, warrants,
or options of the Company issued prior to the Closing complied in all material
respects with all applicable Federal and state securities laws, and, to the
knowledge of the Company, no stockholder has a right of rescission or claim for
damages with respect to the acquisition of the securities from the Company which
would have a Material Adverse Effect.
 
(e)          Authorization.  The Note and Warrants to be sold under this
Subscription Agreement have been duly authorized and, when issued and sold and
paid for by the undersigned in accordance with the terms of this Subscription
Agreement, will be duly authorized and validly issued.  The Conversion Shares
and Warrant Shares have been duly reserved for issuance from the Company’s
authorized but unissued Common Stock and, upon conversion of the Note in
accordance with the terms of the Note or exercise of the Warrants and payment of
the exercise price therefore in accordance with the terms of the Warrants, as
the case may be, will be duly authorized, validly issued, fully paid and non
assessable, and the undersigned will not be subject to personal liability solely
by reason of being such holders and will not be subject to the preemptive or
similar rights of any holders of any security of the Company.
 
(f)           Enforceability.  Each of this Subscription Agreement, the
Registration Rights Agreement, the Note and the Warrants has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company enforceable in accordance with its terms, subject to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws affecting
creditors’ rights generally (including, without limitation, statutory or other
laws regarding fraudulent preferential transfers) and equitable principles of
general applicability.
 
 
7

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

 
 
(g)          No Conflicts.  The execution and delivery by the Company, and the
performance by the Company of its obligations under the Transaction Documents
will not conflict with or contravene in any material respect, cause a breach or
violation of or default under, any provision of applicable law or the
certificate of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company that is material to the Company, or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under the Transaction Documents,
except for the filing of a Form D with the SEC and such as may be required by
the securities or Blue Sky laws of the various states in connection with the
offer and sale of the Note and Warrants and by Federal and state securities laws
with respect to the obligations of the Company under this Subscription Agreement
or which have been obtained or the failure of which to obtain would not have a
Material Adverse Effect on the Company and the Subscribers taken as a whole.
 
(h)         Material Adverse Change.  Since the date of the last SEC Report,
there has not occurred any Material Adverse Change, or any development involving
a prospective Material Adverse Change.
 
(i)           No Violation.  None of the Company nor any Subsidiary is in
violation of its charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company and the Subsidiaries taken as a whole to which the Company or any
Subsidiary is a party or by which the Company, any Subsidiary or any of their
properties is bound, except for such defaults that would not, singly or in the
aggregate, have a Material Adverse Effect on the Company and the Subsidiaries
taken as a whole.
 
(j)           Actions Pending.  There are no legal or governmental proceedings,
orders, judgments, writs, injunctions, decrees or demands pending or, to the
Company’s knowledge, threatened to which the Company or any Subsidiary is a
party or to which any of the properties of the Company or any Subsidiary is
subject other than proceedings, orders, judgments, writs, injunctions, decrees
or demands accurately described in all material respects in the SEC Reports and
proceedings, orders, judgments, writs, injunctions, decrees or demands that
would not have a Material Adverse Effect on the Company and the Subsidiaries
taken as a whole or on the power or ability of the Company to perform its
obligations under the Transaction Documents or to consummate the transactions
contemplated by the Transaction Dcouments.
 
(k)          Integration.  Neither the Company nor any of its affiliates (as
defined in Rule 501(b) of Regulation D, each an “Affiliate”) has directly, or
through any agent, (a) sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any security (as defined in the Securities
Act) which is or will be integrated with the sale of the Note and Warrants in a
manner that would require the registration under the Act of the Note and
Warrants or (b) offered, solicited offers to buy or sold the Note and Warrants
by any form of general solicitation or general advertising (as those terms are
used in Regulation D) or in any manner involving a public offering within the
meaning of Section 4(2) of the Act.  No registration under the Act of the Note
and Warrants is required for the sale of the Note and Warrants to the
undersigned under this Subscription Agreement, assuming the accuracy of the
undersigned representations, warranties and agreements set forth in Section 2.
 
 
8

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

 
 
(l)           Intellectual Property.  The Company and each Subsidiary owns or
possesses, or has the right to use, all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks and trade names currently employed or
required by it in connection with the business currently conducted by it as
described in the SEC Reports, except such as the failure to so own or possess or
have the right to use would not have, singly or in the aggregate, a Material
Adverse Effect on the Company and the Subsidiaries taken as a whole.  To the
Company’s knowledge, there are no valid and enforceable United States patents
that are infringed by the business currently conducted by the Company or any
Subsidiary, or as currently proposed to be conducted by the Company or any
Subsidiary, as described in the SEC Reports and which infringement would have a
Material Adverse Effect on the Company and the Subsidiaries taken as a
whole.  The Company is not aware of any basis for a finding that the Company or
any Subsidiary does not have valid title or license rights to the patents and
patent applications referenced in the SEC Reports as owned or licensed by the
Company or any Subsidiary, and, to the Company’s knowledge, neither the Company
nor any Subsidiary is subject to any judgment, order, writ, injunction or decree
of any court or any Federal, state, local, foreign or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or any arbitrator, nor has it entered into or is it a party to any
contract, which restricts or impairs the use of any of the foregoing which would
have a Material Adverse Effect on the Company and the Subsidiaries taken as a
whole.  Neither the Company nor any Subsidiary has received any written notice
of infringement of or conflict with asserted rights of any third party with
respect to the business currently conducted by it as described in the SEC
Reports and which, if determined adversely to the Company or any Subsidiary,
would have a Material Adverse Effect on the Company and the Subsidiaries taken
as a whole and the Company has no knowledge of any facts or circumstances that
would serve as a reasonable basis for any such claims.  
 
(m)         SEC Reporting Requirements.  The Company is subject to the reporting
requirements of Section 13 or Section 15(d) of the Exchange Act.  Since January
1, 2010, the Company has  filed with the SEC all reports required to be filed
under the Exchange Act and the Company is and, as of the time of the Closing
will be, current in its reporting obligations under the Exchange Act.  To the
Company’s knowledge, the Company has responded to all comments raised by the SEC
with respect to the Company’s reports, registration statements and other filings
made with the SEC to the SEC’s satisfaction, and there are no comments which
could have an adverse effect on the Company’s consolidated financial condition
or results of operations (past or future) or could require a restatement of
previously filed financial statements remained unresolved with the SEC.
 
 
9

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

 
 
(n)         Disclosure Controls and Procedures.  Except as set forth in the SEC
Reports, the Company has established and maintains disclosure controls and
procedures (as such term in defined in Rule 13a-14 and 15d-14 under the Exchange
Act); such disclosure controls and procedures are designed to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to the Company’s Chief Executive Officer and its
Chief Financial Officer by others within those entities, and such disclosure
controls and procedures are reasonably effective to perform the functions for
which they were established, subject to the limitation of any such control
system; the Company’s auditors and the Audit Committee of the Board of Directors
of the Company have been advised of: (A) any significant deficiencies in the
Company’s ability to record, process, summarize, and report financial data; and
(B) any fraud, whether or not material, that involves management or other
employees who have a role in the Company’s internal controls; any material
weaknesses in internal controls have been identified for the Company’s auditors;
and since the date of the most recent evaluation of such disclosure controls and
procedures, there have been no significant changes in internal controls or in
other factors that could significantly affect internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
 
(o)         Blue Sky Filings.  The Company has caused or will cause to be timely
filed with each applicable jurisdiction corresponding to the principal place(s)
of business of the undersigned (as same has been provided by the undersigned)
and such other jurisdictions as reasonably requested by the undersigned all
appropriate documentation required for the registration of the Offering under
applicable state law or required to secure an exemption from such registration
requirements.
 
4.           Covenants.  The Company covenants with the undersigned as follows,
which covenants are for the benefit of the undersigned and its permitted
assignees (as defined herein).
 
(a)          Securities Compliance.  The Company shall notify the SEC in
accordance with its rules and regulations, of the transactions contemplated by
this Subscription Agreement, including filing a Form D with respect to the
Offering Securities as required under Regulation D, and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to
the Subscribers or subsequent holders.
 
(b)          Registration and Listing.  As long as the Notes are outstanding,
the Company will cause its Common Stock to continue to be registered under
Sections 12(b) or 12(g) of the Exchange Act, will comply in all respects with
its reporting and filing obligations under the Exchange Act, and will not take
any action or file any document (whether or not permitted by the Securities Act
or the rules promulgated thereunder) to terminate or suspend such  registration
or to terminate or suspend its reporting and filing obligations under the
Exchange Act or Securities Act, except as permitted herein.
 
(c)          Compliance With Laws.  Except for the matters herein, the Company
shall comply, and cause each Subsidiary to comply, with all applicable laws,
rules, regulations and orders, noncompliance with which could have a Material
Adverse Effect.
 
(d)          Keeping of Records and Books of Account.  The Company shall keep
and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied,  reflecting all financial  transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
 
 
10

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

 
 
(e)          Reporting Requirements.  If the Company ceases to file its periodic
reports with the SEC, or if the SEC ceases making these periodic reports
available via the Internet without charge, then the Company shall furnish the
following to the undersigned so long as the undersigned or shall beneficially
own any Securities:
 
5.1           Quarterly Reports filed with the SEC on Form 10-Q as soon as
available, and in any event within forty-five (45) days after the end of each of
the first three fiscal quarters of the Company or within the extended time
period provided for in Rule 12b-25 promulgated under the Exchange Act;
 
5.2           Annual Reports filed with the SEC on Form 10-K as soon as
available, and in any event within ninety (90) days after the end of each fiscal
year of the Company or within the extended time period provided for in Rule
12b-25 promulgated under the Exchange Act; and
 
5.3           Copies of all notices and information, including, without
limitation, notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
 
5.           Conditions Precedent.  The obligation hereunder of the undersigned
to acquire and pay for the Offering Securities is subject to the satisfaction or
waiver, at or before the Closing, of each of the conditions set forth
below.  These conditions are for the sole benefit of the undersigned and may be
waived by the undersigned at any time in its sole discretion.
 
(a)          Each of the representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a particular date), which shall be true and correct
in all material respects as of such date.
 
(b)          The Company shall have performed, satisfied and complied in all
respects with all covenants, agreements and conditions required by this
Subscription Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing.
 
(c)          On the Closing Date, the Term Sheet will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
 
(d)          From the date set forth below to the Closing Date, trading in the
Company’s Common Stock shall not have been suspended by the SEC (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time prior to
the Closing, trading in securities generally as reported by Bloomberg Financial
Markets (“Bloomberg”) shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are reported
by Bloomberg, or on the New York Stock Exchange, nor shall a banking moratorium
have been declared either by the United States or New York State authorities,
nor shall there have occurred any material outbreak or escalation of hostilities
or other national or international calamity or crisis of such magnitude in its
effect on, or any material adverse change in any financial market which, in each
case, in the judgment of the undersigned, makes it impracticable or inadvisable
to purchase the Offering Securities.
 
 
11

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

 
 
(e)          No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Subscription
Agreement.
 
(f)           No action, suit or proceeding before any arbitrator or any
governmental authority shall have been commenced, and no investigation by any
governmental authority shall have been threatened, against the Company or any
Subsidiary, or any of the officers, directors or affiliates of the Company or
any Subsidiary seeking to restrain, prevent or change the transactions
contemplated by this Subscription Agreement, or seeking damages in connection
with such transactions.
 
(g)          The Company shall have executed and delivered to the undersigned a
Note and Warrant for the Offering Securities being acquired at the Closing (such
Offering Securities not be issued until full payment has been made therefor).
 
(h)          The Company shall have executed and delivered to the undersigned
the Registration Rights Agreement in the form acceptable to Gilford.
 
(i)           The board of directors of the Company shall have adopted
resolutions approving the transaction contemplated hereby.
 
(j)           Each holder of a warrant to purchase common stock that was issued
in connection with a Line of Credit entered into in December 2010, has
covenanted and agreed not to exercise the “cashless exercise” provision, except
as permitted by Section 1(c).
 
(k)          The Company shall have delivered to the undersigned a legal opinion
addressed to the undersigned and to Gilford from Blank Rome LLP, counsel to the
Company, in substantially the form attached hereto as Exhibit C.
 
6.           Miscellaneous.
 
(a)          In the event of rejection of this subscription, this Subscription
Agreement and any other agreement entered into between the undersigned and the
Company relating to this subscription shall thereafter have no force or effect
and the Company shall promptly return or cause to be returned to the undersigned
the subscription amount remitted to the Company by the undersigned, without
interest thereon or deduction therefrom.
 
(b)          Except as otherwise provided herein, this Subscription Agreement
shall be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and assigns.  If
the undersigned is more than one person, the obligation of the undersigned shall
be joint and several and the agreements, representations, warranties and
acknowledgements herein contained shall be deemed to be made by and be binding
upon each such person and his heirs, executors, administrators and successors.
 
 
12

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

 
 
(c)          This Subscription Agreement and the documents referenced herein
contain the entire agreement of the parties and there are no representations,
covenants or other agreements, except as stated or referred to herein and
therein.
 
(d)          This Subscription Agreement shall be governed by and construed
under the laws of the State of New York applicable to contracts made and to be
performed entirely within the State of New York.  Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in the City and County of New York for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
(including without limitation any dispute under or with respect to the Note or
the Warrants), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding involving the undersigned or permitted assignee of
the undersigned, any claim that it is not personally subject to the jurisdiction
of any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper.  Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Subscription Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof.  Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.
 
(e)          This Subscription Agreement may only be modified by a written
instrument executed by the undersigned and the Company.
 
(f)           Unless the context otherwise requires, all personal pronouns used
in this Subscription Agreement, whether in the masculine, feminine or neuter
gender, shall include all other genders.
 
(g)          All notices or other communications hereunder shall be given in
accordance with Section 9.2 of the Note.
 
(h)          Nothing in this Subscription Agreement or any other materials
presented by or on behalf of the Company to the undersigned in connection with
the purchase of the Note and Warrants constitutes legal, tax or investment
advice.  The undersigned has consulted such legal, tax and investment advisors
as it, in its sole discretion, has deemed necessary or appropriate in connection
with its purchase of the Shares.
 
IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement
this _____ day of ____________, 2011.
 
 
13

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

 
 
SIGNATURE PAGE1

Organization Signature:
 
 
Individual Signature(s): [If Joint Tenants or Tenants-In-Common, both persons
must sign and print their names]:
Print Name of Subscriber Organization
         
  
         
By:
     
 
(Signature and Title)
 
Signature(s)

     
Print Name and Title of Person Signing
 
Print Name of Subscriber
           
Print Address of Subscriber
 
Print Name of Subscriber
               
Print Address of Subscriber

Principal Amount of Note subscribed for: $ _________ Principal Amount of Note)
Number of Warrants subscribed for: _________Warrants ($__ per Warrant)
                                                                                                                                     
Individual/Company
Name:                                                                                     
By:                                                                                                                               
Name:                                                                                                                          
Title:                                                                                                                            
Name to appear on
certificate:                                                                                
Tax
ID:                                                                                                                         
Mailing
address:                                                                                                        
                                                                                                                                             
                                                                                                                                     
Mailing address for notices, if
any:                                                                        
                                                                                                                                     
                                                                                                                                     
Email address for notices, if
any:                                                                            
Physical Delivery
Address:                                                                                     
_________________________________________________________
  
1 Signature page to the closings held on November 1, 2011 and November 18, 2011.
 
 
 

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

 
 
SIGNATURE PAGE2

Organization Signature: [*]
 
Individual Signature(s): [If Joint Tenants or Tenants-In-Common, both persons
must sign and print their names]: [*]
Print Name of Subscriber Organization
         
 
   
By:
     
 
 (Signature and Title)
 
Signature(s)

     
Print Name and Title of Person Signing
 
Print Name of Subscriber
           
Print Address of Subscriber
 
Print Name of Subscriber
     
  
       
Print Address of Subscriber

Principal Amount of Note subscribed for: $ ________ Principal Amount of Note)
Number of Warrants subscribed for: _________Warrants ($__ per Warrant)
                                                                                                                                     
Individual/Company
Name:                                                                                     
By:                                                                                                                               
Name:                                                                                                                          
Title:                                                                                                                            
Name to appear on
certificate:                                                                                 
Tax
ID:                                                                                                                         
Mailing
address:                                                                                                        
                                                                                                                                             
                                                                                                                                     
Mailing address for notices, if
any:                                                                        
                                                                                                                                     
                                                                                                                                     
Email address for notices, if
any:                                                                            
Physical Delivery
Address:                                                                                     
                   
[*] By signing this Signature Page, the subscriber acknowledges it has received
and reviewed:
1. Supplement No. 1 to Disclosure Schedules to Subscription Agreement, and
2. Supplement No. 2 to Disclosure Schedules to Subscription Agreement
   
2 Signature page to the closings held on November 18, 2011 and December 9, 2011.
 
 
 

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

 
 
ACCEPTANCE OF SUBSCRIPTION

BOOMERANG SYSTEMS, INC.

The foregoing subscription is hereby accepted by Boomerang Systems, Inc., this
_____ day of _________, 2011 for  $______ Principal Amount of Notes and _______
Warrants.
 

BOOMERANG SYSTEMS, INC.    
By:
 
             Name:              Title:

 
 
 

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

 
 
EXHIBIT A

Form of Promissory Note

NEITHER THIS NOTE, NOR ANY SECURITY ISSUABLE UPON CONVERSION HEREOF, HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS.  NO INTEREST IN THIS NOTE MAY BE OFFERED OR
SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT,
OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE ACT WHERE THE HOLDER HAS
FURNISHED TO THE COMPANY AN OPINION OF ITS COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
 
BOOMERANG SYSTEMS, INC.

6% CONVERTIBLE PROMISSORY NOTE

$____________
 
As of        , 2011

 
Boomerang Systems, Inc., a Delaware corporation, (the “Company”), for value
received, hereby promises to pay to the order of  [                            ]
or registered assigns (the “Holder”), the principal sum of $____________
($[____________) on [__________], 2016 (the “Maturity Date”), and interest on
the unpaid principal balance hereof at the rate of six percent (6%) per annum,
in arrears, quarterly, on March 31, June 30, September 30 and December 31 of
each year, commencing on December 31, 2011 (each such date an “Interest Payment
Date”).  This Note is one of a series of Notes (the “Notes”) being issued to
investors pursuant to a series of securities purchase agreements (the
“Securities Purchase Agreements”) in connection with a private offering (the
“Offering”) of Notes and warrants to purchase shares of common stock of the
Company (the “Warrants”), and includes those Notes and Warrants to be issued in
connection with the Offering to certain holders of outstanding debt of the
Company in exchange for cancellation of outstanding notes or debentures of the
Company.
 
1.
Interest and Payment

 
1.1           Interest shall be computed on the basis of the actual number of
days elapsed in the period during which interest accrues and a year of 365 days.

 
 

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

 

1.2           At the option of the Company, the Company may pay a scheduled
interest payment in a number of whole shares of common stock, par value $0.001
per share (“Common Stock”), of the Company, in lieu of paying such interest in
cash, equal to the quotient obtained by dividing the amount of accrued and
unpaid interest payable on such Interest Payment Date by the lesser of: (i) the
Conversion Price (as defined herein) then in effect, and (ii) a price equal to
the average of the last sale price of the Common Stock during the ten (10)
consecutive trading days ending on the fifth (5th) trading day immediately
preceding the Interest Payment Date, provided, however, if the average daily
trading volume (“ADTV”) value during such ten (10) day period equals or exceeds
$100,000 per day, and then only subsection 1.2 (ii) shall be used for the
calculation on such Interest Payment Date and subsection 1.2 (i) shall not apply
and shall not be used for the calculation on such Interest Payment Date.  ADTV
will be determined in accordance with the rules and regulations of the
Securities Exchange Act of 1934.  No fractional shares of Common Stock will be
issued to the Holder in lieu of cash interest.  The Company may exercise its
option to cause the Company to issue shares of Common Stock, in lieu of cash
interest payable on an Interest Payment Date, by giving the Holder written
notice of its exercise of such option at least three (3) Business Days (as
defined herein) prior to such Interest Payment Date and, on the Interest Payment
Date, the Company will instruct its transfer agent to issue to the Holder duly
executed certificates for the number of whole shares of Common Stock so issuable
to the Holder registered in the Holder’s name, and, if applicable, a check
payable to the Holder for any cash adjustment in lieu of a fractional
share.  “Business Day” means any day other than a Saturday, Sunday or other day
on which banks in the City of New York, New York are authorized or required by
law to be closed.
 
1.3           All payments received on account of this Note shall be applied
first to the payment of accrued and unpaid interest on this Note and then to the
reduction of the unpaid principal amount of this Note. In case the entire
principal amount of this Note is paid or this Note is purchased by the Company,
this Note shall be surrendered to the Company for cancellation and shall not be
reissued, and no Note shall be issued in lieu of the paid principal amount of
any Note.
 
1.4           If any payment due on account of this Note shall fall due on a day
other than a Business Day, then such payment shall be made on the first Business
Day following the day on which such payment shall have so fallen due; provided
that if all or any portion of such payment shall consist of a payment of
interest, for purposes of calculating such interest, such payment shall be
deemed to have been originally due on such first following business day, such
interest shall accrue and be payable to (but not including) the actual date of
payment, and the amount of the next succeeding interest payment shall be
adjusted accordingly.
 
1.5           Principal and interest due hereunder shall be paid in lawful money
of the United States of America in immediately available federal funds or the
equivalent at the address of the Holder set forth in Section 9.2 below, or at
such other address as the Holder may designate.
 
2.
Registration; Exercise; Substitution

 
2.1           The Company will keep at its principal executive office a register
for the registration and transfer of this Note.  The name and address of the
Holder of this Note, each transfer hereof made in accordance with Section 2.2(a)
and the name and address of each transferee of this Note shall be registered in
such register.  The person in whose name this Note shall be registered shall be
deemed and treated as the owner and holder thereof, and the Company shall not be
affected by any notice or knowledge to the contrary, other than in accordance
with Section 2.2(a).

 
-2-

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

 

2.2         (a)  Upon surrender of this Note at the principal executive office
of the Company, duly endorsed or accompanied by a written instrument of transfer
duly executed by the Holder or the Holder’s attorney duly authorized in writing,
the Company will execute and deliver, at the Company’s expense, a new Note (or
Notes) in exchange therefor, in an aggregate principal amount equal to the
unpaid principal amount of the surrendered Note.  Subject to Section 2.2(b), the
new Note(s) shall be registered in such name(s) as the Holder may request.  Each
such new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
surrendered Note, if no interest shall have been paid thereon. Each such new
Note shall carry the same rights to unpaid interest and interest to accrue on
the unpaid principal amount thereof as were carried by the Note so exchanged or
transferred.
 
(b)           This Note has been acquired for investment and has not been
registered under the securities laws of the United States of America or any
state thereof.  Accordingly, notwithstanding Section 2.2(a), neither this Note
nor any interest thereon may be offered for sale, sold or transferred in the
absence of registration and qualification of this Note under applicable federal
and state securities laws or an opinion of counsel of the Holder reasonably
satisfactory to the Company that such registration and qualification are not
required.  This Note shall not be transferred in denominations of less than
$1,000 and integral multiples thereof, provided that the Holder may transfer
this Note as an entirety regardless of the principal amount thereof.
 
2.3         Upon receipt by the Company from the Holder of evidence of the loss,
theft, destruction or mutilation of this Note  and (a) in the case of loss,
theft or destruction, upon indemnity reasonably satisfactory to the Company; or
(b) in the case of mutilation, upon surrender and cancellation thereof; the
Company at its own expense will execute and deliver, in lieu thereof, a
replacement Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Note or dated
the date of such lost, stolen, destroyed or mutilated Note, if no interest shall
have been paid thereon.
 
2.4         The Company will pay taxes (if any) due (but not, in any event,
income taxes of the Holder) in connection with and as the result of the initial
issuance of this Note and in connection with any modification, waiver or
amendment of this Note and shall save the Holder harmless, without limitation as
to time, against any and all liabilities with respect to all such taxes.
 
3.
[Intentionally omitted].

 
4.
Conversion.

 
4.1         The Holder may convert the outstanding principal amount of this
Note, and accrued and unpaid interest thereon (or a portion of such outstanding
principal amount as provided in Section 4.3) into fully paid and nonassessable
shares of Common Stock of the Company (“Conversion Shares”) at any time prior to
the time the outstanding principal amount of this Note, and accrued and unpaid
interest thereon is paid in full, at the Conversion Price (as defined herein)
then in effect.  The number of shares of Common Stock issuable upon conversion
of this Note shall be determined by dividing the principal amount (and accrued
and unpaid interest, if any) to be converted by the conversion price in effect
on the Conversion Date (the “Conversion Price”).  The initial Conversion Price
is $4.25 and is subject to adjustment as provided in this Section 4.  The
provisions of this Note that apply to conversion of the outstanding principal
amount of this Note and accrued and unpaid interest thereon also apply to a
partial conversion of this Note.  The Holder is not entitled to any rights of a
holder of Conversion Shares until the Holder has converted this Note (or a
portion thereof) into Conversion Shares, and only to the extent that this Note
is deemed to have been converted into Conversion Shares under this Section 4.

 
-3-

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

 
 
4.2           To convert all or a portion of this Note, the Holder must (a)
complete and sign a notice of election to convert substantially in the form
annexed hereto (each, a “Conversion Notice”), (b) surrender the Note to the
Company, (c) if registered in a different name from the Holder, furnish
appropriate endorsements or transfer documents if reasonably required by the
Company and (d) if registered in a different name from the Holder, pay any
transfer or similar tax, if required.  The date on which the Holder satisfies
all of such requirements is the conversion date (the “Conversion Date”).  As
soon as practicable, and in no event more than three (3) Business Days after the
Conversion Date, the Company will (1) provided that: (a) the Company’s Transfer
Agent is participating in The Depository Trust Company’s Fast Automated
Securities Transfer Program, (b) the Conversion Shares are eligible for such
program, (c) a registration statement covering the re-sale of the Conversion
Shares is effective, and (d) on the Conversion Date a letter from a broker has
been delivered to the Transfer Agent representing that all of the Conversion
Shares were sold pursuant to the registration statement referred to in clause
(c) (collectively, the “DTC FAST Requirements”), 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 any of the DTC Fast Requirements are not met, issue
and deliver (via reputable overnight courier) to the address as specified in the
Conversion Notice a certificate for the number of whole Conversion Shares
issuable upon such conversion.  The person in whose name the certificate for
Conversion Shares is to be registered shall become the stockholder of record on
the Conversion Date and, as of the Conversion Date, the rights of the Holder
shall cease as to the portion thereof so converted; provided, however, that no
surrender of a Note on any date when the stock transfer books of the Company
shall be closed shall be effective to constitute the person entitled to receive
the Conversion Shares upon such conversion as the stockholder of record of such
Conversion Shares on such date, but such surrender shall be effective to
constitute the person entitled to receive such Conversion Shares as the
stockholder of record thereof for all purposes at the close of business on the
next succeeding day on which such stock transfer books are open; provided,
further that such conversion shall be at the Conversion Price in effect on the
date that this Note shall have been surrendered for conversion, as if the stock
transfer books of the Company had not been closed.
 
4.3           In the case of a partial conversion of this Note, upon such
conversion, the Company shall execute and deliver to the Holder, at the expense
of the Company, a new Note in an aggregate principal amount equal to the
unconverted portion of the principal amount.  This Note may be converted in part
in a principal amount equal to $10,000 or an integral multiple thereof, unless
the outstanding principal amount of this Note is less than $10,000, in which
case, only such outstanding principal amount and accrued and unpaid interest
thereon is convertible into Conversion Shares.
 
4.4           No fractional Conversion Shares shall be issued upon conversion of
this Note.  Instead of any fractional Conversion Share which would otherwise be
issuable upon conversion of this Note, the Company shall round up to the next
whole number of shares.

 
-4-

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

 
 
4.5         The issuance of certificates for Conversion Shares upon the
conversion of this Note shall be made without charge to the Holder for such
certificates or for any tax in respect of the issuance of such certificates, and
such certificates shall be issued in the name of, or in such names as may be
directed by, the Holder; provided, however, that in the event that certificates
for Conversion Shares are to be issued in a name or names other than the name of
the Holder, such Note, when surrendered for conversion, shall be accompanied by
an instrument of transfer, in form reasonably satisfactory to the Company, duly
executed by the Holder or its duly authorized attorney; and provided further,
moreover, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificates in a name or names other than that of the Holder, and the
Company shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid or is not applicable.
 
4.6         (a)   In case the Company shall pay or make a dividend or other
distribution to all holders of its Common Stock or any class of capital stock
that is payable in shares of Common Stock, the Conversion Price in effect at the
opening of business on the day next following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such Conversion Price by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination,
and the denominator shall be the sum of the numerator and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day next
following the date fixed for such determination.  For the purposes of this
Section 4.6(a), the number of shares of Common Stock at any time outstanding
shall not include shares of Common Stock held in the treasury of the
Company.  The Company will not pay any dividend or make any distribution on
shares of Common Stock held in the treasury of the Company.
 
(b)           In the event that the Company shall at any time prior to the
conversion in full of the Note declare a dividend (other than a dividend
consisting solely of shares of Common Stock) or otherwise distribute to its
shareholders any monies, assets, property, rights, evidences of indebtedness,
securities (other than shares of Common Stock), whether issued by the Company or
by another person or entity, or any other thing of value, the Holder or Holders
of the Note to the extent of the unconverted portion thereof shall thereafter be
entitled, in addition to the shares of Common Stock or other securities
receivable upon the conversion thereof, to receive, upon conversion of such
unconverted portion of the Note, the same monies, property, assets, rights,
evidences of indebtedness, securities or any other thing of value that they
would have been entitled to receive at the time of such dividend or
distribution.  At the time of any such dividend or distribution, the Company
shall make appropriate reserves to ensure the timely performance of the
provisions of this Subsection.

 
-5-

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

 

(c)           In case the outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and, conversely,
in case the outstanding shares of Common Stock shall each be combined into a
smaller number of shares of Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the opening
of business on the day following the day upon which such subdivision or
combination becomes effective.
 
(d)           In case the Company shall fail to take a record of the holders of
its shares of Common Stock for the purpose of entitling them to receive a
dividend or other distribution payable in shares of Common Stock, then such
record date shall be deemed to be the date of the issue of the shares of Common
Stock deemed to have been issued as a result of the declaration of such dividend
or other distribution or the date of the granting of such right of subscription
or purchase, as the case may be.
 
4.7         No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least one cent ($.01) in
the Conversion Price; provided, however, that any adjustments which by reason of
this Section 4.7 are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
 
4.8         In the event that:  (i) the Company takes any action which would
require an adjustment in the Conversion Price; (ii) the Company takes any action
described in Section 4.9(a), (b) or (c); or (iii) there is a dissolution or
liquidation of the Company; the Holder may wish to convert this Note into shares
of Conversion Shares prior to the record date for, or the effective date of the
transaction, so that such Holder may receive the securities or assets which a
holder of shares of Common Stock on that date may receive.  Therefore, the
Company shall give written notice to the Holder at least ten (10) Business Days
in accordance with the provisions of this Section 4.8 stating the proposed
record or effective date, as the case may be, which notice shall be given prior
to the proposed record or effective date and, in any case, no later than notice
of such transaction is given to holders of Common Stock.  Failure to give such
notice or any defect therein shall not affect the validity of any transaction
referred to in clause (i), (ii) or (iii) of this Section.
 
 
4.9
If any of the following shall occur, namely:

 
(a)           any reclassification or change of outstanding shares of Common
Stock issuable upon conversion of this Note (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination);
 
(b)           any consolidation or merger to which the Company is a party, other
than a merger in which the Company is the continuing corporation and which does
not result in any reclassification of, or change (other than a change in name,
or par value, or from par value to no par value, or from no par value to par
value or as a result of a subdivision or combination) in, outstanding shares of
Common Stock; or
 
(c)           any sale or conveyance of all or substantially all of the property
or business of the Company and its subsidiaries as an entirety;

 
-6-

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

 
 
then the Company, or such successor or purchasing corporation, as the case may
be, shall, as a condition precedent to such reclassification, change,
consolidation, merger, sale or conveyance, execute and deliver to the Holder, an
agreement in form satisfactory to the Holder providing that the Holder shall
have the right to convert this Note into the kind and amount of shares of stock
and other securities and property (including cash) receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock deliverable upon conversion of this Note
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance.  Such agreement shall provide for adjustments of the Conversion
Price which shall be as nearly equivalent as may be practicable to the
adjustments of the Conversion Price provided for in this Section 4.  If, in the
case of any such consolidation, merger, sale or conveyance, the stock or other
securities and property (including cash) receivable thereupon by a holder of
Common Stock includes shares of stock or other securities and property of a
corporation other than the successor or purchasing corporation, as the case may
be, in such consolidation, merger, sale or conveyance, then such agreement shall
also be executed by such other corporation and shall contain such additional
provisions to protect the interests of the Holder as the Board of Directors
shall reasonably consider necessary by reason of the foregoing.  The provisions
of this Section 4.9 shall similarly apply to successive reclassifications,
changes, consolidations, mergers, sales or conveyances.
 
4.10           The Company shall at all times reserve and keep available, free
from preemptive rights, out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of this Note, the full number of
Conversion Shares then issuable upon the conversion in full of this Note.
 
4.11           If the Company shall at any time after the date hereof and prior
to the conversion of the Note in full issue any rights to subscribe for shares
of Common Stock or any other securities of the Company or of such affiliate to
all the shareholders of the Company, the Holder of the unconverted portion of
the Note shall be entitled, in addition to the shares of Common Stock or other
securities receivable upon the Conversion thereof, to receive such rights at the
time such rights are distributed to the other shareholders of the Company.
 
4.12           In the event the Company shall, at any time, from time to time,
issue or sell any additional shares of Common Stock (“Additional Shares of
Common Stock”) (excluding shares issued or issuable as a dividend, distribution
or combination as provided in Section 4.6 or an Exempt Issuance (as defined
below)), without consideration or for a consideration per share (the “New
Price”) less than the applicable Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Conversion Price
shall be reduced, concurrently with such issue to a price (calculated to the
nearest cent) determined by multiplying the Conversion Price then in effect by a
fraction (a) the numerator of which shall be (1) the number of shares of Common
Stock outstanding immediately prior to such issuance, plus (2) the number of
shares of Common Stock which the aggregate consideration received by the Company
for the total number of Additional Shares of Common Stock so issued would
purchase at such Conversion Price; and (b) the denominator of which shall be (1)
the number of shares of Common Stock outstanding immediately prior to such
issuance, plus (2) the number of such Additional Shares of Common Stock so
issued.  “Exempt Issuance” means the issuance of (a) shares of Common Stock,
options or other stock-based awards or grants to employees, officers, directors
or consultants (provided that such issuances to consultants shall not exceed
1,000,000 shares of Common Stock) of the Company pursuant to any existing stock
or option plan or any future stock or option plan duly adopted by a majority of
the non-employee members of the Board of Directors of the Company or a majority
of the members of a committee of non-employee directors established for such
purpose and (b) securities upon the exercise or exchange of or conversion of the
Notes and Warrants and/or securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the date of
the Term Sheet.

 
-7-

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

 
 
4.13           If the Company in any manner issues or sells any Convertible
Securities (as defined herein) and the lowest price per share for which one
share of Common Stock is issuable upon such conversion or exchange or exercise
thereof is less than the Conversion 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 of sale of such Convertible Securities for such price
per share and shall trigger the adjustment provisions of Section 4.12.  For the
purposes of this Section 4.13, the “lowest price per share for which one share
of Common Stock is issuable upon such conversion or exchange or exercise” 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
issuance or sale of the Convertible Securities and upon the conversion or
exchange or exercise of such Convertible Securities.  No further adjustment of
the Conversion Price shall be made upon the actual issuance of such share of
Common Stock upon conversion or exchange or exercise of such Convertible
Securities at the price used to calculate the adjustment provisions of Section
4.12.  “Convertible Securities” means any stock or securities directly or
indirectly convertible into or exercisable or exchangeable for Common Stock.
 
4.14           Upon the occurrence of each adjustment pursuant to this Section
4, the Company, at its expense, will promptly compute such adjustment in
accordance with the terms hereof and prepare and deliver to the Holder a
certificate describing in reasonable detail such adjustment and the transactions
giving rise thereto, including all facts upon which such adjustment is based.
 
4.15           The Conversion Shares are subject to registration rights as more
fully set forth in the Subscription Agreement between the Company and the
initial Holder dated as of the initial date of this Note (the “Subscription
Agreement”).
 
4.16           On the Mandatory Conversion Date (defined below), the outstanding
principal amount of this Note and accrued unpaid interest thereon, shall
automatically, without action by the Holder or the Company convert into a number
of Conversion Shares determined by dividing the outstanding principal amount of
this Note plus accrued and unpaid interest thereon, by the Conversion Price in
effect on the Mandatory Conversion Date.  The “Mandatory Conversion Date” means
the date on which (i) the last sale price of the Common Stock on 20 of the 30
immediately preceding trading days equals or exceeds 200% of the Conversion
Price; (ii) the Conversion Shares are eligible for resale under an effective
registration statement and/or Rule 144 promulgated under the Securities Act of
1933, as amended, without restriction as to volume or manner of sale and (iii)
the ADTV during such 30 trading day period equals or exceeds $500,000.

 
-8-

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

 
 
4.17       If the Company shall fail, for any reason or for no reason, to issue
to the Holder within three (3) Business 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, 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 4.17 or otherwise. In addition to the foregoing, if within three (3)
Business 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) Business Day the Holder (or any other Person in
respect, or on behalf, of 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 all or any portion of the number of shares of Common Stock, or a sale
of a number of shares of Common Stock equal to all or any portion of the number
of shares of Common Stock, issuable upon such conversion that the Holder so
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, 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 (including,
without limitation, by any other Person in respect, or on behalf, of the Holder)
(the “Buy-In Price”), at which point the Company’s obligation to so issue and
deliver such certificate 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 to issue such shares of
Common Stock) shall terminate.
 
5.
Events of Default.

 
5.1         An “Event of Default” exists at any time if any of the following
occurs (whether such occurrence shall be voluntary or come about or be effected
by operation of law or otherwise):
 
(a)           the Company defaults in the payment of the principal of this Note
when due or defaults in the payment of accrued interest on this Note when due
and such default continues for a period of five (5) Business Days after the date
such interest became due; or

 
-9-

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

 

(b)           the Company’s insolvency, assignment for the benefit of creditors,
application for or appointment of a receiver, filing of a voluntary or
involuntary petition under any provision of the U.S. Federal Bankruptcy Code or
amendments thereto or any other federal or state statute affording relief to
debtors; or there shall be commenced against the Company any such proceeding or
filed against the Company any such application or petition which proceeding,
application or petition is not dismissed or withdrawn within ninety (90) days of
commencement or filing, as the case may be; or
 
(c)           the occurrence and continuation of an event of default under any
liabilities in excess of $500,000 with respect to (i) borrowed money, (ii) the
deferred purchase price of property acquired by the Company, (iii) capital
leases, (iv) letters of credit or similar instruments serving a similar function
issued or accepted by banks and other institutions for the account of the
Company;
 
(d)           the Company shall fail to observe or perform any covenant or
agreement contained in this Note (other than Section 4.2) which failure is not
cured, if possible to cure, within ten (10) Business Days after notice to the
Company of such default sent by the Holder or by any other Holder; or
 
(e)           the Company’s notice to the Holder, including by way of public
announcement, at any time, of its inability to comply or its intention not to
comply with proper requests for conversion of this Note into shares of Common
Stock; or
 
(f)           any material representation or warranty made by the Company herein
or in the Subscription Agreement, or in any other offering document shall prove
to have been false or incorrect or breached in a material respect on the date as
of which made.
 
5.2         Any amount of principal of, or interest on this Note which is not
paid when due shall bear interest at the Default Rate (as defined herein) from
the due date thereof until the same is paid.  “Default Rate” means a rate of
eighteen percent (18%) per annum, or such lesser rate equal to the highest rate
permitted by applicable law.
 
5.3         If any Event of Default shall exist, the Holder may exercise any
right, power or remedy permitted to such Holder by law, and shall have in
particular, without limiting the generality of the foregoing, the right to
declare the entire principal of, and all interest accrued and unpaid on, this
Note then outstanding to be, and this Note shall thereupon become, forthwith due
and payable, without any presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived, and the Company shall forthwith
pay to the Holder such principal and interest.
 
5.4         During the continuance of an Event or Default and irrespective of
whether this Note shall become due and payable pursuant to Section 5.2 and
irrespective of whether the Holder shall otherwise have pursued or be pursuing
any other rights or remedies, the Holder may proceed to protect and enforce its
rights under this Note by exercising such remedies as are available to such
holder in respect thereof under applicable law, either by suit in equity or by
action at law, or both, whether for specific performance of any agreement
contained herein or in aid of the exercise of any power granted herein.

 
-10-

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

 
 
5.5         No course of dealing on the part of the Holder nor any delay or
failure on the part of the Holder to exercise any right shall operate as a
waiver of such right or otherwise prejudice the Holder’s rights, powers and
remedies.  All rights and remedies of the Holder hereunder and under applicable
law are cumulative to, and not exclusive of, any other rights or remedies the
Holder would otherwise have.
 
6.           Repayment upon Reorganization, Merger, Consolidation or Sales of
Assets.  If at any time or from time to time after the date hereof there shall
be: (i) a capital reorganization of the Company (other than by way of a stock
split or combination of shares or stock dividends or distributions provided for
in Section 4), or a merger or consolidation of the Company with or into another
corporation where the holders of outstanding voting securities of the Company
prior to such merger or consolidation do not own over fifty percent (50%) of the
outstanding voting securities of the merged or consolidated entity, immediately
after such merger or consolidation, or (ii) the sale of all or substantially all
of the Company’s properties or assets to any other person (in each case, an
“Organic Change”), then as a part of such Organic Change, the Holder shall have
the right, but not the obligation to demand prepayment of this Note together
with all unpaid accrued interest during the period commencing on the date that
it receives written notice (the “Organic Change Notice”) from the Company that
an Organic Change is contemplated or has occurred and ending on the later of (i)
ten (10) business days after the date of the Organic Change Notice and (ii) the
date on which the Organic Change is consummated.
 
7.           Covenants.  For so long as this Note is outstanding, without the
prior written consent of the holders of at least a majority of the aggregate
principal amount of the Notes (the “Required Note Holders”):
 
(a)           the Company shall not create, incur, assume or suffer to exist,
any indebtedness, contingent and otherwise, which should, in accordance with
generally accepted accounting principles consistently applied, be classified
upon the Company's balance sheet as liabilities and which would be senior or
pari passu in right of payment to this Note, except for: (i) secured or
unsecured debt issued to a bank or financial institution on commercially
reasonable terms, or (ii) any other debt not to exceed $5 million, individually,
or in the aggregate.
 
(b)           The Company shall, and shall cause each of its subsidiaries to,
comply with all laws and duly observe and conform in all material respects to
all valid requirements of governmental authorities relating to the conduct of
its business or to its properties or assets.
 
(c)           The Company shall not, and shall not permit its subsidiaries to,
engage in any transactions with any officer, director, employee or any Affiliate
of the Company, including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $50,000, other than: (i) for payment of reasonable salary for services
actually rendered, as approved by the Board of Directors of the Company as fair
in all respects to the Company, (ii) reimbursement for expenses incurred on
behalf of the Company (iii) transactions and written arrangements in existence
on the date of the initial issuance of this Note, and any amendments,
modifications, cancellations, terminations, limitations and waivers approved by
a majority of the independent disinterested directors of the Company.

 
-11-

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

 
 
(d)           The Company shall not, and shall not permit any subsidiary to: (i)
declare or pay any dividends or make any distributions to any holder(s) of
Common Stock or such subsidiaries (other than dividends and distributions from a
subsidiary to the Company) or (ii) purchase or otherwise acquire for value,
directly or indirectly, any shares or other equity security of the Company,
other than the Notes or Warrants.
 
8.
Interpretation of this Note

 
8.1         Where any provision herein refers to action to be taken by any
person, or which such person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such person,
including actions taken by or on behalf of any partnership in which such person
is a general partner.
 
8.2         (a)  The titles of the Sections of this Note appear as a matter of
convenience only, do not constitute a part hereof and shall not affect the
construction hereof. The words “herein,” “hereof,” “hereunder” and “hereto”
refer to this Note as a whole and not to any particular Section or other
subdivision. References to Annexes and Sections are, unless otherwise specified,
references to Sections of this Note. References to Annexes and Schedules are,
unless otherwise specified, references to Schedules attached to this Note.
 
(b)           Each covenant contained herein shall be construed (absent an
express contrary provision herein) as being independent of each other covenant
contained herein, and compliance with any one covenant shall not (absent such an
express contrary provision) be deemed to excuse compliance with one or more
other covenants.
 
8.3         THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ANY CHOICE
OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER
JURISDICTION. IN ADDITION, THE PARTIES HERETO SELECT, TO THE EXTENT THEY MAY
LAWFULLY DO SO, THE INTERNAL LAWS OF THE STATE OF NEW YORK AS THE APPLICABLE
INTEREST LAW.
 
9.
Miscellaneous

 
9.1         Nothing contained in this Note shall be construed as conferring upon
the Holder or any other person the right to vote or to consent or to receive
notice as a stockholder in respect of meetings of stockholders for the election
of directors of the Company or any other matters or any rights whatsoever as a
stockholder of the Company; and no dividends or interest shall be payable or
accrued in respect of this Note or the interest represented hereby or the
Conversion Shares obtainable hereunder until, and only to the extent that, this
Note has been converted.

 
-12-

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

 
 
9.2         All communications under this Note shall be in writing and shall be
delivered either by nationwide overnight courier or by facsimile transmission
(confirmed by delivery by nationwide overnight courier sent on the day of the
sending of such facsimile transmission). Communications to the Company shall be
addressed as set forth on Annex 1, or at such other address of which the Company
shall have notified the Holder.  Communications to the Holder shall be addressed
as set forth on Annex 1, or at such other address of which such Holder shall
have notified the Company (and the Company shall record such address in the
register for the registration and transfer of this Note).  Any communication
addressed and delivered as herein provided shall be deemed to be received when
actually delivered to the address of the addressee (whether or not delivery is
accepted) or received by the telecopy machine of the recipient. Any
communication not so addressed and delivered shall be
ineffective.  Notwithstanding the foregoing provisions of this Section 9.2,
service of process in any suit, action or proceeding arising out of or relating
to this Note or any transaction contemplated hereby, or any action or proceeding
to execute or otherwise enforce any judgment in respect of any breach hereunder
or under any document hereby, shall be delivered in the manner provided in
Section 9.5(c).
 
9.3         The provisions hereof are intended to be for the benefit of the
Holder, from time to time, of this Note, and shall be enforceable by any such
Holder whether or not an express assignment to such Holder of rights hereunder
shall have been made by the payee or his successors or assigns.  In the event
that the payee named herein transfers or assigns less than all of this Note, the
term “Holder” as used herein shall be deemed to refer to the assignor and
assignee or assignees hereof, collectively, and any action permitted to be taken
by the Holder hereunder shall be taken only upon the consent or approval of
persons comprising the Holder that own that percentage interest in the principal
amount of this Note as shall be designated by the payee named herein at the time
of such assignment.
 
9.4         (a)  This Note may be amended, and the observance of any term hereof
may be waived, with (and only with) the written consent of the Company and the
Holder.
 
(b)           Any amendment or waiver consented to as provided in this Section
9.4 shall be binding upon the then current Holder and upon each future holder of
this Note and upon the Company whether or not this Note shall have been marked
to indicate such amendment or waiver. No such amendment or waiver shall extend
to or affect any obligation, covenant, agreement, Default or Event of Default
not expressly amended or waived or impair any right consequent thereon.
 
9.5         (a)  THE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY WAIVE ANY
RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR TRANSACTIONS
CONTEMPLATED HEREBY.

 
-13-

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

 

(b)           ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
NOTE OR TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR PROCEEDING TO EXECUTE
OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER THIS NOTE MAY
BE BROUGHT BY SUCH PARTY IN ANY FEDERAL DISTRICT COURT LOCATED IN NEW YORK, NEW
YORK, OR ANY NEW YORK STATE COURT LOCATED IN NEW YORK, NEW YORK AS SUCH PARTY
MAY IN ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION AND DELIVERY OF THIS
NOTE, THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE
NON-EXCLUSIVE IN PERSONAM JURISDICTION OF EACH SUCH COURT, AND EACH OF THE
PARTIES HERETO IRREVOCABLY WAIVES AND AGREES NOT TO ASSERT IN ANY PROCEEDING
BEFORE ANY TRIBUNAL, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, ANY CLAIM THAT
IT IS NOT SUBJECT TO THE IN PERSONAM JURISDICTION OF ANY SUCH COURT. IN
ADDITION, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
NOTE OR TRANSACTION CONTEMPLATED HEREBY BROUGHT IN ANY SUCH COURT, AND HEREBY
IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
 
(c)           EACH PARTY HERETO IRREVOCABLY AGREES THAT PROCESS PERSONALLY
SERVED OR SERVED BY U.S. EXPRESS, REGISTERED OR CERTIFIED MAIL OR BY NATIONWIDE
OVERNIGHT COMMERCIAL COURIER OR DELIVERY SERVICE AT THE ADDRESSES PROVIDED
HEREIN FOR NOTICES SHALL CONSTITUTE, TO THE EXTENT PERMITTED BY LAW, ADEQUATE
SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS NOTE OR TRANSACTION CONTEMPLATED HEREBY, OR ANY ACTION OR PROCEEDING TO
EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER.
RECEIPT OF PROCESS SO SERVED SHALL BE CONCLUSIVELY PRESUMED AS EVIDENCED BY A
DELIVERY RECEIPT FURNISHED BY THE UNITED STATES POSTAL SERVICE OR ANY COMMERCIAL
DELIVERY SERVICE.
 
(d)           NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF
ANY HOLDER OF THIS NOTE TO SERVE ANY WRITS, PROCESS OR SUMMONSES IN ANY MANNER
PERMITTED BY APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER THE COMPANY IN SUCH
OTHER JURISDICTION, AND IN SUCH OTHER MANNER, AS MAY BE PERMITTED BY APPLICABLE
LAW.
 
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed and
delivered by one of its duly authorized officers or representatives.

 
BOOMERANG SYSTEMS, INC.
       
By:
     
Name:
   
Title:

 
-14-

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

 

Annex I

 
(1)
If to the Company, to:

Boomerang Systems, Inc.
355 Madison Avenue
Morristown, New Jersey  07960
Attention:  Chief Executive Officer
Telephone No.:  (   )
Facsimile No.: (  )

 
(2)
If to the payee, to:

Attention:

Telephone No.: (   )    -    
Facsimile No.:  (   )    -    

 
-15-

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

 

 [FORM OF ELECTION TO CONVERT]

The undersigned hereby elects to exercise its right, pursuant to the 6%
Convertible Promissory Note due [______________], 2016 (the “Note”) of Boomerang
Systems, Inc. (the “Company”) in the outstanding principal amount of $_________,
which Note is tendered herewith, to convert $__________ of the principal amount
outstanding (plus accrued interest thereon) under the Note into
__________________ shares of the common stock $0.001 par value per share of the
Company (the “Shares”), all in accordance with the terms of the Note.
 
The undersigned requests that [the Company credit the undersigned’s or its
designee’s balance account with DTC for such number of shares of Common Stock]
[a Certificate for such Shares be registered in the name of ______________,
whose address is ____________, and that such Certificate be delivered to
________________, whose address is _________________], [and that a replacement
Note in the principal amount of $___________, representing the balance of the
principal amount outstanding thereunder after giving effect to this conversion,
be issued in the amount of $_________ and delivered to ___________, whose
address is ____________].
 
Dated:
Signature:
     
(Signature must conform in all respects to name of
   
Holder as specified on the face of the Note.)

     
(Insert Social Security or Other
 
Identifying Number of Holder)
         
(Address)
         
(Address)

 
 

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

 
 
EXHIBIT B

Form of Warrant

 
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL 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.

THE NUMBER OF SHARES THAT MAY BE EXERCISED BY THIS WARRANT MAY BE LESS THAN THE
NUMBER LISTED BELOW.   SEE SECTION 1.

BOOMERANG SYSTEMS, INC.

WARRANT TO PURCHASE COMMON STOCK

Warrant No.: ___________

Date of Issuance:  [_______________], 2011 (“Issuance Date”)

BOOMERANG SYSTEMS, INC., a Delaware corporation (the “Company”), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, [_________________] [INSERT NAME], the
registered holder hereof or its permitted assigns (the “Holder”), is entitled,
subject to the terms set forth below, to purchase from the Company, at the
Exercise Price (as defined below) then in effect, upon exercise of this Warrant
to Purchase Common Stock (including any Warrants to Purchase Common Stock issued
in exchange, transfer or replacement hereof, the “Warrant”), at any time or
times on or after the Issuance Date, but not after 11:59 p.m., New York time, on
the Expiration Date (as defined below), [______________] [INSERT NUMBER]
(subject to adjustment as provided herein) fully paid and non-assessable shares
of Common Stock (as defined below)   (the “Warrant Shares”). Except as otherwise
defined herein, capitalized terms in this Warrant shall have the meanings set
forth in Section 16. This Warrant is one of the Warrants to Purchase Common
Stock (the “Warrants”) issued pursuant to Section 1 of that certain Subscription
Agreement, dated as of [____________], 2011, by and between the Company and the
Holder (the “Subscription Agreement”).
 
 
 

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

 
1.
EXERCISE OF WARRANT.

 
(a)           Mechanics of Exercise.  Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any day on or after the Issuance Date,
in whole or in part, by delivery (whether via facsimile or otherwise) of a
written notice, in the form attached hereto as Exhibit A (the “Exercise
Notice”), of the Holder’s election to exercise this Warrant. On the Trading Day
on which this Warrant is exercised, the Holder shall deliver payment to the
Company of an amount equal to the Exercise Price in effect on the date of such
exercise multiplied by the number of Warrant Shares as to which this Warrant was
so exercised (the “Aggregate Exercise Price”) in cash or via wire transfer of
immediately available funds if the Holder did not notify the Company in such
Exercise Notice that such exercise was made pursuant to a Cashless Exercise (as
defined in Section 1(d)). The Holder shall not be required to deliver the
original of this Warrant in order to effect an exercise hereunder. Execution and
delivery of an Exercise Notice with respect to less than all of the Warrant
Shares shall have the same effect as cancellation of the original of this
Warrant and issuance of a new Warrant evidencing the right to purchase the
remaining number of Warrant Shares. Execution and delivery of an Exercise Notice
for all of the then-remaining Warrant Shares shall have the same effect as
cancellation of the original of this Warrant after delivery of the Warrant
Shares in accordance with the terms hereof. On or before the third (3rd) Trading
Day following the date on which the Company has received an Exercise Notice, the
Company shall transmit by facsimile an acknowledgment of confirmation of receipt
of such Exercise Notice, in the form attached hereto as Exhibit B, to the Holder
and the Company’s transfer agent (the “Transfer Agent”). On or before the third
(3rd) Trading Day following the date on which the Company has received such
Exercise Notice, the Company will (1) provided that: (a) the Company’s Transfer
Agent is participating in The Depository Trust Company’s Fast Automated
Securities Transfer Program, (b) the Warrant Shares are eligible for such
program, (c) a registration statement covering the re-sale of the Warrant Shares
is effective, and (d) on the date on which the Company has received the Exercise
Notice, a letter from a broker is delivered to the Transfer Agent representing
that all of the Warrant Shares were sold pursuant to the registration statement
referred to in clause (c) (collectively, the “DTC FAST Requirements”), 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 all of the DTC Fast
Requirements are not met, instruct its transfer agent to issue and deliver to
the Holder or, at the Holder’s instruction pursuant to the Exercise Notice, the
Holder’s agent or designee, in each case, sent by reputable overnight courier to
the address as specified in the applicable Exercise Notice, a certificate,
registered in the Company’s share register in the name of the Holder or its
designee (as indicated in the applicable Exercise Notice), for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise. Upon delivery of an Exercise Notice, the Holder shall be deemed for
all corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective of the date
such Warrant Shares are credited to the Holder’s DTC account or the date of
delivery of the certificates evidencing such Warrant Shares (as the case may
be). If this Warrant is submitted in connection with any exercise pursuant to
this Section 1(a) and the number of Warrant Shares represented by this Warrant
submitted for exercise is greater than the number of Warrant Shares being
acquired upon an exercise, then, at the request of the Holder, the Company shall
as soon as practicable and in no event later than three (3) Business Days after
any exercise and at its own expense, issue and deliver to the Holder (or its
designee) a new Warrant (in accordance with Section 7(d)) representing the right
to purchase the number of Warrant Shares purchasable immediately prior to such
exercise under this Warrant, less the number of Warrant Shares with respect to
which this Warrant is exercised. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but rather the number of shares of
Common Stock to be issued shall be rounded up to the nearest whole number. The
Company shall pay any and all taxes and fees which may be payable with respect
to the issuance and delivery of Warrant Shares to the Holder upon exercise of
this Warrant.
 
 
2

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

 
 
(b)           Exercise Price.  For purposes of this Warrant, “Exercise Price”
means $[_________], subject to adjustment as provided herein.
 
(c)           Company’s Failure to Timely Deliver Securities.  If the Company
shall fail, for any reason or for no reason, to issue to the Holder within three
(3) Trading Days after receipt of the applicable Exercise Notice, 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 balance account with DTC for such number of shares of Common
Stock to which the Holder is entitled upon the Holder’s exercise of this Warrant
if the Warrant Shares are eligible for the Program (as the case may be) (a
“Delivery Failure”), then, in addition to all other remedies available to the
Holder, if on or after such third (3rd) Trading Day the Holder (or any other
Person in respect, or on behalf, of 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 all or any portion of the number of shares of Common
Stock, or a sale of a number of shares of Common Stock equal to all or any
portion of the number of shares of Common Stock, issuable upon such exercise
that the Holder so anticipated receiving from the Company, the Company shall,
within three (3) Business Days after the Holder’s request 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 (including, without limitation, by any other Person in
respect, or on behalf, of the Holder) (the “Buy-In Price”), at which point the
Company’s obligation to so issue and deliver such certificate 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 exercise hereunder (as the case
may be) (and to issue such shares of Common Stock) shall terminate.
 
(d)           Cashless Exercise.  Notwithstanding anything contained herein to
the contrary (other than Section 1(f) below), if the average daily trading
volume equals or exceeds 10,000 shares of Common Stock during at least five (5)
of the ten (10) consecutive Trading Days immediately preceding the date of the
Exercise Notice, then the Holder may, in its sole discretion, exercise this
Warrant in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
Aggregate Exercise Price, elect instead to receive upon such exercise the “Net
Number” of shares of Common Stock determined according to the following formula
(a “Cashless Exercise”):
 
 
Net Number = (A x B) - (A x C)

B
 
For purposes of the foregoing formula:

A= the total number of shares with respect to which this Warrant is then being
exercised.
 
 
3

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

 
 
B= the a price equal to the average of the last sale price of the Common Stock
during the five (5) consecutive trading days ending on the trading day
immediately preceding the date of the applicable Exercise Notice if such
Exercise Notice is both executed and delivered pursuant to Section 1(a) hereof.
 
C= the Exercise Price then in effect for the applicable Warrant Shares at the
time of such exercise.
 
(e)           Disputes.  In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the number of Warrant Shares to
be issued pursuant to the terms hereof, the Company shall promptly issue to the
Holder the number of Warrant Shares that are not disputed and resolve such
dispute in accordance with Section 13.
 
(f)           [This section will be omitted if requested by the Holder]
Limitations on Exercises.  [Notwithstanding anything to the contrary contained
in this Warrant, this Warrant shall not be exercisable by the Holder 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% (the “Maximum Percentage”) of the
Common Stock. To the extent the above limitation applies, the determination of
whether this Warrant shall be exercisable (vis-à-vis other convertible,
exercisable or exchangeable securities owned by the Holder or any of its
affiliates) and of which such securities shall be exercisable (as among all such
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
exercise this Warrant pursuant to this paragraph shall have any effect on the
applicability of the provisions of this paragraph with respect to any subsequent
determination of exercisability. For the 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
Subscription 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 Warrant. 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 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 Warrant or
securities issued pursuant to the Subscription Agreement.]
 
 
4

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

 
 
(g)           Insufficient Authorized Shares.  The Company shall at all times
keep reserved for issuance under this Warrant a number of shares of Common Stock
as shall be necessary to satisfy the Company’s obligation to issue shares of
Common Stock hereunder (without regard to any limitation otherwise contained
herein with respect to the number of shares of Common Stock that may be
acquirable upon exercise of this Warrant). If, notwithstanding the foregoing,
and not in limitation thereof, at any time while any of the Warrants remain
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation (an “Authorized
Share Failure”), to reserve for issuance upon exercise of the Warrants at least
a number of shares of Common Stock equal to the number of shares of Common Stock
as shall from time to time be necessary to effect the exercise of all of the
Warrants then outstanding (the “Required Reserve Amount”) 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 all the Warrants 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.
 
2.           ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and number of Warrant Shares issuable upon exercise of this
Warrant are subject to adjustment from time to time as set forth in this Section
2.
 
(a)           Stock Dividends and Splits.  Without limiting any provision of
Section 2(b), if the Company, at any time on or after the date of the
Subscription Agreement, (i) pays a stock dividend on one or more classes of its
then outstanding shares of Common Stock or otherwise makes a distribution on any
class of capital stock that is payable in shares of Common Stock, (ii)
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its then outstanding shares of Common Stock into a larger
number of shares or (iii) combines (by combination, reverse stock split or
otherwise) one or more classes of its then outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event.  Any adjustment made pursuant to clause (i) of
this paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this paragraph occurs
during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect
such event.
 
 
5

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

 
 
(b)           Adjustment Upon Issuance of Shares of Common Stock.
 
(i)           In the event the Company shall, at any time, from time to time,
issue or sell any additional shares of Common Stock (“Additional Shares of
Common Stock”) (excluding shares issued or issuable as a dividend, distribution
or combination as provided in Section 2(a) or an Exempt Issuance (as defined
below)), without consideration or for a consideration per share (the “New
Price”) less than the applicable Exercise Price in effect on the date of and
immediately prior to such issue, then and in such event, such Exercise Price
shall be reduced, concurrently with such issue to a price (calculated to the
nearest cent) determined by multiplying the Exercise Price then in effect by a
fraction (a) the numerator of which shall be (1) the number of shares of Common
Stock outstanding immediately prior to such issuance, plus (2) the number of
shares of Common Stock which the aggregate consideration received by the Company
for the total number of Additional Shares of Common Stock so issued would
purchase at such Exercise Price; and (b) the denominator of which shall be (1)
the number of shares of Common Stock outstanding immediately prior to such
issuance, plus (2) the number of such Additional Shares of Common Stock so
issued.  “Exempt Issuance” means the issuance of (a) shares of Common Stock,
options or other stock-based awards or grants to employees, officers, directors
or consultants (provided that such issuances to consultants shall not exceed
1,000,000 shares of Common Stock of the Company) pursuant to any existing stock
or option plan or any future stock or option plan duly adopted by a majority of
the non-employee members of the Board of Directors of the Company or a majority
of the members of a committee of non-employee directors established for such
purpose and (b) securities upon the exercise or exchange of or conversion of the
Notes and Warrants and/or securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the date of
the Subscription Agreement.
 
(ii)           If the Company in any manner issues or sells any Convertible
Securities (as defined herein) and the lowest price per share for which one
share of Common Stock is issuable upon such conversion or exchange or exercise
thereof is less than the Exercise 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 of sale of such Convertible Securities for such price
per share and shall trigger the adjustment provisions of Section 2(b)(i).  For
the purposes of this Section 2(b)(ii), the “lowest price per share for which one
share of Common Stock is issuable upon such conversion or exchange or exercise”
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 issuance or sale of the Convertible Securities and upon the
conversion or exchange or exercise of such Convertible Securities.  No further
adjustment of the Conversion Price shall be made upon the actual issuance of
such share of Common Stock upon conversion or exchange or exercise of such
Convertible Securities at the price used to calculate the adjustment provisions
of Section 2(b)(i).  “Convertible Securities” means any stock or securities
directly or indirectly convertible into or exercisable or exchangeable for
Common Stock.
 
 
6

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

 
 
(iii)           Record Date.  With  respect to Section 2(b), 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 shares
of 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).
 
(c)           Number of Warrant Shares.  Simultaneously with any adjustment to
the Exercise Price pursuant to paragraphs (a) or (b) of this Section 2, the
number of Warrant Shares that may be purchased upon exercise of this Warrant
shall be increased or decreased proportionately up to the nearest full Warrant
Share, so that after such adjustment the aggregate Exercise Price payable
hereunder for the adjusted number of Warrant Shares shall be the same as the
aggregate Exercise Price in effect immediately prior to such adjustment (without
regard to any limitations on exercise contained herein).
 
(d)           Other Events.  In the event that the Company (or any Subsidiary
(as defined in the Subscription Agreement)) 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 2 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
other than Exempt Issuances), then the Company’s board of directors shall in
good faith determine and implement an appropriate adjustment in the Exercise
Price and the number of Warrant Shares (if applicable) so as to protect the
rights of the Holder, provided that no such adjustment pursuant to this Section
2(d) will increase the Exercise Price or decrease the number of Warrant Shares
as otherwise determined pursuant to this Section 2, 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.
 
(e)           Calculations.  All calculations under this Section 2 shall be made
by rounding to the nearest cent or the nearest whole share, as applicable. The
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company, and the disposition
of any such shares shall be considered an issue or sale of Common Stock.
 
3.           RIGHTS UPON DISTRIBUTION OF ASSETS.  In addition to any adjustments
pursuant to Section 2 above, if the Company shall declare or make any dividend
(other than a dividend consisting solely of shares of Common Stock) or other
distribution of its assets (or rights to acquire its assets) to holders of
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities (other
than shares of Common Stock), property or options by way of a dividend, spin
off, reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a “Distribution”), at any time after the issuance of this
Warrant, then, in each such case, the Holder to the extent of the unexercised
portion of the Warrant shall, in addition to the shares of Common Stock or other
securities receivable upon exercise thereof, receive upon exercise of such
unexercised portion of the Warrant, the same  cash, stock, other securities or
any other thing of value that they  would have been entitled to receive   at the
time of such  dividend or Distribution.  At the time of any such dividend or
Distribution, the Company shall make appropriate reserves to ensure the timely
performance of the provisions of this  Section 3.
 
 
7

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

 
 
4.           FUNDAMENTAL TRANSACTIONS.
 
(a)           If the Company engages in a Fundamental Transaction lawful and
adequate provisions shall be made whereby the Holder shall thereafter have the
right to purchase and receive upon the terms and conditions specified in this
Warrant and in lieu of the Warrant Shares immediately theretofore receivable
upon the exercise of the rights represented hereby, such shares of capital
stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of Warrant Shares immediately theretofore so receivable had such
Fundamental Transaction not taken place, and in any such case appropriate
provision reasonably satisfactory to such Holder shall be made with respect to
the rights and interests of such Holder to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Exercise Price
and of the number of Warrant Shares receivable upon the exercise) shall
thereafter be applicable, as nearly as possible, in relation to any shares of
capital stock, securities or assets thereafter deliverable upon the exercise of
Warrants.
 
(b)           In the event of a Fundamental Transaction as a result of which a
number of shares of Common Stock or its equivalent of the successor Person
greater or lesser than the number of shares of Common Stock outstanding
immediately prior to such Fundamental Transaction are issuable to holders of
Common Stock, then the Exercise Price in effect immediately prior to such
merger, share exchange or consolidation shall be adjusted in the same manner as
though there were a subdivision or combination of the outstanding shares of
Common Stock.
 
(c)           The Company shall not effect any such Fundamental Transaction
unless prior to or simultaneously with the consummation thereof the successor
Person (if other than the Company) resulting from such Fundamental Transaction
purchasing or otherwise acquiring such assets shall have assumed by written
instrument executed and mailed or delivered to the Holder at the last address of
such Holder appearing on the books of the Company, the obligation to deliver to
such Holder such shares of capital stock, securities or assets as, in accordance
with the foregoing provisions, such Holder may be entitled to receive, and all
other liabilities and obligations of the Company hereunder.  Upon written
request by the Holder, such successor Person will issue a new warrant revised to
reflect the modifications in this Warrant effected pursuant to this Section 4.
 
(d)           The Company shall not effect a Fundamental Transaction with the
Person having made such offer or with any affiliate of such Person, unless prior
to the consummation of such Fundamental Transaction the holder hereof shall have
received 10 days prior written notice of the Fundamental Transaction from the
Company or the reasonable opportunity (and in no event less than ten (10)
Business Days) to then elect to receive upon the exercise of the Warrants either
the capital stock, securities or assets then issuable with respect to the Common
Stock or the capital stock, securities or assets, or the equivalent, issued to
previous holders of the Common Stock in accordance with such offer.
 
 
8

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

 
 
(e)           Application.  The provisions of this Section 4 shall apply
similarly and equally to successive Fundamental Transactions and shall be
applied as if this Warrant (and any such subsequent warrants) were fully
exercisable and without regard to any limitations on the exercise of this
Warrant (provided that the Holder shall continue to be entitled to the benefit
of the Maximum Percentage, applied however with respect to shares of capital
stock registered under the 1934 Act and thereafter receivable upon exercise of
this Warrant (or any such other warrant)).
 
5.           NONCIRCUMVENTION.  The Company hereby covenants and agrees that the
Company will not, by amendment of its [Certificate of Incorporation (as defined
in the Subscription Agreement), Bylaws (as defined in the Subscription
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 Warrant, and will at all times in good faith carry out
all the provisions of this Warrant and take all action as may be required to
protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
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 non-assessable shares of Common Stock upon the exercise of this Warrant ,
and (iii) shall, so long as any of the Warrants 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 exercise of the
Warrants, the maximum number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of the Warrants then outstanding
(without regard to any limitations on exercise).
 
6.           WARRANT HOLDER NOT DEEMED A STOCKHOLDER.  Except as otherwise
specifically provided herein, the Holder, solely in its capacity as a holder of
this Warrant, shall not be entitled to vote or receive dividends or be deemed
the holder of share capital of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the Holder, solely in its
capacity as the Holder of this Warrant, any of the rights of a stockholder of
the Company or any right to vote, give or withhold consent to any corporate
action (whether any reorganization, issue of stock, reclassification of stock,
consolidation, merger, conveyance or otherwise), receive notice of meetings,
receive dividends or subscription rights, or otherwise, prior to the issuance to
the Holder of the Warrant Shares which it is then entitled to receive upon the
due exercise of this Warrant.  In addition, nothing contained in this Warrant
shall be construed as imposing any liabilities on the Holder to purchase any
securities (upon exercise of this Warrant or otherwise) or as a stockholder of
the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this Section 6, the Company shall
provide the Holder with copies of the same notices and other information given
to the stockholders of the Company generally, contemporaneously with the giving
thereof to the stockholders.
 
 
9

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

 
 
7.           REISSUANCE OF WARRANTS.
 
(a)           Transfer of Warrant.  If this Warrant is to be transferred, the
Holder shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less than the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
 
(b)           Lost, Stolen or Mutilated Warrant.  Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant (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 Warrant, the Company shall
execute and deliver to the Holder a new Warrant (in accordance with Section
7(d)) representing the right to purchase the Warrant Shares then underlying this
Warrant.
 
(c)           Exchangeable for Multiple Warrants.  This Warrant is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company,
for a new Warrant or Warrants (in accordance with Section 7(d)) representing in
the aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, no warrants for fractional shares of
Common Stock shall be given.
 
(d)           Issuance of New Warrants.  Whenever the Company is required to
issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i)
shall be of like tenor with this Warrant, (ii) shall represent, as indicated on
the face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other
new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then underlying this Warrant), (iii) shall have an issuance
date, as indicated on the face of such new Warrant which is the same as the
Issuance Date, and (iv) shall have the same rights and conditions as this
Warrant.
 
8.           NOTICES.  Whenever notice is required to be given under this
Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9.2 of the Note.  The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Warrant,
including in reasonable detail a description of such action and the reason
therefor. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) promptly upon each adjustment of the
Exercise Price and the number of Warrant Shares, setting forth in reasonable
detail, and certifying, the calculation of such adjustment(s) and (ii) at least
ten (10) 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 shares of
Common Stock, (B) with respect to any grants, 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.  To the extent that any notice provided hereunder constitutes, or
contains, material, non-public information regarding the Company or any of its
Subsidiaries, the Company shall simultaneously file such notice with the SEC (as
defined in the Subscription Agreement) pursuant to a Current Report on Form 8-K.
It is expressly understood and agreed that the time of execution specified by
the Holder in each Exercise Notice shall be definitive and may not be disputed
or challenged by the Company.
 
 
10

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

 
 
9.           AMENDMENT AND WAIVER.  Except as otherwise provided herein, the
provisions of this Warrant (other than Section 1(f)(i)) may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the Holder. The Holder shall be entitled, at its option, to the
benefit of any amendment of (i) any other similar warrant issued under the
Subscription Agreement or (ii) any other similar warrant. No waiver shall be
effective unless it is in writing and signed by an authorized representative of
the waiving party.
 
10.         SEVERABILITY.  If any provision of this Warrant is prohibited by law
or otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Warrant so long as this Warrant as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
 
11.         GOVERNING LAW.  This Warrant shall be governed by and construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant 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) 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. 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 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 WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.
 
 
11

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

 
 
12.         CONSTRUCTION; HEADINGS.  This Warrant 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 Warrant are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Warrant. Terms used in this Warrant but defined in the other Transaction
Documents (as defined in the Subscription Agreement) shall have the meanings
ascribed to such terms on the Closing Date (as defined in the Subscription
Agreement) in such other [Transaction Documents] unless otherwise consented to
in writing by the Holder.]
 
13.         DISPUTE RESOLUTION.  In the case of a dispute as to the
determination of the Exercise Price, the Closing Sale Price or fair market value
or the arithmetic calculation of the Warrant Shares (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 (as the case
may be) of the Exercise Price, the Closing Sale Price or fair market value or
the number of Warrant Shares (as the case may be) within three (3) Business Days
of such disputed determination or arithmetic calculation 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
Exercise Price, the Closing Sale Price or fair market value (as the case may be)
to an independent, reputable investment bank selected by the Holder and
reasonably acceptable to the Company or (b) the disputed arithmetic calculation
of the Warrant Shares to the Company’s independent, outside accountant and
reasonably acceptable to the Holder. 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.
 
 
12

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

 
 
14.         REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF.  The remedies provided in this Warrant shall be cumulative
and in addition to all other remedies available under this Warrant, at law or in
equity (including a decree of specific performance and/or other injunctive
relief), and nothing herein shall limit the right of the Holder to pursue actual
damages for any failure by the Company to comply with the terms of this Warrant.
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, exercises 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 shall provide all information and documentation to the Holder that is
reasonably requested by the Holder to enable the Holder to confirm the Company’s
compliance with the terms and conditions of this Warrant (including, without
limitation, compliance with Section 2 hereof). The issuance of shares and
certificates for shares as contemplated hereby upon the exercise of this Warrant
shall be made without charge to the Holder or such shares for any issuance tax
or other costs in respect thereof, provided that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than the Holder
or its agent on its behalf.
 
15.         TRANSFER.  This Warrant has been acquired for investment and has not
been registered under the securities laws of the United States of America or any
state thereof.  Accordingly, notwithstanding Section 2.2(a), neither this Note
nor any interest thereon may be offered for sale, sold or transferred in the
absence of registration and qualification of this Note under applicable federal
and state securities laws or an opinion of counsel of the Holder reasonably
satisfactory to the Company that such registration and qualification are not
required.
 
16.         CERTAIN DEFINITIONS.  For purposes of this Warrant, 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)           “Closing Sale Price” means, for any security as of any date, the
last closing trade price 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 trade price, then the last trade price
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 trade price 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 does not apply, the last trade price
of such security in the over-the-counter market on the electronic bulletin board
for such security as reported by Bloomberg, or, if no last trade price is
reported for such security by Bloomberg, the average of the ask prices of any
market makers for such security as reported in the “pink sheets” by OTC Markets
Group Inc. (formerly Pink Sheets LLC). If the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Closing Sale Price 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 12.
All such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during such period.
 
 
13

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

 
 
(d)           “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.
 
(e)           “Expiration Date” means the date that is the fifth (5th)
anniversary of the Issuance Date or, if such date falls on a day other than a
Business Day or on which trading does not take place on the Principal Market (a
“Holiday”), the next date that is not a Holiday.
 
(f)           “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) any
other Person, or (2) sell, lease, license, assign, transfer, convey or otherwise
dispose of all or substantially all of its respective properties or assets to
any other Person, or (3) facilitate any other Person to make a purchase, tender
or exchange offer that is accepted by the holders of more than 50% of the
outstanding shares of Voting Stock of the Company (not including any shares of
Voting Stock of the Company 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 any other Person
whereby such other Person acquires more than 50% of the outstanding shares of
Voting Stock of the Company (not including any shares of Voting Stock of the
Company 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) (I)
reorganize, recapitalize or reclassify the Common Stock, (II) effect or
consummate a stock combination, reverse stock split or other similar transaction
involving the Common Stock or (III) make any public announcement or disclosure
with respect to any stock combination, reverse stock split or other similar
transaction involving the Common Stock (including, without limitation, any
public announcement or disclosure of (x) any potential, possible or actual stock
combination, reverse stock split or other similar transaction involving the
Common Stock or (y) board or stockholder approval thereof, or the intention of
the Company to seek board or stockholder approval of any stock combination,
reverse stock split or other similar transaction involving the 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 and the rules and regulations promulgated
thereunder) 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 Voting Stock of the Company.
 
(g)           “Options” means any rights, warrants or options to subscribe for
or purchase shares of Common Stock or Convertible Securities.
 
(h)           “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.
 
 
14

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

 
 
(i)           “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.
 
(j)           “Principal Market” means The New York Stock Exchange, the NYSE
Amex, the Nasdaq Global Select Market, the Nasdaq Capital Market, the OTC
Bulletin Board or the OTC Pink Sheets, as the case may be on which the Common
Stock is  listed or quoted for trading.
 
(k)           “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.
 
(l)           “Trading Day” means, as applicable, (x) with respect to all price
determinations relating to the Common Stock, 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 or (y) with respect to all
determinations other than price determinations relating to the Common Stock, any
day on which The New York Stock Exchange (or any successor thereto) is open for
trading of securities.
 
(m)           “Voting Stock” of a Person means capital stock of such Person of
the class or classes pursuant to which the holders thereof have the general
voting power to elect, or the general power to appoint, at least a majority of
the board of directors, managers or trustees of such Person (irrespective of
whether or not at the time capital stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
 
[signature page follows]
 
 
15

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

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

BOOMERANG SYSTEMS, INC.
   
By:
   
Name:
 
Title:

 
 
16

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

 
 
EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK

BOOMERANG SYSTEMS, INC.

The undersigned holder hereby exercises the right to purchase _________________
of the shares of Common Stock (“Warrant Shares”) of Boomerang Systems, Inc., a
Delaware corporation (the “Company”), evidenced by Warrant No. _______ (the
“Warrant”). Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant.
 
1.           Form of Exercise Price.  The Holder intends that payment of the
Exercise Price shall be made as:
 

 
____________
a “Cash Exercise” with respect to _________________
   
Warrant Shares; and/or

 
____________
a “Cashless Exercise” with respect to _______________
   
Warrant Shares.

2.           Payment of Exercise Price. In the event that the Holder has elected
a Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the Holder has paid to the Company the Aggregate Exercise Price
in the sum of $___________________ to the Company in accordance with the terms
of the Warrant.
 
3.           Delivery of Warrant Shares.  The Company shall deliver to Holder,
or its designee or agent as specified below, __________ Warrant Shares in
accordance with the terms of the Warrant.  Delivery shall be made to Holder, or
for its benefit, to the following address:
 
Date: _______________ __, ______

Name of Registered Holder

By:
   
Name:
 
Title:

 
 
17

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

 
 
EXHIBIT B

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs
______________ to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated _________, 20__, from the
Company and acknowledged and agreed to by _______________.
 
BOOMERANG SYSTEMS, INC.
   
By:
   
Name:
 
Title:

 
 
18

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

 

EXHIBIT C

Form of Legal Opinion

SUBJECT TO SUCH ASSUMPTIONS AND QUALIFICATIONS AS ARE CUSTOMARY FOR OPINIONS OF
THIS TYPE

1.         Based solely on the good standing certificate with respect to the
Company, dated as of September 22, 2011, issued by the Secretary of State of the
State of Delaware, the Company is a corporation duly incorporated and validly
existing as a corporation under the laws of the State of Delaware and is in good
standing under such laws. The Company has requisite corporate power to own,
lease and operate its properties and assets, and to conduct its business as
described in the SEC Reports and to carry out and perform its obligations
pursuant to the Transaction Documents.

2.         Based solely on the good standing certificate with respect to
Boomerang Sub, Inc., dated as of September 22, 2011, issued by the Secretary of
State of the State of Delaware, Boomerang Sub, Inc. is a corporation duly
incorporated and validly existing as a corporation under the laws of the State
of Delaware and is in good standing under such laws.  Based solely on the good
standing certificate, dated as of September 23, 2011, issued by the Department
of the Treasury of the State of New Jersey, Boomerang Sub, Inc. is qualified to
do business as a foreign corporation in the State of New Jersey.

3.         The Warrant Shares have been duly authorized and reserved for
issuance (other than issuances of shares of Common Stock in excess of the
Authorized Amount), and, when issued upon exercise of the Warrants in accordance
with the terms of the Warrants and fully paid therefor, will be (other than
issuances of shares of  Common Stock in excess of the Authorized Amount) validly
issued, fully paid and non-assessable.

4.         The Conversion Shares have been duly authorized and reserved for
issuance (other than issuances of shares of Common Stock in excess of the
Authorized Amount), and, when issued upon conversion of the Notes in accordance
with the terms of the Notes will be (other than issuances of shares of  Common
Stock in excess of the Authorized Amount) validly issued, fully paid and
non-assessable.

5.         The Warrants, Notes, Subscription Agreements and Registration Rights
Agreement have been duly authorized, executed and delivered by the Company and
constitute a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with their respective terms.

6.         The execution and delivery by the Company of the Warrants, Notes,
Subscription Agreements and Registration Rights Agreement, the performance by
the Company of its obligations thereunder, and the issuance and sale of the
Offering Securities being delivered on the date hereof pursuant to the
Subscription Agreements do not violate any provision of: (i) the Certificate of
Incorporation or the bylaws of the Company; or (ii) the U.S. federal securities
laws or the Delaware General Corporation Law.

 
 

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

 
 
7.         To our knowledge, no consent, approval, authorization of, or
designation, declaration or filing with any governmental authority on the part
of the Company is required for the valid execution and delivery of the Warrants,
Notes, Subscription Agreements and Registration Rights Agreement or the issuance
and sale of the Offering Securities, except (i) such as may have been obtained
or made under the Securities Act (other than the filing of a Form D pursuant to
Regulation D promulgated under the Securities Act or filings required under
state blue sky laws), (ii) such consents, approvals, authorizations, orders,
registrations or qualifications as may be required under applicable state
securities or Blue Sky laws in connection with the purchase and distribution of
the Offering Securities, and (iii) as may be expressly contemplated by the
Warrants, Notes, Subscription Agreements and Registration Rights Agreement.

8.         Assuming (i) the accuracy of the representations of the Company (as
to factual matters) and the Purchasers in the Subscription Agreements, (ii)
there has been no general solicitation or general advertising (within the
meaning of Rule 502 under the Securities Act) made by or on behalf of the
Company,  Gilford Securities Incorporated or any other party and (iii) the
Company is not disqualified under Rule 507 of the Securities Act from using the
exemption available under Rule 506 under the Securities Act, the issuance and
sale of  the Offering Securities by the Company to the Purchasers in accordance
with the terms of the Subscription Agreements will be exempt from the
registration requirements of the Securities Act, subject to timely filing of a
Form D pursuant to Regulation D promulgated under the Securities Act.

 
 

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

 

Applies to Closings Held on November 1, 2011, November 18, 2011 and December 9,
2011

 DISCLOSURE  SCHEDULES TO SUBSCRIPTION AGREEMENT

The Disclosure Schedule is arranged in sections corresponding to the lettered
sections contained in Section 3 of the Subscription Agreement, and the
disclosures in any section of the Disclosure Schedule shall qualify other
sections and subsections in Section 3.

Schedule 3(b)

Obligations Incurred subsequent to the filing of the SEC Reports

Atlantic & Madison of NJ Corp  loaned the Company $600,000. Atlantic & Madison
of NJ Corp has agreed to cancel this debt in exchange for the Offering
Securities.

Schedule 3(c)

Joint Venture

The Company owns, through one of its subsidiaries,  49% of Boomerang Systems
Middle East, LLC.

List of Subsidiaries and State of Incorporation

Boomerang Sub, Inc. – Delaware
Dominion Cellular, Inc. – New Jersey
Diamond Leasing and Management Corp. – Delaware
Boomerang USA Corp - Delaware
SwingStation, Inc. – Delaware

Not in Good Standing

Diamond Leasing and Management Corp. and SwingStation, Inc. are inactive.  They
are not in good standing. The Company is looking to dissolve these entities.
Boomerang Sub, Inc. is not qualified to do business in Florida.  It is in
process of qualifying to do business in Florida.

Schedule 3(d)

Dominic Moross and Winston Marshall have piggy-back registration rights.  Their
ownership is as follows:

Dominic Moross – 20,000 shares of common and 20,000 warrants
Winston Marshall – 40,000 shares of common and 40,000 warrants

 
 

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

 

Schedule 3(m)

The Company has submitted its responses to a comment letter from the SEC Staff
dated August 31, 2011.
 
 
 

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

 
 
Applies to Closings Held on November 1, 2011, November 18, 2011 and December 9,
2011

SUPPLEMENT TO DISCLOSURE SCHEDULES TO SUBSCRIPTION AGREEMENT

The section listed below in this Supplement to Disclosure Schedule corresponds
to the lettered section contained in Section 3 of the Subscription Agreement,
and such disclosure shall qualify other sections and subsections in Section
3.  Other than as disclosed below, there are no other changes to the Disclosure
Schedule previously provided.

Schedule 3(b)

Obligations Incurred subsequent to the filing of the SEC Reports

In addition to the disclosure in the Company’s SEC Reports and as listed in the
Term Sheet, as of October 27, 2011, the Company has incurred $751,000 of debt
from Atlantic & Madison of NJ Corp. and may incur up to $200,000 prior to
Closing.   Atlantic & Madison has transferred the debt to Christopher Mulvihill,
President and Director.  Mr. Mulvihill and has agreed to cancel this debt in
exchange for the Offering Securities.

 
 

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

 

Applies to Closings Held on November 18, 2011 and December 9, 2011

SUPPLEMENT No. 2 TO DISCLOSURE SCHEDULES TO SUBSCRIPTION AGREEMENT

The definition of SEC Reports in the Subscription Agreement shall be amended to
include all reports and other filings filed by the Company subsequent to
November 1, 2011 and up until and including two business days prior to the
Closing Date. The disclosure schedules shall be deemed amended and modified to
the extent any information in such SEC Reports relates to information required
to be included in the Disclosure Schedules.

Additionally, the information  listed below  corresponds to the lettered section
contained in Section 3 of the Subscription Agreement and amends the information
in the prior disclosure schedules supplement, and such disclosure shall qualify
other sections and subsections in Section 3 of the Subscription Agreement, as
applicable.  Other than as disclosed below, there are no other changes to the
Disclosure Schedule previously provided.

Schedule 3(b)

Obligations Incurred subsequent to the filing of the SEC Reports

On  November 1, 2011, Mark Patterson, the Company’s chief executive officer and
principal stockholder, loaned the Company $100,000 which will be converted  into
the Notes and Warrants on the Closing  Date.

 
 

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

 
 
Applies to Closings Held on November 18, 2011 and December 9, 2011

SUPPLEMENT No. 3 TO DISCLOSURE SCHEDULES TO SUBSCRIPTION AGREEMENT

The definition of SEC Reports in the Subscription Agreement shall be amended to
include all reports and other filings filed by the Company subsequent to
November 1, 2011 and up until and including two business days prior to the
Closing Date. The disclosure schedules shall be deemed amended and modified to
the extent any information in such SEC Reports relates to information required
to be included in the Disclosure Schedules.

Additionally, the information  listed below  corresponds to the lettered section
contained in Section 3 of the Subscription Agreement and amends the information
in the prior disclosure schedules supplement, and such disclosure shall qualify
other sections and subsections in Section 3 of the Subscription Agreement, as
applicable.  Other than as disclosed below, there are no other changes to the
Disclosure Schedule previously provided.

Schedule 3(m)

On November 2, 2011, the Company received a comment letter from the SEC, dated
October 12, 2011, which it is in the process of responding to.

 
 

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