Exhibit 4.45


    
      

        Exhibit
          4.45

         

        


         

        THE
          SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
          THE
          SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES MAY NOT BE SOLD,
          TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
          FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
          AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS
          THAT
          REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO
          RULE 144
          OR REGULATION S UNDER SAID ACT.

         

        


         

        CALLABLE
          SECURED CONVERTIBLE NOTE

         

        
          	
                  Del
                    Mar, California

                   

                	 	 
	
                  June
                    1,2005

                   

                	 	
                  $315,000

                   

                


        

        FOR
          VALUE
          RECEIVED, PACIFICAP ENTERTAINMENT HOLDINGS, INC., a Nevada corporation
          (hereinafter called the “Borrower”), hereby promises to pay to the order of AJW
          OFFSHORE, LTD. or registered assigns (the “Holder”) the sum of Three Hundred
          Fifteen Thousand Dollars ($315,000), on June 1, 2008 (the “Maturity Date”), and
          to pay interest on the unpaid principal balance hereof at the rate of ten
          percent (10%) per annum from June 1, 2005 (the “Issue
          Date”)
          until
          the same becomes due and payable, whether at maturity or upon acceleration
          or by
          prepayment or otherwise. Any amount of principal or interest on this Note
          which
          is not paid when due shall bear interest at the rate of fifteen percent
          (15%)
          per annum from the due date thereof until the same is paid (“Default
          Interest”).
          Interest shall commence accruing on the issue date, shall be computed on
          the
          basis of a 365-day year and the actual number of days elapsed and shall
          be
          payable, quarterly on March 31, June 30, September 30 and December 31
          of each year beginning on December 31, 2004. All payments due hereunder
          (to the
          extent not converted into common stock, $.001 par value per share, of the
          Borrower (the “Common
          Stock”)
          in
          accordance with the terms hereof) shall be made in lawful money of the
          United
          States of America. All payments shall be made at such address as the Holder
          shall hereafter give to the Borrower by written notice made in accordance
          with
          the provisions of this Note. Whenever any amount expressed to be due by
          the
          terms of this Note is due on any day which is not a business day, the same
          shall
          instead be due on the next succeeding day which is a business day and,
          in the
          case of any interest payment date which is not the date on which this Note
          is
          paid in full, the extension of the due date thereof shall not be taken
          into
          account for purposes of determining the amount of interest due on such
          date. As
          used in this Note, the term “business day” shall mean any day other than a
          Saturday, Sunday or a day on which commercial banks in the city of New
          York, New
          York are authorized or required by law or executive order to remain
          closed. Each capitalized term used herein, and not otherwise defined, shall
          have
          the meaning
          ascribed thereto in that certain Securities Purchase Agreement, dated December
          17, 2004,
          pursuant to which this Note was originally issued (the “Purchase
          Agreement”). 

         


        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        


        This
          Note
          is free from all taxes, liens, claims and encumbrances with respect to
          the issue
          thereof and shall not be subject to preemptive rights or other similar
          rights of
          stockholders of the Borrower and will not impose personal liability upon
          the
          holder thereof. The obligations of the Borrower under this Note shall be
          secured
          by that certain Security Agreement and that certain Intellectual Property
          Security Agreement by and between the Borrower and the Holder, each dated
          December 17, 2004.

         

        The
          following terms shall apply to this Note:

         

         

        ARTICLE
          I.  CONVERSION
          RIGHTS

         

        1.1  Conversion
          Right.
          The
          Holder shall have the right from time to time, and at any time on or prior
          to
          the earlier of (i) the Maturity Date and (ii) the date of payment of the
          Default
          Amount (as defined in Article III) pursuant to Section 1.6(a) or Article
          III,
          the Optional Prepayment Amount (as defined in Section 5.1 or any payments
          pursuant to Section 1.7, each in respect of the remaining outstanding principal
          amount of this Note to convert all or any part of the outstanding and unpaid
          principal amount of this Note into fully paid and non-assessable shares
          of
          Common Stock, as such Common Stock exists on the Issue Date, or any shares
          of
          capital stock or other securities of the Borrower into which such Common
          Stock
          shall hereafter be changed or reclassified at the conversion price (the
          “Conversion
          Price”)
          determined as provided herein (a “Conversion”);
          provided,
          however,
          that in
          no event shall the Holder be entitled to convert any portion of this Note
          in
          excess of that portion of this Note upon conversion of which the sum of
          (1) the
          number of shares of Common Stock beneficially owned by the Holder and its
          affiliates (other than shares of Common Stock which may be deemed beneficially
          owned through the ownership of the unconverted portion of the Notes or
          the
          unexercised or unconverted portion of any other security of the Borrower
          (including, without limitation, the warrants issued by the Borrower pursuant
          to
          the Purchase Agreement) subject to a limitation on conversion or exercise
          analogous to the limitations contained herein) and (2) the number of shares
          of
          Common Stock issuable upon the conversion of the portion of this Note with
          respect to which the determination of this proviso is being made, would
          result
          in beneficial ownership by the Holder and its affiliates of more than 4.9%
          of
          the outstanding shares of Common Stock. For purposes of the proviso to
          the
          immediately preceding sentence, beneficial ownership shall be determined
          in
          accordance with Section 13(d) of the Securities Exchange Act of 1934, as
          amended, and Regulations 13D-G thereunder, except as otherwise provided
          in
          clause (1) of such proviso. The number of shares of Common Stock to be
          issued
          upon each conversion of this Note shall be determined by dividing the Conversion
          Amount (as defined below) by the applicable Conversion Price then in effect
          on
          the date specified in the notice of conversion, in the form attached hereto
          as
          Exhibit A (the “Notice
          of Conversion”),
          delivered to the Borrower by the Holder in accordance with Section 1.4
          below;
          provided that the Notice of Conversion is submitted by facsimile (or by
          other
          means resulting in, or reasonably expected to result in, notice) to the
          Borrower
          before 6:00 p.m., New York, New York time on such conversion date (the
          “Conversion
          Date”).
          The
          term “Conversion
          Amount”
means,
          with respect to any conversion of this Note, the sum of (1) the principal
          amount
          of this Note to be converted in such conversion plus
          (2)
          accrued and unpaid interest, if any, on such principal amount at the interest
          rates provided in this Note to the Conversion Date plus
          (3)
          Default Interest, if any, on the amounts referred to in the immediately
          preceding clauses (1) and/or (2) plus
          (4) at
          the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and
          1.4(g) hereof or pursuant to Section 2(c) of that certain Registration
          Rights
          Agreement, dated as of December 17, 2004, executed in connection with the
          initial issuance of this Note and the other Notes issued on the Issue Date
          (the
“Registration
          Rights Agreement”).

         


        
          
            
            

          

          
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        1.2  Conversion
          Price.

         

        (a)  Calculation
          of Conversion Price.
          The
          Conversion Price shall be the lesser of (i) the Variable Conversion Price
          (as
          defined herein) and (ii) the Fixed Conversion Price (as defined herein)
          (subject, in each case, to equitable adjustments for stock splits, stock
          dividends or rights offerings by the Borrower relating to the Borrower’s
          securities or the securities of any subsidiary of the Borrower, combinations,
          recapitalization, reclassifications, extraordinary distributions and similar
          events). The “Variable
          Conversion Price”
shall
          mean the Applicable Percentage (as defined herein) multiplied by the Market
          Price (as defined herein). “Market
          Price”
means
          the average of the lowest three (3) Trading Prices (as defined below) for
          the
          Common Stock during the twenty (20) Trading Day period ending one Trading
          Day
          prior to the date the Conversion Notice is sent by the Holder to the Borrower
          via facsimile (the “Conversion
          Date”).
          “Trading
          Price”
means,
          for any security as of any date, the intraday trading price on the
          Over-the-Counter Bulletin Board (the “OTCBB”)
          as
          reported by a reliable reporting service mutually acceptable to and hereafter
          designated by Holders of a majority in interest of the Notes and the Borrower
          or, if the OTCBB is not the principal trading market for such security,
          the
          intraday trading price of such security on the principal securities exchange
          or
          trading market where such security is listed or traded or, if no intraday
          trading price of such security is available in any of the foregoing manners,
          the
          average of the intraday trading prices of any market makers for such security
          that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If
          the Trading Price cannot be calculated for such security on such date in
          the
          manner provided above, the Trading Price shall be the fair market value
          as
          mutually determined by the Borrower and the holders of a majority in interest
          of
          the Notes being converted for which the calculation of the Trading Price
          is
          required in order to determine the Conversion Price of such Notes. “Trading
          Day”
shall
          mean any day on which the Common Stock is traded for any period on the
          OTCBB, or
          on the principal securities exchange or other securities market on which
          the
          Common Stock is then being traded. “Applicable
          Percentage”
shall
          mean 60.0%. The “Fixed
          Conversion Price”
shall
          mean $.02.

         

        (b)  Conversion
          Price During Major Announcements.
          Notwithstanding
          anything contained in Section 1.2(a) to the contrary, in the event the
          Borrower
          (i) makes a public announcement that it intends to consolidate or merge
          with any
          other corporation (other than a merger in which the Borrower is the surviving
          or
          continuing corporation and its capital stock is unchanged) or sell or transfer
          all or substantially all of the assets of the Borrower or (ii) any person,
          group
          or entity (including the Borrower) publicly announces a tender offer to
          purchase
          50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the
          date of the announcement referred to in clause (i) or (ii) is hereinafter
          referred to as the “Announcement
          Date”),
          then
          the
          Conversion Price shall,
          effective upon
          the
          Announcement Date and continuing through the Adjusted Conversion
          Price
          Termination Date (as defined below), be equal to the lower of (x) the Conversion
          Price which would have been applicable for a Conversion occurring on the
          Announcement Date and (y) the Conversion Price that would otherwise be
          in
          effect. From and after the Adjusted Conversion Price Termination Date,
          the
          Conversion Price shall be determined as set forth in this Section 1.2(a).
          For
          purposes hereof, “Adjusted
          Conversion Price Termination Date”
shall
          mean, with respect to any proposed transaction or tender offer (or takeover
          scheme) for which a public announcement as contemplated by this Section
          1.2(b)
          has been made, the date upon which the Borrower (in the case of clause
          (i)
          above) or the person, group or entity (in the case of clause (ii) above)
          consummates or publicly announces the termination or abandonment of the
          proposed
          transaction or tender offer (or takeover scheme) which caused this Section
          1.2(b) to become operative.

         


        
          
            
            

          

          
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        1.3  Authorized
          Shares.
          Subject
          to the Stockholder Approval, the Borrower covenants that during the period
          the
          conversion right exists, the Borrower will reserve from its authorized
          and
          unissued Common Stock a sufficient number of shares, free from preemptive
          rights, to provide for the issuance of Common Stock upon the full conversion
          of
          this Note and the other Notes issued pursuant to the Purchase Agreement.
          The
          Borrower is required at all times to have authorized and reserved two (2)
          times
          the number of shares that is actually issuable upon full conversion of
          the Notes
          (based on the Conversion Price of the Notes or the Exercise Price of the
          Warrants in effect from time to time) (the “Reserved
          Amount”).
          The
          Reserved Amount shall be increased from time to time in accordance with
          the
          Borrower’s obligations pursuant to Section 4(h) of the Purchase Agreement. The
          Borrower represents that upon issuance, such shares will be duly and validly
          issued, fully paid and non-assessable. In addition, if the Borrower shall
          issue
          any securities or make any change to its capital structure which would
          change
          the number of shares of Common Stock into which the Notes shall be convertible
          at the then current Conversion Price, the Borrower shall at the same time
          make
          proper provision so that thereafter there shall be a sufficient number
          of shares
          of Common Stock authorized and reserved, free from preemptive rights, for
          conversion of the outstanding Notes. The Borrower (i) acknowledges that
          it has
          irrevocably instructed its transfer agent to issue certificates for the
          Common
          Stock issuable upon conversion of this Note, and (ii) agrees that its
          issuance of this Note shall constitute full authority to its officers and
          agents
          who are charged with the duty of executing stock certificates to execute
          and
          issue the necessary certificates for shares of Common Stock in accordance
          with
          the terms and conditions of this Note.

         

        If,
          at
          any time a Holder of this Note submits a Notice of Conversion, and the
          Borrower
          does not have sufficient authorized but unissued shares of Common Stock
          available to effect such conversion in accordance with the provisions of
          this
          Article I (a “Conversion
          Default”),
          subject to Section 4.8, the Borrower shall issue to the Holder all of the
          shares
          of Common Stock which are then available to effect such conversion. The
          portion
          of this Note which the Holder included in its Conversion Notice and which
          exceeds the amount which is then convertible into available shares of Common
          Stock (the “Excess
          Amount”)
          shall,
          notwithstanding anything to the contrary contained herein, not be convertible
          into Common Stock in accordance with the terms hereof until (and at the
          Holder’s
          option at any time after) the date additional shares of Common Stock are
          authorized by the Borrower to permit such conversion, at which time the
          Conversion Price in respect thereof shall be the lesser of (i) the Conversion
          Price on the Conversion Default Date (as defined below) and (ii) the Conversion
          Price on the Conversion Date thereafter elected by the Holder in respect
          thereof. In addition, the Borrower shall pay to the Holder payments
          (“Conversion
          Default Payments”)
          for a
          Conversion Default in the amount of (x) the sum
          of
          (1) the
          then outstanding principal amount of this Note plus
          (2)
          accrued and unpaid interest on the unpaid principal amount of this Note
          through
          the Authorization Date (as defined below) plus
          (3)
          Default Interest, if any, on the amounts referred to in clauses (1) and/or
          (2),
multiplied
          by
          (y) .24,
multiplied
          by
          (z)
          (N/365), where N = the number of days from the day the holder submits a
          Notice
          of Conversion giving rise to a Conversion Default (the “Conversion
          Default Date”)
          to the
          date (the “Authorization
          Date”)
          that
          the Borrower authorizes a sufficient number of shares of Common Stock to
          effect
          conversion of the full outstanding principal balance of this Note. The
          Borrower
          shall use its best efforts to authorize a sufficient number of shares of
          Common
          Stock as soon as practicable following the earlier of (i) such time that
          the
          Holder notifies the Borrower or that the Borrower otherwise becomes aware
          that
          there are or likely will be insufficient authorized and unissued shares
          to allow
          full conversion thereof and (ii) a Conversion Default. The Borrower shall
          send
          notice to the Holder of the authorization of additional shares of Common
          Stock,
          the Authorization Date and the amount of Holder’s accrued Conversion Default
          Payments. 


        


         

        The
          accrued Conversion Default Payments for each calendar month shall be paid
          in
          cash or shall be convertible into Common Stock (at such time as there are
          sufficient authorized shares of Common Stock) at the applicable Conversion
          Price, at the Borrower’s option, as follows:

         

        (a)  In
          the
          event Holder elects to take such payment in cash, cash payment shall be
          made to
          Holder by the fifth (5th)
          day of
          the month following the month in which it has accrued; and

         

        (b)  In
          the
          event Holder elects to take such payment in Common Stock, the Holder may
          convert
          such payment amount into Common Stock at the Conversion Price (as in effect
          at
          the time of conversion) at any time after the fifth day of the month following
          the month in which it has accrued in accordance with the terms of this
          Article I
          (so long as there is then a sufficient number of authorized shares of Common
          Stock).

         

        The
          Holder’s election shall be made in writing to the Borrower at any time prior to
          6:00 p.m., New York, New York time, on the third day of the month following
          the
          month in which Conversion Default payments have accrued. If no election
          is made,
          the Holder shall be deemed to have elected to receive cash. Nothing herein
          shall
          limit the Holder’s right to pursue actual damages (to the extent in excess of
          the Conversion Default Payments) for the Borrower’s failure to maintain a
          sufficient number of authorized shares of Common Stock, and each holder
          shall
          have the right to pursue all remedies available at law or in equity (including
          degree of specific performance and/or injunctive relief).

         

        
          
            
            

          

          
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        1.4  Method
          of Conversion.

         

        (a)  Mechanics
          of Conversion.
          Subject
          to Section 1.1, this Note may be converted by the Holder in whole or in
          part at
          any time from time to time after the Issue Date, by (A) submitting to the
Borrower
          a Notice
          of Conversion (by facsimile or other reasonable means of communication
          dispatched on the Conversion Date prior to 6:00 p.m., New York, New York
          time)
          and (B) subject to Section 1.4(b), surrendering this Note at the principal
          office of the Borrower. 

         

        


         

        (b)  Surrender
          of Note Upon Conversion.
          Notwithstanding
          anything to the contrary set forth herein, upon conversion of this Note
          in
          accordance with the terms hereof, the Holder shall not be required to physically
          surrender this Note to the Borrower unless the entire unpaid principal
          amount of
          this Note is so converted. The Holder and the Borrower shall maintain records
          showing the principal amount so converted and the dates of such conversions
          or
          shall use such other method, reasonably satisfactory to the Holder and
          the
          Borrower, so as not to require physical surrender of this Note upon each
          such
          conversion. In the event of any dispute or discrepancy, such records of
          the
          Borrower shall be controlling and determinative in the absence of manifest
          error. Notwithstanding the foregoing, if any portion of this Note is converted
          as aforesaid, the Holder may not transfer this Note unless the Holder first
          physically surrenders this Note to the Borrower, whereupon the Borrower
          will
          forthwith issue and deliver upon the order of the Holder a new Note of
          like
          tenor, registered as the Holder (upon payment by the Holder of any applicable
          transfer taxes) may request, representing in the aggregate the remaining
          unpaid
          principal amount of this Note. The Holder and any assignee, by acceptance
          of
          this Note, acknowledge and agree that, by reason of the provisions of this
          paragraph, following conversion of a portion of this Note, the unpaid and
          unconverted principal amount of this Note represented by this Note may
          be less
          than the amount stated on the face hereof,

         

        


         

        (c)  Payment
          of Taxes.
          The
          Borrower shall not be required to pay any tax which may be payable in respect
          of
          any transfer involved in the issue and delivery of shares of Common Stock
          or
          other securities or property on conversion of this Note in a name other
          than
          that of the Holder (or in street name), and the Borrower shall not be required
          to issue or deliver any such shares or other securities or property unless
          and
          until the person or persons (other than the Holder or the custodian in
          whose
          street name such shares are to be held for the Holder’s account) requesting the
          issuance thereof shall have paid to the Borrower the amount of any such
          tax or
          shall have established to the satisfaction of the Borrower that such tax
          has
          been paid.

         

        (d)  Delivery
          of Common Stock Upon Conversion.
          Upon
          receipt by the Borrower from the Holder of a facsimile transmission (or
          other
          reasonable means of communication) of a Notice of Conversion meeting the
          requirements for conversion as provided in this Section 1.4, the Borrower
          shall
          issue and deliver or cause to be issued and delivered to or upon the order
          of
          the Holder certificates for the Common Stock issuable upon such conversion
          within two (2) business days after such receipt (and, solely in the case
          of
          conversion of the entire unpaid principal amount hereof, surrender of this
          Note)
          (such second business day being hereinafter referred to as the “Deadline”)
          in
          accordance with the terms hereof and the Purchase Agreement (including,
          without
          limitation, in accordance with the requirements of Section 2(g) of the
          Purchase
          Agreement that certificates for shares of Common Stock issued on or after
          the
          effective date of the Registration Statement upon conversion of this Note
          shall
          not bear any restrictive legend).

         

        (e)  Obligation
          of Borrower to Deliver Common Stock.
          Upon
          receipt by the Borrower of a Notice of Conversion, the Holder shall be
          deemed to
          be the holder of record of the Common Stock issuable upon such conversion,
          the
          outstanding principal amount and the amount of accrued and unpaid interest
          on
          this Note shall be reduced to reflect such conversion, and, unless the
          Borrower
          defaults on its obligations under this Article I, all rights with respect
          to the
          portion of this Note being so converted shall forthwith terminate except
          the
right
          to
          receive the Common Stock or other securities, cash or other assets, as
          herein
          provided, on such conversion. If the Holder shall have given a Notice of
          Conversion as provided herein, the Borrower’s obligation to issue and deliver
          the certificates for Common Stock shall be absolute and unconditional,
          irrespective of the absence of any action by the Holder to enforce the
          same, any
          waiver or consent with respect to any provision thereof, the recovery of
          any
          judgment against any person or any action to enforce the same, any failure
          or
          delay in the enforcement of any other obligation of the Borrower to the
          holder
          of record, or any setoff, counterclaim, recoupment, limitation or termination,
          or any breach or alleged breach by the Holder of any obligation to the
          Borrower,
          and irrespective of any other circumstance which might otherwise limit
          such
          obligation of the Borrower to the Holder in connection with such conversion.
          The
          Conversion Date specified in the Notice of Conversion shall be the Conversion
          Date so long as the Notice of Conversion is received by the Borrower before
          6:00
          p.m., New York, New York time, on such date.

         


        
          
            
            

          

          
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        (f)  Delivery
          of Common Stock by Electronic Transfer.
          In
          lieu
          of delivering physical certificates representing the Common Stock issuable
          upon
          conversion, provided the Borrower’s transfer agent is participating in the
          Depository Trust Company (“DTC”)
          Fast
          Automated Securities Transfer (“FAST”)
          program, upon request of the Holder and its compliance with the provisions
          contained in Section 1.1 and in this Section 1.4, the Borrower shall use
          its
          best efforts to cause its transfer agent to electronically transmit the
          Common
          Stock issuable upon conversion to the Holder by crediting the account of
          Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission
          (“DWAC”)
          system.

         

        (g)  Failure
          to Deliver Common Stock Prior to Deadline.
          Without
          in any way limiting the Holder’s right to pursue other remedies, including
          actual damages and/or equitable relief, the parties agree that if delivery
          of
          the Common Stock issuable upon conversion of this Note is more than two
          (2) days
          after the Deadline (other than a failure due to the circumstances described
          in
          Section 1.3 above, which failure shall be governed by such Section) the
          Borrower
          shall pay to the Holder $2,000 per day in cash, for each day beyond the
          Deadline
          that the Borrower fails to deliver such Common Stock. Such cash amount
          shall be
          paid to Holder by the fifth day of the month following the month in which
          it has
          accrued or, at the option of the Holder (by written notice to the Borrower
          by
          the first day of the month following the month in which it has accrued),
          shall
          be added to the principal amount of this Note, in which event interest
          shall
          accrue thereon in accordance with the terms of this Note and such additional
          principal amount shall be convertible into Common Stock in accordance with
          the
          terms of this Note.

         

        1.5  Concerning
          the Shares.
          The
          shares of Common Stock issuable upon conversion of this Note may not be
          sold or
          transferred unless (i) such shares are sold pursuant to an effective
          registration statement under the Act or (ii) the Borrower or its transfer
          agent
          shall have been furnished with an opinion of counsel (which opinion shall
          be in
          form, substance and scope customary for opinions of counsel in comparable
          transactions) to the effect that the shares to be sold or transferred may
          be
          sold or transferred pursuant to an exemption from such registration or
          (iii) such shares are sold or transferred pursuant to Rule 144 under the
          Act (or a successor rule) (“Rule
          144”)
          or
          (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of
          the Borrower who agrees to sell or otherwise transfer the shares only in
          accordance with this Section 1.5 and who is an Accredited Investor (as
          defined
          in the Purchase Agreement). Except as otherwise provided in the Purchase
          Agreement (and subject to the removal provisions set forth below), until
          such
          time as the shares of Common Stock issuable upon conversion of this Note
          have
          been registered under the Act as contemplated by the Registration Rights
          Agreement or otherwise may be sold pursuant to Rule 144 without any restriction
          as to the number of securities as of a particular date that can then be
          immediately sold, each certificate for shares of Common Stock issuable
          upon
          conversion of this Note that has not been so included in an effective
          registration statement or that has not been sold pursuant to an effective
          registration statement or an exemption that permits removal of the legend,
          shall
          bear a legend substantially in the following form, as appropriate:

         


        
          
            
            

          

          
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        “THE
          SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
          THE
          SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED
          OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
          SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
          AND SCOPE
          CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION
          IS NOT REQUIRED UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION
          S
          UNDER SAID ACT.”

         

        The
          legend set forth above shall be removed and the Borrower shall issue to
          the
          Holder a new certificate therefor free of any transfer legend if (i) the
          Borrower or its transfer agent shall have received an opinion of counsel,
          in
          form, substance and scope customary for opinions of counsel in comparable
          transactions, to the effect that a public sale or transfer of such Common
          Stock
          may be made without registration under the Act and the shares are so sold
          or
          transferred, (ii) such Holder provides the Borrower or its transfer agent
          with
          reasonable assurances that the Common Stock issuable upon conversion of
          this
          Note (to the extent such securities are deemed to have been acquired on
          the same
          date) can be sold pursuant to Rule 144 or (iii) in the case of the Common
          Stock
          issuable upon conversion of this Note, such security is registered for
          sale by
          the Holder under an effective registration statement filed under the Act
          or
          otherwise may be sold pursuant to Rule 144 without any restriction as to
          the
          number of securities as of a particular date that can then be immediately
          sold.
          Nothing in this Note shall (i) limit the Borrower’s obligation under the
          Registration Rights Agreement or (ii) affect in any way the Holder’s obligations
          to comply with applicable prospectus delivery requirements upon the resale
          of
          the securities referred to herein.

         

        1.6  Effect
          of Certain Events.

         

        (a)  Effect
          of Merger, Consolidation, Etc.
          At the
          option of the Holder, the sale, conveyance or disposition of all or
          substantially all of the assets of the Borrower, the effectuation by the
          Borrower of a transaction or series of related transactions in which more
          than
          50% of the voting power of the Borrower is disposed of, or the consolidation,
          merger or other business combination of the Borrower with or into any other
          Person (as defined below) or Persons when the Borrower is not the survivor
          shall
          either: (i) be deemed to be an Event of Default (as defined in Article
          III)
          pursuant to which the Borrower shall be required to pay to the Holder upon
          the
          consummation of and as a condition to such transaction an amount equal
          to the
          Default Amount (as defined in Article III) or (ii) be treated pursuant
          to
          Section 1.6(b) hereof. “Person”
shall
          mean any individual, corporation, limited liability company, partnership,
          association, trust or other entity or organization.

         


        
          
            
            

          

          
            -7-

            
              

            

          

          
            
            

          

        


        


         

        (b)  Adjustment
          Due to Merger, Consolidation, Etc.
          If,
          at
          any time when this Note is issued and outstanding and prior to conversion
          of all
          of the Notes, there shall be any merger, consolidation, exchange of shares,
          recapitalization, reorganization, or other similar event, as a result of
          which
          shares of Common Stock of the Borrower shall be changed into the same or
          a
          different number of shares of another class or classes of stock or securities
          of
          the Borrower or another entity, or in case of any sale or conveyance of
          all or
          substantially all of the assets of the Borrower other than in connection
          with a
          plan of complete liquidation of the Borrower, then the Holder of this Note
          shall
          thereafter have the right to receive upon conversion of this Note, upon
          the
          basis and upon the terms and conditions specified herein and in lieu of
          the
          shares of Common Stock immediately theretofore issuable upon conversion,
          such
          stock, securities or assets which the Holder would have been entitled to
          receive
          in such transaction had this Note been converted in full immediately prior
          to
          such transaction (without regard to any limitations on conversion set forth
          herein), and in any such case appropriate provisions shall be made with
          respect
          to the rights and interests of the Holder of this Note to the end that
          the
          provisions hereof (including, without limitation, provisions for adjustment
          of
          the Conversion Price and of the number of shares issuable upon conversion
          of the
          Note) shall thereafter be applicable, as nearly as may be practicable in
          relation to any securities or assets thereafter deliverable upon the conversion
          hereof. The Borrower shall not effect any transaction described in this
          Section
          1.6(b) unless (a) it first gives, to the extent practicable, thirty (30)
          days
          prior written notice (but in any event at least fifteen (15) days prior
          written
          notice) of the record date of the special meeting of shareholders to approve,
          or
          if there is no such record date, the consummation of, such merger,
          consolidation, exchange of shares, recapitalization, reorganization or
          other
          similar event or sale of assets (during which time the Holder shall be
          entitled
          to convert this Note) and (b) the resulting successor or acquiring entity
          (if
          not the Borrower) assumes by written instrument the obligations of this
          Section
          1.6(b). The above provisions shall similarly apply to successive consolidations,
          mergers, sales, transfers or share exchanges.

         

        (c)  Adjustment
          Due to Distribution.
          If
          the
          Borrower shall declare or make any distribution of its assets (or rights
          to
          acquire its assets) to holders of Common Stock as a dividend, stock repurchase,
          by way of return of capital or otherwise (including any dividend or distribution
          to the Borrower’s shareholders in cash or shares (or rights to acquire shares)
          of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”),
          then
          the Holder of this Note shall be entitled, upon any conversion of this
          Note
          after the date of record for determining shareholders entitled to such
          Distribution, to receive the amount of such assets which would have been
          payable
          to the Holder with respect to the shares of Common Stock issuable upon
          such
          conversion had such Holder been the holder of such shares of Common Stock
          on the
          record date for the determination of shareholders entitled to such
          Distribution.

         

        (d)  Adjustment
          Due to Dilutive Issuance.
          If, at
          any time when any Notes are issued and outstanding, the Borrower issues
          or
          sells, or in accordance with this Section 1.6(d) hereof is deemed to have
          issued
          or sold, any shares of Common Stock for no consideration or for a consideration
          per share (before deduction of reasonable expenses or commissions or
          underwriting discounts or allowances in connection therewith) less than
          the
          Fixed Conversion Price in effect on the date of such issuance (or deemed
          issuance) of such shares of Common Stock (a “Dilutive
          Issuance”),
          then
          immediately upon the Dilutive Issuance, the Fixed Conversion Price will
          be
          reduced to the amount of the consideration per share received by the Borrower
          in
          such Dilutive Issuance; provided
          that
          only one adjustment will be made for each Dilutive Issuance.

         


        
          
            
            

          

          
            -8-

            
              

            

          

          
            
            

          

        


        


         

        The
          Borrower shall be deemed to have issued or sold shares of Common Stock
          if the
          Borrower in any manner issues or grants any warrants, rights or options,
          whether
          or not immediately exercisable, to subscribe for or to purchase Common
          Stock or
          other securities convertible into or exchangeable for Common Stock
          (“Convertible
          Securities”)
          (such
          warrants, rights and options to purchase Common Stock or Convertible Securities
          are hereinafter referred to as “Options”)
          and
          the price per share for which Common Stock is issuable upon the exercise
          of such
          Options is less than the Fixed Conversion Price then in effect, then the
          Fixed
          Conversion Price shall be equal to such price per share. For purposes of
          the
          preceding sentence, the “price per share for which Common Stock is issuable upon
          the exercise of such Options” is determined by dividing (i) the total amount, if
          any, received or receivable by the Borrower as consideration for the issuance
          or
          granting of all such Options, plus the minimum aggregate amount of additional
          consideration, if any, payable to the Borrower upon the exercise of all
          such
          Options, plus, in the case of Convertible Securities issuable upon the
          exercise
          of such Options, the minimum aggregate amount of additional consideration
          payable upon the conversion or exchange thereof at the time such Convertible
          Securities first become convertible or exchangeable, by (ii) the maximum
          total
          number of shares of Common Stock issuable upon the exercise of all such
          Options
          (assuming full conversion of Convertible Securities, if applicable). No
          further
          adjustment to the Conversion Price will be made upon the actual issuance
          of such
          Common Stock upon the exercise of such Options or upon the conversion or
          exchange of Convertible Securities issuable upon exercise of such
          Options.

         

        Additionally,
          the Borrower shall be deemed to have issued or sold shares of Common Stock
          if
          the Borrower in any manner issues or sells any Convertible Securities,
          whether
          or not immediately convertible (other than where the same are issuable
          upon the
          exercise of Options), and the price per share for which Common Stock is
          issuable
          upon such conversion or exchange is less than the Fixed Conversion Price
          then in
          effect, then the Fixed Conversion Price shall be equal to such price per
          share.
          For the purposes of the preceding sentence, the “price per share for which
          Common Stock is issuable upon such conversion or exchange” is determined by
          dividing (i) the total amount, if any, received or receivable by the Borrower
          as
          consideration for the issuance or sale of all such Convertible Securities,
          plus
          the minimum aggregate amount of additional consideration, if any, payable
          to the
          Borrower upon the conversion or exchange thereof at the time such Convertible
          Securities first become convertible or exchangeable, by (ii) the maximum
          total
          number of shares of Common Stock issuable upon the conversion or exchange
          of all
          such Convertible Securities. No further adjustment to the Fixed Conversion
          Price
          will be made upon the actual issuance of such Common Stock upon conversion
          or
          exchange of such Convertible Securities.

         

        (e)  Purchase
          Rights.
          If,
          at
          any time when any Notes are issued and outstanding, the Borrower issues
          any
          convertible securities or rights to purchase stock, warrants, securities
          or
          other property (the “Purchase
          Rights”)
          pro
          rata to the record holders of any class of Common Stock, then
          the
          Holder of this Note will be entitled to acquire, upon the terms
          applicable to such Purchase Rights, the aggregate Purchase Rights which
          such
          Holder could have acquired if such Holder had held the number of shares
          of
          Common Stock acquirable upon complete conversion of this Note (without
          regard to
          any limitations on conversion contained herein) immediately before the
          date on
          which a record is taken for the grant, issuance or sale of such Purchase
          Rights
          or, if no such record is taken, the date as of which the record holders
          of
          Common Stock are to be determined for the grant, issue or sale of such
          Purchase
          Rights.

         


        
          
            
            

          

          
            -9-

            
              

            

          

          
            
            

          

        


        


         

        (f)  Notice
          of Adjustments.
          Upon
          the
          occurrence of each adjustment or readjustment of the Conversion Price as
          a
          result of the events described in this Section 1.6, the Borrower, at its
          expense, shall promptly compute such adjustment or readjustment and prepare
          and
          furnish to the Holder of a certificate setting forth such adjustment or
          readjustment and showing in detail the facts upon which such adjustment
          or
          readjustment is based. The Borrower shall, upon the written request at
          any time
          of the Holder, furnish to such Holder a like certificate setting forth
          (i) such
          adjustment or readjustment, (ii) the Conversion Price at the time in effect
          and
          (iii) the number of shares of Common Stock and the amount, if any, of other
          securities or property which at the time would be received upon conversion
          of
          the Note.

         

        1.7  Trading
          Market Limitations.
          Unless
          permitted by the applicable rules and regulations of the principal securities
          market on which the Common Stock is then listed or traded, in no event
          shall the
          Borrower issue upon conversion of or otherwise pursuant to this Note and
          the
          other Notes issued pursuant to the Purchase Agreement more than the maximum
          number of shares of Common Stock that the Borrower can issue pursuant to
          any
          rule of the principal United States securities market on which the Common
          Stock
          is then traded (the “Maximum
          Share Amount”),
          which
          shall be 19.99% of the total shares outstanding on the Closing Date (as
          defined
          in the Purchase Agreement), subject to equitable adjustment from time to
          time
          for stock splits, stock dividends, combinations, capital reorganizations
          and
          similar events relating to the Common Stock occurring after the date hereof.
          Once the Maximum Share Amount has been issued (the date of which is hereinafter
          referred to as the “Maximum
          Conversion Date”),
          if
          the Borrower fails to eliminate any prohibitions under applicable law or
          the
          rules or regulations of any stock exchange, interdealer quotation system
          or
          other self-regulatory organization with jurisdiction over the Borrower
          or any of
          its securities on the Borrower’s ability to issue shares of Common Stock in
          excess of the Maximum Share Amount (a “Trading
          Market Prepayment Event”),
          in
          lieu of any further right to convert this Note, and in full satisfaction
          of the
          Borrower’s obligations under this Note, the Borrower shall pay to the Holder,
          within fifteen (15) business days of the Maximum Conversion Date (the
“Trading
          Market Prepayment Date”),
          an
          amount equal to 130% times
          the
sum
          of (a)
          the then outstanding principal amount of this Note immediately following
          the
          Maximum Conversion Date, plus
          (b)
          accrued and unpaid interest on the unpaid principal amount of this Note
          to the
          Trading Market Prepayment Date, plus
          (c)
          Default Interest, if any, on the amounts referred to in clause (a) and/or
          (b)
          above, plus
          (d) any
          optional amounts that may be added thereto at the Maximum Conversion Date
          by the
          Holder in accordance with the terms hereof (the then outstanding principal
          amount of this Note immediately following the Maximum Conversion Date,
          plus
          the
          amounts referred to in clauses (b), (c) and (d) above shall collectively
          be
          referred to as the “Remaining
          Convertible Amount”).
          With
          respect to each Holder of Notes, the Maximum Share Amount shall refer to
          such
          Holder’s pro rata
          share
          thereof determined in accordance with Section 4.8 below. In the event that
          the
          sum of (x) the aggregate number of shares
          of
          Common Stock issued upon conversion of this Note and the other Notes issued
          pursuant
          to the Purchase Agreement plus
          (y) the
          aggregate number of shares of Common Stock that remain issuable upon conversion
          of this Note and the other Notes issued pursuant to the Purchase Agreement,
          represents at least one hundred percent (100%) of the Maximum Share Amount
          (the
“Triggering
          Event”),
          the
          Borrower will use its best efforts to seek and obtain Shareholder Approval
          (or
          obtain such other relief as will allow conversions hereunder in excess
          of the
          Maximum Share Amount) as soon as practicable following the Triggering Event
          and
          before the Maximum Conversion Date. As used herein, “Shareholder
          Approval”
means
          approval by the stockholders of the Borrower to authorize the issuance
          of the
          full number of shares of Common Stock which would be issuable upon full
          conversion of the then outstanding Notes but for the Maximum Share
          Amount.

         


        
          
            
            

          

          
            -10-

            
              

            

          

          
            
            

          

        


        


         

        1.8  Status
          as Stockholder.
          Upon
          submission of a Notice of Conversion by a Holder, (i) the shares covered
          thereby
          (other than the shares, if any, which cannot be issued because their issuance
          would exceed such Holder’s allocated portion of the Reserved Amount or Maximum
          Share Amount) shall be deemed converted into shares of Common Stock and
          (ii) the
          Holder’s rights as a Holder of such converted portion of this Note shall cease
          and terminate, excepting only the right to receive certificates for such
          shares
          of Common Stock and to any remedies provided herein or otherwise available
          at
          law or in equity to such Holder because of a failure by the Borrower to
          comply
          with the terms of this Note. Notwithstanding the foregoing, if a Holder
          has not
          received certificates for all shares of Common Stock prior to the tenth
          (10th)
          business day after the expiration of the Deadline with respect to a conversion
          of any portion of this Note for any reason, then (unless the Holder otherwise
          elects to retain its status as a holder of Common Stock by so notifying
          the
          Borrower) the Holder shall regain the rights of a Holder of this Note with
          respect to such unconverted portions of this Note and the Borrower shall,
          as
          soon as practicable, return such unconverted Note to the Holder or, if
          the Note
          has not been surrendered, adjust its records to reflect that such portion
          of
          this Note has not been converted. In all cases, the Holder shall retain
          all of
          its rights and remedies (including, without limitation, (i) the right to
          receive
          Conversion Default Payments pursuant to Section 1.3 to the extent required
          thereby for such Conversion Default and any subsequent Conversion Default
          and
          (ii) the right to have the Conversion Price with respect to subsequent
          conversions determined in accordance with Section 1.3) for the Borrower’s
          failure to convert this Note.

         

        


         

         

        ARTICLE
          II.  CERTAIN
          COVENANTS

         

        2.1  Distributions
          on Capital Stock.
          So long
          as the Borrower shall have any obligation under this Note, the Borrower
          shall
          not without the Holder’s written consent (a) pay, declare or set apart for such
          payment, any dividend or other distribution (whether in cash, property
          or other
          securities) on shares of capital stock other than dividends on shares of
          Common
          Stock solely in the form of additional shares of Common Stock or (b) directly
          or
          indirectly or through any subsidiary make any other payment or distribution
          in
          respect of its capital stock except for distributions pursuant to any
          shareholders’ rights plan which is approved by a majority of the Borrower’s
          disinterested directors.

         

        2.2  Restriction
          on Stock Repurchases.
          So long
          as the Borrower shall have any obligation under this Note, the Borrower
          shall
          not without the Holder’s written consent redeem, repurchase or otherwise acquire
          (whether for cash or in exchange for property or other securities or otherwise)
          in any one transaction or series of related transactions any shares of
          capital
          stock of the Borrower or any warrants, rights or options to purchase or
          acquire
          any such shares.

         

        2.3  Borrowings.
          So long
          as the Borrower shall have any obligation under this Note, the Borrower
          shall
          not, without the Holder’s written consent, create, incur, assume or suffer to
          exist any liability for borrowed money, except (a) borrowings in existence
          or
          committed on the date hereof and of which the Borrower has informed Holder
          in
          writing prior to the date hereof, (b) indebtedness to trade creditors or
          financial institutions incurred in the ordinary course of business or (c)
          borrowings, the proceeds of which shall be used to repay this Note.

         


        
          
            
            

          

          
            -11-

            
              

            

          

          
            
            

          

        


        


         

        2.4  Sale
          of Assets.
          So long
          as the Borrower shall have any obligation under this Note, the Borrower
          shall
          not, without the Holder’s written consent, sell, lease or otherwise dispose of
          any significant portion of its assets outside the ordinary course of business.
          Any consent to the disposition of any assets may be conditioned on a specified
          use of the proceeds of disposition.

         

        2.5  Advances
          and Loans.
          So long
          as the Borrower shall have any obligation under this Note, the Borrower
          shall
          not, without the Holder’s written consent, lend money, give credit or make
          advances to any person, firm, joint venture or corporation, including,
          without
          limitation, officers, directors, employees, subsidiaries and affiliates
          of the
          Borrower, except loans, credits or advances (a) in existence or committed
          on the
          date hereof and which the Borrower has informed Holder in writing prior
          to the
          date hereof, (b) made in the ordinary course of business or (c) not in
          excess of
          $50,000.

         

        2.6  Contingent
          Liabilities.
          So long
          as the Borrower shall have any obligation under this Note, the Borrower
          shall
          not, without the Holder’s written consent, assume, guarantee, endorse,
          contingently agree to purchase or otherwise become liable upon the obligation
          of
          any person, firm, partnership, joint venture or corporation, except by
          the
          endorsement of negotiable instruments for deposit or collection and except
          assumptions, guarantees, endorsements and contingencies (a) in existence
          or
          committed on the date hereof and which the Borrower has informed Holder
          in
          writing prior to the date hereof, and (b) similar transactions in the ordinary
          course of business. 

         

        


         

         

        ARTICLE
          III.  EVENTS
          OF DEFAULT

         

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

         

        3.1  Failure
          to Pay Principal or Interest.
          The
          Borrower fails to pay the principal hereof or interest thereon when due
          on this
          Note, whether at maturity, upon a Trading Market Prepayment Event pursuant
          to
          Section 1.7, upon acceleration or otherwise;

         

        3.2  Conversion
          and the Shares.
          The
          Borrower fails to issue shares of Common Stock to the Holder (or announces
          or
          threatens that it will not honor its obligation to do so) upon exercise
          by the
          Holder of the conversion rights of the Holder in accordance with the
terms
          of
          this Note (for a period of at least sixty (60) days, if such failure is
          solely
          as a result of the
          circumstances governed by Section 1.3 and the Borrower is using its best
          efforts
          to authorize a sufficient number of shares of Common Stock as soon as
          practicable), fails to transfer or cause its transfer agent to transfer
          (electronically or in certificated form) any certificate for shares of
          Common
          Stock issued to the Holder upon conversion of or otherwise pursuant to
          this Note
          as and when required by this Note or the Registration Rights Agreement,
          or fails
          to remove any restrictive legend (or to withdraw any stop transfer instructions
          in respect thereof) on any certificate for any shares of Common Stock issued
          to
          the Holder upon conversion of or otherwise pursuant to this Note as and
          when
          required by this Note or the Registration Rights Agreement (or makes any
          announcement, statement or threat that it does not intend to honor the
          obligations described in this paragraph) and any such failure shall continue
          uncured (or any announcement, statement or threat not to honor its obligations
          shall not be rescinded in writing) for ten (10) days after the Borrower
          shall
          have been notified thereof in writing by the Holder;

         


        
          
            
            

          

          
            -12-

            
              

            

          

          
            
            

          

        


        


         

        3.3  Failure
          to Timely File Registration or Effect Registration.
          The
          Borrower fails to file the Registration Statement within sixty (60) days
          following the Closing Date (as defined in the Purchase Agreement) or obtain
          effectiveness with the Securities and Exchange Commission of the Registration
          Statement within one hundred thirty-five (135) days following the Closing
          Date
          (as defined in the Purchase Agreement) or such Registration Statement lapses
          in
          effect (or sales cannot otherwise be made thereunder effective, whether
          by
          reason of the Borrower’s failure to amend or supplement the prospectus included
          therein in accordance with the Registration Rights Agreement or otherwise)
          for
          more than twenty (20) consecutive days or forty (40) days in any twelve
          (12)
          month period after the Registration Statement becomes effective;

         

        3.4  Breach
          of Covenants.
          The
          Borrower breaches any material covenant or other material term or condition
          contained in Sections 1.3, 1.6 or 1.7 of this Note, or Sections 4(c), 4(e),
          4(h), 4(i), 4(j) or 5 of the Purchase Agreement and such breach continues
          for a
          period of ten (10) days after written notice thereof to the Borrower from
          the
          Holder;

         

        3.5  Breach
          of Representations and Warranties.
          Any
          representation or warranty of the Borrower made herein or in any agreement,
          statement or certificate given in writing pursuant hereto or in connection
          herewith (including, without limitation, the Purchase Agreement and the
          Registration Rights Agreement), shall be false or misleading in any material
          respect when made and the breach of which has (or with the passage of time
          will
          have) a material adverse effect on the rights of the Holder with respect
          to this
          Note, the Purchase Agreement or the Registration Rights Agreement;

         

        


         

        3.6  Receiver
          or Trustee.
          The
          Borrower or any subsidiary of the Borrower shall make an assignment for
          the
          benefit of creditors, or apply for or consent to the appointment of a receiver
          or trustee for it or for a substantial part of its property or business,
          or such
          a receiver or trustee shall otherwise be appointed;

         

        3.7  Judgments.
          Any
          money judgment, writ or similar process shall be entered or filed against
          the
          Borrower or any subsidiary of the Borrower or any of its property or other
          assets for more than $50,000, and shall remain unvacated, unbonded or unstayed
          for a period of twenty (20) days unless otherwise consented to by the Holder,
          which consent will not be unreasonably withheld;

         

        


         

        3.8  Bankruptcy.
          Bankruptcy, insolvency, reorganization or liquidation proceedings or other
          proceedings for relief under any bankruptcy law or any law for the relief
          of
          debtors shall be instituted by or against the Borrower or any subsidiary
          of the
          Borrower;

         

        3.9  Delisting
          of Common Stock.
          The
          Borrower shall fail to maintain the listing of the Common Stock on at least
          one
          of the OTCBB or an equivalent replacement exchange, the Nasdaq National
          Market,
          the Nasdaq SmallCap Market, the New York Stock Exchange, or the American
          Stock
          Exchange; or

         


        
          
            
            

          

          
            -13-

            
              

            

          

          
            
            

          

        


        


         

        3.10  Default
          Under Other Notes.
          An Event
          of Default has occurred and is continuing under any of the other Notes
          issued
          pursuant to the Purchase Agreement, then, upon the occurrence and during
          the
          continuation of any Event of Default specified in Section 3.1, 3.2, 3.3,
          3.4,
          3.5, 3.7, 3.9, or 3.10, at the option of the Holders of a majority of the
          aggregate principal amount of the outstanding Notes issued pursuant to
          the
          Purchase Agreement exercisable through the delivery of written notice to
          the
          Borrower by such Holders (the “Default
          Notice”),
          and
          upon the occurrence of an Event of Default specified in Section 3.6 or
          3.8, the
          Notes shall become immediately due and payable and the Borrower shall pay
          to the
          Holder, in full satisfaction of its obligations hereunder, an amount equal
          to
          the greater of (i) 130% times
          the
sum
          of (w)
          the then outstanding principal amount of this Note plus
          (x)
          accrued and unpaid interest on the unpaid principal amount of this Note
          to the
          date of payment (the “Mandatory
          Prepayment Date”)
          plus
          (y)
          Default Interest, if any, on the amounts referred to in clauses (w) and/or
          (x)
plus
          (z) any
          amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
          pursuant to Section 2(c) of the Registration Rights Agreement (the then
          outstanding principal amount of this Note to the date of payment plus
          the
          amounts referred to in clauses (x), (y) and (z) shall collectively be known
          as
          the “Default
          Sum”)
          or
          (ii) the “parity value” of the Default Sum to be prepaid, where parity value
          means (a) the highest number of shares of Common Stock issuable upon conversion
          of or otherwise pursuant to such Default Sum in accordance with Article
          I,
          treating the Trading Day immediately preceding the Mandatory Prepayment
          Date as
          the “Conversion Date” for purposes of determining the lowest applicable
          Conversion Price, unless the Default Event arises as a result of a breach
          in
          respect of a specific Conversion Date in which case such Conversion Date
          shall
          be the Conversion Date), multiplied
          by
          (b) the
          highest Closing Price for the Common Stock during the period beginning
          on the
          date of first occurrence of the Event of Default and ending one day prior
          to the
          Mandatory Prepayment Date (the “Default
          Amount”)
          and
          all other amounts payable hereunder shall immediately become due and payable,
          all without demand, presentment or notice, all of which hereby are expressly
          waived, together with all costs, including, without limitation, legal fees
          and
          expenses, of collection, and the Holder shall be entitled to exercise all
          other
          rights and remedies available at law or in equity. If the Borrower fails
          to pay
          the Default Amount within five (5) business days of written notice that
          such
          amount is due and payable, then the Holder shall have the right at any
          time, so
          long as the Borrower remains in default (and so long and to the extent
          that
          there are sufficient authorized shares), to require the Borrower, upon
          written
          notice, to immediately issue, in lieu of the Default Amount, the number
          of
          shares of Common Stock of the Borrower equal to the Default Amount divided
          by
          the Conversion Price then in effect.

         

        


         

         

        ARTICLE
          IV.  MISCELLANEOUS

         

        4.1  Failure
          or Indulgence Not Waiver.
          No
          failure or delay on the part of the Holder in the exercise of any power,
          right
          or privilege hereunder shall operate as a waiver thereof, nor shall any
          single
          or partial exercise of any such power, right or privilege preclude other
          or
          further exercise thereof or of any other right, power or privileges. All
          rights
          and remedies existing hereunder are cumulative to, and not exclusive of,
          any
          rights or remedies otherwise available.

         


        
          
            
            

          

          
            -14-

            
              

            

          

          
            
            

          

        


        


         

        4.2  Notices.
          Any
          notice herein required or permitted to be given shall be in writing and
          may be
          personally served or delivered by courier or sent by United States mail
          and
          shall be deemed to have been given upon receipt if personally served (which
          shall include telephone line facsimile transmission) or sent by courier
          or three
          (3) days after being deposited in the United States mail, certified, with
          postage pre-paid and properly addressed, if sent by mail. For the purposes
          hereof, the address of the Holder shall be as shown on the records of the
          Borrower; and the address of the Borrower shall be 12268 Via Latina, Del
          Mar,
          California 92914, facsimile number: 858-481-2207. Both the Holder and the
          Borrower may change the address for service by service of written notice
          to the
          other as herein provided.

         

        4.3  Amendments.
          This
          Note and any provision hereof may only be amended by an instrument in writing
          signed by the Borrower and the Holder. The term “Note” and all reference
          thereto, as used throughout this instrument, shall mean this instrument
          (and the
          other Notes issued pursuant to the Purchase Agreement) as originally executed,
          or if later amended or supplemented, then as so amended or
          supplemented.

         

        4.4  Assignability.
          This
          Note shall be binding upon the Borrower and its successors and assigns,
          and
          shall inure to be the benefit of the Holder and its successors and assigns.
          Each
          transferee of this Note must be an “accredited investor” (as defined in Rule
          501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary,
          this Note may be pledged as collateral in connection with a bona fide
          margin
          account or other lending arrangement.

         

        4.5  Cost
          of Collection.
          If
          default is made in the payment of this Note, the Borrower shall pay the
          Holder
          hereof costs of collection, including reasonable attorneys’ fees.

         

        4.6  Governing
          Law.
          THIS
          NOTE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
          LAWS OF
          THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
          ENTIRELY
          WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
          THE
          BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES
          FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE
          ARISING
          UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR
          THE
          TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE
          THE
          DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING.
          BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED
          BY FIRST
          CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS
          UPON
          THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER
          PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH
          PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR
          PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS
          BY
          SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES
          NOT
          PREVAIL IN ANY DISPUTE ARISING UNDER THIS NOTE SHALL BE RESPONSIBLE FOR
          ALL FEES
          AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN
          CONNECTION WITH SUCH DISPUTE.

         


        
          
            
            

          

          
            -15-

            
              

            

          

          
            
            

          

        


        


         

        


         

        4.7  Certain
          Amounts.
          Whenever
          pursuant to this Note the Borrower is required to pay an amount in excess
          of the
          outstanding principal amount (or the portion thereof required to be paid
          at that
          time) plus accrued and unpaid interest plus Default Interest on such interest,
          the Borrower and the Holder agree that the actual damages to the Holder
          from the
          receipt of cash payment on this Note may be difficult to determine and
          the
          amount to be so paid by the Borrower represents stipulated damages and
          not a
          penalty and is intended to compensate the Holder in part for loss of the
          opportunity to convert this Note and to earn a return from the sale of
          shares of
          Common Stock acquired upon conversion of this Note at a price in excess
          of the
          price paid for such shares pursuant to this Note. The Borrower and the
          Holder
          hereby agree that such amount of stipulated damages is not plainly
          disproportionate to the possible loss to the Holder from the receipt of
          a cash
          payment without the opportunity to convert this Note into shares of Common
          Stock.

         

        4.8  Allocations
          of Maximum Share Amount and Reserved Amount.
          The
          Maximum Share Amount and Reserved Amount shall be allocated pro rata among
          the
          Holders of Notes based on the principal amount of such Notes issued to
          each
          Holder. Each increase to the Maximum Share Amount and Reserved Amount shall
          be
          allocated pro rata among the Holders of Notes based on the principal amount
          of
          such Notes held by each Holder at the time of the increase in the Maximum
          Share
          Amount or Reserved Amount. In the event a Holder shall sell or otherwise
          transfer any of such Holder’s Notes, each transferee shall be allocated a pro
          rata portion of such transferor’s Maximum Share Amount and Reserved Amount. Any
          portion of the Maximum Share Amount or Reserved Amount which remains allocated
          to any person or entity which does not hold any Notes shall be allocated
          to the
          remaining Holders of Notes, pro rata based on the principal amount of such
          Notes
          then held by such Holders.

         

        


         

        4.9  Damages
          Shares.
          The
          shares of Common Stock that may be issuable to the Holder pursuant to Sections
          1.3 and 1.4(g) hereof and pursuant to Section 2(c) of the Registration
          Rights
          Agreement (“Damages
          Shares”)
          shall
          be treated as Common Stock issuable upon conversion of this Note for all
          purposes hereof and shall be subject to all of the limitations and afforded
          all
          of the rights of the other shares of Common Stock issuable hereunder, including
          without limitation, the right to be included in the Registration Statement
          filed
          pursuant to the Registration Rights Agreement. For purposes of calculating
          interest payable on the outstanding principal amount hereof, except as
          otherwise
          provided herein, amounts convertible into Damages Shares (“Damages
          Amounts”)
          shall
          not bear interest but must be converted prior to the conversion of any
          outstanding principal amount hereof, until the outstanding Damages Amounts
          is
          zero.

         

        


         

        4.10  Denominations.
          At the
          request of the Holder, upon surrender of this Note, the Borrower shall
          promptly
          issue new Notes in the aggregate outstanding principal amount hereof, in
          the
          form hereof, in such denominations of at least $50,000 as the Holder shall
          request.

         


        
          
            
            

          

          
            -16-

            
              

            

          

          
            
            

          

        


        


         

        4.11  Purchase
          Agreement.
          By its
          acceptance of this Note, each Holder agrees to be bound by the applicable
          terms
          of the Purchase Agreement.

         

        


         

        4.12  Notice
          of Corporate Events.
          Except
          as otherwise provided below, the Holder of this Note shall have no rights
          as a
          Holder of Common Stock unless and only to the extent that it converts this
          Note
          into Common Stock. The Borrower shall provide the Holder with prior notification
          of any meeting of the Borrower’s shareholders (and copies of proxy materials and
          other information sent to shareholders). In the event of any taking by
          the
          Borrower of a record of its shareholders for the purpose of determining
          shareholders who are entitled to receive payment of any dividend or other
          distribution, any right to subscribe for, purchase or otherwise acquire
          (including by way of merger, consolidation, reclassification or
          recapitalization) any share of any class or any other securities or property,
          or
          to receive any other right, or for the purpose of determining shareholders
          who
          are entitled to vote in connection with any proposed sale, lease or conveyance
          of all or substantially all of the assets of the Borrower or any proposed
          liquidation, dissolution or winding up of the Borrower, the Borrower shall
          mail
          a notice to the Holder, at least twenty (20) days prior to the record date
          specified therein (or thirty (30) days prior to the consummation of the
          transaction or event, whichever is earlier), of the date on which any such
          record is to be taken for the purpose of such dividend, distribution, right
          or
          other event, and a brief statement regarding the amount and character of
          such
          dividend, distribution, right or other event to the extent known at such
          time.
          The Borrower shall make a public announcement of any event requiring
          notification to the Holder hereunder substantially simultaneously with
          the
          notification to the Holder in accordance with the terms of this Section
          4.12.

         

        


         

        4.13  Remedies.
          The
          Borrower acknowledges that a breach by it of its obligations hereunder
          will
          cause irreparable harm to the Holder, by vitiating the intent and purpose
          of the
          transaction contemplated hereby. Accordingly, the Borrower acknowledges
          that the
          remedy at law for a breach of its obligations under this Note will be inadequate
          and agrees, in the event of a breach or threatened breach by the Borrower
          of the
          provisions of this Note, that the Holder shall be entitled, in addition
          to all
          other available remedies at law or in equity, and in addition to the penalties
          assessable herein, to an injunction or injunctions restraining, preventing
          or
          curing any breach of this Note and to enforce specifically the terms and
          provisions thereof, without the necessity of showing economic loss and
          without
          any bond or other security being required.

         


        
          
            
            

          

          
            -17-

            
              

            

          

          
            
            

          

        


        


         

         

        ARTICLE
          V.  CALL
          OPTION

         

        5.1  Call
          Option.
          Notwithstanding anything to the contrary contained in this Article V, so
          long as
(i) no
          Event of Default or Trading Market Prepayment Event shall have occurred
          and be
          continuing, (ii) the
          Borrower has a sufficient number of authorized shares of Common Stock reserved
          for issuance upon full conversion of the Notes, then at any time afterthe
          Issue
          Date, and (iii) the
          Common Stock is trading at or below $.02 per share, the Borrower shall
          have the
          right, exercisable on not less than ten (10) Trading Days prior written
          notice
          to the Holders of the Notes (which notice may not be sent to the Holders
          of the
          Notes until the Borrower is permitted to prepay the Notes pursuant to this
          Section 5.1), to prepay all of the outstanding Notes in accordance with
          this
          Section 5.1. Any notice of prepayment hereunder (an “Optional
          Prepayment”)
          shall
          be delivered to the Holders of the Notes at their registered addresses
          appearing
          on the books and records of the Borrower and shall state (1) that the Borrower
          is exercising its right to prepay all of the Notes issued on the Issue
          Date and
          (2) the date of prepayment (the “Optional
          Prepayment Notice”).
          On
          the date fixed for prepayment (the “Optional
          Prepayment Date”),
          the
          Borrower shall make payment of the Optional Prepayment Amount (as defined
          below)
          to or upon the order of the Holders as specified by the Holders in writing
          to
          the Borrower at least one (1) business day prior to the Optional Prepayment
          Date. If the Borrower exercises its right to prepay the Notes, the Borrower
          shall make payment to the holders of an amount in cash (the “Optional
          Prepayment Amount”)
          equal
          to either (i) 130% (for prepayments occurring within thirty (30) days of
          the Issue Date), (ii) 140% for prepayments occurring between thirty-one
          (31) and sixty (60) days of the Issue Date, or (iii) 150% (for prepayments
          occurring after the sixtieth (60th)
          day
          following the Issue Date), multiplied by the sum of (w) the then outstanding
          principal amount of this Note plus
          (x) accrued and unpaid interest on the unpaid principal amount of this Note
          to the Optional Prepayment Date plus
          (y)
          Default Interest, if any, on the amounts referred to in clauses (w) and
          (x)
plus
          (z) any
          amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
          pursuant to Section 2(c) of the Registration Rights Agreement (the then
          outstanding principal amount of this Note to the date of payment plus
          the
          amounts referred to in clauses (x), (y) and (z) shall collectively be known
          as
          the “Optional
          Prepayment Sum”).
          Notwithstanding notice of an Optional Prepayment, the Holders shall at
          all times
          prior to the Optional Prepayment Date maintain the right to convert all
          or any
          portion of the Notes in accordance with Article I and any portion of Notes
          so
          converted after receipt of an Optional Prepayment Notice and prior to the
          Optional Prepayment Date set forth in such notice and payment of the aggregate
          Optional Prepayment Amount shall be deducted from the principal amount
          of Notes
          which are otherwise subject to prepayment pursuant to such notice. If the
          Borrower delivers an Optional Prepayment Notice and fails to pay the Optional
          Prepayment Amount due to the Holders of the Notes within two (2) business
          days
          following the Optional Prepayment Date, the Borrower shall forever forfeit
          its
          right to redeem the Notes pursuant to this Section 5.1.

         

        


         

        [REMAINDER
          OF PAGE INTENTIONALLY LEFT BLANK]

         

        


         


        
          
            
            

          

          
            -18-

            
              

            

          

          
            
            

          

        


                    IN
          WITNESS
          WHEREOF,
          Borrower has caused this Note to be signed in its name by its duly authorized
          officer this 1st
          day of
          June, 2005.

         

        


        PACIFICAP
          ENTERTAINMENT HOLDINGS, INC.

        


        


        


        By: /s/
          EDWARD LITWAK

        Edward
          Litwak

            President