THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933





 


 

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


Oxford, Mississippi

March 27, 2006 $38,500


FOR VALUE RECEIVED, MODERN TECHNOLOGY CORP., a
Nevada corporation (hereinafter called the "Borrower"), hereby promises
to pay to the order of AJW PARTNERS, LLC or registered assigns (the "Holder")
the sum of $38,500, on March 27, 2009 (the "Maturity Date"), and to pay
interest on the unpaid principal balance hereof at the rate of six percent (6%)
per annum from March 27, 2006 (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 provided that no interest shall be due and payable for any
month in which the Trading Price (as such term is defined below) is greater than
$.075 for each Trading Day (as such term is defined below) of the month. All
payments due hereunder (to the extent not converted into common stock, $.0001
par value per share (the "Common Stock") in accordance with the terms
hereof) shall be made in lawful money of the United States of America and shall
commence on June 30, 2006. 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 March 27,
2006, 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 shareholders 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, each dated March 27,
2006, by and between the Borrower and the Holder.

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 Preferred Shares and 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 March 27, 2006, executed
in connection with the initial issuance of this Note and the other Notes issued
on the Issue Date (the "Registration Rights Agreement").


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 Debentures 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 Debentures being converted for which the calculation of the Trading Price is
required in order to determine the Conversion Price of such Debentures. "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 50%. The "Fixed Conversion Price" shall mean $.06.


(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.


1.3 Authorized Shares. The Borrower
covenants that during the period the conversion right exists, the Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares, free from preemptive rights, to provide for the issuance of Common Stock
upon the full conversion of this Note and the other Notes issued pursuant to the
Purchase Agreement. The Borrower is required at all times to have authorized and
reserved two times the number of shares that is actually issuable upon full
conversion of the Notes (based on the Conversion Price of the Notes and
Preferred Shares 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).


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.


(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:

"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.


(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.

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.


(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 of Common Stock 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 shareholders of the Borrower to authorize the issuance of
the full number of shares of Common Stock which would be issuable upon full
conversion of the then outstanding Notes but for the Maximum Share Amount.


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


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.


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;


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 fifteen (115) 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 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


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.


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 1420 N. Lamar Boulevard, Oxford, Mississippi 38655, facsimile
number: 662-236-7663. 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.


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.


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.


 


Article V. CALL OPTION


5.1 Call Option. Notwithstanding anything
to the contrary contained in this Article V, so long as "no Event of Default or
Trading Market Prepayment Event shall have occurred and be continuing, "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 after the Issue
Date, and 'the Common Stock is trading at or below $.04 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)-125% (for
prepayments occurring within thirty (30) days of the Issue Date), (ii)-135% (for
prepayments occurring between thirty-one (31) and sixty (60) days of the Issue
Date) and (iii)-140% (for prepayments occurring on or after the sixty-first (61st)
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.


5.2 Partial Call Option. Notwithstanding
anything to the contrary contained in this Article V, in the event that the
Average Daily Price of the Common Stock, as reported by the Reporting Service,
for each day of the month ending on any Determination Date is below the Initial
Market Price, the Borrower may, at its option, prepay a portion of the
outstanding principal amount of the Notes equal to 104% of the principal amount
hereof divided by thirty-six (36) plus one month's interest. The term 
"Initial Market Price" means shall mean the volume weighted average price of
the Common Stock for the five (5) Trading Days immediately preceding the Closing
which is $.06. 



[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]




IN WITNESS WHEREOF, Borrower has caused this Note to be
signed in its name by its duly authorized officer this 27th day of
March, 2006.



MODERN TECHNOLOGY CORP.

                        
                        

                         

                         

                        
                        
                        By: ______________________________

                        
                        Anthony K. Welch

                        
                        Chief Executive Officer

                        
                        

                      
                    
                  
                
              
            
          
        
      
    
  

EXHIBIT A

NOTICE OF CONVERSION

(To be Executed by the Registered Holder

in order to Convert the Notes)

The undersigned hereby irrevocably elects to convert
$__________ principal amount of the Note (defined below) into shares of common
stock, par value $.0001 per share ("Common Stock"), of Modern Technology
Corp., a Nevada corporation (the "Borrower") according to the conditions
of the convertible Notes of the Borrower dated as of March 27, 2006 (the "Notes"),
as of the date written below. If securities are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates. No
fee will be charged to the Holder for any conversion, except for transfer taxes,
if any. A copy of each Note is attached hereto (or evidence of loss, theft or
destruction thereof).

The Borrower shall electronically transmit the Common Stock
issuable pursuant to this Notice of Conversion to the account of the undersigned
or its nominee with DTC through its Deposit Withdrawal Agent Commission system
("DWAC Transfer").

Name of DTC Prime Broker: 

  


Account Number: 


In lieu of receiving shares of Common Stock issuable pursuant
to this Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Borrower issue a certificate or certificates for the number of
shares of Common Stock set forth below (which numbers are based on the Holder's
calculation attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:

Name: 

  


Address: 


The undersigned represents and warrants that all offers and
sales by the undersigned of the securities issuable to the undersigned upon
conversion of the Notes shall be made pursuant to registration of the securities
under the Securities Act of 1933, as amended (the "Act"), or pursuant to
an exemption from registration under the Act.

Date of Conversion:___________________________

        Applicable Conversion Price:____________________

        Number of Shares of Common Stock to be Issued
        Pursuant to

        Conversion of the Notes:______________

        Signature:___________________________________

        Name:______________________________________

        Address:____________________________________

        

      
    
  

The Borrower shall issue and deliver shares of Common Stock
to an overnight courier not later than three business days following receipt of
the original Note(s) to be converted, and shall make payments pursuant to the
Notes for the number of business days such issuance and delivery is late.