under this subsection (a) if Ki Nam is the Chief Executive Officer, theMarker’s Board of Directors has authorized such payment and the Maker hasfunds to make such payment;  (b) the Maker shall have become insolvent or shallgenerally not pay its debts as they mature or shall apply for, shallconsent to, or shall acquiesce in the appointment of a custodian,trustee or receiver for the Maker or for a substantial part of theproperty thereof or, in the absence of such application, consent oracquiescence, a custodian, trustee or receiver shall be appointed forthe Maker or for a substantial part of the property thereof and suchappointment is not terminated or dismissed within thirty (30) daysafter the appointment;  (c) the liquidation, termination of existence ordissolution of the Maker;  (d) the institution against the Maker or any endorser orguarantor of this Note of any proceedings under the United StatesBankruptcy Code or any other federal or state bankruptcy,reorganization, receivership, insolvency or other similar lawaffecting the rights of creditors generally, which proceeding is notdismissed within thirty (30) days of filing; or  (e) the institution by the Maker or any endorser orguarantor of this Note of any proceedings under the United StatesBankruptcy Code or any other federal or state bankruptcy,reorganization, receivership, insolvency or other similar lawaffecting the rights of creditors generally or the making by the Makeror any endorser or guarantor of this Note of a composition or anassignment or trust mortgage for the benefit of creditors.     Upon the happening of any Event of Default, this Note shall bear interest until paid in fullat an annual rate which is two (2) percentage points above the rate per year specified in the firstparagraph of this Note. In no event shall any interest charged, collected or reserved under thisNote exceed the maximum rate then permitted by applicable law and if any such payment is paid bythe Maker, then such excess sum shall be credited by the holder as a payment of principal.     3. Conversion Right. Maker shall notify Payee whenever it conducts an EquityFinancing Offer. During the pendency of an Equity Financing Offer but prior to the earlier of (i)the closing of the securities pursuant to the Equity Financing Offer or (ii) withdrawal of suchEquity Financing Offer to the applicable offerees, the Payee shall be entitled to convert anyportion of the outstanding and unpaid Conversion Amount (as defined below) into “Units” of Maker’ssecurities at the Conversion Rate (as defined below).          (a) “Conversion Rate” means the number of Units issuable upon conversion of any ConversionAmount determined by dividing (x) such Conversion Amount by (y) the Conversion Price.          (b) “Conversion Amount” means the portion of the principal and interest of the Note to beconverted, redeemed or otherwise with respect to which this determination is being made.          (c) “Conversion Price” means $1.65 per Unit.
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          (d) “Unit” shall mean one validly issued, fully paid and non-assessable Share and Warrant topurchase one Share at $2.00 per Share.          (e) “Equity Financing Offer” means Maker’s offer to sell its Common Stock and Common StockEquivalents to potential third parties; provided that, Equity Financing Offer does not include anyoffers to employees, officers, directors, or consultants which are pursuant to a stock incentiveplan or otherwise compensatory in nature; or offers in connection with acquisitions,non-convertible loans, licenses, or other transactions in which the primary purpose is not to raisecapital for Maker.          (f) “Common Stock Equivalents” means any securities of the Maker which would entitle theholder thereof to acquire at any time Common Stock, including, without limitation, any debt,preferred stock, rights, options, warrants or other instrument that is at any time convertible intoor exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, CommonStock.     4. Mechanics of Conversion. To convert any Conversion Amount into Units on any date(a “Conversion Date”), the Payee shall (A) transmit by facsimile (or otherwise deliver), forreceipt on or prior to 5:00 p.m., Pacific Time, on such date, a copy of an executed notice ofconversion (the “Conversion Notice”) to the Maker and (B) surrender this Note to a common carrierfor delivery to the Maker as soon as practicable on or following such date (or an indemnificationundertaking with respect to this Note in the case of its loss, theft or destruction). The Makershall transmit by facsimile a confirmation of receipt of such Conversion Notice to the Payee andthe Maker’s transfer agent, (the “Transfer Agent”). The Transfer Agent shall issue and deliver tothe address as specified in the Conversion Notice, a certificate or certificates, registered in thename of the Payee or its designee, for the number of shares of Common Stock to which the Payeeshall be entitled. The Maker shall issue and deliver to the address as specified in the ConversionNotice, a certificate or certificates, registered in the name of the Payee or its designee, for thenumber of shares to which the Payee shall be entitled. If the outstanding Principal of this Noteis greater than the Principal portion of the Conversion Amount being converted, then the Makershall as soon as practicable and in no event later than ten (10) business days after receipt ofthis Note, update the Balance Schedule to reflect the new outstanding Principal. The Person orPersons entitled to receive the shares of Common Stock issuable upon a conversion of this Noteshall be treated for all purposes as the record holder or holders of such shares of Common Stock onthe Conversion Date.     5. Legend. All securities issued pursuant to the conversion shall bear a legend thatreads:THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERREDOR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIESUNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLYACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.     6 Adjustment.          (a) Capitalization Changes. If the Maker at any time on or after the date of thisNote subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or moreclasses of its outstanding shares of Common Stock into a greater number of shares, the ConversionPrice and warrant exercise price in effect immediately prior to such subdivision will beproportionately reduced. If the Maker at any time on or after the Closing Date combines (bycombination, reverse stock split or otherwise) one or more classes of its outstanding shares ofCommon Stock into a smaller number of
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shares, the Conversion Price and warrant exercise price in effect immediately prior to suchcombination will be proportionately increased.          (b) Subsequent Financings. From the date hereof until the Note is satisfied, if inconnection with an issuance of Common Stock or Common Stock Equivalents for cash consideration(“Subsequent Financing”), the Maker shall issue any Common Stock or Common Stock Equivalentsentitling any person or entity to acquire shares of Common Stock at an effective price per shareless than the Conversion Price (subject to reverse and forward stock splits and the like), theMaker shall decrease the Conversion Price with respect to the shares of Common Stock to the“Discounted Price” (as defined below). The term “Discounted Price” shall mean the ConversionPrice reduced by multiplying the then current Conversion Price by a fraction, the numerator ofwhich is the number of shares of Common Stock issued and outstanding immediately prior to theSubsequent Financing plus the number of shares of Common Stock which the offering price for suchSubsequent Financing would purchase at the then Conversion Price, and the denominator of whichshall be the sum of the number of shares of Common Stock issued and outstanding immediately priorto the Subsequent Financing plus the number of shares of Common Stock so issued or issuable inconnection with the Subsequent Financing. The sale of Common Stock Equivalents shall be deemed tohave occurred at the time of the issuance of the Common Stock Equivalents and the Discounted Pricecovered thereby shall also include the actual exercise or conversion price thereof at the time ofthe conversion or exercise (in addition to the consideration per share of Common Stock underlyingthe Common Stock Equivalents received by the Maker upon such sale or issuance of the Common StockEquivalents). Notwithstanding anything to the contrary herein, this Section not apply in respectof an “Exempt Issuance.” An “Exempt Issuance” means (a) shares of Common Stock or options toemployees, consultants, officers or directors of the Maker pursuant to any stock or option plan,(b) securities upon the exercise or exchange of or conversion of any securities exercisable orexchangeable for or convertible into shares of Common Stock issued and outstanding on the date ofthis Agreement, (c) shares issuable to institutional Payees to the Maker in connection with a loantransaction, and (d) securities issued pursuant to acquisitions or strategic transactions approvedby a majority of the disinterested directors of the Maker.     7. Set-off. All payments by the Maker under this Note shall be made without set-offor counterclaim and be free and clear and without any deduction or withholding for any taxes orfees of any nature whatever, unless the obligation to make such deduction or withholding is imposedby law. The Maker shall pay and save the holder harmless from all liabilities with respect to orresulting from any delay or omission to make any such deduction or withholding required by law.     8. Payment Priority. Whenever any amount is paid under this Note, all or part of theamount paid may be applied to principal, premium or interest in such order and manner as shall bedetermined by the Payee in its sole discretion. The Maker agrees to pay on demand all costs ofcollection, including reasonable attorneys’ fees, incurred by the Payee in enforcing theobligations of the Maker under this Note.     9. Indemnification. The Maker shall indemnify and hold the Payee harmless from andagainst any and all claims, losses and liabilities (including reasonable attorneys’ fees) growingout of or resulting from this Note and the security interest hereby created (including enforcementof this Note) or the Maker’s actions pursuant hereto, except claims, losses or liabilitiesresulting from the Payee’s gross negligence or willful misconduct. Any liability of the Maker toindemnify and hold the Payee harmless pursuant to the preceding sentence shall be part of theobligations secured by the security interest. The obligations of the Maker under this paragraphshall survive any termination of this Note.     10. Waiver. No delay or omission on the part of the holder in exercising any rightunder this Note shall operate as a waiver of such right or of any other right of such holder, norshall any delay,
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omission or waiver on any one occasion be deemed a bar to or waiver of the same or any otherright on any future occasion. The Maker and every endorser or guarantor of this Note regardless ofthe time, order or place of signing waives presentment, demand, protest and notices of every kindand assents to any extension or postponement of the time of payment or any other indulgence, to anysubstitution, exchange or release of collateral, and to the addition or release of any other partyor person primarily or secondarily liable.     11. Prepayment. This Note may, at the option of the Maker, be prepaid in whole or inpart at any time or from time to time, without premium or penalty.     12. Amendment. None of the terms or provisions of this Note may be excluded, modifiedor amended except by a written instrument duly executed by the Payee expressly referring to thisNote and setting forth the provision so excluded, modified or amended.     13. Currency. All references herein to “$” or “dollars” refer to United Statesdollars, and all payments due hereunder shall be payable in lawful currency of the United States.     14. Governing Law. The validity, construction and enforceability of this Note shallbe governed by the internal laws of the State of California, without giving effect to conflict oflaws principles thereof.      T3 MOTION, INC.