ex10-2.htm


    Exhibit
      10.2

     

    THIS
      NOTE, THE SHARES OF COMMON STOCK AND/OR OTHER SECURITIES ISSUABLE UPON
      CONVERSION OF THIS NOTE (THE “SECURITIES”) HAVE BEEN ACQUIRED FOR INVESTMENT
      PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) SHALL HAVE BECOME
      EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION
      OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
      REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
      TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS
      LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE AND
      ANY
      SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE.

    


    


    XA,
      INC.

    


    11%
      Senior Secured Convertible
      Promissory Note

    


    


    Bridge
      Note No.: 1 December 21, 2007

    


    


    


    FOR
      VALUE
      RECEIVED, XA, Inc., a Nevada corporation (collectively with all of its
      Subsidiaries, as defined in the SPA (as defined below), the “Company”)
      with
      its principal executive office at 875 North Michigan Avenue, Suite 2626,
      Chicago, IL 60611, promises to pay to the order of  Sands Brothers
      Venture Capital III LLC (the “Payee”
or
      the
“Holder
      of this
      Note”) or registered assigns on the earlier of (i) December
      21, 2008; or (ii)  if so elected by the Payee, upon consummation by
      the Company of a merger, combination or sale of substantially all of its assets
      or the purchase by a single entity or person or group of affiliated entities
      or
      persons of more than fifty (50%) percent of the voting stock of the Company
      (the
“Maturity
      Date”), the principal amount of Two Hundred
      Thousand
      ($200,000)  (the “Principal
      Amount”) in such coin or currency of the United States of America
      as at the time of payment shall be legal tender for the payment of public and
      private debts. Interest on this Note shall accrue on the Principal Amount
      outstanding from time to time at a rate per annum computed in accordance with
      Section 3
      hereof and shall be payable on the Maturity Date, or earlier upon conversion
      of
      this Note in accordance with the provisions of Section 6 hereof
      (or as may otherwise be provided in this Note). Nothing in item (ii) of
      this paragraph shall be construed as the consent by the holder of this Note
      to
      any action otherwise prohibited by the terms of this Note or as a waiver of
      any
      such prohibition.

    


    This
      Note is secured by a Security
      Agreement dated the date hereof (the “Security
      Agreement”) of the Company in favor of the Payee and all other
      Noteholders covering certain collateral (the “Collateral”),
      all as more particularly described and provided therein, and is entitled to
      the
      benefits thereof. The Security Agreement, the Uniform Commercial Code financing
      statements in connection with the Security Agreement and any and all other
      documents executed and delivered by the Company to the Payee under which the
      Payee is granted liens on assets of the Company are collectively referred to
      as
      the “Security
      Documents.”


    
      
        
        

      

      
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    Each
      payment by the Company pursuant to this Note shall be made without set-off
      or
      counterclaim and in immediately available funds.

    


    The
      Company (i) waives presentment, demand, protest or notice of any kind in
      connection with this Note and (ii) agrees, in the event of an Event of
      Default, to pay to the holder of this Note, on demand, all costs and expenses
      (including reasonable legal fees and expenses) incurred in connection with
      the
      enforcement and collection of this Note.

    


    This
      Note, and Prior Notes on substantially similar terms issued in August, September
      and October 2006 in the aggregate amount of $2,700,000 (the “Prior
      Notes”)
      and other identical Notes in the aggregate principal amount of $450,000, issued
      in June 2007 (the “Follow
      On
      Notes”) and other identical Notes in the aggregate principal
      amount of $400,000(the “Second
      Follow On
      Notes” and collectively with the Prior Notes and the Follow On
      Notes, the “Notes”)
      are
      (were) issued by the Company in connection with a private placement (the “Bridge
      Financing”) by the Company of its of Notes  pursuant and
      in accordance with (x) a Securities Purchase Agreement dated the date hereof
      by
      and among the Company and the Payee (the “SPA”),
      and (y)
      a prior Securities Purchase Agreement relating to the Prior Notes, copies of
      which are available for inspection at the Company’s principal office.
      Notwithstanding any provision to the contrary contained herein, this Note is
      subject and entitled to certain terms, conditions, covenants and agreements
      contained in the SPA. Any transferee of this Note, by its acceptance hereof,
      assumes the obligations of the Payee in the SPA with respect to the conditions
      and procedures for transfer of this Note. Reference to the SPA shall in no
      way
      impair the absolute and unconditional obligation of the Company to pay both
      principal hereof and interest hereon as provided herein.

    


    1.           No
      Prepayment. This
      Note may not be prepaid prior to the Maturity Date (except as otherwise provided
      by Section 6, herein).

    


    2.           Investment
      Warrants. In consideration for the loan evidenced by this Note, the Company
      shall issue to the holder of the Note five-year Investment
      Warrants  to purchase in the aggregate 200,000 shares of the Company’s
      common stock, $.001 par value per share (the “Common Stock”) at an exercise
      price of $.30  per share (the “Investment Warrants”). The
      Holder of this Note may at any time that this Note remains outstanding present
      this Note to the Company in payment of the exercise price of all or any portion
      of the Investment Warrants.   The Holder of this Note is
      purchasing $200,000 in Follow On Notes (which represents a portion of the full
      amount of the Second Follow On Notes being offered) and is being granted an
      aggregate of 200,000 five-year Investment Warrants in connection with such
      investment.

    


    3.           Computation
      of
      Interest.

    


    A.           Base
      Interest Rate.
      Subject to Subsections 3B and
      3C below, the outstanding Principal Amount shall bear interest at the
      rate of eleven (11%) percent per annum.

    


    B.           Penalty
      Interest. In
      the event the Note is not repaid on the Maturity Date, the rate of interest
      applicable to the unpaid Principal Amount shall be adjusted to eighteen (18%)
      percent per
      annum
      from the date of default until repayment; provided, that in no event shall
      the
      interest rate exceed the Maximum Rate provided in Section 3C
      below.


    
      
        
        

      

      
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    C.           Maximum
      Rate. In the
      event that it is determined that, under the laws relating to usury applicable
      to
      the Company or the indebtedness evidenced by this Note (“Applicable
      Usury
      Laws”), the interest charges and fees payable by the Company in
      connection herewith or in connection with any other document or instrument
      executed and delivered in connection herewith cause the effective interest
      rate
      applicable to the indebtedness evidenced by this Note to exceed the maximum
      rate
      allowed by law (the “Maximum
      Rate”), then such interest shall be recalculated for the period in
      question and any excess over the Maximum Rate paid with respect to such period
      shall be credited, without further agreement or notice, to the Principal Amount
      outstanding hereunder to reduce said balance by such amount with the same force
      and effect as though the Company had specifically designated such extra sums
      to
      be so applied to principal and the Payee had agreed to accept such extra
      payment(s) as a premium-free prepayment. All such deemed prepayments shall
      be
      applied to the principal balance payable at maturity. In no event shall any
      agreed-to or actual exaction as consideration for this Note exceed the limits
      imposed or provided by Applicable Usury Laws in the jurisdiction in which the
      Company is resident applicable to the use or detention of money or to
      forbearance in seeking its collection in the jurisdiction in which the Company
      is resident.

    


    4.           Covenants
      of Company.
      For the purposes of this Section 4, the term “Company” shall include all of the
      Subsidiaries (as defined in the SPA).

    


    A.           Affirmative
      Covenants. The Company covenants and agrees that, so long as this Note
      shall be outstanding, it will perform the obligations set forth in this Section 4A,
      unless it has otherwise obtained the prior written consent of the
      Payee:

    


    (i)           Taxes
      and Levies. The
      Company will promptly pay and discharge all taxes, assessments, and governmental
      charges or levies imposed upon the Company or upon its income and profits,
      or
      upon any of its property, before the same shall become delinquent, as well
      as
      all claims for labor, materials and supplies which, if unpaid, might become
      a
      lien or charge upon such properties or any part thereof; provided, however,
      that the
      Company shall not be required to pay and discharge any such tax, assessment,
      charge, levy or claim so long as the validity thereof shall be contested in
      good
      faith by appropriate proceedings and the Company shall set aside on its books
      adequate reserves in accordance with generally accepted accounting principles
      (“GAAP”)
      with
      respect to any such tax, assessment, charge, levy or claim so
      contested;

    


    (ii)           Maintenance
      of
      Existence. The Company will do or cause to be done all things reasonably
      necessary to preserve and keep in full force and effect its corporate existence,
      rights and franchises and comply with all laws applicable to the Company, except
      where the failure to comply could not reasonably be expected to have a material
      adverse effect on the Company, and the Company will timely file any and all
      periodic report filings pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934, as amended (the “Exchange Act”), which are required to
      maintain current public information about the Company;


    
      
        
        

      

      
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    (iii)           
      Maintenance of
      Property. The Company will at all times maintain, preserve, protect and
      keep such property material to the conduct of its business in good repair,
      working order and condition, and from time to time make all needful and proper
      repairs, renewals, replacements and improvements thereto as shall be reasonably
      required in the conduct of its business;

    
 

    (iv)           
      Insurance. The
      Company will, to the extent necessary for the operation of its business, keep
      adequately insured by financially sound reputable insurers, all property of
      a
      character usually insured by similar corporations and carry such other insurance
      as is usually carried by similar corporations;

    


    (v)             
      Books and
      Records. The Company will at all times keep true and correct books,
      records and accounts reflecting all of its business affairs and transactions
      in
      accordance with GAAP. Such books and records shall be open at reasonable times
      and upon reasonable notice to the inspection of the Payee or its agents, subject
      to the execution by such persons of a reasonable non-disclosure
      agreement;

    


    (vi)            
      Underlying
      Securities. The Company agrees to keep reserved such number of shares of
      Common Stock (As defined in the SPA) as will permit full conversion of the
      Notes
      at any time or from time to time at the Conversion Price (as defined
      herein);

    


    (vii)           
      Notice of Certain
      Events. The Company will give prompt written notice (with a description
      in reasonable detail) to the Payee of:

    


    (a)           the
      occurrence of any Event of Default (as defined in Section 5
      hereof), or any event which, with the giving of notice or the lapse of time,
      would constitute an Event of Default, or an event of default under any document
      or instrument evidencing or governing any indebtedness of the Company and the
      delivery of any notice effecting the acceleration of any such indebtedness;
      and

    


    (b)           the
      occurrence of any litigation, arbitration or governmental investigation or
      proceeding not previously disclosed by the Company to the Payee in writing
      which
      has been instituted or, to the knowledge of the Company, is threatened, against
      the Company or to which any of its properties, assets or revenues is subject
      which, if adversely determined, would reasonably be expected to have a material
      adverse effect on the Company;

    


    (c)           any
      material adverse development which shall occur in any litigation, arbitration
      or
      governmental investigation or proceeding previously disclosed by the Company
      to
      the Payee; and

    


    (viii)            Security
      Interests.
      The Company shall perform any and all acts and execute any and all documents
      (including, without limitation, the execution, amendment or supplementation
      of
      any financing statement and continuation statement) for filing under the provisions
      of the Uniform Commercial Code (the “UCC”),
      and the
      rules and regulations thereunder, or any other statute, rule or regulation
      of
      any applicable jurisdiction which are necessary (and/or advisable at the request
      of the Holders or its counsel) in order to maintain in favor of the holders
      of
      the Notes, a valid and perfected lien on the Collateral (as defined in the
      Security Agreement), subject only to the Prior Purchasers’ (as defined in the
      SPA) and the prior first priority security interest of LaSalle  Bank
      National Association liens.


    
      
        
        

      

      
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    (ix)           Access.
      The Company
      will grant holders of this Note access to Company facilities and personnel
      during normal business hours and with reasonable advance
      notification.  The Company will deliver to the Holders annual,
      quarterly financial statements and copies of other financial and other documents
      and/or information reasonably requested by the Holder.

    


    (x)  Non-Public
      Information.  The Company represents, covenants and agrees that
      neither it nor any other person acting on its behalf has provided or will
      provide any Holder or its agents or counsel with any information that the
      Company believes constitutes material non-public information (other than with
      respect to the transactions contemplated by this Agreement), unless prior
      thereto such Holder shall have been provided with notice of the Company’s intent
      to provide such information, and shall have expressly agreed to accept such
      information. The Company understands and confirms that each Holder shall be
      relying on the foregoing representations in effecting transactions in securities
      of the Company.

    


    B.           Negative
      Covenants.
      The Company covenants and agrees that, so long as this Note shall be
      outstanding, it will perform the obligations set forth in this Section 4B
      unless it has otherwise obtained the prior written consent of all
      Holders:

    


    (i)           Liquidation,
      Dissolution. The Company will not liquidate or dissolve, consolidate
      with, or merge into or with, any other corporation or other entity, except
      that
      any wholly-owned subsidiary may merge with another wholly-owned subsidiary
      or
      with the Company (so long as the Company is the surviving entity and no Event
      of
      Default shall occur as a result thereof).

    


    (ii)           Sales
      of Assets. The
      Company will not sell, transfer, lease or otherwise dispose of, or grant
      options, warrants or other rights with respect to, all or a substantial part
      of
      its properties or assets (an “Asset
      Transaction”) to any person or entity, providedthat
      this clause
      (ii) shall not restrict any disposition made in the ordinary course of
      business and consisting of:

    


    (a)
      capital goods that are obsolete or have no remaining useful life;
      or

    


    (b)
      finished goods inventories.

    


    (iii)           Redemptions.
      The
      Company will not redeem or repurchase any outstanding securities of the
      Company.


    
      
        
        

      

      
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    (iv)           Indebtedness.  Without
      the express consent of the Holder, so long as this Note is outstanding, the
      Company shall not, and the Company shall not permit any of its Subsidiaries
      to,
      directly or indirectly, incur or guarantee, assume or suffer to exist any
      indebtedness, other than the (i) indebtedness evidenced by this Note and the
      other Notes, (ii) the Permitted Senior Indebtedness (as defined in the Security
      Agreement), (iii) indebtedness incurred through a Private Offering, and (iv)
      any
      Subsequent Financing in which the holders of the Rights Option shall
      invest.

    


    (v)           Right
      of First
      Refusal.  The Company covenants and agrees to promptly notify
      (in no event later than five (5) days after making or receiving an applicable
      offer) in writing each Holder of the Notes of the terms and conditions of any
      proposed indebtedness or any offer or sale to, or exchange with, any third
      party
      of any debt or equity securities (a “Subsequent
      Financing”).  Such notice shall describe, in reasonable
      detail, the proposed Subsequent Financing, the names and investment amounts
      of
      all investors participating in the Subsequent Financing (if known), and all
      of
      the terms and conditions thereof and proposed definitive documentation to be
      entered into in connection therewith.  The notice shall provide each
      Holder of the Notes an option (the “Rights
      Option”), during the five (5) days following delivery of such
      notice, to inform the Company whether such Holder of the Notes will participate
      up to its pro rata
portion in such Subsequent
      Financing on the same, absolute terms and
      conditions contemplated by such Subsequent Financing.  If any Holder
      of the Notes elects not to participate in any such Subsequent Financing, the
      other Holders of the Notes may therein participate on a pro rata basis.  If
      the Company does not receive notice of exercise of the Rights Option from the
      Holder of the Notes within five (5) days of such Holder of the Notes receiving
      such notice, the Company shall have the right to close the Subsequent financing
      on the scheduled closing date with a third party; provided that all of the
      material terms and conditions of the closing are the same as those provided
      to
      the Holder of the Notes.

    


    (vi)           Negative
      Pledge.  Except for the other Second Follow On Notes, the
      Company will not hereafter create, incur, assume or suffer to exist any
      mortgage, pledge, hypothecation, assignment, security interest, encumbrance,
      lien (statutory or other), preference, priority or other security agreement
      or
      preferential arrangement of any kind or nature whatsoever (including any
      conditional sale or other title retention agreement and any financing lease)
      (each, a “Lien”)
      upon
      any of its property, revenues or assets, whether now owned or hereafter
      acquired, except:

    


     (a)           Liens
      for taxes, assessments or other governmental charges or levies not at the time
      delinquent or thereafter payable without penalty or being contested in good
      faith by appropriate proceedings and for which adequate reserves in accordance
      with GAAP shall have been set aside on its books;

    


    (b)           Liens
      of carriers, warehousemen, mechanics, materialman and landlords incurred in
      the
      ordinary course of business for sums not overdue or being contested in good
      faith by appropriate proceedings and for which adequate reserves in accordance
      with GAAP shall have been set aside on its books;


    
      
        
        

      

      
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      (c)           Liens
      (other than Liens arising under the Employee Retirement Income Security Act
      of
      1974, as amended, or Section 412(n) of the Internal Revenue Code of 1986,
      as amended) incurred in the ordinary course of business in connection with
      workers’ compensation, unemployment insurance or other forms of governmental
      insurance or benefits, or to secure performance of tenders, statutory
      obligations, leases and contracts (other than for borrowed money) entered into
      in the ordinary course of business or to secure obligations on surety or appeal
      bonds;

    


    (d)           judgment
      Liens in existence less than thirty (30) days after the entry thereof or with
      respect to which execution has been stayed;

    


    (e)           Liens
      in the nature of zoning restrictions, easements and rights or restrictions
      of
      record on the use of real property which do not materially detract from its
      value or impair its use;

    


    (f)           Liens
      arising by operation of law in favor of the owner or sublessor of leased
      premises and confined to the property rented;

    


    (g)           Liens
      arising from any litigation or proceeds which is being contested in good faith
      by appropriate proceedings, provided, however, that no execution or levy has
      been made; and

    


    (h)           Liens
      which secure indebtedness permitted by Section 4B(iv).

    


    (vii)           Investments.
      The
      Company will not purchase, own, invest in or otherwise acquire, directly or
      indirectly, any stock or other securities or make or permit to exist any
      investment or capital contribution or acquire any interest whatsoever in any
      other person or entity or permit to exist any loans or advances for such
      purposes except for investments in direct obligations of the United States
      of
      America or any agency thereof, obligations guaranteed by the United States
      of
      America and certificates of deposit or other obligations of any bank or trust
      company organized under the laws of the United States or any state thereof
      and
      having capital and surplus of at least $500,000,000; provided, however, that
      nothing contained in this clause (vii) shall preclude the Company from making
      acquisitions for the purpose of expanding its business.

    


    (viii)         Guaranteed
      Indebtedness. The Company shall not create, incur, assume and/or permit
      to exist any Guaranteed Indebtedness (as defined below) to any bank, lender,
      or
      any other person in connection with any credit facilities extended by such
      creditors to the Company and/or any of its Subsidiaries (as defined in the
      SPA),
      and/or in connection with any other contracts or agreements. “Guaranteed
      Indebtedness” shall mean as to any person, any obligation of such
      person guaranteeing, providing comfort or otherwise supporting any indebtedness,
      lease, dividend, or other obligation of any other person in any manner,
      including any obligation or arrangement of such person to (1) purchase or
      repurchase any such primary obligation, (2) advance or supply funds for the
      purchase or payment of any primary obligation or to maintain working capital
      or
      otherwise to maintain working solvency or any balance sheet condition; (3)
      purchase property, securities or services primarily for the purpose of assuring
      the owner of any such obligation of the ability of the Company
      to make payment of such obligation; (4) protect the beneficiary of such
      arrangement from loss; or (5) indemnify the owner of such obligation against
      loss.


    
      
        
        

      

      
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    (xi)          
      Transactions with
      Affiliates. Other than as may be expressly permitted in the SPA, neither
      the Company nor its subsidiaries shall repay any indebtedness or enter into
      any
      transaction, including, without limitation, the purchase, sale, lease or
      exchange of property, real or personal, the purchase or sale of any security,
      the borrowing or lending of any money, or the rendering of any service, with
      any
      person or entity affiliated with the Company (including officers, directors
      and
      shareholders owning three (3%) percent or more of the Company’s outstanding
      capital stock); provided,
      however, that the provisions of this Section 4(B)(xi) shall not apply to
      the provision of legal services by David M. Loev or the The Loev Law Firm,
      PC.

    


    (x)            
      Dividends. The
      Company will not accrue, declare or pay any cash dividends or distributions,
      whether accrued or otherwise, on its outstanding capital stock, provided,
      however, that nothing herein contained shall prevent the Company from effecting
      a stock split or declaring or paying any dividend consisting solely of shares
      of
      any class of Common Stock to the holders of shares of such class of Common
      Stock, provided that (i) such stock split or stock dividend is effected
      equally across all classes of Common Stock and (ii) the holder of the Note
      participates in such events as if the holder had converted the Note immediately
      prior to such event into the number of shares of Common Stock he would be
      entitled to receive if he had so converted.

    


    (xi)           
      The Company will not make or create any direct and/or indirect
      subsidiaries.

    


    (xii)           Other
      than expressly permitted in the SPA, or pursuant to a Private Offering, the
      Company shall not issue any additional securities.

    


    (xiii)          Other
      than as expressly permitted in the SPA, the Company shall not provide and/or
      pay
      any cash bonus or other compensation to any of its employees, officers,
      directors and/or consultants in excess of what is expressly permitted in their
      respective employment agreements (or if no agreements are in place, other than
      what has been historically paid).

    


    5.           Events
      of
      Default.

    


    A.           
      The term “Event of
      Default” shall mean any of the events set forth in this
      Section 5A:

    


    (i)           Non-Payment
      of
      Obligations. The Company shall default in the payment of the principal or
      accrued interest on this Note when and as the same shall become due and payable,
      whether by acceleration or otherwise (and solely with respect to a default
      in
      the payment of accrued interest on this Note, such default is continuing for
      five (5) days).


    
      
        
        

      

      
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    (ii)           Non-Performance
      of
      Affirmative Covenants. The Company shall default in the due observance or
      performance of any material covenant set forth in Section 4A,
      which default shall continue uncured for five (5) business days.

    


    (iii)          Non-Performance
      of Negative
      Covenants. The Company shall default in the due observance or performance
      of any covenant set forth in Section 4B,
      which default shall continue uncured for two (2) business days.

    


    (iv)          Bankruptcy,
      Insolvency,
      etc. The Company shall:

    


    (a)           generally
      fail or be unable to pay, or admit in writing its inability to pay, its debts
      as
      they become due;

    


    (b)           apply
      for, consent to, or acquiesce in, the appointment of a trustee, receiver,
      sequestrator or other custodian for the Company or any of its property, or
      make
      a general assignment for the benefit of creditors;

    


    (c)           in
      the absence of such application, consent or acquiesce in, permit or suffer
      to
      exist the appointment of a trustee, receiver, sequestrator or other custodian
      for the Company or for any part of its property, and such trustee, receiver,
      sequestrator or other custodian shall not be discharged within thirty (30)
      days;

    


    (d)           permit
      or suffer to exist the commencement of any bankruptcy, reorganization, debt
      arrangement or other case or proceeding under any bankruptcy or insolvency
      law,
      or any dissolution, winding up or liquidation proceeding, in respect of the
      Company, and, if such case or proceeding is not commenced by the Company or
      converted to a voluntary case, such case or proceeding shall be consented to
      or
      acquiesced in by the Company or shall result in the entry of an order for relief
      or shall remain for sixty (60) days undismissed; or

    


    (e)           take
      any corporate action authorizing, or in furtherance of, any of the
      foregoing;

    


    (v)           Cross-Default.
      The
      Company shall default in the payment when due (including any applicable grace
      period) of any amount payable under any other obligation of the Company for
      money borrowed in excess of $50,000, or of its non-payment under such
      obligations, which default shall continue uncured for three (3) business
      days;

    


    (vi)          Cross-Acceleration.
      Any indebtedness for borrowed money of the Company or any subsidiary in an
      aggregate principal amount exceeding $50,000 (1) shall be duly declared to
      be or shall become due and payable prior to the stated maturity thereof or
      (2) shall not be paid as and when the same becomes due and payable
      including any applicable grace period;


    
      
        
        

      

      
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    (vii)         Judgments.
      A judgment
      which, with other such outstanding judgments against the Company and its
      subsidiaries (in each case to the extent not covered by insurance), exceeds
      an
      aggregate of $50,000, shall be rendered against the Company or any subsidiary
      and, within twenty (20) days after entry thereof, such judgment shall not have
      been vacated, discharged or otherwise satisfied or execution thereof stayed
      pending appeal, or, within thirty (30) days after the expiration of any such
      stay, such judgment shall not have been discharged or otherwise satisfied;
      and

    


    (viii)        Transaction
      Documents. The Company shall violate any material representation,
      warranty, covenant, agreement or obligation set forth in the SPA, the Security
      Documents, the Registration Rights Agreement dated as of the date hereof among
      the Company and the Payee (the “Registration
      Rights
      Agreement”), and such default is continuing for five (5)
      days;

    


    (ix)          Security
      Agreement.
      If an event of default shall occur for any reason under the Security Agreement;
      and

    


    (x)           Security
      Documents.
      If any Security Document shall cease to be in full force and effect, or shall
      cease to give the holder of this Note and the other holders of Notes the liens,
      rights, powers and privileges purported to be created thereby (including,
      without limitation, in all cases, a first priority perfected security interest
      in, and lien on, all of the Collateral (as defined in the Security Agreement)
      subject thereto), superior to and prior to the rights of all third persons
      and
      subject to no other liens (except to the extent expressly permitted herein
      or in
      the Security Agreement), which default shall continue uncured for two (2)
      business days.

    


    B.           Action
      if Bankruptcy.
      If any Event of Default described in clauses (iv)(1) through (e) of Section 5A shall
      occur, the outstanding Principal Amount of this Note and all other obligations
      hereunder shall automatically be and become immediately due and payable, without
      notice or demand.

    


    C.           Action
      if Other Event of
      Default. If any Event of Default (other than any Event of Default
      described in clauses (iv)(a) through (e) of Section 5A) shall occur for any
      reason, whether voluntary or involuntary, and be continuing, the Holders may,
      upon notice to the Company, declare all or any portion of the outstanding
      Principal Amount of the Notes together with interest accrued thereon to be
      due
      and payable and any or all other obligations hereunder to be due and payable,
      whereupon the full unpaid Principal Amount (or any portion thereof so demanded),
      such accrued interest and any and all other such obligations which shall be
      so
      declared due and payable shall be and become immediately due and payable,
      without further notice, demand, or presentment.

    


    D.           Remedies.
      In case any
      Event of Default shall occur and be continuing, the Payee may proceed to protect
      and enforce its rights by a proceeding seeking the specific performance of
      any
      covenant or agreement contained in this Note or in aid of the exercise of any
      power granted in this Note or may proceed to enforce the payment of this Note
      or
      to enforce any other legal or equitable rights as such holder shall
      determine.

    



    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    


    6.           Conversions.

    


    A.           [Intentionally
      removed].

    


    B.           Optional
      Conversion.  Notwithstanding anything to the contrary contained
      in Section 6 hereof or elsewhere, the Holder, at its sole option, shall have
      the
      right to convert from time to time, any and/or all of the Principal Amount
      and
      all accrued, but unpaid Interest on this Note into shares of Common Stock (the
      “Conversion
      Shares”), at the Conversion Price (the “Optional
      Conversion
      Right”) by submitting a written notice (the “Optional
      Conversion Election
      Form”), in the form of Exhibit
      A
      annexed hereto, electing to exercise its optional conversion rights (the “Optional
      Conversion”).

    


    C.           Conversion
      Price. The
      number of Conversion Shares to be issued upon conversion of the Principal Amount
      and/or Interest shall be determined by dividing the Conversion Amount (as
      defined below) by the applicable Conversion Price (as defined in below). The
      term “Conversion
      Amount” means, with respect to any conversion of this Note, the
      sum of (i) the Principal Amount, and (ii) accrued but unpaid Interest through
      the date of conversion that the holder is electing to so convert. The “Conversion
      Price” shall be (subject to anti-dilution adjustments as provided
      in this Note) the lesser of (i) $0.50; and (ii) fifty (50%) percent of the
      effective per share sale price of the Common Stock (or, alternatively, the
      conversion price and/or exercise price if Common Stock is not sold directly)
      in
      any Private Offering (as defined in the Registration Rights Agreement (as
      defined in the SPA)); provided, however, that the
      Conversion Price shall not be less than $0.25 per share (subject to the
      anti-dilution adjustments provided in this Note).

    


    D.           Conversion
      Mechanics.

    


    (i)           Surrender
      of Note Upon
      Conversion.  Notwithstanding
      anything to the contrary set forth herein, upon the exercise of Holders Optional
      Conversion Right in accordance with the terms of Section 6 of this
      Note, the Holder shall be required to physically surrender this Note (or any
      affidavit of lost Note) to the Company in order to receive the Conversion Shares
      due upon conversion of this Note by the Company.  In the event of the
      partial conversion of the Optional Conversion Right, the Company agrees to
      provide Holder a new Note, which shall total the then remaining amount of
      indebtedness owed.

     

    (ii)           Delivery
      of Common Stock
      Upon Conversion. Upon receipt
      by the
      Company of this Note (or any affidavit of lost Note) and provided the Holder
      has
      converted any portion of this Note in accordance with the requirements of Section 6 of this
      Note, the Company shall issue and deliver or cause to be issued and delivered
      to
      or upon the order of the Holder certificates for the Conversion Shares no later
      than two (2) business days after such receipt (the “Deadline”).

     

    E.           Concerning
      the
      Shares.  Conversion Shares may not be sold or transferred
      unless  (i) such shares are sold pursuant to an effective registration
      statement under the Act or (ii) the Company 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 Holder who agrees to sell or otherwise transfer the shares only in
      accordance with this Note and who is an accredited investor.  Except
      as otherwise provided in the SPA, until such time as the Conversion Shares
      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 Conversion Shares 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:

    


    “THESE
      SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
      OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
      PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
      PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO
      THE
      REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
      APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
      TO
      THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
      ACCEPTABLE TO THE COMPANY.

     

    The
      legend set forth above shall be removed and the Company shall issue to the
      Holder a new certificate therefor free of any transfer legend if (i) the Company
      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 Securities Act and the shares are
      so
      sold or transferred, (ii) such Holder provides the Company or its transfer
      agent
      with reasonable assurances that the Conversion Shares can be sold pursuant
      to
      Rule 144 or Rule 144(k) or (iii) if the  Conversion
      Shares  are registered for resale under an effective registration
      statement filed under the Act.  Nothing in this Note shall limit the
      Company’s obligation under the Registration Rights Agreement. Failure to
      delivery certificates with the legend for Conversion Shares shall result in
      certain payments to the Holder as set forth in the SPA.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    F.           Status
      as
      Shareholder. Upon submission
      of this
      Note by the Holder and the satisfaction of the Conversion Conditions by the
      Holder, (i) the shares covered thereby shall be deemed Conversion Shares and
      (ii) the Holder’s rights as a Holder of this Note shall cease and terminate,
      excepting only the right to receive certificates for the Conversion
      Shares  and to any remedies
      provided herein or otherwise available at law or in equity to such Holder
      because of a failure by the Company to comply with the terms of this
      Note.  Notwithstanding the foregoing, if a Holder has not received
      certificates for all Conversion Shares prior to the second (2nd)
      business day
      after the expiration of the Deadline with respect to any reason, then (unless
      the Holder otherwise elects to retain its status as a holder of Common Stock
      by
      so notifying the Company) the Holder shall regain the rights of a Holder of
      this
      Note and the Company 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 for the Company’s
      failure to convert this Note.

     

    7.           Anti-Dilution
      Provisions. The
      Conversion Price in effect at any time and the number and kind of securities
      issuable upon conversion of this Note shall be subject to adjustment from time
      to time upon the happening of certain events as follows:

     

    A.           Adjustment
      for Stock Splits
      and Combinations. If the Company at any time or from time to time on or
      after the date of the  issuance  of this Note (the “Original
      Issuance
      Date”) effects a subdivision of the outstanding Common Stock, the
      Conversion Price then in effect immediately before that subdivision shall be
      proportionately decreased, and conversely, if the Company at any time or from
      time to time on or after the Original Issuance Date combines the outstanding
      shares of Common Stock into a smaller number of shares, the Conversion Price
      then in effect immediately before the combination shall be proportionately
      increased. Any adjustment under this Section 7A shall
      become effective at the close of business on the date the subdivision or
      combination becomes effective.

     

    B.           Adjustment
      for Certain
      Dividends and Distributions. If the Company at any time or from time to
      time on or after the Original Issuance Date makes or fixes a record date for
      the
      determination of holders of Common Stock entitled to receive, a dividend or
      other distribution payable in additional shares of Common Stock, then and in
      each such event the Conversion Price then in effect shall be decreased as of
      the
      time of such issuance or, in the event such record date is fixed, as of the
      close of business on such record date, by multiplying the Conversion Price
      then
      in effect by a fraction (1) the numerator of which is the total number of shares
      of Common Stock issued and outstanding immediately prior to the time of such
      issuance or the close of business on such record date and (2) the denominator
      of
      which shall be the total number of shares of Common Stock issued and outstanding
      immediately prior to the time of such issuance or the close of business on
      such
      record date plus the number of shares of Common Stock issuable in payment of
      such dividend or distribution; provided, however,
      that if such
      record date is fixed and such dividend is not fully paid or if such distribution
      is not fully made on the date fixed therefor, the Conversion Price shall be
      recomputed accordingly as of the close of business on such record date and
      thereafter the Conversion Price shall be adjusted pursuant to this Section 7B as of
      the time of actual payment of such dividends or distributions.

     

    C.           Adjustments
      for Other
      Dividends and Distributions. In the event the Company at any time or from
      time to time on or after the Original Issuance Date makes, or fixes a record
      date for the determination of holders of Common Stock entitled to receive,
      a
      dividend or other distribution payable
      in securities of the Company other than shares of Common Stock, then and in
      each
      such event provision shall be made so that the Holders of Notes shall receive
      upon conversion thereof, in addition to the number of shares of Common Stock
      receivable thereupon, the amount of securities of the Company which they would
      have received had their Notes been converted into Common Stock on the date
      of
      such event and had they thereafter, during the period from the date of such
      event to and including the conversion date, retained such securities receivable
      by them as aforesaid during such period, subject to all other adjustments called
      for during such period under this Section 7 with
      respect to the rights of the Holders of the Notes.

     

    D.           Adjustment
      for
      Reclassification, Exchange and Substitution. In the event that at any
      time or from time to time on or after the Original Issuance Date, the Common
      Stock issuable upon the conversion of the Notes is changed into the same or
      a
      different number of shares of any class or classes of stock, whether by
      recapitalization, reclassification or otherwise (other than a subdivision or
      combination of shares or stock dividend or a reorganization, merger,
      consolidation or sale of assets, provided for elsewhere in this Section 7), then and
      in any such event each Holder of Notes shall have the right thereafter to
      convert such Notes to receive the kind and amount of stock and other securities
      and property receivable upon such recapitalization, reclassification or other
      change, by holders of the maximum number of shares of Common Stock for which
      such Notes could have been converted immediately prior to such recapitalization,
      reclassification or change, all subject to further adjustment as provided
      herein.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    E.           Sale
      of Shares Below
      Conversion Price:

     

    (i)           If
      at any time or from time to time following the Original Issuance Date, the
      Company issues or sells, or is deemed by the express provisions of this Section 7E to have
      issued or sold, Additional Shares of Common Stock (as hereinafter defined),
      other than as a dividend or other distribution on any class of stock and other
      than upon a subdivision or combination of shares of Common Stock, in either
      case
      as provided in Section
      7A or
      Section 7C above, for an Effective Price (as hereinafter defined)
      less than the then existing Conversion Price, then and in each such case the
      then existing Conversion Price shall be reduced, as of the opening of business
      on the date of such issue or sale, to a price equal to the Effective Price
      for
      such Additional Shares of Common Stock.

     

    (ii)           For
      the purpose of making any adjustment required under Section 7E, the
      consideration received by the Company for any issue or sale of securities shall
      (I) to the extent it consists of cash be computed at the amount of cash
      received by the Company, (II) to the extent it consists of property other
      than cash, be computed at the fair value of that property as determined in
      good
      faith by the board of directors of the Company (the “Board”),
      (III) if Additional Shares of Common Stock, Convertible Securities (as
      hereinafter defined) or rights or options to purchase either Additional Shares
      of Common Stock or Convertible Securities are issued or sold together with
      other
      stock or securities or other assets of the Company for a consideration which
      covers both, be computed as the portion of the consideration so received that
      may be reasonably determined in good faith by the Board to be allocable to
      such
      Additional Shares of Common Stock, Convertible Securities or rights or options,
      and (IV) be computed after reduction for all expenses payable by the
      Company in connection with such issue or sale.

     

    (iii)           For
      the purpose of the adjustment required under Section 7E, if
      the Company issues or sells any rights, warrants or options for the purchase
      of,
      or stock or other securities convertible into or exchangeable for, Additional
      Shares of Common Stock (such convertible or exchangeable stock or securities
      being hereinafter referred to as “Convertible
      Securities”) and if the Effective Price of such Additional Shares
      of Common Stock is less than the Conversion Price then in effect, then in each
      case the Company shall be deemed to have issued at the time of the issuance
      of
      such rights, warrants, options or Convertible Securities the maximum number
      of
      Additional Shares of Common Stock issuable upon exercise, conversion or exchange
      thereof and to have received as consideration for the issuance of such shares
      an
      amount equal to the total amount of the consideration, if any, received by
      the
      Company for the issuance of such rights, warrants, options or Convertible
      Securities, plus, in the case of such rights, warrants or options, the minimum
      amounts of consideration, if any, payable to the Company upon the exercise
      of
      such rights, warrants or options, plus, in the case of Convertible Securities,
      the minimum amounts of consideration, if any, payable to the Company (other
      than
      by cancellation of liabilities or obligations evidenced by such Convertible
      Securities) upon the conversion or exchange thereof. No further adjustment
      of
      the Conversion Price, adjusted upon the issuance of such rights, warrants,
      options or Convertible Securities, shall be made as a result of the actual
      issuance of Additional Shares of Common Stock on the exercise of any such
      rights, warrants or options or the conversion or exchange of any such
      Convertible Securities. If any such rights or options or the conversion or
      exchange privilege represented by any such Convertible Securities shall expire
      without having been exercised, the Conversion Price adjusted upon the issuance
      of such rights, warrants, options or Convertible Securities shall be readjusted
      to the Conversion Price which would have been in effect had an adjustment been
      made on the basis that the only Additional Shares of Common Stock so issued
      were
      the Additional Shares of Common Stock, if any, actually issued or sold on the
      exercise of such rights, warrants, or options or rights of conversion or
      exchange of such Convertible Securities, and such Additional Shares of Common
      Stock, if any, were issued or sold for the consideration actually received
      by
      the Company upon such exercise, plus the consideration, if any, actually
      received by the Company for the granting of all such rights, warrants, or
      options, whether or not exercised, plus the consideration received for issuing
      or selling the Convertible Securities actually converted or exchanged, plus
      the
      consideration, if any, actually received by the Company (other than by
      cancellation of liabilities or obligations evidenced by such Convertible
      Securities) on the conversion or exchange of such Convertible
      Securities.

     

    (iv)           For
      the purpose of the adjustment required under Section 7E, if
      the Company issues or sells, or is deemed by the express provisions of this
      Section 7 to
      have issued or sold, any rights or options for the purchase of Convertible
      Securities and if the Effective Price of the Additional Shares of Common Stock
      underlying such Convertible Securities is less than the Conversion Price then
      in
      effect, then in each such case the Company shall be deemed to have issued at
      the
      time of the issuance of such rights or options the maximum number of Additional
      Shares of Common Stock issuable upon conversion or exchange of the total amount
      of Convertible Securities covered by such rights or options and to have received
      as consideration for the issuance of such Additional Shares of Common Stock
      an
      amount equal to the amount of consideration, if any, received by the Company
      for
      the issuance of such rights, warrants or options, plus the minimum amounts
      of
      consideration, if any, payable to the Company upon the exercise of such rights,
      warrants or
      options, plus the minimum amount of consideration, if any, payable to the
      Company (other than by cancellation of liabilities or obligations evidenced
      by
      such Convertible Securities) upon the conversion or exchange of such Convertible
      Securities. No further adjustment of the Conversion Price, adjusted upon the
      issuance of such rights, warrants or options, shall be made as a result of
      the
      actual issuance of the Convertible Securities upon the exercise of such rights,
      warrants or options or upon the actual issuance of Additional Shares of Common
      Stock upon the conversion or exchange of such Convertible Securities. The
      provisions of paragraph (iii) above for the readjustment of the Conversion
      Price upon the expiration of rights, warrants or options or the rights of
      conversion or exchange of Convertible Securities shall apply mutatismutandis
      to the
      rights, warrants options and Convertible Securities referred to in this
      paragraph (iv).

     


    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    


     

    (v)           “Additional
      Shares of Common
      Stock” shall mean all shares of Common Stock (or any debt or
      equity securities convertible or exercisable into Common Stock) issued by the
      Company on or after the Original Issuance Date, whether or not subsequently
      reacquired or retired by the Company, other than (I) the Conversion Shares
      and the shares of Common Stock issuable upon exercise of the Warrants (the
      “Underlying
      Shares”), (II) shares of Common Stock issuable upon exercise
      of warrants, options and convertible securities outstanding as of the Original
      Issuance Date (provided that the terms of such warrants, options and convertible
      securities are not modified after the Original Issuance Date to adjust the
      exercise price), and (III) shares of Common Stock issued pursuant to any
      event for which adjustment is made to the Conversion Price under Section 7 hereof
      or to the exercise price under the anti-dilution provisions of any securities
      outstanding as of the Original Issuance Date. The “Effective
      Price” of Additional Shares of Common Stock shall mean the
      quotient determined by dividing the total number of Additional Shares of Common
      Stock issued or sold, or deemed to have been issued or sold by the Company
      under
      this Section 7E, into
      the aggregate consideration received, or deemed to have been received, by the
      Company for such issue under this Section 7E, for
      such Additional Shares of Common Stock.

     

    (vi)           Other
      than a reduction pursuant to its applicable anti-dilution provisions, any
      reduction in the conversion price of any Convertible Security, whether
      outstanding on the Original Issuance Date or thereafter, or the price of any
      option, warrant or right to purchase Common Stock or any Convertible Security
      (whether such option, warrant or right is outstanding on the Original Issuance
      Date or thereafter), to an Effective Price less than the current Conversion
      Price, shall be deemed to be an issuance of such Convertible Security and all
      such options, warrants or rights at such Effective Price, and the provisions
      of
Section 7E
      (iii), (iv) and
(v)
      shall apply
      thereto mutatismutandis.

     

    (vii)           Any
      time an adjustment is made to the Conversion Price pursuant to Section 7E, a
      corresponding proportionate change shall be made to the number of shares of
      Common Stock issuable upon conversion of this Note.

     

    F.           No
      Adjustments in Certain
      Circumstances. No adjustment in the Conversion Price shall be required
      unless such adjustment would require an increase or decrease of at least one
      ($0.01) cent in such price; provided, however,
      that any
      adjustments which by reason of this Section 7F are
      not required to be made shall be carried forward and taken into account in
      any
subsequent
      adjustment required to be made hereunder. All calculations under this Section 7F shall
      be made to the nearest cent or to the nearest one-hundredth of a share, as
      the
      case may be.

     


    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    


     

    8.           Amendments.  This
      Note may not be modified or amended in any manner except in writing executed
      by
      the Company and all Holders of the Notes.

    


    B.           No
      failure or delay on the part of the Payee in exercising any power or right
      under
      this Note shall operate as a waiver thereof, nor shall any single or partial
      exercise of any such power or right preclude any other or further exercise
      thereof or the exercise of any other power or right. No notice to or demand
      on
      the Company in any case shall entitle it to any notice or demand in similar
      or
      other circumstances. No waiver or approval by the Payee shall, except as may
      be
      otherwise stated in such waiver or approval, be applicable to subsequent
      transactions. No waiver or approval hereunder shall require any similar or
      dissimilar waiver or approval thereafter to be granted hereunder.

    


    C.           To
      the extent that the Company makes a payment or payments to the Payee, and such
      payment or payments or any part thereof are subsequently for any reason
      invalidated, set aside and/or required to be repaid to a trustee, receiver
      or
      any other party under any bankruptcy law, state or federal law, common law
      or
      equitable cause, then to the extent of such recovery, the obligation or part
      thereof originally intended to be satisfied, and all rights and remedies
      therefor, shall be revived and continued in full force and effect as if such
      payment had not been made or such enforcement or setoff had not
      occurred.

    


    D.           After
      any waiver, amendment or supplement under this section becomes effective, the
      Company shall mail to the holders of the Notes a copy thereof.

    


    9.           Ownership
      Cap and Certain
      Conversion Restriction.  Notwithstanding anything to the
      contrary set forth in Section 9 of this Note, at no time may the Holder convert
      all or a portion of this Note if the number of shares of Common Stock to be
      issued pursuant to such conversion would exceed, when aggregated with all other
      shares of Common Stock owned by the Holder at such time, the number of shares
      of
      Common Stock which would result in the Holder beneficially owning (as determined
      in accordance with Section 13(d) of the Exchange Act and the rules thereunder)
      more than 9.9% of all of the Common Stock outstanding at such time; provided,
      however, that upon the Holder providing the Maker with sixty-one (61) days
      notice (the "Waiver Notice") that the Holder would like to waive this Section
      9
      with regard to any or all shares of Common Stock issuable upon conversion of
      this Note, this Section 9 will be of no force or effect with regard to all
      or a
      portion of the Note referenced in the Waiver Notice.  The Company
      agrees that this Section 9 of the Note shall replace and supersede the Section
      9
      provided in the Follow On Notes by and between the Holder and the Company,
      and
      shall apply equally to the Prior Notes by and between the Holder and the
      Company.

     

    



    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    10.           Miscellaneous.

    


    A.           Parties
      in Interest.
      All covenants, agreements and undertakings in this Note binding upon the Company
      or the Payee shall bind and inure to the benefit of the successors and permitted
      assigns of the Company and the Payee, respectively, whether so expressed or
      not.

    


    B.           Governing
      Law. This
      Note shall be governed by and construed exclusively in accordance with the
      laws
      of the State of New York without regard to the conflicts of laws principles
      thereof. The parties hereto hereby agree that any suit or proceeding arising
      directly and/or indirectly pursuant to or under this instrument or the
      consummation of the transactions contemplated hereby, shall be brought solely
      in
      a federal or state court located in the City, County and State of New York.
      By
      its execution hereof, the parties hereby covenant and irrevocably submit to
      the
in personam
      jurisdiction
      of the federal and state courts located in the City, County and State of New
      York and agrees that any process in any such action may be served upon any
      of
      them personally, or by certified mail or registered mail upon them or their
      agent, return receipt requested, with the same full force and effect as if
      personally served upon them in New York City. The parties hereto waive any
      claim
      that any such jurisdiction is not a convenient forum for any such suit or
      proceeding and any defense or lack of inpersonam
      jurisdiction
      with respect thereto. In the event of any such action or proceeding, the party
      prevailing therein shall be entitled to payment from the other party hereto
      of
      its reasonable and documented counsel fees and disbursements in an amount
      judicially determined.

    


    C.           Notices.
      All notices
      and other communications from the Company to the Holder of this Note shall
      be
      mailed by first class, registered or certified mail, postage prepaid, and/or
      a
      nationally recognized overnight courier service to the address furnished to
      the
      Company in writing by the Holder.

    


    D.           Notice
      of Certain
      Transactions. In case at any time:

    


    (i)           The
      Company shall declare any dividend upon, or other distribution in respect of,
      its Common Stock; or

    


    (ii)           The
      Company shall offer for subscription to the holders of its Common Stock any
      additional shares of stock of any class or any other securities convertible
      into
      shares of stock or any rights to subscribe thereto; or

    


    (iii)           There
      shall be any capital reorganization or reclassification of the capital stock
      of
      the Company, or a sale of all or substantially all of the assets of the Company,
      or a consolidation or merger of the Company with another corporation (other
      than
      a merger with a subsidiary in which merger the Company is the continuing
      corporation and which does not result in any reclassification);
      or


    (iv)           There
      shall be a voluntary or involuntary dissolution; liquidation or winding-up
      of
      the Company; then,
      in
      any one or more of said cases, the Company shall cause to be mailed to the
      Payee
      at the earliest practicable time (and, in any event not less than twenty (20)
      days before any record date or other date set for definitive action), written
      notice of the date on which the books of the Company shall close or a record
      shall be taken for such dividend, distribution or subscription rights or such
      reorganization, reclassification, sale, consolidation, merger or dissolution,
      liquidation or winding-up shall take place, as the case may be. Such notice
      shall also set forth such facts as shall indicate the effect of such action
      (to
      the extent such effect may be known at the date of such notice) on the
      Conversion Price and the kind and amount of the shares of stock and other
      securities and property deliverable upon the conversion of this Note. Such
      notice shall also specify the date as of which the holders of the Common Stock
      of record shall participate in said dividend, distribution or subscription
      rights or shall be entitled to exchange their Common Stock for securities or
      other property deliverable upon such reorganization, reclassification, sale,
      consolidation, merger or dissolution, liquidation or winding-up, as the case
      may
      be.

    


    Nothing
      herein shall be construed as the consent of the holder of this Note to any
      action otherwise prohibited by the terms of this Note or as a waiver of any
      such
      prohibition.

    


    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    E.           Reservation
      of
      Shares. The Company covenants and agrees that it will at all times have
      authorized and reserved, solely for the purpose of such possible conversion,
      out
      of its authorized but unissued shares, a sufficient number of shares of its
      Common Stock to provide for the exercise in full of the conversion rights
      contained in this Note.

    


    F.           Validity
      of Stock.
      All shares of Common Stock which may be issued upon conversion of this Note
      will, upon issuance by the Company in accordance with the terms of this Note,
      be
      validly issued, free from all taxes and liens with respect to the issuance
      thereof (other than those created by the holders), free from all pre-emptive
      or
      similar rights and fully paid and non-assessable.

    


    G.           Cash
      Payments. No
      fractional shares (or scrip representing fractional shares) of Common Stock
      shall be issued upon conversion of this Note. In the event that the conversion
      of this Note would result in the issuance of a fractional share of Common Stock,
      the Company shall pay a cash adjustment in lieu of such fractional share to
      the
      holder of this Note based upon the Conversion Price.

    


    H.           Stamp
      Taxes, etc. The
      Company shall pay all documentary, stamp or other transactional taxes
      attributable to the issuance or delivery of shares of Common Stock, upon
      conversion of this Note; provided, however,
      that the
      Company shall not be required to pay any taxes which may be payable in respect
      of any transfer involved in the issuance or delivery of any certificate for
      such
      shares in a name other than that of the holder of this Note, and the Company
      shall not be required to issue or deliver any such certificate unless and until
      the person requesting the issuance thereof
      shall have paid to the Company the amount of such tax or shall have established
      to the Company’s satisfaction that such tax has been paid.

    


    I.           Waiver
      of Jury Trial.
      THE PAYEE AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
      ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
      HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS NOTE OR ANY OTHER
      DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH, OR ANY
      COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN),
      OR
      ACTIONS OF THE PAYEE OR THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT
      FOR
      THE PAYEE’S PURCHASING THIS NOTE.

    


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      OF PAGE INTENTIONALLY LEFT
      BLANK]


    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF, this Note
      has been executed and delivered on the date specified above by the duly
      authorized representative of the Company.

     

    


    


    XA,
      INC.

    


    


    


    By:         
      /s/ Joseph Wagner

    Name:
      Joseph
Wagner

    Title:
      President & CEO


    


    


    


    $200,000

    


    


    


    



    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    


    EXHIBIT
      A

    


    Optional
      Conversion Election
      Form

    


    


    ____________,
      200_

    


    XA,
      Inc.

    875
      North
      Michigan Avenue, Suite 2626

    Chicago,
      IL 60611

    


    Re:           Optional
      Conversion of
      Promissory Note

    Gentlemen:

    You
      are hereby notified that, pursuant
      to, and upon the terms and conditions of that certain Senior Secured Convertible
      Promissory Note of XA, Inc. (the “Company”), in the
      principal amount of $_______________ (the “Note”), held by
      me, I
      hereby elect to exercise my right of Optional Conversion (as such term in
      defined in the Note), effective as of the date of this writing.

    


    Please
      provide me with all applicable
      instructions for the Optional Conversion of the Note, and issue certificate(s)
      for the applicable shares of the Company’s Common Stock issuable upon the
      Optional Conversion, in the name of the person provided below.

    


    


    Very
      truly yours,

    


    


    ___________________________

    Name:

    


    


    Please
      issue certificate(s) for Common Stock as follows:

    


    ______________________________________________

    Name

    


    ______________________________________________

    Address

    


    ______________________________________________

    Social
      Security No. of
      Shareholder

    



    
      
        
        

      

      
        19