f10sbex10ii_dibz.htm


    


     

    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

     

    ___________

     

    ___________ 

    $3,000,000

     

    FOR
      VALUE RECEIVED, DIBZ INTERNATIONAL, INC., a Delaware
      corporation (hereinafter called the “Borrower”), hereby
      promises to pay to the order of AJW Partners, LLC or registered assigns (the
      “Holder”) the sum of $3,000,000-, on December 29, 2009 (the
“Maturity Date”), and to pay interest on the unpaid principal
      balance hereof at the rate of fifteen percent (15%) per annum from December
      29,
      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 on March 31, June 30,
      September 30 and December 31 of each year beginning on September 30,
      2006.  All payments due hereunder (to the extent not converted into
      common stock, $.005 par value per share, of the Borrower (the “Common
      Stock”) in accordance with the terms hereof) shall be made in lawful
      money of the United States of America.  All payments shall be made at
      such address as the Holder shall hereafter give to the Borrower by written
      notice made in accordance with the provisions of this Note.  Whenever
      any amount expressed to be due by the terms of this Note is due on any day
      which
      is not a business day, the same shall instead be due on the next succeeding
      day
      which is a business day and, in the case of any interest payment date which
      is
      not the date on which this Note is paid in full, the extension of the due date
      thereof shall not be taken into account for purposes of determining the amount
      of interest due on such date.  As used in this Note, the term
“business day” shall mean any day other than a Saturday, Sunday or a day on
      which commercial banks in the city of New York, New York are authorized or
      required by law or executive order to remain closed.  Each capitalized
      term used herein, and not otherwise defined, shall have the meaning ascribed
      thereto in that certain Securities Purchase

     

    


    
      
        
                

           

        

        
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    Agreement,
      dated May 25, 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 by and between the Borrower and
      the Holder of even date herewith.

     

    The
      following terms shall apply to this Note:

     

     

    ARTICLE
      I.   CONVERSION RIGHTS

     

    1.1  Conversion
      Right.  The Holder shall have the right,
      once the Borrower’s common stock is listed or quoted for trading on any
      nationally recognized stock exchange or the OTCBB (as defined in Section 1.2(a))
      then, from time to time, and at any time on or prior to the later of (i) the
      Maturity Date and (ii) the date of payment of the Default Amount (as defined
      in
      Article III) pursuant to Section 1.6(a) or Article III, the Optional Prepayment
      Amount (as defined in Section 5.1 or any payments pursuant to Section 1.7,
      each
      in respect of the remaining outstanding principal amount of this Note to convert
      all or any part of the outstanding and unpaid principal amount of this Note
      into
      fully paid and non-assessable shares of Common Stock, as such Common Stock
      exists on the Issue Date, or any shares of capital stock or other securities
      of
      the Borrower into which such Common Stock shall hereafter be changed or
      reclassified at the conversion price  (the “Conversion
      Price”) determined as provided herein (a
“Conversion”); provided, however, that in no
      event shall the Holder be entitled to convert any portion of this Note in excess
      of that portion of this Note upon conversion of which the sum of (1) the number
      of shares of Common Stock beneficially owned by the Holder and its affiliates
      (other than shares of Common Stock which may be deemed beneficially owned
      through the ownership of the unconverted portion of the Notes or the unexercised
      or unconverted portion of any other security of the Borrower (including, without
      limitation, the warrants issued by the Borrower pursuant to the Purchase
      Agreement) subject to a limitation on conversion or exercise analogous to the
      limitations contained herein) and (2) the number of shares of Common Stock
      issuable upon the conversion of the portion of this Note with respect to which
      the determination of this proviso is being made, would result in beneficial
      ownership by the Holder and its affiliates of more than 4.9% of the outstanding
      shares of Common Stock.  For purposes of the proviso to the
      immediately preceding sentence, beneficial ownership shall be determined in
      accordance with Section 13(d) of the Securities Exchange Act of 1934, as
      amended, and Regulations 13D-G thereunder, except as otherwise provided in
      clause (1) of such proviso.  The number of shares of Common Stock to
      be issued upon each conversion of this Note shall be determined by dividing
      the
      Conversion Amount (as defined below) by the applicable Conversion Price then
      in
      effect on the date specified in the notice of conversion, in the form attached
      hereto as Exhibit A (the “Notice of Conversion”), delivered to
      the Borrower by the Holder in accordance with Section 1.4 below; provided that
      the Notice of Conversion is submitted by facsimile (or by other means resulting
      in, or reasonably expected to result in, notice) to the Borrower before 6:00
      p.m., New York, New York time on such conversion date (the “Conversion
      Date”).  

     

    
      
         

      

      
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    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 May 25, 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 Notes and the Borrower
      or, if the OTCBB is not the principal trading market for such security, the
      intraday trading price of such security on the principal securities exchange
      or
      trading market where such security is listed or traded or, if no intraday
      trading price of such security is available in any of the foregoing manners,
      the
      average of the intraday trading prices of any market makers for such security
      that are listed in the “pink sheets” by the National Quotation Bureau,
      Inc.  If the Trading Price cannot be calculated for such security on
      such date in the manner provided above, the Trading Price shall be the fair
      market value as mutually determined by the Borrower and the holders of a
      majority in interest of the Notes being converted for which the calculation
      of
      the Trading Price is required in order to determine the Conversion Price of
      such
      Notes.  “Trading Day” shall mean any day on which the
      Common Stock is traded for any period on the OTCBB, or on the principal
      securities exchange or other securities market on which the Common Stock is
      then
      being traded.  “Applicable Percentage” shall mean
      20.0%.  The “Fixed Conversion Price” shall mean
      $___.

     

    (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

     

    


    
      
        
            

           

        

        
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    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.  Subject to Stockholder Approval
      (as defined in Section 4(k) of the Purchase Agreement), 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.  Subject to Stockholder Approval (as defined in
      Section 4(k) of 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 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 subject
      to Stockholder Approval (as defined in Section 4(k) of the Purchase Agreement),
      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

     

    


    
      
        
           

           

        

        
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    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.

     

    


    
      
        
             

           

        

        
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    (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.  Subject to Stockholder
      Approval (as defined in Section 4(k) of the Purchase Agreement), 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).

     

    


    
      
        
           

           

        

        
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    Obligation
      of Borrower to Deliver Common
      Stock.  Upon receipt by the Borrower of
      a Notice of Conversion subject to Stockholder Approval (as defined in Section
      4(k) of the Purchase Agreement), 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.

     

    (e)  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.

     

    (f)  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).  

     

    


    
      
        
           

           

        

        
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    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

     

    


    
      
        
          
          

           

        

        
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    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

     

    


    
      
        
           

           

        

        
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    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

     

    


    
      
        
           

           

        

        
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    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 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

     

    


    
      
        
             

           

        

        
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    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
prorata 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.

     

    


    
      
        
           

           

        

        
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    CERTAIN
      COVENANTS

     

    1.9  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.

     

    1.10  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.

     

    1.11  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.

     

    1.12  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.

     

    1.13  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.

     

    1.14  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.

     

    


    
      
        
            

           

        

        
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    EVENTS
      OF
      DEFAULT

     

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

     

    1.15  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;

     

    1.16  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;

     

    1.17  Failure
      to Timely File Registration or Effect
      Registration.  The Borrower fails to
      file the Registration Statement within thirty (30) days following an Investor
      Demand (as set forth in the Registration Rights Agreement) or obtain
      effectiveness with the Securities and Exchange Commission of the Registration
      Statement within one hundred twenty (60) days following the Investor Demand
      (as
      defined in the Registration Rights 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;;

     

    1.18  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;

     

    1.19  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;

     

    


    
      
        
                

           

        

        
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    1.20  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;

     

    1.21  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;

     

    1.22  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;

     

    1.23  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
      the Pinksheets; or

     

    1.24  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

     

    


    
      
        
          
          

           

        

        
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    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
      II.   MISCELLANEOUS

     

    2.1  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.

     

    2.2  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 2616 South Loop West,
      Suite 660, Houston, Texas 77054, facsimile number: .  Both the Holder
      and the Borrower may change the address for service by service of written notice
      to the other as herein provided.

     

    2.3  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.

     

    2.4  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 bonafide
      margin account or other lending arrangement.

     

    2.5  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.

     

    


    
      
        
           

           

        

        
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    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.

     

    2.6  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.

     

    2.7  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.

     

    


    
      
        
           

           

        

        
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    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.

     

    2.8  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.

     

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

     

    2.10  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
      4.6.

     

    2.11  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.

     

    


    
      
        
           

           

        

        
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    ARTICLE
      III.   CALL
      OPTION

     

    3.1  Call
      Option.  Notwithstanding anything to the
      contrary contained in this Article V, so long as (i) no Event of Default or
      Trading Market Prepayment Event shall have occurred and be continuing,
      (ii) the Borrower has a sufficient number of authorized shares of Common
      Stock reserved for issuance upon full conversion of the Notes, then at any
      time
      after the Issue Date, and (iii) the Common Stock is trading at or below
      $.10 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) 60% (for prepayments occurring within sixty (60) days
      of the Issue Date), (ii) 130% for prepayments occurring between sixty-one
      (61) and one hundred twenty (60) days of the Issue Date, or (iii) 140% (for
      prepayments occurring after the one hundred twentieth (60th) day following
      the
      Issue Date), multiplied by the sum of (w) the then outstanding principal amount
      of this Note plus (x) accrued and unpaid interest on the unpaid
      principal amount of this Note to the Optional Prepayment Date plus (y)
      Default Interest, if any, on the amounts referred to in clauses (w) and (x)
      plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and
      1.4(g) hereof or pursuant to Section 2(c) of the Registration Rights Agreement
      (the then outstanding principal amount of this Note to the date of payment
      plus the amounts referred to in clauses (x), (y) and (z) shall
      collectively be known as the “Optional Prepayment Sum”).
      Notwithstanding notice of an Optional Prepayment, the Holders shall at all
      times
      prior to the Optional Prepayment Date maintain the right to convert all or
      any
      portion of the Notes in accordance with Article I and any portion of Notes
      so
      converted after receipt of an Optional Prepayment Notice and prior to the
      Optional Prepayment Date set forth in such notice and payment of the aggregate
      Optional Prepayment Amount shall be deducted from the principal amount of Notes
      which are otherwise subject to prepayment pursuant to such notice.  If
      the Borrower delivers an Optional Prepayment Notice and fails to pay the
      Optional Prepayment Amount due to the Holders of the Notes within two (2)
      business days following the Optional Prepayment Date, the Borrower shall forever
      forfeit its right to redeem the Notes pursuant to this Section 5.1.

     

     

     

    


     

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    IN
      WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
      by its duly authorized officer this 5th day of January, 2007, effective as
      of
      December 29, 2006.

     

    


    DIBZ
      INTERNATIONAL, INC.

    


    


    


    By:           ______________________________

    Mark
      Wood

    Chief
      Executive Officer

    


    
      
        
                

           

        

        
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    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 $.005 per share
      (“Common Stock”), of Dibz International, Inc., a Delaware
      corporation (the “Borrower”) according to the conditions of the
      convertible Notes of the Borrower dated as of September 8, 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:____________________________________

     

    


    
      
        
               

           

        

        
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    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.