Filed by Automated Filing Services Inc. (604) 609-0244 - Snocone Systems Inc. - Exhibit 4.2







	 	
        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  

	 San Diego, California  	  
	 April 29, 2005  	 $25,000  


      FOR VALUE RECEIVED,
  SNOCONE SYSTEMS INC., a Nevada corporation (hereinafter called the “Borrower”),
  hereby promises to pay to the order of New Millennium Capital Partners II, LLC
  or registered assigns (the “Holder”) the sum of $25,000,
  on April 29, 2008 (the “Maturity Date”), and to pay interest
  on the unpaid principal balance hereof at the rate of eight percent (8%) (the
  “Interest Rate”) per annum from April 29, 2005 (the “Issue
  Date”) until the same becomes due and payable, whether at maturity
  or upon acceleration or by prepayment or otherwise. Any amount of principal
  or interest on this Note which is not paid when due shall bear interest at the
  rate of fifteen percent (15%) per annum from the due date thereof until the
  same is paid (“Default Interest”). Interest shall commence
  accruing on the Issue Date, shall be computed on the basis of a 365-day year
  and the actual number of days elapsed and shall be payable quarterly provided
  that no interest shall be due and payable for any month in which the Trading
  Price (as such term is defined below) is greater than $1.3375 for each Trading
  Day (as such term is defined below) of the month. All payments due hereunder
  (to the extent not converted into common stock, $.001 par value per share
  (the “Common Stock”) in accordance with the terms hereof)
  shall be made in lawful money of the United States of America provided that
  interest due and payable for the first six (6) months following the Issue Date
  shall be paid on the date hereof. 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

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 banks in the city of New York, New York are authorized or
  required by law or executive order to remain closed. Each capitalized term used
  herein, and not otherwise defined, shall have the meaning ascribed thereto in
  that certain Securities Purchase Agreement, dated April 29, 2005, pursuant to
  which this Note was originally issued (the “Purchase Agreement”).


      This Note is free from all taxes,
  liens, claims and encumbrances with respect to the issue thereof and shall not
  be subject to preemptive rights or other similar rights of shareholders of the
  Borrower and will not impose personal liability upon the holder thereof. The
  obligations of the Borrower under this Note shall be secured by that certain
  Security Agreement and Intellectual Property Security Agreement, each dated
  April 29, 2005 by and between the Borrower and the Holder. 

      The following terms shall apply
  to this Note:

 ARTICLE I. CONVERSION RIGHTS

      1.1 Conversion
  Right. The Holder shall have the right from time to time, and
  at any time on or prior to the earlier of (i) the Maturity Date and (ii) the
  date of payment of the Default Amount (as defined in Article III) pursuant to
  Section 1.6(a) or Article III, the Optional Prepayment Amount (as defined in
  Section 5.1 or any payments pursuant to Section 1.7, each in respect of the
  remaining outstanding principal amount of this Note to convert all or any part
  of the outstanding and unpaid principal amount of this Note into fully paid
  and non-assessable shares of Common Stock, as such Common Stock exists on the
  Issue Date, or any shares of capital stock or other securities of the Borrower
  into which such Common Stock shall hereafter be changed or reclassified at the
  conversion price (the “Conversion Price”) determined as provided
  herein (a “Conversion”); provided, however,
  that in no event shall the Holder be entitled to convert any portion of this
  Note in excess of that portion of this Note upon conversion of which the sum
  of (1) the number of shares of Common Stock beneficially owned by the Holder
  and its affiliates (other than shares of Common Stock which may be deemed beneficially
  owned through the ownership of the unconverted portion of the Notes or the unexercised
  or unconverted portion of any other security of the Borrower (including, without
  limitation, the 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 4.99% of the outstanding shares of Common Stock
  and provided further that the Holder shall not be entitled to
  convert any portion of this Note during any month immediately succeeding a Determination
  Date on which the Borrower exercises its prepayment option pursuant to Section
  5.2 of this Note. 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

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 1.4 below; provided that the Notice of Conversion is submitted
  by facsimile (or by other means resulting in, or reasonably expected to result
  in, notice) to the Borrower before 6:00 p.m., New York, New York time on such
  conversion date (the “Conversion Date”). The term “Conversion
  Amount” means, with respect to any conversion of this Note, the sum
  of (1) the principal amount of this Note to be converted in such conversion
  plus (2) accrued and unpaid interest, if any, on such principal amount
  at the interest rates provided in this Note to the Conversion Date plus
  (3) Default Interest, if any, on the amounts referred to in the immediately
  preceding clauses (1) and/or (2) plus (4) at the Holder’s option,
  any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
  pursuant to Section 2(c) of that certain Registration Rights Agreement, dated
  as of April 29, 2005, executed in connection with the initial issuance of this
  Note and the other Notes issued on the Issue Date (the “Registration
  Rights Agreement”). The term “Determination Date” means
  the last business day of each month after the Issue Date. 

      1.2 Conversion Price.
  

      (a) Calculation of Conversion
  Price. The Conversion Price shall be the lesser of (i) the Variable
  Conversion Price (as defined herein) and (ii) the Fixed Conversion Price (as
  defined herein) (subject, in each case, to equitable adjustments for stock splits,
  stock dividends or rights offerings by the Borrower relating to the Borrower’s
  securities or the securities of any subsidiary of the Borrower, combinations,
  recapitalization, reclassifications, extraordinary distributions and similar
  events). The “Variable Conversion Price” shall mean the Applicable
  Percentage (as defined herein) multiplied by the Market Price (as defined herein).
  “Market Price” means the average of the lowest three (3)
  Trading Prices (as defined below) for the Common Stock during the twenty (20)
  Trading Day period ending one Trading Day prior to the date the Conversion Notice
  is sent by the Holder to the Borrower via facsimile (the “Conversion
  Date”). “Trading Price” means, for any security
  as of any date, the intraday trading price on the Over-the-Counter Bulletin
  Board (the “OTCBB”) as reported by a reliable reporting service
  mutually acceptable to and hereafter designated by Holders of a majority in
  interest of the Notes and the Borrower or, if the OTCBB is not the principal
  trading market for such security, the intraday trading price of such security
  on the principal securities exchange or trading market where such security is
  listed or traded or, if no intraday trading price of such security is available
  in any of the foregoing manners, the average of the intraday trading prices
  of any market makers for such security that are listed in the “pink sheets”
  by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated
  for such security on such date in the manner provided above, the Trading Price
  shall be the fair market value as mutually determined by the Borrower and the
  holders of a majority in interest of the Notes being converted for which the
  calculation of the Trading Price is required in order to determine the Conversion
  Price of such Notes. “Trading Day” shall mean any day on
  which the Common Stock is traded for any period on the OTCBB, or on the principal
  securities exchange or other securities market on which the Common Stock is
  then being traded. “Applicable Percentage” shall mean 60.0%
  . The “Fixed Conversion Price” shall mean $1.00. 

      (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

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

      1.3 Authorized
  Shares. Subject to the Stockholder Approval (as defined in the
  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. 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, 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,

 4








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

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

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

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

      1.4 Method of Conversion.

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

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

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

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

      (f) Delivery
  of Common Stock by Electronic Transfer. In lieu of delivering
  physical certificates representing the Common Stock issuable upon conversion,
  provided the Borrower’s transfer agent is participating in the Depository
  Trust Company

 (“DTC”) Fast Automated Securities Transfer
  (“FAST”) program, upon request of the Holder and its compliance
  with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower
  shall use its best efforts to cause its transfer agent to electronically transmit
  the Common Stock issuable upon conversion to the Holder by crediting the account
  of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent
  Commission (“DWAC”) system. 

      (g) Failure
  to Deliver Common Stock Prior to Deadline. Without in any way
  limiting the Holder’s right to pursue other remedies, including actual
  damages and/or equitable relief, the parties agree that if delivery of the Common
  Stock issuable upon conversion of this Note is more than three (3) 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

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

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


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


      1.6 Effect
  of Certain Events. 

       (a) Effect
  of Merger, Consolidation, Etc. At the option of the Holder, the
  sale, conveyance or disposition of all or substantially all of the assets of
  the Borrower, the effectuation by the Borrower of a transaction or series of
  related transactions in

 8








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

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


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

 9








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

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

 10








      Notwithstanding the foregoing,
  the adjustments due to Dilutive Issuances shall not apply to any transaction
  involving (i) securities issued in a firm commitment underwritten public offering
  (excluding a continuous offering pursuant to Rule 415 under the 1933 Act, an
  equity line of credit or similar financing arrangement) resulting in net proceeds
  to the Borrower of in excess of $1,500,000, (ii) securities issued as consideration
  for a merger, consolidation or purchase of assets, or in connection with any
  strategic partnership or joint venture (the primary purpose of which is not
  to raise equity capital), or in connection with the disposition or acquisition
  of a business, product or license by the Borrower, (iii) securities upon exercise
  or conversion of the Borrower’s options, warrants or other convertible
  securities outstanding as of the date hereof, or (iv) securities not to exceed
  500,000 shares of Common Stock issued or issuable to directors, officers, employees,
  consultants or vendors (if in transactions with primarily non-financing purposes)
  directly or pursuant to stock option plans, restricted stock purchase agreements,
  employment agreements and the like as approved by the Borrower’s board
  of directors.

      (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

 11








 relating to the Common Stock occurring after the date hereof.
  Once the Maximum Share Amount has been issued (the date of which is hereinafter
  referred to as the “Maximum Conversion Date”), if the Borrower
  fails to eliminate any prohibitions under applicable law or the rules or regulations
  of any stock exchange, interdealer quotation system or other self-regulatory
  organization with jurisdiction over the Borrower or any of its securities on
  the Borrower’s ability to issue shares of Common Stock in excess of the
  Maximum Share Amount (a “Trading Market Prepayment Event”),
  in lieu of any further right to convert this Note, and in full satisfaction
  of the Borrower’s obligations under this Note, the Borrower shall pay
  to the Holder, within fifteen (15) business days of the Maximum Conversion Date
  (the “Trading Market Prepayment Date”), an amount equal to
  130% times the sum of (a) the then outstanding principal amount
  of this Note immediately following the Maximum Conversion Date, plus
  (b) accrued and unpaid interest on the unpaid principal amount of this Note
  to the Trading Market Prepayment Date, plus (c) Default Interest, if
  any, on the amounts referred to in clause (a) and/or (b) above, plus
  (d) any optional amounts that may be added thereto at the Maximum Conversion
  Date by the Holder in accordance with the terms hereof (the then outstanding
  principal amount of this Note immediately following the Maximum Conversion Date,
  plus the amounts referred to in clauses (b), (c) and (d) above shall
  collectively be referred to as the “Remaining Convertible Amount”).
  With respect to each Holder of Notes, the Maximum Share Amount shall refer to
  such Holder’s pro rata share thereof determined in accordance
  with Section 4.8 below. In the event that the sum of (x) the aggregate number
  of shares of Common Stock issued upon conversion of this Note and the other
  Notes issued pursuant to the Purchase Agreement plus (y) the aggregate
  number of shares of Common Stock that remain issuable upon conversion of this
  Note and the other Notes issued pursuant to the Purchase Agreement, represents
  at least one hundred percent (100%) of the Maximum Share Amount (the “Triggering
  Event”), the Borrower will use its best efforts to seek and obtain
  Shareholder Approval (or obtain such other relief as will allow conversions
  hereunder in excess of the Maximum Share Amount) as soon as practicable following
  the Triggering Event and before the Maximum Conversion Date. As used herein,
  “Shareholder Approval” means approval by the shareholders
  of the Borrower to authorize the issuance of the full number of shares of Common
  Stock which would be issuable upon full conversion of the then outstanding Notes
  but for the Maximum Share Amount. 

      1.8 Status
  as Shareholder. Upon submission of a Notice of Conversion by
  a Holder, (i) the shares covered thereby (other than the shares, if any, which
  cannot be issued because their issuance would exceed such Holder’s allocated
  portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted
  into shares of Common Stock and (ii) the Holder’s rights as a Holder of
  such converted portion of this Note shall cease and terminate, excepting only
  the right to receive certificates for such shares of Common Stock and to any
  remedies provided herein or otherwise available at law or in equity to such
  Holder because of a failure by the Borrower to comply with the terms of this
  Note. Notwithstanding the foregoing, if a Holder has not received certificates
  for all shares of Common Stock prior to the tenth (10th) business day after
  the expiration of the Deadline with respect to a conversion of any portion of
  this Note for any reason, then (unless the Holder otherwise elects to retain
  its status as a holder of Common Stock by so notifying the Borrower) the Holder
  shall regain the rights of a Holder of this Note with respect to such unconverted
  portions of this Note and the Borrower shall, as soon as practicable, return
  such unconverted Note to the Holder or, if the Note has not been surrendered,
  adjust its records to reflect that such portion of this Note has not been converted.
  In

 12









all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any
subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower’s failure to convert this Note. 

 ARTICLE II. CERTAIN COVENANTS

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

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

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

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


      2.5 Advances
  and Loans. So long as the Borrower shall have any obligation
  under this Note, the Borrower shall not, without the Holder’s written
  consent, lend money, give credit or make advances to any person, firm, joint
  venture or corporation, including, without limitation, officers, directors,
  employees, subsidiaries and affiliates of the Borrower, except loans, credits
  or advances (a) in existence or committed on the date hereof and which the Borrower
  has informed Holder in writing prior to the date hereof, (b) made in the ordinary
  course of business or (c) not in excess of $100,000. 

 13








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

 ARTICLE III. EVENTS OF DEFAULT

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

      3.1 Failure
  to Pay Principal or Interest. The Borrower fails to pay the principal
  hereof or interest thereon when due on this Note, whether at maturity, upon
  a Trading Market Prepayment Event pursuant to Section 1.7, upon acceleration
  or otherwise, and such failure shall continue for a period of ten (10) days
  after payment is due 

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


      3.3 Failure
  to Timely File Registration or Effect Registration. The Borrower
  fails to file the Registration Statement within forty-five (45) days following
  the Closing Date (as defined in the Purchase Agreement) or obtain effectiveness
  with the Securities and Exchange Commission of the Registration Statement within
  one hundred thirty-five (135) days following the Closing Date (as defined in
  the Purchase Agreement) or such Registration Statement lapses in effect (or
  sales cannot otherwise be made thereunder effective, whether by reason of the
  Borrower’s failure to amend or supplement the prospectus included therein
  in accordance with the Registration Rights Agreement or otherwise) for more
  than ten (10) consecutive days or twenty (20) days in any twelve month period
  after the Registration Statement becomes effective; 

 14








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

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

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


      3.7 Judgments.
  Any money judgment, writ or similar process shall be entered or filed against
  the Borrower or any subsidiary of the Borrower or any of its property or other
  assets for more than $100,000, and shall remain unvacated, unbonded or unstayed
  for a period of twenty (20) days unless otherwise consented to by the Holder,
  which consent will not be unreasonably withheld; 

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


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

      3.10 Default
  Under Other Notes. An Event of Default has occurred and is continuing
  under any of the other Notes issued pursuant to the Purchase Agreement, then,
  upon the occurrence and during the continuation of any Event of Default specified
  in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option of the
  Holders of a majority of the aggregate principal amount of the outstanding Notes
  issued pursuant to the Purchase Agreement exercisable through the delivery of
  written notice to the Borrower by such Holders (the “Default Notice”),
  and upon the occurrence of an Event of Default specified in Section 3.6 or 3.8,
  the Notes shall become immediately due and payable and the Borrower shall pay
  to the Holder, in full satisfaction of its obligations hereunder, an amount
  equal to the greater of (i) 130% times the sum of (w) the then
  outstanding principal amount of this Note plus (x) accrued and unpaid
  interest on the unpaid principal amount of this Note to the date of payment
  (the “Mandatory Prepayment Date”) plus (y) Default
  Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus
  (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof
  or

 15








 pursuant to Section 2(c) of the Registration Rights Agreement
  (the then outstanding principal amount of this Note to the date of payment plus
  the amounts referred to in clauses (x), (y) and (z) shall collectively be known
  as the “Default Sum”) or (ii) the “parity value”
  of the Default Sum to be prepaid, where parity value means (a) the highest number
  of shares of Common Stock issuable upon conversion of or otherwise pursuant
  to such Default Sum in accordance with Article I, treating the Trading Day immediately
  preceding the Mandatory Prepayment Date as the “Conversion Date”
  for purposes of determining the lowest applicable Conversion Price, unless the
  Default Event arises as a result of a breach in respect of a specific Conversion
  Date in which case such Conversion Date shall be the Conversion Date), multiplied
  by (b) the highest Closing Price for the Common Stock during the period
  beginning on the date of first occurrence of the Event of Default and ending
  one day prior to the Mandatory Prepayment Date (the “Default Amount”)
  and all other amounts payable hereunder shall immediately become due and payable,
  all without demand, presentment or notice, all of which hereby are expressly
  waived, together with all costs, including, without limitation, legal fees and
  expenses, of collection, and the Holder shall be entitled to exercise all other
  rights and remedies available at law or in equity. If the Borrower fails to
  pay the Default Amount within five (5) business days of written notice that
  such amount is due and payable, then the Holder shall have the right at any
  time, so long as the Borrower remains in default (and so long and to the extent
  that there are sufficient authorized shares), to require the Borrower, upon
  written notice, to immediately issue, in lieu of the Default Amount, the number
  of shares of Common Stock of the Borrower equal to the Default Amount divided
  by the Conversion Price then in effect. 

 ARTICLE IV. MISCELLANEOUS

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


      4.2 Notices.
  Any notice herein required or permitted to be given shall be in writing
  and may be personally served or delivered by courier or sent by United States
  mail and shall be deemed to have been given upon receipt if personally served
  (which shall include telephone line facsimile transmission) or sent by courier
  or three (3) days after being deposited in the United States mail, certified,
  with postage pre-paid and properly addressed, if sent by mail. For the purposes
  hereof, the address of the Holder shall be as shown on the records of the Borrower;
  and the address of the Borrower shall be 3131 Camino del Rio, N, Suite 1650,
  San Diego, CA 92108, facsimile number: (619) 284-4344. Both the Holder
  and the Borrower may change the address for service by service of written notice
  to the other as herein provided. 

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

 16








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

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

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

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

 17








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

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

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

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

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

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 other event, and a brief statement regarding the amount and
  character of such dividend, distribution, right or other event to the extent
  known at such time. The Borrower shall make a public announcement of any event
  requiring notification to the Holder hereunder substantially simultaneously
  with the notification to the Holder in accordance with the terms of this Section
  4.12. 

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

 ARTICLE V. CALL OPTION

      5.1 Call
  Option. Notwithstanding anything to the contrary contained in
  this Article V, so long as (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 $1.10 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 or a portion of the outstanding Notes in accordance
  with this Section 5.1. In the event the Common Stock is trading above $1.10
  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 to prepay
  all or a portion of the outstanding Notes as set forth in this Section 5.1 provided
  that Borrower makes an additional payment to the Holders equal to the difference
  between the trading price on the day immediately prior to the date of the notice
  and $1.10 per share for that number of shares this Note (or such portion
  of this Note being prepaid) would have converted into pursuant to Section 1.2(a)
  (the “Additional Payment”). 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 or a portion of the Notes issued on the Issue Date, (2) the date
  of prepayment and (3) the amount of the prepayment and the amount of any Additional
  Payment as applicable (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) 120% (for prepayments occurring
  within thirty (30) days of the Issue Date), (ii) 130% for prepayments

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 occurring between thirty-one (31) and sixty (60) days of the
  Issue Date, or (iii) 145% (for prepayments occurring after the sixtieth (60th)
  day following the Issue Date), multiplied by the sum of (w) the then outstanding
  principal amount of this Note plus (x) accrued and unpaid interest on
  the unpaid principal amount of this Note to the Optional Prepayment Date plus
  (y) Default Interest, if any, on the amounts referred to in clauses (w) and
  (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3
  and 1.4(g) hereof or pursuant to Section 2(c) of the Registration Rights Agreement
  (the then outstanding principal amount of this Note to the date of payment plus
  the amounts referred to in clauses (x), (y) and (z) shall collectively be known
  as the “Optional Prepayment Sum”). Notwithstanding notice
  of an Optional Prepayment, the Holders shall at all times prior to the Optional
  Prepayment Date maintain the right to convert all or any portion of the Notes
  in accordance with Article I and any portion of Notes so converted after receipt
  of an Optional Prepayment Notice and prior to the Optional Prepayment Date set
  forth in such notice and payment of the aggregate Optional Prepayment Amount
  shall be deducted from the principal amount of Notes which are otherwise subject
  to prepayment pursuant to such notice. If the Borrower delivers an Optional
  Prepayment Notice and fails to pay the Optional Prepayment Amount due to the
  Holders of the Notes within two (2) business days following the Optional Prepayment
  Date, the Borrower shall forever forfeit its right to redeem the Notes pursuant
  to this Section 5.1. 

      5.2 Partial
  Call Option. Notwithstanding anything to the contrary contained in this
  Article V, in the event that the Average Daily Price of the Common Stock, as
  reported by the Reporting Service, for each day of the month ending on any Determination
  Date is below the Initial Market Price, the Borrower may, at its option, prepay
  a portion of the outstanding principal amount of the Notes equal to the principal
  amount hereof divided by thirty-six (36). The term “Initial Market
  Price” means shall mean the volume weighted average price of the Common
  Stock for the five (5) Trading Days immediately preceding the Closing which
  is $1.07. The term “Reporting Service” means a reliable
  reporting service mutually acceptable to and hereinafter designated by the Holder.


 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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     IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this 29th day of April, 2005. 

	 	 SNOCONE SYSTEMS INC.  




	 	 By:  	   /s/ Edon Moyal                                    
    
	 	  	 Edon Moyal  
	 	  	 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 $.001 per share (“Common
  Stock”), of Snocone Systems Inc., a Nevada corporation (the “Borrower”)
  according to the conditions of the convertible Notes of the Borrower dated as
  of April 29, 2005 (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.


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