**Exhibit 99.2****[FORM OF SENIOR SECURED CONVERTIBLE NOTE]****NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIESINTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THESECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN AGENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLDPURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIESMAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENTSECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THISNOTE, INCLUDING SECTIONS 3(c)(iii) AND 19(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTEAND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SETFORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.****US Dataworks, Inc.****Senior Secured Convertible Note**     Issuance Date: November 13, 2007   Original Principal Amount: U.S.$**[****•****]**               **FOR VALUE RECEIVED,**US DATAWORKS, INC., a Nevada corporation (the “Company”) hereby promisesto pay to ___ or registered assigns (“**Holder**”) the amount set out above as the OriginalPrincipal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion orotherwise, the “**Principal**”) when due, whether upon the Maturity Date (as defined below),acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to payinterest (“**Interest**”) on any outstanding Principal at the applicable Interest Rate, from the dateset out above as the Issuance Date (the “**Issuance Date**”) until the same becomes due and payable,whether upon an Interest Date (as defined below), the Maturity Date, acceleration, conversion,redemption or otherwise (in each case in accordance with the terms hereof). This Senior SecuredConvertible Note (including all Senior Secured Convertible Notes issued in exchange, transfer orreplacement hereof, this “**Note**”) is one of an issue of Senior Secured Convertible Notes issuedpursuant to the Securities Purchase Agreement (collectively, the “**Notes**” and such other SeniorSecured Convertible Notes, the “**Other Notes**”). Certain capitalized terms used herein are definedin Section 29.               (1) MATURITY. On the Maturity Date, the Company shall pay to the Holder an amount incash representing all outstanding Principal, accrued and unpaid Interest and
 

 
accrued and unpaidLate Charges (as defined in Section 24(b)), if any. The “**Maturity Date**” shall be November 13,2010, as may be extended at the option of the Holder (i) in the event that, and for so long as, anEvent of Default (as defined in Section 4(a)) shall have occurred and be continuing on the MaturityDate (as may be extended pursuant to this Section 1) or any event shall have occurred and becontinuing on the Maturity Date (as may be extended pursuant to this Section 1) that with thepassage of time and the failure to cure would result in an Event of Default, and (ii) through thedate that is ten (10) Business Days after the consummation of a Change of Control in the event thata Change of Control is publicly announced or a Change of Control Notice (as defined in Section5(b)) is delivered prior to the Maturity Date. Other than as specifically permitted by this Note,the Company may not prepay any portion of the outstanding Principal, accrued and unpaid Interest oraccrued and unpaid Late Charges, if any.               (2) INTEREST; INTEREST RATE. (a) Interest on this Note shall commence accruing onthe Issuance Date and shall be computed on the basis of a 360-day year comprised of twelve (12)thirty (30) day months and shall be payable in arrears for each Calendar Quarter on January 15,April 15, July 15 and October 15 of each year (each, an “**Interest Date**”) with the first InterestDate being January 15, 2008. Interest shall be payable on each Interest Date, to the record holderof this Note on the applicable Interest Date, in cash.               (b) Prior to the payment of Interest on an Interest Date, Interest on this Note shall accrueat the Interest Rate and be payable by way of inclusion of the Interest in the Conversion Amounton each Conversion Date in accordance with Section 3(b)(i). From and after the occurrence andduring the continuance of an Event of Default, the Interest Rate shall be increased to eighteenpercent (18.0%) per annum. In the event that such Event of Default is subsequently cured, theadjustment referred to in the preceding sentence shall cease to be effective as of the date ofsuch cure; provided that the Interest as calculated and unpaid at such increased rate during thecontinuance of such Event of Default shall continue to apply to the extent relating to the daysafter the occurrence of such Event of Default through and including the date of cure of suchEvent of Default.               (3) CONVERSION OF NOTES. This Note shall be convertible into shares of the Company’scommon stock, par value $0.0001 per share (the “**Common Stock**”), on the terms and conditions setforth in this Section 3.               (a) Conversion Right. Subject to the provisions of Section 3(d), at any time ortimes on or after the Issuance Date, the Holder shall be entitled to convert any portion of theoutstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable            shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as definedbelow). The Company shall not issue any fraction of a share of Common Stock upon any conversion.If the issuance would result in the issuance of a fraction of a share of Common Stock, theCompany shall round such fraction of a share of Common Stock up to the nearest whole share. TheCompany shall pay any and all taxes that may be payable with respect to the issuance and deliveryof Common Stock upon conversion of any Conversion Amount.               (b) Conversion Rate. The number of shares of Common Stock issuable upon conversionof any Conversion Amount pursuant to Section 3(a) shall be
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determined by dividing (x) suchConversion Amount by (y) the Conversion Price (the “**Conversion Rate**”).                    (i) “**Conversion Amount**” means the sum of (A) the portion of the Principal to beconverted, redeemed or otherwise with respect to which this determination is being made, (B)accrued and unpaid Interest, if any, with respect to such Principal and (C) accrued andunpaid Late Charges, if any.                    (ii) “**Conversion Price**” means, as of any Conversion Date (as defined below) or otherdate of determination, $0.43, subject to adjustment as provided herein.               (c) Mechanics of Conversion.                    (i) Optional Conversion. To convert any Conversion Amount into shares ofCommon Stock on any date (a “**Conversion Date**”), the Holder shall (A) transmit by facsimile(or otherwise deliver), for receipt on or prior to 11:59 p.m., New York time, on such date,a copy of an executed notice of conversion in the form attached hereto as Exhibit I(the “**Conversion Notice**”) to the Company and (B) if required by Section 3(c)(iv), surrenderthis Note to a common carrier for delivery to the Company as soon as practicable on orfollowing such date (or an indemnification undertaking with respect to this Note in the caseof its loss, theft or destruction). On or before the first (1st) Trading Dayfollowing the date of receipt of a Conversion Notice, the Company shall transmit byfacsimile a confirmation of receipt of such Conversion Notice to the Holder and theCompany’s transfer agent (the “Transfer Agent”). On or before the second (2nd)Trading Day following the date of receipt of a Conversion Notice (the “**Share DeliveryDate**”), the Company shall (1) (x) provided that the Transfer Agent is participating inDepository Trust Company’s (“**DTC**”) Fast Automated Securities Transfer Program credit suchaggregate number of shares of Common Stock to which the Holder shall be entitled to theHolder’s or its designee’s balance account with DTC through its Deposit Withdrawal AgentCommission system or (y) if the Transfer Agent is not participating in the DTC FastAutomated Securities Transfer Program, issue and deliver to the address as specified in theConversion Notice, a certificate, registered in the name of the Holder or its designee, forthe number of shares of Common Stock to which the Holder shall be entitled and (2) pay tothe Holder in cash, by wire transfer of immediately available funds, an amount equal to thesum of (x) the Make-Whole Amount and (y) the accrued and unpaid Interest, if any, and LateCharges, if any, to but excluding the Conversion Date; provided, however, that the Companyshall not pay any amounts of accrued and unpaid Interest or Late Charges to the extent thatthe Conversion Amount being so converted includes such amounts of accrued and unpaidInterest or Late Charges as indicated on the Conversion Notice. If this Note is physicallysurrendered for conversion as required by Section 3(c)(iii) and the outstanding Principal ofthis Note is greater than the Principal portion of the Conversion Amount being converted,then the Company shall as soon as practicable and in no event later than three Business Daysafter receipt of this Note and at its own expense, issue and deliver to the holder a newNote (in accordance with Section 18(d)) representing the outstanding Principal not converted. The Personor Persons entitled to receive the shares of Common Stock issuable upon a conversion of
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thisNote shall be treated for all purposes as the record holder or holders of such shares ofCommon Stock on the Conversion Date.                    (ii) Company’s Failure to Timely Convert. If the Company shall fail to issue acertificate to the Holder or credit the Holder’s balance account with DTC, as applicable,for the number of shares of Common Stock to which the Holder is entitled upon conversion ofany Conversion Amount on or prior to the date which is three (3) Trading Days after theConversion Date (a “**Conversion Failure**”), then (A) the Company shall pay damages to theHolder for each day of such Conversion Failure in an amount equal to 1.5% of the product of(I) the sum of the number of shares of Common Stock not issued to the Holder on or prior tothe Share Delivery Date and to which the Holder is entitled, and (II) the Closing Sale Priceof the Common Stock on the Share Delivery Date and (B) the Holder, upon written notice tothe Company, may void its Conversion Notice with respect to, and retain or have returned, asthe case may be, any portion of this Note that has not been converted pursuant to suchConversion Notice; provided that the voiding of a Conversion Notice shall not affectthe Company’s obligations to make any payments which have accrued prior to the date of suchnotice pursuant to this Section 3(c)(iii) or otherwise. In addition to the foregoing, ifwithin three (3) Trading Days after the Company’s receipt of the facsimile copy of aConversion Notice the Company shall fail to issue and deliver a certificate to the Holder orcredit the Holder’s balance account with DTC for the number of shares of Common Stock towhich the Holder is entitled upon such holder’s conversion of any Conversion Amount, and ifon or after such Trading Day the Holder purchases (in an open market transaction orotherwise) Common Stock to deliver in satisfaction of a sale by the Holder of Common Stockissuable upon such conversion that the Holder anticipated receiving from the Company (a**“Buy-In”**), then the Company shall, within three (3) Trading Days after the Holder’s requestand in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to theHolder’s total purchase price (including brokerage commissions and other out-of-pocketexpenses, if any) for the shares of Common Stock so purchased (the **“Buy-In Price”**), at whichpoint the Company’s obligation to issue and deliver such certificate or to credit theHolder’s balance account with DTC for the number of shares of Common Stock to which theHolder is entitled upon such Holder’s conversion of any Conversion Amount shall terminate,or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificatesrepresenting such Common Stock and pay cash to the Holder in an amount equal to the excess(if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock,times (B) the Closing Bid Price on the Conversion Date.                    (iii) Registration; Book-Entry. The Company shall maintain a register (the“**Register**”) for the recordation of the names and addresses of the holders of each Note andthe principal amount of the Notes held by such holders (the “**Registered Notes**”). Theentries in the Register shall be conclusive and binding for all purposes absent manifesterror. The Company and the holders of the Notes shall treat each Person whose name isrecorded in the Register as the owner of a Note for all purposes, including, withoutlimitation, the right to receive payments of Principal and Interest hereunder,notwithstanding notice to the contrary. A Registered Note may be assigned or sold inwhole or in part only by registration of such assignment or sale on the Register. Upon its
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receipt of a request to assign or sell all or part of any Registered Note by a Holder, theCompany shall record the information contained therein in the Register and issue one or morenew Registered Notes in the same aggregate principal amount as the principal amount of thesurrendered Registered Note to the designated assignee or transferee pursuant to Section 18.Notwithstanding anything to the contrary set forth herein, upon conversion of any portionof this Note in accordance with the terms hereof, the Holder shall not be required tophysically surrender this Note to the Company unless (A) the full Conversion Amountrepresented by this Note is being converted or (B) the Holder has provided the Company withprior written notice (which notice may be included in a Conversion Notice) requestingreissuance of this Note upon physical surrender of this Note. The Holder and the Companyshall maintain records showing the Principal, Interest and Late Charges, if any, convertedand the dates of such conversions or shall use such other method, reasonably satisfactory tothe Holder and the Company, so as not to require physical surrender of this Note uponconversion.                    (iv) Pro Rata Conversion; Disputes. In the event that the Company receives aConversion Notice from more than one holder of Notes for the same Conversion Date and theCompany can convert some, but not all, of such portions of the Notes submitted forconversion, the Company, subject to Section 3(d), shall convert from each holder of Noteselecting to have Notes converted on such date a pro rata amount of such holder’s portion ofits Notes submitted for conversion based on the principal amount of Notes submitted forconversion on such date by such holder relative to the aggregate principal amount of allNotes submitted for conversion on such date. In the event of a dispute as to the number ofshares of Common Stock issuable to the Holder in connection with a conversion of this Note,the Company shall issue to the Holder the number of shares of Common Stock not in disputeand resolve such dispute in accordance with Section 23.               (d) Limitations on Conversions.                    (i) Beneficial Ownership. The Company shall not effect any conversion of thisNote, and the Holder of this Note shall not have the right to convert any portion of thisNote pursuant to Section 3(a), to the extent that after giving effect to such conversion,the Holder (together with the Holder’s affiliates) would beneficially own in excess of 4.99%(the “**Maximum Percentage**”) of the number of shares of Common Stock outstanding immediatelyafter giving effect to such conversion. For purposes of the foregoing sentence, the numberof shares of Common Stock beneficially owned by the Holder and its affiliates shall includethe number of shares of Common Stock issuable upon conversion of this Note with respect towhich the determination of such sentence is being made, but shall exclude the number ofshares of Common Stock which would be issuable upon (A) conversion of the remaining,nonconverted portion of this Note beneficially owned by the Holder or any of its affiliatesand (B) exercise or conversion of the unexercised or nonconverted portion of any othersecurities of the Company (including, without limitation, any Other Notes or Warrants)subject to a limitation on conversion or exercise analogous to the limitation containedherein beneficially owned bythe Holder or any of its affiliates. Except as set forth in the preceding sentence,for purposes of this Section 3(d)(i), beneficial ownership shall be calculated in accordance
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with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “**Exchange Act**”).For purposes of this Section 3(d)(i), in determining the number of outstanding shares ofCommon Stock, the Holder may rely on the number of outstanding shares of Common Stock asreflected in (x) the Company’s most recent Form 10-KSB, Form 10-Q Form 8-K, or other publicfiling with the SEC, as the case may be, (y) a more recent public announcement by theCompany or (z) any other notice by the Company or the Transfer Agent setting forth thenumber of shares of Common Stock outstanding. For any reason at any time, upon the writtenor oral request of the Holder, the Company shall within one (1) Business Day confirm orallyand in writing to the Holder the number of shares of Common Stock then outstanding. In anycase, the number of outstanding shares of Common Stock shall be determined after givingeffect to the conversion or exercise of securities of the Company, including this Note, bythe Holder or its affiliates since the date as of which such number of outstanding shares ofCommon Stock was reported. By written notice to the Company, the Holder may from time totime increase or decrease the Maximum Percentage to any other percentage not in excess of9.99% specified in such notice; provided that (i) any such increase will not be effectiveuntil the sixty-first (61st) day after such notice is delivered to the Company,and (ii) any such increase or decrease will apply only to the Holder and not to any otherholder of Notes.                    (ii) Eligible Market Regulation. The Company shall not be obligated to issueany shares of Common Stock upon conversion of this Note, and the Holder of this Note shallnot have the right to receive upon conversion of this Note any shares of Common Stock, ifthe issuance of such shares of Common Stock would exceed the aggregate number of shares ofCommon Stock which the Company may issue upon conversion or exercise, as applicable, of theNotes and Warrants without breaching the Company’s obligations under the rules orregulations of any applicable Eligible Market (the “**Exchange Cap**”), except that suchlimitation shall not apply in the event that the Company (A) obtains the approval of itsstockholders as required by the applicable rules of such Eligible Market for issuances ofCommon Stock in excess of such amount or (B) obtains a written opinion from outside counselto the Company that such approval is not required, which opinion shall be reasonablysatisfactory to the Required Holders. Until such approval or written opinion is obtained,no purchaser of the Notes pursuant to the Securities Purchase Agreement (each a “**Purchaser**”and, collectively, the “**Purchasers**”) shall be issued in the aggregate, upon conversion orexercise, as applicable, of Notes or Warrants, shares of Common Stock in an amount greaterthan the product of the Exchange Cap multiplied by a fraction, the numerator of which is theprincipal amount of Notes issued to each Purchaser pursuant to the Securities PurchaseAgreement on the Closing Date and the denominator of which is the aggregate principal amountof all Notes issued to the Purchasers pursuant to the Securities Purchase Agreement on theClosing Date (with respect to each Purchaser, the “**Exchange Cap Allocation**”). In the eventthat any Purchaser shall sell or otherwise transfer any of such Purchaser’s Notes, thetransferee shall be allocated a pro rata portion of such Purchaser’s Exchange CapAllocation, and the restrictions of the prior sentence shall apply to such transferee withrespect to the portion of the Exchange Cap Allocation allocated to such transferee. In theevent that any holder of Notes shall convert all of such holder’s Notes into a number ofshares of Common Stock which, in the aggregate, is less than such holder’s Exchange CapAllocation, then the difference between such holder’s Exchange Cap Allocation and
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the number of shares of Common Stock actually issued to such holder shall be allocated to therespective Exchange Cap Allocations of the remaining holders of Notes on a pro rata basis inproportion to the aggregate principal amount of the Notes then held by each such holder.               (4) RIGHTS UPON EVENT OF DEFAULT.               (a) Event of Default. Each of the following events shall constitute an “**Event ofDefault**”:                    (i) the failure of the applicable Registration Statement required to be filed pursuantto the Registration Rights Agreement to be declared effective by the SEC on or prior to thedate that is sixty (60) days after the applicable Effectiveness Deadline (as defined in theRegistration Rights Agreement), or, while the applicable Registration Statement is requiredto be maintained effective pursuant to the terms of the Registration Rights Agreement, theeffectiveness of the applicable Registration Statement lapses for any reason (including,without limitation, the issuance of a stop order) or is unavailable to any holder of theNotes for sale of all of such holder’s Registrable Securities (as defined in theRegistration Rights Agreement) in accordance with the terms of the Registration RightsAgreement, and such lapse or unavailability continues for a period of ten (10) consecutivedays or for more than an aggregate of thirty (30) days in any 365-day period (other thandays during an Allowable Grace Period (as defined in the Registration Rights Agreement));                    (ii) the suspension from trading or failure of the Common Stock to be listed on anEligible Market for a period of five (5) consecutive Trading Days or for more than anaggregate of ten (10) Trading Days in any 365-day period;                    (iii) the Company’s (A) failure to cure a Conversion Failure by delivery of therequired number of shares of Common Stock within ten (10) Trading Days after the applicableConversion Date or (B) notice, written or oral, to any holder of the Notes, including by wayof public announcement or through any of its agents, at any time, of its intention not tocomply with a request for conversion of any Notes into shares of Common Stock that istendered in accordance with the provisions of the Notes;                    (iv) at any time following the tenth (10th) consecutive Business Day thatthe Holder’s Authorized Share Allocation is less than the number of shares of Common Stockthat the Holder would be entitled to receive upon a conversion of the full Conversion Amountof this Note (without regard to any limitations on conversion set forth in Section 3(d) orotherwise);                    (v) the Company’s failure to pay to the Holder any amount of Principal, RedemptionPrice, Interest, Late Charges or other amounts when and as due under this Note or any otherTransaction Document (as defined in the Securities Purchase Agreement) or any otheragreement, document, certificate or other instrument deliveredin connection with the transactions contemplated hereby and thereby to which the Holderis a party, except, in the case of a failure to pay Interest and/or Late Charges when and as
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due, in which case only if such failure continues for a period of at least three (3)Business Days;                    (vi) the occurrence of any default under, redemption of or acceleration prior tomaturity of any Indebtedness of the Company or any of its Subsidiaries (as defined inSection 3(a) of the Securities Purchase Agreement), other than with respect to any OtherNotes;                    (vii) the Company or any of its Subsidiaries, pursuant to or within the meaning ofTitle 11, U.S. Code, or any similar Federal, foreign or state law for the relief of debtors(collectively, “**Bankruptcy Law**”), (A) commences a voluntary case, (B) consents to the entryof an order for relief against it in an involuntary case, (C) consents to the appointment ofa receiver, trustee, assignee, liquidator or similar official (a “**Custodian**”), (D) makes ageneral assignment for the benefit of its creditors or (E) admits in writing that it isgenerally unable to pay its debts as they become due;                    (viii) a court of competent jurisdiction enters an order or decree under any BankruptcyLaw that (A) is for relief against the Company or any of its Subsidiaries in an involuntarycase, (B) appoints a Custodian of the Company or any of its Subsidiaries or (C) orders theliquidation of the Company or any of its Subsidiaries;                    (ix) a final judgment or judgments for the payment of money aggregating in excess of$250,000 are rendered against the Company or any of its Subsidiaries and which judgments arenot, within sixty (60) days after the entry thereof, bonded, discharged or stayed pendingappeal, or are not discharged within sixty (60) days after the expiration of such stay;provided, however, that any judgment which is covered by insurance or an indemnity from acreditworthy party shall not be included in calculating the $250,000 amount set forth aboveso long as the Company provides the Holder a written statement from such insurer orindemnity provider (which written statement shall be reasonably satisfactory to the Holder)to the effect that such judgment is covered by insurance or an indemnity and the Companywill receive the proceeds of such insurance or indemnity within thirty (30) days of theissuance of such judgment;                    (x) other than as specifically set forth in another clause of this Section 4(a), theCompany breaches any representation, warranty, covenant or other term or condition of anyTransaction Document, except, in the case of a breach of a covenant which is curable, onlyif such breach continues for a period of at least fifteen (15) consecutive Business Days;                    (xi) any breach or failure in any respect to comply with Sections 8 or 14 of this Note;                    (xii) the Company or any Subsidiary shall fail to perform or comply with any covenantor agreement contained in any Security Agreement to which itis a party, any Pledge Agreement to which it is a party or any Mortgage to which it isa party (each of the foregoing as defined in the Security Documents);
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                    (xiii) any material provision of any Security Document (as determined by the CollateralAgent) shall at any time for any reason (other than pursuant to the express terms thereof)cease to be valid and binding on or enforceable against the Company or any Subsidiaryintended to be a party thereto, or the validity or enforceability thereof shall be contestedby any party thereto, or a proceeding shall be commenced by the Company or any Subsidiary orany governmental authority having jurisdiction over any of them, seeking to establish theinvalidity or unenforceability thereof, or the Company or any Subsidiary shall deny inwriting that it has any liability or obligation purported to be created under any SecurityDocument;                    (xiv) any Security Agreement, any Pledge Agreement, any Mortgage or any other securitydocument, after delivery thereof pursuant hereto, shall for any reason fail or cease tocreate a valid and perfected and, except to the extent permitted by the terms hereof orthereof, first priority Lien in favor of the Collateral Agent for the benefit of the holdersof the Notes on any Collateral (as defined in the Security Documents) purported to becovered thereby;                    (xv) any bank at which any deposit account, blocked account, or lockbox account of theCompany or any Subsidiary is maintained shall fail to comply with any material term of anydeposit account, blocked account, lockbox account or similar agreement to which such bank isa party or any securities intermediary, commodity intermediary or other financialinstitution at any time in custody, control or possession of any investment property of theCompany or any Subsidiary shall fail to comply with any of the terms of any investmentproperty control agreement to which such Person is a party (it being understood that onlyaccounts pursuant to which the Collateral Agent has requested account control agreementsshould be subject to this clause (xv));                    (xvi) any material damage to, or loss, theft or destruction of, any Collateral, whetheror not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God orpublic enemy, or other casualty which causes, for more than fifteen (15) consecutive days,the cessation or substantial curtailment of revenue producing activities at any facility ofthe Company or any Subsidiary, if any such event or circumstance could reasonably beexpected to have a Material Adverse Effect (as defined in the Securities PurchaseAgreement); or                    (xvii) any Event of Default (as defined in the Other Notes) occurs with respect to anyOther Notes.               (b) Redemption Right. Upon the occurrence of an Event of Default with respect tothis Note or any Other Note, the Company shall within one (1) Business Day deliver written noticethereof via facsimile and overnight courier (an “**Event of Default Notice**”) to the Holder. At anytime after the earlier of the Holder’s receipt of an Event of Default Notice and the Holderbecoming aware of an Event of Default, the Holder mayrequire the Company to redeem all or any portion of this Note by delivering written noticethereof (the “**Event of Default Redemption Notice**”) to the Company, which Event of DefaultRedemption Notice shall indicate the Conversion Amount of this Note the Holder is
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electing torequire the Company to redeem. Each portion of this Note subject to redemption by the Companypursuant to this Section 4(b) shall be redeemed by the Company at a price equal to the greater of(i) the product of (A) the Conversion Amount to be redeemed and (B) the Redemption Premium and(ii) the product of (A) the Conversion Rate with respect to such Conversion Amount in effect atsuch time as the Holder delivers an Event of Default Redemption Notice and (B) the greater of (1)the Closing Sale Price of the Common Stock on the date immediately preceding such Event ofDefault, (2) the Closing Sale Price of the Common Stock on the date immediately following suchEvent of Default and (3) the Closing Sale Price of the Common Stock on the date the Holderdelivers the Event of Default Redemption Notice (the “**Event of Default Redemption Price**”).Redemptions required by this Section 4(b) shall be made in accordance with the provisions ofSection 11. To the extent redemptions required by this Section 4(b) are deemed or determined bya court of competent jurisdiction to be prepayments of the Note by the Company, such redemptionsshall be deemed to be voluntary prepayments. The parties hereto agree that in the event of theCompany’s redemption of any portion of the Note under this Section 4(b), the Holder’s damageswould be uncertain and difficult to estimate because of the parties’ inability to predict futureinterest rates and the uncertainty of the availability of a suitable substitute investmentopportunity for the Holder. Accordingly, any Redemption Premium due under this Section 4(b) isintended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actualloss of its investment opportunity and not as a penalty.               (5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.               (a) Assumption. The Company shall not enter into or be party to a FundamentalTransaction unless the Successor Entity assumes in writing all of the obligations of the Companyunder this Note and the other Transaction Documents in accordance with the provisions of thisSection 5(a) pursuant to written agreements in form and substance satisfactory to the RequiredHolders and approved by the Required Holders prior to such Fundamental Transaction, includingagreements to deliver to each holder of Notes in exchange for such Notes a security of theSuccessor Entity evidenced by a written instrument substantially similar in form and substance tothe Notes, including, without limitation, having a principal amount and interest rate equal tothe principal amounts and the interest rates of the Notes held by such holder, having similarconversion rights as the Notes and having similar ranking to the Notes, and satisfactory to theRequired Holders. Upon the occurrence of any Fundamental Transaction, the Successor Entity shallsucceed to, and be substituted for (so that from and after the date of such FundamentalTransaction, the provisions of this Note referring to the “Company” shall refer instead to theSuccessor Entity), and may exercise every right and power of the Company and shall assume all ofthe obligations of the Company under this Note with the same effect as if such Successor Entityhad been named as the Company herein. Upon consummation of the Fundamental Transaction, theSuccessor Entity shall deliver to the Holder confirmation that there shall be issued uponconversion or redemption of this Note at any time after the consummation of the FundamentalTransaction, in lieu of the shares of Common Stock (or other securities, cash, assets or otherproperty) issuable upon theconversion of the Notes prior to such Fundamental Transaction, such shares of publiclytraded common stock (or their equivalent) of the Successor Entity, as adjusted in accordance withthe provisions of this Note. The provisions of this Section shall apply similarly and equally to
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successive Fundamental Transactions and shall be applied without regard to any limitations on theconversion of this Note.               (b) Redemption Right. No sooner than fifteen (15) days nor later than ten (10) daysprior to the consummation of a Change of Control, but not prior to the public announcement ofsuch Change of Control, the Company shall deliver written notice thereof via facsimile andovernight courier to the Holder (a “**Change of Control Notice**”). At any time during the periodbeginning on the date of the Holder’s receipt of a Change of Control Notice and ending twenty(20) Trading Days after the consummation of such Change of Control, the Holder may require theCompany to redeem all or any portion of this Note by delivering written notice thereof (“**Changeof Control Redemption Notice**”) to the Company, which Change of Control Redemption Notice shallindicate the Conversion Amount the Holder is electing to redeem. The portion of this Notesubject to redemption pursuant to this Section 5 shall be redeemed by the Company in cash at aprice equal to the greater of (i) the product of (x) the Conversion Amount being redeemed and (y)the quotient determined by dividing (A) the greater of the Closing Sale Price of the Common Stockimmediately prior to the consummation of the Change of Control, the Closing Sale Price of theCommon Stock immediately following the public announcement of such proposed Change of Control andthe Closing Sale Price of the Common Stock immediately prior to the public announcement of suchproposed Change of Control by (B) the Conversion Price, and (ii) 125% of the Conversion Amountbeing redeemed (the “**Change of Control Redemption Price**”). Redemptions required by this Section5 shall be made in accordance with the provisions of Section 11 and shall have priority topayments to stockholders in connection with a Change of Control. To the extent redemptionsrequired by this Section 5(b) are deemed or determined by a court of competent jurisdiction to beprepayments of the Note by the Company, such redemptions shall be deemed to be voluntaryprepayments. Notwithstanding anything to the contrary in this Section 5, but subject to Section3(d), until the Change of Control Redemption Price is paid in full, the Conversion Amountsubmitted for redemption under this Section 5(c) may be converted, in whole or in part, by theHolder into Common Stock pursuant to Section 3. The parties hereto agree that in the event ofthe Company’s redemption of any portion of the Note under this Section 5(b), the Holder’s damageswould be uncertain and difficult to estimate because of the parties’ inability to predict futureinterest rates and the uncertainty of the availability of a suitable substitute investmentopportunity for the Holder. Accordingly, any redemption premium due under this Section 5(b) isintended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actualloss of its investment opportunity and not as a penalty.               (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.               (a) Purchase Rights. If at any time the Company grants, issues or sells anyOptions, Convertible Securities or rights to purchase stock, warrants, securities or otherproperty pro rata to the record holders of any class of Common Stock (the “**Purchase Rights**”),then the Holder will be entitled to acquire, upon the terms applicable to suchPurchase Rights, the aggregate Purchase Rights which the Holder could have acquired if theHolder had held the number of shares of Common Stock acquirable upon complete conversion of thisNote (without taking into account any limitations or restrictions on the convertibility of
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thisNote) immediately before the date on which a record is taken for the grant, issuance or sale ofsuch Purchase Rights, or, if no such record is taken, the date as of which the record holders ofCommon Stock are to be determined for the grant, issue or sale of such Purchase Rights.               (b) Other Corporate Events. In addition to and not in substitution for any otherrights hereunder, prior to the consummation of any Fundamental Transaction pursuant to whichholders of shares of Common Stock are entitled to receive securities or other assets with respectto or in exchange for shares of Common Stock (a “**Corporate Event**”), the Company shall makeappropriate provision to insure that the Holder will thereafter have the right to receive upon aconversion of this Note, at the Holder’s option, (i) in addition to the shares of Common Stockreceivable upon such conversion, such securities or other assets to which the Holder would havebeen entitled with respect to such shares of Common Stock had such shares of Common Stock beenheld by the Holder upon the consummation of such Corporate Event (without taking into account anylimitations or restrictions on the convertibility of this Note) or (ii) in lieu of the shares ofCommon Stock otherwise receivable upon such conversion, such securities or other assets receivedby the holders of shares of Common Stock in connection with the consummation of such CorporateEvent in such amounts as the Holder would have been entitled to receive had this Note initiallybeen issued with conversion rights for the form of such consideration (as opposed to shares ofCommon Stock) at a conversion rate for such consideration commensurate with the Conversion Rate.Provision made pursuant to the preceding sentence shall be in a form and substance satisfactoryto the Required Holders. The provisions of this Section shall apply similarly and equally tosuccessive Corporate Events and shall be applied without regard to any limitations on theconversion or redemption of this Note.               (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.               (a) Adjustment of Conversion Price upon Issuance of Common Stock. If and wheneveron or after the Subscription Date, the Company issues or sells, or in accordance with thisSection 7(a) is deemed to have issued or sold, any shares of Common Stock (including the issuanceor sale of shares of Common Stock owned or held by or for the account of the Company, butexcluding shares of Common Stock deemed to have been issued or sold by the Company in connectionwith any Excluded Security) for a consideration per share (the “**New Issuance Price**”) less than aprice (the “**Applicable Price**”) equal to the Conversion Price in effect immediately prior to suchissue or sale (the foregoing a “**Dilutive Issuance**”), then immediately after such DilutiveIssuance, the Conversion Price then in effect shall be reduced to the New Issuance Price. Forpurposes of determining the adjusted Conversion Price under this Section 7(a), the followingshall be applicable:                    (i) Issuance of Options. If the Company in any manner grants or sells anyOptions and the lowest price per share for which one share of Common Stock is issuable uponthe exercise of any such Option or upon conversion or exchange or exercise of anyConvertible Securities issuable upon exercise of such Option is less thanthe Applicable Price, then each such share of Common Stock underlying such Option shallbe deemed to be outstanding and to have been issued and sold by the Company at the time ofthe granting or sale of such Option for such price per share. For purposes of
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this Section7(a)(i), the “lowest price per share for which one share of Common Stock is issuable uponthe exercise of any such Option or upon conversion or exchange or exercise of anyConvertible Securities issuable upon exercise of such Option” shall be equal to the sum ofthe lowest amounts of consideration (if any) received or receivable by the Company withrespect to any one share of Common Stock upon granting or sale of the Option, upon exerciseof the Option and upon conversion or exchange or exercise of any Convertible Securityissuable upon exercise of such Option. No further adjustment of the Conversion Price shallbe made upon the actual issuance of such share of Common Stock or of such ConvertibleSecurities upon the exercise of such Options or upon the actual issuance of such CommonStock upon conversion or exchange or exercise of such Convertible Securities.                    (ii) Issuance of Convertible Securities. If the Company in any manner issuesor sells any Convertible Securities and the lowest price per share for which one share ofCommon Stock is issuable upon such conversion or exchange or exercise thereof is less thanthe Applicable Price, then each such share of Common Stock underlying such ConvertibleSecurities shall be deemed to be outstanding and to have been issued and sold by the Companyat the time of the issuance or sale of such Convertible Securities for such price per share.For the purposes of this Section 7(a)(ii), the “lowest price per share for which one shareof Common Stock is issuable upon such conversion or exchange or exercise” shall be equal tothe sum of the lowest amounts of consideration (if any) received or receivable by theCompany with respect to any one share of Common Stock upon the issuance or sale of theConvertible Security and upon the conversion or exchange or exercise of such ConvertibleSecurity. No further adjustment of the Conversion Price shall be made upon the actualissuance of such share of Common Stock upon conversion or exchange or exercise of suchConvertible Securities, and if any such issue or sale of such Convertible Securities is madeupon exercise of any Options for which adjustment of the Conversion Price had been or are tobe made pursuant to other provisions of this Section 7(a), no further adjustment of theConversion Price shall be made by reason of such issue or sale.                    (iii) Change in Option Price or Rate of Conversion. If the purchase priceprovided for in any Options, the additional consideration, if any, payable upon the issue,conversion, exchange or exercise of any Convertible Securities, or the rate at which anyConvertible Securities are convertible into or exchangeable or exercisable for Common Stockchanges at any time, the Conversion Price in effect at the time of such change shall beadjusted to the Conversion Price which would have been in effect at such time had suchOptions or Convertible Securities provided for such changed purchase price, additionalconsideration or changed conversion rate, as the case may be, at the time initially granted,issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option orConvertible Security that was outstanding as of the Subscription Date are changed in themanner described in the immediately preceding sentence, then such Option or ConvertibleSecurity and the Common Stock deemed issuable upon exercise, conversion or exchange thereofshall be deemed to have been issued as of thedate of such change. No adjustment shall be made if such adjustment would result in anincrease of the Conversion Price then in effect.
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                    (iv) Calculation of Consideration Received. In case any Option is issued inconnection with the issue or sale of other securities of the Company, together comprisingone integrated transaction in which no specific consideration is allocated to such Optionsby the parties thereto, (A) the Options will be deemed to have been issued for a valuedetermined by use of the Black Scholes Option Pricing Model (the “**Option Value**”) and (B) theother securities issued or sold in such integrated transaction shall be deemed to have beenissued for the difference of (x) the aggregate consideration received by the Company, less(y) the Option Value. If any Common Stock, Options or Convertible Securities are issued orsold or deemed to have been issued or sold for cash, the consideration received thereforwill be deemed to be the net amount received by the Company therefor. If any Common Stock,Options or Convertible Securities are issued or sold for a consideration other than cash,the amount of the consideration other than cash received by the Company will be the fairvalue of such consideration, except where such consideration consists of publicly tradedsecurities, in which case the amount of consideration received by the Company will be theClosing Sale Price of such securities on the date of receipt. If any Common Stock, Optionsor Convertible Securities are issued to the owners of the non-surviving entity in connectionwith any merger in which the Company is the surviving entity, the amount of considerationtherefor will be deemed to be the fair value of such portion of the net assets and businessof the non-surviving entity as is attributable to such Common Stock, Options or ConvertibleSecurities, as the case may be. The fair value of any consideration other than cash orpublicly traded securities will be determined jointly by the Company and the RequiredHolders. If such parties are unable to reach agreement within ten (10) days after theoccurrence of an event requiring valuation (the “**Valuation Event**”), the fair value of suchconsideration will be determined within five (5) Business Days after the tenth(10th) day following the Valuation Event by an independent, reputable appraiserjointly selected by the Company and the Required Holders. The determination of suchappraiser shall be deemed binding upon all parties absent manifest error and the fees andexpenses of such appraiser shall be borne by the Company.                    (v) Record Date. If the Company takes a record of the holders of Common Stockfor the purpose of entitling them (A) to receive a dividend or other distribution payable inCommon Stock, Options or in Convertible Securities or (B) to subscribe for or purchaseCommon Stock, Options or Convertible Securities, then such record date will be deemed to bethe date of the issue or sale of the Common Stock deemed to have been issued or sold uponthe declaration of such dividend or the making of such other distribution or the date of thegranting of such right of subscription or purchase, as the case may be.                    (vi) Floor Price. Until such time as the Company receives any stockholderapproval that may be required under any applicable stockholder approval provisions in orderto allow the Conversion Price to be less than the Conversion Floor Price (as defined below),including, without limitation, under the rules and regulations of any exchange or automatedquotation system on which any of the securities of theCompany are listed or designated (the “**Required Stockholder Approval**”), no adjustmentpursuant to Sections 7(a) or 7(d) shall cause the Conversion Price to be less
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than $0.4530,as adjusted for any stock dividend, stock split, stock combination, reclassification orsimilar transaction (the “**Conversion Floor Price**”).               (b) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock.If the Company at any time on or after the Subscription Date subdivides (by any stock split,stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares ofCommon Stock into a greater number of shares, the Conversion Price in effect immediately prior tosuch subdivision will be proportionately reduced. If the Company at any time on or after theSubscription Date combines (by combination, reverse stock split or otherwise) one or more classesof its outstanding shares of Common Stock into a smaller number of shares, the Conversion Pricein effect immediately prior to such combination will be proportionately increased.               (c) Other Events. If any event occurs of the type contemplated by the provisions ofthis Section 7 but not expressly provided for by such provisions (including, without limitation,the granting of stock appreciation rights, phantom stock rights or other rights with equityfeatures), then the Company’s Board of Directors will make an appropriate adjustment in theConversion Price so as to protect the rights of the Holder under this Note; provided that no suchadjustment will increase the Conversion Price as otherwise determined pursuant to this Section 7.               (d) Voluntary Decrease. The Company may at any time during the term of this Notereduce the then current Conversion Price to any amount and for any period of time deemedappropriate by the Board of Directors.               (8) HOLDER’S RIGHT OF OPTIONAL REDEMPTION. (a) The Company shall deliver writtennotice (the “**Company Required Notice**”) of the Holder’s optional redemption right hereunder to theHolder no later than twenty (20) Business Days prior to the applicable Optional Redemption Date.At any time prior to the applicable Optional Redemption Date, the Holder shall have the right, inits sole discretion, to require that the Company redeem (an “**Optional Redemption**”) all or anyportion of the Conversion Amount of this Note (the “**Available Optional Redemption Amount**”) bydelivering written notice thereof (an “**Optional Redemption Notice**”) to the Company no later thanthe later of (i) five (5) Business Days from the date of receipt of the Company Required Notice and(ii) one (1) Business Day prior to the applicable Optional Redemption Date. The OptionalRedemption Notice shall indicate the Conversion Amount of the Available Optional Redemption Amountthe Holder is electing to have redeemed (the “**Optional Redemption Amount**”). The portion of thisNote subject to redemption pursuant to this Section 8 shall be redeemed by the Company in cash at aprice equal to 100% of the Optional Redemption Amount (the “**Optional Redemption Price**”).Redemptions required by this Section 8 shall be made in accordance with the provisions of Section11. Notwithstanding anything to the contrary in this Section 8, but subject to Section 3(d), untilthe Holder receives the Optional Redemption Price, the Optional Redemption Amount may be converted,in whole or in part, by the Holder into Common Stock pursuant to Section 3, and any such conversionshall reduce the Optional Redemption Amount in the manner set forth by the Holder in the applicableConversion Notice.
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               (b) Mechanics of Holder Optional Redemption. If the Holder elects an OptionalRedemption in accordance with Section 8(a), then the Optional Redemption Amount which is to bepaid to the Holder on the applicable Optional Redemption Date shall be redeemed by the Company,and the Company shall pay to the Holder on such Optional Redemption Date by wire transfer ofimmediately available funds, the Optional Redemption Price. In addition to all remedieshereunder, if the Company fails to redeem the Optional Redemption Amount on the OptionalRedemption Date by payment of the Optional Redemption Price on such date, then at the option ofthe Holder designated in writing to the Company (any such designation shall be deemed a“Conversion Notice” pursuant to Section 3(c) for purposes of this Note), the Holder may requirethe Company to convert all or any part of the Optional Redemption Amount at a Conversion Priceequal to 75% of the Optional Conversion Price. Conversions required by this Section 8(b) shallbe made in accordance with the provisions of Section 3(c).               (9) NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company willnot, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization,transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale ofsecurities, or any other voluntary action, avoid or seek to avoid the observance or performance ofany of the terms of this Note, and will at all times in good faith carry out all of the provisionsof this Note and take all action as may be required to protect the rights of the Holder of thisNote.               (10) RESERVATION OF AUTHORIZED SHARES.               (a) Reservation. The Company initially shall reserve out of its authorized andunissued Common Stock a number of shares of Common Stock for each of the Notes equal to 130% ofthe Conversion Rate with respect to the Conversion Amount of each such Note as of the IssuanceDate. So long as any of the Notes are outstanding, the Company shall take all action necessaryto reserve and keep available out of its authorized and unissued Common Stock, solely for thepurpose of effecting the conversion of the Notes, 130% of the number of shares of Common Stock asshall from time to time be necessary to effect the conversion of all of the Notes thenoutstanding; provided that at no time shall the number of shares of Common Stock so reserved beless than the number of shares required to be reserved by the previous sentence (without regardto any limitations on conversions) (the “**Required Reserve Amount**”). The initial number of sharesof Common Stock reserved for conversions of the Notes and each increase in the number of sharesso reserved shall be allocated pro rata among the holders of the Notes based on the principalamount of the Notes held by each holder at the Closing (as defined in the Securities PurchaseAgreement) or increase in the number of reserved shares, as the case may be (the “**AuthorizedShare Allocation**”). In the event that a holder shall sell or otherwise transfer any of suchholder’s Notes, each transferee shall be allocated a pro rata portion of such holder’s AuthorizedShare Allocation. Any shares of Common Stock reserved and allocated to any Person which ceasesto hold any Notes shall be allocated to the remaining holders of Notes, pro rata based on theprincipal amount of the Notes then held by such holders.               (b) Insufficient Authorized Shares. If at any time while any of the Notes remainoutstanding the Company does not have a sufficient number of authorized and
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unreserved shares of Common Stock to satisfy its obligation to reserve for issuance uponconversion of the Notes at least a number of shares of Common Stock equal to the Required ReserveAmount (an “**Authorized Share Failure**”), then the Company shall immediately take all actionnecessary to increase the Company’s authorized shares of Common Stock to an amount sufficient toallow the Company to reserve the Required Reserve Amount for the Notes then outstanding. Withoutlimiting the generality of the foregoing sentence, as soon as practicable after the date of theoccurrence of an Authorized Share Failure, but in no event later than sixty (60) days after theoccurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholdersfor the approval of an increase in the number of authorized shares of Common Stock. Inconnection with such meeting, the Company shall provide each stockholder with a proxy statementand shall use its best efforts to solicit its stockholders’ approval of such increase inauthorized shares of Common Stock and to cause its board of directors to recommend to thestockholders that they approve such proposal.               (11) HOLDER’S REDEMPTIONS.               (a) Mechanics. The Company shall deliver the applicable Event of Default RedemptionPrice to the Holder within five (5) Business Days after the Company’s receipt of the Holder’sEvent of Default Redemption Notice. If the Holder has submitted a Change of Control RedemptionNotice in accordance with Section 5(b), the Company shall deliver the applicable Change ofControl Redemption Price to the Holder concurrently with the consummation of such Change ofControl if such notice is received prior to the consummation of such Change of Control and withinfive (5) Business Days after the Company’s receipt of such notice otherwise. The Company shalldeliver to the Optional Redemption Price to the Holder on the Optional Redemption Date. In theevent of a redemption of less than all of the Conversion Amount of this Note, the Company shallpromptly cause to be issued and delivered to the Holder a new Note (in accordance with Section18(d)) representing the outstanding Principal which has not been redeemed. In the event that theCompany does not pay the applicable Redemption Price to the Holder within the time periodrequired, at any time thereafter and until the Company pays such unpaid Redemption Price in full,the Holder shall have the option, in lieu of redemption, to require the Company to promptlyreturn to the Holder all or any portion of this Note representing such Conversion Amount that wassubmitted for redemption and for which the applicable Redemption Price (together with any LateCharges thereon) has not been paid. Upon the Company’s receipt of such notice, (x) theRedemption Notice shall be null and void with respect to such Conversion Amount, (y) the Companyshall immediately return this Note, or issue a new Note (in accordance with Section 18(d)) to theHolder representing such Conversion Amount and (z) the Conversion Price of this Note or such newNotes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date onwhich the applicable Redemption Notice is voided and (B) the lowest Closing Bid Price of theCommon Stock during the period beginning on and including the date on which the Redemption Noticeis delivered to the Company and ending on and including the date on which the applicableRedemption Notice is voided. The Holder’s delivery of a notice voiding a Redemption Notice andexercise of its rights following such notice shall not affect the Company’s obligations to makeany payments of Late Charges which have accrued prior to the date of such notice with respect tothe Conversion Amount subject to such notice.
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               (b) Redemption by Other Holders. Upon the Company’s receipt of notice from any ofthe holders of the Other Notes for redemption or repayment as a result of an event or occurrencesubstantially similar to the events or occurrences described in Section 4(b), Section 5(b) orSection 8 (each, an “**Other Redemption Notice**”), the Company shall immediately, but no later thanone (1) Business Day of its receipt thereof), forward to the Holder by facsimile a copy of suchnotice. If the Company receives a Redemption Notice and one or more Other Redemption Notices,during the seven (7) Business Day period beginning on and including the date which is three (3)Business Days prior to the Company’s receipt of the Holder’s Redemption Notice and ending on andincluding the date which is three (3) Business Days after the Company’s receipt of the Holder’sRedemption Notice and the Company is unable to redeem all principal, interest and other amountsdesignated in such Redemption Notice and such Other Redemption Notices received during such seven(7) Business Day period, then the Company shall redeem a pro rata amount from each holder of theNotes (including the Holder) based on the principal amount of the Notes submitted for redemptionpursuant to such Redemption Notice and such Other Redemption Notices received by the Companyduring such seven (7) Business Day period.               (12) SECURITY. This Note and the Other Notes are secured to the extent and in themanner set forth in the Security Documents (as defined in the Securities Purchase Agreement).               (13) VOTING RIGHTS. The Holder shall have no voting rights as the holder of thisNote, except as required by law, including but not limited to the General Corporation Law of theState of Nevada, and as expressly provided in this Note.               (14) COVENANTS.               (a) Rank. All payments due under this Note (a) shall rank *pari passu*with all OtherNotes and (b) shall be senior to all other Indebtedness of the Company and its Subsidiaries.               (b) Indebtedness. So long as this Note is outstanding, the Company shall not, andthe Company shall not permit any of its Subsidiaries to, directly or indirectly, incur orguarantee, assume or suffer to exist any Indebtedness, other than (i) the Indebtedness evidencedby this Note and the Other Notes and (ii) Permitted Indebtedness.               (c) Existence of Liens. So long as this Note is outstanding, the Company shall not,and the Company shall not permit any of its Subsidiaries to, directly or indirectly, allow orsuffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance uponor in any property or assets (including accounts and contract rights) owned by the Company or anyof its Subsidiaries (collectively, “**Liens**”) other than Permitted Liens.               (d) Restricted Payments. The Company shall not, and the Company shall not permitany of its Subsidiaries to, directly or indirectly, redeem, defease, repurchase, repay or makeany payments in respect of, by the payment of cash or cash equivalents (in whole or in part,whether by way of open market purchases, tender offers, private transactions or otherwise), allor any portion of any Permitted Indebtedness, whether by way of payment in
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respect of principal of (or premium, if any) or interest on, such Indebtedness if at thetime such payment is due or is otherwise made or, after giving effect to such payment, an eventconstituting, or that with the passage of time and without being cured would constitute, an Eventof Default has occurred and is continuing.               (e) Restriction on Redemption and Cash Dividends. Until all of the Notes have beenconverted, redeemed or otherwise satisfied in accordance with their terms, the Company shall not,directly or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution onits capital stock without the prior express written consent of the Required Holders.               (f) Creation of New Subsidiaries. So long as the obligations of the Company underthis Note are outstanding, if the Company shall create or acquire any Subsidiary, simultaneouswith the creation or acquisition of such Subsidiary, the Company shall (i) promptly cause suchSubsidiary to become a guarantor by executing a guaranty in favor of the Holder in form andsubstance reasonably acceptable to the Company, the Subsidiary and the Holder, (ii) promptlycause such Subsidiary to become a grantor under the Security Agreement by executing a joinder tothe Security Agreement in form and substance reasonably acceptable to the Company, the Subsidiaryand the Holder, (iii) promptly cause such Subsidiary to become a pledgor by the Company and suchSubsidiary executing a pledge agreement in form and substance reasonably acceptable to theCompany, the Subsidiary and the Holder, and (iv) promptly cause such Subsidiary to duly executeand/or deliver such opinions of counsel and other documents, in form and substance reasonableacceptable to the Holder, as the Holder shall reasonably request with respect thereto.               (g) Transactions with Affiliates. The Company shall not, nor shall it permit any ofits Subsidiaries to, enter into, renew, extend or be a party to, any transaction or series ofrelated transactions (including, without limitation, the purchase, sale, lease, transfer orexchange of property or assets of any kind or the rendering of services of any kind) with anyAffiliate, except (i) in the ordinary course of business in a manner and to an extent consistentwith past practice and necessary or desirable for the prudent operation of its business, for fairconsideration and on terms no less favorable to it or its Subsidiaries than would be obtainable ina comparable arm’s length transaction with a Person that is not an Affiliate thereof.               (h) Change in Nature of Business. The Company shall not make, or permit any of itsSubsidiaries to make, any change in the nature of its business as described in the Company’s mostrecent annual report filed on Form 10-KSB with the SEC. The Company shall not modify its corporatestructure or purpose.               (i) Preservation of Existence, Etc. The Company shall maintain and preserve, andcause each of its Subsidiaries to maintain and preserve, its existence, rights and privileges, andbecome or remain, and cause each of its Subsidiaries to become or remain, duly qualified and ingood standing in each jurisdiction in which the character of the properties owned or leased by itor in which the transaction of its business makes such qualification necessary.               (j) Maintenance of Properties, Etc. The Company shall maintain and preserve, andcause each of its Subsidiaries to maintain and preserve, all of its properties
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which are necessary or useful in the proper conduct of its business in good working orderand condition, ordinary wear and tear excepted, and comply, and cause each of its Subsidiaries tocomply, at all times with the provisions of all leases to which it is a party as lessee or underwhich it occupies property, so as to prevent any loss or forfeiture thereof or thereunder.               (k) Maintenance of Insurance. The Company shall maintain, and cause each of itsSubsidiaries to maintain, insurance with responsible and reputable insurance companies orassociations (including, without limitation, comprehensive general liability, hazard, rent andbusiness interruption insurance) with respect to its properties (including all real propertiesleased or owned by it) and business, in such amounts and covering such risks as is required byany governmental authority having jurisdiction with respect thereto or as is carried generally inaccordance with sound business practice by companies in similar businesses similarly situated andin any event in amount, adequacy and scope reasonably satisfactory to the Collateral Agent. Allpolicies covering the Collateral are to be made payable to the Collateral Agent for the benefitof the Holders, as its interests may appear, in case of loss, under a standard non-contributory“lender” or “secured party” clause and are to contain such other provisions as the CollateralAgent may require to fully protect the Holders’ interest in the Collateral and to any payments tobe made under such policies. All certificates of insurance are to be delivered to the CollateralAgent and the policies are to be premium prepaid, with the loss payable and additional insuredendorsement in favor of the Collateral Agent and such other Persons as the Collateral Agent maydesignate from time to time, and shall provide for not less than 30 days’ prior written notice tothe Collateral Agent of the exercise of any right of cancellation. If the Company or any of itsSubsidiaries fails to maintain such insurance, the Collateral Agent may arrange for suchinsurance, but at the Company’s expense and without any responsibility on the Collateral Agent’spart for obtaining the insurance, the solvency of the insurance companies, the adequacy of thecoverage, or the collection of claims. Upon the occurrence and during the continuance of anEvent of Default, the Collateral Agent shall have the sole right, in the name of the Holders, theCompany and its Subsidiaries, to file claims under any insurance policies, to receive, receiptand give acquittance for any payments that may be payable thereunder, and to execute any and allendorsements, receipts, releases, assignments, reassignments or other documents that may benecessary to effect the collection, compromise or settlement of any claims under any suchinsurance policies.               (l) Change in Collateral; Collateral Records. The Company shall (i) give theCollateral Agent not less than 30 days’ prior written notice of any change in the location of anyCollateral (as defined in the Security Documents), (ii) advise the Collateral Agent promptly, insufficient detail, of any material adverse change relating to the type, quantity or quality ofthe Collateral or the Lien granted thereon and (iii) execute and deliver, and cause each of itsSubsidiaries to execute and deliver, to the Collateral Agent for the benefit of the Holders ofthe Senior Bonds from time to time, solely for the Collateral Agent’s convenience in maintaininga record of Collateral, such written statements and schedules as the Collateral Agent mayreasonably require, designating, identifying or describing the Collateral.
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          (m) Deposit, Commodities and Securities Accounts.          (i) As soon as commercially reasonable, and in no event greater than fifteen (15)Business Days after the Closing Date, the Company shall and shall cause each of itsSubsidiaries to (a) establish and maintain cash management services of a type and on termssatisfactory to Required Holders with the Collateral Agent (in such capacity, the “**CashManagement Bank**”), and shall request in writing and otherwise take such reasonable steps toensure that all of its and its Subsidiaries’ account debtors forward payment of the amountsowed by them directly to the Cash Management Bank, and (b) deposit or cause to be depositedpromptly, and in any event no later than the first Business Day after the date of receiptthereof, all of their cash, checks, notes instruments and all other items of payment(including those sent directly by their account debtors to Company or one of itsSubsidiaries) into a bank account (a “**Cash Management Account**”) at the Cash Management Bank.          (ii) Upon the Required Holders’ written request, the Company shall cause each otherbank and other financial institution with an account referred to in Schedule IV tothe Security Agreement to execute and deliver to the Collateral Agent a control agreement,in form and substance reasonably satisfactory to the Required Holders, duly executed by theCompany and such bank or financial institution, or enter into other arrangements in form andsubstance satisfactory to the Required Holders, pursuant to which such institution shallirrevocably agree, interalia, that (i) it will comply at any time with theinstructions originated by the Collateral Agent to such bank or financial institutiondirecting the disposition of cash, Commodity Contracts, securities, Investment Property andother items from time to time credited to such account, without further consent of theCompany, which instructions the Collateral Agent will not give to such bank or otherfinancial institution in the absence of a continuing Event of Default, (ii) all CommodityContracts (as defined in the Security Agreement), securities, Investment Property (asdefined in the Security Agreement) and other items of the Company deposited with suchinstitution shall be subject to a perfected, first priority security interest in favor ofthe Collateral Agent, (iii) any right of set off (other than recoupment of standard fees),banker’s Lien or other similar Lien, security interest or encumbrance shall be fully waivedas against the Collateral Agent, and (iv) upon receipt of written notice from the CollateralAgent during the continuance of an Event of Default, such bank or financial institutionshall immediately send to the Collateral Agent by wire transfer (to such account as theCollateral Agent shall specify, or in such other manner as the Collateral Agent shalldirect) all such cash, the value of any Commodity Contracts, securities, Investment Propertyand other items held by it. Without the prior written consent of the Required Holders, theCompany shall not make or maintain any Deposit Account, Commodity Account or SecuritiesAccount except for the Cash Management Accounts and the accounts set forth in Schedule IV tothe Security Agreement. The provisions of this Section 14(m)(ii) shall not apply toaccounts specially and exclusively used for payroll, payroll taxes and other employee wageand benefit payments to or for the benefit of the Company’s salaried or hourly employees.          (15) PARTICIPATION. The Holder, as the holder of this Note, shall be entitled to suchdividends paid and distributions made to the holders of Common Stock to the
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same extent as if the Holder had converted this Note into Common Stock (without regard to anylimitations on conversion herein or elsewhere) and had held such shares of Common Stock on therecord date for such dividends and distributions. Payments under the preceding sentence shall bemade concurrently with the dividend or distribution to the holders of Common Stock.          (16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at a meetingduly called for such purpose or the written consent without a meeting of the Required Holders shallbe required for any change or amendment to this Note or the Other Notes. No consideration shall beoffered or paid to any holder of Notes to amend or consent to a waiver or modification of the Notesunless the same consideration also is offered to all of the holders of Notes.          (17) TRANSFER. This Note and any shares of Common Stock issued upon conversion ofthis Note may be offered, sold, assigned or transferred by the Holder without the consent of theCompany, subject only to the provisions of Section 2(f) of the Securities Purchase Agreement.          (18) REISSUANCE OF THIS NOTE.          (a) Transfer. If this Note is to be transferred, the Holder shall surrender thisNote to the Company, whereupon the Company will forthwith issue and deliver upon the order of theHolder a new Note (in accordance with Section 18(d)), registered as the Holder may request,representing the outstanding Principal being transferred by the Holder and, if less then theentire outstanding Principal is being transferred, a new Note (in accordance with Section 18(d))to the Holder representing the outstanding Principal not being transferred. The Holder and anyassignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions ofSection 3(c)(iii) and this Section 18(a), following conversion or redemption of any portion ofthis Note, the outstanding Principal represented by this Note may be less than the Principalstated on the face of this Note.          (b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidencereasonably satisfactory to the Company of the loss, theft, destruction or mutilation of thisNote, and, in the case of loss, theft or destruction, of any indemnification undertaking by theHolder to the Company in customary form and, in the case of mutilation, upon surrender andcancellation of this Note, the Company shall execute and deliver to the Holder a new Note (inaccordance with Section 18(d)) representing the outstanding Principal.          (c) Note Exchangeable for Different Denominations. This Note is exchangeable, uponthe surrender hereof by the Holder at the principal office of the Company, for a new Note orNotes (in accordance with Section 18(d) and in principal amounts of at least $100,000)representing in the aggregate the outstanding Principal of this Note, and each such new Note willrepresent such portion of such outstanding Principal as is designated by the Holder at the timeof such surrender.          (d) Issuance of New Notes. Whenever the Company is required to issue a new Notepursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii)shall represent, as indicated on the face of such new Note, the Principal
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remaining outstanding (or in the case of a new Note being issued pursuant to Section 18(a)or Section 18(c), the Principal designated by the Holder which, when added to the principalrepresented by the other new Notes issued in connection with such issuance, does not exceed thePrincipal remaining outstanding under this Note immediately prior to such issuance of new Notes),(iii) shall have an issuance date, as indicated on the face of such new Note, which is the sameas the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note,and (v) shall represent accrued and unpaid Interest and Late Charges on the Principal andInterest of this Note, if any, from the Issuance Date.          (19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.The remedies provided in this Note shall be cumulative and in addition to all other remediesavailable under this Note and any of the other Transaction Documents at law or in equity (includinga decree of specific performance and/or other injunctive relief), and nothing herein shall limitthe Holder’s right to pursue actual and consequential damages for any failure by the Company tocomply with the terms of this Note. Amounts set forth or provided for herein with respect topayments, conversion and the like (and the computation thereof) shall be the amounts to be receivedby the Holder and shall not, except as expressly provided herein, be subject to any otherobligation of the Company (or the performance thereof). The Company acknowledges that a breach byit of its obligations hereunder will cause irreparable harm to the Holder and that the remedy atlaw for any such breach may be inadequate. The Company therefore agrees that, in the event of anysuch breach or threatened breach, the Holder shall be entitled, in addition to all other availableremedies, to an injunction restraining any breach, without the necessity of showing economic lossand without any bond or other security being required.          (20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placedin the hands of an attorney for collection or enforcement or is collected or enforced through anylegal proceeding or the Holder otherwise takes action to collect amounts due under this Note or toenforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization,receivership of the Company or other proceedings affecting Company creditors’ rights and involvinga claim under this Note, then the Company shall pay the costs incurred by the Holder for suchcollection, enforcement or action or in connection with such bankruptcy, reorganization,receivership or other proceeding, including, but not limited to, attorneys’ fees and disbursements.          (21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by theCompany and all the Purchasers and shall not be construed against any person as the drafter hereof.The headings of this Note are for convenience of reference and shall not form part of, or affectthe interpretation of, this Note.          (22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holderin the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, norshall any single or partial exercise of any such power, right or privilege preclude other orfurther exercise thereof or of any other right, power or privilege.          (23) DISPUTE RESOLUTION. In the case of a dispute as to the determination of theClosing Bid Price, the Closing Sale Price or the Weighted Average Price or the arithmetic
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calculation of the Conversion Rate, the Conversion Price or any Redemption Price, the Companyshall submit the disputed determinations or arithmetic calculations via facsimile within one (1)Business Day of receipt, or deemed receipt, of the Conversion Notice or Redemption Notice or otherevent giving rise to such dispute, as the case may be, to the Holder. If the Holder and theCompany are unable to agree upon such determination or calculation within one (1) Business Day ofsuch disputed determination or arithmetic calculation being submitted to the Holder, then theCompany shall, within one (1) Business Day submit via facsimile (a) the disputed determination ofthe Closing Bid Price, the Closing Sale Price or the Weighted Average Price to an independent,reputable investment bank selected by the Company and approved by the Holder or (b) the disputedarithmetic calculation of the Conversion Rate, Conversion Price or any Redemption Price to theCompany’s independent, outside accountant. The Company, at the Company’s expense, shall cause theinvestment bank or the accountant, as the case may be, to perform the determinations orcalculations and notify the Company and the Holder of the results no later than five (5) BusinessDays from the time it receives the disputed determinations or calculations. Such investment bank’sor accountant’s determination or calculation, as the case may be, shall be binding upon all partiesabsent demonstrable error.          (24) NOTICES; PAYMENTS.          (a) Notices. Whenever notice is required to be given under this Note, unlessotherwise provided herein, such notice shall be given in accordance with Section 9(f) of theSecurities Purchase Agreement. The Company shall provide the Holder with prompt written noticeof all actions taken pursuant to this Note, including in reasonable detail a description of suchaction and the reason therefore. Without limiting the generality of the foregoing, the Companywill give written notice to the Holder (i) immediately upon any adjustment of the ConversionPrice, setting forth in reasonable detail, and certifying, the calculation of such adjustment and(ii) at least twenty (20) days prior to the date on which the Company closes its books or takes arecord (A) with respect to any dividend or distribution upon the Common Stock, (B) with respectto any pro rata subscription offer to holders of Common Stock or (C) for determining rights tovote with respect to any Fundamental Transaction, dissolution or liquidation, provided in eachcase that such information shall be made known to the public prior to or in conjunction with suchnotice being provided to the Holder.          (b) Payments. Whenever any payment of cash is to be made by the Company to anyPerson pursuant to this Note, such payment shall be made in lawful money of the United States ofAmerica by a check drawn on the account of the Company and sent via overnight courier service tosuch Person at such address as previously provided to the Company in writing (which address, inthe case of each of the Purchasers, shall initially be as set forth on the Schedule of Buyersattached to the Securities Purchase Agreement); provided that the Holder may elect to receive apayment of cash via wire transfer of immediately available funds by providing the Company withprior written notice setting out such request and the Holder’s wire transfer instructions.Whenever any amount expressed to be due by the terms of this Note is due on any day which is nota Business Day, the same shall instead be due on the next succeeding day which is a Business Dayand, in the case of any Interest 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 determiningthe amount of Interest due on such
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date. Any amount of Principal, Interest or other amounts due under the TransactionDocuments which is not paid when due shall result in a late charge being incurred and payable bythe Company in an amount equal to interest on such amount at the rate of eighteen percent (18%)per annum from the date such amount was due until the same is paid in full (“**Late Charge**”).          (25) CANCELLATION. After all Principal, accrued Interest and other amounts at anytime owed on this Note has been paid in full, this Note shall automatically be deemed canceled,shall be surrendered to the Company for cancellation and shall not be reissued.          (26) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waivesdemand, notice, protest and all other demands and notices in connection with the delivery,acceptance, performance, default or enforcement of this Note and the Securities Purchase Agreement.          (27) GOVERNING LAW; JURISDICTION; JURY TRIAL. This Note shall be construed andenforced in accordance with, and all questions concerning the construction, validity,interpretation and performance of this Note shall be governed by, the internal laws of the State ofNew York, without giving effect to any choice of law or conflict of law provision or rule (whetherof the State of New York or any other jurisdictions) that would cause the application of the lawsof any jurisdictions other than the State of New York. The Company hereby irrevocably submits tothe exclusive jurisdiction of the state and federal courts sitting in The City of New York, Boroughof Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with anytransaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees notto assert in any suit, action or proceeding, any claim that it is not personally subject to thejurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenientforum or that the venue of such suit, action or proceeding is improper. Nothing contained hereinshall be deemed to limit in any way any right to serve process in any manner permitted by law. TheCompany hereby irrevocably waives personal service of process and consents to process being servedin any such suit, action or proceeding by mailing a copy thereof to such party at the address asprovided in Section 24 hereof and agrees that such service shall constitute good and sufficientservice of process and notice thereof. Nothing contained herein shall be deemed or operate topreclude the Holder from bringing suit or taking other legal action against the Company in anyother jurisdiction to collect on the Company’s obligations to the Holder, to realize on anycollateral or any other security for such obligations, or to enforce a judgment or other courtruling in favor of the Holder. **THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, ANDAGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTIONWITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.**          (28) SEVERABILITY. If any provision of this Note is prohibited by law or otherwisedetermined to be invalid or unenforceable by a court of competent jurisdiction, the provision thatwould otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to thebroadest extent that it would be valid and enforceable, and the invalidity or unenforceability ofsuch provision shall not affect the validity of the remaining provisions of this Note so long asthis Note as so modified continues to express, without material change, the
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original intentions of the parties as to the subject matter hereof and the prohibited nature,invalidity or unenforceability of the provision(s) in question does not substantially impair therespective expectations or reciprocal obligations of the parties or the practical realization ofthe benefits that would otherwise be conferred upon the parties. The parties will endeavor in goodfaith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a validprovision(s), the effect of which comes as close as possible to that of the prohibited, invalid orunenforceable provision(s).          (29) CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall havethe following meanings:          (a) “**Approved Stock Plan**” means any employee benefit plan which has been approved by theBoard of Directors of the Company, pursuant to which the Company’s securities may be issued toany employee, consultant, officer or director for services provided to the Company.          (b) “**Bloomberg**” means Bloomberg Financial Markets.          (c) “**Business Day**” means any day other than Saturday, Sunday or other day on whichcommercial banks in The City of New York are authorized or required by law to remain closed.          (d) “**Calendar Quarter**” means each of: the period beginning on and including January 1 andending on and including March 31; the period beginning on and including April 1 and ending on andincluding June 30; the period beginning on and including July 1 and ending on and includingSeptember 30; and the period beginning on and including October 1 and ending on and includingDecember 31.          (e) “**Change of Control**” means any Fundamental Transaction other than (i) any reorganization,recapitalization or reclassification of the Common Stock in which holders of the Company’s votingpower immediately prior to such reorganization, recapitalization or reclassification continueafter such reorganization, recapitalization or reclassification to hold publicly tradedsecurities and, directly or indirectly, the voting power of the surviving entity or entitiesnecessary to elect a majority of the members of the board of directors (or their equivalent ifother than a corporation) of such entity or entities, or (ii) pursuant to a migratory mergereffected solely for the purpose of changing the jurisdiction of incorporation of the Company.          (f) “**Closing Bid Price**” and “**Closing Sale Price**” means, for any security as of any date, thelast closing bid price and last closing trade price, respectively, for such security on thePrincipal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on anextended hours basis and does not designate the closing bid price or the closing trade price, asthe case may be, then the last bid price or last trade price, respectively, of such securityprior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market isnot the principal securities exchange or trading market for such security, the last closing bidprice or last trade price, respectively, of such security on the principal securities exchange ortrading market where such security is listed or
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traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bidprice or last trade price, respectively, of such security in the over-the-counter market on theelectronic bulletin board for such security as reported by Bloomberg, or, if no closing bid priceor last trade price, respectively, is reported for such security by Bloomberg, the average of thebid prices, or the ask prices, respectively, of any market makers for such security as reportedin the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If theClosing Bid Price or the Closing Sale Price cannot be calculated for a security on a particulardate on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the casemay be, of such security on such date shall be the fair market value as mutually determined bythe Company and the Holder. If the Company and the Holder are unable to agree upon the fairmarket value of such security, then such dispute shall be resolved pursuant to Section 23. Allsuch determinations to be appropriately adjusted for any stock dividend, stock split, stockcombination or other similar transaction during the applicable calculation period.          (g) “**Closing Date**” shall have the meaning set forth in the Securities Purchase Agreement,which corresponds to the date this Note and the Other Notes were initially issued by the Companypursuant to the terms of the Securities Purchase Agreement.          (h) “**Collateral Agent**” has the meaning ascribed to such term in the Securities PurchaseAgreement, and shall include all successors thereto.          (i) “**Contingent Obligation**” means, as to any Person, any direct or indirect liability,contingent or otherwise, of that Person with respect to any Indebtedness, lease, dividend orother obligation of another Person if the primary purpose or intent of the Person incurring suchliability, or the primary effect thereof, is to provide assurance to the obligee of suchliability that such liability will be paid or discharged, or that any agreements relating theretowill be complied with, or that the holders of such liability will be protected (in whole or inpart) against loss with respect thereto.          (j) “**Convertible Securities**” means any stock or securities (other than Options) directly orindirectly convertible into or exercisable or exchangeable for Common Stock.          (k) “**Eligible Market**” means The New York Stock Exchange, Inc., the American Stock Exchange,The NASDAQ Global Select Market, The NASDAQ Global Market or The NASDAQ Capital Market.          (l) “**Excluded Securities**” means any Common Stock issued or issuable: (i) in connection withany Approved Stock Plan; (ii) upon conversion of the Notes or upon the exercise of the Warrants;(iii) upon conversion, exercise or exchange of any Options or Convertible Securities which areoutstanding on the day immediately preceding the Subscription Date, provided that the terms ofsuch Options or Convertible Securities are not amended, modified or changed on or after theSubscription Date; (iv) pursuant to a bona fide firm commitment underwritten public offering witha nationally recognized underwriter which generates gross proceeds to the Company in excess of$10,000,000 (other than an “at-the-market offering” as defined in Rule 415(a)(4) under the 1933Act and “equity lines”); or (v) in connection with any strategic acquisition or transaction bythe Company, whether through an
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acquisition of stock or a merger of any business, assets or technologies and in each case,the primary purpose of which is not to raise equity capital.          (m) “**Fundamental Transaction**” means that the Company shall, directly or indirectly, in oneor more related transactions, (i) consolidate or merge with or into (whether or not the Companyis the surviving corporation) another Person or Persons, or (ii) sell, assign, transfer, conveyor otherwise dispose of all or substantially all of the properties or assets of the Company toanother Person, or (iii) allow another Person to make a purchase, tender or exchange offer thatis accepted by the holders of more than 50% of the outstanding shares of Voting Stock (notincluding any shares of Voting Stock held by the Person or Persons making or party to, orassociated or affiliated with the Persons making or party to, such purchase, tender or exchangeoffer), or (iv) consummate a stock purchase agreement or other business combination (including,without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) withanother Person whereby such other Person acquires more than the 50% of the outstanding shares ofVoting Stock (not including any shares of Voting Stock held by the other Person or other Personsmaking or party to, or associated or affiliated with the other Persons making or party to, suchstock purchase agreement or other business combination), or (v) reorganize, recapitalize orreclassify its Common Stock or (vi) any “person” or “group” (as these terms are used for purposesof Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner” (asdefined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregateVoting Stock of the Company.          (n) “**GAAP**” means United States generally accepted accounting principles, consistentlyapplied.          (o) “**Indebtedness**” of any Person means, without duplication (i) all indebtedness forborrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase priceof property or services, including (without limitation) “capital leases” in accordance with GAAP(other than trade payables entered into in the ordinary course of business), (iii) allreimbursement or payment obligations with respect to letters of credit, surety bonds and othersimilar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similarinstruments, including obligations so evidenced incurred in connection with the acquisition ofproperty, assets or businesses, (v) all indebtedness created or arising under any conditionalsale or other title retention agreement, or incurred as financing, in either case with respect toany property or assets acquired with the proceeds of such indebtedness (even though the rightsand remedies of the seller or bank under such agreement in the event of default are limited torepossession or sale of such property), (vi) all monetary obligations under any leasing orsimilar arrangement which, in connection with GAAP, consistently applied for the periods coveredthereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses (i)through (vi) above secured by (or for which the holder of such Indebtedness has an existingright, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, securityinterest or other encumbrance upon or in any property or assets (including accounts and contractrights) owned by any Person, even though the Person which owns such assets or property has notassumed or become liable for the payment of such indebtedness, and (viii) all ContingentObligations in respect of indebtedness or obligations of others of the kinds referred to inclauses (i) through (vii) above.
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          (p) “**Interest Rate**” means the applicable LIBOR plus five percent (5.0%). The Interest Rateshall be re-calculated as of the first day of each Calendar Quarter or, initially, as of theIssuance Date.          (q) “**LIBOR**” means, (i) the six-month London Interbank Offered Rate for deposits in U.S.dollars, as shown on such date in The Wall Street Journal (Eastern Edition) under the caption“Money Rates — London Interbank Offered Rates (LIBOR)”; or (ii) if The Wall Street Journal doesnot publish such rate, the offered one-month rate for deposits in U.S. dollars which appears onthe Reuters Screen LIBO Page as of 10:00 a.m., New York time, each day, provided that if at leasttwo rates appear on the Reuters Screen LIBO Page on any day, the “LIBOR” for such day shall bethe arithmetic mean of such rates.          (r) “**Make-Whole Amount**” means, as to any Conversion Amount being converted pursuant toSection 3 hereof, an amount equal to the difference between (A) an amount of Interest that, butfor the applicable conversion, would have been paid to the Holder on such Conversion Amount fromthe Issuance Date through the applicable Make-Whole Date and (B) the amount of Interest alreadypaid to the Holder through the applicable Conversion Date.          (s) “**Make-Whole Date**” means, with respect to any Conversion Date, (i) prior to August 13,2008, August 13, 2008, (ii) on or after August 13, 2008 and prior to May 13, 2009, May 13, 2009,and (iii) on or after May 13, 2009, the Maturity Date.          (t) “**Optional Conversion Price**” means, the lower of (i) the applicable Conversion Price and(ii) that price which shall be computed as 85% of the arithmetic average of the Weighted AveragePrice of the Common Stock on each for the twenty (20) consecutive Trading Days immediatelypreceding the applicable Optional Redemption Date (each such period, an “**Optional RedemptionMeasuring Period**”). All such determinations to be appropriately adjusted for any stock dividend,stock split, stock combination, reclassification or similar transaction that proportionatelydecreases or increases the Common Stock during the applicable Optional Redemption MeasuringPeriod.          (u) “**Optional Redemption Date**” means each of August 13, 2008 and May 13, 2009.          (v) “**Options**” means any rights, warrants or options to subscribe for or purchase CommonStock or Convertible Securities.          (w) “**Parent Entity**” of a Person means an entity that, directly or indirectly, controls theapplicable Person and whose common stock or equivalent equity security is quoted or listed on anEligible Market, or, if there is more than one such Person or Parent Entity, the Person or ParentEntity with the largest public market capitalization as of the date of consummation of theFundamental Transaction.          (x) “**Permitted Indebtedness**” means (i) Indebtedness evidenced by this Note and the OtherNotes, (ii) other unsecured Indebtedness incurred by the Company and/or any of its Subsidiariesthat is made expressly subordinate in right of payment to the Indebtedness evidenced by thisNote, as reflected in a written agreement acceptable to the
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Holder and approved by the Holder in writing, and which Indebtedness does not provide at anytime for (A) the payment, prepayment, repayment, repurchase or defeasance, directly orindirectly, of any principal or premium, if any, thereon until ninety-one (91) days after theMaturity Date or later and (B) total interest and fees at a rate in excess of the maximumapplicable Interest Rate hereunder, (iii) Indebtedness secured by Permitted Liens, (iv)Indebtedness to trade creditors incurred in the ordinary course of business and not outstandingfor more than 120 days after the date such payable was created, and (v) extensions, refinancingsand renewals of any items of Permitted Indebtedness, provided that the principal amount is notincreased or the terms modified to impose more burdensome terms upon the Company or itsSubsidiary, as the case may be.          (y) “**Permitted Liens**” means (i) any Lien for taxes not yet due or delinquent or beingcontested in good faith by appropriate proceedings for which adequate reserves have beenestablished in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course ofbusiness by operation of law with respect to a liability that is not yet due or delinquent, (iii)any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and othersimilar liens, arising in the ordinary course of business with respect to a liability that is notyet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv)Liens (A) upon or in any equipment (as defined in the Security Agreement) acquired or held by theCompany or any of its Subsidiaries to secure the purchase price of such equipment or Indebtednessincurred solely for the purpose of financing the acquisition or lease of such equipment, or (B)existing on such equipment at the time of its acquisition, provided that the Lien is confinedsolely to the property so acquired and improvements thereon, and the proceeds of such equipment,(v) Liens incurred in connection with the extension, renewal or refinancing of the Indebtednesssecured by Liens of the type described in clauses (i) and (iv) above, provided that anyextension, renewal or replacement Lien shall be limited to the property encumbered by theexisting Lien and the principal amount of the Indebtedness being extended, renewed or refinanceddoes not increase, (vi) Liens securing the obligations under the Notes; (vii) leases or subleasesand licenses and sublicenses granted to others in the ordinary course of the Company’s business,not interfering in any material respect with the business of the Company and its Subsidiariestaken as a whole, (ix) Liens in favor of customs and revenue authorities arising as a matter oflaw to secure payments of custom duties in connection with the importation of goods and (viii)Liens arising from judgments, decrees or attachments in circumstances not constituting an Eventof Default under Section 4(a)(ix).          (z) “**Person**” means an individual, a limited liability company, a partnership, a jointventure, a corporation, a trust, an unincorporated organization, any other entity and agovernment or any department or agency thereof.          (aa) “**Principal Market**” means the American Stock Exchange.          (bb) “**Redemption Notices**” means, collectively, the Event of Default Redemption Notices,Change of Control Redemption Notices, the Optional Redemption Notices, each of the foregoing,individually, a Redemption Notice.
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          (cc) “**Redemption Premium**” means (i) in the case of the Events of Default described inSection 4(a)(i) — (vi) and (ix) — (xvii), 125% or (ii) in the case of the Events of Defaultdescribed in Section 4(a)(vii) — (viii), 100%.          (dd) “**Redemption Prices**” means, collectively, the Event of Default Redemption Price, Changeof Control Redemption Price, the Optional Redemption Price and, each of the foregoing,individually, a Redemption Price.          (ee) “**Registration Rights Agreement**” means that certain Registration Rights Agreement datedas of the Subscription Date by and among the Company and the initial holders of the Notesrelating to, among other things, the registration of the resale of the Common Stock issuable uponconversion of the Notes and exercise of the Warrants.          (ff) “**Required Holders**” means the holders of Notes representing at least a majority of theaggregate principal amount of the Notes then outstanding.          (gg) “**SEC**” means the United States Securities and Exchange Commission.          (hh) “**Securities Purchase Agreement**” means that certain securities purchase agreement datedas of the Subscription Date by and among the Company and the initial holders of the Notespursuant to which the Company issued the Notes and Warrants.          (ii) “**Security Documents**” has the meaning ascribed to such term in the Securities PurchaseAgreement, and shall include all successors thereto.          (jj) “**Subscription Date**” means November 13, 2007.          (kk) “**Subsidiary**” means any entity in which the Company, directly or indirectly, owns any ofthe capital stock or holds an equity or similar interest.          (ll) “**Successor Entity**” means the Person, which may be the Company, formed by, resultingfrom or surviving any Fundamental Transaction or the Person with which such FundamentalTransaction shall have been made, provided that if such Person is not a publicly traded entitywhose common stock or equivalent equity security is quoted or listed for trading on an EligibleMarket, Successor Entity shall mean such Person’s Parent Entity.          (mm) “**Trading Day**” means any day on which the shares of Common Stock are traded on thePrincipal Market, or, if the Principal Market is not the principal trading market for the sharesof Common Stock, then on the principal securities exchange or securities market on which theshares of Common Stock are then traded; provided that “Trading Day” shall not include any day onwhich the shares of Common Stock are scheduled to trade on any such exchange or market for lessthan 4.5 hours or any day that the shares of Common Stock are suspended from trading during thefinal hour of trading on such exchange or market (or if such exchange or market does notdesignate in advance the closing time of trading on any such exchange or market, then during thehour ending at 4:00:00 p.m., New York Time).
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          (nn) “**Voting Stock**” of a Person means capital stock of such Person of the class or classespursuant to which the holders thereof have the general voting power to elect, or the generalpower to appoint, at least a majority of the board of directors, managers or trustees of suchPerson (irrespective of whether or not at the time capital stock of any other class or classesshall have or might have voting power by reason of the happening of any contingency).          (oo) “**Warrants**” has the meaning ascribed to such term in the Securities Purchase Agreement,and shall include all warrants issued in exchange therefor or replacement thereof.          (pp) “**Weighted Average Price**” means, for any security as of any date, the dollarvolume-weighted average price for such security on the Principal Market during the periodbeginning at 9:30:01 a.m., New York Time (or such other time as the Principal Market publiclyannounces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or suchother time as the Principal Market publicly announces is the official close of trading) asreported by Bloomberg through its “Volume at Price” functions, or, if the foregoing does notapply, the dollar volume-weighted average price of such security in the over-the-counter marketon the electronic bulletin board for such security during the period beginning at 9:30:01 a.m.,New York Time (or such other time as such market publicly announces is the official open oftrading), and ending at 4:00:00 p.m., New York Time (or such other time as such market publiclyannounces is the official close of trading) as reported by Bloomberg, or, if no dollarvolume-weighted average price is reported for such security by Bloomberg for such hours, theaverage of the highest closing bid price and the lowest closing ask price of any of the marketmakers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly theNational Quotation Bureau, Inc.). If the Weighted Average Price cannot be calculated for suchsecurity on such particular date on any of the foregoing bases, the Weighted Average Price ofsuch security on such date shall be the fair market value as mutually determined by the Companyand the Holder. If the Company and the Holder are unable to agree upon the fair market value ofsuch security, then such dispute shall be resolved pursuant to Section 23. All suchdeterminations to be appropriately adjusted for any stock dividend, stock split, stockcombination, reclassification or other similar transaction during the applicable calculationperiod.          (30) DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordancewith the terms of this Note, unless the Company has in good faith determined that the mattersrelating to such notice do not constitute material, nonpublic information relating to the Companyor its Subsidiaries, the Company shall within one (1) Business Day after any such receipt ordelivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K orotherwise. In the event that the Company believes that a notice contains material, nonpublicinformation, relating to the Company or its Subsidiaries, the Company shall indicate to the Holdercontemporaneously with delivery of such notice, and in the absence of any such indication, theHolder shall be allowed to presume that all matters relating to such notice do not constitutematerial, nonpublic information relating to the Company or its Subsidiaries.
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[Signature Page Follows]
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          IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the IssuanceDate set out above.      US DATAWORKS, INC.