11% Senior Secured Convertible Promissory Note with Sands Brothers Venture
      Capital III LLC (June 22, 2007)


    Exhibit
      10.4

    
 

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

    


    


    XA,
      INC.

    


    11%
      Senior Secured Convertible Promissory Note

    


    


    
      	
              Bridge
                Note No.: 3

            	
              June
                22, 2007

            


    

    


    


    


    FOR
      VALUE
      RECEIVED, XA, Inc., a Nevada corporation (collectively with all of its
      Subsidiaries, as defined in the SPA (as defined below), the “Company”)
      with
      its principal executive office at 875 North Michigan Avenue, Suite 2626,
      Chicago, IL 60611, promises to pay to the order of Sands Brothers Venture
      Capital III LLC (the “Payee”
or
      the
“Holder
      of this Note”)
      or
      registered assigns on the earlier of (i) June 22, 2008; or (ii) if so
      elected by the Payee, upon consummation by the Company of a merger, combination
      or sale of substantially all of its assets or the purchase by a single entity
      or
      person or group of affiliated entities or persons of more than fifty (50%)
      percent of the voting stock of the Company (the “Maturity
      Date”),
      the
      principal amount of One
      Hundred and Twenty Four Thousand ($124,000)
      (the
“Principal
      Amount”)
      in
      such coin or currency of the United States of America as at the time of payment
      shall be legal tender for the payment of public and private debts. Interest
      on
      this Note shall accrue on the Principal Amount outstanding from time to time
      at
      a rate per annum computed in accordance with Section 3
      hereof
      and shall be payable on the Maturity Date, or earlier upon conversion of this
      Note in accordance with the provisions of Section 6
      hereof
      (or as may otherwise be provided in this Note). Nothing in item (ii) of
      this paragraph shall be construed as the consent by the holder of this Note
      to
      any action otherwise prohibited by the terms of this Note or as a waiver of
      any
      such prohibition.

    


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

    


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


    
      
         

        


        


        
        

      

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

    


    This
      Note, and Prior Notes on substantially similar terms issued in August, September
      and October 2006 in the aggregate amount of $2,700,000 (the “Prior
      Notes”)
      and
      other identical Notes in the aggregate principal amount of up to $500,000 (the
      “Follow
      On Notes”
and
      collectively the “Notes”)
      are
      (were) issued by the Company in connection with a private placement (the
“Bridge
      Financing”)
      by the
      Company of its of Notes and Warrants pursuant and in accordance with (x) a
      Securities Purchase Agreement dated the date hereof by and among the Company
      and
      the Payee (the “SPA”),
      and
      (y) a prior Securities Purchase Agreement relating to the Prior Notes, copies
      of
      which are available for inspection at the Company’s principal office.
      Notwithstanding any provision to the contrary contained herein, this Note is
      subject and entitled to certain terms, conditions, covenants and agreements
      contained in the SPA. Any transferee of this Note, by its acceptance hereof,
      assumes the obligations of the Payee in the SPA with respect to the conditions
      and procedures for transfer of this Note. Reference to the SPA shall in no
      way
      impair the absolute and unconditional obligation of the Company to pay both
      principal hereof and interest hereon as provided herein.

    


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

    


    2. Investment
      Warrants.
      In
      consideration for the loan evidenced by this Note, the Company shall issue
      to
      the holders of the Note five-year Investment Warrants to purchase in the
      aggregate 124,000 shares of the Company’s common stock, $.001 par value per
      share (the “Common
      Stock”)
      at an
      exercise price of $.30 per share (the “Investment
      Warrants”).
      The
      Holder of this Note may at any time that this Note remains outstanding present
      this Note to the Company in payment of the exercise price of all or any portion
      of the Investment Warrants. The Holder of this Note is purchasing $124,000
      in
      Follow On Notes (which represents a portion of the full amount of the Follow
      On
      Notes being offered) and is being granted an aggregate of 124,000 five-year
      Investment Warrants in connection with such investment.

    


    3. Computation
      of Interest.

    


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

    


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

    



    
      
         

        


        


        
        

      

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

    


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

    


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

    


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

    


    (ii) Maintenance
      of Existence.
      The
      Company will do or cause to be done all things reasonably necessary to preserve
      and keep in full force and effect its corporate existence, rights and franchises
      and comply with all laws applicable to the Company, except where the failure
      to
      comply could not reasonably be expected to have a material adverse effect on
      the
      Company;

    


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

    


    
      
         

        


        


        
        

      

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

    


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

    


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

    


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

     

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

    


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

    


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

    


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

    


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


    
      
         

        


        


        
        

      

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

    


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

    


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

    


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

    


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

    


    (b)
      finished goods inventories.

    


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

    


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

    



    
      
         

        


        


        
        

      

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

    

    


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

    


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

    


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

    


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

    


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

    


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


    
      
         

        


        


        
        

      

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

    


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

    


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

    


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

    


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

    


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

    



    
      
         

        


        


        
        

      

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

    


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

    


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

    


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

    


    5. Events
      of Default.

    


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

    


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

    


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

    


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

    


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

    


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

    


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


    
      
         

        


        


        
        

      

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

    


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

    


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

    


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

    


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

    


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

    


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

    


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

    


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

    
      
         

        


        


        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    
 

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

    


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

    


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

    


    6. Conversions.
      

    


    A. [Intentionally
      removed].

    


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

     

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

    
      
         

        


        


        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    
 

    D. Conversion
      Mechanics.

    


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

     

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

     

    E. Concerning
      the Shares.
      Conversion Shares may not be sold or transferred unless (i) such shares are
      sold
      pursuant to an effective registration statement under the Act or (ii) the
      Company or its transfer agent shall have been furnished with an opinion of
      counsel (which opinion shall be in form, substance and scope customary for
      opinions of counsel in comparable transactions) to the effect that the shares
      to
      be sold or transferred may be sold or transferred pursuant to an exemption
      from
      such registration or (iii) such shares are sold or transferred pursuant to
      Rule 144 under the Act (or a successor rule) (“Rule
      144”)
      or
      (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of
      the Holder who agrees to sell or otherwise transfer the shares only in
      accordance with this Note and who is an accredited investor. Except as otherwise
      provided in the SPA, until such time as the Conversion Shares have been
      registered under the Act as contemplated by the Registration Rights Agreement
      or
      otherwise may be sold pursuant to Rule 144 without any restriction as to the
      number of securities as of a particular date that can then be immediately sold,
      each certificate for Conversion Shares that has not been so included in an
      effective registration statement or that has not been sold pursuant to an
      effective registration statement or an exemption that permits removal of the
      legend, shall bear a legend substantially in the following form, as
      appropriate:

    


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

    
      
         

        


        


        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    The
      legend set forth above shall be removed and the Company shall issue to the
      Holder a new certificate therefor free of any transfer legend if (i) the Company
      or its transfer agent shall have received an opinion of counsel, in form,
      substance and scope customary for opinions of counsel in comparable
      transactions, to the effect that a public sale or transfer of such Common Stock
      may be made without registration under the Securities Act and the shares are
      so
      sold or transferred, (ii) such Holder provides the Company or its transfer
      agent
      with reasonable assurances that the Conversion Shares can be sold pursuant
      to
      Rule 144 or Rule 144(k) or (iii) if the Conversion Shares are registered for
      resale under an effective registration statement filed under the Act. Nothing
      in
      this Note shall limit the Company’s obligation under the Registration Rights
      Agreement. Failure to delivery certificates with the legend for Conversion
      Shares shall result in certain payments to the Holder as set forth in the
      SPA.

     

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

     

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

     

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

     


    
      
         

        


        


        
        

      

      
        12

        
          

        

      

      
        
        

      

    


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

     

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

     

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

     

    E. Sale
      of Shares Below Conversion Price:

     

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

    
      
         

        


        


        
        

      

      
        13

        
          

        

      

      
        
        

      

    


     

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

     

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

    
      
         

        


        


        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

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

     

    (v) “Additional
      Shares of Common Stock”
shall
      mean all shares of Common Stock (or any debt or equity securities convertible
      or
      exercisable into Common Stock) issued by the Company on or after the Original
      Issuance Date, whether or not subsequently reacquired or retired by the Company,
      other than (I) the Conversion Shares and the shares of Common Stock
      issuable upon exercise of the Warrants (the “Underlying
      Shares”),
      (II) shares of Common Stock issuable upon exercise of warrants, options and
      convertible securities outstanding as of the Original Issuance Date (provided
      that the terms of such warrants, options and convertible securities are not
      modified after the Original Issuance Date to adjust the exercise price),
      (III) shares of Common Stock issued pursuant to any event for which
      adjustment is made to the Conversion Price under Section 7
      hereof
      or to the exercise price under the anti-dilution provisions of any securities
      outstanding as of the Original Issuance Date (including the Investment
      Warrants), and (IV) 25,000 shares of common stock which the Company has
      previously agreed to issue to its legal counsel, David M. Loev (as disclosed
      in
      its SEC filings, which shares have not been issued to date). The “Effective
      Price”
of
      Additional Shares of Common Stock shall mean the quotient determined by dividing
      the total number of Additional Shares of Common Stock issued or sold, or deemed
      to have been issued or sold by the Company under this Section 7E,
      into
      the aggregate consideration received, or deemed to have been received, by the
      Company for such issue under this Section 7E,
      for
      such Additional Shares of Common Stock.

    
      
         

        


        


        
        

      

      
        15

        
          

        

      

      
        
        

      

    


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

     

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

     

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

     

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

    


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

    


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

    


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


    
      
         

        


        


        
        

      

      
        16

        
          

        

      

      
        
        

      

    


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


     

    10. Miscellaneous.

    


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

    


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

    


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

    


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

    


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

    


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

    
      
         

        


        


        
        

      

      
        17

        
          

        

      

      
        
        

      

    


    


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

    


    (iv) There
      shall be a voluntary or involuntary dissolution; liquidation or winding-up
      of
      the Company;

    


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

    


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

    


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

    


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

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    


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

    


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

    


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

    


    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]


    
      
         

        


        


        
        

      

      
        19

        
          

        

      

      
        
        

      

    


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

     

    


    


    XA,
      INC.

    


    


    


    By:
      /s/ Joseph Wagner

    Name:
      Joseph Wagner

    Title:
      President & CEO   

     

    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    


    
 

    


    


    $124,000


    


    


     


    
      
        
           

          


          


        

        
        

      

      
        20

        
          

        

      

      
        
        

        
        

      

    



    EXHIBIT
      A

    


    Optional
      Conversion Election Form

    


    


    ____________,
      200_

    


    XA,
      Inc.

    875
      North
      Michigan Avenue, Suite 2626

    Chicago,
      IL 60611

    


    Re: Optional
      Conversion of Promissory Note

    Gentlemen:

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

    


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

    


    


    Very
      truly yours,

    


    


    ___________________________

    Name:

    


    


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

    


    ______________________________________________
      

    Name

    


    ______________________________________________
      

    Address

    


    ______________________________________________
      

    Social
      Security No. of Shareholder

     

    
      
        
        

      

      
        21