**Exhibit 2.3**

 

***UNLESS PERMITTED UNDER SECURITIESLEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFOREOCTOBER ***•, 2004.

*** ***

***The Note represented hereby, the commonshares and common share purchase warrants of the Corporation issuable upon theconversion of the Note and the common shares issuable upon exercise of thecommon share purchase warrants have not been and will not be registered underthe United States Securities Act of 1933, as amended (the “U.S. SecuritiesAct”), and may not be offered, sold, resold, or delivered within the UnitedStales of America, its territories and possessions, other than pursuant to aneffective registration statement or an applicable exemption under the U.S.Securities Act.***

*** ***

**ADB SYSTEMS INTERNATIONAL LTD.**

** **

**(Organized under the laws ofOntario)**

** **

**Series G Convertible SecuredNote**

** **
| **Date of Issue:**  June •, 2004 | Cdn. $•                              |
|-------------------------------------------------|-------------------------------------------|
| **Interest Rate:**  7.0% per annum         | **Certificate  Number:**  [G-•] |

 

ADB SYSTEMS INTERNATIONAL LTD. (the “**Corporation**”),for value received, hereby acknowledges itself indebted to and promises to pay • (the “**Registered Holder**”) on June •, 2007 or on such earlier date as the principal hereof becomespayable in accordance with the provisions of this Note, on presentation andsurrender of this Note, the principal sum of $• in lawful money of Canada, at the address of the Registered Holderset forth on the register of the Corporation to be maintained as provided inthe terms and conditions attached hereto as Schedule ”A” and forming parthereof (the “**Termsand Conditions**”), subject to the right of the Registered Holder incertain circumstances to elect to receive, and the automatic conversion of thisNote in certain circumstances into, units of securities of the Corporation inlieu of receiving such sum, as provided in the Terms and Conditions and to payinterest on such principal amount as provided in the Terms and Conditions.  The Terms and Conditions are herebyincorporated by reference herein.

 

This Note is convertible, at the option ofthe Registered Holder or in certain circumstances without any further act ofthe Registered Holder, into units of securities of the Corporation, upon andsubject to the provisions and conditions contained in the said Terms andConditions. The Schedules and the Exhibits attached hereto are incorporated inthis Note by reference and are deemed to be an integral part hereof.

 

**IN WITNESS WHEREOF** the Corporation has caused this Note to be executed under the handof its duly authorized officer as of the • day of June, 2004.

 
|   | **ADB  SYSTEMS INTERNATIONAL LTD.** |
|--------|-------------------------------------|
|   |                                |
|   | Per:                                |   |
|   |                                |   Authorized Signing Officer |

 

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**SCHEDULE ”A”**

** **

**Terms and Conditions applicabletoSeries ‘G’ Convertible Secured Notesdated as of June 15, 2004 issued byADB SYSTEMS INTERNATIONAL LTD.**

** **

**ARTICLE 1INTERPRETATION**

** **

**1.1**                               Defined Terms

** **

In addition to the terms parentheticallydefined herein, in this Note the following terms shall have the followingmeanings respectively:

 

“**Automatic Conversion**” has themeaning attributed to such term in subsection 4.1(3);

 

**“Automatic Conversion Condition”** means that if, after the date that is twelve (12) months from theClosing Date, the volume weighted average trading price of the Corporation’scommon shares on the TSX (or if the Corporation is not listed on the TSX, itsprincipal trading market) for at least twenty consecutive trading days is225.8064% or more of the then applicable Conversion Price;

 

**“Automatic Conversion Date”** means the first Trading Day following the Trading Day as of whichthe Automatic Conversion Condition has been satisfied;

 

“**Business Day**” means any day,other than Saturday, Sunday or any statutory holiday in the City of Toronto;

 

“**Capital Reorganization**” has themeaning attributed to such term in subsection 4.3(4);

 

**“Closing Market Price”** at any date means the closing price per share for Common Shares onor through, as applicable, the Principal Market;

 

**“Collateral”**means the undertaking of the Corporation and all real and personalproperty and assets now or hereafter acquired by the Corporation, wheresoeverlocated, including the property and assets of the Corporation referred to inSection 6.1; provided always that the term “Collateral” where used hereinshall not include any consumer goods of the Corporation.  Any reference to “Collateral” herein shallbe deemed to be a reference to the Collateral or any part thereof;

 

**“Common Share Reorganization”** has the meaning attributed to such term in subsection 4.3(1);

 

**“Common Shares”** means the common shares without nominal or par value in the capitalof the Corporation, as such shares exist as at the Date of Issue; providedthat, in the event of a subdivision, redivision, reduction, combination orconsolidation thereof, or successive such subdivisions, redivisions,reductions, combinations or consolidations, then, subject to adjustments, ifany, having been made in accordance with Section 4.3, **“Common Shares”**shall thereafter mean the shares resulting from such subdivision, redivision,reduction, combination or consolidation;

 

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**“Conversion Price”**has the meaning attributed to such term in Section 4.1;

 

**“Date of Issue”**means the date hereof;

 

**“Date of Conversion”**has the meaning attributed to such term in subsection 4.2(2);

 

**“Event of Default”**has the meaning attributed to such term in Section 8.1;

 

**“Generally Accepted Accounting Principles”** means generally accepted accounting principles in Canada from timeto time;

 

**“Holders”**means the registered holders from time to time of the Notes,including the Registered Holder;

 

**“including”** means including without limitation;

 

**“Interest Rate”**means 7% per annum, calculated annually and payable as set forth inSection 2.3 hereof;

 

**“Maturity Date”**has the meaning attributed to such term in Section 2.4;

 

**“Notes”**means the Series G convertible notes of the Corporation due onJune 15, 2007, including this Note;

 

**“Obligations”** means the aggregate of all indebtedness, obligations andliabilities, direct or indirect, absolute or contingent, matured or not, of theCorporation to the Registered Holder wheresoever and howsoever incurred andwhether incurred arising pursuant to this Note and whether incurred at the timeof, or subsequent to the execution hereof, whether incurred alone or withanother or others, including extensions and renewals;

 

“**Optional Conversion**”  has the meaning attributed to such term insubsection 4.1(2);

 

**“**Permitted Security Interests**”** means thesecurity interests set out in Exhibit ‘4’ and Exhibit ‘5’ attached hereto.

 

“**Person**” means any individual,partnership, limited partnership, joint venture, syndicate, sole proprietorship,company or corporation with or without share capital, unincorporatedassociation, trust, trustee, executor, administrator or other legal personalrepresentative, government or governmental authority or entity, howeverdesignated or constituted;

 

**“**PPSA**”** means the **PersonalProperty Security Act** (Ontario) as the same may from time to timehereafter be amended or any legislation that may be substituted therefor as thesame may from time to time be amended;

 

“**Principal Market**” means suchstock exchange or quotation system on or through which the Common Shares arelisted or quoted which has the highest trading volume in the calendar monthimmediately preceding such date, being as at the date hereof the TSX;

 

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“**Pro Rata Basis**” means, inrespect of a Holder, the percentage determined by dividing (x) the outstandingprincipal amount of the Holder’s Note by (y) the aggregate outstandingprincipal amount of all Notes;

 

“**Rights Offering**” and “**Rights Period**”have the respective meanings attributed to such terms insubsection 4.3(2);

 

“**Security Interest**” means,collectively, the mortgage, charge, pledge, assignment and transfer of, and thesecurity interest in, the Collateral granted to the Registered Holder by theCorporation pursuant to Section 6.1;

 

“**Successor Corporation**” means anycorporation continuing from and which acquires all or substantially all of theundertaking, property and assets of any other corporation pursuant to anyCapital Reorganization;

 

“**Time of Expiry**” means 5:00 p.m.(Toronto time) on the Maturity Date;

 

“**Trading Day**” means a day onwhich the Principal Market is open for the trading of securities;

 

“**Transfer Form**” means the form oftransfer annexed as Exhibit 1 hereto;

 

“**TSX**” means the Toronto StockExchange;

 

**“Unit”**means a unit of securities issuable on conversion of this Note inaccordance with Article 4 hereof, each such Unit, subject to adjustment asprovided in this Note, to be comprised of one Common Share and one-half of oneWarrant; and

 

**“Warrant”** means a Common Share purchase warrant to acquire, subject toadjustments as provided in the form therefor, one Common Share at an exerciseprice of $0.50 and with a term expiring at 5:00 p.m. (Toronto time) onJune 15, 2008 to be issued in the form of the certificate annexed heretoas Exhibit “3”.

 

**1.2**                               Statutory References; Terms defined by the PPSA

** **

Any reference in this Note to a statute shallbe deemed to be a reference to such statute as amended, re-enacted or replacedfrom time to time.  Unless there issomething in the context or subject matter inconsistent therewith, words andphrases not otherwise herein defined that are defined by the PPSA shall havethe meanings ascribed thereto respectively by the PPSA.

 

**1.3**                               Gender and Number

** **

Unless the context otherwise requires, wordsimporting the singular include the plural and vice-versa and words importinggender include all genders.

 

**1.4**                               Monetary References

** **

Any reference in this Note to “Dollars”,“dollars” or the symbol “$” shall be deemed to be a reference to lawful moneyof Canada.

 

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**1.5**                               Day Not a Business Day

** **

In the event that any day on which any actionis required to be taken hereunder is not a Business Day, then such action shallbe required to be taken on the requisite time on the first Business Daythereafter.

 

**1.6**                               Invalidity of Provisions

** **

Each of the provisions contained in this Noteis distinct and severable and a declaration of invalidity or unenforceabilityof any such provision by a court of competent jurisdiction shall not affect thevalidity or enforceability of any other provision hereof or thereof.

 

**1.7**                               Governing Law

** **

This Note shall be governed by and construedin accordance with the PPSA and the other laws of the Province of Ontario andthe laws of Canada applicable therein and shall be treated in all respects asan Ontario contract.

 

**1.8**                               Assignment

** **

Subject to the restrictions on, andrequirements for, transfer prescribed herein, the rights and obligations of theCorporation and the Holders shall be binding upon and shall enure to thebenefit of their respective successors, heirs, executors, administrators andpermitted transferees and assigns.

 

**ARTICLE 2THE NOTES**

** **

**2.1**                               Notes in Series

** **

This Note is one of a series of Notes issuedby the Corporation, designated as “Series G Convertible Secured Notes”, andreferred to herein as the Notes.  Themaximum aggregate principal amount of the Notes to be issued by the Corporationis $**5,000,000**.

 

**2.2**                               Denominations

** **

Notes shall be issued in denominations of$1,000 and integral multiples thereof.

 

**2.3**                               Terms of Notes

** **

All Notes shall bear interest at the InterestRate from the Date of Issue (or, if issued after the Date of Issue, from theactual date of issuance thereof) to the earlier of the Maturity Date and theDate of Conversion (in respect of the Notes then being converted).  Interest on the Notes shall accrue on theoutstanding principal amount of the Notes from day to day both before and afterdefault, demand, maturity and judgment, for the actual number of days elapsedon the basis of a year of 365 days. Where the calendar year of calculation contains 366 days, interesthereunder shall be expressed as a yearly rate for purposes of the *Interest Act*(Canada) as such ratemultiplied by 366 and divided by 365. Such interest shall be payable on the earlier of the Date of Conversion(in respect of the principal amount of the Notes then being converted) and theMaturity Date (in respect of the principal amount of the Notes then

 

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outstanding,if any, on the Maturity date) and, for greater certainty, shall be payable aswell after as before default.

 

**2.4**                               Maturity Date

** **

Subject to Section 2.5, the Notes shallmature and the principal hereof shall become payable on June 15, 2007 (the“**Maturity Date**”).

 

**2.5**                               Notes to Rank Equally

** **

This Note and the Security Interest shallrank equally with all other Notes of the same series and the security interestsgranted thereunder and, as soon as issued or negotiated shall, subject to theterms hereof, be equally and rateably entitled to the benefits hereof as if allthe Notes had been issued and negotiated simultaneously.

 

The RegisteredHolder hereby agrees and declares that this Note and all indebtedness securedhereby or by any portion hereof, shall in all respects rank **pari passu**, equally and rateablyamong the Holders to the effect that all funds received by any Holder from theCorporation and all proceeds of realization of any of the Collateral under anyof the Notes shall be distributed between the Holders on a Pro Rata Basis.

 

The equal ranking of this Note and allindebtedness secured hereby set out in the preceding paragraph and all otherNotes and indebtedness secured thereby and all of the rights established,altered or specified herein shall:

 

(a)                        be applicable irrespective of:

 

(i)                                     the time, date or order of the grant, creation, execution, delivery,attachment or perfection of, the method of perfecting, the time or order ofregistration of filing financing statements or taking possession, records ofmortgages of other instruments, assignments or agreements;

 

(ii)                                  the giving up or failure to give notice of the acquiring of anycharge, lien or security interest or the date or dates of any loan or advanceor advances by a Holder to the Corporation; and

 

(iii)                               the date or dates of any default by the Corporation under any of theNotes or the date of crystallization of any floating charge referred herein ortherein or the taking of any enforcement proceedings, including possession withrespect to such securities; and

 

(b)                       extend to all proceeds in any form derived, arising or resultingfrom any realization under the Notes, including all proceeds of insurancepolicies covering assets of the Corporation subject to the Notes.

 

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**2.6**                               Registration of Notes

** **

(1)                                  The Corporation shall cause to be kept by and at the principaloffice of the Corporation in the City of Toronto a register in which shall beentered the names and latest known addresses of the holders of this and allother Notes and the other particulars, as prescribed by law, of the Notes heldby them respectively and of all transfers of Notes.  Such registration shall be noted on the Notes by the Corporation.  No transfer of a Note shall be effective asagainst the Corporation unless made on the register by the Registered Holder orhis executors or administrators or other legal representatives or his or theirattorney duly appointed by an instrument in form and execution reasonablysatisfactory to the Corporation and upon compliance with such requirements asthe Corporation may reasonably prescribe, and unless such transfer shall havebeen duly noted on such Note by the Corporation.

 

(2)                                  The register referred to in this section shall at allreasonable times be open for inspection by the Holders.

 

(3)                                  Subject to any restriction under applicable law or policy of anyapplicable regulatory body, any Holder may at any time and from time to timehave such Note or any portion of the principal amount thereof transferred atthe place at which the register is kept pursuant to the provisions of thissection in accordance with such reasonable regulations as the Corporationmay prescribe.  The transferor of suchNote or any portion of the principal amount thereof shall duly complete andexercise a Transfer Form.

 

(4)                                  The Corporation shall not be charged with notice of or be bound tosee to the execution of any trust, whether express, implied or constructive, inrespect of any Note, except where the Corporation is required to take notice bystatute or order of a court of competent jurisdiction and may transfer any Noteon the direction of the Holder thereof, whether named as trustee or otherwise,as though that Person were the beneficial owner thereof.

 

(5)                                  The Corporation shall not register any transfers of the Note orissue or transfer any Units issuable on conversion of the Note:

 

(i)                                     to any person in the United States or a resident of the UnitedStates or any person for the account or benefit of any person in the UnitedStates or a resident of the United States except pursuant to Rule 144 under theUnited States Securities Act of 1993, as amended (the “**U.S. Securities Act**”), ifavailable;

 

(ii)                                  in connection with any transfers or conversions which are otherwisenot in compliance with (a) the U.S. Securities Act and the regulationsthereunder if applicable, (b) the *SecuritiesAct* (Ontario) (the “****Ontario Securities Act******”**) and therules and regulations thereunder, (c) applicable securities laws andregulations of other relevant jurisdictions, or (d) the policies of the TSX;and

 

(iii)                               within four months and a day from the Date of Issue, unless theCorporation and its legal counsel are satisfied, acting reasonably, that it ispermitted under Ontario securities laws and under the policies of the TSX.

 

The Holder acknowledges that this Note andthe securities underlying the Note are subject to resale restrictions whichprovide that this Note and such securities may not be resold or otherwisedistributed

 

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until a period of at least four (4) monthshave elapsed from the Date of Issue except as permitted by applicablesecurities laws and acknowledges that the certificates representing the Noteand if the Note is converted or if the any of the Warrants are exercised, theCommon Shares, the Warrants and the Common Shares underlying the Warrants willbear the following legend denoting the restrictions on transfer under applicablesecurities laws:

 

**“UNLESS PERMITTED UNDERSECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITYBEFORE [4 MONTHS FROM THE DATE OF ISSUANCE OF THE NOTE].”**

 

**2.7**                               Ownership of Notes

** **

(1)                                  The Holder of a Note shall be deemed to be the owner thereof for allpurposes and payment of or on account of the principal of a Note shall be madeonly to or upon the order in writing of the Holder thereof and such paymentshall be a complete discharge to the Corporation and any paying agent for the amountsso paid.

 

(2)                                  The Holder for the time being of any Note shall be entitled to theprincipal evidenced by such Note, free from all equities or rights of set-offor counterclaim between the Corporation and the original or any intermediateHolder thereof (except any equities of which the Corporation is required totake notice by law) and all Persons may act accordingly and a transferee of aNote shall, after the Transfer Form is lodged with the Corporation and uponcompliance with all other conditions contained in such Note or by law or by anypolicy of any regulatory body, be entitled to be entered on the register as theowner of such Note free from all equities or rights of set-off or counterclaimbetween the Corporation and the transferor or any previous Holder thereof, savein respect of equities of which the Corporation is required to take notice bystatute or by order of a court of competent jurisdiction.  Delivery to the registered Holder by theCorporation or the receipt by the Holder of the principal monies and interestevidenced by this Note and the units issuable pursuant to this Note, if any,shall be a good discharge to the Corporation of its obligations hereunder andthe Corporation shall not be bound to enquire into the title of the RegisteredHolder, save as ordered by a Court of competent jurisdiction or as required bystatute.

 

**2.8**                               Exchange of Notes

** **

(1)                                  Notes of any denomination may be exchanged for Notes of any otherauthorized denomination or denominations, any such exchange to be for Notes ofan equivalent aggregate principal amount. Exchanges of Notes may be made at the principal offices of theCorporation in the City of Toronto.

 

(2)                                  Except as otherwise provided herein, upon any exchange of Notes ofany denomination for Notes of any other authorized denominations and upon anytransfer of Notes, the Corporation or other registrar of Notes may make asufficient charge to reimburse it for any stamp tax, security transfer tax orother governmental charge required to be paid, and payment of such charge shallbe made by the party requesting such exchange or transfer as a conditionprecedent thereto.

 

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**2.9**                               Replacement of Notes

** **

If any of theNotes shall become mutilated or be lost, stolen or destroyed and in the absenceof notice that such Notes have been acquired by a good faith purchaser withinthe meaning of the **BusinessCorporations Act** (Ontario), the Corporation will issue and deliver anew Note upon surrender and cancellation of the mutilated Note, or, in the caseof a lost, stolen or destroyed Note, in lieu of and in substitution for thesame.  In case of loss, theft ordestruction, the applicant for a new Note shall furnish to the Corporation suchevidence of such loss, theft or destruction as shall be satisfactory to theCorporation in its discretion and shall also furnish an indemnity in amount andform satisfactory to the Corporation in its sole discretion.  The applicant shall pay all reasonableexpenses incidental to the issuance of any such new Note.

 

**ARTICLE 3PURCHASE FOR CANCELLATION OF NOTES**

** **

**3.1**                               Purchase of Notes for Cancellation

** **

The Corporation may purchase all or any ofthe Notes in the market (which shall include purchase from or through aninvestment dealer or a firm holding membership on a recognized stock exchange)or by invitation for tenders or by private contract; provided that the price atwhich any Note may be so purchased shall not exceed the outstanding principalamount of such Note.

 

If, upon an invitation for tenders, moreNotes are tendered at the same price than the Corporation is prepared toaccept, the Notes to be purchased by the Corporation shall be selected by lot,or in such other manner as the Corporation may consider equitable, from theNotes tendered by each Holder who tendered at such lowest price.  The Holder of any Note of which a part onlyis purchased, upon surrender of such Note for payment, shall be entitled toreceive, without expense to such Holder, one or more new Notes for theunpurchased part so surrendered and the Corporation shall issue and deliversuch new Note or Notes upon receipt of the Note so surrendered.

 

**ARTICLE 4CONVERSION**

** **

**4.1**                               Optional Conversion and Automatic Conversion

** **

(1)                                  The conversion price is $0.31 (the “**Conversion Price**”) for each Unitto be issued upon the conversion of the Notes, unless such price shall havebeen adjusted as provided in this Article, in which case the Conversion Priceshall mean the price as so adjusted and in effect at such time.

 

(2)                                  Subject to and upon compliance with the provisions of thisArticle 4, the Holder of each Note shall have the right, at his option, atany time prior to the Time of Expiry, to convert such Note or any portion ofthe principal amount thereof which is $1,000 or an integral multiple of $1,000into Units at the Conversion Price (an “**Optional Conversion**”).

 

(3)                                  In the event that, at any time prior to the Time of Expiry, theAutomatic Conversion Condition has been met then the Corporation shall (and theHolder hereby authorizes and directs the Corporation to)

 

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convertthe full outstanding principal amount, under this Note into Units at theConversion Price (an “**Automatic Conversion**”), with such conversion to be effectiveas of the Automatic Conversion Date.

 

(4)                                  The accrued and unpaid interest on the principal amount of aHolder’s Note which is converted to Units pursuant to this Section 4.1will be paid in cash within 10 business days of Date of Conversion or theAutomatic Conversion Date, as the case may be.

 

**4.2**                               Manner of Exercise or Deemed Exercise of Right to Convert

** **

(1)                                  The Holder of a Note wishing to convert such Note in whole or inpart into Units as an Optional Conversion shall surrender such Note to theCorporation at its principal office in the City of Toronto, together withwritten notice in form and substance satisfactory to the Corporationsubstantially in the form of Exhibit “2” annexed hereto, duly executed by theHolder, his executors, administrators, other legal representatives or his ortheir attorney duly appointed by an instrument in form and substancesatisfactory to the Corporation, exercising his right to convert such Note inaccordance with the provisions of this Article.  Thereupon such Holder or, subject to payment of all applicablestamp taxes, security transfer taxes or other governmental charges andcompliance with all reasonable requirements of the Corporation, his nominee orassignee, shall be entitled to be entered in the books of the Corporation as atthe Date of Conversion (or such later date as is specified insubsection 4.2(2)) as the registered holder of the numbers of CommonShares and Warrants into which such Note is convertible in accordance with theprovisions hereof and, as soon as practicable thereafter, the Corporation shalldeliver to such Holder or, subject as aforesaid, his nominee or assigneecertificates for such Common Shares and Warrants and a cheque for any amountspayable under Sections 2.3, 4.1(4) or 4.5.

 

In the event of an Automatic Conversion theRegistered Holder shall be entitled, without any further act on the RegisteredHolder’s part, to be entered in the books of the Corporation as at the Date ofConversion as the registered holder of the numbers of Common Shares and Warrantsinto which such Note is convertible in accordance with the provisions hereofand, as soon as practicable thereafter and in any event within three TradingDays, the Corporation shall deliver to the Registered Holder a certificate forsuch Common Shares and Warrants and, if applicable, a cheque for any amountspayable under Section 4.5

 

(2)                                  For the purposes hereof, a Note shall be deemed to be surrenderedfor conversion on the date (the ”**Date of Conversion**”) which is:

 

(i)                                     in respect of an Optional Conversion, the date on which it is sosurrendered in accordance with the provisions hereof and, in the case of a Noteso surrendered by mail or other means of delivery, on the date on which it isreceived by the Corporation at its office specified in subsection 4.2(1),provided that if a Note is surrendered for conversion on a day on which theregister of Common Shares is closed, the Person entitled to receive Units shallbecome the holder of record of such Common Shares and Warrants as at the dateon which such register is next reopened; and

 

(ii)                                  in respect of an Automatic Conversion, the date as of which theAutomatic Conversion Condition has first been met.

 

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(3)                                  Any part, being $1,000 or an integral multiple thereof, of a Notemay be converted as provided herein and all references in this Note toconversion of Notes shall be deemed to include conversion of such parts.  The Holder of any Note of which part only isconverted shall, upon the exercise of his right of conversion, surrender suchNote to the Corporation, and the Corporation shall cancel the same and shallforthwith issue and deliver to the Holder a new Note or Notes in an aggregateprincipal amount equal to the unconverted part of the principal amount of theNote so surrendered.

 

(4)                                  The Common Shares issued upon conversion shall rank only in respectof dividends declared in favour of holders of record of Common Shares on orafter the Date of Conversion or such later date as such Holder shall become theholder of record of such Common Shares pursuant to subsection 4.2(2), fromwhich applicable date they will for all purposes be and be deemed to be issuedand outstanding as fully paid and non-assessable Common Shares.

 

**4.3**                               Adjustment of Conversion Price

** **

The Conversion Price will be subject toadjustment from time to time in the events and in the manner provided asfollows:

 

(1)                                  If and whenever at any time after the date hereof, and prior to theTime of Expiry, the Corporation:

 

(i)                                     issues Common Shares or securities exchangeable for or convertibleinto Common Shares to all or substantially all the holders of Common Shares asa stock dividend or other distribution (other than an issue of Common Shares toholders of Common Shares pursuant to a right granted to such holders to receivesuch Common Shares in lieu of dividends paid in the ordinary course);

 

(ii)                                  subdivides its outstanding Common Shares into a greater number ofCommon Shares; or

 

(iii)                               consolidates its outstanding Common Shares into a smaller number ofCommon Shares,

 

(any of such events in clauses (i), (ii) and(iii) of this subsection being called a “**Common Share Reorganization**”),then the Conversion Price shall be adjusted effective immediately after theeffective date or record date for the happening of a Common ShareReorganization, as the case may be, at which the holders of Common Shares aredetermined for the purpose of the Common Share Reorganization by multiplyingthe Conversion Price in effect immediately prior to such effective date orrecord date by a fraction, the numerator of which will be the number of CommonShares outstanding on such effective date or record date before giving effectto such Common Share Reorganization and the denominator of which will be thenumber of Common Shares outstanding immediately after giving effect to suchCommon Share Reorganization (including, in the case where securitiesexchangeable for or convertible into Common Shares are distributed, the numberof Common Shares that would have been outstanding had all such securities beenexchanged for or converted into Common Shares on such effective date or recorddate).

 

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(2)                                  If and whenever at any time after the date hereof, and prior to theTime of Expiry, the Corporation fixes a record date for the issue of rights,options or warrants to all or substantially all the holders of Common Shares(the **“Rights”**)under which such holders are entitled, during a period expiring not more thanforty-five (45) days after the date of such issue (the **“Rights Period”**),to subscribe for or purchase Common Shares at a price per share to the holder(or at an exchange or conversion price per share during the Rights Period tothe holder in the case of securities exchangeable for or convertible intoCommon Shares) of less than 95% of the price (the **“Current Market Price”**) which isequal to the average Closing Market Price for the period of 20 Trading Daysimmediately preceding such record date (any of such events being called a **“Rights Offering”**),then the Conversion Price shall be adjusted effective immediately after the endof the Rights Period to a price determined by multiplying the Conversion Pricein effect on such record date by a fraction:

 

(i)                                     the numerator of which will be the aggregate of:

 

(1)                                  the number of Common Shares outstanding as of the record date forthe Rights Offering; plus

 

(2)                                  a number determined by dividing (a) the product of the number ofCommon Shares issued or subscribed for during the Rights Period upon theexercise of the rights, warrants or options under the Rights Offering and theprice at which such Common Shares are offered by (b) the Current Market Priceof the Common Shares as of the record date for the Rights Offering, and

 

(ii)                                  the denominator of which will be the number of Common Sharesoutstanding after giving effect to the Rights Offering and including the numberof Common Shares actually issued or subscribed for during the Rights Periodupon exercise of the rights, warrants or options under the Rights Offering.

 

Any Holder who has exercised the right toconvert Common Shares in accordance with this Article 4 during the periodbeginning immediately after the record date for a Rights Offering and ending onthe last day of the Rights Period for the Rights Offering will, in addition tothe Common Shares and Warrants to which that Holder would otherwise be entitledupon such conversion, be entitled to that number of additional Common Sharesequal to the difference between the shares received on such conversion and theshares that would have been received if the Conversion Price as adjusted forsuch Rights Offering pursuant to this subsection had applied when theHolder exercised the right to convert; provided that the provisions of Section 4.5will be applicable to any fractional interest in a Common Share to which suchHolder might otherwise be entitled under the foregoing provisions of thissubsection.  Such additional CommonShares will be deemed to have been issued to the Holder immediately followingthe end of the Rights Period and a certificate for such additional CommonShares will be delivered to such Holder within five Business Days following theend of the Rights Period.  To the extentthat any such rights, options or warrants are not so exercised on or before theexpiry thereof, the Conversion Price will be readjusted to the Conversion Pricewhich would then be in effect based on the number of Common Shares (or thesecurities convertible into or exchangeable for Common Shares) actually deliveredon the exercise of such rights, options or warrants.

 

(3)                                  If and whenever at any time after the date hereof and prior to theTime of Expiry, the Corporation fixes a record date for the issue or thedistribution to all or substantially all the holders of Common Shares

 

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of(i) securities of the Corporation, including rights, options or warrants toacquire securities of the Corporation or any of its property or assets andincluding evidences of indebtedness or (ii) any property or other assets,including evidences of indebtedness, and if such issuance or distribution doesnot constitute a dividend paid in the ordinary course, a Common ShareReorganization or a Rights Offering (any of such non-excluded events beingcalled a “Special Distribution”), the Conversion Price shall be adjustedeffective immediately after such record date to a price determined bymultiplying the Conversion Price in effect on such record date by a fraction:

 

(i)                                     the numerator of which will be:

 

(1)                                  the product of the number of Common Shares outstanding on suchrecord date and the Current Market Price of the Common Shares on such recorddate; less

 

(2)                                  subject to the prior written consent of the Principal Market, ifapplicable, the excess, if any, of (a) the fair market value, as determined byaction by the Corporation’s board of directors (whose determination will beconclusive), to the holders of Common Shares of such securities or property orother assets so issued or distributed in the Special Distribution over (b) thefair market value of the consideration received therefor by the Corporationfrom the holders of Common Shares, as determined by the Corporation’s board ofdirectors (whose determination will be conclusive); and

 

(ii)                                  the denominator of which will be the product of the number of CommonShares outstanding on such record date and the Current Market Price of theCommon Shares on such record date.

 

To the extent that any Special Distributionis not so made, the Conversion Price will be readjusted effective immediatelyto the Conversion Price which would then be in effect based upon suchsecurities or property or other assets as actually distributed.

 

(4)                                  If and whenever at any time after the date hereof, and prior to theTime of Expiry, there is a reclassification of the Common Shares at any timeoutstanding or change of the Common Shares into other shares or into othersecurities or other capital reorganization (other than a Common ShareReorganization), or a consolidation, amalgamation or merger of the Corporationwith or into any other corporation or other entity (other than a consolidation,amalgamation or merger which does not result in any reclassification of theoutstanding Common Shares or a change of the Common Shares into other shares),or a transfer of the undertaking or assets of the Corporation as an entirety orsubstantially as an entirety to another corporation or other entity in whichthe holders of Common Shares are entitled to receive shares, other securitiesor other property (any of such events being called a **“Capital Reorganization”**), anyHolder who exercises the right to convert Notes into Common Shares pursuant toNotes then held after the effective date of such Capital Reorganization will beentitled to receive, and will accept for the same aggregate consideration inlieu of the number of Common Shares to which such Holder was previouslyentitled upon such conversion, the aggregate number of shares, other securitiesor other property or cash which such Holder would have been entitled to receiveas a result of such Capital Reorganization if, on the effective date thereof,the Holder had been the registered holder of the number of Common Shares towhich such Holder was previously entitled upon conversion subject to adjustment

 

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thereafterin accordance with provisions the same, as nearly possible, as those containedin this Article 4.  The Corporationwill take all steps necessary to ensure that, on a Capital Reorganization, theHolders of Notes will receive the aggregate number of shares, other securitiesor other property or cash to which they are entitled as a result of the CapitalReorganization.  Appropriate adjustmentswill be made as a result of any such Capital Reorganization in the applicationof the provisions set forth in this Article 4 with respect to the rightsand interests thereafter of Holders of Notes to the end that the provisions setforth in this Article 4 will thereafter correspondingly be made applicableas nearly as may reasonably be in relation to any shares, other securities orother property thereafter deliverable upon the conversion of any Note.  Subject to the prior written consent of thePrincipal Market, if applicable, any such adjustment will be made by and setforth in an instrument supplemental hereto approved by action of the board ofdirectors of the Corporation and will for all purposes be conclusively deemedto be an appropriate adjustment.

 

(5)                                  If the purchase price provided for in any rights, options orwarrants (the **“RightsOffering Price”**) referred to in subsections 4.3(2) or (3) isdecreased, the Conversion Price will forthwith be changed so as to decrease theConversion Price to the Conversion Price that would have been obtained if theadjustment to the Conversion Price made under such subsections, as the case maybe, with respect to such rights, options or warrants had been made on the basisof the Rights Offering Price as so decreased, provided that the terms of this subsection willnot apply to any decrease in the Rights Offering Price resulting from terms inany such rights, options or warrants designed to prevent dilution except to theextent that the resulting decrease in the Conversion Price under this subsection wouldbe greater than the decrease, if any, in the Conversion Price to be made underthe terms of this section by virtue of the occurrence of the event givingrise to such decrease in the Rights Offering Price.

 

(6)                                  In any case in which this section requires that an adjustmentbecome effective immediately after a record date for an event referred toherein, the Corporation may defer, until the occurrence of such event, issuingto the Holder of any Note converted after such record date and before the occurrenceof such event the additional Common Shares issuable upon such conversion byreason of the adjustment required by such event; provided, however, that theCorporation shall deliver to such Holder an appropriate instrument evidencingsuch Holder’s right to receive such additional Common Shares upon theoccurrence of such event and the right to receive any distributions made onsuch additional Common Shares declared in favour of holders of record of CommonShares on and after the Date of Conversion or such later date on which suchHolder would, but for the provisions of this subsection, have become the holderof record of such additional Common Shares pursuant to subsection 4.2(1).

 

**4.4**                               Rules Regarding Calculation of Adjustment of Conversion Price

** **

For the purposes of Section 4.3:

 

(1)                                  The adjustments provided for in Section 4.3 are cumulative andwill be computed to the nearest one-tenth of one cent and will be madesuccessively whenever an event referred to therein occurs, subject to theremaining provisions of this section.

 

(2)                                  No adjustment in the Conversion Price will be required unless suchadjustment would result in a change of at least 1% in the prevailing ConversionPrice; provided, however, that any adjustments which, except for the provisionsof this subsection would otherwise have been required to be made, will becarried forward and taken into account in any subsequent adjustment.

 

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(3)                                  No adjustment in the Conversion Price will be made in respect of anyevent described in Section 4.3 if Holders are entitled to participate insuch event on the same terms, **mutatismutandis**, as if they had converted their Notes prior to or on theeffective date or record date of such event. Any such participation will be subject to the prior consent of eachstock exchange on which the Common Shares are listed or quoted for unlistedtrading privileges, or were listed in the year prior to the occurrence of theevent described in this subsection, if applicable.

 

(4)                                  If at any time a dispute arises with respect to adjustments providedfor in Section 4.3, subject to the prior written consent of the PrincipalMarket, if applicable, such dispute will be conclusively determined by theCorporation’s auditors, or if they are unable or unwilling to act, by suchother firm of independent chartered accountants as may be selected by action ofthe Corporation’s board of directors and any such determination will be bindingupon the Corporation, the Holders and shareholders of the Corporation; suchauditors or accountants will be given access to all necessary records of theCorporation.

 

(5)                                  If the Corporation sets a record date to determine the holders ofCommon Shares for the purpose of entitling them to receive any dividend or distributionor sets a record date to take any other action and thereafter and before thedistribution to such shareholders of any such dividend or distribution or thetaking of any other action, legally abandons its plan to pay or deliver suchdividend or distribution or take such other action, then no adjustment in theConversion Price shall be made.

 

(6)                                  In the absence of a resolution of the Corporation’s board ofdirectors fixing a record date for a Special Distribution or Rights Offering,the Corporation shall be deemed to have fixed as a record date therefor thedate on which the Special Distribution or Rights Offering is effected.

 

**4.5**                               No Requirement to Issue Fractional Shares or Warrants

** **

The Corporation shall not be required toissue fractional Common Shares or Warrants upon the conversion of Notes.  If more than one Note is surrendered forconversion at one time by the same Holder, the number of whole Common Sharesand Warrants issuable upon conversion thereof shall be computed on the basis ofthe aggregate principal amount of the Notes to be converted. If any fractionalinterest in a Common Share or Warrant, as applicable, would, except for theprovisions of this section, be deliverable upon the conversion of any principalamount of Notes, the Corporation shall, in lieu of delivering any certificateof such fractional interest, satisfy such fractional interest by paying to theHolder of such surrendered Notes an amount in lawful money of Canada equal tothe value of such fractional interest based upon the Closing Market Price ofthe Common Shares on the Business Day preceding the Date of Conversion.

 

**4.6**                               Corporation to Reserve Shares

** **

The Corporation covenants that it will at alltimes reserve and keep available out of its authorized Common Shares (if thenumber thereof is or becomes limited) solely for the purpose of issue uponconversion of Notes as provided herein, and conditionally issue to Holders whomay exercise their conversion rights hereunder, such number of Common Shares asshall then be issuable upon the conversion of all outstanding Notes and anyWarrants which may be issued on exercise thereof. All Common Shares which shallbe so issuable shall be duly and validly issued as fully paid andnon-assessable.

 

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**4.7**                               Cancellation of Converted Notes

** **

All Notes converted in whole or in part shallbe forthwith cancelled by the Corporation and, subject tosubsection 4.2(3), no Notes shall be issued in substitution therefor.

 

**4.8**                               Certificate as to Adjustment

** **

The Corporation shall from time to time,immediately after the occurrence of any event which requires an adjustment orreadjustment as provided in Section 4.3, deliver a certificate to theHolders specifying the nature of the event requiring the same and the amount ofthe adjustment or readjustment necessitated thereby and setting forth inreasonable detail the method of calculation and the facts upon which suchcalculation is based.  Except in respectof any subdivision, redivision, reduction, combination or consolidation of theCommon Shares, the Corporation shall forthwith give notice to the Holdersspecifying the event requiring such adjustment or readjustment and the amountthereof, including the resulting Conversion Price; provided that if the Corporationhas given notice under Section 4.9 covering all the relevant facts inrespect of such event, no such notice need be given under this section.

 

**4.9**                               Notice of Special Matters

** **

The Corporation covenants that, so long asany Notes remain outstanding, it will give notice to the Holders of itsintention to fix a record date for any event referred to in subsections 4.3(1),(2), (3) or (4)  (other than thesubdivision, redivision, reduction, combination or consolidation of CommonShares) or a cash dividend (other than a dividend paid in the ordinary course)which may give rise to an adjustment in the Conversion Price, and such noticeshall specify the particulars of such event and the record date and theeffective date for such event; provided that the Corporation shall only berequired to specify in such notice such particulars of such event as shall havebeen fixed and determined on the date on which such notice is given.  Such notice shall be given not less than 14days prior to the applicable record date.

 

**ARTICLE 5COVENANTS OF THE CORPORATION**

** **

**5.1**                               General Covenants

** **

The Corporation hereby covenants with theHolders as follows:

 

(a)                        the Corporation will duly and punctually pay or cause to be paid toevery Holder the principal thereof and interest accrued on the Notes (and, incase of default, interest on the amount in default) of which he is the Holderon the dates, at the places, and in the manner mentioned herein;

 

(b)                       at the request of a Holder, the Corporation will furnish to theHolders a copy of all financial statements, whether annual or interim, of theCorporation and the report, if any, of the Corporation’s auditors thereon andof all annual and other periodic reports of the Corporation furnished to itsshareholders after the date hereof and prior to the Time of Expiry;

 

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(c)                        the Corporation will duly and punctually perform and carry out allof the acts or things to be done by it, and perform all covenants required tobe performed by it, as provided in this Note;

 

(d)                       upon the occurrence of an Event of Default, the Corporation shallpermit a representative of the Holders to inspect the Collateral and theoperations of the Corporation and for that purpose to enter to theCorporation’s premises and any other location where the Collateral may besituated during reasonable business hours and upon reasonable notice;

 

(e)                        the Corporation shall:

 

(i)                                     keep proper books of accounts and records covering all of itsbusiness and affairs on a current basis as well as accurate and completerecords concerning the Collateral;

 

(ii)                                  notify the Registered Holder promptly of any loss or damage to orany seizure of any significant portion of the Collateral;

 

(iii)                               furnish the Registered Holder with such information regarding theCollateral and its value and location as the Registered Holder may from time totime reasonably request;

 

(iv)                              upon the occurrence of an Event of Default, permit a representativeof the Holders, during reasonable business hours and upon reasonable notice, toinspect the Corporation’s books of account, records and documents and to makecopies, extracts and summaries therefrom; and

 

(v)                                 at any time after an Event of Default, permit the Registered Holderor its representative to make reasonable inquiries of third parties for thepurpose of verification of any of the foregoing; and

 

(f)                          the Corporation shall promptly notify the Registered Holder inwriting of the details of:

 

(i)                                     any amendment to its articles, including by virtue of the filing of articlesof amalgamation, effecting a change in the Corporation’s name;

 

(ii)                                  any claim, litigation or proceeding before any court, administrativeboard or other tribunal which either does or could have a material adverseeffect on the Collateral or the Corporation;

 

(iii)                               any claim, lien, attachment, execution or other process orencumbrance made or asserted against or with respect to the Collateral whicheither does or could have material adverse effect on the validity orenforceability of the Security Interest;

 

(iv)                              any transfer of the Corporation’s interest in the Collateral,whether or not permitted hereunder; or

 

(v)                                 any material loss of or damage to the Collateral, whether or notsuch loss or damage is covered by insurance; and

 

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(g)                       the Corporation shall keep the Collateral insured as would areasonable prudent owner of similar property against loss or damage by fire,theft or other usual perils, in such amounts as would a reasonably prudentowner of similar property and with such insurers as the Registered Holder mayreasonably require from time to time.

 

**5.2**                               Specific Covenants

** **

The Corporation hereby further covenants withthe Holders that:

 

(a)                        all Common Shares which shall be issued upon an Optional Conversionor an Automatic Conversion, or on due exercise of any Warrants, shall be issuedas fully paid and non-assessable in the capital of the Corporation;

 

(b)                       it will at all times maintain its corporate existence and will carryon and conduct its business in a proper and efficient manner; provided,however, that nothing herein contained shall prevent the Corporation fromceasing to operate any business or property if, in the opinion of its board ofdirectors, it shall be advisable and in the best interests of the Corporationto do so;

 

(c)                        it will use its best efforts to maintain the listing of the CommonShares (including the Common Shares issuable pursuant to the terms of theNotes) on or through the TSX or another recognized Canadian stock exchange;

 

(d)                       it will use its best efforts to maintain its status as a reportingissuer in each of the Provinces of Ontario, British Columbia, and Alberta notin default;

 

(e)                        it will at all times, so long as any Notes remain outstanding andmay be converted, keep open the register of Notes and the transfer registersfor the Common Shares and will not take any action which would have the effectof preventing the Holders from converting any of the Notes or receiving any ofthe Common Shares upon such conversion;

 

(f)                          it will make all requisite filings, including filings withappropriate securities commissions and stock exchanges, in connection with thecreation and sale of the Notes, the conversion of the Notes and the issue ofthe underlying Common Shares;

 

(g)                       generally, it will well and truly perform and carry out all of theacts or things to be done by it as provided herein; and

 

(h)                       it will use its best efforts to comply with, satisfy and fulfilpromptly all prerequisites, conditions and requirements imposed by or arisingout of legal, regulatory and administrative requirements applicable to theCorporation with respect to the consummation of the transactions contemplatedhereby, including filing or causing to be filed all documents, certificates,opinions, forms or undertakings required to be filed by the Corporation inconnection with the purchase and sale of the Notes, the issuance of the CommonShares in accordance with the terms of the Notes and the listing and postingfor trading of such Common Shares on the TSX or another recognized Canadianstock exchange, as applicable.

 

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**5.3**                               Performance of Covenants by the Registered Holder

** **

The Registered Holder may, in its solediscretion and upon notice to the Corporation, perform any covenant of theCorporation under this Note that the Corporation fails to perform and that theRegistered Holder is capable of performing, including any covenant theperformance of which requires the payment of money; provided that theRegistered Holder will not be obligated to perform any such covenant on behalfof the Corporation.  No such performanceby the Registered Holder will require the Registered Holder further to performthe Corporation’s covenants nor relieve the Corporation from any default oroperate as a derogation of the rights and remedies of the Registered Holderunder this Note.  The Corporation agreesto indemnify and to reimburse the Registered Holder for all costs and expensesincurred by the Registered Holder in connection with the performance by it ofany such covenant, and all such costs and expenses shall be payable by theCorporation to the Registered Holder on demand, shall bear interest at thehighest rate per annum borne by any of the Obligations, calculated andcompounded monthly, and shall (with all such interests) be added and form partof the Obligations.

 

**ARTICLE 6SECURITY INTEREST**

** **

**6.1**                               Grant of Security Interest, Description of Collateral

** **

As continuing collateral security for the dueand timely payment and performance by the Corporation of the Obligations, theCorporation hereby mortgages, charges, pledges, assigns, transfers and setsover to the Registered Holder and grants to the Registered Holder a general andcontinuing security interest in the Collateral, which shall include but not belimited to:

 

(a)                        all accounts, debts, amounts, claims, choses in actions and monieswhich now are, or which may at any time hereafter become, due or owing to orowned by the Corporation, whether or not earned by performance, including anyand all accounts receivable arising or resulting from the sale, lease, use,assignment or other disposition of any property described in this section; allsecurities, mortgages, bills,  notes andother documents now held or owned, or which may be hereafter taken, held orowned, by or on behalf of the Corporation, in respect of such accounts, debts,amounts, claims, choses in actions and monies or any parts thereof; and allbooks, documents and papers recording, evidencing, or relating to suchaccounts, debts, amounts, claims, choses in actions and monies or any partthereof;

 

(b)                       all present and future agreements made between the Corporation assecured party and others which evidence both a monetary obligation and securityinterest in or a lease of specific goods;

 

(c)                        all books of accounts and other books, invoices, writings, letters,papers and other documents whether in written, magnetic, electronic or otherform, relating to or being records of the Collateral or by which any of theCollateral is secured, evidenced, acknowledged or made payable;

 

(d)                       all writings now or hereafter owned by the Corporation, each ofwhich writing purports to be issued by or addressed to a bailee and purports tocover such goods and chattels in the bailee’s possession as are identified orfungible portions of an identified mass, whether such goods and

 

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chattels are inventory or equipment and whichwriting is treated in the ordinary course of business as establishing that theperson in possession of such writing is entitled to receive, hold and disposeof such writing and the goods and chattels it covers, and further, whether suchwriting is negotiable in form or otherwise, including bills of lading andwarehouse receipts;

 

(e)                        all equipment now owned or hereafter acquired by the Corporation,including all machinery, fixtures, plant, tools, furniture, chattels, vehiclesof any kind or description including motor vehicles, parts, accessories,installed in or affixed or attached to any of the foregoing, all purchasewarranties and claims, drawings, specifications, plans and manuals relatingthereto, any equipment specified as equipment of the Corporation and othertangible personal property which is not inventory;

 

(f)                          all present and future bills, notes and cheques (as such terms aredefined pursuant to the Bills of Exchange Act (Canada)) of the Corporation, andall of the writing and evidence a right to the payment of money and are of atype that in the ordinary course of business are transferred by delivery andall letters of credit and advices of credit provided that such letters ofcredit and advices of credit state that they must be surrendered upon claimingpayment thereof;

 

(g)                       subject to Section 6.5, all intangible property now owned orhereafter acquired by the Corporation and which is not accounts, including allcontractual rights, insurance claims, goodwill, licenses, inventions,franchises, designer rights, know-how processes and formulae, patents, patentapplications, trade-marks, trade names, copyrights and other intellectual orindustrial property of the Corporation, whether registered or not and whetherunder license or otherwise, and all other choses in action of the Corporationof every kind, whether due or owing at the present time or hereinafter tobecome due or owing;

 

(h)                       all goods and chattels now or hereafter forming the inventory of theCorporation including all goods, merchandise, raw materials, work in process,finished goods, goods held for sale, resale or lease or that have been leasedor that are to be, or have been furnished under a contract of service, andgoods used in or procured for  packingor packaging;

 

(i)                           all money now or hereafter owned by the Corporation, whether or not suchmoney is authorized or adopted by the Parliament of Canada as part of itscurrency or by any foreign government as part of its currency;

 

(j)                           all present and future securities held by the Corporation, includingshares, options, rights, warrants, joint venture interests, interests inlimited partnerships, trust units, bonds, Notes and all other documents whichconstitute evidence of a share, participation or other interest of theCorporation in property or in an enterprise or which constitute evidence of anobligation of the issuer (including an uncertificated security within themeaning of Part VI (Investment Securities) of the Business Corporations Act(Ontario)), together with all accretions thereto, all substitutions therefor,all dividends and income derived therefrom and all rights and claims in respectthereof; and

 

(k)                        subject to Section 6.4 all leases now owned or hereafteracquired by the Corporation as tenant (whether oral or written) or anyagreement therefor, together with all of the Corporation’s erections,improvements and fixtures situate thereupon.

 

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**6.2**                               Proceeds

** **

The Security Interest shall extend to allproceeds (other than consumer goods) of the Collateral.

 

**6.3**                               Attachment

** **

The Corporation hereby acknowledges thatvalue has been given by the Registered Holder for the granting of the SecurityInterest, that the Corporation has rights in the Collateral (other than futureand hereafter acquired Collateral), and that the parties have agreed not topostpone the time for attachment of the Security Interest.

 

**6.4**                               Exception re Last Day of Leases

** **

The last day of the term of any lease,sublease or agreement therefor, oral or written, now held or hereafter acquiredby the Corporation is specifically excepted from the Security Interest andshall not form part of the Collateral, but the Corporation agrees to standpossessed of such last day in trust for any person as the Registered Holder maydirect and the Corporation shall assign and dispose thereof in accordance withsuch direction.

 

**6.5**                               Exception re Contractual Rights, Licenses, etc.

** **

To the extent that the Security Interestwould constitute a breach or cause the acceleration of any agreement, lease,contractual right, license, approval, privilege, franchise or permit to whichthe Corporation is a party, the Security Interest shall not attach thereto butthe Corporation shall hold its interest therein in trust for the RegisteredHolder and shall grant a security interest in such agreement, contractualright, license or permit to the Registered Holder forthwith upon obtaining theappropriate consents to the creation of such security interest.  The Corporation agrees to use commerciallyreasonably efforts to obtain any such consent from time to time requested bythe Registered Holder.

 

**6.6**                               Amalgamation

** **

In the event that the Corporation shallamalgamate with any other corporation or corporations:

 

(a)                        the term “Corporation” wherever used herein shall extend to andinclude each of the amalgamating corporations and the amalgamated corporationand the indebtedness, obligations, and liabilities of each of them shall beincluded in the Obligations; and

 

(b)                       the Security Interest shall extend to and the Collateral shallinclude all the property and assets of each of the amalgamating corporationsand the amalgamated corporation and to any property or assets of theamalgamated corporation thereafter owned or acquired.

 

**ARTICLE 7RESTRICTIONS ON DISPOSITIONS OF COLLATERAL**

** **

**7.1**                               General Restrictions

** **

Except as herein expressly provided, theCorporation shall not, without the prior written consent of the RegisteredHolder:

 

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(a)                        create, allow to be created, assume or suffer to exist anyencumbrance upon the Collateral ranking or purporting to rank in priority to orpari passu with the Security Interest other than the Permitted SecurityInterests;

 

(b)                       sell, lease, assign or otherwise dispose of or deal with theCollateral; or

 

(c)                        release, surrender or abandon possession of the Collateral.

 

Save as herein otherwise expressly provided,nothing herein shall be construed as constituting an express or impliedsubordination or postponement of the Security Interest.

 

**7.2**                               Permitted Dispositions

** **

This Note and the Security Interest shall inno way hinder or prevent the Corporation, without the prior written consent ofthe Registered Holder, at any time or from time to time until an Event ofDefault shall have occurred and the Security Interest shall become enforceable:

 

(a)                        from collecting and, where necessary, enforcing the collection ofany and all amounts due or to become due to the Corporation under any account;or

 

(b)                       from selling, leasing, licensing, consigning or otherwise disposingof inventory or of any obsolete, worn out, damaged or otherwise unsuitableequipment forming part of the Collateral in the ordinary course of theCorporation’s business and for the purpose of carrying on the same.

 

**ARTICLE 8DEFAULT AND ENFORCEMENT**

** **

**8.1**                               Events of Default

** **

Each of the following events is hereinaftersometimes referred to as an **“Event of Default”**:

 

(a)                        if the Corporation makes default in payment of the principal of or,if applicable, any interest on, any Note when the same becomes due and suchdefault shall not have been remedied within a period of 10 business days aftersuch default shall first have become known to any officer of the Corporation orwritten notice thereof shall have been received by the Company from theRegistered Holder;

 

(b)                       if the Corporation or any subsidiary shall make a general assignmentfor the benefit of its creditors or a notice of intention to make a proposalunder the **Bankruptcy and InsolvencyAct** (Canada), or shall be declared or adjudged bankrupt, or areceiving order shall be made against the Corporation or any subsidiary unlesssame is being contested in good faith and is dismissed, stayed or withdrawnwithin 30 days thereof, or if a liquidator, trustee in bankruptcy, receiver,receiver and manager or any other officer with similar powers shall beappointed to the Corporation or any subsidiary or of all of its property or anymaterial part thereof unless same is being contested in good faith and isdismissed, stayed or withdrawn within 30 days thereof, or if the Corporation orany subsidiary shall propose a compromise, arrangement, or reorganization underthe **Companies’ Creditors ArrangementAct** (Canada) or any similar legislation of any

 

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jurisdiction providing for the reorganizationor winding-up of corporations or business entities or providing for anagreement, composition, extension or adjustment with its creditors; or theCorporation or any subsidiary shall admit in writing its inability to pay itsdebts generally as they become due or shall take corporate action infurtherance of any of the aforesaid purposes;

 

(c)                        if an order shall be made or effective resolution passed for thewinding-up or liquidation of the Corporation or any subsidiary, except in thecourse of carrying out or pursuant to a transaction in respect of which theconditions of Section 8.1 are duly observed and performed, or except inthe case of voluntarily winding-up or liquidating a subsidiary of theCorporation in a voluntary transaction pursuant to which substantially all ofthe assets of such subsidiary are transferred to the Corporation or anothersubsidiary of the Corporation;

 

(d)                       if the Corporation or any subsidiary shall make default beyond anyperiod of grace provided with respect thereto in the payment of the principalof, or part thereof, or interest or premium on, any indebtedness in excess of$100,000 or observance of any term, agreement or condition in respect of suchindebtedness and the effect of such default is to accelerate the payment ofsuch indebtedness or to permit the holder or holders of such indebtedness (ortrustee on behalf of such holder or holders) to accelerate the payment of suchindebtedness, and such acceleration shall not be rescinded or annulled or suchevent of default shall not be remedied or cured, whether by payment orotherwise, by the Corporation or the subsidiary or waived by the holders ofsuch indebtedness, within 30 days after such acceleration shall have occurred;

 

(e)                        if the Corporation shall neglect to observe or perform any othercovenant or condition contained in the Note on its part to be observed orperformed and, after notice in writing has been given by the Registered Holderto the Corporation specifying such default and requiring the Corporation to putan end to the same, the Corporation shall fail to make good such default withina period of 30 days, unless the Registered Holder (having regard to the subjectmatter of the default) shall have agreed to a longer period, and in such event,within the period agreed to by the Registered Holder;

 

(f)                          an encumbrancer, whether permitted or otherwise, takes possession ofany significant portion of the Collateral;

 

(g)                       an order is made or legislation enacted for the expropriation,confiscation, forfeiture, escheating or other taking or compulsory divestiture,whether or not with compensation, of all or a significant portion of theCollateral unless the same is being actively and diligently contested by theCorporation in good faith, the Corporation shall have provided to the RegisteredHolder such security therefor as it may reasonably require and such order orlegislation shall have been vacated, lifted, discharged, stayed or repealedwithin 30 days from the date of being entered, pronounced or enacted, as thecase may be;

 

(h)                       any process of a court, execution, attachment, garnishment, distressor analogous process is issued or levied or becomes enforceable or is enforcedagainst any significant portion of the Collateral unless the same is beingactively and diligently contested by the Corporation in good faith, theCorporation shall have provided to the Registered Holder such security thereforas it may reasonably require and such court process, execution, attachment,garnishment, distress or

 

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analogous process shall have been vacated,lifted, discharged or stayed within 30 days after being entered, commenced orlevied, as the case may be;

 

(i)                           the Corporation ceases or threatens to cease to carry on itsbusiness, commits an act of bankruptcy, becomes insolvent, proposes acompromise or arrangement to its creditors or makes an unauthorized sale inbulk of its assets; or

 

(j)                           the Corporation is liquidated, dissolved or its corporate charterexpires or is revoked.

 

**8.2**                               Notice of Events of Default

** **

If an Event of Default shall occur and iscontinuing the Corporation shall, within five Business Days after it becomesaware of the occurrence of such Event of Default, give notice thereof to theHolders.

 

Where notice of the occurrence of an Event ofDefault has been given and the Event of Default is thereafter cured, noticethat the Event of Default is no longer continuing shall be given by theCorporation to the Holders within five Business Days after the Corporationbecomes aware that the Event of Default has been cured.

 

**8.3**                               Acceleration on Default

** **

If any Event of Default has occurred and iscontinuing, the Registered Holder may in its discretion, by notice in writingto the Corporation declare the principal amount of the Note held by suchRegistered Holder and any other monies payable hereunder to be due and payableand the same shall forthwith become immediately due and payable to suchRegistered Holder, anything herein contained to the contrary notwithstanding.

 

**8.4**                               Remedies

** **

Upon the occurrence of an Event of Default,the Security Interest shall immediately become enforceable and the RegisteredHolder may, forthwith or at any time thereafter and without notice to theCorporation except as required by the PPSA or by this Note:

 

(a)                        commence legal action to enforce payment or performance of any orall of the Obligations;

 

(b)                       make payments to discharge any claim, lien, mortgage, securityinterest, charge or other encumbrance on properties on which either theCorporation or the Registered Holder may hold charges or encumbrances (whetheror not ranking in priority to the Security Interest);

 

(c)                        enter upon, use and occupy any and all premises owned, leased oroccupied by the Corporation where the Collateral may be located;

 

(d)                       take immediate possession of all or any part of the Collateral andrequire the Corporation to assemble or deliver possession of the Collateral ata location or locations specified by the

 

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Registered Holder, with power to exclude theCorporation, its officers, directors and agents therefrom;

 

(e)                        appoint or reappoint by instrument in writing any person to be anagent or any person to be a receiver, manager or receiver and manager (hereincalled a “**Receiver**”)of the Collateral and to remove any Receiver so appointed and to appointanother if the Registered Holder so desires;

 

(f)                          notify the account debtors or obligors under any accounts of theassignment of such accounts to the Registered Holder and direct such account debtorsor obligors to make payment of all amounts due or to become due to theCorporation thereunder directly to the Registered Holder and give valid andbinding receipts and discharges therefor and in respect thereof and, upon suchnotification and at the expense of the Corporation, enforce collection of anyaccounts, and adjust, settle, or compromise the account or payment thereof inthe same manner and to the same extent as the Corporation might have done;

 

(g)                       enjoy and exercise all of the rights and remedies of a secured partyunder the PPSA;

 

(h)                       file such proofs of claim or other documents as may be necessary ordesirable to have its claim lodged in any bankruptcy, winding-up, liquidation,dissolution or other proceedings (voluntary or involuntary) relating to theCorporation;

 

(i)                           preserve, protect and maintain the Collateral and made suchreplacements thereof and additions thereto as the Registered Holder shall deemadvisable;

 

(j)                           sell, consign, lease or otherwise dispose of all or any part of the Collateralwhether by public or private sale, consignment or lease or otherwise and on anyterms so long as every aspect of the disposition is commercially reasonable,including terms that provide time for payment on credit; provided that:

 

(i)                                     neither the Registered Holder nor any Receiver will be required tosell, consign, lease or dispose of the Collateral, but may peaceably andquietly take, hold, use, occupy, possess and enjoy the Collateral withoutmolestation, eviction, hindrance, or interruption by any other person orpersons whomsoever for such period of time as is commercially reasonable;

 

(ii)                                  the Registered Holder or any Receiver may dispose of all or any partof the Collateral in the condition in which it was on the date possession of itwas taken, or after any commercially reasonable repair, processing orpreparation for disposition;

 

(iii)                               the Registered Holder or any Receiver may convey, transfer or assignto a purchaser or purchasers the title to any of the Collateral so sold; and

 

(iv)                              the Corporation will be entitled to be credited with the actualproceeds of any such sale, consignment, lease or other disposition only whensuch proceeds are received by the Registered Holder or Receiver in cash.

 

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**8.5**                               Powers and Duties of Receiver

** **

Any Receiver appointed hereunder:

 

(a)                        shall, subject to the provisions of the instrument appointing it,have all of the powers of the Registered Holder hereunder, together with:

 

(i)                                     the power to carry on the business of the Corporation or any partthereof;

 

(ii)                                  the power to borrow money in the Corporation’s name or in theReceiver’s name; and

 

(iii)                               the power to grant security interests in the Collateral in priorityto the Security Interest as security for the money so borrowed; and

 

(b)                       shall be deemed to be the agent of the Corporation for the purposeof establishing liability for the acts or omissions of the Receiver and theRegistered Holder shall not be liable for such acts or omissions.

 

The Corporation hereby irrevocably authorizesthe Registered Holder from time to time after appointment of any receiver togive instructions to the Receiver relating to the performance relating to theReceiver’s duties and to fix the remuneration of the Receiver in connectiontherewith.

 

**8.6**                               Other Remedies

** **

The remedies provided in Section 8.4 arecumulative and in addition to (and not in substitution for, exclusive of nordependent on) any other remedies contained herein or in any existing or futuresecurity document granted by the Corporation to the Registered Holder and toall other remedies existing at law or in equity or by statute.

 

**8.7**                               Restrictions on Corporation

** **

Upon the Registered Holder taking possessionof the Collateral or the appointment of a Receiver, all the powers, functions,rights and privileges of the Corporation or any officer, director, employee oragent of the Corporation with respect to the Collateral shall, to the extentpermitted by law, be suspended unless specifically continued by the writtenconsent of the Registered Holder; however, all other powers, functions, rightsand privileges of the Corporation or any officer, director, employee or agentof the Corporation shall be unaffected by such events.

 

**8.8**                               Indulgences and Releases

** **

Either the Registered Holder or Receiver maygrant extensions of time and other indulgences, take and give up or abstainfrom perfecting or taking advantage of securities, except compositions,compound, compromise, settle, grant releases and discharges, release any partof the Collateral to third parties and otherwise deal with the Corporation,debtors of the Corporation, surety and others and with the Collateral and othersecurity as the Registered Holder or such Receiver may see fit withoutprejudice

 

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to theliability of the Corporation under the Obligations or the right of theRegistered Holder and such Receiver to hold the Collateral and realize upon theSecurity Interest.

 

**8.9**                               Expenses of Enforcement

** **

The Corporation agrees to indemnify theRegistered Holder for all reasonable costs and expenses of the RegisteredHolder, its agents, advisers and consultants (including legal fees anddisbursements on a solicitor and his own client basis) incurred with respect tothe exercise by the Registered Holder of any of its rights, remedies and powersunder this Note (including costs and expenses relating to the custody,preservation and realization of the Collateral, the remuneration of theReceiver and all costs and expenses incurred by the Receiver in performing itsfunctions under its appointment), and such costs and expenses shall be added toand form part of the Obligations.

 

**8.10**                        Application of Monies

** **

Subject to the requirements of the PPSA, allmoney or other proceeds of realization collected or received by the RegisteredHolder or any Receiver upon the realization of the Security Interest or onexercise of any other rights or remedies herein contained with respect to theCollateral shall be applied on account of the Obligations in such manner as theRegistered Holder deems best or, at the option of the Registered Holder, may beheld unapportioned in a collateral account or released to the Corporation, allwithout prejudice to the liability of the Corporation or the rights of theRegistered Holder hereunder.  Thebalance of such proceeds, if any, shall be paid in accordance with the PPSA andany other applicable law.

 

**8.11**                        Liability for Deficiency

** **

If the proceeds of realization received by oron behalf of the Registered Holder from the disposition of the Collateral arenot sufficient to satisfy the Obligations in full, the Corporation shall beliable to pay such deficiency to the Registered Holder forthwith on demand.

 

**8.12**                        Set Off

** **

Without in any way limiting any other rightsor remedies available to the Registered Holder, the Registered Holder shallhave the right (but shall not be obligated), at any time and from time to timeafter the occurrence of an Event of Default and without notice to theCorporation (such notice being expressly waived by the Corporation), to set offagainst the Obligations or any of them deposits (general or special) or moniesheld by the Registered Holder or any other indebtedness owing by the RegisteredHolder to, or held by, the Registered Holder for the credit of, theCorporation, regardless of the currency in which such indebtedness isdenominated and notwithstanding that such indebtedness is not then due.

 

**8.13**                        Waiver

** **

The Corporation hereby waives diligence,presentment, protest, notice of protest, notice of dishonour and notice ofnon-payment of this Note, and specifically consents to and waives notice of anyrenewal or extension of this Note.  Nodelay by the Registered Holder in exercising any power or privilege hereunder,nor the single or partial exercise of any power or privilege hereunder, shallpreclude any other or further exercise thereof, or the exercise of any otherpower or privilege hereunder.

 

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**8.14**                        Immunity of Shareholders, Directors and Others

** **

The Holders waive and release any right,cause of action or remedy now or hereafter existing in any jurisdiction againstany past, present or future incorporator, shareholder, director, officer,employee or agent of the Corporation or of any Successor Corporation for thepayment of the principal of any of the Notes or on any covenant, agreement,representation or warranty by the Corporation contained herein.

 

**ARTICLE 9NOTICES**

** **

**9.1**                               Notice to the Corporation

** **

Any notice to the Corporation under theprovisions of this Note shall be valid and effective if delivered personallyto, or if given by registered mail, postage prepaid, addressed to, theCorporation at its offices in 6275 Airport Road, Suite 201, Mississauga,Ontario L4V 1V2 Attention: Director of Finance, telecopier no. (905)672-5705,with a copy to Gowling Lafleur Henderson LLP, Suite 5800, Scotia Plaza, 40 KingStreet West, Toronto, Ontario, M5H 3Z7 Attention: Jason A. Saltzman, telecopierno.(416) 369-7250, and shall be deemed to have been given on the date ofdelivery or on the fifth Business Day after such letter has been mailed, as thecase may be.  The Corporation may fromtime to time notify the Holders of a change in address which thereafter, untilchanged by further notice, shall be the address of the Corporation for allpurposes of the Notes.

 

**9.2**                               Notice to Holder

** **

Except as otherwise expressly providedherein, all notices to be given hereunder with respect to the Notes shall bevalid and effective if such notice is delivered personally or, subject toSection 9.3, sent by first class mail, postage prepaid, addressed to suchHolders at their post office addresses appearing in any of the registershereinbefore mentioned.  Any notice sodelivered or sent by mail shall be deemed to have been given on the day uponwhich it is delivered or on the fifth Business Day after such letter has been mailed, as the case may be.  Any accidental error, omission or failure ingiving or in delivering or mailing any such notice or the non-receipt of anysuch notice by any Holder shall not invalidate or otherwise prejudiciallyaffect any action or proceeding founded thereon.

 

**9.3**                               Mail Service Interruption

** **

If, by reason of any actual or threatenedinterruption of mail service due to strike, lock-out or otherwise, any noticeto be given to the Holders or to the Corporation would be unlikely to reach itsdestination in a timely manner, such notice shall be valid and effective onlyif delivered personally in accordance with Sections 9.1 or 9.2, as the case maybe.

 

**ARTICLE 10SUCCESSOR CORPORATIONS**

** **

**10.1**                        Certain Requirements

** **

The Corporation shall not enter into anytransaction (whether by way of reconstruction, reorganization, consolidation,amalgamation, merger, transfer, sale, lease or otherwise) whereby all or

 

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substantiallyall of its undertaking, property and assets would become the property of anyother person or, in the case of such amalgamation or merger, of the continuingcompany resulting therefrom unless, and may do so if:

 

(i)                                     such other person or continuing corporation is a corporation (hereincalled the “**SuccessorCorporation**”) incorporated under the laws of Canada or any provincethereof;

 

(ii)                                  the Successor Corporation shall execute, prior to, contemporaneouslywith or forthwith after the consummation of such transaction an instrumentsupplemental hereto and such other instruments as are necessary or advisable toevidence the assumption by the Successor Corporation of the liability for thedue and punctual payment of all amounts outstanding and payable hereunder fromtime to time and the covenant of the Successor Corporation to pay the same andits agreement to observe and perform all of the covenants and obligations ofthe Corporation under this Note;

 

(iii)                               such transaction shall, to the satisfaction of the Holders actingreasonably, be upon such terms as substantially to preserve and not to impairin any material respect the rights and powers of the Holders hereunder; and

 

(iv)                              no condition or state of facts shall exist as to the Corporation orthe Successor Corporation, either at the time of or immediately before or afterthe consummation of any such transaction and after giving full effect theretoor immediately after the Successor Corporation complying with the provisions ofclause (b) above, that constitutes or would constitute after notice or lapse oftime or both, an Event of Default.

 

**10.2**                        Vesting of Powers in Successor

** **

Whenever the conditions of Section 10.1shall have been duly observed and performed, the Holders shall execute anddeliver the supplemental instrument provided for in Section 10.1 andthereupon the Successor Corporation shall be bound by the covenants andobligations of the Corporation under this Note and shall possess and from timeto time exercise each and every power of the Corporation under this Note in thename of the Corporation or otherwise, and any act or proceeding by anyprovision of this Note required to be done or performed by any directors orofficers of the Corporation may be done and performed with like force andeffect by the directors or officers of the Successor Corporation.

 

**ARTICLE 11GENERAL PROVISIONS**

** **

**11.1**                        Further Assurances

** **

The Corporation shall do, execute,acknowledge and deliver or cause to be done, executed, acknowledged anddelivered, such further acts, deeds, mortgages, transfers, assurances or otherdocuments as the Registered Holder shall reasonably require to give effect toor preserve and perfect the Security Interest in the Collateral intended to begranted to the Registered Holder hereunder, or any security interest theCorporation may hereafter grant or become bound to grant to the RegisteredHolder for the purpose of accomplishing and effecting the intention of thisNote.  The Corporation hereby

 

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irrevocablyappoints the Registered Holder to be the attorney of the Corporation, coupledwith an interest, with full power of substitution, for and in the name of theCorporation to execute and to do any deeds, documents, transfers, demands,assignments, assurance, consents and things which the Corporation is obliged tosign, execute or do hereunder.

 

**11.2**                        Term

** **

This Note shall become effective according toits terms immediately upon the execution hereof by the Corporation and shallcontinue as security for the Obligations until all of the Obligations are paidand performed in full and this note is terminated.

 

**11.3**                        Non-Substitution

** **

This Note and the Security Interest are inaddition to and not in substitution for any other agreement made between theRegistered Holder and the Corporation or any other security granted by theCorporation to the Registered Holder whether before or after the execution ofthis Note.

 

**11.4**                        No Merger

** **

Neither the taking of any action suit orproceeding, judicial or extra-judicial nor the exercise of any power of seizureor disposition shall extinguish the liability of the Corporation to pay andperform the Obligations nor shall the acceptance of any payment or alternatesecurity constitute or create any novation. No covenant, representation or warranty of the Corporation herein shallmerge in any judgment.

 

**11.5**                        Entire Agreement

** **

There are no representations, agreements,warranties, conditions, covenants or terms, express or implied, collateral orotherwise, affecting this Note or the Security Interest or the Corporation’sobligations and liabilities hereunder other than express herein.

 

**11.6**                        Time of Essence

** **

Time shall be of the essence in this Note inall respects.

 

**11.7**                        Disclosure of Information re Corporation

** **

The Corporation agrees that the RegisteredHolder may provide from time to time such information concerning this Note, theCollateral and the Obligations to such persons as the Registered Holder in goodfaith believes are entitled to the same under the PPSA.

 

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**EXHIBIT “1”**

** **

**FORM OF TRANSFER**

** **

**Re: Convertible Note of ADB SYSTEMS INTERNATIONAL LTD. due June 15,2007**

** **

For value received, the undersigned herebyassigns and transfers unto

 

                                                                   of                                                                   $  of the principal amount of the withinNote registered in the name of the undersigned on the books of ADB SYSTEMSINTERNATIONAL LTD. (the “**Corporation**”) including the rights thereunder to the accruedand unpaid interest on such principal amount and hereby irrevocably constitutesand appoints                                                    attorney to transfer the said Note on the books of the Corporation with fullpowers of substitution in the premises.

 

DATED                     in the presence of                                                .

 
|   | Signed: |   |   |
|--------|---------|--------|--------|

 

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**EXHIBIT “2”**

** **

**FORM OF ELECTION OF CONVERSION PRIVILEGE**

** **

TO:                            ADB SYSTEMS INTERNATIONAL LTD. LTD.

 

The undersigned hereby irrevocably elects toconvert $1,000 or any integral multiple thereof principal amount of the withinNote into Units of the Corporation at the Conversion Price in accordance withthe Terms and Conditions of the Note. Please issue share certificates for the Common Shares and Warrantscomprising such Units as follows:

 

Principal amount converted: $                                               

 

($1,000 or integral multiple thereof only)

 
|   | Name:    |   |   |
|--------|----------|--------|--------|
|   |     |   |   |
|   | Address: |   |   |
|   |     |   |   |
|   |     |   |   |
|   |     |   |   |
|   | Date:    |   |   |
|   |     |   |   |
|   | Signed:  |   |   |

 

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**EXHIBIT “3”**

** **

**FORM OF WARRANT**

 

**UNLESS PERMITTED UNDER SECURITIESLEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE[INSERT THE DATE THAT IS FOUR MONTHS AND A DAY AFTER THE DATE OF ISSUE****.]**

 

**“THIS WARRANT AND THE COMMON SHARES ISSUABLEUPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BEEXERCISED BY OR ON BEHALF OF ANY U.S. PERSON, OR SOLD, TRANSFERRED, ASSIGNED,PLEDGED OR HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THATACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR ADB SYSTEMS INTERNATIONALLTD. SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THATREGISTRATION OF SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OFAPPLICABLE FEDERAL AND STATE SECURITIES LAWS IS NOT REQUIRED.”**

 

Void after 5:00 p.m. (Toronto time) on the15th day of June, 2008.

 
| Number of Warrants: • |   | Warrant Certificate No. • |
|----------------------------|--------|--------------------------------|

 

**ADB SYSTEMS INTERNATIONAL LTD.**

** **

(Organized under the laws of the Province ofOntario)

 

This is to certify that, for value received,                                                                                (the “**Holder**”),shall have the right to purchase from ADB Systems International Ltd. (the “**Corporation**”),at any time and from time to time up to 5:00 p.m. (Toronto time) onJune 15, 2008 (the “**Expiry Time**”), one fully paid and non-assessable CommonShare (as defined below) for each Warrant (individually, a “**Warrant**”)represented hereby at a price of Cdn$0.50 per share (the “**Exercise Price**”),upon and subject to the following terms and conditions:

 

1.                                       For the purpose of this Warrant, the term “**Common Shares**”means common shares in the capital of the Corporation as constituted on thedate hereof; provided that in the event of a change, subdivision, re-division,reduction, combination or consolidation thereof or any other adjustment underclause 7 hereof, or such successive changes, subdivisions, re-divisions,reductions, combinations, consolidations or other adjustments, then subject tothe adjustments, if any, having been made in accordance with the provisions ofthis Warrant Certificate, “**Common Shares**” shall thereafter mean the shares, othersecurities or other property resulting from such change, subdivision,re-division, reduction, combination or consolidation or other adjustment.

 

2.                                       All rights under any of the Warrants in respect of which the rightof subscription and purchase therein provided for shall not theretofore havebeen exercised shall wholly cease and determine and such Warrants shall bewholly void and of no valid or binding effect after the Expiry Time.

 

3.                                       The right to purchase Common Shares pursuant to the Warrants mayonly be exercised by the Holder before the Expiry Time by duly completing andexecuting a subscription substantially in

 

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the formattached hereto, in the manner therein indicated and surrendering this WarrantCertificate and the duly completed and executed subscription form to theCorporation at the principal office of the Corporation at 201-6725 AirportRoad, Mississauga, Ontario L4V 1V2, together with payment of the purchase pricefor the Common Shares subscribed for in the form of cash or a certified chequepayable to the Corporation in an amount equal to the then applicable ExercisePrice multiplied by the number of Common Shares subscribed for.

 

4.                                       Issue of Common Shares upon Exercise.

 

(a)                                  Upon such delivery and paymentas set forth in Section 3, the Corporation shall cause to be issued to theHolder the number of Common Shares to be issued and the Holder shall become ashareholder of the Corporation in respect of such Common Shares with effectfrom the date of such delivery and payment and shall be entitled to delivery ofa certificate or certificates evidencing such shares.  The Corporation shall cause such certificate or certificates tobe delivered via bonded overnight courier to the Holder at the address oraddresses specified in such subscription form within three (3) business days ofsuch delivery and payment as herein provided.

 

(b)                                 The Corporation shall not berequired to issue fractional Common Shares upon the exercise of the Warrantsand no payment shall be made by the Corporation in lieu of issuing anyfractional interest in a Common Share.

 

5.                                       The holding of a Warrant shall not constitute the Holder ashareholder of the Corporation nor entitle the Holder to any right or interestin respect thereof except as herein expressly provided.

 

6.                                       The Corporation covenants and agrees that until the Expiry Time,while any of the Warrants shall be outstanding, it shall reserve and thereshall remain unissued out of its authorized capital a sufficient number ofCommon Shares to satisfy the right of purchase herein provided, as such rightof purchase may be adjusted pursuant to clauses 7 and 8 hereof.  All Common Shares which shall be issued uponthe exercise of the right to purchase herein provided for, upon paymenttherefor of the amount at which such Common Shares may at the time be purchasedpursuant to the provisions hereof, shall be issued as fully paid and nonassessable shares and the holders thereof shall not be liable to theCorporation or its creditors in respect thereof.

 

7.                                       Adjustment

 

(a)                                  If and whenever at any timeafter the date hereof and prior to the Expiry Time the Corporation shall (i)subdivide, re-divide or change its then outstanding Common Shares into agreater number of Common Shares, (ii) reduce, combine or consolidate its thenoutstanding Common Shares into a lesser number of Common Shares, or (iii) issueCommon Shares (or securities exchangeable for or convertible into CommonShares) to the holders of all or substantially all of its then outstandingCommon Shares by way of a stock dividend or other distribution (any of suchevents herein called a “**Common Share Reorganization**”), then the Exercise Price shallbe adjusted effective immediately after the effective date of any such event in(i) or (ii) above or the record date at which the holders of Common Shares aredetermined for the purpose of any such dividend or distribution in (iii) above,as the case may be, by multiplying the Exercise Price in effect on sucheffective date or record date, as the case may be, by a fraction, the numeratorof which shall be the number of Common Shares outstanding on such effectivedate or record date, as the case may be, before giving effect to such CommonShare Reorganization and the denominator of which shall be the number of CommonShares

 

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outstandingimmediately after giving effect to such Common Share Reorganization including,in the case where securities exchangeable for or convertible into Common Sharesare distributed, the number of Common Shares that would be outstanding if suchsecurities were exchanged for or converted into Common Shares.

 

(b)                                 If and whenever at any timeafter the date hereof and prior to the Expiry Time, the Corporation shalldistribute any class of shares or rights, options or warrants or othersecurities (other than those referred to in 7(a) above), evidences ofindebtedness or property (excluding cash dividends paid in the ordinary course)to holders of all or substantially all of its then outstanding Common Shares,the Holder shall receive, in addition to the number of the Common Shares inrespect of which the right to purchase is then being exercised, the aggregatenumber of Common Shares or other securities or property that the Holder wouldhave been entitled to receive as a result of such event, if, on the record datethereof, the Holder had been the registered holder of the number of CommonShares to which the Holder was theretofore entitled upon the exercise of therights of the Holder hereunder.

 

(c)                                  If and whenever at any timeafter the date hereof and prior to the Expiry Time there is a capitalreorganization of the Corporation or a reclassification or other change in theCommon Shares (other than a Common Share Reorganization) or a consolidation ormerger or amalgamation of the Corporation with or into any other corporation orother entity (other than a consolidation, merger or amalgamation which does notresult in any reclassification of the outstanding Common Shares or a change ofthe Common Shares into other securities), or a transfer of all or substantiallyall of the Corporation’s undertaking and assets to another corporation or otherentity in which the holders of Common Shares are entitled to receive shares,other securities or other property (any of such events being called a “**CapitalReorganization**”), the Holder, where he has not exercised the rightof subscription and purchase under this Warrant Certificate prior to theeffective date of such Capital Reorganization, shall be entitled to receive andshall accept, upon the exercise of such right, on such date or any timethereafter, for the same aggregate consideration in lieu of the number ofCommon Shares to which he was theretofore entitled to subscribe for andpurchase, the aggregate number of shares or other securities or property whichthe Holder would have been entitled to receive as a result of such CapitalReorganization if, on the effective date thereof, he had been the registeredholder of the number of Common Shares to which he was theretofore entitled tosubscribe for and purchase.

 

(d)                                 If and whenever at any timeafter the date hereof and prior to the Expiry Time, the Corporation shall fix arecord date for the issuance of rights, options or warrants to all orsubstantially all of the holders of the outstanding Common Shares entitlingthem, for a period expiring not more than forty five (45) days after the recorddate, to subscribe for or purchase Common Shares or securities convertible,exercisable or exchangeable into Common Shares (each, a “**Convertible Security**”)at a price per share (or having a conversation, exercise or exchange price pershare) less than 95% of the Current Market Price (as defined below) on theearlier of the record date and the date on which the Corporation announces itsintention to make such issuance (any such issuance being herein called a “**Rights Offering**”),the Exercise Price shall be adjusted on the record date so that it shall equalthe number which is the product of the Exercise Price in effect immediatelyprior to the record date and the fraction:

 

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(i)                                     the numerator of which shallbe the total number of Common Shares outstanding immediately prior to therecord date plus a number of Common Shares equal to the number arrived at bymultiplying the total number of additional Common Shares offered forsubscription or purchase or into or for which the total number of rights,options or warrants so offered are convertible or exchangeable by the quotientobtained by dividing the purchase or subscription price for each Common Shareor conversion price for each Convertible Security offered for subscription orpurchase by such Current Market Price for the Common Shares, and

 

(ii)                                  the denominator of which shallbe the total number of Common Shares outstanding immediately prior to suchrecord date plus the total number of additional Common Shares offered forsubscription or purchase or into or for which the total number of rights,options or warrants so offered are convertible or exchangeable.

 

To the extent that any rights, options orwarrants are not so issued or any of the rights, options or warrants so issuedare not exercised prior to the expiration thereof, the Exercise Price will bereadjusted to the Exercise Price in effect immediately prior to the recorddate, and the Exercise Price will be further adjusted based upon the number ofadditional Common Shares actually delivered upon the exercise of the rights,options or warrants, as the case may be.

 

For the purposes of this clause 7(d), “**Current MarketPrice”**, at any date, means the weighted average price per CommonShare at which the Common Shares have traded: (a) on the Toronto StockExchange; or (b) if the Common Shares are not quoted on the Toronto StockExchange, on any stock exchange or over the counter market upon which theCommon Shares are then listed or quoted for trading, during the twenty (20)consecutive trading days (on each of which at least five hundred (500) CommonShares are traded in board lots) ending the third (3rd) trading day before suchdate, and the weighted average price shall be determined by dividing theaggregate sale price of all Common Shares sold in board lots on the exchange ormarket, as the case may be, during the twenty (20) consecutive trading days bythe number of Common Shares sold, provided that if the Common Shares are notlisted or quoted for trading on any stock exchange or market, the price shallbe determined by the board of directors of the Corporation in its solediscretion, acting reasonably.

 

(e)                                  If and whenever at any timeafter the date hereof and prior to the Expiry Time, any of the events set outin clause 7(a) or (d) shall occur and the occurrence of such event results inan adjustment of the Exercise Price pursuant to the provisions of clause 7(a)or (d), then the number of Common Shares purchasable pursuant to this Warrantshall be adjusted contemporaneously with the adjustment of the Exercise Priceby multiplying the number of Common Shares then otherwise purchasable on theexercise thereof by a fraction, the numerator of which shall be the ExercisePrice in effect immediately prior to the adjustment and the denominator ofwhich shall be the Exercise Price resulting from such adjustment.

 

(f)                                    If the Corporation takes anyaction affecting its Common Shares to which the foregoing provisions of thisclause 7, in the opinion of the board of directors of the Corporation, actingin good faith, are not strictly applicable, or if strictly applicable would notfairly adjust the rights of the Holder against dilution in accordance with theintent and purposes hereof, or would otherwise materially affect the rights ofthe Holder of the Warrants hereunder, then the Corporation shall execute anddeliver to the Holder an amendment

 

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heretoproviding for an adjustment in the application of such provisions so as toadjust such rights as aforesaid in such manner as the board of directors of theCorporation may determine to be equitable in the circumstances, acting in goodfaith. The failure of the taking of action by the board of directors of theCorporation to so provide for any adjustment on or prior to the effective dateof any action or occurrence giving rise to such state of facts will beconclusive evidence that the board of directors has determined that it isequitable to make no adjustment in the circumstances.

 

8.                                       The following rules and procedures shall be applicable to theadjustments made pursuant to clause 7:

 

(a)                                  no adjustment in the ExercisePrice shall be required unless a change of at least 1% of the prevailingExercise Price would result, provided, however, that any adjustment which,except for the provisions of this clause 8(a), would otherwise have beenrequired to be made, shall be carried forward and taken into account in anysubsequent adjustment;

 

(b)                                 the adjustments provided forin clause 7 are cumulative and shall apply to successive subdivisions,consolidations, dividends, distributions and other events resulting in anyadjustment under the provisions of such clause;

 

(c)                                  in the absence of a resolutionof the board of directors of the Corporation fixing a record date for anydividend or distribution referred to in clause 7(a)(iii) above, the Corporationshall be deemed to have fixed as the record date therefor the date on whichsuch dividend or distribution is effected;

 

(d)                                 if the Corporation sets arecord date to take any action and thereafter and before the taking of such actionabandons its plan to take such action, then no adjustment to the Exercise Pricewill be required by reason of the setting of such record date;

 

(e)                                  forthwith after any adjustmentto the Exercise Price or the number of Common Shares purchasable pursuant tothe Warrants, the Corporation shall provide to the Holder a certificate of anofficer of the Corporation certifying as to the amount of such adjustment and,in reasonable detail, describing the event requiring and the manner ofcomputing or determining such adjustment; and

 

(f)                                    any question that at any timeor from time to time arises with respect to the amount of any adjustment to theExercise Price or other adjustment pursuant to clause 7 shall be conclusivelydetermined by a firm of independent chartered accountants (who may be theCorporation’s auditors) and shall be binding upon the Corporation and theHolder.

 

9.                                       On the happening of each and every such event set out in clause 7,the applicable provisions of this Warrant, including the Exercise Price, shall,ipso facto, be deemed to be amended accordingly and the Corporation shall takeall necessary action so as to comply with such provisions as so amended.

 

10.                                 The Corporation shall not be required to deliver certificates forCommon Shares while the share transfer books of the Corporation are properlyclosed, having regard to the provisions of clauses 7 and 8 hereof, prior to anymeeting of shareholders or for the payment of dividends or for any otherpurpose and in the event of the surrender of any Warrant in accordance with theprovisions hereof and the making of any subscription and payment for the CommonShares called for thereby during any such period delivery of certificates forCommon Shares may be postponed for

 

5

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not more thanfive (5) days after the date of the re opening of said share transfer books.Provided, however, that any such postponement of delivery of certificates shallbe without prejudice to the right of the Holder so surrendering the same andmaking payment during such period to receive after the share transfer booksshall have been re opened such certificates for the Common Shares called for,as the same may be adjusted pursuant to clause 8 hereof as a result of thecompletion of the event in respect of which the transfer books were closed.

 

11.                                 Subject as hereinafter provided, all or any of the rights conferredupon the Holder by the terms hereof may be enforced by the Holder byappropriate legal proceedings.  Norecourse under or upon any obligation, covenant or agreement contained hereinshall be had against any shareholder, director or officer of the Corporationeither directly or through the Corporation, it being expressly agreed anddeclared that the obligations under the Warrants are solely corporateobligations and that no personal liability whatever shall attach to or beincurred by the shareholders, directors or officers of the Corporation or anyof them in respect thereof, any and all rights and claims against every suchshareholder, officer or director being hereby expressly waived as a conditionof and as a consideration for the issue of the Warrants.

 

12.                                 The Holder may subscribe for and purchase any lesser number ofCommon Shares than the number of shares expressed in this WarrantCertificate.  In the case of anysubscription for a lesser number of Common Shares than expressed in thisWarrant Certificate, the Holder hereof shall be entitled to receive at no costto the Holder a new Warrant Certificate in respect of the balance of Warrantnot then exercised.  Such new WarrantCertificate shall be delivered by bonded overnight courier to the Holder by theCorporation, contemporaneously with the delivery of the certificate or certificatesrepresenting the Common Shares issued pursuant to clause 4.

 

13.                                 If this Warrant Certificate is stolen, lost, mutilated or destroyed,the Corporation shall, on such terms as it may in its discretion actingreasonably impose, issue and sign and direct the Corporation’s transfer agentto countersign a new Warrant Certificate of like denomination, tenor and dateas the Warrant Certificate so stolen, lost, mutilated or destroyed for deliveryto the Holder.

 

14.                                 The Corporation shall keep at its principal office (or its transferagent in the City of Toronto): (a) a register of holders in which shall beentered the names and addresses of the holders of the Warrants and of thenumber of Warrants held by them; and (b) a register of transfers in which shallbe entered the date and other particulars of each transfer of Warrants.  The registers hereinbefore referred to shallbe open at all reasonable times for inspection by any Holder.

 

15.                                 The transferee of a Warrant Certificate shall, after the transferform attached to the Warrant Certificate or any other form of transferacceptable to the Corporation, acting reasonably, is duly completed and theWarrant Certificate is lodged with the Corporation and upon compliance with allother conditions in that regard required by this Warrant, by the Toronto StockExchange or by law, be entitled to have his name entered on the register ofholders as the owner of the Warrants represented thereby free from all equitiesor rights of set off or counterclaim between the Corporation and the transferoror any previous holder of such Warrant, save in respect of equities of whichthe Corporation or the transferee is required to take notice by statute or byorder of a court of competent jurisdiction.

 

16.                                 Warrant Certificates may, upon compliance with the reasonablerequirements of the Corporation, be exchanged for Warrant Certificates in anyother denomination representing in the aggregate the same number ofWarrants.  The Corporation shall issueand sign and direct the Corporation’s

 

6

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transfer agentto countersign, all Warrant Certificates necessary to carry out the exchangescontemplated herein, provided:

 

(i)                                     Warrant Certificates may beexchanged only at the principal office of the Corporation in the City ofMississauga;

 

(ii)                                  any Warrant Certificatestendered for exchange shall be surrendered to the Corporation and cancelled;and

 

(iii)                               except as otherwise hereinprovided, the Corporation shall not charge Holders requesting an exchange anysum for any new Warrant Certificate issued.

 

17.                                 The Corporation may deem and treat the registered holder of anyWarrant Certificate as the absolute owner of the Warrants represented therebyfor all purposes, and the Corporation shall not be affected by any notice orknowledge to the contrary except where the Corporation is required to takenotice by statute or by order of a court of competent jurisdiction.  A Holder shall be entitled to the rightsevidenced by such Warrant free from all equities or rights of set off orcounterclaim between the Corporation and the original or any intermediateholder thereof and all persons may act accordingly and the receipt by any suchHolder of the Common Shares purchasable pursuant to such Warrant shall be agood discharge to the Corporation for the same and the Corporation shall not bebound to inquire into the title of any such Holder except where the Corporationis required to take notice by statute or by order of a court of competentjurisdiction.

 

18.                                 The Holder, if resident in Canada, acknowledges that appropriatelegend, as follows, will be placed upon certificates representing anysecurities issued on the exchange, assignment or exercise of the Warrantsrepresented by this certificate until the hold period expires for the Warrantsso represented hereby.

 

**LEGEND**

** **

**“UNLESS PERMITTED UNDERSECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITYBEFORE [INSERT THE DATE THAT IS FOUR MONTHS AND A DAY AFTER THE DATE OF ISSUE****.]**”****

 

19.                                 This Warrant shall be governed by the laws of the Province ofOntario and the federal laws of Canada applicable herein.

 

20.                                 The Holder, if resident in the United States, acknowledges thatappropriate legend, as follows, will be placed upon certificates representingany securities issued on the exchange, assignment or exercise of the Warrantsrepresented by this certificate until the hold period expires for the Warrantsso represented hereby.

 

**LEGEND**

** **

**“THE SECURITIES REPRESENTED HEREBY HAVE NOTBEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,AS AMENDED (THE “1933 ACT”) OR ANY STATE SECURITIES LAWS.  THESE SECURITIES MAY BE OFFERED, SOLD,PLEDGED,**

 

7

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**HYPOTHECATED OR OTHERWISE TRANSFERRED ORENCUMBERED ONLY (A) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 OFREGULATION S PROMULGATED UNDER THE 1933 ACT, (B) IN COMPLIANCE WITH THEEXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE 1933 ACT PROVIDED BYRULE 144 THEREUNDER, IF AVAILABLE, AND IN ACCORDANCE WITH ANY APPLICABLE STATESECURITIES LAWS, OR (C) IN A TRANSACTION THAT IS OTHERWISE EXEMPT FROM THEREGISTRATION REQUIREMENTS OF THE 1933 ACT AND ANY APPLICABLE STATE LAWS, ANDTHE HOLDER HAS, PRIOR TO SUCH SALE, FURNISHED TO THE COMPANY AN OPINION OFCOUNSEL OR OTHER EVIDENCE OF EXEMPTION, IN EITHER CASE REASONABLY SATISFACTORYTO THE COMPANY.  DELIVERY OF THISCERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ONSTOCK EXCHANGES IN CANADA.  IF THESESECURITIES ARE BEING SOLD AT ANY TIME THE COMPANY IS A “FOREIGN ISSUER” ASDEFINED IN RULE 902 UNDER THE 1933 ACT, A NEW CERTIFICATE, BEARING NO LEGEND,THE DELIVERY OF WHICH WILL CONSTITUTE “GOOD DELIVERY” MAY BE OBTAINED FROM THECOMPANY’S TRANSFER AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTEDDECLARATION, IN FORM SATISFACTORY TO THE COMPANY AND THE COMPANY’S TRANSFERAGENT TO THE EFFECT THAT THE SALE OF THE SECURITIES IS BEING MADE IN COMPLIANCEWITH RULE 904 OF REGULATION S UNDER THE 1933 ACT.”**

** **

21.                                 All references herein to monetary amounts are references to lawfulmoney of Canada.

 

**IN WITNESS WHEREOF**, the Corporation has caused this Warrant Certificate to be signedby its duly authorized officer.

 

**DATED** this           dayof               ,200        .

 
|   | **ADB  SYSTEMS INTERNATIONAL LTD.** |
|--------|-------------------------------------|
|   |                                |
|   | Per:                                |   |
|   |                                | Name: |
|   |                                | Title: |

 

8

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**SUBSCRIPTION FORM**

** **

**TO BE COMPLETED IF WARRANTS ARE TO BE EXERCISED:**

** **
| TO: |   | **ADB  SYSTEMS INTERNATIONAL LTD.**  6725 Airport Road, Suite 201  Mississauga, Ontario L4V 1V2 |
|-----|--------|-------------------------------------------------------------------------------------------------|

** **

**THE UNDERSIGNED** hereby subscribes for                           common shares of ADB Systems International Ltd. according to the terms andconditions set forth in the annexed warrant certificate (or such number ofother securities or property to which such warrant entitles the undersigned toacquire under the terms and conditions set forth in the annexed warrantcertificate).

 

 

Address for Delivery ofShares:                                                                                                   

 

Exercise Price Tendered:                                                                                                             

 

(Cdn$0.50 per share or asadjusted)             Cdn$                                                                        

 

**DATED** at Toronto, this          day of                     ,200     . 

 
|        |   |                                  |
|-------------|--------|---------------------------------------|
| **Witness** |   |   Holder’s Name        |   |
|        |   |                                  |   |
|        |   |                                  |
|        |   |   Authorized Signature      |   |
|        |   |                                  |   |
|        |   |                                  |
|        |   |   Title **(if applicable)** |   |

 

----

 

**ASSIGNMENT FORM**

** **

**TO BE COMPLETED IF WARRANTS ARE TO BE ASSIGNED:**

** **
| TO: |   | **ADB  SYSTEMS INTERNATIONAL LTD.**  6725 Airport Road, Suite 201  Mississauga, Ontario L4V 1V2 |
|-----|--------|-------------------------------------------------------------------------------------------------|

** **

**FOR VALUE RECEIVED**,            Warrantsrepresented by this Warrant Certificate are

hereby transferred to                                                                                                                                                                              residing at                                                                                                                                                                                              

You are hereby instructed to take thenecessary steps to effect this transfer.

 

**DATED** at                               ,this            day of                          ,                           ..

 

 
| **Witness** |   |   Holder’s Name        |   |
|-------------|--------|---------------------------------------|--------|
|        |   |                                  |   |
|        |   |                                  |   |
|        |   |   Authorized Signature      |   |
|        |   |                                  |   |
|        |   |                                  |   |
|        |   |   Title **(if applicable)** |   |

 

 

Signature guaranteed:

 

The signature must be guaranteed by aCanadian chartered bank or a member of a recognized stock exchange or otherentity acceptable to the Corporation.

 

----

 

**EXHIBIT “4”**

** **

**ADDITIONAL PERMITTED SECURITY INTERESTS**

** **

**“Permitted Security Interests”** means with respect to any property or asset of any Person:

 

(a)                                  security interests forprovincial or municipal taxes, charges, rates and assessments not yet due or,if due, the validity of which is being contested in good faith and securityinterests for the excess of the amount of any past due taxes for which a finalassessment has not been received over the amount of such taxes as estimated andpaid by such Person;

 

(b)                                 the security interests of anyjudgement rendered or claim filed against the Corporation or its property whichit shall be contesting in good faith and in respect of which there shall havebeen deposited with an arms-length Person acceptable to the Registered Holder,acting reasonably, cash, security or a surety bond satisfactory to sucharms-length Person in an amount sufficient to pay such judgement or claim;

 

(c)                                  defects or irregularities oftitle which do not in the aggregate materially impair the value of the propertyto which they related or interfere with the use of the property to which theyrelate for the purposes for which it is held by such Person;

 

(d)                                 pledges or deposits to securepayment of workers’ compensation, good faith deposits in connection withtenders, contracts (other than contracts for the repayment of moneys borrowed)or leases, deposits to secure public or statutory obligations, deposits tosecure or in lieu of surety or appeal bonds, and pledges or deposits forsimilar purposes in the ordinary course of business;

 

(e)                                  purchase money securityinterests;

 

(f)                                    security interests granted bythe Corporation to secure indebtedness of the Corporation to any of the Holdersof the Notes;

 

(g)                                 the security interestsperfected by the registrations made under the PPSA and listed in Exhibit “5”;and

 

(h)                                 any other security interestsaccepted from time to time by the Holders of Notes representing a majority ofthe aggregate principal amounts then outstanding under all Notes in writing.

 

For the purposes of this Exhibit “4”, theterm “security interests” means any mortgage, charge, pledge, hypothecation,lien (statutory or otherwise), assignment, finance lease, title retentionagreement or arrangement, security interest or other encumbrance or adverseclaim of any nature, or any other security agreement or arrangement creating infavour of any creditor a right in respect of a particular property or asset.

 

----

 

**EXHIBIT “5”**

** **

**Permitted PPSA Registrations**

** **
| File Number:         |   | 084987306                       |
|----------------------|--------|---------------------------------|
| Registration Number: |   | 20021104151100439461            |
|                 |   | 20021108165217583169            |
|                 |   | 20030826182015316880            |
|                 |   | 20040527145115302544            |
|                 |   |                            |
| Debtor Name:         |   | ADB Systems International Ltd.  |
| Secured Party:       |   | Jeff Lymburner                  |
|                 |   |                            |
| File Number:         |   | 888880464                       |
| Registration Number: |   | 20021104144390654204            |
|                 |   | 20021108165217583161            |
|                 |   | 20030826182015316881            |
|                 |   | 20040527145115302545            |
|                 |   |                            |
| Debtor Name:         |   | ADB Systems International Ltd.  |
| Secured Party:       |   | Christopher Bulger              |
|                 |   |                            |
| File Number:         |   | 888880518                       |
| Registration Number: |   | 20021104144390654209            |
|                 |   | 20021108165217583166            |
|                 |   | 20031021145615300346            |
|                 |   | 20040527145115302546            |
|                 |   |                            |
| Debtor Name:         |   | ADB Systems International Ltd.  |
| Secured Party:       |   | Kenneth Sparfel, Kelly Sparfel  |
|                 |   |                            |
| File Number:         |   | 881960004                       |
| Registration Number: |   | 20020510181117159588            |
|                 |   | 20030826092017152348            |
|                 |   |                            |
| Debtor Name:         |   | ADB Systems International Inc.  |
| Secured Party:       |   | Xerox Canada Ltd.               |
|                 |   |                            |
| File Number:         |   | 897234246                       |
| Registration Number: |   | 20030812145215303748            |
| Debtor Name:         |   | ADB Systems International Ltd.  |
| Secured Party:       |   | Stonestreet Limited Partnership |
|                 |   |                            |
| File Number:         |   | 897234255                       |
| Registration Number: |   | 20030812145215303749            |
| Debtor Name:         |   | ADB Systems International Ltd.  |
| Secured Party:       |   | Greenwich Growth Fund Ltd.      |

 

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| File Number:         |   | 897592122                                   |
|----------------------|--------|---------------------------------------------|
| Registration Number: |   | 20030825184115313987                        |
| Debtor Name:         |   | ADB Systems International Ltd.              |
| Secured Party:       |   | Canaccord Capital Corp.                     |
|                 |   | ITF Janet Harrop A/C 133388S7               |
| Description:         |   | General Security Agreement                  |
|                 |   |                                        |
| File Number:         |   | 897592131                                   |
| Registration Number: |   | 20030825184115313988                        |
| Debtor Name:         |   | ADB Systems International Ltd.              |
| Secured Party:       |   | Canaccord Capital Corp.                     |
|                 |   | ITF Christopher Harrop A/C 133384S6         |
| Description:         |   | General Security Agreement                  |
|                 |   |                                        |
| File Number:         |   | 897592149                                   |
| Registration Number: |   | 20030825184115313989                        |
| Debtor Name:         |   | ADB Systems International Ltd.              |
| Secured Party:       |   | Robb, Michael                               |
| Description:         |   | General Security Agreement                  |
|                 |   |                                        |
| File Number:         |   | 897592158                                   |
| Registration Number: |   | 20030825184115313990                        |
| Debtor Name:         |   | ADB Systems International Ltd.              |
| Secured Party:       |   | Mokos, James                                |
| Description:         |   | General Security Agreement                  |
|                 |   |                                        |
| File Number:         |   | 897592167                                   |
| Registration Number: |   | 20030825184115313991                        |
| Debtor Name:         |   | ADB Systems International Ltd.              |
| Secured Party:       |   | Gundyco ITF Paul Godin RRSP A/C 59121001-11 |
| Description:         |   | General Security Agreement                  |
|                 |   |                                        |
| File Number:         |   | 897592176                                   |
| Registration Number: |   | 20030825184115313992                        |
| Debtor Name:         |   | ADB Systems International Ltd.              |
| Secured Party:       |   | Hellesto, Arne                              |
| Description:         |   | General Security Agreement                  |
|                 |   |                                        |
| File Number:         |   | 605431161                                   |
| Registration Number: |   | 20040512170314627442                        |

 

2

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| Debtor Name:   |   | ADB Systems International Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|----------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Secured Party: |   | Stonestreet Limited Partnership                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Description:   |   | General Security Agreement with respect to  $500,000 Principal Series F of secured convertible note issued by debtor to  secured party, but which is to rank **pari  passu****with the Security Interest, except  in respect of** (i) the Corporation’s world-wide account  receivables and all proceeds therefrom; and (ii) the proceeds from the  account receivables insurance policy No. GG1-27888 issued by Export  Development Canada and St. Paul Guarantee Insurance Company, insuring 90% of  value of the Receivables**, for which the security interest of  Stonestreet Limited Partnership referred to above is to rank in priority**pursuant  to a priority agreement dated June 15, 2004 by Stonestreet Limited  Partnership and the Corporation in favour of the Holders**.** |

 

3

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