Unassociated Document


    [FORM
      OF SENIOR SECURED CONVERTIBLE NOTE]

     

    NEITHER
      THE ISSUANCE AND SALE OF THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE
      IS
      CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
      OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED FOR
      SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
      REGISTRATION STATEMENT FOR THESE SECURITIES UNDER THE SECURITIES ACT OF 1933,
      AS
      AMENDED, OR (B) AN OPINION OF COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT
      REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO
      RULE
      144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES
      MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
      OR
      FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE
      SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii)
      AND
      18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY,
      THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS
      SET
      FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
      NOTE.

     

    

      DIGITALFX
        INTERNATIONAL, INC.

       

      SENIOR
        SECURED CONVERTIBLE NOTE

       

    

    
    

    
      	
              Issuance
                Date: November 30, 2007

            	
              Original
                Principal Amount: U.S.
                $_____________

            


    

    


    FOR
      VALUE RECEIVED,
      DigitalFX International, Inc., a Florida corporation (the "Company"),
      hereby promises to pay to [PORTSIDE GROWTH AND OPPORTUNITY FUND][HIGHBRIDGE
      INTERNATIONAL LLC][IROQUOIS MASTER FUND, LTD.]
      or
      registered assigns ("Holder")
      the
      amount set out above as the Original Principal Amount (as reduced pursuant
      to
      the terms hereof pursuant to redemption, conversion or otherwise, the
      "Principal")
      when
      due, whether upon the Maturity Date (as defined below), acceleration, redemption
      or otherwise (in each case in accordance with the terms hereof) and to pay
      interest ("Interest")
      on any
      outstanding Principal at the applicable Interest Rate, from the date set out
      above as the Issuance Date (the "Issuance Date")
      until
      the same becomes due and payable, whether upon an Interest Date (as defined
      below), the Maturity Date, acceleration, conversion, redemption or otherwise
      (in
      each case in accordance with the terms hereof). This Senior Secured Convertible
      Note (including all Senior Secured Convertible Notes issued in exchange,
      transfer or replacement hereof, this "Note")
      is one
      of an issue of Senior Secured Convertible Notes issued pursuant to the
      Securities Purchase Agreement (as defined below) on the Closing Date
      (collectively, the "Notes"
      and
      such other Senior Secured Convertible Notes, the "Other Notes").
      Certain capitalized terms used herein are defined in Section 29.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (1)  PAYMENTS
      OF PRINCIPAL.
      On the
      Maturity Date, the Company shall pay to the Holder an amount in cash
      representing all outstanding Principal, accrued and unpaid Interest and accrued
      and unpaid Late Charges, if any, on such Principal and Interest. The
      "Maturity Date"
      shall
      be November 30, 2010, as may be extended at the option of the Holder (i) in
      the
      event that, and for so long as, an Event of Default (as defined in Section
      4(a))
      shall have occurred and be continuing on the Maturity Date (as may be extended
      pursuant to this Section 1) or any event that shall have occurred and be
      continuing that with the passage of time and the failure to cure would result
      in
      an Event of Default and (ii) through the date that is ten (10) Business Days
      after the consummation of a Change of Control in the event that a Change of
      Control is publicly announced or a Change of Control Notice (as defined in
      Section 5(b)) is delivered prior to the Maturity Date. Other than as
      specifically permitted by this Note, the Company may not prepay any portion
      of
      the outstanding Principal, accrued and unpaid Interest or accrued and unpaid
      Late Charges, if any, on such Principal and Interest.

     

    (2)  INTEREST;
      INTEREST RATE.
      Interest
      on this Note shall commence accruing on the Issuance Date and shall be computed
      on the basis of a 360-day year comprised of twelve (12) thirty (30) day months
      and shall be payable in arrears for each Calendar Quarter on the first day
      of
      the succeeding Calendar Quarter during the period beginning on the Issuance
      Date
      and ending on, and including, the Maturity Date (each, an "Interest Date")
      with
      the first Interest Date being January 1, 2008, in cash. Prior to the payment
      of
      Interest on an Interest Date, Interest on this Note shall accrue at the Interest
      Rate and be payable by way of inclusion of the Interest in the Conversion Amount
      in accordance with Section 3(b)(i). From and after the occurrence of an Event
      of
      Default, the Interest Rate shall be increased to twelve percent (12.0%). In
      the
      event that such Event of Default is subsequently cured, the adjustment referred
      to in the preceding sentence shall cease to be effective as of the date of
      such
      cure; provided that the Interest as calculated at such increased rate during
      the
      continuance of such Event of Default shall continue to apply to the extent
      relating to the days after the occurrence of such Event of Default through
      and
      including the date of cure of such Event of Default.

     

    (3)  CONVERSION
      OF NOTES.
      This
      Note shall be convertible into shares of the Company's common stock, par value
      $0.001 per share (the "Common
      Stock"),
      on
      the terms and conditions set forth in this Section 3.

     

    (a)  Conversion
      Right.
      Subject
      to the provisions of Section 3(d), at any time or times on or after the Issuance
      Date, the Holder shall be entitled to convert any portion of the outstanding
      and
      unpaid Conversion Amount (as defined below) into fully paid and nonassessable
      shares of Common Stock in accordance with Section 3(c), at the Conversion Rate
      (as defined below). The Company shall not issue any fraction of a share of
      Common Stock upon any conversion. If the issuance would result in the issuance
      of a fraction of a share of Common Stock, the Company shall round such fraction
      of a share of Common Stock up to the nearest whole share. The Company shall
      pay
      any and all taxes that may be payable with respect to the issuance and delivery
      of Common Stock upon conversion of any Conversion Amount.

     

    (b)  Conversion
      Rate.
      The
      number of shares of Common Stock issuable upon conversion of any Conversion
      Amount pursuant to Section 3(a) shall be determined by dividing (x) such
      Conversion Amount by (y) the Conversion Price (the "Conversion
      Rate").

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (i)  "Conversion
      Amount"
      means
      the sum of (A) the portion of the Principal to be converted, redeemed or
      otherwise with respect to which this determination is being made, (B) accrued
      and unpaid Interest with respect to such Principal and (C) accrued and unpaid
      Late Charges with respect to such Principal and Interest.

     

    (ii)  "Conversion
      Price"
      means,
      as of any Conversion Date (as defined below) or other date of determination,
      $2.80, subject to adjustment as provided herein.

     

    (c)  Mechanics
      of Conversion.

     

    (i)  Optional
      Conversion.
      To
      convert any Conversion Amount into shares of Common Stock on any date (a
      "Conversion
      Date"),
      the
      Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt
      on or
      prior to 11:59 p.m., New York Time, on such date, a copy of an executed notice
      of conversion in the form attached hereto as Exhibit
      I
      (the
      "Conversion
      Notice")
      to the
      Company and (B) if required by Section 3(c)(iii), surrender this Note to a
      common carrier for delivery to the Company as soon as practicable on or
      following such date (or an indemnification undertaking with respect to this
      Note
      in the case of its loss, theft or destruction). On or before the first
      (1st)
      Trading
      Day following the date of receipt of a Conversion Notice, the Company shall
      transmit by facsimile a confirmation of receipt of such Conversion Notice to
      the
      Holder and the Company's transfer agent (the "Transfer
      Agent").
      On or
      before the second (2nd)
      Trading
      Day following the date of receipt of a Conversion Notice (the "Share
      Delivery Date"),
      the
      Company shall (x) provided that the Transfer Agent is participating in the
      Depository Trust Company ("DTC")
      Fast
      Automated Securities Transfer Program, credit such aggregate number of shares
      of
      Common Stock to which the Holder shall be entitled to the Holder's or its
      designee's balance account with DTC through its Deposit Withdrawal Agent
      Commission system or (y) if the Transfer Agent is not participating in the
      DTC
      Fast Automated Securities Transfer Program, issue and deliver to the address
      as
      specified in the Conversion Notice, a certificate, registered in the name of
      the
      Holder or its designee, for the number of shares of Common Stock to which the
      Holder shall be entitled. If this Note is physically surrendered for conversion
      as required by Section 3(c)(iii) and the outstanding Principal of this Note
      is
      greater than the Principal portion of the Conversion Amount being converted,
      then the Company shall as soon as practicable and in no event later than three
      (3) Business Days after receipt of this Note and at its own expense, issue
      and
      deliver to the holder a new Note (in accordance with Section 18(d)) representing
      the outstanding Principal not converted. The Person or Persons entitled to
      receive the shares of Common Stock issuable upon a conversion of this Note
      shall
      be treated for all purposes as the record holder or holders of such shares
      of
      Common Stock on the Conversion Date. 

     

    (ii)  Company's
      Failure to Timely Convert.
      If
      within three (3) Trading Days after the Company's receipt of the facsimile
      copy
      of a Conversion Notice the Company shall fail to issue and deliver a certificate
      to the Holder or credit the Holder's balance account with DTC for the number
      of
      shares of Common Stock to which the Holder is entitled upon conversion of any
      Conversion Amount (a "Conversion
      Failure"),
      then
      (A) the Company shall pay damages to the Holder for each day of such Conversion
      Failure in an amount equal to 1.5% of the product of (I) the sum of the number
      of shares of Common Stock not issued to the Holder on or prior to the Share
      Delivery Date and to which the Holder is entitled, and (II) the Closing Sale
      Price of the Common Stock on the Share Delivery Date and (B) the Holder, upon
      written notice to the Company, may void its Conversion Notice with respect
      to,
      and retain or have returned, as the case may be, any portion of this Note that
      has not been converted pursuant to such Conversion Notice; provided
      that the
      voiding of a Conversion Notice shall not affect the Company's obligations to
      make any payments which have accrued prior to the date of such notice pursuant
      to this Section 3(c)(ii) or otherwise. In addition to the foregoing, if within
      three (3) Trading Days after the Company's receipt of the facsimile copy of
      a
      Conversion Notice the Company shall fail to issue and deliver a certificate
      to
      the Holder or credit the Holder's balance account with DTC for the number of
      shares of Common Stock to which the Holder is entitled upon such holder's
      conversion of any Conversion Amount, and if on or after such Trading Day the
      Holder purchases (in an open market transaction or otherwise) Common Stock
      to
      deliver in satisfaction of a sale by the Holder of Common Stock issuable upon
      such conversion that the Holder anticipated receiving from the Company (a
      "Buy-In"),
      then
      the Company shall, within three (3) Trading Days after the Holder's request
      and
      in the Holder's discretion, either (i) pay cash to the Holder in an amount
      equal
      to the Holder's total purchase price (including brokerage commissions and other
      out-of-pocket expenses, if any) for the shares of Common Stock so purchased
      (the
"Buy-In
      Price"),
      at
      which point the Company's obligation to issue and deliver such certificate
      or to
      credit the Holder's balance account with DTC for the number of shares of Common
      Stock to which the Holder is entitled upon such Holder's conversion of any
      Conversion Amount shall terminate, or (ii) promptly honor its obligation to
      deliver to the Holder a certificate or certificates representing such Common
      Stock and pay cash to the Holder in an amount equal to the excess (if any)
      of
      the Buy-In Price over the product of (A) such number of shares of Common Stock,
      times (B) the Closing Bid Price on the Conversion Date.

     

    
      
        
        

      

      
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    (iii)  Registration;
      Book-Entry.
      The
      Company shall maintain a register (the "Register")
      for
      the recordation of the names and addresses of the holders of each Note and
      the
      principal amount of the Notes held by such holders (the "Registered
      Notes").
      The
      entries in the Register shall be conclusive and binding for all purposes absent
      manifest error. The Company and the holders of the Notes shall treat each Person
      whose name is recorded in the Register as the owner of a Note for all purposes,
      including, without limitation, the right to receive payments of principal and
      interest hereunder, notwithstanding notice to the contrary. A Registered Note
      may be assigned or sold in whole or in part only by registration of such
      assignment or sale on the Register. Upon its receipt of a request to assign
      or
      sell all or part of any Registered Note by a Holder, the Company shall record
      the information contained therein in the Register and issue one or more new
      Registered Notes in the same aggregate principal amount as the principal amount
      of the surrendered Registered Note to the designated assignee or transferee
      pursuant to Section 18. Notwithstanding anything to the contrary set forth
      herein, upon conversion of any portion of this Note in accordance with the
      terms
      hereof, the Holder shall not be required to physically surrender this Note
      to
      the Company unless (A) the full Conversion Amount represented by this Note
      is
      being converted or (B) the Holder has provided the Company with prior written
      notice (which notice may be included in a Conversion Notice) requesting
      reissuance of this Note upon physical surrender of this Note. The Holder and
      the
      Company shall maintain records showing the Principal, Interest and Late Charges,
      if any, converted and the dates of such conversions or shall use such other
      method, reasonably satisfactory to the Holder and the Company, so as not to
      require physical surrender of this Note upon conversion.

     

    
      
        
        

      

      
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    (iv)  Pro
      Rata Conversion; Disputes.
      In the
      event that the Company receives a Conversion Notice from more than one holder
      of
      Notes for the same Conversion Date and the Company can convert some, but not
      all, of such portions of the Notes submitted for conversion, the Company,
      subject to Section 3(d), shall convert from each holder of Notes electing to
      have Notes converted on such date a pro rata amount of such holder's portion
      of
      its Notes submitted for conversion based on the principal amount of Notes
      submitted for conversion on such date by such holder relative to the aggregate
      principal amount of all Notes submitted for conversion on such date. In the
      event of a dispute as to the number of shares of Common Stock issuable to the
      Holder in connection with a conversion of this Note, the Company shall issue
      to
      the Holder the number of shares of Common Stock not in dispute and resolve
      such
      dispute in accordance with Section 23.

     

    (v)  Company's
      Right of Mandatory Conversion.
      

     

    (A)  Mandatory
      Conversion.
      If at
      any time from and after the one (1) year anniversary of the Issuance Date (the
      "Mandatory
      Conversion Eligibility Date"),
      (i)
      the Closing Sale Price of the Common Stock exceeds for each of any twenty (20)
      consecutive Trading Days following the Mandatory Conversion Eligibility Date
      (the "Mandatory
      Conversion Measuring Period")
      175%
      of the Conversion Price on the Issuance Date (as adjusted for any stock splits,
      stock dividends, recapitalizations, combinations, reverse stock splits or other
      similar events during such period) and (ii) there shall not have been any Equity
      Conditions Failure, the Company shall have the right to require the Holder
      to
      convert all, or any portion, of the Conversion Amount then remaining under
      this
      Note into fully paid, validly issued and nonassessable shares of Common Stock
      in
      accordance with Section 3(c) hereof at the Conversion Rate as of the
      Mandatory Conversion Date (as defined below) with respect to the Conversion
      Amount (a "Mandatory
      Conversion").
      The
      Company may exercise its right to require conversion under this Section
      3(c)(v)(A) by delivering within not more than two (2) Trading Days following
      the end of any such Mandatory Conversion Measuring Period a
      written
      notice thereof by facsimile and overnight courier to all, but not less than
      all,
      of the holders of Notes and the Transfer Agent (the "Mandatory
      Conversion Notice"
      and the
      date all of the holders received such notice is referred to as the "Mandatory
      Conversion Notice Date").
      The
      Company may deliver one (1) Mandatory Conversion Notice hereunder and the
      Mandatory Conversion Notice shall be irrevocable. The Mandatory Conversion
      Notice shall state (1) the Trading Day selected for the Mandatory Conversion
      in
      accordance herewith, which Trading Day shall be at least twenty (20) Trading
      Days but not more than sixty (60) Trading Days following the Mandatory
      Conversion Notice Date (the "Mandatory
      Conversion Date"),
      (2)
      the aggregate Conversion Amount of the Notes subject to mandatory conversion
      from all of the holders of the Notes pursuant hereto (and analogous provisions
      under the Other Notes) and (3) the number of shares of Common Stock to be issued
      to the Holder on the Mandatory Conversion Date. All Conversion Amounts converted
      by the Holder after the Mandatory Conversion Notice Date shall reduce the
      Conversion Amount of this Note required to be converted on the Mandatory
      Conversion Date. The mechanics of conversion set forth in Section 3(c) shall
      apply to any Mandatory Conversion as if the Company and the Transfer Agent
      had
      received from the Holder on the Mandatory Conversion Date a Conversion Notice
      with respect to the Conversion Amount being converted pursuant to the Mandatory
      Conversion. Notwithstanding the foregoing, if the Company cannot effect a
      Mandatory Conversion, in whole or in part, of the Conversion Amount of this
      Note
      (such portion, the "Unconverted
      Amount")
      as
      contemplated in any Mandatory Conversion Notice due to the limitation on
      conversions set forth in Section 3(d)(i), then, as of the applicable Mandatory
      Conversion Date, Interest on such Unconverted Amount shall cease to accrue
      and
      such Unconverted Amount shall be converted in accordance with Section 3(c)(i)
      on
      such date such conversion is permitted under Section 3(d)(i). 

     

    
      
        
        

      

      
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    (B)  Pro
      Rata Conversion Requirement.
      If the
      Company elects to cause a conversion of any Conversion Amount of this Note
      pursuant to Section 3(c)(v)(A), then it must simultaneously take the same action
      in the same proportion with respect to the Other Notes. If the Company elects
      a
      Mandatory Conversion of this Note pursuant to Section 3(c)(v)(A) (or similar
      provisions under the Other Notes) with respect to less than all of the
      Conversion Amounts of the Notes then outstanding, then the Company shall require
      conversion of a Conversion Amount from each of the holders of the Notes equal
      to
      the product of (I) the aggregate Conversion Amount of Notes which the Company
      has elected to cause to be converted pursuant to Section 3(c)(v)(A), multiplied
      by (II) the fraction, the numerator of which is the sum of the aggregate
      Original Principal Amount of the Notes purchased by such holder of outstanding
      Notes and the denominator of which is the sum of the aggregate Original
      Principal Amount of the Notes purchased by all holders holding outstanding
      Notes
      (such fraction with respect to each holder is referred to as its "Conversion Allocation
      Percentage,"
      and
      such amount with respect to each holder is referred to as its "Pro
      Rata Conversion Amount");
      provided, however, that in the event that any holder's Pro Rata Conversion
      Amount exceeds the outstanding Principal amount of such holder's Note, then
      such
      excess Pro Rata Conversion Amount shall be allocated amongst the remaining
      holders of Notes in accordance with the foregoing formula. In the event that
      the
      initial holder of any Notes shall sell or otherwise transfer any of such
      holder's Notes, the transferee shall be allocated a pro rata portion of such
      holder's Conversion Allocation Percentage and the Pro Rata Conversion
      Amount.

     

    (d)  Limitations
      on Conversions.
      

     

    (i)  Beneficial
      Ownership.
      The
      Company shall not effect any conversion of this Note, and the Holder of this
      Note shall not have the right to convert any portion of this Note pursuant
      to
      Section 3(a), to the extent that after giving effect to such conversion, the
      Holder (together with the Holder's affiliates) would beneficially own in excess
      of 4.99% (the "Maximum
      Percentage")
      of the
      number of shares of Common Stock outstanding immediately after giving effect
      to
      such conversion. For purposes of the foregoing sentence, the number of shares
      of
      Common Stock beneficially owned by the Holder and its affiliates shall include
      the number of shares of Common Stock issuable upon conversion of this Note
      with
      respect to which the determination of such sentence is being made, but shall
      exclude the number of shares of Common Stock which would be issuable upon (A)
      conversion of the remaining, nonconverted portion of this Note beneficially
      owned by the Holder or any of its affiliates and (B) exercise or conversion
      of the unexercised or nonconverted portion of any other securities of the
      Company (including, without limitation, any Other Notes or Warrants) subject
      to
      a limitation on conversion or exercise analogous to the limitation contained
      herein beneficially owned by the Holder or any of its affiliates. Except as
      set
      forth in the preceding sentence, for purposes of this Section 3(d)(i),
      beneficial ownership shall be calculated in accordance with Section 13(d) of
      the
      Securities Exchange Act of 1934, as amended (the "Exchange
      Act").
      For
      purposes of this Section 3(d)(i), in determining the number of outstanding
      shares of Common Stock, the Holder may rely on the number of outstanding shares
      of Common Stock as reflected in (x) the Company's most recent Form 10-K, Form
      10-KSB Form 10-Q, Form 10-QSB or Form 8-K, as the case may be, (y) a more recent
      public announcement by the Company or (z) any other notice by the Company or
      the
      Transfer Agent setting forth the number of shares of Common Stock outstanding.
      For any reason at any time, upon the written request of the Holder, the Company
      shall within one (1) Business Day confirm in writing to the Holder the number
      of
      shares of Common Stock then outstanding. In any case, the number of outstanding
      shares of Common Stock shall be determined after giving effect to the conversion
      or exercise of securities of the Company, including this Note, by the Holder
      or
      its affiliates since the date as of which such number of outstanding shares
      of
      Common Stock was reported. By written notice to the Company, the Holder may
      from
      time to time increase or decrease the Maximum Percentage to any other percentage
      not in excess of 9.99% specified in such notice; provided that (i) any such
      increase will not be effective until the sixty-first (61st)
      day
      after such notice is delivered to the Company, and (ii) any such increase or
      decrease will apply only to the Holder and not to any other holder of
      Notes.

     

    
      
        
        

      

      
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    (ii)  Principal
      Market Regulation.
      The
      Company shall not be obligated to issue any shares of Common Stock upon
      conversion of this Note, and the Holder of this Note shall not have the right
      to
      receive upon conversion of this Note any shares of Common Stock, if the issuance
      of such shares of Common Stock would exceed the aggregate number of shares
      of
      Common Stock which the Company may issue upon conversion or exercise, as
      applicable, of the Notes and Warrants without breaching the Company's
      obligations under the rules or regulations of the Principal Market (the
      "Exchange
      Cap"),
      except that such limitation shall not apply in the event that the Company (A)
      obtains the approval of its stockholders as required by the applicable rules
      of
      the Principal Market for issuances of Common Stock in excess of such amount
      or
      (B) obtains a written opinion from outside counsel to the Company that such
      approval is not required, which opinion shall be reasonably satisfactory to
      the
      Required Holders. Until such approval or written opinion is obtained, no
      purchaser of the Notes pursuant to the Securities Purchase Agreement (each
      a
      "Purchaser"
      and,
      collectively, the "Purchasers")
      shall
      be issued in the aggregate, upon conversion or exercise, as applicable, of
      Notes
      or Warrants, shares of Common Stock in an amount greater than the product of
      the
      Exchange Cap multiplied by a fraction, the numerator of which is the principal
      amount of Notes issued to each Purchaser pursuant to the Securities Purchase
      Agreement on the Closing Date and the denominator of which is the aggregate
      principal amount of all Notes issued to the Purchasers pursuant to the
      Securities Purchase Agreement on the Closing Date (with respect to each
      Purchaser, the "Exchange
      Cap Allocation").
      In
      the event that any Purchaser shall sell or otherwise transfer any of such
      Purchaser's Notes, the transferee shall be allocated a pro rata portion of
      such
      Purchaser's Exchange Cap Allocation, and the restrictions of the prior sentence
      shall apply to such transferee with respect to the portion of the Exchange
      Cap
      Allocation allocated to such transferee. In the event that any holder of Notes
      shall convert all of such holder's Notes into a number of shares of Common
      Stock
      which, in the aggregate, is less than such holder's Exchange Cap Allocation,
      then the difference between such holder's Exchange Cap Allocation and the number
      of shares of Common Stock actually issued to such holder shall be allocated
      to
      the respective Exchange Cap Allocations of the remaining holders of Notes on
      a
      pro rata basis in proportion to the aggregate principal amount of the Notes
      then
      held by each such holder.

     

    
      
        
        

      

      
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    (4)  RIGHTS
      UPON EVENT OF DEFAULT.

     

    (a)  Event
      of Default.
      Each of
      the following events shall constitute an "Event
      of Default":

     

    (i)  the
      failure of the applicable Registration Statement (as defined in the Registration
      Rights Agreement) required to be filed pursuant to the Registration Rights
      Agreement to be declared effective by the SEC on or prior to the date that
      is
      sixty (60) days after the Effectiveness Deadline (as defined in the Registration
      Rights Agreement), or, while the applicable Registration Statement is required
      to be maintained effective pursuant to the terms of the Registration Rights
      Agreement, the effectiveness of the applicable Registration Statement lapses
      for
      any reason (including, without limitation, the issuance of a stop order) or
      is
      unavailable to any holder of the Notes for sale of all of such holder's
      Registrable Securities (as defined in the Registration Rights Agreement)
      required to be registered in accordance with the terms of the Registration
      Rights Agreement, and such lapse or unavailability continues for a period of
      ten
      (10) consecutive days or for more than an aggregate of thirty (30) days in
      any
      365-day period (other than days during an Allowable Grace Period (as defined
      in
      the Registration Rights Agreement));

     

    (ii)  the
      suspension from trading or failure of the Common Stock to be listed on an
      Eligible Market for a period of five (5) consecutive Trading Days or for more
      than an aggregate of ten (10) Trading Days in any 365-day period;

     

    (iii)  the
      Company's (A) failure to cure a Conversion Failure by delivery of the required
      number of shares of Common Stock within ten (10) Business Days after the
      applicable Conversion Date or (B) notice, written or oral, to any holder of
      the
      Notes, including by way of public announcement or through any of its agents,
      at
      any time, of its intention not to comply with a request for conversion of any
      Notes into shares of Common Stock that is tendered in accordance with the
      provisions of the Notes;

     

    (iv)  at
      any
      time following the tenth (10th)
      consecutive Business Day that the Holder's Authorized Share Allocation is less
      than the number of shares of Common Stock that the Holder would be entitled
      to
      receive upon a conversion of the full Conversion Amount of this Note (without
      regard to any limitations on conversion set forth in Section 3(d) or
      otherwise);

     

    (v)  the
      Company's failure to pay to the Holder any amount of Principal, Redemption
      Price, Interest, Late Charges or other amounts when and as due under this Note
      or any other Transaction Document (as defined in the Securities Purchase
      Agreement) or any other agreement, document, certificate or other instrument
      delivered in connection with the transactions contemplated hereby and thereby
      to
      which the Holder is a party, except, in the case of a failure to pay Interest
      and Late Charges when and as due, in which case only if such failure continues
      for a period of at least three (3) Business Days;

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (vi)  any
      default under, redemption of or acceleration prior to maturity of any
      Indebtedness of the Company or any of its Subsidiaries (as defined in Section
      3(a) of the Securities Purchase Agreement), other than with respect to any
      Other
      Notes;

     

    (vii)  the
      Company or any of its Subsidiaries pursuant to or within the meaning of Title
      11, U.S. Code, or any similar Federal, foreign or state law for the relief
      of
      debtors (collectively, "Bankruptcy
      Law"),
      (A)
      commences a voluntary case, (B) consents to the entry of an order for relief
      against it in an involuntary case, (C) consents to the appointment of a
      receiver, trustee, assignee, liquidator or similar official (a "Custodian"),
      (D)
      makes a general assignment for the benefit of its creditors or (E) admits in
      writing that it is generally unable to pay its debts as they become
      due;

     

    (viii)  a
      court
      of competent jurisdiction enters an order or decree under any Bankruptcy Law
      that (A) is for relief against the Company or any of its Subsidiaries in an
      involuntary case, (B) appoints a Custodian of the Company or any of its
      Subsidiaries or (C) orders the liquidation of the Company or any of its
      Subsidiaries;

     

    (ix)  a
      final
      judgment or judgments for the payment of money aggregating in excess of the
      Judgment Default Amount are rendered against the Company or any of its
      Subsidiaries and which judgments are not, within sixty (60) days after the
      entry
      thereof, bonded, discharged or stayed pending appeal, or are not discharged
      within sixty (60) days after the expiration of such stay; provided, however,
      that any judgment which is covered by insurance or an indemnity from a
      creditworthy party shall not be included in calculating the Judgment Default
      Amount so long as the Company provides the Holder a written statement from
      such
      insurer or indemnity provider (which written statement shall be reasonably
      satisfactory to the Holder) to the effect that such judgment is covered by
      insurance or an indemnity and the Company will receive the proceeds of such
      insurance or indemnity within thirty (30) days of the issuance of such
      judgment;

     

    (x)  the
      Company breaches any representation, warranty, covenant or other term or
      condition of any Transaction Document, except, in the case of a breach of a
      covenant which is curable, only if such breach continues for a period of at
      least ten (10) consecutive Business Days;

     

    (xi)  any
      breach or failure in any respect to comply with Section 14 of this Note or
      any
      Financial Covenant Failure (as defined below), except, in the case of a breach
      of a covenant which is curable, only if such breach continues for a period
      of at
      least ten (10) consecutive Business Days; or

     

    (xii)  any
      Event
      of Default (as defined in the Other Notes) occurs with respect to any Other
      Notes.

     

    
      
        
        

      

      
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    (b)  Redemption
      Right.
      Upon
      the occurrence of an Event of Default with respect to this Note or any Other
      Note, the Company shall within one (1) Business Day deliver written notice
      thereof via facsimile and overnight courier (an "Event
      of Default Notice")
      to the
      Holder. At any time after the earlier of the Holder's receipt of an Event of
      Default Notice and the Holder becoming aware of an Event of Default, the Holder
      may require the Company to redeem all or any portion of this Note by delivering
      written notice thereof (the "Event
      of Default Redemption Notice")
      to the
      Company, which Event of Default Redemption Notice shall indicate the portion
      of
      this Note the Holder is electing to redeem; provided, that notwithstanding
      the
      foregoing, solely with respect to any Event of Default set forth in Sections
      4(a)(ii) and (iv), the Holder may not submit an Event of Default Redemption
      Notice after the thirtieth (30th) Business Day after the later of (x) the date
      such Event of Default is cured or otherwise resolved and (y) the date the
      Company delivers the Event of Default Notice with respect to such Event of
      Default to the Holder. Each portion of this Note subject to redemption by the
      Company pursuant to this Section 4(b) shall be redeemed by the Company at a
      price equal to the greater of (i) the product of (A) the Conversion Amount
      to be
      redeemed and (B) the Redemption Premium and (ii) the product of (A) the
      Conversion Rate with respect to such Conversion Amount in effect at such time
      as
      the Holder delivers an Event of Default Redemption Notice and (B) the greater
      of
      (I) the Closing Sale Price of the Common Stock on the date immediately preceding
      such Event of Default, (II) the Closing Sale Price of the Common Stock on the
      date immediately after such Event of Default and (III) the Closing Sale Price
      of
      the Common Stock on the date the Holder delivers the Event of Default Redemption
      Notice (the "Event
      of Default Redemption
      Price").
      Redemptions required by this Section 4(b) shall be made in accordance with
      the
      provisions of Section 12. To the extent redemptions required by this Section
      4(b) are deemed or determined by a court of competent jurisdiction to be
      prepayments of the Note by the Company, such redemptions shall be deemed to
      be
      voluntary prepayments. The parties hereto agree that in the event of the
      Company's redemption of any portion of the Note under this Section 4(b), the
      Holder's damages would be uncertain and difficult to estimate because of the
      parties' inability to predict future interest rates and the uncertainty of
      the
      availability of a suitable substitute investment opportunity for the Holder.
      Accordingly, any Redemption Premium due under this Section 4(b) is intended
      by
      the parties to be, and shall be deemed, a reasonable estimate of the Holder's
      actual loss of its investment opportunity and not as a penalty.

     

    (5)  RIGHTS
      UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

     

    (a)  Assumption.
      The
      Company shall not enter into or be party to a Fundamental Transaction unless
      (i)  the Successor Entity assumes in writing all of the obligations of the
      Company under this Note and the other Transaction Documents in accordance with
      the provisions of this Section 5(a) pursuant to written agreements in form
      and
      substance satisfactory to the Required Holders and approved by the Required
      Holders prior to such Fundamental Transaction, including agreements to deliver
      to each holder of Notes in exchange for such Notes a security of the Successor
      Entity evidenced by a written instrument substantially similar in form and
      substance to the Notes, including, without limitation, having a principal amount
      and interest rate equal to the principal amounts then outstanding and the
      interest rates of the Notes held by such holder, having similar conversion
      rights as the Notes and having similar ranking to the Notes, and satisfactory
      to
      the Required Holders and (ii) the Successor Entity (including its Parent
      Entity) is a publicly traded corporation whose common stock is quoted on or
      listed for trading on an Eligible Market. Upon the occurrence of any Fundamental
      Transaction, the Successor Entity shall succeed to, and be substituted for
      (so
      that from and after the date of such Fundamental Transaction, the provisions
      of
      this Note referring to the "Company" shall refer instead to the Successor
      Entity), and may exercise every right and power of the Company and shall assume
      all of the obligations of the Company under this Note with the same effect
      as if
      such Successor Entity had been named as the Company herein. Upon consummation
      of
      the Fundamental Transaction, the Successor Entity shall deliver to the Holder
      confirmation that there shall be issued upon conversion or redemption of this
      Note at
      any
      time after the consummation of the Fundamental Transaction, in lieu of the
      shares of Common Stock (or
      other
      securities, cash, assets or other property) issuable
      upon the conversion or redemption of the Notes prior to such Fundamental
      Transaction,
      such
      shares of the publicly traded common stock (or their equivalent) of the
      Successor Entity, as adjusted in accordance with the provisions of this Note.
      The
      provisions of this Section shall apply similarly and equally to successive
      Fundamental Transactions and shall be applied without regard to any limitations
      on the conversion or redemption of this Note.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (b)  Redemption
      Right.
      No
      sooner than fifteen (15) days nor later than ten (10) days prior to the
      consummation of a Change of Control, but not prior to the public announcement
      of
      such Change of Control, the Company shall deliver written notice thereof via
      facsimile and overnight courier to the Holder (a "Change
      of Control Notice").
      At
      any time during the period beginning on the date of the Holder's receipt of
      a
      Change of Control Notice and ending twenty (20) Trading Days after the
      consummation of such Change of Control, the Holder may require the Company
      to
      redeem all or any portion of this Note by delivering written notice thereof
      ("Change
      of Control Redemption Notice")
      to the
      Company, which Change of Control Redemption Notice shall indicate the Conversion
      Amount the Holder is electing to redeem. The portion of this Note subject to
      redemption pursuant to this Section 5 shall be redeemed by the Company in cash
      at a price equal to the greater of (i) the product of (x) the Conversion Amount
      being redeemed and (y) the quotient determined by dividing (A) the greater
      of
      the Closing Sale Price of the Common Stock immediately prior to the consummation
      of the Change of Control, the Closing Sale Price immediately following the
      public announcement of such proposed Change of Control and the Closing Sale
      Price of the Common Stock immediately prior to the public announcement of such
      proposed Change of Control by (B) the Conversion Price and (ii) 125% of the
      Conversion Amount being redeemed (the "Change
      of Control Redemption Price").
      Redemptions required by this Section 5 shall be made in accordance with the
      provisions of Section 12 and shall have priority to payments to stockholders
      in
      connection with a Change of Control. To the extent redemptions required by
      this
      Section 5(b) are deemed or determined by a court of competent jurisdiction
      to be
      prepayments of the Note by the Company, such redemptions shall be deemed to
      be
      voluntary prepayments. Notwithstanding anything to the contrary in this Section
      5, but subject to Section 3(d), until the Change of Control Redemption Price
      (together with any interest thereon) is paid in full, the Conversion Amount
      submitted for redemption under this Section 5(c) may be converted, in whole
      or
      in part, by the Holder into shares of Common Stock, or in the event the
      Conversion Date is after the consummation of the Change of Control, shares
      of
      publicly traded common stock (or their equivalent) of the Successor Entity
      pursuant to Section 3. The parties hereto agree that in the event of the
      Company's redemption of any portion of the Note under this Section 5(b), the
      Holder's damages would be uncertain and difficult to estimate because of the
      parties' inability to predict future interest rates and the uncertainty of
      the
      availability of a suitable substitute investment opportunity for the Holder.
      Accordingly, any redemption premium due under this Section 5(b) is intended
      by
      the parties to be, and shall be deemed, a reasonable estimate of the Holder's
      actual loss of its investment opportunity and not as a penalty.

     

    
      
        
        

      

      
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    (6)  RIGHTS
      UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

     

    (a)  Purchase
      Rights.
      If at
      any time the Company grants, issues or sells any Options, Convertible Securities
      or rights to purchase stock, warrants, securities or other property pro rata
      to
      the record holders of any class of Common Stock (the "Purchase
      Rights"),
      then
      the Holder will be entitled to acquire, upon the terms applicable to such
      Purchase Rights, the aggregate Purchase Rights which the Holder could have
      acquired if the Holder had held the number of shares of Common Stock acquirable
      upon complete conversion of this Note (without taking into account any
      limitations or restrictions on the convertibility of this Note) immediately
      before the date on which a record is taken for the grant, issuance or sale
      of
      such Purchase Rights, or, if no such record is taken, the date as of which
      the
      record holders of Common Stock are to be determined for the grant, issue or
      sale
      of such Purchase Rights.

     

    (b)  Other
      Corporate Events.
      In
      addition to and not in substitution for any other rights hereunder, prior to
      the
      consummation of any Fundamental Transaction pursuant to which holders of shares
      of Common Stock are entitled to receive securities or other assets with respect
      to or in exchange for shares of Common Stock (a "Corporate
      Event"),
      the
      Company shall make appropriate provision to insure that the Holder will
      thereafter have the right to receive upon a conversion of this Note, at the
      Holder's option, (i) in addition to the shares of Common Stock receivable upon
      such conversion, such securities or other assets to which the Holder would
      have
      been entitled with respect to such shares of Common Stock had such shares of
      Common Stock been held by the Holder upon the consummation of such Corporate
      Event (without taking into account any limitations or restrictions on the
      convertibility of this Note) or (ii) in lieu of the shares of Common Stock
      otherwise receivable upon such conversion, such securities or other assets
      received by the holders of shares of Common Stock in connection with the
      consummation of such Corporate Event in such amounts as the Holder would have
      been entitled to receive had this Note initially been issued with conversion
      rights for the form of such consideration (as opposed to shares of Common Stock)
      at a conversion rate for such consideration commensurate with the Conversion
      Rate. Provision made pursuant to the preceding sentence shall be in a form
      and
      substance satisfactory to the Required Holders. The provisions of this Section
      shall apply similarly and equally to successive Corporate Events and shall
      be
      applied without regard to any limitations on the conversion or redemption of
      this Note.

     

    (7)  RIGHTS
      UPON ISSUANCE OF OTHER SECURITIES.

     

    (a)  Adjustment
      of Conversion Price upon Issuance of Common Stock.
      If and
      whenever on or after the Subscription Date through the eighteen (18) month
      anniversary of the Issuance Date, the Company issues or sells, or in accordance
      with this Section 7(a) is deemed to have issued or sold, any shares
      of Common
      Stock (including the issuance or sale of shares
      of Common
      Stock owned or held by or for the account of the Company, but excluding
shares
      of Common
      Stock deemed to have been issued or sold by the Company in connection with
      any
      Excluded Security) for a consideration per share (the "New
      Issuance Price")
      less
      than a price (the "Applicable
      Price")
      equal
      to the Conversion Price in effect immediately prior to such issue or sale (the
      foregoing a "Dilutive
      Issuance"),
      then
      immediately after such Dilutive Issuance, the Conversion Price then in effect
      shall be reduced to an amount equal to the
      New Issuance Price. If
      and
      whenever after the eighteen (18) month anniversary of the Issuance Date, the
      Company issues or sells, or in accordance with this Section 7(a) is deemed
      to
      have issued or sold, any shares
      of Common
      Stock (including the issuance or sale of shares
      of Common
      Stock owned or held by or for the account of the Company, but excluding
shares
      of Common
      Stock deemed to have been issued or sold by the Company in connection with
      any
      Excluded Security) in a Dilutive Issuance, then immediately after such Dilutive
      Issuance, the Conversion Price then in effect shall be reduced to an amount
      equal the
      product of (A) the Conversion Price in effect immediately prior to such
      Dilutive Issuance and (B) the quotient determined by dividing (1) the
      sum of (I) the product derived by multiplying the Conversion Price in effect
      immediately prior to such Dilutive Issuance and the number of shares of Common
      Stock Deemed Outstanding immediately prior to such Dilutive Issuance plus
      (II) the consideration, if any, received by the Company upon such Dilutive
      Issuance, by (2) the product derived by multiplying (I) the Conversion
      Price in effect immediately prior to such Dilutive Issuance by (II) the
      number of shares of Common Stock Deemed Outstanding immediately after such
      Dilutive Issuance. For
      purposes of determining the adjusted Conversion Price under this Section 7(a),
      the following shall be applicable:

     

    
      
        
        

      

      
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    (i)  Issuance
      of Options.
      If the
      Company in any manner grants or sells any Options and the lowest price per
      share
      for which one share
      of Common
      Stock is issuable upon the exercise of any such Option or upon conversion or
      exchange or exercise of any Convertible Securities issuable upon exercise of
      such Option is less than the Applicable Price, then each such share
      of Common
      Stock underlying such Option shall be deemed to be outstanding and to have
      been
      issued and sold by the Company at the time of the granting or sale of such
      Option for such price per share. For purposes of this Section 7(a)(i), the
      "lowest price per share for which one share
      of Common
      Stock is issuable upon the exercise of any such Option or upon conversion or
      exchange or exercise of any Convertible Securities issuable upon exercise of
      such Option" shall be equal to the sum of the lowest amounts of consideration
      (if any) received or receivable by the Company with respect to any one
share
      of Common
      Stock upon granting or sale of the Option, upon exercise of the Option and
      upon
      conversion or exchange or exercise of any Convertible Security issuable upon
      exercise of such Option. No further adjustment of the Conversion Price shall
      be
      made upon the actual issuance of such share of Common Stock or of such
      Convertible Securities upon the exercise of such Options or upon the actual
      issuance of such Common Stock upon conversion or exchange or exercise of such
      Convertible Securities.

     

    (ii)  Issuance
      of Convertible Securities.
      If the
      Company in any manner issues or sells any Convertible Securities and the lowest
      price per share for which one share of Common Stock is issuable upon such
      conversion or exchange or exercise thereof is less than the Applicable Price,
      then each such share of Common Stock underlying such Convertible Securities
      shall be deemed to be outstanding and to have been issued and sold by the
      Company at the time of the issuance or sale of such Convertible Securities
      for
      such price per share. For the purposes of this Section 7(a)(ii), the "lowest
      price per share for which one share of Common Stock is issuable upon such
      conversion or exchange or exercise" shall be equal to the sum of the lowest
      amounts of consideration (if any) received or receivable by the Company with
      respect to any one share of Common Stock upon the issuance or sale of the
      Convertible Security and upon the conversion or exchange or exercise of such
      Convertible Security. No further adjustment of the Conversion Price shall be
      made upon the actual issuance of such share of Common Stock upon conversion
      or
      exchange or exercise of such Convertible Securities, and if any such issue
      or
      sale of such Convertible Securities is made upon exercise of any Options for
      which adjustment of the Conversion Price had been or are to be made pursuant
      to
      other provisions of this Section 7(a), no further adjustment of the Conversion
      Price shall be made by reason of such issue or sale.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    (iii)  Change
      in Option Price or Rate of Conversion.
      If the
      purchase price provided for in any Options, the additional consideration, if
      any, payable upon the issue, conversion, exchange or exercise of any Convertible
      Securities, or the rate at which any Convertible Securities are convertible
      into
      or exchangeable or exercisable for Common Stock changes at any time, the
      Conversion Price in effect at the time of such change shall be adjusted to
      the
      Conversion Price which would have been in effect at such time had such Options
      or Convertible Securities provided for such changed purchase price, additional
      consideration or changed conversion rate, as the case may be, at the time
      initially granted, issued or sold. For purposes of this Section 7(a)(iii),
      if
      the terms of any Option or Convertible Security that was outstanding as of
      the
      Subscription Date are changed in the manner described in the immediately
      preceding sentence, then such Option or Convertible Security and the Common
      Stock deemed issuable upon exercise, conversion or exchange thereof shall be
      deemed to have been issued as of the date of such change. No adjustment shall
      be
      made if such adjustment would result in an increase of the Conversion Price
      then
      in effect.

     

    (iv)  Calculation
      of Consideration Received.
      In case
      any Option is issued in connection with the issue or sale of other securities
      of
      the Company, together comprising one integrated transaction, (x) the Options
      will be deemed to have been issued for a value determined by use of the Black
      Scholes Option Pricing Model (the "Option
      Value")
      and
      (y) the other securities issued or sold in such integrated transaction shall
      be
      deemed to have been issued for the difference of (I) the aggregate consideration
      received by the Company, less (II) the Option Value. If any Common Stock,
      Options or Convertible Securities are issued or sold or deemed to have been
      issued or sold for cash, the consideration received therefor will be deemed
      to
      be the net amount received by the Company therefor. If any Common Stock, Options
      or Convertible Securities are issued or sold for a consideration other than
      cash, the amount of the consideration other than cash received by the Company
      will be the fair value of such consideration, except where such consideration
      consists of securities, in which case the amount of consideration received
      by
      the Company will be the Closing Sale Price of such securities on the date of
      receipt. If any Common Stock, Options or Convertible Securities are issued
      to
      the stockholders of the non-surviving entity in connection with any merger
      in
      which the Company is the surviving entity, the amount of consideration therefor
      will be deemed to be the fair value of such portion of the net assets and
      business of the non-surviving entity as is attributable to such Common Stock,
      Options or Convertible Securities, as the case may be. The fair value of any
      consideration other than cash or securities will be determined jointly by the
      Company and the Required Holders. If such parties are unable to reach agreement
      within ten (10) days after the occurrence of an event requiring valuation (the
      "Valuation
      Event"),
      the
      fair value of such consideration will be determined, at the Company's expense,
      within five (5) Business Days after the tenth (10th)
      day
      following the Valuation Event by an independent, reputable appraiser jointly
      selected by the Company and the Required Holders. The determination of such
      appraiser shall be deemed binding upon all parties absent manifest error.


     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    (v)  Record
      Date.
      If the
      Company takes a record of the holders of Common Stock for the purpose of
      entitling them (A) to receive a dividend or other distribution payable in Common
      Stock, Options or in Convertible Securities or (B) to subscribe for or purchase
      Common Stock, Options or Convertible Securities, then such record date will
      be
      deemed to be the date of the issue or sale of the Common Stock deemed to have
      been issued or sold upon the declaration of such dividend or the making of
      such
      other distribution or the date of the granting of such right of subscription
      or
      purchase, as the case may be.

     

    (b)  Adjustment
      of Conversion Price upon Subdivision or Combination of Common
      Stock.
      If the
      Company at any time on or after the Subscription Date subdivides (by any stock
      split, stock dividend, recapitalization or otherwise) one or more classes of
      its
      outstanding shares of Common Stock into a greater number of shares, the
      Conversion Price in effect immediately prior to such subdivision will be
      proportionately reduced. If the Company at any time on or after the Subscription
      Date combines (by combination, reverse stock split or otherwise) one or more
      classes of its outstanding shares of Common Stock into a smaller number of
      shares, the Conversion Price in effect immediately prior to such combination
      will be proportionately increased.

     

    (c)  Other
      Events.
      If any
      event occurs of the type contemplated by the provisions of this Section 7 but
      not expressly provided for by such provisions (including, without limitation,
      the granting of stock appreciation rights, phantom stock rights or other rights
      with equity features), then the Company's Board of Directors will make an
      appropriate adjustment in the Conversion Price so as to protect the rights
      of
      the Holder under this Note; provided that no such adjustment will increase
      the
      Conversion Price as otherwise determined pursuant to this Section
      7.

     

    (d)  De
      Minimis Adjustments.
      No
      adjustment in the Conversion Price shall be required unless such adjustment
      would require an increase or decrease of at least $0.01 in such price; provided,
      however, that any adjustment which by reason of this Section 7(d) is not
      required to be made shall be carried forward and taken into account in any
      subsequent adjustments under this Section 7. All calculations under this Section
      7 shall be made by the Company in good faith and shall be made to the nearest
      cent or to the nearest one hundredth of a share, as applicable. No adjustment
      need be made for a change in the par value or no par value of the Company's
      Common Stock.

     

    (e)  Voluntary
      Adjustment By Company.
      The
      Company may at any time during the term of this Note reduce the then current
      Conversion Price to any amount and for any period of time deemed appropriate
      by
      the Board of Directors of the Company.

     

    
      
        
        

      

      
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    (8)  HOLDER'S
      RIGHT OF OPTIONAL REDEMPTION.
      On May 30, 2008 (the "Holder
      Optional Redemption Eligibility Date"),
      if an Equity Conditions Failure exists, the Holder shall have the right, in
      its
      sole discretion, to require that the Company redeem an amount equal to up to
      the
      Holder Pro Rata Amount of the lesser of (x) the aggregate Principal amount
      of
      the Notes outstanding as of the Holder Optional Redemption Eligibility Date
      and
      (y) the Holder Optional Redemption Eligibility Amount (a "Holder
      Optional Redemption")
      by delivering written notice thereof (a "Holder Optional
      Redemption Notice")
      to the Company on or prior to November 30, 2008 (the "Holder Optional
      Redemption Notice Eligibility Date").
      The Holder Optional Redemption Notice shall indicate the Conversion Amount
      the
      Holder is electing to have redeemed (the "Holder
      Optional Redemption Amount")
      on the Holder Optional Redemption Date. The
      Holder may deliver one (1) Holder Optional Redemption Notice hereunder.
The
      portion of this Note subject to redemption pursuant to this Section 8 shall
      be
      redeemed by the Company in cash at a price equal to the Conversion Amount being
      redeemed (the "Holder
      Optional Redemption Price")
      or, at such Holder's sole option, by such Holder drawing such Holder Optional
      Redemption Amount from the Letter of Credit (as defined in the Securities
      Purchase Agreement). Redemptions required by this Section 8 shall be made in
      accordance with the provisions of Section 12. Notwithstanding anything to the
      contrary in this Section 8, but subject to Section 3(d), until the Holder
      receives the Holder Optional Redemption Price, the Holder Optional Redemption
      Amount may be converted, in whole or in part, by the Holder into Common Stock
      pursuant to Section 3, and any such conversion shall reduce the Holder Optional
      Redemption Amount.

     

    (9)  SECURITY.
      This
      Note and the Other Notes are secured to the extent and in the manner set forth
      in the Security Documents (as defined in the Securities Purchase
      Agreement).

     

    (10)  NONCIRCUMVENTION.
      The
      Company hereby covenants and agrees that the Company will not, by amendment
      of
      its Certificate of Incorporation, Bylaws or through any reorganization, transfer
      of assets, consolidation, merger, scheme of arrangement, dissolution, issue
      or
      sale of securities, or any other voluntary action, avoid or seek to avoid the
      observance or performance of any of the terms of this Note, and will at all
      times in good faith carry out all of the provisions of this Note and take all
      action as may be required to protect the rights of the Holder of this Note.
      

     

    (11)  RESERVATION
      OF AUTHORIZED SHARES.

     

    (a)  Reservation.
      The
      Company shall initially reserve out of its authorized and unissued Common Stock
      a number of shares of Common Stock for each of the Notes equal to 130% of the
      Conversion Rate with respect to the Conversion Amount of each such Note as
      of
      the Issuance Date.
      So
      long as any of the Notes are outstanding, the Company shall take all action
      necessary to reserve and keep available out of its authorized and unissued
      Common Stock, solely for the purpose of effecting the conversion of the Notes,
      130% of the number of shares of Common Stock as shall from time to time be
      necessary to effect the conversion of all of the Notes then outstanding;
      provided that at no time shall the number of shares of Common Stock so reserved
      be less than the number of shares required to be reserved by the previous
      sentence (without regard to any limitations on conversions) (the "Required
      Reserve Amount").
      The
      initial number of shares of Common Stock reserved for conversions of the Notes
      and each increase in the number of shares so reserved shall be allocated pro
      rata among the holders of the Notes based on the principal amount of the Notes
      held by each holder at the Closing (as defined in the Securities Purchase
      Agreement) or increase in the number of reserved shares, as the case may be
      (the
      "Authorized
      Share Allocation").
      In
      the event that a holder shall sell or otherwise transfer any of such holder's
      Notes, each transferee shall be allocated a pro rata portion of such holder's
      Authorized Share Allocation. Any shares of Common Stock reserved and allocated
      to any Person which ceases to hold any Notes shall be allocated to the remaining
      holders of Notes, pro rata based on the principal amount of the Notes then
      held
      by such holders.

     

    
      
        
        

      

      
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    (b)  Insufficient
      Authorized Shares.
      If at
      any time while any of the Notes remain outstanding the Company does not have
      a
      sufficient number of authorized and unreserved shares of Common Stock to satisfy
      its obligation to reserve for issuance upon conversion of the Notes at least
      a
      number of shares of Common Stock equal to the Required Reserve Amount (an
      "Authorized
      Share Failure"),
      then
      the Company shall immediately take all action necessary to increase the
      Company's authorized shares of Common Stock to an amount sufficient to allow
      the
      Company to reserve the Required Reserve Amount for the Notes then outstanding.
      Without limiting the generality of the foregoing sentence, as soon as
      practicable after the date of the occurrence of an Authorized Share Failure,
      but
      in no event later than sixty (60) days after the occurrence of such Authorized
      Share Failure, the Company shall hold a meeting of its stockholders for the
      approval of an increase in the number of authorized shares of Common Stock.
      In
      connection with such meeting, the Company shall provide each stockholder with
      a
      proxy statement and shall use its best efforts to solicit its stockholders'
      approval of such increase in authorized shares of Common Stock and to cause
      its
      board of directors to recommend to the stockholders that they approve such
      proposal.

     

    (12)  HOLDER'S
      REDEMPTIONS.

     

    (a)  Mechanics.
      The
      Company shall deliver the applicable Event of Default Redemption Price to the
      Holder within five (5) Business Days after the Company's receipt of the Holder's
      Event of Default Redemption Notice. If the Holder has submitted a Change of
      Control Redemption Notice in accordance with Section 5(b), the Company shall
      deliver the applicable Change of Control Redemption Price to the Holder
      concurrently with the consummation of such Change of Control if such notice
      is
      received prior to the consummation of such Change of Control and within five
      (5)
      Business Days after the Company's receipt of such notice otherwise. The Company
      shall deliver the Holder Optional Redemption Price to the Holder within five
      (5)
      Business Days after the Company's receipt of the Holder Optional Redemption
      Notice (the "Holder
      Optional Redemption Date").
      In
      the event of a redemption of less than all of such Conversion Amount of this
      Note, the Company shall promptly cause to be issued and delivered to the Holder
      a new Note (in accordance with Section 18(d)) representing the outstanding
      Principal which has not been redeemed. In the event that the Company does not
      pay the applicable Redemption Price to the Holder within the time period
      required, at any time thereafter and until the Company pays such unpaid
      Redemption Price in full, the Holder shall have the option, in lieu of
      redemption, to require the Company to promptly return to the Holder all or
      any
      portion of this Note representing such Conversion Amount that was submitted
      for
      redemption and for which the applicable Redemption Price (together with any
      Late
      Charges thereon) has not been paid. Upon the Company's receipt of such notice,
      (x) the Redemption Notice shall be null and void with respect to such Conversion
      Amount, (y) the Company shall immediately return this Note, or issue a new
      Note
      (in accordance with Section 18(d)) to the Holder representing such Conversion
      Amount and (z) the Conversion Price of this Note or such new Notes shall be
      adjusted to the lesser of (A) the Conversion Price as in effect on the date
      on
      which the applicable Redemption Notice is voided and (B) the lowest Closing
      Bid
      Price of the Common Stock during the period beginning on and including the
      date
      on which the applicable Redemption Notice is delivered to the Company and ending
      on and including the date on which the applicable Redemption Notice is voided.
      The Holder's delivery of a notice voiding a Redemption Notice and exercise
      of
      its rights following such notice shall not affect the Company's obligations
      to
      make any payments of Late Charges which have accrued prior to the date of such
      notice with respect to the Conversion Amount subject to such
      notice.

     

    
      
        
        

      

      
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    (b)  Redemption
      by Other Holders.
      Upon
      the Company's receipt of notice from any of the holders of the Other Notes
      for
      redemption or repayment as a result of an event or occurrence substantially
      similar to the events or occurrences described in Section 4(b), Section 5(b)
      or
      Section 8 (each, an "Other
      Redemption Notice"),
      the
      Company shall immediately, but no later than two (2) Business Days of its
      receipt thereof, forward to the Holder by facsimile a copy of such notice.
      If
      the Company receives a Redemption Notice and one or more Other Redemption
      Notices, during the seven (7) Business Day period beginning on and including
      the
      date which is three (3) Business Days prior to the Company's receipt of the
      Holder's Redemption Notice and ending on and including the date which is three
      (3) Business Days after the Company's receipt of the Holder's Redemption Notice
      and the Company is unable to redeem all principal, interest and other amounts
      designated in such Redemption Notice and such Other Redemption Notices received
      during such seven (7) Business Day period, then the Company shall redeem a
      pro
      rata amount from each holder of the Notes (including the Holder) based on the
      principal amount of the Notes submitted for redemption pursuant to such
      Redemption Notice and such Other Redemption Notices received by the Company
      during such seven (7) Business Day period.

     

    (13)  VOTING
      RIGHTS.
      The
      Holder shall have no voting rights as the holder of this Note, except as
      required by law, including, but not limited to, the Florida Business Corporation
      Act of the State of Florida and as expressly provided in this Note.

     

    (14)  COVENANTS.

     

    (a)  Rank.All
      payments due under this Note (i) shall rank pari
      passu
      with all
      Other Notes and (ii) shall be senior to all other Indebtedness of the Company
      and its Subsidiaries, other than Permitted Indebtedness secured by Permitted
      Liens.

     

    (b)  Incurrence
      of Indebtedness.
      So long
      as this Note is outstanding, the Company shall not, and the Company shall not
      permit any of its Subsidiaries to, directly or indirectly, incur or guarantee,
      assume or suffer to exist any Indebtedness, other than (i) the Indebtedness
      evidenced by this Note and the Other Notes and (ii) Permitted
      Indebtedness.

     

    (c)  Existence
      of Liens.
      So long
      as this Note is outstanding, the Company shall not, and the Company shall not
      permit any of its Subsidiaries to, directly or indirectly, allow or suffer
      to
      exist any mortgage, lien, pledge, charge, security interest or other encumbrance
      upon or in any property or assets (including accounts and contract rights)
      owned
      by the Company or any of its Subsidiaries (collectively, "Liens")
      other
      than Permitted Liens.

     

    
      
        
        

      

      
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    (d)  Restricted
      Payments.
      The
      Company shall not, and the Company shall not permit any of its Subsidiaries
      to,
      directly or indirectly, redeem, defease, repurchase, repay or make any payments
      in respect of, by the payment of cash or cash equivalents (in whole or in part,
      whether by way of open market purchases, tender offers, private transactions
      or
      otherwise), all or any portion of any Indebtedness (other than this Note and
      the
      Other Notes), whether by way of payment in respect of principal of (or premium,
      if any) or interest on such Indebtedness, if at the time such payment is due
      or
      is otherwise made or, after giving effect to such payment, an event
      constituting, or that with the passage of time and without being cured would
      constitute, an Event of Default has occurred and is continuing; provided that
      notwithstanding the foregoing, no principal (or any portion thereof) of any
      Subordinated Indebtedness may be paid (whether upon maturity, redemption,
      acceleration or otherwise) so long as this Note is outstanding.

     

    (e)  Restriction
      on Redemption and Cash Dividends.
      Until
      all of the Notes have been converted, redeemed or otherwise satisfied in
      accordance with their terms, the Company shall not, directly or indirectly,
      redeem, repurchase or declare or pay any cash dividend or distribution on its
      capital stock without the prior express written consent of the Required
      Holders.

     

    (f)  Financial
      Covenants; Announcement of Operating Results.

     

    (i)  Available
      Cash Test.
      So long
      as this Note is outstanding, the Company's Available Cash as of the end of
      each
      Fiscal Quarter following the Issuance Date shall equal or exceed the amount
      equal to (x) the Cash Burn for such Fiscal Quarter multiplied by (y) four (4)
      (the "Available
      Cash Test").

     

    (ii)  Consolidated
      Revenue Test.
      So long
      as this Note is outstanding, the Company's Consolidated Revenues as of the
      end
      of each Fiscal Quarter following the Issuance Date shall equal or exceed the
      amount equal to the applicable Consolidated Revenue threshold set forth in
      the
      first row of the Table of Financial Thresholds attached hereto as Schedule
      I
      with
      respect to such Fiscal Quarter (the "Consolidated
      Revenue Test").

     

    (iii)  Consolidated
      EBITDA Test.
      So long
      as this Note is outstanding, the Company's Consolidated EBITDA as of the end
      of
      each Fiscal Quarter following the Issuance Date shall equal or exceed the amount
      equal to the applicable Consolidated EBITDA threshold set forth in the second
      row of the Table of Financial Thresholds attached hereto as Schedule
      I
      with
      respect to such Fiscal Quarter (the "Consolidated
      EBITDA Test",
      and
      together with the Available Cash Test and the Consolidated Revenue Test, the
      "Financial
      Tests").

     

    (iv)  Operating
      Results Announcement.
      Commencing with the Fiscal Quarter ending March 31, 2008, the Company shall
      publicly disclose and disseminate (such date, the "Announcement
      Date")
      its
      operating results (the "Operating
      Results")
      (x)
      for each of the first three Fiscal Quarters of each fiscal year no later than
      the forty-fifth (45th)
      day
      after the end of such Fiscal Quarter and (y) for the fourth Fiscal Quarter
      of each Fiscal Year, no later than the ninetieth (90th)
      day
      after the end of such Fiscal Year, and in the event the Company shall have
      satisfied the Financial Tests such announcement shall include a statement to
      the
      effect that the Company is not in breach of the Financial Tests for such Fiscal
      Quarter. On the Announcement Date, the Company shall also provide to the Holders
      a certification, executed on behalf of the Company by the Chief Financial
      Officer of the Company, certifying that the Company satisfied the Financial
      Tests for such Fiscal Quarter. If the Company has failed to meet any Financial
      Test for such Fiscal Quarter (a "Financial
      Covenant Failure"),
      the
      foregoing written certification that the Company provides to the Holders shall
      also state each Financial Test that has not been met (a "Financial
      Covenant Failure Notice").
      Concurrently with the delivery of each Financial Covenant Failure Notice to
      the
      Holders, the Company shall also make publicly available (as part of a Quarterly
      Report on Form 10-Q, Annual Report on Form 10-K or on a Current Report on Form
      8-K, or otherwise) the Operating Results, the Financial Covenant Failure Notice
      and the fact that an Event of Default has occurred under the Notes.

     

    
      
        
        

      

      
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    (g)  Intellectual
      Property.
      So
      long
      as any Note is outstanding, the Company shall not, and shall not permit any
      Subsidiary to, directly or indirectly, (i) assign, transfer or otherwise
      encumber or allow any other Person to have any rights or license to any of
      the
      Intellectual Property Rights (as defined in the Securities Purchase Agreement)
      of the Company or its Subsidiaries other than Permitted Indebtedness and
      Permitted Liens, (ii) grant any royalties and other Indebtedness with respect
      to
      any of the Intellectual Property Rights other than Permitted
      Indebtedness or
      (ii)
      take any action or inaction to impair the value of their Intellectual Property
      Rights.

     

    (h)  Creation
      of New Subsidiaries.
      So long
      as the obligations of the Company under this Note are outstanding, if the
      Company shall create or acquire any Subsidiary, simultaneous with the creation
      or acquisition of such Subsidiary, the
      Company shall (i) promptly cause such Subsidiary to become a guarantor by
      executing a guaranty in favor of the Holder in form and substance reasonably
      acceptable to the Company, the Subsidiary and the Holder, (ii) promptly cause
      such Subsidiary to become a grantor under the Security Agreement by executing
      a
      joinder to the Security Agreement in form and substance reasonably acceptable
      to
      the Company, the Subsidiary and the Holder, (iii) promptly cause such Subsidiary
      to become a pledgor by the Company and such Subsidiary executing a pledge
      agreement in form and substance reasonably acceptable to the Company, the
      Subsidiary and the Holder, and (iv) promptly cause such Subsidiary to duly
      execute and/or deliver such opinions of counsel and other documents, in form
      and
      substance reasonable acceptable to the Holder, as the Holder shall reasonably
      request with respect thereto.

     

    (i)  Collateral
      Accounts.

     

    (i)  If
      at any
      time after the Closing Date, the average daily balance of any account of the
      Company that is not subject to an account control agreement in favor of the
      Collateral Agent exceeds $50,000 during any calendar month (including the
      calendar month in which the Closing Date occurs), the Company shall, within
      twenty (20) Business Days following the last day of such calendar month, deliver
      to the Collateral Agent an account control agreement, in form and substance
      reasonably satisfactory to the Collateral Agent, duly executed by the Company
      and the depositary bank in which such account is maintained.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    (ii)  Notwithstanding
      anything to the contrary contained in clause (a) above, and without limiting
      any
      of the foregoing, if at any time on or after the date that is twenty (20)
      Business Days following the Closing Date, the total aggregate amount of the
      Company's cash that is not subject to a control agreement in favor of the
      Collateral Agent exceeds $100,000 (the "Maximum
      Free Cash Amount"),
      the
      Company shall within two (2) Business Days following such date, transfer to
      an
      account subject to an account agreement in favor of the Collateral Agent an
      amount sufficient to reduce the total aggregate amount of the Company's cash
      that is not subject to an account control agreement in favor of the Collateral
      Agent to an amount not in excess of the Maximum Free Cash Amount.

     

    (j)  Change
      in Collateral; Collateral Records.
      The
      Company shall (i) give the Collateral Agent (as defined in the Securities
      Purchase Agreement) not less than thirty (30) days' prior written notice of
      any change in the location of any Collateral (as defined in the Security
      Documents (as defined in the Securities Purchase Agreement)), other than to
      locations set forth on Schedule 13(g) hereto and with respect to which the
      Collateral Agent has filed financing statements and otherwise fully perfected
      its Liens thereon, (ii) advise the Collateral Agent promptly, in sufficient
      detail, of any material adverse change relating to the type, quantity or quality
      of the Collateral or the Lien granted thereon and (iii) execute and
      deliver, and cause each of its Subsidiaries to execute and deliver, to the
      Collateral Agent for the benefit of the Holder and holders of the Other Notes
      from time to time, solely for the Collateral Agent's convenience in maintaining
      a record of Collateral, such written statements and schedules as the Collateral
      Agent may reasonably require, designating, identifying or describing the
      Collateral.

     

    (k)  Transactions
      with Affiliates.
      The
      Company shall not, nor shall it permit any of its Subsidiaries to, enter into,
      renew, extend or be a party to, any transaction or series of related
      transactions (including, without limitation, the purchase, sale, lease, transfer
      or exchange of property or assets of any kind or the rendering of services
      of
      any kind) with any Affiliate, except (i) in the ordinary course of business
      in a manner and to an extent consistent with past practice and necessary or
      desirable for the prudent operation of its business, for fair consideration
      and
      on terms no less favorable to it or its Subsidiaries than would be obtainable
      in
      a comparable arm's length transaction with a Person that is not an Affiliate
      thereof.

     

    (l)  Change
      in Nature of Business.
      The
      Company shall not make, or permit any of its Subsidiaries to make, any change
      in
      the nature of its business as described in the Company's most recent annual
      report filed on Form 10-K with the SEC. The
      Company shall not modify its corporate structure or purpose.

     

    (m)  Preservation
      of Existence, Etc.
      The
      Company shall maintain and preserve, and cause each of its Subsidiaries to
      maintain and preserve, its existence, rights and privileges, and become or
      remain, and cause each of its Subsidiaries to become or remain, duly qualified
      and in good standing in each jurisdiction in which the character of the
      properties owned or leased by it or in which the transaction of its business
      makes such qualification necessary.

     

    (n)  Maintenance
      of Properties, Etc.
      The
      Company shall maintain and preserve, and cause each of its Subsidiaries to
      maintain and preserve, all of its properties which are necessary or useful
      in
      the proper conduct of its business in good working order and condition, ordinary
      wear and tear excepted, and comply, and cause each of its Subsidiaries to
      comply, at all times with the provisions of all leases to which it is a party
      as
      lessee or under which it occupies property, so as to prevent any loss or
      forfeiture thereof or thereunder.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    (o)  Maintenance
      of Insurance.
      The
      Company shall maintain, and cause each of its Subsidiaries to maintain,
      insurance with responsible and reputable insurance companies or associations
      (including, without limitation, comprehensive general liability insurance)
      with
      respect to its properties (including all real properties leased or owned by
      it)
      and business, in such amounts and covering such risks as is required by any
      governmental authority having jurisdiction with respect thereto or as is carried
      generally in accordance with sound business practice by companies in similar
      businesses similarly situated and in any event in amount, adequacy and scope
      reasonably satisfactory to the Collateral Agent. All policies covering the
      Collateral are to be made payable to the Collateral Agent for the benefit of
      the
      Holder and the holder of the Other Notes, as its interests may appear, in case
      of loss, under a standard non-contributory "lender" or "secured party" clause
      and are to contain such other provisions as the Collateral Agent may require
      to
      fully protect the interest of the Holder and the holder of the Other Notes
      in
      the Collateral and to any payments to be made under such policies. All
      certificates of insurance are to be delivered to the Collateral Agent and the
      policies are to be premium prepaid, with the loss payable and additional insured
      endorsement in favor of the Collateral Agent and such other Persons as the
      Collateral Agent may designate from time to time, and shall provide for not
      less
      than thirty (30) days' prior written notice to the Collateral Agent of the
      exercise of any right of cancellation. If the Company or any of its Subsidiaries
      fails to maintain such insurance, the Collateral Agent may arrange for such
      insurance, but at the Company's expense and without any responsibility on the
      Collateral Agent's part for obtaining the insurance, the solvency of the
      insurance companies, the adequacy of the coverage, or the collection of claims.
      Upon the occurrence and during the continuance of an Event of Default, the
      Collateral Agent shall have the sole right, in the name of the Holder and the
      holders of the Other Notes, the Company and its Subsidiaries, to file claims
      under any insurance policies, to receive, receipt and give acquittance for
      any
      payments that may be payable thereunder, and to execute any and all
      endorsements, receipts, releases, assignments, reassignments or other documents
      that may be necessary to effect the collection, compromise or settlement of
      any
      claims under any such insurance policies.

     

    (15)  PARTICIPATION.
      The
      Holder, as the holder of this Note, shall be entitled to receive such dividends
      paid and distributions made to the holders of Common Stock to the same extent
      as
      if the Holder had converted this Note into Common Stock (without regard to
      any
      limitations on conversion herein or elsewhere) and had held such shares of
      Common Stock on the record date for such dividends and distributions. Payments
      under the preceding sentence shall be made concurrently with the dividend or
      distribution to the holders of Common Stock. 

     

    (16)  VOTE
      TO ISSUE, OR CHANGE THE TERMS OF, NOTES.
      The
      affirmative vote at a meeting duly called for such purpose or the written
      consent without a meeting of the Required Holders shall be required for any
      change or amendment to this Note or the Other Notes. No
      consideration shall be offered or paid to any holder of Notes to amend or
      consent to a waiver or modification of the Notes unless the same consideration
      also is offered to all of the holders of Notes.

     

    
      
        
        

      

      
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    (17)  TRANSFER.
      This
      Note may be offered, sold, assigned or transferred by the Holder without the
      consent of the Company, subject only to the provisions of Section 2(f) of the
      Securities Purchase Agreement.

     

    (18)  REISSUANCE
      OF THIS NOTE.

     

    (a)  Transfer.
      If this
      Note is to be transferred, the Holder shall surrender this Note to the Company,
      whereupon the Company will forthwith issue and deliver upon the order of the
      Holder a new Note (in accordance with Section 18(d)), registered as the Holder
      may request, representing the outstanding Principal being transferred by the
      Holder and, if less then the entire outstanding Principal is being transferred,
      a new Note (in accordance with Section 18(d)) to the Holder representing the
      outstanding Principal not being transferred. The Holder and any assignee, by
      acceptance of this Note, acknowledge and agree that, by reason of the provisions
      of Section 3(c)(iii) and this Section 18(a) following conversion or redemption
      of any portion of this Note, the outstanding Principal represented by this
      Note
      may be less than the Principal stated on the face of this Note.

     

    (b)  Lost,
      Stolen or Mutilated Note.
      Upon
      receipt by the Company of evidence reasonably satisfactory to the Company of
      the
      loss, theft, destruction or mutilation of this Note, and, in the case of loss,
      theft or destruction, of any indemnification undertaking by the Holder to the
      Company in customary form and, in the case of mutilation, upon surrender and
      cancellation of this Note, the Company shall execute and deliver to the Holder
      a
      new Note (in accordance with Section 18(d)) representing the outstanding
      Principal.

     

    (c)  Note
      Exchangeable for Different Denominations.
      This
      Note is exchangeable, upon the surrender hereof by the Holder at the principal
      office of the Company, for a new Note or Notes (in accordance with Section
      18(d)
      and in principal amounts of at least $100,000) representing in the aggregate
      the
      outstanding Principal of this Note, and each such new Note will represent such
      portion of such outstanding Principal as is designated by the Holder at the
      time
      of such surrender.

     

    (d)  Issuance
      of New Notes.
      Whenever the Company is required to issue a new Note pursuant to the terms
      of
      this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall
      represent, as indicated on the face of such new Note, the Principal remaining
      outstanding (or in the case of a new Note being issued pursuant to Section
      18(a)
      or Section 18(c), the Principal designated by the Holder which, when added
      to
      the principal represented by the other new Notes issued in connection with
      such
      issuance, does not exceed the Principal remaining outstanding under this Note
      immediately prior to such issuance of new Notes), (iii) shall have an issuance
      date, as indicated on the face of such new Note, which is the same as the
      Issuance Date of this Note, (iv) shall have the same rights and conditions
      as
      this Note, and (v) shall represent accrued and unpaid Interest and Late Charges
      on the Principal and Interest of this Note, if any, from the Issuance
      Date.

     

    (19)  REMEDIES,
      CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
      RELIEF.
      The
      remedies provided in this Note shall be cumulative and in addition to all other
      remedies available under this Note and any of the other Transaction Documents
      at
      law or in equity (including a decree of specific performance and/or other
      injunctive relief), and nothing herein shall limit the Holder's right to pursue
      actual and consequential damages for any failure by the Company to comply with
      the terms of this Note. Amounts set forth or provided for herein with respect
      to
      payments, conversion and the like (and the computation thereof) shall be the
      amounts to be received by the Holder and shall not, except as expressly provided
      herein, be subject to any other obligation of the Company (or the performance
      thereof). The Company acknowledges that a breach by it of its obligations
      hereunder will cause irreparable harm to the Holder and that the remedy at
      law
      for any such breach may be inadequate. The Company therefore agrees that, in
      the
      event of any such breach or threatened breach, the Holder shall be entitled,
      in
      addition to all other available remedies, to an injunction restraining any
      breach, without the necessity of showing economic loss and without any bond
      or
      other security being required.

     

    
      
        
        

      

      
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    (20)  PAYMENT
      OF COLLECTION, ENFORCEMENT AND OTHER COSTS.
      If (a)
      this Note is placed in the hands of an attorney for collection or enforcement
      or
      is collected or enforced through any legal proceeding or the Holder otherwise
      takes action to collect amounts due under this Note or to enforce the provisions
      of this Note or (b) there occurs any bankruptcy, reorganization, receivership
      of
      the Company or other proceedings affecting Company creditors' rights and
      involving a claim under this Note, then the Company shall pay the costs incurred
      by the Holder for such collection, enforcement or action or in connection with
      such bankruptcy, reorganization, receivership or other proceeding, including,
      but not limited to, financial advisory fees and attorneys' fees and
      disbursements.

     

    (21)  CONSTRUCTION;
      HEADINGS.
      This
      Note shall be deemed to be jointly drafted by the Company and all the Purchasers
      and shall not be construed against any person as the drafter hereof. The
      headings of this Note are for convenience of reference and shall not form part
      of, or affect the interpretation of, this Note.

     

    (22)  FAILURE
      OR INDULGENCE NOT WAIVER.
      No
      failure or delay on the part of the Holder in the exercise of any power, right
      or privilege hereunder shall operate as a waiver thereof, nor shall any single
      or partial exercise of any such power, right or privilege preclude other or
      further exercise thereof or of any other right, power or privilege.

     

    (23)  DISPUTE
      RESOLUTION.
      In the
      case of a dispute as to the determination of the Closing Bid Price, the Closing
      Sale Price or the Weighted Average Price or the arithmetic calculation of the
      Conversion Rate or any Redemption Price, the Company shall submit the disputed
      determinations or arithmetic calculations via facsimile within two (2) Business
      Days of receipt, or deemed receipt, of the Conversion Notice or Redemption
      Notice or other event giving rise to such dispute, as the case may be, to the
      Holder. If the Holder and the Company are unable to agree upon such
      determination or calculation within three (3) Business Days of such disputed
      determination or arithmetic calculation being submitted to the Holder, then
      the
      Company shall, within two (2) Business Days submit via facsimile (a) the
      disputed determination of the Closing Bid Price, the Closing Sale Price or
      the
      Weighted Average Price to an independent, reputable investment bank selected
      by
      the Company and approved by the Holder or (b) the disputed arithmetic
      calculation of the Conversion Rate or any Redemption Price to the Company's
      independent, outside accountant. The Company, at the Company's expense, shall
      cause the investment bank or the accountant, as the case may be, to perform
      the
      determinations or calculations and notify the Company and the Holder of the
      results no later than ten (10) Business Days from the time it receives the
      disputed determinations or calculations. Such investment bank's or accountant's
      determination or calculation, as the case may be, shall be binding upon all
      parties absent demonstrable error.

     

    
      
        
        

      

      
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    (24)  NOTICES;
      PAYMENTS.

     

    (a)  Notices.
      Whenever notice is required to be given under this Note, unless otherwise
      provided herein, such notice shall be given in accordance with Section 9(f)
      of
      the Securities Purchase Agreement. The Company shall provide the Holder with
      prompt written notice of all actions taken pursuant to this Note, including
      in
      reasonable detail a description of such action and the reason therefor. Without
      limiting the generality of the foregoing, the Company will give written notice
      to the Holder (i) immediately upon any adjustment of the Conversion Price,
      setting forth in reasonable detail, and certifying, the calculation of such
      adjustment and (ii) at least twenty (20) days prior to the date on which the
      Company closes its books or takes a record (A) with respect to any dividend
      or
      distribution upon the Common Stock, (B) with respect to any pro rata
      subscription offer to holders of Common Stock or (C) for determining rights
      to
      vote with respect to any Fundamental Transaction, dissolution or liquidation,
      provided in each case that such information shall be made known to the public
      prior to or in conjunction with such notice being provided to the
      Holder.

     

    (b)  Payments.
      Whenever any payment of cash is to be made by the Company to any Person pursuant
      to this Note, such payment shall be made in lawful money of the United States
      of
      America by a check drawn on the account of the Company and sent via overnight
      courier service to such Person at such address as previously provided to the
      Company in writing (which address, in the case of each of the Purchasers, shall
      initially be as set forth on the Schedule of Buyers attached to the Securities
      Purchase Agreement); provided that the Holder may elect to receive a payment
      of
      cash via wire transfer of immediately available funds by providing the Company
      with prior written notice setting out such request and the Holder's wire
      transfer instructions. Whenever any amount expressed to be due by the terms
      of
      this Note is due on any day which is not a Business Day, the same shall instead
      be due on the next succeeding day which is a Business Day and, in the case
      of
      any Interest Date which is not the date on which this Note is paid in full,
      the
      extension of the due date thereof shall not be taken into account for purposes
      of determining the amount of Interest due on such date. Any amount of Principal
      or other amounts due under the Transaction Documents which is not paid when
      due
      shall result in a late charge being incurred and payable by the Company in
      an
      amount equal to interest on such amount at the rate of eighteen percent (18%)
      per annum from the date such amount was due until the same is paid in full
      ("Late
      Charge").

     

    (25)  CANCELLATION.
      After
      all Principal, accrued Interest and other amounts at any time owed on this
      Note
      have been paid in full, including pursuant to a redemption or conversion of
      this
      Note, this Note shall automatically be deemed canceled, shall be surrendered
      to
      the Company for cancellation and shall not be reissued.

     

    (26)  WAIVER
      OF NOTICE.
      To the
      extent permitted by law, the Company hereby waives demand, notice, protest
      and
      all other demands and notices in connection with the delivery, acceptance,
      performance, default or enforcement of this Note and the Securities Purchase
      Agreement.

     

    
      
        
        

      

      
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    (27)  GOVERNING
      LAW; JURISDICTION;
      JURY TRIAL.
      This
      Note shall be construed and enforced in accor-dance with, and all questions
      concerning the construction, validity, interpretation and performance of this
      Note shall be governed by, the internal laws of the State of New York, without
      giving effect to any choice of law or conflict of law provision or rule (whether
      of the State of New York or any other jurisdictions) that would cause the
      application of the laws of any jurisdictions other than the State of New York.
      The Company hereby irrevocably submits to the exclusive jurisdiction of the
      state and federal courts sitting in The City of New York, Borough of Manhattan,
      for the adjudication of any dispute hereunder or in connection herewith or
      with
      any transaction contemplated hereby or discussed herein, and hereby irrevocably
      waives, and agrees not to assert in any suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is brought in an inconvenient forum or that
      the
      venue of such suit, action or proceeding is improper. The Company hereby
      irrevocably waives personal service of process and consents to process being
      served in any such suit, action or proceeding by mailing a copy thereof to
      such
      party at the address it set forth on the signature page hereto and agrees that
      such service shall constitute good and sufficient service of process and notice
      thereof. Nothing contained herein shall be deemed to limit in any way any right
      to serve process in any manner permitted by law. Nothing contained herein shall
      be deemed or operate to preclude the Holder from bringing suit or taking other
      legal action against the Company in any other jurisdiction to collect on the
      Company's obligations to the Holder, to realize on any collateral or any other
      security for such obligations, or to enforce a judgment or other court ruling
      in
      favor of the Holder. THE
      COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
      REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
      CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED
      HEREBY.

     

    (28)  SEVERABILITY.
      If any
      provision of this Note is prohibited by law or otherwise determined to be
      invalid or unenforceable by a court of competent jurisdiction, the provision
      that would otherwise be prohibited, invalid or unenforceable shall be deemed
      amended to apply to the broadest extent that it would be valid and enforceable,
      and the invalidity or unenforceability of such provision shall not affect the
      validity of the remaining provisions of this Note so long as this Note as so
      modified continues to express, without material change, the original intentions
      of the parties as to the subject matter hereof and the prohibited nature,
      invalidity or unenforceability of the provision(s) in question does not
      substantially impair the respective expectations or reciprocal obligations
      of
      the parties or the practical realization of the benefits that would otherwise
      be
      conferred upon the parties. The parties will endeavor in good faith negotiations
      to replace the prohibited, invalid or unenforceable provision(s) with a valid
      provision(s), the effect of which comes as close as possible to that of the
      prohibited, invalid or unenforceable provision(s).

     

    (29)  CERTAIN
      DEFINITIONS.
      For
      purposes of this Note, the following terms shall have the following
      meanings:

     

    (a)  "Approved
      Stock Plan"
      means
      any employee benefit plan which has been approved by the Board of Directors
      of
      the Company, pursuant to which the Company's securities may be issued to any
      employee, officer or director for services provided to the Company.

     

    
      
        
        

      

      
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    (b)  "Available
      Cash"
      means
      an amount equal to (i) the aggregate amount of the Company's Cash, Cash
      Equivalent and Eligible Investment Balances, minus (b) the Increase in Debt
      Balance, in each case as of the relevant date of determination.

     

    (c)  "Bloomberg"
      means
      Bloomberg Financial Markets.

     

    (d)  "Business
      Day"
      means
      any day other than Saturday, Sunday or other day on which commercial banks
      in
      The City of New York are authorized or required by law to remain
      closed.

     

    (e)  "Cash
      Burn"
      means
      (i) Consolidated Net Income plus (ii) Depreciation plus (iii) Amortization
      plus
      (iv) Stock Based Compensation minus (iv) Capital Expenditures. For purposes
      of
      the foregoing, each of Depreciation, Amortization, Stock Based Compensation
      and
      Capital Expenditures shall each be calculated in accordance with GAAP.


     

    (f)  "Cash,
      Cash Equivalent and Eligible Investment Balances"
      of the
      Company and its Subsidiaries on any date shall be determined from such Persons'
      books maintained in accordance with GAAP, and means, without duplication, the
      cash, cash equivalents and Eligible Marketable Securities accrued by the Company
      and its wholly owned Subsidiaries on a consolidated basis on such date and
      available for use by the Company and its Subsidiaries on such date.

     

    (g)  "Calendar
      Quarter"
      means
      each of: the period beginning on and including January 1 and ending on and
      including March 31; the period beginning on and including April 1 and ending
      on
      and including June 30; the period beginning on and including July 1 and ending
      on and including September 30; and the period beginning on and including October
      1 and ending on and including December 31.

     

    (h)  "Change
      of Control"
      means
      any Fundamental Transaction other than (i) any reorganization, recapitalization
      or reclassification of the Common Stock in which holders of the Company's voting
      power immediately prior to such reorganization, recapitalization or
      reclassification continue after such reorganization, recapitalization or
      reclassification to hold publicly traded securities and, directly or indirectly,
      the voting power of the surviving entity or entities necessary to elect a
      majority of the members of the board of directors (or their equivalent if other
      than a corporation) of such entity or entities, or (ii) pursuant to a migratory
      merger effected solely for the purpose of changing the jurisdiction of
      incorporation of the Company. 

     

    (i)  "Closing
      Bid Price"
      and
      "Closing
      Sale Price"
      means,
      for any security as of any date, the last closing bid price and last closing
      trade price, respectively, for such security on the Principal Market, as
      reported by Bloomberg, or, if the Principal Market begins to operate on an
      extended hours basis and does not designate the closing bid price or the closing
      trade price, as the case may be, then the last bid price or last trade price,
      respectively, of such security prior to 4:00:00 p.m., New York Time, as reported
      by Bloomberg, or, if the Principal Market is not the principal securities
      exchange or trading market for such security, the last closing bid price or
      last
      trade price, respectively, of such security on the principal securities exchange
      or trading market where such security is listed or traded as reported by
      Bloomberg, or if the foregoing do not apply, the last closing bid price or
      last
      trade price, respectively, of such security in the over-the-counter market
      on
      the electronic bulletin board for such security as reported by Bloomberg, or,
      if
      no closing bid price or last trade price, respectively, is reported for such
      security by Bloomberg, the average of the bid prices, or the ask prices,
      respectively, of any market makers for such security as reported in the "pink
      sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).
      If
      the Closing Bid Price or the Closing Sale Price cannot be calculated for a
      security on a particular date on any of the foregoing bases, the Closing Bid
      Price or the Closing Sale Price, as the case may be, of such security on such
      date shall be the fair market value as mutually determined by the Company and
      the Holder. If the Company and the Holder are unable to agree upon the fair
      market value of such security, then such dispute shall be resolved pursuant
      to
      Section 23. All such determinations to be appropriately adjusted for any stock
      dividend, stock split, stock combination or other similar transaction during
      the
      applicable calculation period.

     

    
      
        
        

      

      
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    (j)  "Closing
      Date"
      shall
      have the meaning set forth in the Securities Purchase Agreement, which date
      is
      the date the Company initially issued Notes pursuant to the terms of the
      Securities Purchase Agreement.

     

    (k)  "Common
      Stock Deemed Outstanding"
      means,
      at any given time, the number of shares of Common Stock outstanding at such
      time, plus the number of shares of Common Stock deemed to be outstanding
      pursuant to Sections 7(a)(i) and 7(a)(ii) hereof regardless of whether the
      Options or Convertible Securities are actually exercisable at such time, but
      excluding any Common Stock owned or held by or for the account of the Company
      or
      issuable upon conversion or exercise, as applicable, of the Notes and the
      Warrants.

     

    (l)  "Consolidated
      EBITDA"
      means,
      for any period, Consolidated Net Income for such period (without giving effect
      to any extraordinary gains or losses) adjusted by adding thereto (in each case
      to the extent deducted in determining Consolidated Net Income for such period),
      without duplication, the amount of (i) total interest expense (subtracting
      therefrom any interest income) (inclusive of amortization of deferred financing
      fees and other original issue discount and banking fees and charges
      (e.g.,
      letter of credit fees and commitment fees) including those arising from any
      beneficial conversion feature of the Notes)
      of the
      Company and its Subsidiaries determined on a consolidated basis for such period,
      (ii) provision for taxes based on income and foreign withholding taxes for
      the
      Company and its Subsidiaries determined on a consolidated basis for such period,
      (iii) all depreciation and amortization expense of the Company and its
      Subsidiaries determined on a consolidated basis for such period, and (iv) all
      non-cash stock compensation expenses of the Company (i.e., expenses paid through
      the issuance of equity interests of Company, or options therefor, rather than
      in
      cash) incurred during such period (except to the extent any such expense will
      require a cash payment in a future period).

     

    (m)  "Consolidated
      Net Income"
      means,
      for any period, the net income (or loss) of the Company and its Subsidiaries
      for
      such period, determined on a consolidated basis (after any deduction for
      minority interests). 

     

    
      
        
        

      

      
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    (n)  "Consolidated
      Revenues"
      means,
for
      any period, the total consolidated revenues of the Company and its Subsidiaries
      for such period, as determined in accordance with GAAP. 

     

    (o)  "Contingent
      Obligation"
      means,
      as to any Person, any direct or indirect liability, contingent or otherwise,
      of
      that Person with respect to any indebtedness, lease, dividend or other
      obligation of another Person if the primary purpose or intent of the Person
      incurring such liability, or the primary effect thereof, is to provide assurance
      to the obligee of such liability that such liability will be paid or discharged,
      or that any agreements relating thereto will be complied with, or that the
      holders of such liability will be protected (in whole or in part) against loss
      with respect thereto.

     

    (p)  "Convertible
      Securities"
      means
      any stock or securities (other than Options) directly or indirectly convertible
      into or exercisable or exchangeable for Common Stock.

     

    (q)  "Eligible
      Market"
      means
      the Principal Market, The New York Stock Exchange, Inc., The NASDAQ
      Global
      Market, The NASDAQ
      Global
      Select Market or The Nasdaq Capital Market.

     

    (r)  "Eligible
      Marketable Securities"
      as of
      any date means marketable securities which would be reflected on a consolidated
      balance sheet of the Company and its Subsidiaries prepared as of such date
      in
      accordance with GAAP,
      and
      which are permitted under the Company's investment policies as in effect on
      the
      Issuance Date or approved thereafter by the Company's Board of
      Directors.

     

    (s)  "Equity
      Conditions"
      means
      each of the following conditions: (i) on each day during the period beginning
      six (6) months prior to the applicable date of determination and ending on
      and
      including the applicable date of determination (provided, however, that solely
      for purposes of this clause (i), to the extent the applicable date of
      determination falls less than six (6) months after the earlier of (A) the
      Effectiveness Deadline and (B) the Effective Date (as defined in the
      Registration Rights Agreement) (the "Registration
      Measuring Date"),
      such
      period shall begin at such Registration Measuring Date) (the "Equity
      Conditions Measuring Period"),
      either
      (x) the Registration Statement filed pursuant to the Registration Rights
      Agreement shall be effective and available for the resale of all remaining
      Registrable Securities required
      to be registered in
      accordance with the terms of the Registration Rights Agreement or
      (y)
      all shares of Common Stock issuable upon conversion of the Notes and exercise
      of
      the Warrants shall be eligible for sale without restriction and without the
      need
      for registration under any applicable federal or state securities
      laws;
      (ii) on
      each day during the Equity Conditions Measuring Period the Common
      Stock
      is
      designated for quotation on the Principal Market or any other Eligible Market
      and shall not have been suspended from trading on such exchange or market (other
      than suspensions of not more than two (2) days and occurring prior to the
      applicable date of determination due to business announcements by the Company)
      nor shall delisting or suspension by such exchange or market be or have been
      threatened or pending either (A) in writing by such exchange or market or (B)
      by
      falling below the then effective minimum listing maintenance requirements of
      such exchange or market; (iii) during the six (6) month period ending on and
      including the date immediately preceding the applicable date of determination,
      the Company shall have delivered Conversion Shares upon conversion of the Notes
      shares of Common Stock upon exercise of the Warrants to the holders on a timely
      basis as set forth in Section 3(c)(i) hereof (and analogous provisions under
      the
      Other Notes) and Section 1(a) of the Warrants; (iv) any applicable shares of
      Common
      Stock to
      be
      issued in connection with the event requiring determination may be issued in
      full without violating Section 3(d) hereof and the rules or regulations of
      the
      Principal Market or any other applicable Eligible Market; (v) solely with
      respect to a Holder Optional Redemption, (x) the
      Registration Statement filed pursuant to the Registration Rights Agreement
      shall
      be effective and available for the resale of all Registrable
      Securities
      and (y)
      on the Holder Optional Redemption Eligibility Date the arithmetic average of
      the
      Weighted Average Price of the Common Stock during the five (5) Trading Day
      Period ending on the Trading Day immediately preceding the Holder Optional
      Redemption Eligibility Date is not less than $2.6412 (as adjusted for any stock
      splits, stock dividends, recapitalizations, combinations, reverse stock splits
      or other similar events) (the "Holder
      Optional Redemption Stock Price Condition");
      (vi)
      during the Equity Conditions Measuring Period, the Company shall not have failed
      to timely make any payments within five (5) Business Days of when such payment
      is due pursuant to any Transaction Document; (vii) during the Equity Conditions
      Measuring Period, there shall not have occurred either (A) the public
      announcement of a pending, proposed or intended Fundamental Transaction which
      has not been abandoned, terminated or consummated, or (B) an
      Event of Default or (C) an event that with the passage of time or giving of
      notice would constitute an Event of Default; (viii) the Company shall have
      no
      knowledge of any fact that would cause (x) the Registration Statements required
      pursuant to the Registration Rights Agreement not to be effective and available
      for the resale of all remaining Registrable Securities in accordance with the
      terms of the Registration Rights Agreement or (y) any shares of Common Stock
      issuable upon conversion of the Notes and shares of Common Stock issuable upon
      exercise of the Warrants not to be eligible for sale without restriction
      pursuant to Rule 144(k) and any applicable state securities laws; and (ix)
      the
      Company otherwise shall have been in compliance with and shall not have breached
      any provision, covenant, representation or warranty of any Transaction
      Document.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    (t)  "Equity
      Conditions Failure"
      means
      that on (i) any day during the period commencing ten (10) Trading Days prior
      to
      the Mandatory Conversion Notice Date through the Mandatory Conversion Date
      or
      (ii) the Holder Optional Redemption Eligibility Date, the Equity Conditions
      have
      not been satisfied (or waived in writing by the Holder).

     

    (u)  "Excluded
      Securities"
      means
      any Common Stock issued or issuable: (i) in connection with any Approved Stock
      Plan, provided, however, that to the extent such Common Stock would result
      in a
      Dilutive Issuance such number of shares of Common Stock does not exceed 500,000
      shares of Common Stock in any twelve month period nor 1,500,000 shares of Common
      Stock, in the aggregate; (ii) upon conversion of the Notes or the exercise
      of
      the Warrants; (iii) pursuant to a bona fide firm commitment underwritten public
      offering with Maxim Group LLC or another nationally recognized underwriter
      which
      generates gross proceeds to the Company of at least $15,000,000 (other than
      an
      "at-the-market offering" as defined in Rule 415(a)(4) under the 1933 Act and
      "equity lines"); (iv) upon conversion, exercise or exchange of any Options
      or
      Convertible Securities which are outstanding on the day immediately preceding
      the Subscription Date, provided that the terms of such Options or Convertible
      Securities are not amended, modified or changed on or after the Subscription
      Date; and (v) in connection with mergers, acquisitions, strategic business
      partnerships or joint ventures, in each case with non-affiliated third parties
      and otherwise on an arm's-length basis, the primary purpose of which, in the
      reasonable judgment of the Company's Board of Directors, is not to raise
      additional capital.

     

    
      
        
        

      

      
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    (v)  "Fiscal
      Quarter" means
      each of the fiscal quarters adopted by the Company for financial reporting
      purposes that correspond to the Company's fiscal year as of the date hereof
      that
      ends on December 31.

     

    (w)  "Fiscal
      Year" means
      the fiscal year adopted by the Company for financial reporting purposes that
      ends on December 31.

     

    (x)  "Fundamental
      Transaction"
      means
      that the Company shall, directly or indirectly, in one or more related
      transactions, (i) consolidate or merge with or into (whether or not the Company
      is the surviving corporation) another Person or Persons, if the holders of
      the
      Voting Stock (not including any shares of Voting Stock held by the Person or
      Persons making or party to, or associated or affiliated with the Persons making
      or party to, such consolidation or merger) immediately prior to such
      consolidation or merger shall hold or have the right to direct the voting of
      less than 50% of the Voting Stock or such voting securities of such other
      surviving Person immediately following such transaction, (ii) sell, assign,
      transfer, convey or otherwise dispose of all or substantially all of the
      properties or assets of the Company to another Person, (iii) allow another
      Person to make a purchase, tender or exchange offer that is accepted by the
      holders of more than the 50% of the outstanding shares of Voting Stock (not
      including any shares of Voting Stock held by the Person or Persons making or
      party to, or associated or affiliated with the Persons making or party to,
      such
      purchase, tender or exchange offer), (iv) consummate a stock purchase agreement
      or other business combination (including, without limitation, a reorganization,
      recapitalization, spin-off or scheme of arrangement) with another Person whereby
      such other Person acquires more than the 50% of the outstanding shares of Voting
      Stock (not including any shares of Voting Stock held by the other Person or
      other Persons making or party to, or associated or affiliated with the other
      Persons making or party to, such stock purchase agreement or other business
      combination), (v) reorganize, recapitalize or reclassify its Common Stock or
      (vi) any "person" or "group" (as these terms are used for purposes of Sections
      13(d) and 14(d) of the Exchange Act) is or shall become the "beneficial owner"
      (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
      of
      50% of the aggregate ordinary voting power represented by issued and outstanding
      Common Stock.

     

    (y)  "GAAP"
      means
      United States generally accepted accounting principles, consistently applied
      in
      accordance with past practices.

     

    (z)  "Holder
      Optional Redemption Eligibility Amount"
      means
      the Holder Pro Rata Amount of (i) if the Holder Optional Redemption Stock Price
      Condition has not been satisfied on the Holder Optional Redemption Eligibility
      Date, $2,000,000 or (ii) if the Holder Optional Redemption Stock Price Condition
      has been satisfied on the Holder Optional Redemption Eligibility Date, the
      lesser of (x) $2,000,000 and (y) Cutback Note Amount (as defined in the
      Registration Rights Agreement).

     

    (aa)  "Holder
      Pro Rata Amount"
      means a
      fraction (i) the numerator of which is the Principal amount of this Note on
      the
      Closing Date and (ii) the denominator of which is the aggregate principal amount
      of all Notes issued to the initial purchasers pursuant to the Securities
      Purchase Agreement on the Closing Date.

     

    
      
        
        

      

      
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    (bb)  "Increase
      in Debt Balance"
      means
      the Indebtedness of the Company as of the relevant date of determination
      (excluding the Indebtedness payable in connection with the Notes).

     

    (cc)  "Indebtedness"
      of any
      Person means, without duplication (i) all indebtedness for borrowed money,
      (ii)
      all obligations issued, undertaken or assumed as the deferred purchase price
      of
      property or services, including (without limitation) "capital leases" in
      accordance with generally accepted accounting principles (other than trade
      payables entered into in the ordinary course of business), (iii) all
      reimbursement or payment obligations with respect to letters of credit, surety
      bonds and other similar instruments, (iv) all obligations evidenced by notes,
      bonds, debentures or similar instruments, including obligations so evidenced
      incurred in connection with the acquisition of property, assets or businesses,
      (v) all indebtedness created or arising under any conditional sale or other
      title retention agreement, or incurred as financing, in either case with respect
      to any property or assets acquired with the proceeds of such indebtedness (even
      though the rights and remedies of the seller or bank under such agreement in
      the
      event of default are limited to repossession or sale of such property), (vi)
      all
      monetary obligations under any leasing or similar arrangement which, in
      connection with generally accepted accounting principles, consistently applied
      for the periods covered thereby, is classified as a capital lease, (vii) all
      indebtedness referred to in clauses (i) through (vi) above secured by (or for
      which the holder of such Indebtedness has an existing right, contingent or
      otherwise, to be secured by) any mortgage, lien, pledge, charge, security
      interest or other encumbrance upon or in any property or assets (including
      accounts and contract rights and intellectual property rights) owned by any
      Person, even though the Person which owns such assets or property has not
      assumed or become liable for the payment of such indebtedness, (viii) all
      royalties and related payment or prepayment or other obligations of
      the
      Company or any of its Subsidiaries relating
      to any Intellectual Property Rights of the Company or any of its Subsidiaries
      and
      (ix)
      all Contingent Obligations in respect of indebtedness or obligations of others
      of the kinds referred to in clauses (i) through (viii) above.

     

    (dd)  "Interest
      Rate"
      means seven
      and
      one-half percent (7.50%) per annum, subject to periodic adjustment pursuant
      to
      Section 2.

     

    (ee)  "Judgment
      Default Amount"
      means,
      as of any given date, the lesser of (i) $1,000,000 and (ii) 1% of the sum of
      the
      Consolidated Revenue for the four completed Fiscal Quarters immediately
      preceding such date.

     

    (ff)  "Options"
      means
      any rights, warrants or options to subscribe for or purchase shares of Common
      Stock or Convertible Securities.

     

    (gg)  "Parent
      Entity"
      of a
      Person means an entity that, directly or indirectly, controls the applicable
      Person and whose common stock or equivalent equity security is quoted or listed
      on an Eligible Market, or, if there is more than one such Person or Parent
      Entity, the Person or Parent Entity with the largest public market
      capitalization as of the date of consummation of the Fundamental
      Transaction.

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    (hh)  "Permitted
      Indebtedness"
      means
      (i) Permitted Line of Credit, (ii) Indebtedness incurred by the Company that
      is
      made expressly subordinate in right of payment to the Indebtedness evidenced
      by
      this Note, as reflected in a written agreement acceptable to the Holder and
      approved by the Holder in writing, and which Indebtedness does not provide
      at
      any time for (1) the payment, prepayment, repayment, repurchase or defeasance,
      directly or indirectly, of any principal or premium, if any, thereon until
      ninety-one (91) days after the Maturity Date or later and (2) total interest
      and
      fees at a rate in excess of seven and one-half percent (7.50%) per annum
      (collectively, the "Subordinated
      Indebtedness"),
      (iii)
      Indebtedness secured by Permitted Liens (other than the Existing Liens), (iv)
      Indebtedness evidenced by this Note and the Other Notes, and (v) extensions,
      refinancings and renewals of any items in clauses (i) through (iv) above,
      provided that the principal amount is not increased or the terms modified to
      impose more burdensome terms upon the Company or its Subsidiaries, as the case
      may be.

     

    (ii)  "Permitted
      Liens"
      means
      (i) any Lien for taxes not yet due or delinquent or being contested in good
      faith by appropriate proceedings for which adequate reserves have been
      established in accordance with GAAP, (ii) any statutory Lien arising in the
      ordinary course of business by operation of law with respect to a liability
      that
      is not yet due or delinquent, (iii) any Lien created by operation of law, such
      as materialmen's liens, mechanics' liens and other similar liens, arising in
      the
      ordinary course of business with respect to a liability that is not yet due
      or
      delinquent or that are being contested in good faith by appropriate proceedings,
      (iv) Liens (A) upon or in any equipment (as defined in the Security Agreement)
      acquired or held by the Company or any of its Subsidiaries to secure the
      purchase price of such equipment or indebtedness incurred solely for the purpose
      of financing the acquisition or lease of such equipment, or (B) existing on
      such
      equipment at the time of its acquisition, provided that the Lien is confined
      solely to the property so acquired and improvements thereon, and the proceeds
      of
      such equipment, (v) Liens incurred in connection with the extension, renewal
      or
      refinancing of the indebtedness secured by Liens of the type described in
      clauses (i) and (iv) above, provided that any extension, renewal or replacement
      Lien shall be limited to the property encumbered by the existing Lien and the
      principal amount of the Indebtedness being extended, renewed or refinanced
      does
      not increase, (vi) Liens securing the Company's obligations under the Notes;
      (vii) leases or subleases and licenses and sublicenses granted to others in
      the
      ordinary course of the Company's business, not interfering in any material
      respect with the business of the Company and its Subsidiaries taken as a whole,
      (viii) Liens in favor of customs and revenue authorities arising as a
      matter of law to secure payments of custom duties in connection with the
      importation of goods, (ix)
      Liens
      arising from judgments, decrees or attachments in circumstances not constituting
      an Event of Default under Section 4(a)(ix), (x) Liens created in favor of
      certain financial institutions to secure the Company's obligations under its
      automated teller machine cash agreements, and (xi) Liens securing the
      obligations under the Permitted Line of Credit.

     

    (jj)  "Permitted
      Line of Credit"
      means a
      line of credit, to be entered into by the Company after the date hereof with
      a
      lender determined by the Company in its reasonable discretion, in the maximum
      amount of $2,000,000 to be used by the Company solely in connection with the
      purchase for resale of products related to the Company’s set-top box business;
      provided that (i) such line of credit will be secured solely by the products
      purchased for resale, and (ii) the Holder shall have a second lien on such
      assets.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    (kk)  "Person"
      means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization, any other entity and
      a
      government or any department or agency thereof. 

     

    (ll)  "Principal
      Market"
      means
      the American Stock Exchange.

     

    (mm)  "Redemption
      Notices"
      means,
      collectively, the Event of Default Redemption Notices, the Change of Control
      Redemption Notices and the Holder Optional Redemption Notice, each of the
      foregoing, individually, a Redemption Notice.

     

    (nn)  "Redemption
      Premium"
      means
      (i) in the case of the Events of Default described in Section 4(a)(i) - (vi)
      and
      (ix) - (xii), 125% or (ii) in the case of the Events of Default described in
      Section 4(a)(vii) - (viii), 100%.

     

    (oo)  "Redemption
      Prices"
      means,
      collectively, the Event of Default Redemption Price, Change of Control
      Redemption Price and the Holder Optional Redemption Price, each of the
      foregoing, individually, a Redemption Price.

     

    (pp)  "Registration
      Rights Agreement"
      means
      that certain Registration Rights Agreement dated as of the Subscription Date
      by
      and among the Company and the initial holders of the Notes relating to, among
      other things, the registration of the resale of the Common Stock issuable upon
      conversion of the Notes and exercise of the Warrants.

     

    (qq)  "Required
      Holders"
      means
      the holders of Notes representing at least a majority of the aggregate principal
      amount of the Notes then outstanding.

     

    (rr)  "SEC"
      means
      the United States Securities and Exchange Commission. 

     

    (ss)  "Securities
      Purchase Agreement"
      means
      that certain securities purchase agreement dated as of the Subscription Date
      by
      and among the Company and the initial holders of the Notes pursuant to which
      the
      Company issued the Notes and the Warrants. 

     

    (tt)  "Subscription
      Date"
      means
      November 29, 2007.

     

    (uu)  "Successor
      Entity"
      means
      the Person, which may be the Company, formed by, resulting from or surviving
      any
      Fundamental Transaction or the Person with which such Fundamental Transaction
      shall have been made, provided that if such Person is not a publicly traded
      entity whose common stock or equivalent equity security is quoted or listed
      for
      trading on an Eligible Market, Successor Entity shall mean such Person's Parent
      Entity.

     

    (vv)  "Trading
      Day"
      means
      any day on which the shares of Common Stock are traded on the Principal Market,
      or, if the Principal Market is not the principal trading market for the shares
      of Common Stock, then on the principal securities exchange or securities market
      on which the shares of Common Stock are then traded; provided that "Trading
      Day"
      shall not include any day on which the shares of Common Stock are scheduled
      to
      trade on any such exchange or market for less than 4.5 hours or any day that
      the
      shares of Common Stock are suspended from trading during the final hour of
      trading on such exchange or market (or if such exchange or market does not
      designate in advance the closing time of trading on any such exchange or market,
      then during the hour ending at 4:00:00 p.m., New York Time).

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

    (ww)  "Voting
      Stock"
      of a
      Person means capital stock of such Person of the class or classes pursuant
      to
      which the holders thereof have the general voting power to elect, or the general
      power to appoint, at least a majority of the board of directors, managers or
      trustees of such Person (irrespective of whether or not at the time capital
      stock of any other class or classes shall have or might have voting power by
      reason of the happening of any contingency).

     

    (xx)  "Warrants"
      has the
      meaning ascribed to such term in the Securities Purchase Agreement, and shall
      include all warrants issued in exchange therefor or replacement
      thereof.

     

    (yy)  "Weighted
      Average Price"
      means,
      for any security as of any date, the dollar volume-weighted average price for
      such security on the Principal Market during the period beginning at 9:30:01
      a.m., New York Time (or such other time as the Principal Market publicly
      announces is the official open of trading), and ending at 4:00:00 p.m., New
      York
      Time (or such other time as the Principal Market publicly announces is the
      official close of trading) as reported by Bloomberg through its "Volume at
      Price" functions, or, if the foregoing does not apply, the dollar
      volume-weighted average price of such security in the over-the-counter market
      on
      the electronic bulletin board for such security during the period beginning
      at
      9:30:01 a.m., New York Time (or such other time as such market publicly
      announces is the official open of trading), and ending at 4:00:00 p.m., New
      York
      Time (or such other time as such market publicly announces is the official
      close
      of trading) as reported by Bloomberg, or, if no dollar volume-weighted average
      price is reported for such security by Bloomberg for such hours, the average
      of
      the highest closing bid price and the lowest closing ask price of any of the
      market makers for such security as reported in the "pink sheets" by Pink Sheets
      LLC (formerly the National Quotation Bureau, Inc.). If the Weighted Average
      Price cannot be calculated for such security on such particular date on any
      of
      the foregoing bases, the Weighted Average Price of such security on such date
      shall be the fair market value as mutually determined by the Company and the
      Required Holders. If the Company and the Required Holders are unable to agree
      upon the fair market value of such security, then such dispute shall be resolved
      pursuant to Section 22. All such determinations to be appropriately adjusted
      for
      any stock dividend, stock split, stock combination or other similar transaction
      during the applicable calculation period.

     

    (30)  MAXIMUM
      PAYMENTS.
      Nothing
      contained herein shall be deemed to establish or require the payment of a rate
      of interest or other charges in excess of the maximum permitted by applicable
      law. In the event that the rate of interest required to be paid or other charges
      hereunder exceed the maximum permitted by such law, any payments in excess
      of
      such maximum shall be credited against amounts owed by the Company to the Holder
      and thus refunded to the Company.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    (31)  DISCLOSURE.
      Upon
      receipt or delivery by the Company of any notice in accordance with the terms
      of
      this Note, unless the Company has in good faith determined that the matters
      relating to such notice do not constitute material, nonpublic information
      relating to the Company or its Subsidiaries, the Company shall within one (1)
      Business Day after any such receipt or delivery publicly disclose such material,
      nonpublic information on a Current Report on Form 8-K or otherwise. In the
      event
      that the Company believes that a notice delivered to the Holder contains
      material, nonpublic information, relating to the Company or its Subsidiaries,
      the Company shall indicate to the Holder contemporaneously with delivery of
      such
      notice, and in the absence of any such indication, the Holder shall be allowed
      to presume that all matters relating to such notice do not constitute material,
      nonpublic information relating to the Company or its Subsidiaries.

     

    [Signature
      Page Follows]

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
      the
      Issuance Date set out above.

     

    
      	 	 	 
	 	
              DIGITALFX
                INTERNATIONAL, INC.

            
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
              
Name:
	 	Title: