Unassociated Document


    [FORM
      OF WARRANT]

    


    NEITHER
      THE ISSUANCE AND SALE OF THIS WARRANT NOR THE SECURITIES FOR WHICH THIS WARRANT
      IS EXERCISABLE 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 (WHICH COUNSEL SHALL BE
      SELECTED BY THE HOLDER), 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.

    


    DIGITALFX
      INTERNATIONAL, INC.

    


    Warrant
      To Purchase Common Stock

    


    Warrant
      No.: [_______]

    Number
      of
      Shares of Common Stock: [_______]

    Date
      of
      Issuance: November 30, 2007 ("Issuance
      Date")

    


    DigitalFX
      International, Inc., a Florida corporation (the "Company"),
      hereby certifies that, for good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, [PORTSIDE GROWTH AND OPPORTUNITY
      FUND][HIGHBRIDGE
      INTERNATIONAL LLC][IROQUOIS MASTER FUND, LTD.],
      the
      registered holder hereof or its permitted assigns (the "Holder"),
      is
      entitled, subject to the terms set forth below, to purchase from the Company,
      at
      the Exercise Price (as defined below) then in effect, upon surrender of this
      Warrant to Purchase Common Stock (including any Warrants to Purchase Common
      Stock issued in exchange, transfer or replacement hereof, the "Warrant"),
      at
      any time or times on or after the date hereof but not after 11:59 p.m., New
      York
      time, on the Expiration Date (as defined below), [ ] ([ ]) fully paid
      nonassessable shares of Common Stock (as defined below) (the
      "Warrant
      Shares").
      This
      Warrant is one of the Warrants to purchase Common Stock (the "SPA
      Warrants")
      issued
      pursuant to Section 1 of that certain Securities Purchase Agreement, dated
      as of
      November 29, 2007 (the "Subscription
      Date"),
      by
      and among the Company and the investors (the "Buyers")
      referred to therein (the "Securities
      Purchase Agreement").
      Except as otherwise defined herein, capitalized terms in this Warrant shall
      have
      the meanings set forth in Section 14.

     

    1.  EXERCISE
      OF WARRANT.

     

    (a)  Mechanics
      of Exercise.
      Subject
      to the terms and conditions hereof (including, without limitation, the
      limitations set forth in Section 1(f)), this Warrant may be exercised
      by the
      Holder on any day on or after the date hereof, in whole or in part, by
      (i) delivery of a written notice, in the form attached hereto as
Exhibit
      A
      (the
      "Exercise
      Notice"),
      of
      the Holder's election to exercise this Warrant and (ii) (A) payment to the
      Company of an amount equal to the applicable Exercise Price multiplied by the
      number of Warrant Shares as to which this Warrant is being exercised (the
      "Aggregate
      Exercise Price")
      in
      cash or by wire transfer of immediately available funds or (B) by notifying
      the
      Company that this Warrant is being exercised pursuant to a Cashless Exercise
      (as
      defined in Section 1(d)). The Holder shall not be required to deliver the
      original Warrant in order to effect an exercise hereunder. Execution and
      delivery of the Exercise Notice with respect to less than all of the Warrant
      Shares shall have the same effect as cancellation of the original Warrant and
      issuance of a new Warrant evidencing the right to purchase the remaining number
      of Warrant Shares. On or before the first (1st)
      Business Day following the date on which the Company has received each of the
      Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless
      Exercise) (the "Exercise
      Delivery Documents"),
      the
      Company shall transmit by facsimile an acknowledgment of confirmation of receipt
      of the Exercise Delivery Documents to the Holder and the Company's transfer
      agent (the "Transfer
      Agent").
      On or
      before the second (2nd)
      Trading
      Day following the date on which the Company has received all of the Exercise
      Delivery Documents (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, upon the request of the Holder, credit
      such aggregate number of Warrant Shares to which the Holder is entitled pursuant
      to such exercise 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 dispatch by overnight courier to the address as specified
      in
      the Exercise Notice, a certificate, registered in the Company's share register
      in the name of the Holder or its designee, for the number of shares of Common
      Stock to which the Holder is entitled pursuant to such exercise. Upon delivery
      of the Exercise Delivery Documents, the Holder shall be deemed for all corporate
      purposes to have become the holder of record of the Warrant Shares with respect
      to which this Warrant has been exercised, irrespective of the date such Warrant
      Shares are credited to the Holder's DTC account or the date of delivery of
      the
      certificates evidencing such Warrant Shares, as the case may be. If this Warrant
      is submitted in connection with any exercise pursuant to this Section 1(a)
      and
      the number of Warrant Shares represented by this Warrant submitted for exercise
      is greater than the number of Warrant Shares being acquired upon an exercise,
      then the Company shall as soon as practicable and in no event later than three
      (3) Business Days after any exercise and at its own expense, issue a new Warrant
      (in accordance with Section 7(d)) representing the right to purchase the number
      of Warrant Shares purchasable immediately prior to such exercise under this
      Warrant, less the number of Warrant Shares with respect to which this Warrant
      is
      exercised. No fractional shares of Common Stock are to be issued upon the
      exercise of this Warrant, but rather the number of shares of Common Stock to
      be
      issued shall be rounded up to the nearest whole number. The Company shall pay
      any and all taxes which may be payable with respect to the issuance and delivery
      of Warrant Shares upon exercise of this Warrant. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b)  Exercise
      Price.
      For
      purposes of this Warrant, "Exercise
      Price"
      means
      $2.93, subject to adjustment as provided herein.

     

    (c)  Company's
      Failure to Timely Deliver Securities.
      If the
      Company shall fail for any reason (other than a good faith dispute as to the
      determination of the Exercise Price or the arithmetic calculation of the Warrant
      Shares) or for no reason to issue to the Holder within five (5) Business Days
      of
      receipt of the Exercise Delivery Documents, a certificate for the number of
      shares of Common Stock to which the Holder is entitled and register such shares
      of Common Stock on the Company's share register or to credit the Holder's
      balance account with DTC for such number of shares of Common Stock to which
      the
      Holder is entitled upon the Holder's exercise of this Warrant, then, in addition
      to all other remedies available to the Holder, the Company shall pay in cash
      to
      the Holder on each day after such fifth (5th)
      Business Day that the issuance of such shares of Common Stock is not timely
      effected an amount equal to 1.5% of the product of (A) the sum of the number
      of
      shares of Common Stock not issued to the Holder on a timely basis and to which
      the Holder is entitled and (B) the Weighted Average Price of the shares of
      Common Stock on the Trading Day immediately preceding the last possible date
      which the Company could have issued such shares of Common Stock to the Holder
      without violating Section 1(a). In addition to the foregoing, if within three
      (3) Trading Days after the Company's receipt of the facsimile copy of a Exercise
      Notice the Company shall fail to issue and deliver a certificate to the Holder
      and register such shares of Common Stock on the Company's share register or
      credit the Holder's balance account with DTC for the number of shares of Common
      Stock to which the Holder is entitled upon the Holder's exercise hereunder,
      and
      if on or after such Trading Day the Holder purchases (in an open market
      transaction or otherwise) shares of Common Stock to deliver in satisfaction
      of a
      sale by the Holder of shares of Common Stock issuable upon such exercise that
      the Holder anticipated receiving from the Company (a "Buy-In"),
      then
      the Company shall, within five (5) Business 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, if any)
      for the shares of Common Stock so purchased (the "Buy-In
      Price"),
      at
      which point the Company's obligation to deliver such certificate (and to issue
      such Warrant Shares) shall terminate, or (ii) promptly honor its obligation
      to
      deliver to the Holder a certificate or certificates representing such Warrant
      Shares 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 Weighted Average Price on the date of exercise.

     

    
      
        
        

      

      
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    (d)  Cashless
      Exercise.
       Notwithstanding
      anything contained herein to the contrary, if a registration statement covering
      the resale of the Warrant Shares that are the subject of the Exercise Notice
      by
      the Holder pursuant to the 1933 Act (the "Unavailable
      Warrant Shares")
      is not
      available for the resale of such Unavailable Warrant Shares, the Holder may,
      in
      its sole discretion, exercise this Warrant in whole or in part and, in lieu
      of
      making the cash payment otherwise contemplated to be made to the Company upon
      such exercise in payment of the Aggregate Exercise Price, elect instead to
      receive upon such exercise the "Net Number" of shares of Common Stock determined
      according to the following formula (a "Cashless
      Exercise"):

     

    Net
      Number = (A
      x
      B) - (A x C)

      
            B

    


    For
      purposes of the foregoing formula:

     

    A=
      the
      total number of shares with respect to which this Warrant is then being
      exercised.

     

    B=
      the
      Weighted Average Price of the shares of Common Stock (as reported by Bloomberg)
      on the date immediately preceding the date of the Exercise Notice.

     

    C=
      the
      Exercise Price then in effect for the applicable Warrant Shares at the time
      of
      such exercise.

    
       

      
        
          
          

        

        
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    (e)  Disputes.
      In the
      case of a dispute as to the determination of the Exercise Price or the
      arithmetic calculation of the Warrant Shares, the Company shall promptly issue
      to the Holder the number of Warrant Shares that are not disputed and resolve
      such dispute in accordance with Section 12.

     

    (f)  Limitations
      on Exercises; Beneficial Ownership.
      

     

    (i)
      The
      Company shall not effect the exercise of this Warrant, and the Holder shall
      not
      have the right to exercise this Warrant, to the extent that after giving effect
      to such exercise, such Person (together with such Person's affiliates) would
      beneficially own in excess of 4.99% the "Maximum
      Percentage")
      of the
      shares of Common Stock outstanding immediately after giving effect to such
      exercise. For purposes of the foregoing sentence, the aggregate number of shares
      of Common Stock beneficially owned by such Person and its affiliates shall
      include the number of shares of Common Stock issuable upon exercise of this
      Warrant with respect to which the determination of such sentence is being made,
      but shall exclude shares of Common Stock which would be issuable upon (x)
      exercise of the remaining, unexercised portion of this Warrant beneficially
      owned by such Person and its affiliates and (y) exercise or conversion of the
      unexercised or unconverted portion of any other securities of the Company
      beneficially owned by such Person and its affiliates (including, without
      limitation, any convertible notes or convertible preferred stock or warrants)
      subject to a limitation on conversion or exercise analogous to the limitation
      contained herein. Except as set forth in the preceding sentence, for purposes
      of
      this paragraph, beneficial ownership shall be calculated in accordance with
      Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes
      of this Warrant, 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 (1) the Company's most recent Form 10-K, Form 10-KSB, Form
      10-Q,
      Form 10-QSB, Current Report on Form 8-K or other public filing with the
      Securities and Exchange Commission ("SEC")
      as the
      case may be, (2) a more recent public announcement by the Company or (3) 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
      orally and 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 by the Holder and 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 any such increase will not be effective until the
      sixty-first (61st)
      day
      after such notice is delivered to the Company.

     

    
      
        
        

      

      
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    (ii)
      Principal
      Market Regulation.
      The
      Company shall not be obligated to issue any shares of Common Stock upon exercise
      of this Warrant, if the issuance of such shares of Common Stock would exceed
      that number of shares of Common Stock which the Company may issue upon exercise
      of this Warrant (including, as applicable, any shares of Common Stock issued
      upon conversion or as interest on the SPA Securities) 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 shares 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
      Holder shall be issued, upon exercise or conversion, as applicable, of any
      SPA
      Warrants or SPA Securities, 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 SPA Securities issued to such Holder pursuant to the
      Securities Purchase Agreement on the Issuance Date and the denominator of which
      is the principal amount of SPA Securities issued to the Holders pursuant to
      the
      Securities Purchase Agreement on the Issuance Date (with respect to each Holder,
      the "Exchange
      Cap Allocation").
      In
      the event that any Holder shall sell or otherwise transfer any of such Holder's
      SPA Warrants, the transferee shall be allocated a pro rata portion of such
      Holder'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 SPA
      Warrants shall exercise all of such Holder's SPA Warrants 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 SPA Warrants on a pro rata basis in proportion to the
      shares of Common Stock underlying the SPA Warrants then held by each such
      Holder. In the event that the Company is prohibited from issuing any Warrant
      Shares for which an Exercise Notice has been received as a result of the
      operation of this Section 1(f)(ii), the Company shall pay cash in exchange
      for
      cancellation of such Warrant Shares, at a price per Warrant Share equal to
      the
      difference between the Closing Sale Price and the Exercise Price as of the
      date
      of the attempted exercise.

     

    
      
        
        

      

      
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    (g)  Insufficient
      Authorized Shares.
      If at
      any time while this Warrant remains 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 exercise of this Warrant at least
      a
      number of shares of Common Stock equal to 130% (the "Required
      Reserve Amount")
      of the
      number of shares of Common Stock as shall from time to time be necessary to
      effect the exercise of all of this Warrant then outstanding (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 this Warrant 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 ninety (90) 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.

     

    2.  ADJUSTMENT
      OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
      The
      Exercise Price and the number of Warrant Shares shall be adjusted from time
      to
      time as follows:

     

    (a)  Adjustment
      upon Issuance of shares of Common Stock.
      If and
      whenever on or after the Subscription Date and through and including the
      eighteen (18) month anniversary of the Issuance Date, the Company issues or
      sells, or in accordance with this Section 2 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 by the Company in connection with
      any
      Excluded Securities (as defined in the SPA Securities) for a consideration
      per
      share (the "New
      Issuance Price")
      less
      than a price (the "Applicable
      Price")
      equal
      to the Exercise Price in effect immediately prior to such issue or sale or
      deemed issuance or sale (the foregoing a "Dilutive
      Issuance"),
      then
      immediately after such Dilutive Issuance, the Exercise Price then in effect
      shall be reduced to an amount equal to the New Issuance Price. In the event
      of
      any Dilutive Issuance after the eighteen (18) month anniversary of the Issuance
      Date, then immediately after such Dilutive Issuance, the Exercise Price then
      in
      effect shall be reduced to an amount equal to the product of (A) the Exercise
      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
      Exercise 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
      Exercise 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.
      Upon
      each such adjustment of the Exercise Price hereunder, the number of Warrant
      Shares shall be adjusted to the number of shares of Common Stock determined
      by
      multiplying the Exercise Price in effect immediately prior to such adjustment
      by
      the number of Warrant Shares acquirable upon exercise of this Warrant
      immediately prior to such adjustment and dividing the product thereof by the
      Exercise Price resulting from such adjustment. For purposes of determining
      the
      adjusted Exercise Price under this Section 2(a), the following shall be
      applicable:

     

    
      
        
        

      

      
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    (i) Issuance
      of Options.
      If the
      Company in any manner grants 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, exercise or exchange of any Convertible Securities issuable
      upon exercise of any such Option is less than the Applicable Price, then such
      share of Common Stock 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 2(a)(i), the "lowest price
      per share for which one share of Common Stock is issuable upon exercise of
      such
      Options or upon conversion, exercise or exchange of such Convertible Securities
      issuable upon exercise of any 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 the granting or sale of
      the
      Option, upon exercise of the Option and upon conversion, exercise or exchange
      of
      any Convertible Security issuable upon exercise of such Option. No further
      adjustment of the Exercise Price or number of Warrant Shares shall be made
      upon
      the actual issuance of such shares of Common Stock or of such Convertible
      Securities upon the exercise of such Options or upon the actual issuance of
      such
      shares of Common Stock upon conversion, exercise or exchange 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 the
      conversion, exercise or exchange thereof is less than the Applicable Price,
      then
      such share of Common Stock 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 2(a)(ii), the "lowest price per share for which one share of Common
      Stock is issuable upon the conversion, exercise or exchange thereof" shall
      be
      equal to the sum of the lowest amounts of consideration (if any) received or
      receivable by the Company with respect to one share of Common Stock upon the
      issuance or sale of the Convertible Security and upon conversion, exercise
      or
      exchange of such Convertible Security. No further adjustment of the Exercise
      Price or number of Warrant Shares shall be made upon the actual issuance of
      such
      shares of Common Stock upon conversion, exercise or exchange 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 this Warrant has been
      or is
      to be made pursuant to other provisions of this Section 2(a), no further
      adjustment of the Exercise Price or number of Warrant Shares shall be made
      by
      reason of such issue or sale. 

     

    
      
        
        

      

      
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    (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, exercise or exchange of any Convertible
      Securities, or the rate at which any Convertible Securities are convertible
      into
      or exercisable or exchangeable for shares of Common Stock increases or decreases
      at any time, the Exercise Price and the number of Warrant Shares in effect
      at
      the time of such increase or decrease shall be adjusted to the Exercise Price
      and the number of Warrant Shares which would have been in effect at such time
      had such Options or Convertible Securities provided for such increased or
      decreased purchase price, additional consideration or increased or decreased
      conversion rate, as the case may be, at the time initially granted, issued
      or
      sold. For purposes of this Section 2(a)(iii), if the terms of any Option or
      Convertible Security that was outstanding as of the date of issuance of this
      Warrant are increased or decreased in the manner described in the immediately
      preceding sentence, then such Option or Convertible Security and the shares
      of
      Common Stock deemed issuable upon exercise, conversion or exchange thereof
      shall
      be deemed to have been issued as of the date of such increase or decrease.
      No
      adjustment pursuant to this Section 2(a) shall be made if such adjustment would
      result in an increase of the Exercise Price then in effect or a decrease in
      the
      number of Warrant Shares.

     

    (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 shares of 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 shares of Common
      Stock, Options or Convertible Securities are issued or sold for a consideration
      other than cash, the amount of such consideration 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 Weighted Average Price of such security on the date
      of
      receipt. If any shares of Common Stock, Options or Convertible Securities are
      issued to the owners 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 shares
      of
      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 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 final and binding upon all parties absent manifest error
      and
      the fees and expenses of such appraiser shall be borne by the Company.


     

    
      
        
        

      

      
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    (v) Record
      Date.
      If the
      Company takes a record of the holders of shares of Common Stock for the purpose
      of entitling them (A) to receive a dividend or other distribution payable
      in shares of Common Stock, Options or in Convertible Securities or (B) to
      subscribe for or purchase shares of Common Stock, Options or Convertible
      Securities, then such record date will be deemed to be the date of the issue
      or
      sale of the shares of 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
      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 Exercise
      Price in effect immediately prior to such subdivision will be proportionately
      reduced and the number of Warrant Shares will be proportionately increased.
      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 Exercise
      Price in effect immediately prior to such combination will be proportionately
      increased and the number of Warrant Shares will be proportionately decreased.
      Any adjustment under this Section 2(b) shall become effective at the close
      of
      business on the date the subdivision or combination becomes
      effective.

     

    (c)  Other
      Events.
      If any
      event occurs of the type contemplated by the provisions of this Section 2 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 Exercise Price and the number of Warrant Shares
      so
      as to protect the rights of the Holder; provided that no such adjustment
      pursuant to this Section 2(c) will increase the Exercise Price or decrease
      the
      number of Warrant Shares as otherwise determined pursuant to this Section
      2.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (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 2(d) is not
      required to be made shall be carried forward and taken into account in any
      subsequent adjustments under this Section 2. 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 Warrant reduce the then current
      Exercise Price to any amount and for any period of time deemed appropriate
      by
      the Board of Directors of the Company.

     

    3.  RIGHTS
      UPON DISTRIBUTION OF ASSETS.
      If the
      Company shall declare or make any dividend or other distribution of its assets
      (or rights to acquire its assets) to holders of shares of Common Stock, by
      way
      of return of capital or otherwise (including, without limitation, any
      distribution of cash, stock or other securities, property or options by way
      of a
      dividend, spin off, reclassification, corporate rearrangement, scheme of
      arrangement or other similar transaction) (a "Distribution"),
      at
      any time after the issuance of this Warrant, then, in each such
      case:

     

    (a)  any
      Exercise Price in effect immediately prior to the close of business on the
      record date fixed for the determination of holders of shares of Common Stock
      entitled to receive the Distribution shall be reduced, effective as of the
      close
      of business on such record date, to a price determined by multiplying such
      Exercise Price by a fraction of which (i) the numerator shall be the Weighted
      Average Price of the shares of Common Stock on the Trading Day immediately
      preceding such record date minus the value of the Distribution (as determined
      in
      good faith by the Company's Board of Directors) applicable to one share of
      Common Stock, and (ii) the denominator shall be the Weighted Average Price
      of
      the shares of Common Stock on the Trading Day immediately preceding such record
      date; and

     

    (b)  the
      number of Warrant Shares shall be increased to a number of shares equal to
      the
      number of shares of Common Stock obtainable immediately prior to the close
      of
      business on the record date fixed for the determination of holders of shares
      of
      Common Stock entitled to receive the Distribution multiplied by the reciprocal
      of the fraction set forth in the immediately preceding paragraph (a); provided
      that in the event that the Distribution is of shares of Common Stock (or common
      stock) ("Other
      Shares of Common Stock")
      of a
      company whose common shares are traded on a national securities exchange or
      a
      national automated quotation system, then the Holder may elect to receive a
      warrant to purchase Other Shares of Common Stock in lieu of an increase in
      the
      number of Warrant Shares, the terms of which shall be identical to those of
      this
      Warrant, except that such warrant shall be exercisable into the number of shares
      of Other Shares of Common Stock that would have been payable to the Holder
      pursuant to the Distribution had the Holder exercised this Warrant immediately
      prior to such record date and with an aggregate exercise price equal to the
      product of the amount by which the exercise price of this Warrant was decreased
      with respect to the Distribution pursuant to the terms of the immediately
      preceding paragraph (a) and the number of Warrant Shares calculated in
      accordance with the first part of this paragraph (b).

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    4.  PURCHASE
      RIGHTS; FUNDAMENTAL TRANSACTIONS.

     

    (a)  Purchase
      Rights.
      In
      addition to any adjustments pursuant to Section 2 above, 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 shares 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 exercise of this Warrant (without regard to any limitations on
      the
      exercise of this Warrant) 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 shares of Common Stock
      are
      to be determined for the grant, issue or sale of such Purchase
      Rights.

     

    (b)  Fundamental
      Transactions.
      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 Warrant and the other Transaction Documents in accordance
      with the provisions of this Section (4)(b) 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 the SPA Warrants in exchange for such Warrants a
      security of the Successor Entity evidenced by a written instrument substantially
      similar in form and substance to this Warrant, including, without limitation,
      an
      adjusted exercise price equal to the value for the shares of Common Stock
      reflected by the terms of such Fundamental Transaction, and exercisable for
      a
      corresponding number of shares of capital stock equivalent to the shares of
      Common Stock acquirable and receivable upon exercise of this Warrant (without
      regard to any limitations on the exercise of this Warrant) prior to such
      Fundamental Transaction, 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 Warrant
      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 Warrant 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 exercise of this Warrant
at
      any
      time after the consummation of the Fundamental Transaction, in lieu of the
      shares of the common stock (or
      other
      securities, cash, assets or other property) issuable
      upon the exercise of the Warrant
      prior
      to
      such Fundamental Transaction,
      such
      shares of the publicly traded Common Stock (or its equivalent) of the Successor
      Entity (including its Parent Entity) which the Holder would have been entitled
      to receive upon the happening of such Fundamental Transaction had this Warrant
      been converted immediately prior to such Fundamental Transaction, as adjusted
      in
      accordance with the provisions of this Warrant.
      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 an exercise of this Warrant
at
      any
      time after the consummation of
      the
      Fundamental Transaction but
      prior
      to the Expiration Date,
      in lieu
      of the shares of the Common Stock (or
      other
      securities, cash, assets or other property) issuable
      upon the exercise of this Warrant prior to such Fundamental
      Transaction,
      such
      shares of stock, securities, cash, assets or any other property whatsoever
      (including warrants or other purchase or subscription rights) which the Holder
      would have been entitled to receive upon the happening of such Fundamental
      Transaction had this Warrant been exercised immediately prior to such
      Fundamental Transaction. Provision
      made pursuant to the preceding sentence shall be in a form and substance
      reasonably satisfactory to the Holder. The provisions of this Section shall
      apply similarly and equally to successive Fundamental Transactions and Corporate
      Events and shall be applied without regard to any limitations on the exercise
      of
      this Warrant.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (c)  Notwithstanding
      the foregoing, in the event of a Fundamental Transaction, at the request of
      the
      Holder delivered before the forty-fifth (45th)
      day
      after the consummation of such Fundamental Transaction, the Company (or the
      Successor Entity) shall purchase this Warrant from the Holder by paying to
      the
      Holder, within ten (10) Business Days after such request (or, if later, on
      the
      effective date of the Fundamental Transaction), cash in an amount equal to
      the
      Black Scholes Value of the remaining unexercised portion of this Warrant on
      the
      date of such Fundamental Transaction.

     

    5.  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 Warrant, and will at
      all
      times in good faith carry out all the provisions of this Warrant and take all
      action as may be required to protect the rights of the Holder. Without limiting
      the generality of the foregoing, the Company (i) shall not increase the par
      value of any shares of Common Stock receivable upon the exercise of this Warrant
      above the Exercise Price then in effect, (ii) shall take all such actions
      as may be necessary or appropriate in order that the Company may validly and
      legally issue fully paid and nonassessable shares of Common Stock upon the
      exercise of this Warrant and (iii) shall, so long as any of the SPA Warrants
      are
      outstanding, take all action necessary to reserve and keep available out of
      its
      authorized and unissued shares of Common Stock, solely for the purpose of
      effecting the exercise of the SPA Warrants, 130% of the number of shares of
      Common Stock as shall from time to time be necessary to effect the exercise
      of
      the SPA Warrants then outstanding (without regard to any limitations on
      exercise.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    6.  WARRANT
      HOLDER NOT DEEMED A STOCKHOLDER.
      Except
      as otherwise specifically provided herein, the Holder, solely in such Person's
      capacity as a holder of this Warrant, shall not be entitled to vote or receive
      dividends or be deemed the holder of share capital of the Company for any
      purpose, nor shall anything contained in this Warrant be construed to confer
      upon the Holder, solely in such Person's capacity as the Holder of this Warrant,
      any of the rights of a shareholder of the Company or any right to vote, give
      or
      withhold consent to any corporate action (whether any reorganization, issue
      of
      stock, reclassification of stock, consolidation, merger, conveyance or
      otherwise), receive notice of meetings, receive dividends or subscription
      rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares
      which such Person is then entitled to receive upon the due exercise of this
      Warrant. In addition, nothing contained in this Warrant shall be construed
      as
      imposing any liabilities on the Holder to purchase any securities (upon exercise
      of this Warrant or otherwise) or as a shareholder of the Company, whether such
      liabilities are asserted by the Company or by creditors of the Company.
      Notwithstanding this Section 6, the Company shall provide the Holder with copies
      of the same notices and other information given to the shareholders of the
      Company generally, contemporaneously with the giving thereof to the
      shareholders.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    7.  REISSUANCE
      OF WARRANTS.

     

    (a)  Transfer
      of Warrant.
      If this
      Warrant is to be transferred, the Holder shall surrender this Warrant to the
      Company, whereupon the Company will forthwith issue and deliver upon the order
      of the Holder a new Warrant (in accordance with Section 7(d)), registered as
      the
      Holder may request, representing the right to purchase the number of Warrant
      Shares being transferred by the Holder and, if less than the total number of
      Warrant Shares then underlying this Warrant is being transferred, a new Warrant
      (in accordance with Section 7(d)) to the Holder representing the right to
      purchase the number of Warrant Shares not being transferred.

     

    (b)  Lost,
      Stolen or Mutilated Warrant.
      Upon
      receipt by the Company of evidence reasonably satisfactory to the Company of
      the
      loss, theft, destruction or mutilation of this Warrant, 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 Warrant, the Company shall execute and deliver to the
      Holder a new Warrant (in accordance with Section 7(d)) representing the right
      to
      purchase the Warrant Shares then underlying this Warrant.

     

    (c)  Exchangeable
      for Multiple Warrants.
      This
      Warrant is exchangeable, upon the surrender hereof by the Holder at the
      principal office of the Company, for a new Warrant or Warrants (in accordance
      with Section 7(d)) representing in the aggregate the right to purchase the
      number of Warrant Shares then underlying this Warrant, and each such new Warrant
      will represent the right to purchase such portion of such Warrant Shares as
      is
      designated by the Holder at the time of such surrender; provided, however,
      that
      no Warrants for fractional shares of Common Stock shall be given.

     

    (d)  Issuance
      of New Warrants.
      Whenever the Company is required to issue a new Warrant pursuant to the terms
      of
      this Warrant, such new Warrant (i) shall be of like tenor with this Warrant,
      (ii) shall represent, as indicated on the face of such new Warrant, the right
      to
      purchase the Warrant Shares then underlying this Warrant (or in the case of
      a
      new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant
      Shares designated by the Holder which, when added to the number of shares of
      Common Stock underlying the other new Warrants issued in connection with such
      issuance, does not exceed the number of Warrant Shares then underlying this
      Warrant), (iii) shall have an issuance date, as indicated on the face of such
      new Warrant which is the same as the Issuance Date, and (iv) shall have the
      same
      rights and conditions as this Warrant. 

     

    8.  NOTICES.
      Whenever notice is required to be given under this Warrant, 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 Warrant, including
      in reasonable detail a description of such action and the reason therefore.
      Without limiting the generality of the foregoing, the Company will give written
      notice to the Holder (i) immediately upon any adjustment of the Exercise Price,
      setting forth in reasonable detail, and certifying, the calculation of such
      adjustment and (ii) at least fifteen (15) 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 shares of Common Stock, (B) with respect to any grants,
      issuances or sales of any Options, Convertible Securities or rights to purchase
      stock, warrants, securities or other property to holders of shares of Common
      Stock (other than Excluded Securities) 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.


     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    9.  AMENDMENT
      AND WAIVER.
      Except
      as otherwise provided herein, the provisions of this Warrant may be amended
      and
      the Company may take any action herein prohibited, or omit to perform any act
      herein required to be performed by it, only if the Company has obtained the
      written consent of the Required Holders; provided that no such action may
      increase the exercise price of any SPA Warrant or decrease the number of shares
      or class of stock obtainable upon exercise of any SPA Warrant without the
      written consent of the Holder. No such amendment shall be effective to the
      extent that it applies to less than all of the holders of the SPA Warrants
      then
      outstanding.

     

    10.  GOVERNING
      LAW.
      This
      Warrant shall be governed by and construed and enforced in accordance with,
      and
      all questions concerning the construction, validity, interpretation and
      performance of this Warrant 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. 

     

    11.  SEVERABILITY.
      If any
      provision of this Agreement 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 Agreement so long as this Agreement
      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).

     

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

     

    13.  DISPUTE
      RESOLUTION.
      In the
      case of a dispute as to the determination of the Exercise Price or the
      arithmetic calculation of the Warrant Shares, the Company shall submit the
      disputed determinations or arithmetic calculations via facsimile within two
      (2)
      Business Days of receipt of the Exercise Notice 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 of the Exercise Price or the
      Warrant Shares within three 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 Exercise Price to an independent, reputable investment bank selected
      by
      the Company and approved by the Holder or (b) the disputed arithmetic
      calculation of the Warrant Shares to the Company's independent, outside
      accountant. The Company shall cause at its expense 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.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    14.  REMEDIES,
      OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
      The
      remedies provided in this Warrant shall be cumulative and in addition to all
      other remedies available under this Warrant and 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 right of the Holder
      to
      pursue actual damages for any failure by the Company to comply with the terms
      of
      this Warrant. 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 of this Warrant 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.

     

    (a)  TRANSFER.This
      Warrant may be offered for sale, sold, transferred or assigned without the
      consent of the Company, except as may otherwise be required by Section 2(f)
      of
      the Securities Purchase Agreement.

     

    15.  CERTAIN
      DEFINITIONS.
      For
      purposes of this Warrant, the following terms shall have the following
      meanings:

     

    (a)  "1933
      Act"
      means
      the Securities Act of 1933, as amended.

     

    (b)  "Black
      Scholes Value"
      means
      the value of this Warrant based on the Black and Scholes Option Pricing Model
      obtained from the "OV" function on Bloomberg determined as of the day of closing
      of the applicable Fundamental Transaction for pricing purposes and reflecting
      (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a
      period equal to the remaining term of this Warrant as of such date of request,
      (ii) an expected volatility equal to the greater of 60% and the 100 day
      volatility obtained from the HVT function on Bloomberg as of the day immediately
      following the public announcement of the applicable Fundamental Transaction
      and
      (iii) the underlying price per share used in such calculation shall be the
      sum
      of the price per share being offered in cash, if any, plus the value of any
      non-cash consideration, if any, being offered in the Fundamental
      Transaction.

     

    (c)  
      "Bloomberg"
      means
      Bloomberg Financial Markets.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    (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)  "Closing
      Sale Price"
      means,
      for any security as of any date, the last closing trade price 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
      trade price then the last trade price 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
      trade price 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 trade price of such security in the
      over-the-counter market on the electronic bulletin board for such security
      as
      reported by Bloomberg, or, if no last trade price 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 Sale
      Price cannot be calculated for a security on a particular date on any of the
      foregoing bases, the Closing Sale Price 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 12.
      All
      such determinations to be appropriately adjusted for any stock dividend, stock
      split, stock combination or other similar transaction during the applicable
      calculation period.

     

    (f)  "Common
      Stock"
      means
      (i) the Company's shares of Common Stock, par value $0.001 per share, and
      (ii) any share capital into which such Common Stock shall have been changed
      or any share capital resulting from a reclassification of such Common
      Stock.

     

    (g)  "Common
      Stock Deemed Outstanding"
      means, at any given time, the number of shares of Common Stock actually
      outstanding at such time, plus the number of shares of Common Stock deemed
      to be
      outstanding pursuant to Sections 2(a)(i) and 2(a)(ii) hereof regardless of
      whether the Options or Convertible Securities are actually exercisable at such
      time, but excluding any shares of Common Stock owned or held by or for the
      account of the Company or issuable upon exercise of the SPA Warrants.


     

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

     

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

     

    (j)  "Expiration
      Date"
      means
      the date sixty (60) months after the Issuance Date or, if such date falls on
      a
      day other than a Business Day or on which trading does not take place on the
      Principal Market (a "Holiday"),
      the
      next date that is not a Holiday.

     

    
      
        
        

      

      
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    (k)  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, or (ii) sell, assign,
      transfer, convey or otherwise dispose of all or substantially all of the
      properties or assets of the Company to another Person, or (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), or (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 Securities Exchange Act
      of
      1934, as amended) is or shall become the "beneficial owner" (as defined in
      Rule
      13d-3 under the Securities Exchange Act of 1934, as amended), directly or
      indirectly, of 50% of the aggregate ordinary voting power represented by issued
      and outstanding Common Stock.

     

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

     

    (m)  "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.

     

    (n)  "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.

     

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

     

    (p)  "Required
      Holders"
      means
      the holders of the SPA Warrants representing at least a majority of shares
      of
      Common Stock underlying the SPA Warrants then outstanding.

     

    
      
        
        

      

      
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    (q)  "SPA
      Securities"
      means
      the Notes issued pursuant to the Securities Purchase Agreement. 

     

    (r)  "Successor
      Entity"
      means
      the Person (or, if so elected by the Required Holders, the Parent Entity) formed
      by, resulting from or surviving any Fundamental Transaction or the Person (or,
      if so elected by the Required Holders, the Parent Entity) with which such
      Fundamental Transaction shall have been entered into.

     

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

     

    (t)  "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).

     

    (u)  "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 City time, and ending at 4:00:00 p.m., New York City time, as
      reported by Bloomberg through its "Volume at Price" function 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 City time,
      and ending at 4:00:00 p.m., New York City time, 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 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 the security,
      then such dispute shall be resolved pursuant to Section 12 with the term
      "Weighted Average Price" being substituted for the term "Exercise Price." All
      such determinations shall be appropriately adjusted for any share dividend,
      share split or other similar transaction during such period.

     

    [Signature
      Page Follows]

    


    
      
        
        

      

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

     

    
      	 	 	 
	 	DIGITALFX INTERNATIONAL,
              INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name: 
	 	Title:




    
      
        
        

      

      
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