** **

**NEITHER THE ISSUANCE AND SALEOF 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. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCEOF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OFCOUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDERSAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. SUBJECT TO THE FOREGOING, THE SECURITIES MAY BEPLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.**

 

 

**CONVERTIBLE PROMISSORY NOTE**

 

**FOR VALUERECEIVED, DIGERATI TECHNOLOGIES, INC.,**a Nevada corporation (hereinafter called the "Borrower"), hereby promisesto pay to the order of **ASHER ENTERPRISES, INC.,**a Delaware corporation, or registered assigns (the "Holder")the sum of $32,500.00 together with any interest as set forth herein, on October 23, 2012 (the "Maturity Date"), andto pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the "Interest Rate") per annumfrom the date hereof (the "Issue Date") until the same becomes due and payable, whether at maturity or upon accelerationor by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein.Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent(22%) per annum from the due date thereof until the same is paid ("Default Interest"). Interest shall commence accruingon the date that the Note is fully funded (fully paid) and shall be computed on the basis of a 365-day year and the actual numberof days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the "CommonStock") in accordance with the terms hereof) shall be made in lawful money of the United States of America. All paymentsshall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with theprovisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a businessday, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest paymentdate 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 accountfor purposes of determining the amount of interest due on such date. As used in this Note, the term "business day" shallmean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorizedor required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall havethe meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Notewas originally issued (the "Purchase Agreement").

 

 

This Note isfree from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rightsor other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.

 

The following termsshall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1         Conversion Right. The Holder shall have the right from time to time, and at any time during the period beginning on thedate which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and(ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respectof the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amountof this Note into fully paid and nonassessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any sharesof capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified atthe conversion price (the "Conversion Price") determined as provided herein (a "Conversion"); provided,however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion ofthis Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and itsaffiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portionof the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversionor exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversionof the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownershipby the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to theimmediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities ExchangeAct of 1934, as amended (the "Exchange Act"), and Regulations 13D-G thereunder, except as otherwise provided in clause(1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Holderupon, at the election of the Holder, not less than 61 days' prior notice to the Borrower, and the provisions of the conversionlimitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified insuch notice of waiver). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determinedby dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified inthe notice of conversion, in the form attached hereto as Exhibit A (the "Notice of Conversion"), delivered to the Borrowerby the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail(or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New Yorktime on such conversion date (the "Conversion Date"). The term "Conversion Amount" means, with respect to anyconversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) atthe Borrower's option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Noteto the Conversion Date, plus (3) at the Borrower's option, Default Interest, if any, on the amounts referred to in the immediatelypreceding clauses (1) and/or (2) plus (4) at the Holder's option, any amounts owed to the Holder pursuant to Sections 1.3and 1.4(g) hereof.

 

 

1.2         ConversionPrice.

 

(a)          Calculationof Conversion Price. The Conversion Price shall be the greater of: (i) the Variable Conversion Price (as defined herein) and(ii) the Fixed Conversion Price (as defined herein) (subject, in each case, to equitable adjustments for stock splits, stock dividendsor rights offerings by the Borrower relating to the Borrower's securities or the securities of any subsidiary of the Borrower,combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable ConversionPrice" shall mean 58% multiplied by the Market Price (as defined herein)(representing a discount rate of 42%). "MarketPrice" means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10)Trading Day period ending on the last complete Trading Day prior to the Conversion Date. "Trading Price" means, for anysecurity as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market (the "OTCBB")as reported by a reliable reporting service ("Reporting Service") designated by the Holder (i.e. Bloomberg) or, if theOTCBB is not the principal trading market for such security, the closing bid price of such security on the principal securitiesexchange or trading market where such security is listed or traded or, if no closing bid price of such security is available inany of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the"pink sheets" by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security on suchdate in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower andthe holders of a majority in interest of the Notes being converted for which the calculation of the trading price is required inorder to determine the Conversion Price of such Notes. "Trading Day" shall mean any day on which the Common Stock istradable for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stockis then being traded. Fixed Conversion Price shall mean $0.00009.

 

(b)          ConversionPrice During Major Announcements. Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower(i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in whichthe Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantiallyall of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offerto purchase 50% or more of the Borrower's Common Stock (or any other takeover scheme) (the date of the announcement referred toin clause (i) or (ii) is hereinafter referred to as the "Announcement Date"), then the Conversion Price shall, effectiveupon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal tothe lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and(y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, theConversion Price shall be determined as set forth in Section 1.2(a). For purposes hereof, "Adjusted Conversion Price TerminationDate" shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcementas contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or theperson, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment ofthe proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.

 

 

1.3         AuthorizedShares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorizedand unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stockupon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to havesixty five (65) million shares authorized but unissued in its capital structure such that when the Holder submits a Notice of Conversionthere will be at a minimum sixty five (65) million shares of Common Stock that are authorized but unissued for the Borrower's transferagent to issue to the Holder (the "Reserved Amount"). This Reserved Amount is in addition to any shares presently heldor to be held in the future by the transfer agent for the benefit of the Holder. If at any time the Reserved Amount is less thansixty five (65) million shares of Common Stock then the Borrower will take immediate steps to increase the reserve but in any eventwill increase the reserve within thirty (30) days of the Reserved Amount falling below sixty five (65) million shares of CommonStock (the "Cure Period"). The Borrower represents that upon issuance, such shares will be duly and validly issued, fullypaid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure whichwould change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price,the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of CommonStock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledgesthat it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of thisNote, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are chargedwith the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordancewith the terms and conditions of this Note.

 

If, at any timethe Borrower does not maintain the Reserved Amount (subject to the Cure Period) it will be considered an Event of Default underSection 3.2 of the Note.

 

1.4         Methodof Conversion.

 

(a)          Mechanicsof Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time totime after the expiration of 180 days, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or otherreasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subjectto Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

 

(b)          Surrenderof Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordancewith the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaidprincipal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amountso converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower,so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, suchrecords of the Borrower shall, *prima facie,*be controlling and determinative in the absence of manifest error. Notwithstandingthe foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder firstphysically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of theHolder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request,representing in the aggregate remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of thisNote, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note,the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the facehereof.

 

(c)          Paymentof Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in theissue and delivery of Common Stock or other securities or property on conversion of this Note in a name other than that of theHolder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or propertyunless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be heldfor the Holder's account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall haveestablished to the satisfaction of the Borrower that such tax has been paid.

 

(d)          Deliveryof Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or otherreasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates forthe Common Stock issuable upon such conversion within three (3) business days after such receipt (the "Deadline") (and,solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the termshereof and the Purchase Agreement.

 

(e)          Obligationof Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed tobe the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accruedand unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligationsunder this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except theright to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holdershall have given a Notice of Conversion as provided herein, the Borrower's obligation to issue and deliver the certificates forCommon Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same,any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforcethe same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff,counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower,and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connectionwith such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Noticeof Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.

 

 

(f)          Deliveryof Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuableupon conversion, provided the Borrower is participating in the Depository Trust Company ("DTC") Fast Automated SecuritiesTransfer ("FAST") program, upon request of the Holder and its compliance with the provisions contained in Section 1.1and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the CommonStock issuable upon conversion to the Holder by crediting the account of Holder's Prime Broker with DTC through its Deposit WithdrawalAgent Commission ("DWAC") system.

 

(g)          Failureto Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder's right to pursue other remedies, includingactual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of thisNote is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failureshall be governed by such Section) the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadlinethat the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month followingthe month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the monthfollowing the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shallaccrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into CommonStock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder.The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossibleto qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

1.5         Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless(i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agentshall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinionsof counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuantto an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successorrule) ("Rule 144") or (iv) such shares are transferred to an "affiliate" (as defined in Rule 144) of the Borrowerwho agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor(as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisionsset forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered underthe Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particulardate that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note thathas not been so included in an effective registration statement or that has not been sold pursuant to an effective registrationstatement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

 

**"THE ISSUANCEAND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCEOF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OFCOUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDERSAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. SUBJECT TO THE FOREGOING, THE SECURITIES MAY BEPLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."**

 

The legend setforth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legendif (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary foropinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made withoutregistration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) inthe case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under aneffective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as tothe number of securities as of a particular date that can then be immediately sold. In the event that the Company does not acceptthe opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration,such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

 

1.6         Effectof Certain Events.

 

(a)          Effectof Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially allof the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which morethan 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of theBorrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall be treated pursuantto Section 1.6(b) hereof. "Person" shall mean anyindividual, corporation, limited liability company, partnership, association, trust or other entity or organization.

 

  

(b)          AdjustmentDue to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of allof the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similarevent, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of sharesof another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of allor substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower,then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon theterms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion,such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been convertedin full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any suchcase appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that theprovisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of sharesissuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securitiesor assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described in this Section1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen(15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such recorddate, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar eventor sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiringentity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarlyapply to successive consolidations, mergers, sales, transfers or share exchanges.

 

(c)         Adjustment Dueto Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) toholders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distributionto the Borrower's shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off))(a "Distribution"), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date ofrecord for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payableto the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of suchshares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

 

(d)         Adjustment Dueto Dilutive Issuance. If, at any time when this Note is outstanding, the Borrower issues or sells, or in accordance with thisSection 1.6(d) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a considerationper share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith)less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a "DilutiveIssuance"), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the considerationper share received by the Borrower in such Dilutive Issuance.

 

 

The Borrowershall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rightsor options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchaseCommon Stock or other securities convertible into or exchangeable for Common Stock ("Convertible Securities") (such warrants,rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as "Options") and theprice per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then ineffect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the "priceper share for which Common Stock is issuable upon the exercise of such Options" is determined by dividing (i) the total amount,if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimumaggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in thecase of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional considerationpayable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable,by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversionof Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuanceof such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable uponexercise of such Options.

 

Additionally,the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any ConvertibleSecurities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and theprice per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect,then the Conversion Price shall be equal to such price per share. For the purposes of the preceding sentence, the "price pershare for which Common Stock is issuable upon such conversion or exchange" is determined by dividing (i) the total amount,if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plusthe minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereofat the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares ofCommon Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the ConversionPrice will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

 

Excluded fromthe definition of Dilutive Issuance are prior publically disclosed warrants, options and or convertible instruments, or futureemployee option grants under the 2005 Stock Compensation Plans.

 

 

(e)         Purchase Rights.If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchasestock, warrants, securities or other property (the "Purchase Rights") pro rata to the record holders of any class ofCommon Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, theaggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirableupon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before thedate on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the dateas of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

 

(f)         Notice of Adjustments.Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holdera certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustmentis based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate settingforth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of CommonStock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.

  

1.7         TradingMarket Limitations. Unless permitted by the applicable rules and regulations of the principal securities market on which theCommon Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Noteand the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrowercan issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the "MaximumShare Amount"), which shall be 4.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement),subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations andsimilar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued, ifthe Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealerquotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower'sability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note,this will be considered an Event of Default under Section 3.3 of the Note.

 

1.8         Statusas Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares,if any, which cannot be issued because their issuance would exceed such Holder's allocated portion of the Reserved Amount or MaximumShare Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder's rights as a Holder of such convertedportion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stockand to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrowerto comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all sharesof Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of anyportion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stockby so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portionsof this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has notbeen surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holdershall retain all of its rights and remedies (including, without limitation, the right to have the Conversion Price with respectto subsequent conversions determined in accordance with Section 1.3) for the Borrower's failure to convert this Note.

 

 

1.9         Prepayment.Notwithstanding anything to the contrary contained in this Note, so long as the Borrower has not received a Notice of Conversionfrom the Holder, then at any time during the period beginning on the Issue Date and ending on the date which is ninety (90) daysfollowing the date hereof, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior writtennotice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with thisSection 1.9. Any notice of prepayment hereunder (an "Optional Prepayment Notice") shall be delivered to the Holder ofthe Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2)the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. Onthe date fixed for prepayment (the "Optional Prepayment Date"), the Borrower shall make payment of the Optional PrepaymentAmount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one(1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shallmake payment to the Holder of an amount in cash (the "Optional Prepayment Amount") equal to the sum of: (w) 135%, multipliedby the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amountof this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w)and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers anOptional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within two (2) businessdays following the Optional Prepayment Date, the Borrower shall forever forfeit its right to repay the Note pursuant to this Section1.9.

 

Notwithstandinganything to the contrary contained in this Note, at any time during the period beginning on the date which is ninety-one (91) daysfollowing the issue date and ending on the date which is one hundred twenty (120) days following the issue date, the Borrower shallhave the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay theoutstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Noticeshall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising itsright to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of theOptional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional PrepaymentAmount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one(1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shallmake payment to the Holder of an amount in cash (the "Second Optional Prepayment Amount") equal to the sum of: (w) 140%,multiplied by the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principalamount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses(w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower deliversan Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within two (2)business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuantto this Section 1.9.

 

 

Notwithstandingany to the contrary stated elsewhere herein, at any time during the period beginning on the date that is one hundred twenty-one(121) day from the issue date and ending one hundred eighty (180) days following the issue date, the Borrower shall have the right,exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note(principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be deliveredto the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepaythe Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional PrepaymentNotice. On the Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below)to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior tothe Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holderof an amount in cash (the "Third Optional Prepayment Amount") equal to the sum of: (w) 150%, multiplied by the then outstandingprincipal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the OptionalPrepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) anyamounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice andfails to pay the Third Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the OptionalPrepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

After the expirationof one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment.

 

ARTICLE II. CERTAIN COVENANTS

 

2.1         Distributionson Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder'swritten consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property orother securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional sharesof Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of itscapital stock except for distributions pursuant to any shareholders' rights plan which is approved by a majority of the Borrower'sdisinterested directors.

 

 

2.2         Restrictionon Stock Repurchases. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without theHolder's written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securitiesor otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants,rights or options to purchase or acquire any such shares.

 

2.3         Borrowings.So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent,create, incur, assume guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of anyperson, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection,or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committed on the date hereof and ofwhich the Borrower has informed Holder in writing prior to the date hereof, (b) indebtedness to trade creditors or financial institutionsincurred in the ordinary course of business, (c) borrowings that in the aggregate do not exceed $1,000,000.00 or (c) borrowings,the proceeds of which shall be used to repay this Note.

 

2.4         Saleof Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder'swritten consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business.Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.

 

2.5         Advancesand Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder'swritten consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, withoutlimitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a)in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b)made in the ordinary course of business or (c) not in excess of $100,000.

 

ARTICLE III. EVENTS OF DEFAULT

 

If any of the followingevents of default (each, an "Event of Default") shall occur:

 

3.1         Failureto Pay Principal or Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whetherat maturity, upon acceleration or otherwise.

  

 

3.2         Conversionand the Shares. The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing thatit will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance withthe terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form)any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and whenrequired by thisNote, the Borrower directs its transferagent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or incertificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuantto this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays,and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respectthereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to thisNote as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honorthe obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statementor threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall havedelivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent.It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balanceowed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower's transferagent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty eight (48)hours of a demand from the Holder.

 

3.3         Breachof Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and anycollateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) daysafter written notice thereof to the Borrower from the Holder.

 

3.4         Breachof Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statementor certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement),shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have)a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

 

3.5         Receiveror Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or applyfor or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or sucha receiver or trustee shall otherwise be appointed.

 

3.6         Judgments.Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower orany of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty(20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.

 

3.7         Bankruptcy.Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief underany bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of theBorrower.

 

 

3.8         Delistingof Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalentreplacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American StockExchange.

 

3.9         Failureto Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/orthe Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

3.10       Liquidation.Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

 

3.11       Cessationof Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debtsas such debts become due, provided, however, that any disclosure of the Borrower's ability to continue as a "going concern"shall not be an admission that the Borrower cannot pay its debts as they become due.

 

3.12       Maintenanceof Assets. The failure by Borrower to maintain any material intellectual properly rights, personal, real property or otherassets which are necessary to conduct its business (whether now or in the future).

 

3.13       FinancialStatement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or periodfrom two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatementwould, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holderwith respect to this Note or the Purchase Agreement.

 

3.14       ReverseSplits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

 

3.15       Replacementof Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, priorto the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially deliveredpursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock inthe Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.

 

 

3.16       Cross-Default.Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or defaultby the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicablenotice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements,in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under theterms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. "Other Agreements"means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) theHolder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term "OtherAgreements" shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaultedwith each other loan transaction and with all other existing and future debt of Borrower to the Holder.

 

Upon the occurrenceand during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principalhereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shallpay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPONTHE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELYDUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TOTHE DEFAULT SUM (AS DEFINED HEREIN). Upon the occurrence and during the continuation of any Event of Default specified in Sections3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading MarketPrepayment Event pursuant to Section 1.7 or upon acceleration), 3.2, 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3.15exercisable through the delivery of written notice to the Borrower by such Holders (the "Default Notice"), and upon theoccurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereofor interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable andthe Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i)the sum of (w) 150% times the then outstanding principal amount of this Note plus (x) accrued and unpaid intereston the unpaid principal amount of this Note to the date of payment (the "Mandatory Prepayment Date") plus (y)Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuantto Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amountsreferred to in clauses (x), (y) and (z) shall collectively be known as the "Default Sum") or (ii) the "parity value"of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversionof or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the MandatoryPrepayment Date as the "Conversion Date" for purposes of determining the lowest applicable Conversion Price, unless theDefault Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shallbe the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning onthe date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the "DefaultAmount") and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentmentor notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses,of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

 

If the Borrowerfails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holdershall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficientauthorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the numberof shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.

 

ARTICLE IV. MISCELLANEOUS

 

4.1         Failureor Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereundershall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude otheror further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulativeto, and not exclusive of, any rights or remedies otherwise available.

 

4.2         Notices.All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writingand, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, returnreceipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmittedby hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specifiedmost recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemedeffective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine,at the address or number designated below (if delivered on a business day during normal business hours where such notice is tobe received), or the first business day following such delivery (if delivered other than on a business day during normal businesshours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service,fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses forsuch communications shall be:

 

If to the Borrower, to:

DIGERATI TECHNOLOGIES, INC.

3463 Magic Drive - suite 202

San Antonio, TX 78229

Attn: ARTHUR L. SMITH,Chief Executive Officer

Facsimile:

 

With a copy by fax only to (which copy shall not constitutenotice):

Kane Russell Coleman & Logan PC

Attn: Lawrence E. Wilson

919 Milan, Suite 2200

Houston, Texas 77002

facsimile: 713-425-7700

 

 

If to the Holder:

ASHER ENTERPRISES, INC.

1 Linden Pl., Suite 207

Great Neck, NY. 11021

Attn: Curt Kramer, President

facsimile: 516-498-9894

 

With a copy by fax onlyto (which copy shall not constitute notice):

Naidich Wurman Birnbaum &Maday, LLP

80 Cuttermill Road, Suite 410

Great Neck, NY 11021

Attn: Bernard S. Feldman, Esq.

facsimile: 516-466-3555

 

4.3         Amendments.This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term"Note" and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notesissued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.

 

4.4         Assignability.This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder andits successors and assigns. Each transferee of this Note must be an "accredited investor" (as defined in Rule 501(a)of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connectionwith a bona   fide margin account or other lending arrangement, provided that such actionsare not prohibited by state or federal law.

 

4.5         Costof Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection,including reasonable attorneys' fees.

 

4.6         GoverningLaw. This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principlesof conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Noteshall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau. The partiesto this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall notassert any defense based on lack of jurisdiction or venue or based upon *forum non conveniens.*The Borrower and Holder waivetrial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceableunder any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflicttherewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalidor unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each partyhereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding inconnection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail orovernight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement andagrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shallbe deemed to limit in any way any right to serve process in any other manner permitted by law.

 

 

4.7         CertainAmounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount(or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest,the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficultto determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensatethe Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stockacquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrowerand the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to theHolder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.

 

4.8         PurchaseAgreement. By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.

 

4.9         Noticeof Corporate Events. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of CommonStock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with priornotification of any meeting of the Borrower's shareholders (and copies of proxy materials and other information sent to shareholders).In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who areentitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (includingby way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property,or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposedsale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution orwinding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record datespecified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the dateon which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statementregarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrowershall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously withthe notification to the Holder in accordance with the terms of this Section 4.9.

 

 

4.10         Remedies.The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiatingthe intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that theremedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatenedbreach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remediesat law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventingor curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showingeconomic loss and without any bond or other security being required.

  

IN WITNESS WHEREOF,Borrower has caused this Note to be signed in its name by its duly authorized officer this January 18, 2012.

  

 

 

EXHIBIT A

 

NOTICE OF CONVERSION

 

The undersignedhereby elects to convert $                     principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversionof the Note ("Common Stock") as set forth below, of DIGERATI TECHNOLOGIES, INC., a Nevada corporation (the "Borrower")according to the conditions of the convertible note of the Borrower dated as of January 18, 2012 (the "Note"), as ofthe date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

Box Checked as to applicable instructions:

 

 

Name of DTC Prime Broker:

Account Number:

 

 

ASHER ENTERPRISES, INC.

1 Linden Pl., Suite 207

Great Neck, NY. 11021

Attention: Certificate Delivery

(516)498-9890