Document:

Exhibit
4.2

CONVERTIBLE
NOTE

NEITHER THE ISSUANCE NOR SALE OF
THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH
THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.

OPEN ENERGY CORPORATION

CONVERTIBLE NOTE

	
  Issuance Date: August 31,
  2007

  	
  Original Principal
  Amount: U.S. $1,000,000

  

 

FOR VALUE RECEIVED, Open
Energy Corporation, a Nevada corporation (the “Company”),
hereby promises to pay to Everest Asset Management AG or its registered assigns
(“Holder”) the amount set out above as
the Original Principal Amount (as reduced pursuant to the terms hereof pursuant
to conversion or otherwise, the “Principal”)
when due, whether upon the Maturity Date (as defined below), acceleration,
redemption or otherwise (in each case in accordance with the terms hereof) and
to pay interest (“Interest”) on
any outstanding Principal at the Interest Rate as required by Section 2
hereof.  This Convertible Note (including
all Convertible Notes issued in exchange, transfer or replacement hereof, this “Note”) is one of the Convertible Notes issued pursuant to
the Securities Purchase Agreement (as defined below) on the Closing Date
(collectively, the “Notes” and such
other Convertible Notes, the “Other Notes”).  Certain capitalized terms used herein are
defined in Section 27.  Capitalized terms
used but not defined herein shall have the meanings set forth in the Securities
Purchase Agreement (as defined below).

(1)   PAYMENTS
OF PRINCIPAL.  On the Maturity Date,
the Company shall pay to the Holder an amount in cash representing all
outstanding Principal.  The “Maturity  Date” shall be
six (6) months from the date of the Initial Closing, as may be extended at the
option of the Holder (i) in the event that, and for so long as, a Trigger Event
(as defined in Section 4(a)) shall have occurred and be continuing on the
Maturity Date (as may be extended pursuant to this Section 1) or any event that
shall have occurred and be continuing that with the passage of time and the
failure to cure would result in a Trigger Event, and (ii) through the date that
is ten (10) Business Days after the consummation of a Change of Control in the
event that a Change of Control is publicly announced.  The Company shall have the right to prepay
this Note, without penalty, in whole or in part prior to the Maturity
Date.  In the event of prepayment, there
shall be 

 1
 

no adjustment for the original issue discount.  The Company shall give at least five business
days written notice of any intention to prepay this Note.

(2)   INTEREST;
INTEREST RATE.  Commencing on the
Maturity Date of this Note, Interest shall accrue on outstanding Principal at
an interest rate equal to ten percent (10%) per annum (the “Interest Rate”).  Interest
shall be calculated on the basis of a 365-day year and the actual number of
days elapsed, to the extent permitted by applicable law.  Any Interest that shall accrue hereunder
shall be payable on demand.

(3)   CONVERSION
OF THIS NOTE.  This Note shall be
convertible by the Holder into shares of the Company’s Common Stock on the
terms and conditions set forth in this Section 3.

(a)   Conversion
Right.  Subject to the provisions of
Section 3(e), at any time or times on or after the Issuance Date, the Holder
shall be entitled to convert, at the Holder’s sole option, any portion of the
outstanding and unpaid Conversion Amount (as defined below) into fully paid and
nonassessable shares of the Company’s common stock, par value $0.001 per
share (the “Common Stock”), at the Conversion Rate (as defined
below).  The Company shall not issue any
fraction of a share of Common Stock upon any conversion.  If the issuance would result in the issuance
of a fraction of a share of Common Stock, the Company shall round such fraction
of a share of Common Stock up to the nearest whole share.  The Company shall pay any and all transfer,
stamp and similar taxes that may be payable with respect to the issuance and
delivery of Common Stock upon conversion of any Conversion Amount; provided
that the Company shall not be required to pay any tax that may be payable in
respect of any issuance of Common Stock to any Person other than the converting
Holder or with respect to any income tax due by the Holder with respect to such
Common Stock.

(b)   Forced
Conversion. Upon thirty (30) days prior written notice to all of the
Holders, the Company shall have the right to call all, but not less than all,
of the Notes for Conversion at the Conversion Price (as defined below) if the
Weighted Average Price for the Company’s Common Stock has exceeded 300% of the
Conversion Price for at least 20 Trading Days during a 30 Trading Day period
ending within 5 Trading Days prior to the Company sending a notice (the “Forced Conversion Notice”) of forced
conversion and the date of such forced conversion (the “Forced Conversion Notice Date”) to the
Holder the (“Measurement  Period”), and if the following conditions
are satisfied: (i) there is either an effective registration statement
providing for the resale of the shares of Common Stock underlying the Notes
during each Trading Day of the Measurement Period or all of the shares of Common Stock underlying
this Note may be resold pursuant to Rule 144(k) of the Securities Act without
restriction during each Trading Day of the Measurement Period; and (ii) the
Common Stock has traded an average of 600,000 shares per day during the
Measurement Period.  The date the Notes
shall be converted pursuant to this provision shall be thirty (30) days after
the Forced Conversion Notice Date specified in the Forced Conversion Notice
sent to the Holder.  Notwithstanding the
foregoing, in no event shall the Company force the conversion of a Holder of
Notes if such forced conversion would result in such Holder beneficially owning
more than Maximum Percentage I or Maximum Percentage II (each as defined below
in Section 3(e)(1)(A) and Section 3(e)(1)(A), respectively).

 2
 

(c)   Conversion
Rate.  The number of shares of Common
Stock issuable upon conversion of any Conversion Amount shall be determined by
dividing (x) such Conversion Amount by (y) the then applicable Conversion Price
(the “Conversion Rate”).

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

(ii)                       “Conversion Price” means, as of any
Conversion Date (as defined below) or other date of determination, an amount
equal to $0.50, subject to adjustment as provided herein; provided
that, in no event shall the Conversion Price be lower than $0.05
(such floor price to be adjusted in the same manner that the Conversion Price
is adjusted pursuant to Section 7 or Section 8).

(d)   Mechanics
of Conversion.

(i)                        Optional
Conversion.  To convert any
Conversion Amount into shares of Common Stock on any date (a “Conversion Date”), the Holder shall (A)
transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59
p.m., New York Time, on such date, a copy of an executed notice of conversion
in the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B)
if required by Section 3(d)(iii), surrender this Note to a common carrier for
delivery to the Company as soon as practicable on or following such date (or an
indemnification undertaking with respect to this Note in the case of its loss,
theft or destruction).  On or before the
third (3rd) Trading Day following the date of receipt
of a Conversion Notice, the Company shall transmit by facsimile a confirmation
of receipt of such Conversion Notice to the Holder and the Company’s transfer
agent (the “Transfer Agent”).  If this Note is physically surrendered for
conversion as required by Section 3(d)(iii) and the outstanding Principal of
this Note is greater than the Principal portion of the Conversion Amount being
converted, then the Company shall as soon as practicable and in no event later
than three (3) Business Days after receipt of this Note and at its own expense,
issue and deliver to the holder a new Note (in accordance with Section 17(d))
representing the outstanding Principal not converted.  The Person or Persons entitled to receive the
shares of Common Stock issuable upon a conversion of this Note shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on the Conversion Date.  In the event of
a partial conversion of this Note pursuant hereto, the principal amount
converted shall be deducted from the outstanding Principal for purposes of
calculating interest payments due on this Note pursuant to Section 2.

(ii)                       Delivery
of Certificates. On or before the third (3rd) Trading Day following the
date of receipt of a Conversion Notice (the “Share
Delivery Date”) or
request for removal of restrictive legends on the shares of Common Stock
issuable in connection therewith, the Company shall (X) provided that
the Transfer Agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer
Program, credit such aggregate number of shares of Common Stock to which the
Holder shall be entitled to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal Agent Commission system or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver to the address as specified in the
Conversion 

 3
 

Notice, a certificate, registered in the name
of the Holder or its designee, for the number of shares of Common Stock to
which the Holder shall be entitled.

(A)          If such delivery is made more than two (2)
additional Trading Days after conversion or request for removal of legend (a “Conversion Failure”), as the case may be,
then the Company will compensate the Holder at a rate of $100 per day for each
of the first ten (10) Trading Days and $200 per day thereafter for each $10,000
of securities.  In such event, after the
first such ten (10) Trading Days noted above, the Holder will also have the
right to rescind its Conversion Notice for the Note.

(B)           If
the certificates have not been delivered by the fifth (5th) Trading Day after conversion
or request for removal of legend, as the case may be, and the Holder has
purchased (in an open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale by the Holder of Common Stock issuable upon such
conversion that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within
three (3) Trading Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s
total purchase price (including brokerage commissions and other out-of-pocket
expenses, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s
obligation to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing Bid
Price on the Conversion Date.

(iii)                      Registration;
Book-Entry.  The Company shall
maintain a register (the “Register”)
for the recordation of the names and addresses of the holders of each Note and
the principal amount of the Notes held by such holder (the “Registered Notes”).  The entries in the Register shall be
conclusive and binding for all purposes absent manifest error.  The Company and the holders of the Notes
shall treat each Person whose name is recorded in the Register as the owner of
a Note for all purposes, including, without limitation, the right to receive
payments of principal and interest hereunder, notwithstanding notice to the
contrary.  A Registered Note may be
assigned or sold in whole or in part only by registration of such assignment or
sale on the Register.  Upon its receipt
of a request to assign or sell all or part of any Registered Note by a Holder,
the Company shall record the information contained therein in the Register and
issue one or more new Registered Notes in the same aggregate principal amount
as the principal amount of the surrendered Registered Note to the designated
assignee or transferee pursuant to Section 17. 
Notwithstanding anything to the contrary set forth herein, upon
conversion of any portion of this Note in accordance with the terms hereof, the
Holder shall not be required to physically surrender this Note to the Company
unless (A) the full Conversion Amount represented by this Note is being
converted or (B) the Holder has provided the Company with prior written notice
(which notice may be included in a Conversion Notice) requesting reissuance of
this Note upon physical surrender of this Note. 
The Holder and the Company shall maintain records showing the Principal,
Interest and Late Charges, if any, converted and the dates of such conversions
or shall use such other method, reasonably satisfactory to the Holder and the
Company, so as not to require physical surrender of this Notes upon conversion.

 4
 

(iv)                      Pro
Rata Conversion; Disputes.  In the
event that the Company receives a Conversion Notice from more than one holder
of Notes for the same Conversion Date and the Company can convert some, but not
all, of such portions of the Notes submitted for conversion, the Company shall
convert from each holder of Notes electing to have Notes converted on such date
a pro rata amount of such holder’s portion of its Notes submitted for
conversion based on the principal amount of Notes submitted for conversion on
such date by such holder relative to the aggregate principal amount of all
Notes submitted for conversion on such date. 
In the event of a dispute as to the number of shares of Common Stock
issuable to the Holder in connection with a conversion of this Note, the
Company shall issue to the Holder the number of shares of Common Stock not in
dispute and resolve such dispute in accordance with Section 22.

(e)           Limitations on Conversions. 

(i) Beneficial Ownership. 
(A) The Holder shall not have the right to convert this Note, to the
extent that after giving effect to such conversion, such Person (together with
such Person’s affiliates) would beneficially own in excess of 4.99% (the “Maximum Percentage I”) of the shares of
Common Stock outstanding immediately after giving effect to such
conversion.  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 Note, 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, 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.  In
any case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the Company,
including the Notes and the Warrants, by the Holder and its affiliates since
the date as of which such number of outstanding shares of Common Stock was
reported.  For purposes hereof, the
Company may rely on representations of Holder set forth in applicable
Conversion Notices.  By written notice to
the Company, the Holder may from time to time increase or decrease the Maximum
Percentage I to any other percentage in excess of 4.99% specified in such
notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the
Company, and (ii) any such increase or decrease will apply only to the Holder
and not to any other holder of Warrants.

Notwithstanding anything in this Note to the
contrary, the Company shall be entitled to treat the registered holder of this
Note as such appears in its records as the owner of this Note for all purposes;
provided that such records are kept current with a reasonably satisfactory and
customary method intended for such purpose

(B) The Holder shall not have the right to convert this Note, to the
extent that after giving effect to such conversion, such Person (together with
such Person’s affiliates) would beneficially own in excess of 9.99% (the “Maximum Percentage II”) 

 5
 

of
the shares of Common Stock outstanding immediately after giving effect to such
conversion.  For purposes of this Note,
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, 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.  In any case, the number of outstanding shares
of Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including the Notes and the Warrants, by
the Holder and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.  For purposes hereof, the Company may rely on
representations of the holders set forth in applicable Conversion Notices.  By written notice to the Company, the Holder
may from time to time increase or decrease the Maximum Percentage II to any
other percentage in excess of 9.99% specified in such notice; provided that (i)
any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Company, and (ii) any such
increase or decrease will apply only to the Holder and not to any other holder
of Warrants.

(4)   RIGHTS
UPON TRIGGER EVENT.

(a)   Trigger
Event.  Each of the following events
shall constitute a “Trigger Event”:

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

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

(iii)                      at
any time following the thirtieth (30th)
day that the Company fails to have a sufficient number of authorized shares of
Common Stock available to satisfy its obligations for issuance upon a
conversion of the full Conversion Amount of this Note (without regard to any
limitations on conversion);

(iv)                      the
Company’s failure to pay to the Holder any amount of Principal (including,
without limitation, any redemption payments), Interest, Late Charges or other
amounts when and as due under this Note, except, in the case of a failure to
pay any Interest and Late Charges when and as due, in which case only if such
failure continues for a period of at least fifteen (15) Business Days;

 6
 

(v)                       the
failure to pay when due or any acceleration, prior to maturity of any
Indebtedness or the Company or any Subsidiaries of $100,000 or more of such
Indebtedness in the aggregate and such failure to pay continues uncured for
more than ten (10) Business Days;

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

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

(viii)                    a
final judgment or judgments for the payment of money aggregating in excess of
$250,000 are rendered against the Company or any of its Subsidiaries and which
judgments are not, within sixty (60) days after the entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within sixty (60)
days after the expiration of such stay; provided, however, that any judgment
which is covered by insurance or an indemnity from a credit worthy party shall
not be included in calculating the $250,000 amount;

(ix)                       the
Company breaches any representation, warranty, covenant or other term or
condition of any Transaction Document, and such breach constitutes,
individually or in the aggregate, a Material Adverse Effect; provided, however,
that in the case of a breach of a covenant which is curable, only if such
breach continues for a period of at least ten (10) consecutive Business Days;
or

(x)                        the
Company’s failure to engage the services of a transfer agent for its Common
Stock that is a participant in the Depository Trust Company’s Full Fast Program
prior to the date on which the Registration Statement is declared effective by
the SEC.

(b)   Redemption Right. 
Upon the occurrence of a Trigger Event with respect to this Note or any
Other Note, the Company shall within (1) Business Day deliver written notice
thereof via facsimile or e-mail and overnight courier (a “Trigger Event Notice”) to the Holder.  At any time after the earlier of the Holder’s
receipt of a Trigger Event Notice and the Holder becoming aware of a Trigger
Event, the Holder may require the Company to redeem all or any portion of this
Note by delivering written notice thereof (the “Trigger Event Redemption Notice”) to the Company, which
Trigger Event Redemption Notice shall indicate the portion of this Note the
Holder is electing to have redeemed. 
Each portion of this Note subject to redemption by the Company pursuant
to this Section 4(b) shall be redeemed by the Company at an amount equal to any
accrued and unpaid liquidated damages, plus the greater of 

 7
 

(A) the Conversion Amount
to be redeemed multiplied by the Redemption Premium, or (B) the Conversion
Amount to be redeemed multiplied by the quotient of (i) the Closing Sale Price
at the time of the Triggering Event (or at the time of payment of the redemption
price, if greater) divided by (ii) the Conversion Price (the “Trigger Event Redemption Price”), provided, however, (B)
shall be applicable only in the event that a Trigger Event of the type
specified in Section 4(a)(i), (ii), (iii) or (iv) hereof has occurred and
remains uncured or the Conversion Shares otherwise could not be received or
sold by the Holder without any resale restrictions (or pursuant to an effective
Registration Statement).  After a Trigger
Event occurs, the Conversion Price shall be permanently decreased (but not
increased) on the first Business Day of each calendar month thereafter (each a “Trigger Adjustment Date”) until either the Trigger Event is
cured or the Trigger Event Redemption Price is paid in full, to a price (the “Trigger Event Reset Price”) equal to the lesser of (i) the
Conversion Price then in effect, or (ii) the lowest Weighted Average Price that
has occurred on any Trigger Adjustment Date since the date of occurrence of the
Trigger Event.   Redemptions required by
this Section 4(b) shall be made in accordance with the provisions of Section
11.  To the extent redemptions required
by this Section 4(b) are deemed or determined by a court of competent
jurisdiction to be prepayments of the Note by the Company, such redemptions
shall be deemed to be voluntary prepayments. 
The parties hereto agree that in the event of the Company’s redemption
of any portion of the Note under this Section 4(b), the Holder’s damages would
be uncertain and difficult to estimate because of the parties’ inability to
predict future interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for the Holder.  Accordingly, any Triggering Event Redemption
Price due under this Section 4(b) is intended by the parties to be, and shall
be deemed, a reasonable estimate of the Holder’s actual loss of its investment
opportunity and not as a penalty.

(c)   Conversion Right. 
Furthermore, in addition to any other remedies, each Holder shall have
the right (but not the obligation) to convert this Note at any time after a
Trigger Event at a fixed conversion price equal to thirty percent (30%) of the
Weighted Average Price on the Closing Date.

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

(a)   Assumption.  The Company shall not enter
into or be party to a Fundamental Transaction unless (i) the Successor Entity
assumes in writing all of the obligations of the Company under this Note and
the other Transaction Documents in accordance with the provisions of this
Section 5(a) pursuant to written agreements in form and substance satisfactory
to the Required Holders and approved by the Required Holders prior to such
Fundamental Transaction, including agreements to deliver to each holder of
Notes in exchange for such Notes a security of the Successor Entity evidenced
by a written instrument substantially similar in form and substance to the
Notes, including, without limitation, having a principal amount and interest
rate equal to the principal amounts then outstanding and the interest rates of
the Notes held by such holder, having similar conversion rights as the Notes
and having similar ranking to the Notes, and satisfactory to the Required
Holders and (ii) the Successor Entity (including its Parent Entity) is a publicly
traded corporation whose common stock is quoted on or listed for trading on an
Eligible Market.  Upon the occurrence of
any Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental 

 8
 

Transaction, the provisions of this
Note referring to the “Company” shall refer instead to the Successor Entity),
and may exercise every right and power of the Company and shall assume all of
the obligations of the Company under this Note with the same effect as if such
Successor Entity had been named as the Company herein.  Upon consummation of the Fundamental
Transaction, the Successor Entity shall deliver to the Holder confirmation that
there shall be issued upon conversion or redemption of this Note at any time
after the consummation of the Fundamental Transaction, in lieu of the shares of
the Company’s Common Stock (or other securities, cash, assets or other
property) issuable upon the conversion or redemption of the Notes prior to such
Fundamental Transaction, such shares of the publicly traded common stock (or
their equivalent) of the Successor Entity (including its Parent Entity), as
adjusted in accordance with the provisions of this Note.  The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion or redemption of
this Note.

(b)   Redemption Right.  If at the time known to the Company, no
sooner than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Change of Control, but in any event not prior to the public
announcement of such Change of Control, the Company shall deliver written
notice thereof via facsimile and overnight courier to the Holder (a “Change of Control  Notice”). 
At any time during the period beginning on the date of the Holder’s
receipt of a Change of Control Notice and ending twenty (20) Trading Days after
the consummation of such Change of Control, the Holder may require the Company
to redeem all or any portion of this Note after receipt by the Company of such
notice and promptly after (or upon, in the case of such notice delivered prior
to the Change of Control) consummation of the Change of Control by delivering
written notice thereof (“Change of Control
Redemption Notice”) to the Company, which Change of Control
Redemption Notice shall indicate the Conversion Amount the Holder is electing
to have redeemed.  The portion of this
Note subject to redemption pursuant to this Section 5 shall be redeemed by the
Company in cash for an amount equal to any accrued and unpaid liquidated
damages, plus the greater of (i) the product of (x) the Conversion Amount being
redeemed and (y) the quotient determined by dividing (A) the greater of the Closing
Sale Price immediately following the public announcement of such proposed
Change of Control and the Closing Sale Price of the Common Stock immediately
prior to the public announcement of such proposed Change of Control by (B) the
Conversion Price and (ii) Change of Control Premium of the Conversion Amount
being redeemed (the “Change of Control
Redemption Price”). 
Redemptions required by this Section 5 shall be made in accordance with
the provisions of Section 11 and shall have priority to payments to
stockholders in connection with a Change of Control.  To the extent redemptions required by this
Section 5(b) are deemed or determined by a court of competent jurisdiction to
be prepayments of this Note by the Company, such redemptions shall be deemed to
be voluntary prepayments. 
Notwithstanding anything to the contrary in this Section 5, until the
Change of Control Redemption Price is paid in full, the Conversion Amount
submitted for redemption under this Section 5(b) may be converted, in whole or
in part, by the Holder into Common Stock pursuant to Section 3.

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

(a)   Purchase Rights.  If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other 

 9
 

property pro rata to the record
holders of any class of Common Stock (the “Purchase
Rights”), then the Holder will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
the Holder could have acquired if the Holder had held the number of shares of
Common Stock acquirable upon complete conversion of this Note (without taking
into account any limitations or restrictions on the convertibility of this
Note) immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.  Notwithstanding any provision of this Section
6(a) to the contrary, in the event that: (i) the Weighted Average Price of the
Common Stock equals or exceeds 150% of the applicable Conversion Price for each
of the twenty (20) consecutive Trading Days immediately preceding a Purchase
Right Date, and (ii) the average daily trading volume of the Common Stock
during each of the twenty (20) consecutive Trading Days immediately preceding a
Purchase Right Date equals or exceeds 600,000 shares per day, then this Section
6(a) shall not apply to such Purchase Right.

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

(7)   ADJUSTMENT OF CONVERSION PRICE UPON
SUBDIVISION OR COMBINATION OF COMMON STOCK. 
If the Company at any time on or after the Subscription Date subdivides
(by any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced.  If the
Company at any time on or after the Subscription Date combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.

(8)   ADJUSTMENT UPON ISSUANCE OF SHARES OF
COMMON STOCK.    If the Company
issues or sells, or in accordance with this Section 8 is deemed to have issued
or 

 10
 

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 for
a consideration per share (the “New Issuance Price”)
less than a price (the “Applicable Price”)
equal to the Conversion Price in effect immediately prior to such issue or sale
or deemed issuance or sale (the foregoing a “Dilutive
Issuance”), then immediately after such Dilutive Issuance, the
Conversion Price then in effect shall be reduced to an amount equal to the New
Issuance Price.  Upon each such
adjustment of the Conversion Price hereunder, the number of Conversion Shares
shall be adjusted to the number of shares of Common Stock determined by
multiplying the Conversion Price in effect immediately prior to such adjustment
by the number of Conversion Shares acquirable upon conversion of this Note
immediately prior to such adjustment and dividing the product thereof by the
Conversion Price resulting from such adjustment.  For purposes of determining the adjusted
Conversion Price under this Section 8, the following shall be applicable:

(a)           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 8(a), 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” 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 Conversion Price
or number of Conversion 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.

(b)           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 8(b), the “lowest
price per share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange” 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 Conversion Price or number of Conversion 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 Note has been or 

 11
 

is to be made pursuant to other provisions
of this Section 8, no further adjustment of the Conversion Price or number of
Conversion Shares shall be made by reason of such issue or sale.

(c)           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 Conversion Price and the number of Conversion Shares in effect
at the time of such increase or decrease shall be adjusted to the Conversion
Price and the number of Conversion 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 8(c), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Note 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 8 shall be made if such adjustment
would result in an increase of the Conversion Price then in effect or a
decrease in the number of Conversion Shares.

(d)       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, the Options will be deemed to have been issued for
the difference of (i) the aggregate fair market value of such Options and other
securities issued or sold in such integrated transaction, less (ii) the fair
market value of the securities other than such Option, issued or sold in such
transaction and the other securities issued or sold in such integrated
transaction will be deemed to have been issued or sold for the balance of the
consideration received by the Company. 
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
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.

 12
 

(e)       Record Date.  If the Company takes a record of the holders
of shares of Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in shares of Common Stock, Options or in
Convertible Securities or (ii) 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.

(9)   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 for the purpose of avoiding or seeking to avoid the observance
or performance of any of the terms of this Note, and will at all times in good
faith carry out all of the provisions of this Note and take all action that is
required hereunder to protect the rights of the Holder of this Note.

(10)        RESERVATION OF AUTHORIZED SHARES.

(a)   Reservation.  So long as any of the Notes are outstanding,
the Company shall take all action necessary to reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Notes, 120% of the number of shares of Common
Stock as shall from time to time be necessary to effect the conversion of all
of the Notes then outstanding; provided that at no time shall the number of
shares of Common Stock so reserved be less than the number of shares required
to be reserved by the previous sentence (without regard to any limitations on
conversions) (the “Required Reserve Amount”).  The number of shares of Common Stock reserved
for conversions of the Notes and each increase in the number of shares so
reserved shall be allocated pro rata among the holders of the Notes based on
the principal amount of the Notes held by each holder at the Closing (as
defined in the Securities Purchase Agreement) or increase in the number of
reserved shares, as the case may be (the “Authorized
Share Allocation”).  In the
event that a holder shall sell or otherwise transfer any of such holder’s
Notes, each transferee shall be allocated a pro rata portion of such holder’s
Authorized Share Allocation.  Any shares
of Common Stock reserved and allocated to any Person which ceases to hold any
Notes shall be allocated to the remaining holders of Notes, pro rata based on
the principal amount of the Notes then held by such holders.

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

 13
 

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.

(11)        HOLDER’S REDEMPTIONS.

(a)           The Company shall deliver the
applicable Trigger Event Redemption Price to the Holder within five (5)
Business Days after the Company’s receipt of the Holder’s Trigger Event Redemption
Notice.  If the Holder has submitted a
Change of Control Redemption Notice in accordance with Section 5(b), the
Company shall deliver the applicable Change of Control Redemption Price to the
Holder concurrently with the consummation of such Change of Control if such
notice is received prior to the consummation of such Change of Control and
within five (5) Business Days after the Company’s receipt of such notice
otherwise.  In the event of a redemption
of less than all of the Conversion Amount of this Note, the Company shall
promptly cause to be issued and delivered to the Holder a new Note (in
accordance with Section 17(d)) representing the outstanding Principal which has
not been redeemed.  In the event that the
Company does not pay the applicable Redemption Price to the Holder within the
time period required, at any time thereafter and until the Company pays such
unpaid Redemption Price in full, the Holder shall have the option, in lieu of
redemption, to require the Company to promptly return to the Holder all or any
portion of this Note representing the Conversion Amount that was submitted for
redemption and for which the applicable Redemption Price (together with any
Late Charges thereon) has not been paid. 
Upon the Company’s receipt of such notice, (x) the Redemption Notice
shall be null and void with respect to such Conversion Amount, (y) the Company
shall immediately return this Note, or issue a new Note (in accordance with
Section 17(d)) to the Holder representing such Conversion Amount and (z) the
Conversion Price of this Note or such new Notes shall be adjusted to the lesser
of (A) the Conversion Price as in effect on the date on which the Redemption
Notice is voided and (B) the lowest Closing Bid Price of the Common Stock
during the period beginning on and including the date on which the Redemption
Notice is delivered to the Company and ending on and including the date on
which the Redemption Notice is voided. 
The Holder’s delivery of a notice voiding a Redemption Notice and
exercise of its rights following such notice shall not affect the Company’s
obligations to make any payments of Late Charges which have accrued prior to
the date of such notice with respect to the Conversion Amount subject to such
notice.

(b)           Redemption
by Other Holders.  Upon the Company’s
receipt of notice from any of the holders of the Other Notes for redemption or
repayment as a result of an event or occurrence substantially similar to the
events or occurrences described in Section 4(b) or Section 5(b) (each, an “Other Redemption Notice”), the Company shall immediately,
but no later than one (1) Business Day of its receipt thereof, forward to the
Holder by facsimile a copy of such notice. 
If the Company receives a Redemption Notice and one or more Other
Redemption Notices, during the seven (7) Business Day period beginning on and
including the date which is three (3) Business Days prior to the Company’s
receipt of the Holder’s Redemption Notice and ending on and including the date
which is three (3) Business Days after the Company’s receipt of the Holder’s
Redemption Notice and the Company is unable to redeem all principal, interest
and other amounts designated in such Redemption Notice and such Other
Redemption Notices received during such seven (7) Business Day period, then the
Company shall redeem a pro rata amount from each holder of the Notes (including
the Holder) based on 

 14
 

the principal amount of the Notes submitted for redemption
pursuant to such Redemption Notice and such Other Redemption Notices received
by the Company during such seven (7) Business Day period.

(12)        VOTING
RIGHTS.  The Holder shall have no
voting rights as the holder of this Note, except as required by law, including,
but not limited to, Nevada Revised Statutes, Title 7,Chapter 78, and as expressly
provided in this Note.

(13)        COVENANTS.

(a)   Rank. 
All payments under this Note shall rank senior to all unsecured
indebtedness incurred on or after the date hereof.

(b)   Incurrence of Indebtedness.  So long as there
remains twenty-five percent (25%) or more of the original Notes outstanding, the
Company shall not, and the Company shall not permit any of its Subsidiaries to
incur or guarantee or assume any Indebtedness, other than (i) the Indebtedness
evidenced by this Note and the Other Notes, and (ii) other Permitted
Indebtedness.

(c)   Existence of Liens.  So long as there
remains twenty-five percent (25%) or more of the original Notes outstanding, other
than Permitted Liens, the Company shall not, and the Company shall not permit
any of its Subsidiaries to allow any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by the Company or any of its Subsidiaries
(collectively, “Liens”), to the
extent such Lien is upon or in a material portion of (x) the Company’s property
and assets or (y) the property and assets of the Company and its Subsidiaries
taken as a whole on a consolidated basis.

(d)   Restricted Payments.  The Company shall not, and the Company shall
not permit any of its Subsidiaries to, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Permitted Indebtedness (other than this Note), whether by way of payment in
respect of principal of (or premium, if any) or interest on such Indebtedness,
if at the time such payment is due or is otherwise made or after giving effect
to such payment, an event constituting, or that with the passage of time and
without being cured would constitute, a Trigger Event has occurred and is
continuing.

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

(14)        PARTICIPATION.  The Holder, as the holder of this Note, shall
be entitled to receive such dividends paid and distributions made to the
holders of Common Stock to the same extent as if the Holder had converted this
Note into Common Stock (without regard 

 15
 

to any limitations on conversion
herein or elsewhere) and had held such shares of Common Stock on the record
date for such dividends and distributions. 
Payments under the preceding sentence shall be made concurrently with
the dividend or distribution to the holders of Common Stock.

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

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

(17)        REISSUANCE OF THIS NOTE.

(a)   Transfer.  If this Note is to be transferred, the Holder
shall surrender this Note to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Note (in accordance with
Section 17(d)), registered as the Holder may request, representing the
outstanding Principal being transferred by the Holder and, if less then the
entire outstanding Principal is being transferred, a new Note (in accordance
with Section 17(d)) to the Holder representing the outstanding Principal not
being transferred.  The Holder and any
assignee, by acceptance of this Note, acknowledge and agree that, by reason of
the provisions of Section 3(d)(iii) following conversion or redemption of any
portion of this Note, the outstanding Principal represented by this Note may be
less than the Principal stated on the face of this Note.

(b)   Lost, Stolen or Mutilated Note.  Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with
Section 17(d)) representing the outstanding Principal.

(c)   Note Exchangeable for Different
Denominations.  This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Note or Notes (in accordance with Section 17(d))
representing in the aggregate the outstanding Principal of this Note, and each
such new Note will represent such portion of such outstanding Principal as is designated
by the Holder at the time of such surrender.

(d)   Issuance of New Notes.  Whenever the Company is required to issue a
new Note pursuant to the terms of this Note, such new Note (i) shall be of like
tenor with this Note, (ii) shall represent, as indicated on the face of such
new Note, the Principal remaining outstanding (or in the case of a new Note
being issued pursuant to Section 17(a) or Section 17(c), the Principal
designated by the Holder which, when added to the principal represented by the 

 16
 

other new Notes issued in
connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note, which
is the same as the Issuance Date of this Note, (iv) shall have the same rights
and conditions as this Note, and (v) shall represent accrued and unpaid
Interest and Late Charges on the Principal and Interest of this Note, if any,
from the Issuance Date.

(18)        REMEDIES, CHARACTERIZATIONS, OTHER
OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Note shall be
cumulative and in addition to all other remedies available under this Note and
any of the other Transaction Documents at law or in equity (including a decree
of specific performance and/or other injunctive relief).  Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the Holder and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof).  The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate.  The Company therefore
agrees that, in the event of any such breach or threatened breach, specifically
including but not limited to the Company’s failure to adjust the Conversion
Price as required hereunder following a Dilutive Issuance, the Holder shall be
entitled, upon posting a bond and demonstrating economic loss, in addition to
all other available remedies, to an injunction restraining any breach.

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

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

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

(22)        DISPUTE RESOLUTION.  In the case of a dispute as to the
determination of the Closing Bid Price, the Closing Sale Price or the Weighted
Average Price, the determination of the occurrence of a Dilutive Issuance which
would trigger a reset of the Conversion Price, the determination of the Company
entering into an agreement to issue securities pursuant to an Equity Line (as
defined in the Securities Purchase Agreement), the 

 17
 

determination of the Company
entering into an agreement to issue Variable Equity Securities (as defined in
the Securities Purchase Agreement) or the arithmetic calculation of the
Conversion Rate or any Redemption Price, or the determination of the Company
entering into a transaction that would violate any of the Additional Issuance
Restrictions (as defined in the Securities Purchase Agreement) the Company
shall submit the disputed determinations or arithmetic calculations via
facsimile within one (1) Business Day of receipt, or deemed receipt, of the
Conversion Notice or Redemption Notice or other event giving rise to such
dispute, as the case may be, to the Holder. 
If the Holder and the Company are unable to agree upon such
determination or calculation within one (1) Business Day of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within one (1) Business Day submit via facsimile (a) the
disputed determination of the Closing Bid Price, the Closing Sale Price or the
Weighted Average Price to an independent, reputable investment bank (which is
ranked in the top 10 investment banks nationally, by revenue) selected by the
Company and approved by the Holder, or (b) a copy of the disputed agreement or
other documentation pursuant to which the Holder believes securities may be
issued pursuant to an Equity Line or as Variable Equity Securities, or which
Holder believes may be a Dilutive Issuance which would trigger a reset of the
Conversion Price, or which Holder believes may violate the Additional Issuance
Restrictions, to an independent law firm selected by the Company and approved
by Holder or (c) the disputed arithmetic calculation of the Conversion Rate or
any Redemption Price to the Company’s independent, outside accountant (which is
ranked in the top 10 accounting firms nationally, by revenue).  The Company, at the Company’s expense, shall
cause the investment bank, the law firm 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 five (5) Business Days from the time it
receives the disputed determinations or calculations.  Such investment bank’s, law firm’s or accountant’s
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.  The
procedures required by this Section 22 are collectively referred to herein as
the “Dispute Resolution Procedures.”

(23)        NOTICES; PAYMENTS.

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

(b)   Payments.  Whenever any payment of cash is to be made by
the Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the account of
the Company and sent via 

 18
 

overnight courier service to such
Person at such address as previously provided to the Company in writing (which address,
in the case of the Purchasers, shall be initially be as set forth on the
Schedule of Buyers attached to the Securities Purchase Agreement; provided that
the Holder may elect to receive a payment of cash via wire transfer of
immediately available funds by providing the Company with prior written notice
setting out such request and the Holder’s wire transfer instructions.  Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day.  Any amount of Principal which is not paid
when due shall result in a late charge being incurred and payable by the
Company in an amount equal to interest on such amount at the rate of eleven
percent (11.0%) per annum from the date such amount was due until the same is
paid in full (“Late Charge”).

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

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

(26)        GOVERNING LAW; JURISDICTION;
SEVERABILITY; JURY TRIAL.  This Note
shall be construed and enforced in accordance with, and all questions
concerning the construction, validity, interpretation and performance of this
Note shall be governed by, the internal laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York.  The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting
in The City of New York, Borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. 
Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.  In the event that any provision of this Note
is invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law.  Any such provision which may prove
invalid or unenforceable under any law shall not affect the validity or enforceability
of any other provision of this Note. 
Nothing contained herein shall be deemed or operate to preclude the
Holder from bringing suit or taking other legal action against the Company in
any other jurisdiction to collect on the Company’s obligations to the Holder,
to realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court ruling in favor of the Holder.  THE COMPANY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL
FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING
OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

 19
 

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

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

(b)           “Bloomberg”
means Bloomberg Financial Markets.

(c)           “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.

(d)           “Change
of Control” means any Fundamental Transaction other than (A) any
reorganization, recapitalization or reclassification of Common Stock, in which
a majority of holders of the Company’s voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, (B) pursuant to a migratory merger effected solely for the purpose of
changing the jurisdiction of incorporation of the Company or (C) in the event
of a Change of Control involving consideration paid to holders of the Company’s
Common Stock, the consideration per share of the Company’s Common Stock to be
received by the holders thereof is greater (as to amounts other than cash, as
determined reasonably and in good faith by the Board of Directors of the
Company) than the product of the (x) Change of Control Premium and (y)
Conversion Price then in effect.

(e)           “Change
of Control Premium” means (i) 120% from the Issuance Date through
the first anniversary of the Issuance Date, (ii) 115% after the first
anniversary of the Issuance Date through the second anniversary of the Issuance
Date and (iii) 110% thereafter.

(f)            “Closing Bid Price” and “Closing Sale Price” means, for any security
as of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange
or trading market for such security, the last closing bid price or last trade
price, respectively, of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or,
if no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the “pink
sheets” by Pink Sheets LLC (formerly 

 20
 

the National Quotation
Bureau, Inc.).  If the Closing Bid Price
or the Closing Sale Price cannot be calculated for a security on a particular
date on any of the foregoing bases, the Closing Bid Price or the Closing Sale
Price, as the case may be, of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to
agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 22.  All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

(g)           “Closing
Date” shall have the meaning set forth in the Securities Purchase
Agreement, which date is the date the Company initially issued this Note
pursuant to the terms of the Securities Purchase Agreement.

(h)           “Common
Stock Deemed Outstanding” shall mean, at any given time, the number
of shares of Common Stock actually outstanding at such time, plus (i) the
number of shares of Common Stock deemed to be outstanding pursuant to Sections
8(a) and 8(b) hereof regardless of whether the Options or Convertible
Securities are actually exercisable at such time and (ii) plus the number of
shares of Common Stock underlying Options or Convertible Securities issued
pursuant to the Approved Stock Plans that are actually exercisable or
convertible at such time at an exercise price or conversion price that is less
than or equal to the per share fair market value of such underlying shares of
Common Stock, but excluding any shares of Common Stock owned or held by or for
the account of the Company or issuable upon conversion of this Note.

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

(j)            “Convertible
Notes” has the meaning ascribed to such term in the Securities
Purchase Agreement, and shall include all notes issued in exchange thereof or
replacement thereof.

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

(l)            “Eligible
Market” means The New York Stock Exchange, Inc., the American Stock
Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market, The NASDAQ
Capital Market, or the NASD’s OTC Bulletin Board.

(m)          “Effective
Date” has the meaning ascribed to such term in the Registration
Rights Agreement.

 21
 

(n)           “Excluded Securities” means any Common Stock issued or issuable:
(i) in connection with any Approved Stock Plan; (ii) upon conversion of this
Note or the exercise of the Warrant; (iii) upon conversion of any Options or
Convertible Securities which are outstanding on the day immediately preceding
the Subscription Date, provided that the terms of such Options or Convertible Securities
are not amended, modified or changed on or after the Subscription Date; (iv) in
connection with mergers, acquisitions, strategic business partnerships or joint
ventures, in each case with non-affiliated third parties and otherwise on an
arm’s-length basis, the primary purpose of which is not to raise additional
capital; (v) upon the issuance of Options or the exercise of any Options issued
to financial institutions in connection with commercial credit agreements or
issuance of non-convertible debt by the Company, each of which the primary
purpose is not to raise additional capital, (vi) in connection with the
currently contemplated Series A and Series B Note and Warrant Financing, which
is in the process of being negotiated with Knight Capital, in an amount of up
to Thirty Million Dollars ($30,000,000), (vii) in connection with any note or
warrant financing on identical terms in an amount of up to One Million Dollars
($1,000,000), all of which shall be subscribed for on or prior to August 31,
2007, (viii) pursuant to a bona fide firm commitment underwritten public
offering with a nationally recognized underwriter that generates gross proceeds
to the Company in excess of $10 million (other than an “at-the-market offering”
as defined in Rule 415 under the 1933 Act and “equity lines”) and (ix)
securities issued in connection with corporate partnering transactions or terms
approved by the Board of Directors of the Company and the primary purpose of
which is not to raise equity capital.

(o)           “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, 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 Exchange Act) is or
shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock.

(p)           “GAAP”
means United States generally accepted accounting principles, consistently
applied.

(q)           “Options”
means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities, other than those issued solely in 

 22
 

connection with any acquisition of
any entity or business or equity securities issuable in connection with the
stock option or other employee benefit plans of the Company and is Subsidiaries
and which are exercisable at a price not less than the closing price of the
Company’s Common Stock as reported on the Trading Day immediately preceding the
date of grant.

(r)            “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.

(s)           “Permitted Indebtedness” means (A)
Indebtedness incurred by the Company that is made expressly subordinate in
right of payment to the Indebtedness evidenced by this Note, as reflected in a
written agreement acceptable to the Holder and approved by the Holder in
writing, and which Indebtedness does not provide at any time for (1) the
payment, prepayment, repayment, repurchase or defeasance, directly or
indirectly, of any principal or premium, if any, thereon until ninety-one (91)
days after the Maturity Date or later and (2) total interest and fees at a rate
in excess of three percent (3%) over the greater of the Interest Rate and the
rate for U.S. treasury notes with comparable maturity per annum; (B)
Indebtedness existing as of the Issuance Date and set forth in the Schedule of
Exceptions; (C) Indebtedness issued in exchange for, or the net proceeds of
which are used to extend, refund, renew, refinance, defease or replace
Permitted Indebtedness; (D) intercompany Indebtedness among the Company and its
Subsidiaries, provided that if issued by the Company, the intercompany
Indebtedness is subordinated in right of payment to this Note, provided,
however, that (i) such extension, refund, renewal, refinancing, defeasance or
replacement is pursuant to terms that are not materially less favorable to the
Company and its Subsidiaries than the terms of the Indebtedness being extended,
refinanced or modified and (ii) after giving effect to such extension, refund,
renewal, refinancing, defeasance or replacement, the amount of such
Indebtedness is not greater than the amount of Indebtedness outstanding
immediately prior to such refund, renewal, refinancing, defeasance or
replacement; (E) hedging obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating and/or fixed
rate Permitted Indebtedness; (F) Indebtedness of a Person or business existing
at the time such Person or business was acquired by the Company or any of its
Subsidiaries, provided that such acquisition is not prohibited hereunder and
such Indebtedness was not incurred in contemplation of such acquisition and has
no recourse to the Company’s and its Subsidiaries’ existing assets and
properties; (G) Indebtedness incurred solely in respect of bankers acceptances,
letters of credit and performance bonds (to the extent that such incurrence
does not result in the incurrence of any obligation to repay any obligation
relating to borrowed money or other Indebtedness), all in the ordinary course
of business in amounts and for the purposes customary in the Company’s
industry; and (H) Indebtedness incurred in connection with the currently contemplated
Series A and Series B Note and Warrant Financing, which is in the process of
being negotiated with Knight Capital, in an amount of up to Thirty Million
Dollars ($30,000,000).

(t)            “Permitted Liens”
means:

 23
 

(i)            any Lien for taxes, assessments or governmental charges
or claims not yet due or delinquent or being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP;

(ii)           any statutory Lien
arising in the ordinary course of business by operation of law with respect to
a liability that is not yet due or delinquent

(iii)          any Lien imposed by law
or created by operation of law, including, without limitation, materialmen’s
mechanics’, landlords’, carriers’, warehousemen’s, suppliers’ and vendors’
Liens, Liens for master’s and crew’s wages and other similar Liens, arising in
the ordinary course of business with respect to a liability that is not yet due
or delinquent or that are being contested in good faith by appropriate
proceedings;

(iv)          Liens incurred or deposits and pledges made in connection with
(1) obligations incurred in respect of workers’ compensation, unemployment
insurance or other forms of governmental insurance or benefits or legislation,
(2) the performance of letters of credits, bids, tenders, leases,
contracts (other than for the payment of money) and statutory obligations or
(3) obligations on surety or appeal bonds, but only to the extent such deposits
or pledges are made or otherwise arise in the ordinary course of business and
secure obligations not past due;

(v)           reservations, exceptions, encroachments, rights-of-way, covenants,
conditions, easements, restrictions and similar encumbrances or charges
on real property and minor irregularities in the title thereto that do not (i)
secure obligations for the payment of money or (ii) materially impair the value
of such property or its use by the Company or any of its Subsidiaries in the
normal conduct of such Person’s business;

(vi)          Liens in favors of the Company or any of its Subsidiaries;

(vii)         Liens on property, shares of stock or Indebtedness or other
assets of a Person existing at the time such Person is merged with or into or
consolidated with the Company or any of its Subsidiaries or otherwise acquired
by the Company or its Subsidiaries, provided that such merger or consolidation
is not prohibited hereunder and such Liens were not incurred in contemplation
of such merger or consolidation and do not extend to any assets other than
those of the Person merged into or consolidated with the Company or any of its
Subsidiaries;

(viii)        Liens on property existing at the time of acquisition thereof
by the Company or any of its Subsidiaries, provided that such acquisition is
not prohibited hereunder and such Liens were not incurred in contemplation of
such acquisition and do not extend to property or assets of the Company or its
Subsidiaries existing immediately prior to such acquisition;

(ix)           Liens existing on the date hereof and either (x) described
on the Schedule of Exceptions hereto or (y) with a value of less than $100,000
individually and $500,000 in the aggregate;

 24
 

(x)            Liens to secure any extension, renewal, refinancing or
refunding (or successive extensions, renewals, refinancings or refundings), in
whole or in part, of any Indebtedness secured by Liens referred to in the
foregoing clauses (vii), (ix) and (xi) hereof; provided that such Liens do not
extend to any other property of the Company or any of its Subsidiaries and the
principal amount of the Indebtedness secured by such Lien is not increased;

(xi)           judgment Liens not giving rise to a Trigger Event so long
as such Liens are adequately bonded and any appropriate legal proceedings that
may have been initiated for the review of such judgment, decree or order shall
not have been finally terminated or the period within which such proceedings
may be initiated shall not have expired;

(xii)          Liens securing hedging obligations permitted to be incurred
pursuant to clause (F) of the definition of Permitted Indebtedness;

(xiii)         Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person’s obligations in respect of banker’s
acceptances issued or credited for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or goods;

(xiv)        Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;

(xv)         Liens arising out of consignment or similar arrangements for
the sale of goods in the ordinary course of business,

(xvi)        Liens in favor of customs and revenue authorities arising as
a matter of law to secure payment of customs duties in connection with the
importation of goods;

(xvii)       Liens on assets leased to the Company or any of its
Subsidiaries if such lease is properly classified as an operating lease in
accordance with GAAP;

(xviii)      Liens with respect to conditional sale or other title retention
agreements and any leases in the nature thereof, provided any such Lien with
respect to conditional sales or other title retention agreements encumbers only
property and accretions thereto (and proceeds arising from the disposition
thereof) which are subject to such conditional sale or other title retention
agreement or lease in the nature thereof;

(xix)         leases and subleases of, and licenses and sub-licenses with
respect to, property where the Company or any of its Subsidiaries is the lessor
or licensor (or sublessor or sublicensor), provided that such leases,
subleases, licenses and sublicenses do not in the aggregate materially
interfere with the business of the Company and its Subsidiaries taken as a
whole; and

(xx)          Liens securing Indebtedness permitted to be incurred
pursuant to clause (C) of the definition of Permitted Indebtedness, provided
that such Liens do not extend to any other property of the Company or its
Subsidiaries and the principal amount of the Indebtedness secured by such Lien
is not increased.

 25
 

(u)           “Person”
means an individual or legal entity, including but not limited to a
corporation, a limited liability company, a partnership, a joint venture, a
trust, an unincorporated organization and a government or any department or
agency thereof.

(v)           “Principal
Market” means the NASD OTC Bulletin Board.

(w)          “Redemption
Notices” means, collectively, the Trigger Event Redemption Notices
and the Change of Control Redemption Notices, each of the foregoing,
individually, a Redemption Notice.

(x)            “Redemption Premium” means (i) in the case
of the Trigger Events described in Section 4(a)(i) - (vi) and (ix) - (xii),
125% during the first twelve months that this Note is outstanding and 115%
thereafter or (ii) in the case of the Trigger Events described in Section
4(a)(vii) - (viii), 100%.

(y)           “Redemption
Prices” means, collectively, the Trigger Event Redemption Price and
the Change of Control Redemption Price, each of the foregoing, individually, a
Redemption Price.

(z)            “Registration
Rights Agreement” means that certain registration rights agreement
dated as of the Subscription Date by and among the Company and the initial
holder of the Notes relating to, among other things, the registration of the
resale of the Common Stock issuable upon conversion of the Notes and exercise
of the Warrants.

(aa)         “Required
Holders” means, in the event that there remains fifteen percent
(15%) or more of the original dollar amount of the Notes issued still
outstanding, holders of Notes representing at least thirty-three percent (33%)
of the aggregate principal amount of the Notes then outstanding

(bb)         “SEC”
means the United States Securities and Exchange Commission.

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

(dd)         “Subscription
Date” means the date of issuance of the Note as purchased by the
Holder.

(ee)         “Subsidiary”
means any entity in which the Company, directly or indirectly, owns any of the
capital stock or holds an equity or similar interest.

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

 26
 

(gg)         “Trading
Day” means any day on which the Common Stock is 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 is then traded; provided that “Trading
Day” shall not include any day on which the Common Stock is scheduled to trade
on such exchange or market for less than 4.5 hours or any day that the Common
Stock is 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).

(hh)         “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).

(ii)           “Warrant”
has the meaning ascribed to such term in the Securities Purchase Agreement, and
shall include all warrants issued in exchange therefor or replacement thereof.

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

 27
 

(28)        DISCLOSURE. Upon receipt or delivery
by the Company of any notice in accordance with the terms of this Note, unless
the Company has in good faith determined that the matters relating to such
notice do not constitute material, nonpublic information relating to the
Company or its Subsidiaries, the Company shall comply with the disclosure
requirements under the U.S. federal securities laws.

[Signature
Page Follows]

 28

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

	
  

  	
  OPEN ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Saltman

  	
   

  
	
   

  	
   

  	
  Name: David
  Saltman

  
	
   

  	
   

  	
  Title: Chief
  Executive Officer

  

 

EXHIBIT I

OPEN ENERGY CORPORATION

CONVERSION NOTICE

Reference is made to the Convertible Note (the “Note”) issued to the undersigned by OPEN ENERGY CORPORATION
(the “Company”).  In accordance with and pursuant to the Note,
the undersigned hereby elects to convert the Conversion Amount (as defined in
the Note) of the Note indicated below into shares of Common Stock par value
$0.001 per share (the “Common Stock”)
of the Company, as of the date specified below.

	
  Date of Conversion:

  	
   

  
	
   

  	
   

  
	
  Aggregate Conversion Amount to be converted:

  	
   

  
	
   

  	
   

  
	
  Please confirm
  the following information:

  	
   

  
	
   

  	
   

  
	
  Conversion Price:

  	
   

  
	
   

  	
   

  
	
  Number of shares of Common Stock to be 

  issued:

  	
   

  
						

 

Please issue the Common Stock into which the Note is being converted
in the following name and to the following address:

 

	
  Issue to:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Facsimile Number:

  	
   

  
	
   

  	
   

  
	
  Authorization:

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  
	
   

  	
   

  
	
         Title:

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  
	
   

  	
   

  
	
  Account Number:

  	
   

  
	
   (if electronic book entry
  transfer)

  	
   

  
	
   

  	
   

  
	
  Transaction Code Number:

  	
   

  
	
   (if electronic book entry
  transfer)

  	
   

  
											

 

ACKNOWLEDGMENT

The Company hereby
acknowledges this Conversion Notice and hereby directs Madison Stock Transfer,
Inc. to issue the above-indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated [                ],
2007 from the Company and acknowledged and agreed to by Madison Stock Transfer,
Inc.

	
   

  	
  OPEN ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 31Exhibit
4.3

WARRANT

NEITHER
THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES HAVE BEEN ACQUIRED
SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE
TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.

OPEN ENERGY CORPORATION

WARRANT TO PURCHASE COMMON
STOCK

Warrant No.:         08-01

Number of Shares
of Common Stock:1,200,000

Date of Issuance: August 31, 2007 (“Issuance Date”)

Open Energy Corporation,
a Nevada corporation (the “Company”),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Everest Asset Management AG, 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), One Million Two Hundred Thousand (1,200,000) fully paid nonassessable
shares of Common Stock (as defined below)  (the
“Warrant Shares”).  Except as otherwise defined herein,
capitalized terms in this Warrant shall have the meanings set forth in Section
15.  This Warrant is one of the series of
Warrants to purchase Common Stock issued pursuant to Section 1 of that certain
Securities Purchase Agreement, dated as of August 31, 2007 (the “Subscription Date”), by and among the
Company and the investors (the “Buyers”)
referred to therein (the “Securities Purchase
Agreement”).

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 six (6) months after the
issuance of the

Convertible Note, 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 second (2nd) 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
third (3rd) Business
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 shares of Common Stock 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, which balance
account shall be specified in the Exercise Notice, 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 Notice and Aggregate Exercise Price referred to in clause
(ii)(A) above or notification to the Company of a Cashless Exercise referred to
in Section 1(d), 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 of delivery of the
certificates evidencing such Warrant Shares. 
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 five (5) 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 the greater of fifty cents ($0.55) per share or the closing bid price of
the stock on the last trading day preceding the Closing Date plus five cents
($0.05), subject to adjustment as provided herein; provided
that, in no event shall the Exercise Price be reduced to less than
$0.05 per share (such

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floor
price to be adjusted in the same manner that the Exercise Price is adjusted
pursuant to Section 2).

(c)   Company’s
Failure to Timely Deliver Securities. Upon the Company’s receipt of an
Exercise Notice or request for removal of restrictive legends on the shares of
Common Stock issuable in connection therewith, the Company will deliver, or
cause to be delivered, the certificates evidencing such shares of Common Stock
to the Holder within three (3) Trading Days. 
If such delivery is made more than two (2) additional Trading Days
after exercise or request for removal of legend, as the case may be, then the
Company will compensate the Holder at a rate of $100 per day for each of the
first ten (10) Trading Days and $200 per day thereafter for each $10,000 of
securities.  In such event, after the
first such ten (10) Trading Days noted above, the Holder will also have the
right to rescind its Exercise Notice for the Warrants.  If the certificates have not been delivered
by the fifth (5th)
Trading Day after exercise or request for removal of legend, as the case may
be, and the Holder has purchased (in an open market transaction or otherwise)
Common Stock to deliver in satisfaction of a sale by the Holder of Common Stock
issuable upon such conversion that the Holder anticipated receiving from the
Company (a “Buy-In”), then the Company shall,
within three (3) Trading Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions and other
out-of-pocket expenses, if any) for the shares of Common Stock so purchased
(the “Buy-In Price”), at which point the
Company’s obligation to deliver such certificate (and to issue such Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Common Stock and pay cash
to the Holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Bid Price on the Conversion Date.

(d)   Cashless
Exercise.  Notwithstanding anything contained herein
to the contrary, if at any time after the twelve (12) month anniversary of the
Issuance Date, a Registration Statement (as defined in the Registration Rights
Agreement) covering the Warrant Shares that are the subject of an Exercise
Notice (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.

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B= the arithmetic average
of the Weighted Average Prices of the shares of Common Stock (as reported by
Bloomberg) for the five (5) consecutive Trading Days ending 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.

(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. 

(i)            Beneficial
Ownership.  (A) 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 I”) of the shares of Common Stock outstanding immediately
after giving effect to such exercise. 
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, 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.  In any case, the number of outstanding shares
of Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including the SPA Notes and the SPA
Warrants, by the Holder and its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported.  For purposes hereof, the Company may rely on representations of Holder
set forth in applicable Exercise Notices.  By written notice to the Company, the Holder
may from time to time increase or decrease the Maximum Percentage I to any
other percentage in excess of 4.99% specified in such notice; provided that (i)
any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to
the Company, and (ii) any such increase or decrease will apply only to the
Holder.

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Notwithstanding anything in this Warrant to the contrary, the Company
shall be entitled to treat the registered holder of this Warrant as such
appears in its records as the owner of the Warrant for all purposes; provided
that such records are kept current with a reasonably satisfactory and customary
method intended for such purpose.

(B) 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 9.99% (the “Maximum Percentage II”) of the shares of
Common Stock outstanding immediately after giving effect to such exercise.  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, 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.  In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
the SPA Notes and the SPA Warrants, by the Holder and its affiliates since the date
as of which such number of outstanding shares of Common Stock was
reported.  For purposes hereof, the Company may rely on
representations of Holder set forth in applicable Exercise Notice.  By written notice to the Company, the Holder
may from time to time increase or decrease the Maximum Percentage II to any
other percentage in excess of 9.99% specified in such notice; provided that (i)
any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to
the Company, and (ii) any such increase or decrease will apply only to the
Holder.

(g)           Insufficient
Authorized Shares.  If at any time
while any of the Warrants remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common Stock (an “Authorized
Share Failure”) to
satisfy its obligation to reserve for issuance upon exercise of the Warrants no
less than 120% of the number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of all of the Warrants then
outstanding (the “Required Reserve Amount”), then the Company shall
immediately take all action necessary to increase the Company’s authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount for the Warrants then outstanding.  Without limiting the generality of the
foregoing sentence, as

 5
 

soon as practicable after the date of the occurrence of an Authorized
Share Failure, but in no event later than sixty (60) days after the occurrence
of such Authorized Share Failure, the Company shall hold a meeting of its
stockholders for the approval of an increase in the number of authorized shares
of Common Stock.  In connection with such
meeting, the Company shall provide each stockholder with a proxy statement and
shall use its best efforts to solicit its stockholders’ approval of such
increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal.

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 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 Notes) 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. 
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:

(i)            Issuance of
Options.  If the Company grants any
Options (except in connection with the issuance of any Excluded Securities) 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” 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

 6
 

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 (except in connection with the issuance of any
Excluded 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” 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.

(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
(except in each case in connection with the issuance of any Excluded
Securities), 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)

 7
 

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 (except in connection with the
issuance of any Excluded Securities), the Options will be deemed to have been
issued for the difference of (x) the aggregate fair market value of such
Options and other securities issued or sold in such integrated transaction,
less (y) the fair market value of the securities other than such Option, issued
or sold in such transaction and the other securities issued or sold in such
integrated transaction will be deemed to have been issued or sold for the
balance of the consideration received by the Company.  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 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 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.

(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

 8
 

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 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)   Minimum Adjustment. 
No adjustment in the Exercise Price and the number of Warrants shall be
required unless such adjustment would require an increase or decrease of at
least 1% in the Exercise Price as last adjusted; provided, however,
that any adjustments which would be required to be made but for this
Section 2(c) shall be carried forward and taken into account in any
subsequent adjustment.  All calculations
under this Section 2 shall be made to the nearest cent, with one half cent
being rounded upward.

(d)   Floor Price.  Until
such time as the Company receives any required stockholder approval solely as
it relates to an adjustment to the Exercise Price, no adjustment pursuant to
Section 2(a) shall cause the Exercise Price to be less than the closing bid
price of the Common Stock on the date immediately prior to the date of the
Securities Purchase Agreement, as adjusted for any stock dividend, stock split,
stock combination, reclassification or similar transaction.

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 all or substantially all of its shares of Common
Stock, by way of return of capital or otherwise (including, without limitation,
any distribution of cash, stock or other securities not addressed by Section 2
above, property or options not addressed by Section 2 above 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 shares of

 9
 

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; or

(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).

4.     PURCHASE RIGHTS;
FUNDAMENTAL TRANSACTIONS.

(a)   Purchase Rights.  In
addition to any adjustments pursuant to Section 2 above, during the term
hereof, the Company grants, issues or sells any Options, Convertible Securities
or rights to purchase stock, warrants, securities or other property pro rata to
all or substantially all of the record holders of any class of shares of Common
Stock (the “Purchase Rights”),
then, upon exercise of this Warrant, the Holder will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase
Rights, in lieu of any adjustments to which the Holder is otherwise entitled
under Section 2 above in respect of such Purchase Right, which the Holder could
have acquired if the Holder had held the proportionate number of shares of
Common Stock acquirable upon 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 reasonably satisfactory to the Required Holders and approved
by the Required Holders prior to such Fundamental Transaction, including
agreements to deliver to each holder of 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

 10
 

exercise of this Warrant (without regard to
any limitations on the exercise of this Warrant) prior to such Fundamental
Transaction, and reasonably 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 effective date of such
Fundamental Change, 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, until such time as any successor warrant is delivered.  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 Required Holders.  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.

(c)    Not later than ten (10) days prior to the consummation of a
Fundamental Transaction, but not prior to the public announcement of such
Fundamental Transaction, the Company shall deliver written notice thereof via
facsimile to the Holder (a “Fundamental
Transaction Notice”). 
Notwithstanding the foregoing, in the event of a Fundamental Transaction
in which a Successor Entity that is a publicly traded corporation whose stock
is quoted or listed for trading on an Eligible Market does not assume this
Warrant such that the Warrant shall be exercisable for the publicly traded
Common Stock of such Successor Entity, then, at the request of the Holder,
delivered anytime before the 90th day after such Fundamental Transaction, the Company (or the Successor Entity) shall
purchase this Warrant from the Holder by paying to the Holder, within five
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, solely with the intention of so doing, 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

 11
 

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, 120% 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).

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 stockholder 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 stockholder of the Company.

7.     REISSUANCE
OF WARRANTS.

(a)   Transfer of Warrant. 
If this Warrant is to be transferred, the Holder shall surrender this
Warrant to the Company together with an opinion from Holder’s counsel,
satisfactory to the Company and its counsel, that such transfer complies with
the requirements of all applicable federal and state securities laws, 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 then 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

 12
 

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) promptly after any adjustment of the Exercise Price, setting forth in
reasonable detail and certifying the calculation of such adjustment and (ii) at
least ten (10) 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 all holders of shares of Common Stock or (C) for determining
rights to vote with respect to any Fundamental Transaction, dissolution or
liquidation, provided in each case that such information shall be made known to
the public prior to or in conjunction with such notice being provided to the
Holder.

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 prior written consent of the
Required Holders, which consent shall not be unreasonably withheld, delayed or
conditioned; 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 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

 13
 

the laws of any
jurisdictions other than the State of New York. 
The
Company hereby irrevocably submits to the exclusive jurisdiction of the state
and federal courts sitting in The City of New York, Borough of Manhattan, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of any such court, that such
suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law.  In the event that any provision of
this Warrant is invalid or unenforceable under any applicable statute or rule
of law, then such provision shall be deemed inoperative to the extent that it
may conflict therewith and shall be deemed modified to conform with such
statute or rule of law.  Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this
Warrant.  Nothing contained herein shall
be deemed or operate to preclude the Holder from bringing suit or taking other
legal action against the Company in any other jurisdiction to collect on the
Company’s obligations to the Holder, to realize on any collateral or any other
security for such obligations, or to enforce a judgment or other court ruling
in favor of the Holder.  THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR
IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION
CONTEMPLATED HEREBY.

11.   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.

12.   DISPUTE RESOLUTION.  In the case of a dispute as to the
determination of the Exercise Price, the determination of the occurrence of
a Dilutive Issuance which would trigger a reset of the Exercise Price,
the arithmetic calculation of the Warrant Shares, or the determination of the Company entering into a transaction
that would violate any of the Additional Issuance Restrictions (as defined in
the Securities Purchase Agreement), the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
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 Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank (which is ranked in the top 10 investment banks nationally, by
revenue) selected by the Company and approved by the Holder, or (b) a
copy of the disputed agreement or other documentation pursuant to which the
Holder believes securities may be issued pursuant to an Equity Line or as Variable
Equity Securities, or which Holder believes may be a Dilutive Issuance which
would trigger a reset of the Conversion Price, or which Holder believes may violate the Additional Issuance
Restrictions, to an independent law firm selected by the Company
and approved by Holder, or
(c) the disputed arithmetic calculation of the Warrant Shares to the Company’s
independent, outside accountant

 14
 

(which is ranked in the top 10 accounting firms nationally, by
revenue).  The Company shall use
its reasonable efforts to cause at its expense the investment bank, law firm 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 Business Days from the time it receives the disputed determinations or
calculations.  Such investment bank’s,
law firm’s or accountant’s determination or calculation, as the case may be,
shall be binding upon all parties absent demonstrable error. 
The procedures required by this Section 12 are collectively referred to
herein as the “Dispute Resolution Procedures.”

13.   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 right 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, specifically including but not
limited to the Company’s failure to adjust the Exercise Price as required
hereunder following a Dilutive Issuance, 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.

14.   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)   “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
immediately following the public announcement of the applicable Fundamental
Transaction 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 and (ii) an expected volatility equal to the greater of
80% and the 100 day volatility obtained from the HVT function on Bloomberg.

(b)   “Bloomberg”
means Bloomberg Financial Markets.

(c)   “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.

(d)   “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.

 15
 

(e)   “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.

(f)    “Convertible Securities”
means any stock or securities (other than Options) directly or indirectly
convertible into or exercisable or exchangeable at the option of the holder
thereof for shares of Common Stock.

(g)   “Eligible Market”
means the Principal Market, The New York Stock Exchange, Inc., the American
Stock Exchange, The NASDAQ Global Market, The NASDAQ Global Select Market, the
NASDAQ Capital Market or the NASD’s OTC Bulletin Board.

(h)   “Expiration
Date” means the date sixty (60) months after the Closing Date under
the terms of the Securities Purchase Agreement 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.

(i)    “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 (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 Common Stock (not
including any shares of Common 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 Common
Stock (not including any
shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party
to, such stock purchase agreement or other business combination), (v) reorganize, recapitalize or
reclassify its Common Stock, or (vi) any “person” or “group” (as these
terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is
or shall become the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting
power represented by issued and outstanding Common Stock.

(j)    “Options” means
any rights, warrants or options to subscribe for or purchase shares of Common
Stock or Convertible Securities, other than those that may be issued as part of
a compensation package of any employee of the Company or it Subsidiaries and
which are exercisable at a price not less than the closing price of the
Company’s Common Stock as reported on the Principal Market on the Trading Day
immediately preceding the date of grant.

(k)   “Parent Entity”
of a Person means an entity
that, directly or indirectly, controls the applicable Person and whose common
stock or equivalent equity security

 16
 

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.

(l)    “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.

(m)  “Principal Market”
means the NASD OTC Bulletin Board.

(n)   “Registration Rights
Agreement” means that certain registration rights agreement by and
among the Company and the Buyers.

(o)    “Required Holders”
means the holders of the Warrants representing at least thirty-three percent
(33%) of the number of shares of Common Stock underlying the Warrants then
outstanding, provided fifteen percent (15%) or more of the Warrants originally
issued remain outstanding.

(p)   “SPA Notes” means the
Note (as defined in the Securities Purchase Agreement);

(q)    “SPA Warrants” means
the Warrant (as defined in 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 p.m., New York
time).

(t)    “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

 17
 

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 such
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]

 18

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.

	
  

  	
   

  	
  OPEN ENERGY CORPORATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
   

  	
  /s/ David Saltman

  	
   

  
	
   

  	
   

  	
  Name:

  	
  David Saltman

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
									

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

OPEN ENERGY CORPORATION

c/o John E. Hart

Fax: (858) 794-8811

The undersigned holder hereby exercises the right to
purchase                               
of the shares of Common Stock (“Warrant
Shares”) of Open Energy Corporation, a Nevada corporation (the “Company”), evidenced by the attached
Warrant to Purchase Common Stock (the “Warrant”).  Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

1.  Form of
Exercise Price.  The Holder intends that
payment of the Exercise Price shall be made as:

                      a
“Cash Exercise” with respect to                          
Warrant Shares; and/or

                      a
“Cashless Exercise” with respect to                          
Warrant Shares.

2.  Payment of
Exercise Price.  In the event that the
holder has elected a Cash Exercise with respect to some or all of the Warrant
Shares to be issued pursuant hereto, the holder shall pay the Aggregate
Exercise Price in the sum of $                         
to the Company in accordance with the terms of the Warrant.

3.  At the
time such Holder was offered the Warrant, it was, at the date hereof, and on
each date on which it exercises the Warrant, it will be either: (i) an
“accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8) under the Securities Act of 1933, as amended, or (ii) a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act.  Such Buyer is not required to be registered
as a broker-dealer under Section 15 of the Securities Exchange Act of 1934, as
amended.

4.  At the
time such Holder was offered the Warrant, it was, at the date hereof, and on
each date on which it exercises the Warrant, it will not exceed the Maximum
Percentage I or Maximum Percentage II.

5.  Delivery
of Warrant Shares.  The Company shall
deliver to the holder                  
Warrant Shares in accordance with the terms of the Warrant.

	
  Date:                                ,
            

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name of Registered Holder

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					

 

ACKNOWLEDGMENT

The Company hereby
acknowledges this Exercise Notice and hereby directs Madison Stock Transfer,
Inc. to issue the above-indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated [           ],
2007 from the Company and acknowledged and agreed to by Madison Stock Transfer,
Inc.

	
  

  	
   

  	
  OPEN ENERGY CORPORATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

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