Document:

Filed by Automated Filing Services Inc. (604) 609-0244 - Banyan Corporation - Exhibit 4.8

SECURITIES PURCHASE AGREEMENT 

       
SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of
February 8, 2006, by and among Banyan Corporation, an Oregon corporation, with
headquarters located at 1925 Century Park East, Suite 500, Los Angeles,
California 90067 (the “Company”), and each of the purchasers set forth on
the signature pages hereto (the “Buyers”). 

        WHEREAS:

       
A.         The Company and the
Buyers are executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by the rules and regulations as
promulgated by the United States Securities and Exchange Commission (the
“SEC”) under the Securities Act of 1933, as amended (the “1933
Act”); 

       
B.         Buyers desire to
purchase and the Company desires to issue and sell, upon the terms and
conditions set forth in this Agreement (i) 8% secured convertible notes of the
Company, in the form attached hereto as Exhibit “A”, in the aggregate
principal amount of Three Million Dollars ($3,000,000) (together with any
note(s) issued in replacement thereof or as a dividend thereon or otherwise with
respect thereto in accordance with the terms thereof, the “Notes”),
convertible into shares of Common Stock, no par value per share, of the Company
(the “Common Stock”), upon the terms and subject to the limitations and
conditions set forth in such Notes and (ii) warrants, in the form attached
hereto as Exhibit “B”, to purchase 45,000,000 shares of Common Stock (the
“Warrants”). 

       
C.         Each Buyer wishes to
purchase, upon the terms and conditions stated in this Agreement, such principal
amount of Notes and number of Warrants as is set forth immediately below its
name on the signature pages hereto; and 

       
D.         Contemporaneous with
the execution and delivery of this Agreement, the parties hereto are executing
and delivering a Registration Rights Agreement, in the form attached hereto as
Exhibit “C” (the “Registration Rights Agreement”), pursuant to
which the Company has agreed to provide certain registration rights under the
1933 Act and the rules and regulations promulgated thereunder, and applicable
state securities laws. 

        NOW,
THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows: 

               
1.         PURCHASE AND
SALE OF NOTES AND WARRANTS. 

                           
a.         Purchase of Notes and
Warrants. On the Closing Date (as defined below), the Company shall
issue and sell to each Buyer and each Buyer severally agrees to purchase from
the Company such principal amount of Notes and number of Warrants as is set
forth immediately below such Buyer’s name on the signature pages hereto. 

                      
     b.        
Form of Payment. On the Closing Date (as defined below), (i)
each Buyer shall pay the purchase price for the Notes and the Warrants to be
issued and sold to it at the Closing (as defined below) (the “Purchase
Price”) by wire transfer of immediately available funds to the Company, in
accordance with the Company’s written wiring instructions, against delivery of
the Notes in the principal amount equal to the Purchase Price and the number of
Warrants as is set forth immediately below such Buyer’s name on the signature
pages hereto, and (ii) the Company shall deliver such Notes and Warrants duly
executed on behalf of the Company, to such Buyer, against delivery of such
Purchase Price.

                    
      
c.         Closing Date.
Subject to the satisfaction (or written waiver) of the conditions thereto set
forth in Section 6 and Section 7 below, the date and time of the issuance and
sale of the Notes and the Warrants pursuant to this Agreement (the “Closing
Date”) shall be 12:00 noon, Eastern Standard Time on February 8, 2006, or
such other mutually agreed upon time. The closing of the transactions
contemplated by this Agreement (the “Closing”) shall occur on the Closing
Date at such location as may be agreed to by the parties. 

                 
         
d.         Subsequent Closings.
On the final business day of each of the ten (10) months beginning in
March 2006 and ending in December 2006 (each, a “Funding Date”), the
Company shall issue and sell to the Buyers and the Buyers severally agree to
purchase from the Company an aggregate of Eighty-Five Thousand Dollars ($85,000)
principal amount of Notes and Warrants to purchase an aggregate of 1,275,000
shares of Common Stock. Subject to the satisfaction (or written waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, on each Funding
Date, the Company will issue to the Buyers such Notes and Warrants in the
amounts specified by the Buyers and the Buyers shall pay for such Notes and
Warrants by wire transfer of immediately available funds to the Company. In
addition, on each Funding Date, an authorized officer of the Company shall
deliver to the Buyers a closing certificate in form and substance satisfactory
to the Buyers. 

               
2.         BUYERS’ REPRESENTATIONS
AND WARRANTIES. Each Buyer severally (and not jointly) represents
and warrants to the Company solely as to such Buyer that: 

                      
     a.        
Investment Purpose. As of the date hereof, the Buyer is
purchasing the Notes and the shares of Common Stock issuable upon conversion of
or otherwise pursuant to the Notes (including, without limitation, such
additional shares of Common Stock, if any, as are issuable (i) on account of
interest on the Notes, (ii) as a result of the events described in Sections 1.3
and 1.4(g) of the Notes and Section 2(c) of the Registration Rights Agreement or
(iii) in payment of the Standard Liquidated Damages Amount (as defined in
Section 2(f) below) pursuant to this Agreement, such shares of Common Stock
being collectively referred to herein as the “Conversion Shares”) and the
Warrants and the shares of Common Stock issuable upon exercise thereof (the
“Warrant Shares” and, collectively with the Notes, Warrants and
Conversion Shares, the “Securities”) for its own account and not with a
present view towards the public sale or distribution thereof, except pursuant to
sales registered or exempted from registration under the 1933 Act;
provided, however, that by making the representations herein, the
Buyer does not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act. 

2 

                           
b.         Accredited Investor
Status. The Buyer is an “accredited investor” as that term is
defined in Rule 501(a) of Regulation D (an “Accredited Investor”). 

                           
c.         Reliance on
Exemptions. The Buyer understands that the Securities are being
offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities. 

                           
d.         Information.
The Buyer and its advisors, if any, have been, and for so long as the Notes and
Warrants remain outstanding will continue to be, furnished with all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities which have been requested by
the Buyer or its advisors. The Buyer and its advisors, if any, have been, and
for so long as the Notes and Warrants remain outstanding will continue to be,
afforded the opportunity to ask questions of the Company. Notwithstanding the
foregoing, the Company has not disclosed to the Buyer any material nonpublic
information and will not disclose such information unless such information is
disclosed to the public prior to or promptly following such disclosure to the
Buyer. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer’s right to rely on the Company’s representations and warranties
contained in Section 3 below. The Buyer understands that its investment in the
Securities involves a significant degree of risk. 

                       
    e.        
Governmental Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities. 

                       
    f.        
Transfer or Re-sale. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel that shall be in form, substance and scope customary for
opinions of counsel in comparable transactions to the effect that the Securities
to be sold or transferred may be sold or transferred pursuant to an exemption
from such registration, which opinion shall be accepted by the Company, (c) the
Securities are sold or transferred to an “affiliate” (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the
Buyer who agrees to sell or otherwise transfer the Securities only in accordance
with this Section 2(f) and who is an Accredited Investor, (d) the Securities are
sold pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation
S under the 1933 Act (or a successor rule) (“Regulation S”), and the
Buyer shall have delivered to the Company an opinion of counsel that shall be in
form, substance and scope customary for opinions of counsel in corporate
transactions, which opinion shall be accepted by the Company; (ii) any sale of
such Securities made in reliance on Rule 144 may be made only in accordance with
the terms of said Rule and further, if said Rule is not applicable, any re-sale
of such Securities under circumstances in which the seller (or the person
through 

3 

whom the sale is made) may be deemed to be an underwriter (as
that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any obligation to
register such Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder (in each case,
other than pursuant to the Registration Rights Agreement). Notwithstanding the
foregoing or anything else contained herein to the contrary, the Securities may
be pledged as collateral in connection with a bona fide margin
account or other lending arrangement. In the event that the Company does not
accept the opinion of counsel provided by the Buyer with respect to the transfer
of Securities pursuant to an exemption from registration, such as Rule 144 or
Regulation S, within three (3) business days of delivery of the opinion to the
Company, the Company shall pay to the Buyer liquidated damages of three percent
(3%) of the outstanding amount of the Notes per month plus accrued and unpaid
interest on the Notes, prorated for partial months, in cash or shares at the
option of the Company (“Standard Liquidated Damages Amount”). If the
Company elects to pay the Standard Liquidated Damages Amount in shares of Common
Stock, such shares shall be issued at the Conversion Price at the time of
payment. 

                           
g.         Legends. The
Buyer understands that the Notes and the Warrants and, until such time as the
Conversion Shares and Warrant Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement or otherwise may be sold
pursuant to Rule 144 or Regulation S without any restriction as to the number of
securities as of a particular date that can then be immediately sold, the
Conversion Shares and Warrant Shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities): 

  
    
      
        
          “The securities represented by this certificate
            have not been registered under the Securities Act of 1933, as amended.
            The securities may not be sold, transferred or assigned in the absence
            of an effective registration statement for the securities under said
            Act, or an opinion of counsel, in form, substance and scope customary
            for opinions of counsel in comparable transactions, that registration
            is not required under said Act or unless sold pursuant to Rule 144
            or Regulation S under said Act.” 

        

      

    

  

               
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
1933 Act, which opinion shall be accepted by the Company so that the sale or
transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 or Regulation S.
The Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any. 

4 

                           
h.        
Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of the Buyer, and this
Agreement constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their terms. 

                           
i.         Residency.
The Buyer is a resident of the jurisdiction set forth immediately below such
Buyer’s name on the signature pages hereto.

               
3.        
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that: 

                           
a.         Organization and
Qualification. The Company and each of its Subsidiaries (as defined
below), if any, is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated, with
full power and authority (corporate and other) to own, lease, use and operate
its properties and to carry on its business as and where now owned, leased,
used, operated and conducted. Schedule 3(a) sets forth a list of all of
the Subsidiaries of the Company and the jurisdiction in which each is
incorporated. The Company and each of its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership or use of property or the nature of the business
conducted by it makes such qualification necessary except where the failure to
be so qualified or in good standing would not have a Material Adverse Effect.
“Material Adverse Effect” means any material adverse effect on the
business, operations, assets, financial condition or prospects of the Company or
its Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements or instruments to be entered into in connection
herewith. “Subsidiaries” means any corporation or other organization,
whether incorporated or unincorporated, in which the Company owns, directly or
indirectly, any equity or other ownership interest. 

                           
b.         Authorization;
Enforcement. (i) The Company has all requisite corporate power and
authority to enter into and perform this Agreement, the Registration Rights
Agreement, the Notes and the Warrants and to consummate the transactions
contemplated hereby and thereby and to issue the Securities, in accordance with
the terms hereof and thereof, (ii) the execution and delivery of this Agreement,
the Registration Rights Agreement, the Notes and the Warrants by the Company and
the consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Notes and the Warrants and
the issuance and reservation for issuance of the Conversion Shares and Warrant
Shares issuable upon conversion or exercise thereof) have been duly authorized
by the Company’s Board of Directors and no further consent or authorization of
the Company, its Board of Directors, or its shareholders is required, (iii) this
Agreement has been duly executed and delivered by the Company by its authorized
representative, and such authorized representative is the true and official
representative with authority to sign this Agreement and the other documents
executed in connection herewith and bind the Company accordingly, and (iv) this
Agreement constitutes, and upon execution and delivery by the Company of the
Registration Rights Agreement, the Notes and the Warrants, each of such
instruments will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms. 

5 

                           
c.        
Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 500,000,000 shares of Common Stock, of
which 167,031,898 shares are issued and outstanding, no shares are reserved for
issuance pursuant to securities (other than the Notes and the Warrants)
exercisable for, or convertible into or exchangeable for shares of Common Stock
and 332,968,102 shares are reserved for issuance upon conversion of the Notes
and exercise of the Warrants (subject to adjustment pursuant to the Company’s
covenant set forth in Section 4(h) below); and (ii) 10,000,000 shares of Class A
Preferred Stock, of which 187,500 shares of Series A Convertible Preferred Stock
are issued and outstanding. All of such outstanding shares of capital stock are,
or upon issuance will be, duly authorized, validly issued, fully paid and
nonassessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the shareholders of the Company
or any liens or encumbrances imposed through the actions or failure to act of
the Company. Except as disclosed in Schedule 3(c), as of the effective
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, puts, calls, rights of first refusal, agreements,
understandings, claims or other commitments or rights of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for any shares of capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries, (ii) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
its or their securities under the 1933 Act (except the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the Notes,
the Warrants, the Conversion Shares or Warrant Shares. The Company has furnished
to the Buyer true and correct copies of the Company’s Articles of Incorporation
as in effect on the date hereof (“Articles of Incorporation”), the
Company’s By-laws, as in effect on the date hereof (the “Bylaws”), and
the terms of all securities convertible into or exercisable for Common Stock of
the Company and the material rights of the holders thereof in respect thereto.
The Company shall provide the Buyer with a written update of this representation
signed by the Company’s Chief Executive or Chief Financial Officer on behalf of
the Company as of the Closing Date. 

                           
d.         Issuance of
Shares. Subject to the Stockholder Approval (as defined in Section
4(n)), the Conversion Shares and Warrant Shares are duly authorized and reserved
for issuance and, upon conversion of the Notes and exercise of the Warrants in
accordance with their respective terms, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of shareholders of the Company and will not impose personal
liability upon the holder thereof. 

                           
e.         Acknowledgment of
Dilution. The Company understands and acknowledges the potentially
dilutive effect to the Common Stock upon the issuance of the Conversion Shares
and Warrant Shares upon conversion of the Note or exercise of the Warrants. The
Company further acknowledges that its obligation to issue Conversion Shares and
Warrant Shares upon conversion of the Notes or exercise of the Warrants in
accordance with this Agreement, the Notes and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other shareholders of the Company. 

6 

                           
f.         No Conflicts.
The execution, delivery and performance of this Agreement, the Registration
Rights Agreement, the Notes and the Warrants by the Company and the consummation
by the Company of the transactions contemplated hereby and thereby (including,
without limitation, the issuance and reservation for issuance of the Conversion
Shares and Warrant Shares) will not (i) conflict with or result in a violation
of any provision of the Articles of Incorporation or By-laws or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, patent, patent
license or instrument to which the Company or any of its Subsidiaries is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Articles of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the 1933 Act
and any applicable state securities laws, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court, governmental agency, regulatory agency, self regulatory organization
or stock market or any third party in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration Rights
Agreement, the Notes or the Warrants in accordance with the terms hereof or
thereof or to issue and sell the Notes and Warrants in accordance with the terms
hereof and to issue the Conversion Shares upon conversion of the Notes and the
Warrant Shares upon exercise of the Warrants. Except as disclosed in Schedule
3(f), all consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company is not in
violation of the listing requirements of the Over-the-Counter Bulletin Board
(the “OTCBB”) and does not reasonably anticipate that the Common Stock
will be delisted by the OTCBB in the foreseeable future. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.

                           
g.         SEC Documents; Financial
Statements. Except as disclosed in Schedule 3(g), the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the “1934
Act”) (all of the foregoing filed prior to 

7 

the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits to such
documents) incorporated by reference therein, being hereinafter referred to
herein as the “SEC Documents”). The Company has delivered to each Buyer
true and complete copies of the SEC Documents, except for such exhibits and
incorporated documents. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the statements made in any such SEC Documents is, or has
been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior the date
hereof). As of their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
December 31, 2004 and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company. 

                           
h.         Absence of Certain
Changes. Since December 31, 2004, there has been no material
adverse change and no material adverse development in the assets, liabilities,
business, properties, operations, financial condition, results of operations or
prospects of the Company or any of its Subsidiaries. 

                           
i.         Absence of
Litigation. There is no action, suit, claim, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened against or affecting the Company or any
of its Subsidiaries, or their officers or directors in their capacity as such,
that could have a Material Adverse Effect. Schedule 3(i) contains a
complete list and summary description of any pending or threatened proceeding
against or affecting the Company or any of its Subsidiaries, without regard to
whether it would have a Material Adverse Effect. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. 

8 

                           
j.         Patents,
Copyrights, etc.

                                       
(i)         The Company and
each of its Subsidiaries owns or possesses the requisite licenses or rights to
use all patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names and copyrights (“Intellectual Property”) necessary to enable it to
conduct its business as now operated (and, except as set forth in Schedule
3(j) hereof, to the best of the Company’s knowledge, as presently
contemplated to be operated in the future); there is no claim or action by any
person pertaining to, or proceeding pending, or to the Company’s knowledge
threatened, which challenges the right of the Company or of a Subsidiary with
respect to any Intellectual Property necessary to enable it to conduct its
business as now operated (and, except as set forth in Schedule 3(j)
hereof, to the best of the Company’s knowledge, as presently contemplated to be
operated in the future); to the best of the Company’s knowledge, the Company’s
or its Subsidiaries’ current and intended products, services and processes do
not infringe on any Intellectual Property or other rights held by any person;
and the Company is unaware of any facts or circumstances which might give rise
to any of the foregoing. The Company and each of its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of their Intellectual Property. 

                                       
(ii)        All of the
Company’s computer software and computer hardware, and other similar or related
items of automated, computerized or software systems that are used or relied on
by the Company in the conduct of its business or that were, or currently are
being, sold or licensed by the Company to customers (collectively,
“Information Technology”), are Year 2000 Compliant. For purposes of this
Agreement, the term “Year 2000 Compliant” means, with respect to the
Company’s Information Technology, that the Information Technology is designed to
be used prior to, during and after the calendar Year 2000, and the Information
Technology used during each such time period will accurately receive, provide
and process date and time data (including, but not limited to, calculating,
comparing and sequencing) from, into and between the 20th and
21st centuries, including the years 1999 and 2000, and leap-year
calculations, and will not malfunction, cease to function, or provide invalid or
incorrect results as a result of the date or time data, to the extent that other
information technology, used in combination with the Information Technology,
properly exchanges date and time data with it. The Company has delivered to the
Buyers true and correct copies of all analyses, reports, studies and similar
written information, whether prepared by the Company or another party, relating
to whether the Information Technology is Year 2000 Compliant, if any. 

                           
k.         No Materially Adverse
Contracts, Etc. Neither the Company nor any of its Subsidiaries is
subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Company’s
officers has or is expected in the future to have a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is a party to any contract or
agreement which in the judgment of the Company’s officers has or is expected to
have a Material Adverse Effect. 

                           
l.         Tax Status.
Except as set forth on Schedule 3(l), the Company and each of its
Subsidiaries has made or filed all federal, state and foreign income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its Subsidiaries has set aside on its books 

9 

provisions reasonably adequate for the payment of all unpaid
and unreported taxes) and has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, state or local tax. Except as set forth on
Schedule 3(l), none of the Company’s tax returns is presently being
audited by any taxing authority. 

                       
    m.         Certain
Transactions. Except as set forth on Schedule 3(m) and
except for arm’s length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner. 

                         
  n.        
Disclosure. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed (assuming for this purpose that the Company’s reports filed under the
1934 Act are being incorporated into an effective registration statement filed
by the Company under the 1933 Act). 

                           
o.         Acknowledgment Regarding
Buyers’ Purchase of Securities. The Company acknowledges and agrees
that the Buyers are acting solely in the capacity of arm’s length purchasers
with respect to this Agreement and the transactions contemplated hereby. The
Company further acknowledges that no Buyer is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any statement made by any
Buyer or any of their respective representatives or agents in connection with
this Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to the Buyers’ purchase of the
Securities. The Company further represents to each Buyer that the Company’s
decision to enter 

10 

into this Agreement has been based solely on the independent
evaluation of the Company and its representatives. 

                   
       
p.         No Integrated
Offering. Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers
or sales in any security or solicited any offers to buy any security under
circumstances that would require registration under the 1933 Act of the issuance
of the Securities to the Buyers. The issuance of the Securities to the Buyers
will not be integrated with any other issuance of the Company’s securities
(past, current or future) for purposes of any shareholder approval provisions
applicable to the Company or its securities. 

                
          
q.         No Brokers.
The Company has taken no action which would give rise to any claim by any person
for brokerage commissions, transaction fees or similar payments relating to this
Agreement or the transactions contemplated hereby.

                             r.        
Permits; Compliance. The Company and each of its Subsidiaries
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the “Company Permits”), and
there is no action pending or, to the knowledge of the Company, threatened
regarding suspension or cancellation of any of the Company Permits. Neither the
Company nor any of its Subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for any such conflicts,
defaults or violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. Since December 31,
2004, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect. 

                           
s.        
Environmental Matters. 

                                       
(i)         Except as set forth
in Schedule 3(s), there are, to the Company’s knowledge, with respect to
the Company or any of its Subsidiaries or any predecessor of the Company, no
past or present violations of Environmental Laws (as defined below), releases of
any material into the environment, actions, activities, circumstances,
conditions, events, incidents, or contractual obligations which may give rise to
any common law environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and neither the Company nor any of its
Subsidiaries has received any notice with respect to any of the foregoing, nor
is any action pending or, to the Company’s knowledge, threatened in connection
with any of the foregoing. The term “Environmental Laws” means all
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants contaminants, or toxic or hazardous
substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of 

11 

Hazardous Materials, as well as all authorizations, codes,
decrees, demands or demand letters, injunctions, judgments, licenses, notices or
notice letters, orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder. 

                                       
(ii)        Other than those
that are or were stored, used or disposed of in compliance with applicable law,
no Hazardous Materials are contained on or about any real property currently
owned, leased or used by the Company or any of its Subsidiaries, and no
Hazardous Materials were released on or about any real property previously
owned, leased or used by the Company or any of its Subsidiaries during the
period the property was owned, leased or used by the Company or any of its
Subsidiaries, except in the normal course of the Company’s or any of its
Subsidiaries’ business. 

                                       
(iii)       Except as set forth in
Schedule 3(s), there are no underground storage tanks on or under any
real property owned, leased or used by the Company or any of its Subsidiaries
that are not in compliance with applicable law.

                             t.        
Title to Property. The Company and its Subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(t) or
such as would not have a Material Adverse Effect. Any real property and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect. 

                             u.        
Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect. The Company has provided to Buyer true
and correct copies of all policies relating to directors’ and officers’
liability coverage, errors and omissions coverage, and commercial general
liability coverage. 

                             v.        
Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company’s board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. 

12 

                             w.        
Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended, or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee. 

                             x.        
Solvency. Except as set forth in Schedule 3(x),
the Company (after giving effect to the transactions contemplated by this
Agreement) is solvent (i.e., its assets have a fair market value in
excess of the amount required to pay its probable liabilities on its existing
debts as they become absolute and matured) and currently the Company has no
information that would lead it to reasonably conclude that the Company would
not, after giving effect to the transaction contemplated by this Agreement, have
the ability to, nor does it intend to take any action that would impair its
ability to, pay its debts from time to time incurred in connection therewith as
such debts mature. Except as set forth in Schedule 3(x), the
Company did not receive a qualified opinion from its auditors with respect to
its most recent fiscal year end and, after giving effect to the transactions
contemplated by this Agreement, does not anticipate or know of any basis upon
which its auditors might issue a qualified opinion in respect of its current
fiscal year. 

                             y.        
No Investment Company. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement will not
be an “investment company” required to be registered under the Investment
Company Act of 1940 (an “Investment Company”). The Company is not
controlled by an Investment Company. 

                             z.        
Breach of Representations and Warranties by the Company. If
the Company breaches any of the representations or warranties set forth in this
Section 3, and in addition to any other remedies available to the Buyers
pursuant to this Agreement, the Company shall pay to the Buyer the Standard
Liquidated Damages Amount in cash or in shares of Common Stock at the option of
the Company, until such breach is cured. If the Company elects to pay the
Standard Liquidated Damages Amounts in shares of Common Stock, such shares shall
be issued at the Conversion Price at the time of payment. 

               
4.        
COVENANTS. 

                             a.        
Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.

                             b.        
Form D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers at the
applicable closing pursuant to this Agreement under applicable securities or
“blue sky” laws of the states of the United States (or to obtain an exemption
from 

13 

such qualification), and shall provide evidence of any such
action so taken to each Buyer on or prior to the Closing Date. 

                             c.        
Reporting Status; Eligibility to Use Form S-3, SB-2 or Form
S-1. The Company’s Common Stock is registered under Section 12(g) of the
1934 Act. The Company represents and warrants that it meets the requirements for
the use of Form S-3 (or if the Company is not eligible for the use of Form S-3
as of the Filing Date (as defined in the Registration Rights Agreement), the
Company may use the form of registration for which it is eligible at that time)
for registration of the sale by the Buyer of the Registrable Securities (as
defined in the Registration Rights Agreement). So long as the Buyer beneficially
owns any of the Securities, the Company shall timely file all reports required
to be filed with the SEC pursuant to the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination. The Company further agrees to file all reports required to be filed
by the Company with the SEC in a timely manner so as to become eligible, and
thereafter to maintain its eligibility, for the use of Form S-3. The Company
shall issue a press release describing the materials terms of the transaction
contemplated hereby as soon as practicable following the Closing Date but in no
event more than two (2) business days of the Closing Date, which press release
shall be subject to prior review by the Buyers. The Company agrees that such
press release shall not disclose the name of the Buyers unless expressly
consented to in writing by the Buyers or unless required by applicable law or
regulation, and then only to the extent of such requirement. 

                             d.        
Use of Proceeds. The Company shall use the proceeds from the
sale of the Notes and the Warrants in the manner set forth in Schedule
4(d) attached hereto and made a part hereof and shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person (except in connection with
its currently existing direct or indirect Subsidiaries) 

                             e.        
Future Offerings. Subject to the exceptions described below,
the Company will not, without the prior written consent of a
majority-in-interest of the Buyers, not to be unreasonably withheld, negotiate
or contract with any party to obtain additional equity financing (including debt
financing with an equity component) that involves (A) the issuance of Common
Stock at a discount to the market price of the Common Stock on the date of
issuance (taking into account the value of any warrants or options to acquire
Common Stock issued in connection therewith) or (B) the issuance of convertible
securities that are convertible into an indeterminate number of shares of Common
Stock or (C) the issuance of warrants during the period (the “Lock-up
Period”) beginning on the Closing Date and ending on the later of (i) two
hundred seventy (270) days from the Closing Date and (ii) one hundred eighty
(180) days from the date the Registration Statement (as defined in the
Registration Rights Agreement) is declared effective (plus any days in which
sales cannot be made thereunder). In addition, subject to the exceptions
described below, the Company will not conduct any equity financing (including
debt with an equity component) (“Future Offerings”) during the period
beginning on the Closing Date and ending two (2) years after the end of the
Lock-up Period unless it shall have first delivered to each Buyer, at least
twenty (20) business days prior to the closing of such Future Offering, written
notice describing the proposed Future Offering, including the terms and
conditions thereof and proposed definitive documentation to be entered into in
connection 

14 

therewith, and providing each Buyer an option during the
fifteen (15) day period following delivery of such notice to purchase its pro
rata share (based on the ratio that the aggregate principal amount of Notes
purchased by it hereunder bears to the aggregate principal amount of Notes
purchased hereunder) of the securities being offered in the Future Offering on
the same terms as contemplated by such Future Offering (the limitations referred
to in this sentence and the preceding sentence are collectively referred to as
the “Capital Raising Limitations”). In the event the terms and
conditions of a proposed Future Offering are amended in any respect after
delivery of the notice to the Buyers concerning the proposed Future Offering,
the Company shall deliver a new notice to each Buyer describing the amended
terms and conditions of the proposed Future Offering and each Buyer thereafter
shall have an option during the fifteen (15) day period following delivery of
such new notice to purchase its pro rata share of the securities being offered
on the same terms as contemplated by such proposed Future Offering, as amended.
The foregoing sentence shall apply to successive amendments to the terms and
conditions of any proposed Future Offering. The Capital Raising Limitations
shall not apply to any transaction involving (i) issuances of securities in a
firm commitment underwritten public offering (excluding a continuous offering
pursuant to Rule 415 under the 1933 Act) or (ii) issuances of securities as
consideration for a merger, consolidation or purchase of assets, or in
connection with any strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital), or in connection with the disposition
or acquisition of a business, product or license by the Company. The Capital
Raising Limitations also shall not apply to the issuance of securities upon
exercise or conversion of the Company’s options, warrants or other convertible
securities outstanding as of the date hereof or to the grant of additional
options or warrants, or the issuance of additional securities, under any Company
stock option or restricted stock plan approved by the shareholders of the
Company.

                             f.        
Expenses. At the Closing, the Company shall reimburse Buyers
for expenses incurred by them in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other agreements
to be executed in connection herewith (“Documents”), including, without
limitation, attorneys’ and consultants’ fees and expenses, transfer agent fees,
fees for stock quotation services, fees relating to any amendments or
modifications of the Documents or any consents or waivers of provisions in the
Documents, fees for the preparation of opinions of counsel, escrow fees, and
costs of restructuring the transactions contemplated by the Documents. When
possible, the Company must pay these fees directly, otherwise the Company must
make immediate payment for reimbursement to the Buyers for all fees and expenses
immediately upon written notice by the Buyer or the submission of an invoice by
the Buyer If the Company fails to reimburse the Buyer in full within three (3)
business days of the written notice or submission of invoice by the Buyer, the
Company shall pay interest on the total amount of fees to be reimbursed at a
rate of 15% per annum. 

                             g.        
Financial Information. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns, or sells
all of the Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-KSB its Quarterly Reports on Form 10-QSB
and any Current Reports on Form 8-K; (ii) within one (1) day after release,
copies of all press releases issued by the Company or any of its Subsidiaries;
and (iii) contemporaneously with the making available or giving to the
shareholders 

15 

of the Company, copies of any notices or other information the
Company makes available or gives to such shareholders. 

                             h.        
Authorization and Reservation of Shares. Subject to the
Stockholder Approval (as defined in Section 4(n)), the Company shall at all
times have authorized, and reserved for the purpose of issuance, a sufficient
number of shares of Common Stock to provide for the full conversion or exercise
of the outstanding Notes and Warrants and issuance of the Conversion Shares and
Warrant Shares in connection therewith (based on the Conversion Price of the
Notes or Exercise Price of the Warrants in effect from time to time) and as
otherwise required by the Notes. The Company shall not reduce the number of
shares of Common Stock reserved for issuance upon conversion of Notes and
exercise of the Warrants without the consent of each Buyer. Subject to the
Stockholder Approval (as defined in Section 4(o)), the Company shall at all
times maintain the number of shares of Common Stock so reserved for issuance at
an amount (“Reserved Amount”) equal to no less than two (2) times the
number that is then actually issuable upon full conversion of the Notes and
Additional Notes and upon exercise of the Warrants and the Additional Warrants
(based on the Conversion Price of the Notes or the Exercise Price of the
Warrants in effect from time to time). If at any time the number of shares of
Common Stock authorized and reserved for issuance (“Authorized and Reserved
Shares”) is below the Reserved Amount, the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of shareholders
to authorize additional shares to meet the Company’s obligations under this
Section 4(h), in the case of an insufficient number of authorized shares, obtain
shareholder approval of an increase in such authorized number of shares, and
voting the management shares of the Company in favor of an increase in the
authorized shares of the Company to ensure that the number of authorized shares
is sufficient to meet the Reserved Amount. If the Company fails to obtain such
shareholder approval within thirty (30) days following the date on which the
number of Reserved Amount exceeds the Authorized and Reserved Shares, the
Company shall pay to the Borrower the Standard Liquidated Damages Amount, in
cash or in shares of Common Stock at the option of the Buyer. If the Buyer
elects to be paid the Standard Liquidated Damages Amount in shares of Common
Stock, such shares shall be issued at the Conversion Price at the time of
payment. In order to ensure that the Company has authorized a sufficient amount
of shares to meet the Reserved Amount at all times, the Company must deliver to
the Buyer at the end of every month a list detailing (1) the current amount of
shares authorized by the Company and reserved for the Buyer; and (2) amount of
shares issuable upon conversion of the Notes and upon exercise of the Warrants
and as payment of interest accrued on the Notes for one year. If the Company
fails to provide such list within five (5) business days of the end of each
month, the Company shall pay the Standard Liquidated Damages Amount, in cash or
in shares of Common Stock at the option of the Buyer, until the list is
delivered. If the Buyer elects to be paid the Standard Liquidated Damages Amount
in shares of Common Stock, such shares shall be issued at the Conversion Price
at the time of payment. 

                             i.        
Listing. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and, so long as any Buyer owns
any of the Securities, shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares and 

16 

Warrant Shares from time to time issuable upon conversion of
the Notes or exercise of the Warrants. The Company will obtain and, so long as
any Buyer owns any of the Securities, maintain the listing and trading of its
Common Stock on the OTCBB or any equivalent replacement exchange, the Nasdaq
National Market (“Nasdaq”), the Nasdaq SmallCap Market (“Nasdaq
SmallCap”), the New York Stock Exchange (“NYSE”), or the American
Stock Exchange (“AMEX”) and will comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers (“NASD”) and such
exchanges, as applicable. The Company shall promptly provide to each Buyer
copies of any notices it receives from the OTCBB and any other exchanges or
quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems. 

                             j.        
Corporate Existence. So long as a Buyer beneficially owns any
Notes or Warrants, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company’s assets, except in the event
of a merger or consolidation or sale of all or substantially all of the
Company’s assets, where the surviving or successor entity in such transaction
(i) assumes the Company’s obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on the OTCBB, Nasdaq,
Nasdaq SmallCap, NYSE or AMEX. 

                             k.        
No Integration. The Company shall not make any offers or sales
of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
1933 Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities. 

                             l.        
Key Man Insurance. The Company shall use its best
efforts to obtain, on or before five (5) business days from the date hereof, key
man life insurance on all of the Company’s officers and division heads. 

                             m.        
Sarbanes-Oxley; Internal Accounting Controls. The
Company shall use its best efforts to become in material compliance with all
provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of
the Closing Date and to maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. 

                             n.        
Stockholder Approval. The Company shall file a proxy
statement or information statement with the SEC no later than April 28, 2006 and
use its best efforts to obtain, on or before May 31, 2006 such approvals of the
Company’s stockholders as may be required to issue all of the shares of Common
Stock issuable upon conversion or exercise of, or otherwise with respect to, the
Notes and the Warrants in accordance with Oregon law and any 

17 

applicable rules or regulations of the OTCBB and Nasdaq, either
through a reverse stock split of the Common Stock or an increase in authorized
capital (the “Stockholder Approval”). The Company shall furnish to each
Buyer and its legal counsel promptly (but in no event less than two (2) business
days) before the same is filed with the SEC, one copy of the proxy statement or
information statement and any amendment thereto, and shall deliver to each Buyer
promptly each letter written by or on behalf of the Company to the SEC or the
staff of the SEC, and each item of correspondence from the SEC or the staff of
the SEC, in each case relating to such proxy statement or information statement
(other than any portion thereof which contains information for which the Company
has sought confidential treatment). The Company will promptly (but in no event
more than three (3) business days) respond to any and all comments received from
the SEC (which comments shall promptly be made available to each Buyer). The
Company shall comply with the filing and disclosure requirements of Section 14
under the 1934 Act in connection with the Stockholder Approval. The Company
represents and warrants that its Board of Directors has approved the proposal
contemplated by this Section 4(n) and shall indicate such approval in the proxy
statement or information statement used in connection with the Stockholder
Approval. 

                             o.        
Breach of Covenants. If the Company breaches any of the
covenants set forth in this Section 4, and in addition to any other remedies
available to the Buyers pursuant to this Agreement, the Company shall pay to the
Buyers the Standard Liquidated Damages Amount, in cash or in shares of Common
Stock at the option of the Company, until such breach is cured. If the Company
elects to pay the Standard Liquidated Damages Amount in shares, such shares
shall be issued at the Conversion Price at the time of payment. 

                     5.        
TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates, registered
in the name of each Buyer or its nominee, for the Conversion Shares and Warrant
Shares in such amounts as specified from time to time by each Buyer to the
Company upon conversion of the Notes or exercise of the Warrants in accordance
with the terms thereof (the “Irrevocable Transfer Agent Instructions”).
Prior to registration of the Conversion Shares and Warrant Shares under the 1933
Act or the date on which the Conversion Shares and Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of Securities as
of a particular date that can then be immediately sold, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer’s obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the Securities. If a
Buyer provides the Company with (i) an opinion of counsel in form, substance and
scope customary for opinions in comparable transactions, to the effect that a
public sale or 

18 

transfer of such Securities may be made without registration
under the 1933 Act and such sale or transfer is effected or (ii) the Buyer
provides reasonable assurances that the Securities can be sold pursuant to Rule
144, the Company shall permit the transfer, and, in the case of the Conversion
Shares and Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates, free from restrictive legend, in such name and in such
denominations as specified by such Buyer. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers, by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 may be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section,
that the Buyers shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach and requiring immediate transfer,
without the necessity of showing economic loss and without any bond or other
security being required. 

               
6.         CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL. The obligation of the Company
hereunder to issue and sell the Notes and Warrants to a Buyer at the Closing is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions thereto, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion: 

                             a.        
The applicable Buyer shall have executed this Agreement and the Registration
Rights Agreement, and delivered the same to the Company. 

                             b.        
The applicable Buyer shall have delivered the Purchase Price in accordance
with Section 1(b) above. 

                             c.        
The representations and warranties of the applicable Buyer shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date), and the applicable Buyer shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the applicable Buyer at or prior to the Closing Date.

                             d.        
No litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement. 

               
7.         CONDITIONS
TO EACH BUYER’S OBLIGATION TO PURCHASE. The obligation of
each Buyer hereunder to purchase the Notes and Warrants at the Closing is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions, provided that these conditions are for such Buyer’s sole
benefit and may be waived by such Buyer at any time in its sole discretion: 

                             a.        
The Company shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Buyer. 

19 

                             b.        
The Company shall have delivered to such Buyer duly executed Notes (in such
denominations as the Buyer shall request) and Warrants in accordance with
Section 1(b) above. 

                             c.        
The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Buyers, shall have been delivered
to and acknowledged in writing by the Company’s Transfer Agent. 

                             d.        
The representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Closing Date as
though made at such time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Buyer shall have received a
certificate or certificates, executed by the chief executive officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer including, but not
limited to certificates with respect to the Company’s Articles of Incorporation,
By-laws and Board of Directors’ resolutions relating to the transactions
contemplated hereby. 

                             e.        
No litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement. 

                             f.        
No event shall have occurred which could reasonably be expected to have a
Material Adverse Effect on the Company. 

                             g.        
The Conversion Shares and Warrant Shares shall have been authorized for
quotation on the OTCBB and trading in the Common Stock on the OTCBB shall not
have been suspended by the SEC or the OTCBB. 

                             h.        
The Buyer shall have received an opinion of the Company’s counsel, dated as
of the Closing Date, in form, scope and substance reasonably satisfactory to the
Buyer and in substantially the same form as Exhibit “D” attached hereto.

                             i.        
The Buyer shall have received an officer’s certificate described in Section
3(c) above, dated as of the Closing Date. 

               
8.         GOVERNING
LAW; MISCELLANEOUS.

                             a.        
Governing Law. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS 

20 

LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE
ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY
WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY
MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL
AFFECT EITHER PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT
PREVAIL IN ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL
FEES AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY
IN CONNECTION WITH SUCH DISPUTE. 

                             b.        
Counterparts; Signatures by Facsimile. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement. 

                             c.        
Headings. The headings of this Agreement are for convenience
of reference only and shall not form part of, or affect the interpretation of,
this Agreement.

                             d.        
Severability. In the event that any provision of this
Agreement 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 provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof. 

                             e.        
Entire Agreement; Amendments. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.

                             f.        
Notices. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized 

21 

overnight delivery service) or by facsimile, in each case
addressed to a party. The addresses for such communications shall be: 

If to the Company: 

Banyan Corporation 
1925 Century
Park East, Suite 500 
Los Angeles, California 90067 
Attention: Chief
Executive Officer 
Telephone: 800-808-0899 
Facsimile: 403-287-8804 

With a copy to: 

Noel E. Guardi, Esq. 
P. O. Box 381

Pinecliffe, Colorado 80471 
Telephone: 303-969-8886 
Facsimile:
303-969-8887 

               
If to a Buyer: To the address set forth immediately below such Buyer’s
name on the signature pages hereto. 

With copy to: 

Ballard Spahr Andrews & Ingersoll,
LLP 
1735 Market Street 51st Floor 
Philadelphia, Pennsylvania
19103 
Attention: Gerald J. Guarcini, Esq. 
Telephone: 215-864-8625

Facsimile: 215-864-8999 

               
Each party shall provide notice to the other party of any change in
address. 

                             g.        
Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its “affiliates,” as that term is defined
under the 1934 Act, without the consent of the Company. 

                             h.        
Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person. 

22 

                             i.        
Survival. The representations and warranties of the Company
and the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall
survive the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers. The Company agrees to indemnify and
hold harmless each of the Buyers and all their officers, directors, employees
and agents for loss or damage arising as a result of or related to any breach or
alleged breach by the Company of any of its representations, warranties and
covenants set forth in Sections 3 and 4 hereof or any of its covenants and
obligations under this Agreement or the Registration Rights Agreement, including
advancement of expenses as they are incurred. 

                             j.        
Publicity. The Company and each of the Buyers shall have the
right to review a reasonable period of time before issuance of any press
releases, SEC, OTCBB or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval
of each of the Buyers, to make any press release or SEC, OTCBB (or other
applicable trading market) or NASD filings with respect to such transactions as
is required by applicable law and regulations (although each of the Buyers shall
be consulted by the Company in connection with any such press release prior to
its release and shall be provided with a copy thereof and be given an
opportunity to comment thereon). 

                             k.        
Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby. 

                             l.        
No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

                             m.        
Remedies. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that the
Buyers shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Agreement
and to enforce specifically the terms and provisions hereof, without the
necessity of showing economic loss and without any bond or other security being
required. 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 

23 

               
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written. 

	BANYAN CORPORATION 	 
	 	 
	 	 
	 	 
	Michael J. Gelmon 	 
	Chief Executive Officer 	 
	  	 
	  	 
	AJW PARTNERS, LLC 	 
	By: SMS Group, LLC 	 
	  	 
	  	 
		 
	Corey S. Ribotsky 	 
	Manager 	 

	RESIDENCE: 	Delaware 
	  	  
	ADDRESS: 	1044 Northern Boulevard 
	  	Suite 302 
	  	Roslyn, New York 11576 
	  	Facsimile:     (516)
      739-7115 
	  	Telephone:  (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT: 

	Aggregate Principal Amount of
      Notes: 	$	251,550 	 
	Number of Warrants: 	 	602,000 	 
	Aggregate Purchase Price: 	$	251,550 	 

24 

	AJW OFFSHORE, LTD. 	 
	By: First Street Manager II, LLC 	 
	  	 
	  	 
		 
	Corey S. Ribotsky 	 
	Manager 	 

	RESIDENCE: 	Cayman Islands 
	  	  
	ADDRESS: 	AJW Offshore, Ltd. 
	  	P.O. Box 32021 SMB 
	  	Grand Cayman, Cayman Island, B.W.I.
  

AGGREGATE SUBSCRIPTION AMOUNT: 

	Aggregate Principal Amount of
      Notes: 	$	1,264,200 	 
	Number of Warrants: 	 	18,963,000 	 
	Aggregate Purchase Price: 	$	1,264,200 	 

25 

	AJW QUALIFIED PARTNERS, LLC 	 
	By: AJW Manager, LLC 	 
	  	 
	  	 
		 
	Corey S. Ribotsky 	 
	Manager 	 

	RESIDENCE: 	New York 
	  	  
	ADDRESS: 	1044 Northern Boulevard 
	  	Suite 302 
	  	Roslyn, New York 11576 
	  	Facsimile:    (516) 739-7115
  
	  	Telephone:  (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT: 

	Aggregate Principal Amount of Notes: 	$	602,000 	 
	Number of Warrants: 	 	9,030,000 	 
	Aggregate Purchase Price: 	$	602,000 	 

26 

	NEW MILLENNIUM CAPITAL PARTNERS II, LLC
     
	By: First Street Manager II, LLP 	 
	  	 
	  	 
		 
	Corey S. Ribotsky 	 
	Manager 	 

	RESIDENCE: 	New York 
	  	  
	ADDRESS: 	1044 Northern Boulevard 
	  	Suite 302 
	  	Roslyn, New York 11576 
	  	Facsimile:     (516)
      739-7115 
	  	Telephone:   (516) 739-7110
  

AGGREGATE SUBSCRIPTION AMOUNT: 

	Aggregate Principal Amount of Notes: 	$	32,250 	 
	Number of Warrants: 	 	483,750 	 
	Aggregate Purchase Price: 	$	32,250 	 

27Filed by Automated Filing Services Inc. (604) 609-0244 - Banyan Corporation - Exhibit 4.9

  
    
      
        
          THE SECURITIES REPRESENTED BY THIS CERTIFICATE
            HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
            (THE “ACT”). THE SECURITIES MAY NOT BE SOLD, TRANSFERRED
            OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
            FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM,
            SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
            TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS
            SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT. 

        

      

    

  

CALLABLE SECURED CONVERTIBLE NOTE 

	Los Angeles, California 	  
	February 8, 2006 	$1,264,200 

                    FOR
VALUE RECEIVED, BANYAN CORPORATION, an Oregon corporation
(hereinafter called the “Borrower”), hereby promises to pay to the order
of AJW OFFSHORE, LTD. or registered assigns (the “Holder”) the sum of One
Million, Two Hundred Sixty-Four Thousand, Two Hundred Dollars ($1,264,200), on
February 8, 2009 (the “Maturity Date”), and to pay interest on the unpaid
principal balance hereof at the rate of eight percent (8%) (the “Interest
Rate”) per annum from February 8, 2006 (the “Issue Date”) until the
same becomes due and payable, whether at maturity or upon acceleration or by
prepayment or otherwise. Any amount of principal or interest on this Note which
is not paid when due shall bear interest at the rate of fifteen percent (15%)
per annum from the due date thereof until the same is paid (“Default
Interest”). Interest shall commence accruing on the Issue Date, shall be
computed on the basis of a 365-day year and the actual number of days elapsed
and shall be payable quarterly in arrears on the fifth day of the following the
end of a calendar quarter. All payments due hereunder (to the extent not
converted into common stock, no par value per share (the “Common Stock”)
in accordance with the terms hereof) shall be made in lawful money of the United
States of America. All payments shall be made at such address as the Holder
shall hereafter give to the Borrower by written notice made in accordance with
the provisions of this Note. Whenever any amount expressed to be due by the
terms of this Note is due on any day which is not a business day, the same shall
instead be due on the next succeeding day which is a business day and, in the
case of any interest payment date which is not the date on which this Note is
paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on such date. As
used in this Note, the term “business day” shall mean any day other than a
Saturday, Sunday or a day on which commercial banks in the city of New York, New
York are authorized or required by law or executive order to remain closed. Each
capitalized term used herein, and not otherwise defined, shall have the 

meaning ascribed thereto in that certain Securities Purchase
Agreement, dated February 8, 2006, pursuant to which this Note was originally
issued (the “Purchase Agreement”). 

                    This
Note is free from all taxes, liens, claims and encumbrances with respect to the
issue thereof and shall not be subject to preemptive rights or other similar
rights of shareholders of the Borrower and will not impose personal liability
upon the holder thereof. The obligations of the Borrower under this Note shall
be secured by that certain Security Agreement and Intellectual Property Security
Agreement, each dated February 8, 2006 by and between the Borrower and the
Holder. 

                    The
following terms shall apply to this Note: 

                    ARTICLE
I. OPTIONAL PREPAYMENT OF MONTHLY AMOUNT 

                              1.1          
Payment of Monthly Amount in Cash. Subject to the terms hereof,
if the average of the Average Daily Prices (as defined herein) for the five (5)
Trading Days (as defined herein) preceding the Notice Date (as defined herein)
is less than the Initial Market Price (as defined herein), the Borrower shall
have the option to pay the Monthly Amount (as defined herein) on the first day
of a month (the “Repayment Date”). In order to exercise this option, on
the fifth (5th) business day prior to each Repayment Date (the “Notice
Date”), the Borrower shall deliver to Holder a written notice in the form of
Exhibit B attached hereto electing to pay the Monthly Amount on the Repayment
Date. The “Monthly Amount” shall be an amount equal to the sum of (x)
1/36th of the original principal amount plus (y) interest on the
remaining amount outstanding calculated at the rate of 12% per annum. The
“Initial Market Price” shall mean $.005. “Average Daily Price”
means, for any security as of any date, the price based on the VWAP.
“VWAP” shall mean the daily volume weighted average price of the Common
Stock on the principal trading market for such security as reported by
Bloomberg, L.P. using the VWAP function. If the Average Daily Price cannot be
calculated for such security on such date in the manner provided above, the
Average Daily Price shall be the fair market value as mutually determined by the
Borrower and the holders of a majority in interest of the Notes being converted
for which the calculation of the Average Daily Price is required in order to
determine the Conversion Price of such Notes. “Trading Day” shall mean
any day on which the Common Stock is traded for any period on the
Over-the-Counter Bulletin Board (“OTCBB”), or on the principal securities
exchange or other securities market on which the Common Stock is then being
traded. 

                              1.2          
Limitation on Conversion Rights. In any month in which the
Borrower makes payment of the Monthly Amount in accordance with Section 1.1,
the Holder shall not be entitled to exercise its conversion rights pursuant
to Section 2.1. 

                    ARTICLE
II. CONVERSION RIGHTS 

                              2.1          
Conversion Right. Subject to Section 1.2, the Holder shall have
the right from time to time, and at any time on or prior to the earlier of (i)
the Maturity Date and (ii) the 

2 

date of payment of the Default Amount (as defined in Article
III) pursuant to Section 2.6(a) or Article III, the Optional Prepayment Amount
(as defined in Section 6.1 or any payments pursuant to Section 2.7, each in
respect of the remaining outstanding principal amount of this Note to convert
all or any part of the outstanding and unpaid principal amount of this Note into
fully paid and non-assessable shares of Common Stock, as such Common Stock
exists on the Issue Date, or any shares of capital stock or other securities of
the Borrower into which such Common Stock shall hereafter be changed or
reclassified at the conversion price (the “Conversion Price”) determined
as provided herein (a “Conversion”); provided, however,
that in no event shall the Holder be entitled to convert any portion of this
Note in excess of that portion of this Note upon conversion of which the sum of
(1) the number of shares of Common Stock beneficially owned by the Holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the Notes
or the unexercised or unconverted portion of any other security of the Borrower
(including, without limitation, the warrants issued by the Borrower pursuant to
the Purchase Agreement) subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (2) the number of shares of
Common Stock issuable upon the conversion of the portion of this Note with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by the Holder and its affiliates of more than 4.99% of
the outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulations 13D-G thereunder, except as otherwise provided in
clause (1) of such proviso. The number of shares of Common Stock to be issued
upon each conversion of this Note shall be determined by dividing the Conversion
Amount (as defined below) by the applicable Conversion Price then in effect on
the date specified in the notice of conversion, in the form attached hereto as
Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the
Holder in accordance with Section 1.4 below; provided that the Notice of
Conversion is submitted by facsimile (or by other means resulting in, or
reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New
York, New York time on such conversion date (the “Conversion Date”). The
term “Conversion Amount” means, with respect to any conversion of this
Note, the sum of (1) the principal amount of this Note to be converted in such
conversion plus (2) accrued and unpaid interest, if any, on such
principal amount at the interest rates provided in this Note to the Conversion
Date, provided, however, that the Company shall have the right to pay any or all
interest in cash plus (3) Default Interest, if any, on the amounts
referred to in the immediately preceding clauses (1) and/or (2) plus (4)
at the Holder’s option, any amounts owed to the Holder pursuant to Sections 2.3
and 2.4(g) hereof or pursuant to Section 2(c) of that certain Registration
Rights Agreement, dated as of February 8, 2006, executed in connection with the
initial issuance of this Note and the other Notes issued on the Issue Date (the
“Registration Rights Agreement”). The term “Determination Date”
means the last business day of each month after the Issue Date. 

                              2.2           Conversion
Price. 

                                             (a)          
Calculation of Conversion Price. The Conversion Price shall be
the lesser of (i) the Variable Conversion Price (as defined herein) and (ii) the
Fixed Conversion Price (as defined herein) (subject, in each case, to equitable
adjustments for stock splits, stock dividends or rights offerings by the
Borrower relating to the Borrower’s securities or the securities of any
subsidiary of the Borrower, combinations, recapitalization, reclassifications,

3 

extraordinary distributions and similar events). The
“Variable Conversion Price” shall mean the Applicable Percentage (as
defined herein) multiplied by the Market Price (as defined herein). “Market
Price” means the average of the lowest three (3) Trading Prices (as defined
below) for the Common Stock during the twenty (20) Trading Day period ending one
Trading Day prior to the date the Conversion Notice is sent by the Holder to the
Borrower via facsimile (the “Conversion Date”). “Trading Price”
means, for any security as of any date, the intraday trading price on the OTCBB
as reported by a reliable reporting service mutually acceptable to and hereafter
designated by Holders of a majority in interest of the Notes and the Borrower
or, if the OTCBB is not the principal trading market for such security, the
intraday trading price of such security on the principal securities exchange or
trading market where such security is listed or traded or, if no intraday
trading price of such security is available in any of the foregoing manners, the
average of the intraday trading prices of any market makers for such security
that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If
the Trading Price cannot be calculated for such security on such date in the
manner provided above, the Trading Price shall be the fair market value as
mutually determined by the Borrower and the holders of a majority in interest of
the Notes being converted for which the calculation of the Trading Price is
required in order to determine the Conversion Price of such Notes. “Trading
Day” shall mean any day on which the Common Stock is traded for any period
on the OTCBB, or on the principal securities exchange or other securities market
on which the Common Stock is then being traded. “Applicable Percentage”
shall mean 50.0% . The “Fixed Conversion Price” shall mean $.0057. 

                                           
(b)           Conversion
Price During Major Announcements. Notwithstanding anything contained in
Section 2.2(a) to the contrary, in the event the Borrower (i) makes a public
announcement that it intends to consolidate or merge with any other corporation
(other than a merger in which the Borrower is the surviving or continuing
corporation and its capital stock is unchanged) or sell or transfer all or
substantially all of the assets of the Borrower or (ii) any person, group or
entity (including the Borrower) publicly announces a tender offer to purchase
50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the
date of the announcement referred to in clause (i) or (ii) is hereinafter
referred to as the “Announcement Date”), then the Conversion Price shall,
effective upon the Announcement Date and continuing through the Adjusted
Conversion Price Termination Date (as defined below), be equal to the lower of
(x) the Conversion Price which would have been applicable for a Conversion
occurring on the Announcement Date and (y) the Conversion Price that would
otherwise be in effect. From and after the Adjusted Conversion Price Termination
Date, the Conversion Price shall be determined as set forth in this Section
2.2(a) . For purposes hereof, “Adjusted Conversion Price Termination
Date” shall mean, with respect to any proposed transaction or tender offer
(or takeover scheme) for which a public announcement as contemplated by this
Section 2.2(b) has been made, the date upon which the Borrower (in the case of
clause (i) above) or the person, group or entity (in the case of clause (ii)
above) consummates or publicly announces the termination or abandonment of the
proposed transaction or tender offer (or takeover scheme) which caused this
Section 2.2(b) to become operative. 

                              2.3          
Authorized Shares. The Borrower covenants that during the period
the conversion right exists, the Borrower will reserve from its authorized and
unissued Common Stock a sufficient number of shares, free from preemptive
rights, to provide for the issuance of 

4 

Common Stock upon the full conversion of this Note and the
other Notes issued pursuant to the Purchase Agreement. The Borrower is required
at all times to have authorized and reserved two times the number of shares that
is actually issuable upon full conversion of the Notes (based on the Conversion
Price of the Notes or the Exercise Price of the Warrants in effect from time to
time) (the “Reserved Amount”). The Reserved Amount shall be increased
from time to time in accordance with the Borrower’s obligations pursuant to
Section 4(h) of the Purchase Agreement. The Borrower represents that upon
issuance, such shares will be duly and validly issued, fully paid and
non-assessable. In addition, if the Borrower shall issue any securities or make
any change to its capital structure which would change the number of shares of
Common Stock into which the Notes shall be convertible at the then current
Conversion Price, the Borrower shall at the same time make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Notes. The Borrower (i) acknowledges that it has irrevocably
instructed its transfer agent to issue certificates for the Common Stock
issuable upon conversion of this Note, and (ii) agrees that its issuance of this
Note shall constitute full authority to its officers and agents who are charged
with the duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock in accordance with the terms and
conditions of this Note. 

                              If,
at any time a Holder of this Note submits a Notice of Conversion, and the
Borrower does not have sufficient authorized but unissued shares of Common Stock
available to effect such conversion in accordance with the provisions of this
Article II (a “Conversion Default”), subject to Section 5.8, the Borrower
shall issue to the Holder all of the shares of Common Stock which are then
available to effect such conversion. The portion of this Note which the Holder
included in its Conversion Notice and which exceeds the amount which is then
convertible into available shares of Common Stock (the “Excess Amount”)
shall, notwithstanding anything to the contrary contained herein, not be
convertible into Common Stock in accordance with the terms hereof until (and at
the Holder’s option at any time after) the date additional shares of Common
Stock are authorized by the Borrower to permit such conversion, at which time
the Conversion Price in respect thereof shall be the lesser of (i) the
Conversion Price on the Conversion Default Date (as defined below) and (ii) the
Conversion Price on the Conversion Date thereafter elected by the Holder in
respect thereof. In addition, the Borrower shall pay to the Holder payments
(“Conversion Default Payments”) for a Conversion Default in the amount of
(x) the sum of (1) the then outstanding principal amount of this Note
plus (2) accrued and unpaid interest on the unpaid principal amount of
this Note through the Authorization Date (as defined below) plus (3)
Default Interest, if any, on the amounts referred to in clauses (1) and/or (2),
multiplied by (y) .24, multiplied by (z) (N/365), where N = the
number of days from the day the holder submits a Notice of Conversion giving
rise to a Conversion Default (the “Conversion Default Date”) to the date
(the “Authorization Date”) that the Borrower authorizes a sufficient
number of shares of Common Stock to effect conversion of the full outstanding
principal balance of this Note. The Borrower shall use its best efforts to
authorize a sufficient number of shares of Common Stock as soon as practicable
following the earlier of (i) such time that the Holder notifies the Borrower or
that the Borrower otherwise becomes aware that there are or likely will be
insufficient authorized and unissued shares to allow full conversion thereof and
(ii) a Conversion Default. The Borrower shall send notice to the Holder of the
authorization of additional shares of Common Stock, the Authorization Date and
the amount of Holder’s accrued Conversion Default Payments. The 

5 

accrued Conversion Default Payments for each calendar month
shall be paid in cash or shall be convertible into Common Stock (at such time as
there are sufficient authorized shares of Common Stock) at the applicable
Conversion Price, at the Borrower’s option, as follows: 

                                   (a)          
In the event Holder elects to take such payment in cash, cash payment
shall be made to Holder by the fifth (5th) day of the month following
the month in which it has accrued; and 

                                   (b)          
In the event Holder elects to take such payment in Common Stock, the
Holder may convert such payment amount into Common Stock at the Conversion Price
(as in effect at the time of conversion) at any time after the fifth day of the
month following the month in which it has accrued in accordance with the terms
of this Article II (so long as there is then a sufficient number of authorized
shares of Common Stock). 

                    The
Holder’s election shall be made in writing to the Borrower at any time prior to
6:00 p.m., New York, New York time, on the third day of the month following the
month in which Conversion Default payments have accrued. If no election is made,
the Holder shall be deemed to have elected to receive cash. Nothing herein shall
limit the Holder’s right to pursue actual damages (to the extent in excess of
the Conversion Default Payments) for the Borrower’s failure to maintain a
sufficient number of authorized shares of Common Stock, and each holder shall
have the right to pursue all remedies available at law or in equity (including
degree of specific performance and/or injunctive relief). 

                    2.4          
Method of Conversion. 

                                   (a)          
Mechanics of Conversion. Subject to Section 2.1, this Note may
be converted by the Holder in whole or in part at any time from time to time
after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion
(by facsimile or other reasonable means of communication dispatched on the
Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to
Section 2.4(b), surrendering this Note at the principal office of the
Borrower.

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

6 

paragraph, following conversion of a portion of this Note, the
unpaid and unconverted principal amount of this Note represented by this Note
may be less than the amount stated on the face hereof. 

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

                         (d)           Delivery
of Common Stock Upon Conversion. Upon receipt by the Borrower from
the Holder of a facsimile transmission (or other reasonable means of
communication) of a Notice of Conversion meeting the requirements for conversion
as provided in this Section 2.4, the Borrower shall issue and deliver or cause
to be issued and delivered to or upon the order of the Holder certificates for
the Common Stock issuable upon such conversion within three (3) business days
after such receipt (and, solely in the case of conversion of the entire unpaid
principal amount hereof, surrender of this Note) (such third business day being
hereinafter referred to as the “Deadline”) in accordance with the terms
hereof and the Purchase Agreement (including, without limitation, in accordance
with the requirements of Section 2(g) of the Purchase Agreement that
certificates for shares of Common Stock issued on or after the effective date of
the Registration Statement upon conversion of this Note shall not bear any
restrictive legend). 

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

7 

                         (f)          
Delivery of Common Stock by Electronic Transfer. In lieu of
delivering physical certificates representing the Common Stock issuable upon
conversion, provided the Borrower’s transfer agent is participating in the
Depository Trust Company (“DTC”) Fast Automated Securities Transfer
(“FAST”) program, upon request of the Holder and its compliance with the
provisions contained in Section 2.1 and in this Section 2.4, the Borrower shall
use its best efforts to cause its transfer agent to electronically transmit the
Common Stock issuable upon conversion to the Holder by crediting the account of
Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission
(“DWAC”) system. 

                         (g)          
Failure to Deliver Common Stock Prior to Deadline. Without in
any way limiting the Holder’s right to pursue other remedies, including actual
damages and/or equitable relief, the parties agree that if delivery of the
Common Stock issuable upon conversion of this Note is more than two (2) business
days after the Deadline (other than a failure due to the circumstances described
in Section 2.3 above, which failure shall be governed by such Section) the
Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the
Deadline that the Borrower fails to deliver such Common Stock. Such cash amount
shall be paid to Holder by the fifth day of the month following the month in
which it has accrued or, at the option of the Holder (by written notice to the
Borrower by the first day of the month following the month in which it has
accrued), shall be added to the principal amount of this Note, in which event
interest shall accrue thereon in accordance with the terms of this Note and such
additional principal amount shall be convertible into Common Stock in accordance
with the terms of this Note. 

                    2.5          
Concerning the Shares. The shares of Common Stock issuable upon
conversion of this Note may not be sold or transferred unless (i) such shares
are sold pursuant to an effective registration statement under the Act or (ii)
the Borrower or its transfer agent shall have been furnished with an opinion of
counsel (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that the shares to
be sold or transferred may be sold or transferred pursuant to an exemption from
such registration or (iii) such shares are sold or transferred pursuant to Rule
144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares
are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who
agrees to sell or otherwise transfer the shares only in accordance with this
Section 2.5 and who is an Accredited Investor (as defined in the Purchase
Agreement). Except as otherwise provided in the Purchase Agreement (and subject
to the removal provisions set forth below), until such time as the shares of
Common Stock issuable upon conversion of this Note have been registered under
the Act as contemplated by the Registration Rights Agreement or otherwise may be
sold pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately sold, each certificate for
shares of Common Stock issuable upon conversion of this Note that has not been
so included in an effective registration statement or that has not been sold
pursuant to an effective registration statement or an exemption that permits
removal of the legend, shall bear a legend substantially in the following form,
as appropriate: 

  
    
      
        
          “THE SECURITIES REPRESENTED BY THIS CERTIFICATE
            HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
            THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE
            OF AN EFFECTIVE REGISTRATION 

        

      

    

  

8 

  
    
      
        
          STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN
            OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS
            OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED
            UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER
            SAID ACT.” 

        

      

    

  

                              The
legend set forth above shall be removed and the Borrower shall issue to the
Holder a new certificate therefor free of any transfer legend if (i) the
Borrower or its transfer agent shall have received an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Common Stock
may be made without registration under the Act and the shares are so sold or
transferred, (ii) such Holder provides the Borrower or its transfer agent with
reasonable assurances that the Common Stock issuable upon conversion of this
Note (to the extent such securities are deemed to have been acquired on the same
date) can be sold pursuant to Rule 144 or (iii) in the case of the Common Stock
issuable upon conversion of this Note, such security is registered for sale by
the Holder under an effective registration statement filed under the Act or
otherwise may be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold.
Nothing in this Note shall (i) limit the Borrower’s obligation under the
Registration Rights Agreement or (ii) affect in any way the Holder’s obligations
to comply with applicable prospectus delivery requirements upon the resale of
the securities referred to herein. 

                    2.6           Effect
of Certain Events. 

                                   (a)           Effect
of Merger, Consolidation, Etc. At the option of the Holder, the
sale, conveyance or disposition of all or substantially all of the assets of the
Borrower, the effectuation by the Borrower of a transaction or series of related
transactions in which more than 50% of the voting power of the Borrower is
disposed of, or the consolidation, merger or other business combination of the
Borrower with or into any other Person (as defined below) or Persons when the
Borrower is not the survivor shall either: (i) be deemed to be an Event of
Default (as defined in Article IV) pursuant to which the Borrower shall be
required to pay to the Holder upon the consummation of and as a condition to
such transaction an amount equal to the Default Amount (as defined in Article
IV) or (ii) be treated pursuant to Section 2.6(b) hereof. “Person” shall
mean any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization. 

                                   (b)           Adjustment
Due to Merger, Consolidation, Etc. If, at any time when this Note
is issued and outstanding and prior to conversion of all of the Notes, there
shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Borrower shall be changed into the same or a different number of
shares of another class or classes of stock or securities of the Borrower or
another entity, or in case of any sale or conveyance of all or substantially all
of the assets of the Borrower other than in connection with a plan of complete
liquidation of the Borrower, then the Holder of this Note shall thereafter have
the right to receive upon conversion of this Note, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities or
assets which the Holder would have been entitled to receive in such transaction
had 

9 

this Note been converted in full immediately prior to such
transaction (without regard to any limitations on conversion set forth herein),
and in any such case appropriate provisions shall be made with respect to the
rights and interests of the Holder of this Note to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares issuable upon conversion of the
Note) shall thereafter be applicable, as nearly as may be practicable in
relation to any securities or assets thereafter deliverable upon the conversion
hereof. The Borrower shall not effect any transaction described in this Section
2.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days
prior written notice (but in any event at least fifteen (15) days prior written
notice) of the record date of the special meeting of shareholders to approve, or
if there is no such record date, the consummation of, such merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event or sale of assets (during which time the Holder shall be entitled
to convert this Note) and (b) the resulting successor or acquiring entity (if
not the Borrower) assumes by written instrument the obligations of this Section
1.6(b) . The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges. 

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

                                   (d)          
Adjustment Due to Dilutive Issuance. If, at any time when any
Notes are issued and outstanding, the Borrower issues or sells, or in accordance
with this Section 2.6(d) hereof is deemed to have issued or sold, any shares of
Common Stock for no consideration or for a consideration per share (before
deduction of reasonable expenses or commissions or underwriting discounts or
allowances in connection therewith) less than the Fixed Conversion Price in
effect on the date of such issuance (or deemed issuance) of such shares of
Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive
Issuance, the Variable Conversion Price will be reduced to the amount of the
consideration per share received by the Borrower in such Dilutive Issuance;
provided that only one adjustment will be made for each Dilutive
Issuance. 

                                   The
Borrower shall be deemed to have issued or sold shares of Common Stock if the
Borrower in any manner issues or grants any warrants, rights or options (not
including employee stock option plans), whether or not immediately exercisable,
to subscribe for or to purchase Common Stock or other securities convertible
into or exchangeable for Common Stock (“Convertible Securities”) (such
warrants, rights and options to purchase Common Stock or Convertible Securities
are hereinafter referred to as “Options”) and the price per share for
which Common Stock is issuable upon the exercise of such Options is less than
the Variable Conversion Price then in effect, then the Variable Conversion Price
shall be equal to such price 

10 

per share. For purposes of the preceding sentence, the “price
per share for which Common Stock is issuable upon the exercise of such Options”
is determined by dividing (i) the total amount, if any, received or receivable
by the Borrower as consideration for the issuance or granting of all such
Options, plus the minimum aggregate amount of additional consideration, if any,
payable to the Borrower upon the exercise of all such Options, plus, in the case
of Convertible Securities issuable upon the exercise of such Options, the
minimum aggregate amount of additional consideration payable upon the conversion
or exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Conversion Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options. 

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

                                   (e)          
Purchase Rights. If, at any time when any Notes are issued and
outstanding, the Borrower issues any convertible securities or rights to
purchase stock, warrants, securities or other property (the “Purchase
Rights”) pro rata to the record holders of any class of Common Stock, then
the Holder of this Note will be entitled to acquire, upon the terms applicable
to such Purchase Rights, the aggregate Purchase Rights which such Holder could
have acquired if such Holder had held the number of shares of Common Stock
acquirable upon complete conversion of this Note (without regard to any
limitations on conversion contained herein) 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. 

                                   (f)          
Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price as a result of the events described in this
Section 1.6, the Borrower, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to the Holder of a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Borrower
shall, upon the written request at any time of the Holder, furnish to such
Holder a like certificate setting forth (i) such adjustment or readjustment,
(ii) the Conversion Price at the time in effect 

11 

and (iii) the number of shares of Common Stock and the amount,
if any, of other securities or property which at the time would be received upon
conversion of the Note. 

                    2.7          
Trading Market Limitations. Unless permitted by the applicable
rules and regulations of the principal securities market on which the Common
Stock is then listed or traded, in no event shall the Borrower issue upon
conversion of or otherwise pursuant to this Note and the other Notes issued
pursuant to the Purchase Agreement more than the maximum number of shares of
Common Stock that the Borrower can issue pursuant to any rule of the principal
United States securities market on which the Common Stock is then traded (the
“Maximum Share Amount”), which shall be 19.99% of the total shares
outstanding on the Closing Date (as defined in the Purchase Agreement), subject
to equitable adjustment from time to time for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock occurring after the date hereof. Once the Maximum Share Amount has been
issued (the date of which is hereinafter referred to as the “Maximum
Conversion Date”), if the Borrower fails to eliminate any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Borrower or any of its securities on the Borrower’s ability to issue shares
of Common Stock in excess of the Maximum Share Amount (a “Trading Market
Prepayment Event”), in lieu of any further right to convert this Note, and
in full satisfaction of the Borrower’s obligations under this Note, the Borrower
shall pay to the Holder, within fifteen (15) business days of the Maximum
Conversion Date (the “Trading Market Prepayment Date”), an amount equal
to 130% times the sum of (a) the then outstanding principal amount
of this Note immediately following the Maximum Conversion Date, plus (b)
accrued and unpaid interest on the unpaid principal amount of this Note to the
Trading Market Prepayment Date, plus (c) Default Interest, if any, on the
amounts referred to in clause (a) and/or (b) above, plus (d) any optional
amounts that may be added thereto at the Maximum Conversion Date by the Holder
in accordance with the terms hereof (the then outstanding principal amount of
this Note immediately following the Maximum Conversion Date, plus the
amounts referred to in clauses (b), (c) and (d) above shall collectively be
referred to as the “Remaining Convertible Amount”). With respect to each
Holder of Notes, the Maximum Share Amount shall refer to such Holder’s
pro rata share thereof determined in accordance with Section 5.8
below. In the event that the sum of (x) the aggregate number of shares of Common
Stock issued upon conversion of this Note and the other Notes issued pursuant to
the Purchase Agreement plus (y) the aggregate number of shares of Common
Stock that remain issuable upon conversion of this Note and the other Notes
issued pursuant to the Purchase Agreement, represents at least one hundred
percent (100%) of the Maximum Share Amount (the “Triggering Event”), the
Borrower will use its best efforts to seek and obtain Shareholder Approval (or
obtain such other relief as will allow conversions hereunder in excess of the
Maximum Share Amount) as soon as practicable following the Triggering Event and
before the Maximum Conversion Date. As used herein, “Shareholder
Approval” means approval by the shareholders of the Borrower to authorize
the issuance of the full number of shares of Common Stock which would be
issuable upon full conversion of the then outstanding Notes but for the Maximum
Share Amount. 

                    2.8          
Status as Shareholder. Upon submission of a Notice of Conversion
by a Holder, (i) the shares covered thereby (other than the shares, if any,
which cannot be issued because their issuance would exceed such Holder’s
allocated portion of the Reserved Amount or 

12 

Maximum Share Amount) shall be deemed converted into shares of
Common Stock and (ii) the Holder’s rights as a Holder of such converted portion
of this Note shall cease and terminate, excepting only the right to receive
certificates for such shares of Common Stock and to any remedies provided herein
or otherwise available at law or in equity to such Holder because of a failure
by the Borrower to comply with the terms of this Note. Notwithstanding the
foregoing, if a Holder has not received certificates for all shares of Common
Stock prior to the tenth (10th) business day after the expiration of the
Deadline with respect to a conversion of any portion of this Note for any
reason, then (unless the Holder otherwise elects to retain its status as a
holder of Common Stock by so notifying the Borrower) the Holder shall regain the
rights of a Holder of this Note with respect to such unconverted portions of
this Note and the Borrower shall, as soon as practicable, return such
unconverted Note to the Holder or, if the Note has not been surrendered, adjust
its records to reflect that such portion of this Note has not been converted. In
all cases, the Holder shall retain all of its rights and remedies (including,
without limitation, (i) the right to receive Conversion Default Payments
pursuant to Section 2.3 to the extent required thereby for such Conversion
Default and any subsequent Conversion Default and (ii) the right to have the
Conversion Price with respect to subsequent conversions determined in accordance
with Section 2.3) for the Borrower’s failure to convert this Note. 

ARTICLE III. CERTAIN COVENANTS 

                    3.1          
Distributions on Capital Stock. So long as the Borrower shall
have any obligation under this Note, the Borrower shall not without the Holder’s
written consent (a) pay, declare or set apart for such payment, any dividend or
other distribution (whether in cash, property or other securities) on shares of
capital stock other than dividends on shares of Common Stock solely in the form
of additional shares of Common Stock or (b) directly or indirectly or through
any subsidiary make any other payment or distribution in respect of its capital
stock except for distributions pursuant to any shareholders’ rights plan which
is approved by a majority of the Borrower’s disinterested directors. 

                    3.2          
Restriction on Stock Repurchases. So long as the Borrower shall
have any obligation under this Note, the Borrower shall not without the Holder’s
written consent redeem, repurchase or otherwise acquire (whether for cash or in
exchange for property or other securities or otherwise) in any one transaction
or series of related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such shares. 

                    3.3           Borrowings.
So long as the Borrower shall have any obligation under this Note, the
Borrower shall not, without the Holder’s written consent, create, incur, assume
or suffer to exist any liability for borrowed money, except (a) borrowings in
existence or committed on the date hereof and of which the Borrower has informed
Holder in writing prior to the date hereof, (b) indebtedness to trade creditors
or financial institutions incurred in the ordinary course of business or (c)
borrowings, the proceeds of which shall be used to repay this Note. 

                    3.4          
Sale of Assets. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not, without the Holder’s written
consent, sell, lease or otherwise 

13 

dispose of any significant portion of its assets outside the
ordinary course of business. Any consent to the disposition of any assets may be
conditioned on a specified use of the proceeds of disposition. 

                    3.5          
Advances and Loans. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not, without the Holder’s written
consent, lend money, give credit or make advances to any person, firm, joint
venture or corporation, including, without limitation, officers, directors,
employees, subsidiaries and affiliates of the Borrower, except loans, credits or
advances (a) in existence or committed on the date hereof and which the Borrower
has informed Holder in writing prior to the date hereof, (b) made in the
ordinary course of business or (c) not in excess of $50,000. 

                    3.6          
Contingent Liabilities. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not, without the Holder’s written
consent, which shall not be unreasonably withheld, assume, guarantee, endorse,
contingently agree to purchase or otherwise become liable upon the obligation of
any person, firm, partnership, joint venture or corporation, except by the
endorsement of negotiable instruments for deposit or collection and except
assumptions, guarantees, endorsements and contingencies (a) in existence or
committed on the date hereof and which the Borrower has informed Holder in
writing prior to the date hereof, and (b) similar transactions in the ordinary
course of business.

ARTICLE IV. EVENTS OF DEFAULT 

                    If
any of the following events of default (each, an “Event of Default”)
shall occur: 

                    4.1           Failure
to Pay Principal or Interest. The Borrower fails to pay the
principal hereof or interest thereon when due on this Note, whether at maturity,
upon a Trading Market Prepayment Event pursuant to Section 2.7, upon
acceleration or otherwise; 

                    4.2           Conversion
and the Shares. The Borrower fails to issue shares of Common Stock
to the Holder (or announces or threatens that it will not honor its obligation
to do so) upon exercise by the Holder of the conversion rights of the Holder in
accordance with the terms of this Note (for a period of at least sixty (60)
days, if such failure is solely as a result of the circumstances governed by
Section 2.3 and the Borrower is using its best efforts to authorize a sufficient
number of shares of Common Stock as soon as practicable), fails to transfer or
cause its transfer agent to transfer (electronically or in certificated form)
any certificate for shares of Common Stock issued to the Holder upon conversion
of or otherwise pursuant to this Note as and when required by this Note or the
Registration Rights Agreement, or fails to remove any restrictive legend (or to
withdraw any stop transfer instructions in respect thereof) on any certificate
for any shares of Common Stock issued to the Holder upon conversion of or
otherwise pursuant to this Note as and when required by this Note or the
Registration Rights Agreement (or makes any announcement, statement or threat
that it does not intend to honor the obligations described in this paragraph)
and any such failure shall continue uncured (or any announcement, statement or
threat not to honor its obligations shall not be rescinded in writing) for ten
(10) days after the Borrower shall have been notified thereof in writing by the
Holder; 

14 

                    4.3          
Failure to Timely File Registration or Effect Registration. The
Borrower fails to file the Registration Statement within forty-five (45) days
following the Closing Date (as defined in the Purchase Agreement) or obtain
effectiveness with the Securities and Exchange Commission of the Registration
Statement within one hundred five (105) days following the Closing Date (as
defined in the Purchase Agreement) or such Registration Statement lapses in
effect (or sales cannot otherwise be made thereunder effective, whether by
reason of the Borrower’s failure to amend or supplement the prospectus included
therein in accordance with the Registration Rights Agreement or otherwise) for
more than ten (10) consecutive days or twenty (20) days in any twelve month
period after the Registration Statement becomes effective; 

                    4.4          
Breach of Covenants. The Borrower breaches any material covenant
or other material term or condition contained in Sections 2.3, 2.6 or 2.7 of
this Note, or Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5 of the Purchase
Agreement and such breach continues for a period of ten (10) days after written
notice thereof to the Borrower from the Holder; 

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

                    4.6          
Receiver or Trustee. The Borrower or any subsidiary of the
Borrower shall make an assignment for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such a receiver or trustee shall otherwise
be appointed; 

                    4.7          
Judgments. Any money judgment, writ or similar process shall be
entered or filed against the Borrower or any subsidiary of the Borrower or any
of its property or other assets for more than $50,000, and shall remain
unvacated, unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be unreasonably
withheld; 

                    4.8          
Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower or any subsidiary of the Borrower, unless such proceeding shall be
stayed within thirty (30) days; 

                    4.9          
Delisting of Common Stock. The Borrower shall fail to maintain
the listing of the Common Stock on at least one of Nasdaq or an equivalent
replacement exchange, the Nasdaq National Market, the New York Stock Exchange,
or the American Stock Exchange; or 

                    4.10        
Default Under Other Notes. An Event of Default has occurred and
is continuing under any of the other Notes issued pursuant to the Purchase
Agreement, 

15 

then, upon the occurrence and during the continuation of any
Event of Default specified in Section 4.1, 4.2, 4.3, 4.4, 4.5, 4.7, 4.9, or
4.10, at the option of the Holders of a majority of the aggregate principal
amount of the outstanding Notes issued pursuant to the Purchase Agreement
exercisable through the delivery of written notice to the Borrower by such
Holders (the “Default Notice”), and upon the occurrence of an Event of
Default specified in Section 4.6 or 4.8 (unless, under Section 3.8, such
proceeding shall be stayed within 30 days), the Notes shall become immediately
due and payable and the Borrower shall pay to the Holder, in full satisfaction
of its obligations hereunder, an amount equal to the greater of (i) 130%
times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount
of this Note to the date of payment (the “Mandatory Prepayment Date”)
plus (y) Default Interest, if any, on the amounts referred to in clauses
(w) and/or (x) plus (z) any amounts owed to the Holder pursuant to
Sections 2.3 and 2.4(g) hereof or pursuant to Section 2(c) of the Registration
Rights Agreement (the then outstanding principal amount of this Note to the date
of payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the “Default Sum”) or (ii) the “parity value” of
the Default Sum to be prepaid, where parity value means (a) the highest number
of shares of Common Stock issuable upon conversion of or otherwise pursuant to
such Default Sum in accordance with Article II, treating the Trading Day
immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for
purposes of determining the lowest applicable Conversion Price, unless the
Default Event arises as a result of a breach in respect of a specific Conversion
Date in which case such Conversion Date shall be the Conversion Date),
multiplied by (b) the highest Closing Price for the Common Stock during
the period beginning on the date of first occurrence of the Event of Default and
ending one day prior to the Mandatory Prepayment Date (the “Default
Amount”) and all other amounts payable hereunder shall immediately become
due and payable, all without demand, presentment or notice, all of which hereby
are expressly waived, together with all costs, including, without limitation,
legal fees and expenses, of collection, and the Holder shall be entitled to
exercise all other rights and remedies available at law or in equity. If the
Borrower fails to pay the Default Amount within five (5) business days of
written notice that such amount is due and payable, then the Holder shall have
the right at any time, so long as the Borrower remains in default (and so long
and to the extent that there are sufficient authorized shares), to require the
Borrower, upon written notice, to immediately issue, in lieu of the Default
Amount, the number of shares of Common Stock of the Borrower equal to the
Default Amount divided by the Conversion Price then in effect. 

ARTICLE V. MISCELLANEOUS 

                    5.1           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 privileges. All rights and remedies existing hereunder are
cumulative to, and not exclusive of, any rights or remedies otherwise available.

                    5.2          
Notices. Any notice herein required or permitted to be given
shall be in writing and may be personally served or delivered by courier or sent
by United States mail and 

16 

shall be deemed to have been given upon receipt if personally
served (which shall include telephone line facsimile transmission) or sent by
courier or three (3) days after being deposited in the United States mail,
certified, with postage pre-paid and properly addressed, if sent by mail. For
the purposes hereof, the address of the Holder shall be as shown on the records
of the Borrower; and the address of the Borrower shall be 1925 Century Park
East, Suite 500, Los Angeles, California 90067, Attn: Chief Executive Officer,
facsimile number: 403-287-8804. Both the Holder and the Borrower may
change the address for service by service of written notice to the other as
herein provided. 

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

                    5.4          
Assignability. This Note shall be binding upon the Borrower and
its successors and assigns, and shall inure to be the benefit of the Holder and
its successors and assigns. Each transferee of this Note must be an “accredited
investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything
in this Note to the contrary, this Note may be pledged as collateral in
connection with a bona fide margin account or other lending
arrangement. 

                    5.5          
Cost of Collection. If default is made in the payment of this
Note, the Borrower shall pay the Holder hereof costs of collection, including
reasonable attorneys’ fees. 

                    5.6           Governing
Law. THIS NOTE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICT OF LAWS. THE BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT
TO ANY DISPUTE ARISING UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH
PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE
OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY
RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS’
FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE. 

17 

                    5.7          
Certain Amounts. Whenever pursuant to this Note the Borrower is
required to pay an amount in excess of the outstanding principal amount (or the
portion thereof required to be paid at that time) plus accrued and unpaid
interest plus Default Interest on such interest, the Borrower and the Holder
agree that the actual damages to the Holder from the receipt of cash payment on
this Note may be difficult to determine and the amount to be so paid by the
Borrower represents stipulated damages and not a penalty and is intended to
compensate the Holder in part for loss of the opportunity to convert this Note
and to earn a return from the sale of shares of Common Stock acquired upon
conversion of this Note at a price in excess of the price paid for such shares
pursuant to this Note. The Borrower and the Holder hereby agree that such amount
of stipulated damages is not plainly disproportionate to the possible loss to
the Holder from the receipt of a cash payment without the opportunity to convert
this Note into shares of Common Stock. 

                    5.8          
Allocations of Maximum Share Amount and Reserved Amount. The
Maximum Share Amount and Reserved Amount shall be allocated pro rata among the
Holders of Notes based on the principal amount of such Notes issued to each
Holder. Each increase to the Maximum Share Amount and Reserved Amount shall be
allocated pro rata among the Holders of Notes based on the principal amount of
such Notes held by each Holder at the time of the increase in the Maximum Share
Amount or Reserved Amount. In the event a Holder shall sell or otherwise
transfer any of such Holder’s Notes, each transferee shall be allocated a pro
rata portion of such transferor’s Maximum Share Amount and Reserved Amount. Any
portion of the Maximum Share Amount or Reserved Amount which remains allocated
to any person or entity which does not hold any Notes shall be allocated to the
remaining Holders of Notes, pro rata based on the principal amount of such Notes
then held by such Holders. 

                    5.9          
Damages Shares. The shares of Common Stock that may be issuable
to the Holder pursuant to Sections 2.3 and 2.4(g) hereof and pursuant to Section
2(c) of the Registration Rights Agreement (“Damages Shares”) shall be
treated as Common Stock issuable upon conversion of this Note for all purposes
hereof and shall be subject to all of the limitations and afforded all of the
rights of the other shares of Common Stock issuable hereunder, including without
limitation, the right to be included in the Registration Statement filed
pursuant to the Registration Rights Agreement. For purposes of calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein, amounts convertible into Damages Shares (“Damages
Amounts”) shall not bear interest but must be converted prior to the
conversion of any outstanding principal amount hereof, until the outstanding
Damages Amounts is zero. 

                    5.10         Denominations.
At the request of the Holder, upon surrender of this Note, the Borrower shall
promptly issue new Notes in the aggregate outstanding principal amount hereof,
in the form hereof, in such denominations of at least $50,000 as the Holder
shall request. 

                    5.11        
Purchase Agreement. By its acceptance of this Note, each Holder
agrees to be bound by the applicable terms of the Purchase Agreement. 

                    5.12         Notice
of Corporate Events. Except as otherwise provided below, the Holder
of this Note shall have no rights as a Holder of Common Stock unless and only to
the 

18 

extent that it converts this Note into Common Stock. The
Borrower shall provide the Holder with prior notification of any meeting of the
Borrower’s shareholders (and copies of proxy materials and other information
sent to shareholders). In the event of any taking by the Borrower of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation,
reclassification or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Borrower or any proposed liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this Section
4.12. 

                    5.13        
Remedies. The Borrower acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Borrower acknowledges that the remedy at law for a breach of its obligations
under this Note will be inadequate and agrees, in the event of a breach or
threatened breach by the Borrower of the provisions of this Note, that the
Holder shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Note and to
enforce specifically the terms and provisions thereof, without the necessity of
showing economic loss and without any bond or other security being required.

ARTICLE VI. CALL OPTION 

                    6.1          
Call Option. Notwithstanding anything to the contrary contained
in this Article VI, so long as (i) no Event of Default or Trading Market
Prepayment Event shall have occurred and be continuing, (ii) the Borrower has a
sufficient number of authorized shares of Common Stock reserved for issuance
upon full conversion of the Notes, then at any time after the Issue Date, and
(iii) the Common Stock is trading at or below the Initial Purchase Price, the
Borrower shall have the right, exercisable on not less than ten (10) Trading
Days prior written notice to the Holders of the Notes (which notice may not be
sent to the Holders of the Notes until the Borrower is permitted to prepay the
Notes pursuant to this Section 6.1), to prepay all or a portion of the
outstanding Notes in accordance with this Section 6.1. Any notice of prepayment
hereunder (an “Optional Prepayment”) shall be delivered to the Holders of
the Notes at their registered addresses appearing on the books and records of
the Borrower and shall state (1) that the Borrower is exercising its right to
prepay all or a portion of the Notes issued on the Issue Date, (2) the date of
prepayment and (3) the amount of the prepayment and the amount of any 

19 

Additional Payment as applicable (the “Optional Prepayment
Notice”). On the date fixed for prepayment (the “Optional Prepayment
Date”), the Borrower shall make payment of the Optional Prepayment Amount
(as defined below) to or upon the order of the Holders as specified by the
Holders in writing to the Borrower at least one (1) business day prior to the
Optional Prepayment Date. If the Borrower exercises its right to prepay the
Notes, the Borrower shall make payment to the holders of an amount in cash (the
“Optional Prepayment Amount”) equal to either (i) 125% (for prepayments
occurring within thirty (30) days of the Issue Date), (ii) 135% for prepayments
occurring between thirty-one (31) and sixty (60) days of the Issue Date, or
(iii) 145% (for prepayments occurring after the sixtieth (60th) day
following the Issue Date), multiplied by the sum of (w) the then outstanding
principal amount of this Note plus (x) accrued and unpaid interest on the
unpaid principal amount of this Note to the Optional Prepayment Date plus
(y) Default Interest, if any, on the amounts referred to in clauses (w) and (x)
plus (z) any amounts owed to the Holder pursuant to Sections 2.3 and
2.4(g) hereof or pursuant to Section 2(c) of the Registration Rights Agreement
(the then outstanding principal amount of this Note to the date of payment
plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the “Optional Prepayment Sum”). Notwithstanding
notice of an Optional Prepayment, the Holders shall at all times prior to the
Optional Prepayment Date maintain the right to convert all or any portion of the
Notes in accordance with Article II and any portion of Notes so converted after
receipt of an Optional Prepayment Notice and prior to the Optional Prepayment
Date set forth in such notice and payment of the aggregate Optional Prepayment
Amount shall be deducted from the principal amount of Notes which are otherwise
subject to prepayment pursuant to such notice. If the Borrower delivers an
Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due
to the Holders of the Notes within two (2) business days following the Optional
Prepayment Date, the Borrower shall forever forfeit its right to redeem the
Notes pursuant to this Section 6.1. 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 

20 

                              IN
WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by
its duly authorized officer this 8th day of February, 2006. 

	 	BANYAN
      CORPORATION 
	 	 	  
	 	 	  
	 	 	  
	 	By: 	
	 	 	Michael J. Gelmon 
	 	 	Chief Executive Officer 

21 

EXHIBIT A 

NOTICE OF CONVERSION 
(To be Executed by the
Registered Holder 
in order to Convert the Notes) 

                    The
undersigned hereby irrevocably elects to convert $__________ principal amount of
the Note (defined below) into shares of common stock, no par value per share
(“Common Stock”), of Banyan Corporation, an Oregon corporation (the
“Borrower”) according to the conditions of the convertible Notes of the
Borrower dated as of February 8, 2006 (the “Notes”), as of the date
written below. If securities are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates. No fee will be
charged to the Holder for any conversion, except for transfer taxes, if any. A
copy of each Note is attached hereto (or evidence of loss, theft or destruction
thereof). 

                    The
Borrower shall electronically transmit the Common Stock issuable pursuant to
this Notice of Conversion to the account of the undersigned or its nominee with
DTC through its Deposit Withdrawal Agent Commission system (“DWAC
Transfer”). 

          Name
of DTC Prime
Broker: ________________________________________________________________________
          Account
Number:
_______________________________________________________________________________

                    In
lieu of receiving shares of Common Stock issuable pursuant to this Notice of
Conversion by way of a DWAC Transfer, the undersigned hereby requests that the
Borrower issue a certificate or certificates for the number of shares of Common
Stock set forth below (which numbers are based on the Holder’s calculation
attached hereto) in the name(s) specified immediately below or, if additional
space is necessary, on an attachment hereto: 

          Name: ________________________________________________________________________________________
          Address:
______________________________________________________________________________________

                    The
undersigned represents and warrants that all offers and sales by the undersigned
of the securities issuable to the undersigned upon conversion of the Notes shall
be made pursuant to registration of the securities under the Securities Act of
1933, as amended (the “Act”), or pursuant to an exemption from
registration under the Act. 

Date of
Conversion:___________________________
Applicable Conversion
Price:____________________
Number of Shares of Common Stock to be Issued
Pursuant to 
Conversion of the
Notes:______________
Signature:___________________________________
Name:______________________________________
Address:____________________________________

22 

The Borrower shall issue and deliver shares of Common Stock to
an overnight courier not later than three business days following receipt of the
original Note(s) to be converted, and shall make payments pursuant to the Notes
for the number of business days such issuance and delivery is late.

23 

EXHIBIT B 

OPTIONAL PREPAYMENT ELECTION NOTICE 

(To be executed by the Borrower in order to prepay the Monthly
Amount)

[Name and Address of Borrower] 

Borrower hereby elects to prepay the Monthly Amount due on
[specify applicable Repayment Date] under the Convertible Term Note issued by
BANYAN CORPORATION dated February 8, 2006 subject to the conditions set forth in
Article II of such Note. 

	Date: ______________________	 	BANYAN
      CORPORATION 
	  	 	 	  
	  	 	 	  
	  	 	By:	
	  	 	 	Michael J. Gelmon 
	  	 	 	Chief Executive Officer

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