Document:

Exhibit 10.2

Exhibit 10.2

THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON
CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
NOTE UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO MAGIC LANTERN GROUP, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.

SECURED CONVERTIBLE TERM NOTE

          FOR VALUE RECEIVED, MAGIC LANTERN GROUP, INC., a
New York corporation (the "Borrower"), hereby promises to pay to LAURUS
MASTER FUND, LTD., c/o Ironshore Corporate Services Ltd., P.O. Box 1234 G.T.,
Queensgate House, South Church Street, Grand Cayman, Cayman Islands, Fax:
345-949-9877 (the "Holder") or its registered assigns or successors in
interest, on order, the sum of One Million Five Hundred Thousand Dollars
($1,500,000), together with any accrued and unpaid interest hereon, on April 28,
2007 (the "Maturity Date") if not sooner paid.

          Capitalized terms used herein without definition
shall have the meanings ascribed to such terms in that certain Securities
Purchase Agreement dated as of the date hereof between the Borrower and the
Holder (the "Purchase Agreement").

The following terms shall apply to this Note:

ARTICLE I

INTEREST & AMORTIZATION

          1.1(a) Interest Rate. Subject to Sections
4.10 and 5.6 hereof, interest payable on this Note shall accrue at a rate per
annum (the "Interest Rate") equal to the "prime rate" published in The Wall
Street Journal from time to time, plus two percent (2%). The Interest Rate
shall be increased or decreased as the case may be for each increase or decrease
in the prime rate in an amount equal to such increase or decrease in the prime
rate; each change to be effective as of the day of the change in such rate.
Subject to Section 1.1(b) hereof, the Interest Rate shall not be less than six
percent (6%). Interest shall be (i) calculated on the basis of a 360 day year,
(ii) payable monthly, in arrears, commencing on May 1, 2004 and on the first
business day of each consecutive calendar month thereafter until the Maturity
Date (and on the Maturity Date), whether by acceleration or otherwise (each, a "Repayment
Date").

          1.1 (b) Interest Rate Adjustment. The
Interest Rate shall be calculated on the last business day of each month
hereafter until the Maturity Date (each a "Determination Date") and shall be
subject to  

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adjustment as set forth herein. If (i) the Borrower shall have
registered the shares of the Borrower's common stock underlying each of the
conversion of the Note and that certain warrant issued to Holder on a
registration statement declared effective by the Securities and Exchange
Commission (the "SEC"), and (ii) the market price (the "Market Price") of the
Common Stock as reported by Bloomberg, L.P. on the Principal Market (as defined
below) for the five (5) trading days immediately preceding a Determination Date
exceeds the then applicable Fixed Conversion Price by at least twenty five
percent (25%), the Interest Rate for the succeeding calendar month shall
automatically be reduced by 200 basis points (200 b.p.) (2.0.%) for each
incremental twenty five percent (25%) increase in the Market Price of the Common
Stock above the then applicable Fixed Conversion Price. If (i) the Borrower
shall not have registered the shares of the Borrower's common stock underlying
the conversion of the Note and that certain warrant issued to Holder on a
registration statement declared effective by the SEC and which remains
effective, and (ii) the Market Price of the Common Stock as reported by
Bloomberg, L.P. on the principal market for the five (5) trading days
immediately preceding a Determination Date exceeds the then applicable Fixed
Conversion Price by at least twenty five percent (25%), the Interest Rate for
the succeeding calendar month shall automatically be decreased by 100 basis
points (100 b.p.) (1.0.%) for each incremental twenty five percent (25%)
increase in the Market Price of the Common Stock above the then applicable Fixed
Conversion Price.  

          1.2 Minimum Monthly Principal Payments. Amortizing payments of the aggregate principal amount outstanding under
this Note at any time (the "Principal Amount") shall begin on August 1,
2004 and shall recur on the first business day of each succeeding month
thereafter until the Maturity Date (each, an "Amortization Date").
Subject to Article 3 below, beginning on the first Amortization Date, the
Borrower shall make monthly payments to the Holder on each Repayment Date, each
in the amount of $45,454.54, together with any accrued and unpaid interest to
date on such portion of the Principal Amount plus any and all other amounts
which are then owing under this Note, the Purchase Agreement or any other
Related Agreement but have not been paid (collectively, the "Monthly Amount").
Any Principal Amount that remains outstanding on the Maturity Date shall be due
and payable on the Maturity Date.

ARTICLE II

CONVERSION REPAYMENT  

          2.1 (a) Payment of Monthly Amount in Cash or
Common Stock. Each month by the fifth (5th) business day prior to
each Amortization Date (the "Notice Date"), the Holder shall deliver to
Borrower a written notice in the form of Exhibit B attached hereto converting
the Monthly Amount payable on the next Repayment Date in either cash or Common
Stock, or a combination of both (each, a "Repayment Notice"). If a
Repayment Notice is not delivered by the Holder on or before the applicable
Notice Date for such Repayment Date, then the Borrower shall pay the Monthly
Amount due on such Repayment Date in cash. Any portion of the Monthly Amount
paid in cash on a Repayment Date, shall be paid to the Holder an amount equal to
101% of the principal portion of the Monthly Amount due and owing to Holder on
the Repayment Date. If the Holder converts all or a
portion of the Monthly Amount in shares of Common Stock as provided herein, the
number of such  

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shares to be issued by the Borrower to the Holder on such
Repayment Date shall be the number determined by dividing (x) the portion of the
Monthly Amount to be paid in shares of Common Stock, by (y) the then applicable
Fixed Conversion Price. For purposes hereof, the initial "Fixed Conversion
Price" means $0.25.

          (b) Monthly Amount Conversion Guidelines.
Subject to Sections 2.1(a), 2.2, and 3.2 hereof, the Holder shall convert all or
a portion of the Monthly Amount due on each Repayment Date in shares of Common
Stock if the average closing price of the Common Stock as reported by Bloomberg,
L.P. on the Principal Market for the five (5) trading days immediately preceding
such Repayment Date was greater than or equal to 110% of the Fixed Conversion
Price, provided, however, that such conversions shall not exceed twenty five
percent (25%) of the aggregate dollar trading volume of the Common Stock for the
five (5) day trading period immediately preceding delivery of a Notice of
Conversion to the Borrower. Any part of the Monthly Amount due on a Repayment
Date that the Holder has not converted into shares of Common Stock shall be paid
by the Borrower in cash on such Repayment Date. Any part of the Monthly Amount
due on such Repayment Date which must be paid in cash (as a result of the
closing price of the Common Stock on one or more of the five (5) trading days
preceding the applicable Repayment Date being less than 110% of the Fixed
Conversion Price) shall be paid in cash at the rate of 101% of the Monthly
Amount otherwise due on such Repayment Date, within three (3) business days of
the applicable Repayment Date.  

          2.2 No Effective Registration.
Notwithstanding anything to the contrary herein, none of the Borrower's
obligations to the Holder may be converted into Common Stock unless (i) either
(x) an effective current Registration Statement (as defined in the Registration
Rights Agreement) covering the shares of Common Stock to be issued in connection
with satisfaction of such obligations exists or (y) an exemption from
registration of the Common Stock is available to pursuant to Rule 144 of the
Securities Act and (ii) no Event of Default hereunder exists and is continuing,
unless such Event of Default is cured within any applicable cure period or is
otherwise waived in writing by the Holder in whole or in part at the Holder's
option.

          Any amounts converted by the Holder pursuant to
this Section 2.2 shall be deemed to constitute payments of outstanding fees,
interest and principal arising in connection with Monthly Amounts for the
remaining Repayment Dates, in chronological order.

          2.4 Optional Redemption in Cash. The
Borrower will have the option of prepaying this Note ("Optional Redemption")
by paying to the Holder a sum of money equal to one hundred twenty-five percent
(125%) of the principal amount of this Note together with accrued but unpaid
interest thereon and any and all other sums due, accrued or payable to the
Holder arising under this Note, the Purchase Agreement, or any Related Agreement
(the "Redemption Amount") outstanding on the day written notice of
redemption (the "Notice of Redemption") is given to the Holder. The
Notice of Redemption shall specify the date for such Optional Redemption (the "Redemption
Payment Date") which date shall be seven (7) business days after the date of
the Notice of Redemption (the "Redemption Period"). A Notice of
Redemption shall not be effective with respect 

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to any portion of this Note for
which the Holder has a pending election to convert pursuant to Section 3.1, or
for conversions initiated or made by the Holder pursuant to Section 3.1 during
the Redemption Period. The Redemption Amount shall be determined as if such
Holder's conversion elections had been completed immediately prior to the date
of the Notice of Redemption. On the Redemption Payment Date, the Redemption
Amount must be paid in good funds to the Holder. In the event the Borrower fails
to pay the Redemption Amount on the Redemption Payment Date as set forth herein,
then such Redemption Notice will be null and void.

ARTICLE III

CONVERSION RIGHTS

          3.1. Holder's Conversion Rights. The Holder
shall have the right, but not the obligation, to convert all or any portion of
the then aggregate outstanding principal amount of this Note, together with
interest and fees due hereon, into shares of Common Stock subject to the terms
and conditions set forth in this Article III. The Holder may exercise such right
by delivery to the Borrower of a written notice of conversion not less than one
(1) day prior to the date upon which such conversion shall occur.  

          3.2 Conversion Limitation. Notwithstanding anything
contained herein to the contrary, the Holder shall not be entitled to convert
pursuant to the terms of this Note an amount that would be convertible into that
number of Conversion Shares which would exceed the difference between the number
of shares of Common Stock beneficially owned by such Holder or issuable upon
exercise of warrants held by such Holder and 4.99% of the outstanding shares of
Common Stock of the Borrower. For the purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and Regulation 13d-3 thereunder. The Holder may void
the Conversion Share limitation described in this Section 3.2 upon 75 days prior
notice to the Borrower or without any notice requirement upon an Event of
Default.

          3.3 Mechanics of Holder's Conversion. (a) In the event that
the Holder elects to convert this Note into Common Stock, the Holder shall give
notice of such election by delivering an executed and completed notice of
conversion ("Notice of Conversion") to the Borrower and such Notice of
Conversion shall provide a breakdown in reasonable detail of the Principal
Amount, accrued interest and fees being converted. On each Conversion Date (as
hereinafter defined) and in accordance with its Notice of Conversion, the Holder
shall make the appropriate reduction to the Principal Amount, accrued interest
and fees as entered in its records and shall provide written notice thereof to
the Borrower within two (2) business days after the Conversion Date. Each date
on which a Notice of Conversion is delivered or telecopied to the Borrower in
accordance with the provisions hereof shall be deemed a Conversion Date (the "Conversion
Date"). A form of Notice of Conversion to be employed by the Holder is
annexed hereto as Exhibit A.  

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          (b) Pursuant to the terms of the Notice of Conversion, the Borrower
will issue instructions to the transfer agent accompanied by an opinion of
counsel within three (3)business days of the date of the delivery to Borrower of
the Notice of Conversion and shall cause the transfer agent to transmit the
certificates representing the Conversion Shares to the Holder by crediting the
account of the Holder's designated broker with the Depository Trust Corporation
("DTC") through its Deposit Withdrawal Agent Commission ("DWAC")
system within three (3) business days after receipt by the Borrower of the
Notice of Conversion (the "Delivery Date"). In the case of the exercise
of the conversion rights set forth herein the conversion privilege shall be
deemed to have been exercised and the Conversion Shares issuable upon such
conversion shall be deemed to have been issued upon the date of receipt by the
Borrower of the Notice of Conversion. The Holder shall be treated for all
purposes as the record holder of such Common Stock, unless the Holder provides
the Borrower written instructions to the contrary.

          3.4 Conversion Mechanics.

          (a) The number of shares of Common Stock to be
issued upon each conversion of this Note shall be determined by dividing that
portion of the principal and interest and fees to be converted, if any, by the
then applicable Fixed Conversion Price. In the event of any conversions of
outstanding principal amount under this Note in part pursuant to this Article
III, such conversions shall be deemed to constitute conversions of outstanding
principal amount applying to Monthly Amounts for the remaining Repayment Dates
in chronological order. By way of example, if the original principal amount of
this Note is $1,500,000and the Holder converted $100,000 of such original
principal amount prior to the first Repayment Date, then (1) the principal
amount of the Monthly Amount due on the first Repayment Date would equal $0, (2)
the principal amount of the Monthly Amount due on the second Repayment Date
would equal $0 and (3) the principal amount of the Monthly Amount due on the
third Repayment Dates would be $36,363.62.

          (b) The Fixed Conversion Price and number and kind
of shares or other securities to be issued upon conversion is subject to
adjustment from time to time upon the occurrence of certain events, as follows:

          A. Stock Splits, Combinations and Dividends.
If the shares of Common Stock are subdivided or combined into a greater or
smaller number of shares of Common Stock, or if a dividend is paid on the Common
Stock in shares of Common Stock, the Fixed Conversion Price or the Conversion
Price, as the case may be, shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in the case
of combination of shares, in each such case by the ratio which the total number
of shares of Common Stock outstanding immediately after such event bears to the
total number of shares of Common Stock outstanding immediately prior to such
event.

          B. During the period the conversion right exists,
the Borrower will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of 

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Common Stock upon the full
conversion of this Note. The Borrower represents that upon issuance, such shares
will be duly and validly issued, fully paid and non-assessable. The Borrower
agrees that its issuance of this Note shall constitute full authority to its
officers, agents, and transfer agents who are charged with the duty of executing
and issuing stock certificates to execute and issue the necessary certificates
for shares of Common Stock upon the conversion of this Note.

          C. Share Issuances. Subject to the
provisions of this Section 3.4, if the Borrower shall at any time prior to the
conversion or repayment in full of the Principal Amount issue any shares of
Common Stock or securities convertible into Common Stock to a person other than the Holder (except (i) pursuant to Subsections A
or B above; (ii) pursuant to options, warrants, or other obligations to issue
shares outstanding on the date hereof as disclosed to Holder in writing; or
(iii) pursuant to options that may be issued under any employee incentive stock
option and/or any qualified stock option plan adopted by the Borrower) for a
consideration per share (the "Offer Price") less than the Fixed Conversion Price
in effect at the time of such issuance, then the Fixed Conversion Price shall be
immediately reset to such lower Offer Price at the time of issuance of such
securities.

          D. Reclassification, etc. If the Borrower at
any time shall, by reclassification or otherwise, change the Common Stock into
the same or a different number of securities of any class or classes, this Note,
as to the unpaid Principal Amount and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result of
such change with respect to the Common Stock immediately prior to such
reclassification or other change.

          3.5 Issuance of New Note. Upon any partial
conversion of this Note, a new Note containing the same date and provisions of
this Note shall, at the request of the Holder, be issued by the Borrower to the
Holder for the principal balance of this Note and interest which shall not have
been converted or paid. The Borrower will pay no costs, fees or any other
consideration to the Holder for the production and issuance of a new Note.

ARTICLE IV

EVENTS OF DEFAULT

          Upon the occurrence and continuance of an Event of Default beyond
any applicable grace period, the Holder may make all sums of principal, interest
and other fees then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable. In the event of such an acceleration,
within five (5) days after written notice from Holder to Borrower (each
occurrence being a "Default Notice Period") the amount due and owing to
the Holder shall be 120% of the outstanding principal amount of the Note (plus
accrued and unpaid interest and fees, if any) (the "Default Payment").
If, with respect to any Event of Default, the Borrower cures the Event of
Default, the Event of Default will be deemed to no longer exist and any rights
and remedies of Holder pertaining to such Event of Default will be of no further
force or effect. The Default Payment 

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shall be applied first to any fees due and
payable to Holder pursuant to the Note or the Related Agreements, then to
accrued and unpaid interest due on the Note and then to outstanding principal
balance of the Note.

          The occurrence of any of the following events set
forth in Sections 4.1 through 4.10, inclusive, is an "Event of Default":

          4.1 Failure to Pay Principal, Interest or other
Fees. The Borrower fails to pay when due any installment of principal,
interest or other fees hereon in accordance herewith, or the Borrower fails to
pay when due any amount due under any other promissory note issued by Borrower,
and in any such case, such failure shall continue for a period of five (5) days
following the date upon which any such payment was due.

          4.2 Breach of Covenant. The Borrower
breaches any covenant or any other term or condition of this Note or the
Purchase Agreement in any material respect, or the Borrowers or any of its
Subsidiaries breaches any covenant or any other term or condition of any Related
Agreement in any material respect and, any such case, such breach, if subject to
cure, continues for a period of twenty (20) days after the occurrence thereof.

          4.3 Breach of Representations and Warranties.
Any representation or warranty made by the Borrower in this Note or the Purchase
Agreement, or by the Borrower or any of its Subsidiaries in any Related
Agreement, shall, in any such case, be false or misleading in any material
respect on the date that such representation or warranty was made or deemed
made.

          4.4 Receiver or Trustee. The Borrower or any
of its Subsidiaries 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.

          4.5 Judgments. Any money judgment, writ or
similar final process shall be entered or filed against the Borrower or any of
its Subsidiaries or any of their respective property or other assets for more
than $50,000, and shall remain unvacated, unbonded or unstayed for a period of
thirty (30) days.

          4.6 Bankruptcy. Bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings or relief under
any bankruptcy law or any law for the relief of debtors shall be instituted by
or against the Borrower or any of its Subsidiaries.

          4.7 Stop Trade. An SEC stop trade order or
Principal Market trading suspension of the Common Stock shall be in effect for
five (5) consecutive trading days or five (5) trading days during a period of
ten (10) consecutive trading days, excluding in all cases a suspension of all
trading on a Principal Market, provided that the Borrower shall not have
been able to cure such trading suspension within thirty (30) days of the notice
thereof or list the Common Stock on another Principal Market within sixty (60)
days of such notice. The "Principal Market" for the Common  

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Stock shall include
the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market
System, American Stock Exchange, or New York Stock Exchange (whichever of the
foregoing is at the time the principal trading exchange or market for the Common
Stock, or any securities exchange or other securities market on which the Common
Stock is then being listed or traded.

          4.8 Failure to Deliver Common Stock or
Replacement Note. The Borrower shall fail (i) to timely deliver Common Stock
to the Holder pursuant to and in the form required by this Note, and Section 9
of the Purchase Agreement, if such failure to timely deliver Common Stock shall
not be cured within five (5) business days or (ii) to deliver a replacement Note
to Holder within seven (7) business days following the required date of such
issuance pursuant to this Note, the Purchase Agreement or any Related Agreement
(to the extent required under such agreements).

          4.9 Default Under Related Agreements or Other Agreements.
The occurrence and continuance of any Event of Default (as defined in any
Related Agreement) or any event of default (or similar term) under any other
indebtedness beyond any applicable cure periods.

DEFAULT RELATED PROVISIONS

          4.11 Payment Grace Period. Following the occurrence and
continuance of an Event of Default beyond any applicable cure period hereunder,
the Borrower shall pay the Holder a default interest rate of one and one half
percent (1.50%) per month on all amounts due and owing under the Note,, which
default interest shall be payable upon demand.  

          4.12 Conversion Privileges. The conversion privileges set
forth in Article III shall remain in full force and effect immediately from the
date hereof and until this Note is paid in full.

          4.13 Cumulative Remedies. The remedies under this Note shall
be cumulative.

ARTICLE V

MISCELLANEOUS

          5.1 Failure or Indulgence Not Waiver. No failure or delay on
the part of the Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. 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 shall be deemed effectively given: (a) upon
personal delivery to the party notified, (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient, if not, then on
the next business day, (c) five days after having been sent by registered or
certified mail, return receipt  

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requested, postage prepaid, or (d) one day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent
to the Borrower at the address provided in the Purchase Agreement executed in
connection herewith, and to the Holder at the address provided in the Purchase
Agreement for such Holder, with a copy to John E. Tucker, Esq., 825 Third
Avenue, 14th Floor, New York, New York 10022, facsimile number (212)
541-4434, or at such other address as the Borrower or the Holder may designate
by ten days advance written notice to the other parties hereto. A Notice of
Conversion shall be deemed given when made to the Borrower pursuant to the
Purchase Agreement.

          5.3 Amendment Provision. The term "Note" and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument issued pursuant to Section 3.5
hereof, as it may be amended or supplemented.

          5.4 Assignability. This Note shall be binding upon the
Borrower and its successors and assigns, and shall inure to the benefit of the
Holder and its successors and assigns, and may be assigned by the Holder in
accordance with the requirements of the Purchase Agreement. This Note shall not
be assigned by the Borrower without the consent of the Holder.

          5.5 Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws. Any action brought by either party against
the other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individual signing this Note on
behalf of the Borrower agree to submit to the jurisdiction of such courts. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Note is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or unenforceability of any other provision
of this Note. Nothing contained herein shall be deemed or operate to preclude
the Holder from bringing suit or taking other legal action against the Borrower
in any other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court in favor of the Holder.

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

          5.7 Security Interest and Guarantee. The Holder has been
granted a security interest (i) in certain assets of the Borrower and its
Subsidiaries as more fully described in the Master Security 

9

Agreement dated as of the date hereof and (ii)
pursuant to the Stock Pledge Agreement dated as of the date hereof. The
obligations of the Borrower under this Note are guaranteed by certain
Subsidiaries of the Borrower pursuant to the Subsidiary Guaranty dated as of the
date hereof.

          5.8 
Construction. Each party acknowledges that its legal counsel participated in
the preparation of this Note and, therefore, stipulates that the rule of
construction that ambiguities are to be resolved against the drafting party
shall not be applied in the interpretation of this Note to favor any party
against the other.  

          5.9 
Cost of Collection. If default is made in the payment of this Note, the
Borrower shall pay to Holder reasonable costs of collection, including
reasonable attorney's fees.  

[Balance of page intentionally left blank; signature page
follows.]

10

          IN WITNESS WHEREOF, the Borrower has caused
this Convertible Term Note to be signed in its name effective as of this 28th
day of April, 2004.

	
    MAGIC LANTERN GROUP, INC.

	
    By:
	
     
	
    Name:
	
     
	
    Title:
	
     

WITNESS:

_______________________________

 

11

 

EXHIBIT A

NOTICE OF CONVERSION

(To be executed by the Holder in order to convert all or part of the Note
into Common Stock

[Name and Address of Holder]

 

The Undersigned hereby converts $_________ of the principal due on [specify
applicable Repayment Date] under the Convertible Term Note issued by MAGIC
LANTERN GROUP, INC. dated April __, 2004 by delivery of Shares of Common Stock
of MAGIC LANTERN GROUP, INC. on and subject to the conditions set forth in
Article III of such Note.

 

	1. Date of Conversion  	 
	2. Shares To Be Delivered:
     	 

 

	By:	 
	Name:	 
	Title:	 
	 	 

12

 

EXHIBIT B

CONVERSION NOTICE

(To be executed by the Holder in order to convert all or part of a Monthly
Amount into Common Stock)

[Name and Address of Holder]

Holder hereby converts $_________ of the Monthly Amount due on [specify
applicable Repayment Date] under the Convertible Term Note issued by MAGIC
LANTERN GROUP, INC. dated _______, 200__ by delivery of Shares of Common Stock
of MAGIC LANTERN GROUP, INC. on and subject to the conditions set forth in
Article III of such Note.

 

1. Fixed Conversion Price: $_______________________

2. Amount to be paid: $_______________________

3. Shares To Be Delivered (2 divided by 1): __________________

4. Cash payment to be made by Borrower : $_____________________

 

	Date: ____________  
     	 LAURUS MASTER FUND, LTD.

	 	By:	 
	 	Name:	 
	 	Title:	 

 

13EXHIBIT 10.3

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
    OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
    OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE
    OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
    ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND
    ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
    TO MAGIC LANTERN GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

  

Right to Purchase up to 1,100,000 Shares of Common Stock of

Magic Lantern Group, Inc. 

(subject to adjustment as provided herein)

COMMON STOCK PURCHASE WARRANT

	No. _________________	Issue Date: April 28, 2004

           Magic Lantern Group, Inc., a corporation organized under the laws of the
State of New York (" Magic Lantern"), hereby certifies that, for value received, LAURUS
MASTER FUND, LTD., or assigns (the "Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company (as defined herein) from and after the Issue Date of
this Warrant and at any time or from time to time before 5:00 p.m., New York time, through
the close of business April 28, 2011 (the "Expiration Date"), up to 1,100,000 fully paid
and nonassessable shares of Common Stock (as hereinafter defined), $0.01 par value per
share, at the applicable Exercise Price per share (as defined below). The number and
character of such shares of Common Stock and the applicable Exercise Price per share are
subject to adjustment as provided herein.

           As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:  

                  (a)     The term "Company" shall include
Magic Lantern and any corporation which shall succeed, or assume the obligations of, Magic
Lantern hereunder.  

                  (b)     The term "Common Stock" includes (i)
the Company's Common Stock, par value $0.01 per share; and (ii) any other securities into
which or for which any of the securities described in (a) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of assets or
otherwise.

                  (c)     The term "Other Securities" refers to
any stock (other than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holder of the Warrant at any time shall be
entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 4 or otherwise.  

                  (d)     The "Exercise Price" applicable under
this Warrant shall be $0.30 [120% of the Fixed Conversion Price]  

           1.     Exercise of Warrant.
 

                   1.1     Number of Shares Issuable upon Exercise. From and
after the date hereof through and including the Expiration Date, the Holder shall be
entitled to receive, upon exercise of this Warrant in whole or in part, by delivery of an
original or fax copy of an exercise notice in the form attached hereto as Exhibit A (the
"Exercise Notice"), shares of Common Stock of the Company, subject to adjustment pursuant
to Section 4.

                   1.2     Fair Market Value. For purposes hereof, the "Fair
Market Value" of a share of Common Stock as of a particular date (the "Determination
Date") shall mean:  

           (a)      If the Company's Common Stock is
traded on the American Stock Exchange or another national exchange or is quoted on the
National or SmallCap Market of The Nasdaq Stock Market, Inc.("Nasdaq"), then the closing
or last sale price, respectively, reported for the last business day immediately preceding
the Determination Date.

           (b)      If the Company's Common Stock is not
traded on the American Stock Exchange or another national exchange or on the Nasdaq but is
traded on the NASD OTC Bulletin Board, then the mean of the average of the closing bid and
asked prices reported for the last business day immediately preceding the Determination
Date.

           (d)
     Except as provided in clause (d) below, if the Company's Common Stock is not publicly
traded, then as the Holder and the Company agree or in the absence of agreement by
arbitration in accordance with the rules then in effect of the American Arbitration
Association, before a single arbitrator to be chosen from a panel of persons qualified by
education and training to pass on the matter to be decided.

           (e)      If the Determination Date is the date
of a liquidation, dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's charter, then all amounts to be
payable per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be payable per
share in respect of the Common Stock in liquidation under the charter, assuming for the
purposes of this clause (d) that all of the shares of Common Stock then issuable upon
exercise of the Warrant are outstanding at the Determination Date.

                   1.3     Company Acknowledgment. The Company will, at the time
of the exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which such holder
shall continue to be entitled after such exercise in accordance with the provisions of
this Warrant. If the holder shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to such holder any such rights.

                   1.4     Trustee for Warrant Holders. In the event that a bank
or trust company shall have been appointed as trustee for the holders of the Warrant
pursuant to Subsection 3.2, such bank or trust company shall have all the powers and
duties of a warrant agent (as hereinafter described) and shall accept, in its own name for
the account of the Company or such successor person as may be entitled thereto, all
amounts otherwise payable to the Company or such successor, as the case may be, on
exercise of this Warrant pursuant to this Section 1.

           2.     Procedure for Exercise.

                   2.1     Delivery of Stock Certificates, Etc., on Exercise.
The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant
shall be deemed to be issued to the Holder as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been surrendered and
payment made for such shares in accordance herewith. As soon as practicable after the
exercise of this Warrant in full or in part, and in any event within three (3) business
days thereafter, the Company at its expense (including the payment by it of any applicable
issue taxes) will cause to be issued in the name of and delivered to the Holder, or as
such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in
compliance with applicable securities laws, a certificate or certificates for the number
of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash equal to such
fraction multiplied by the then Fair Market Value of one full share, together with any
other stock or other securities and property (including cash, where applicable) to which
such Holder is entitled upon such exercise pursuant to Section 1 or otherwise.

                   2.2     Exercise. Payment may be made either (i) in cash or
by certified or official bank check payable to the order of the Company equal to the
applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or shares of Common
Stock and/or Common Stock receivable upon exercise of the Warrant in accordance with
Section (b) below, or (iii) by a combination of any of the foregoing methods, for the
number of Common Shares specified in such Exercise Notice (as such exercise number shall
be adjusted to reflect any adjustment in the total number of shares of Common Stock
issuable to the Holder per the terms of this Warrant) and the Holder shall thereupon be
entitled to receive the number of duly authorized, validly issued, fully-paid and
non-assessable shares of Common Stock (or Other Securities) determined as provided herein.
Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one
share of Common Stock is greater than the Exercise Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the portion
thereof being exercised) by surrender of this Warrant at the principal office of the
Company together with the properly endorsed Exercise Notice in which event the Company
shall issue to the Holder a number of shares of Common Stock computed using the following
formula:

	 	X= Y  
	
    
      (A-B)

    
	 	 	   A

  
    Where X = the number of shares of Common Stock to be issued to the Holder

    Y = the number of shares of Common Stock purchasable under the Warrant or, if only
    a portion of the Warrant is being exercised, the portion of the Warrant being
    exercised (at the date of such calculation)

    A = the Fair Market Value of one share of the Company's Common Stock (at the date
    of such calculation)

    B = Exercise Price (as adjusted to the date of such calculation)

  

           3.     Effect of Reorganization, Etc.; Adjustment of Exercise Price.

                   3.1     Reorganization, Consolidation, Merger, Etc. In case
at any time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or substantially all
of its properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company, then, in each such case, as a condition to
the consummation of such a transaction, proper and adequate provision shall be made by the
Company whereby the Holder of this Warrant, on the exercise hereof as provided in Section
1 at any time after the consummation of such reorganization, consolidation or merger or
the effective date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such consummation or
such effective date, the stock and other securities and property (including cash) to which
such Holder would have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if such Holder had so exercised this Warrant, immediately
prior thereto, all subject to further adjustment thereafter as provided in Section 4.

                   3.2     Dissolution. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or assets,
the Company, concurrently with any distributions made to holders of its Common Stock,
shall at its expense deliver or cause to be delivered to the Holder the stock and other
securities and property (including cash, where applicable) receivable by the Holder of the
Warrant pursuant to Section 3.1, or, if the Holder shall so instruct the Company, to a
bank or trust company specified by the Holder and having its principal office in New York,
NY as trustee for the Holder of the Warrant (the "Trustee").

                   3.3     Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer) referred to
in this Section 3, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of stock and other securities and property
receivable on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such transfer,
as the case may be, and shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the person acquiring all or
substantially all of the properties or assets of the Company, whether or not such person
shall have expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the consummation of
the transactions described in this Section 3, then the Company's securities and property
(including cash, where applicable) receivable by the Holders of the Warrant will be
delivered to Holder or the Trustee as contemplated by Section 3.2.

           4.     Extraordinary Events Regarding Common Stock. In the event that
the Company shall (a) issue additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common
Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of
shares of the Common Stock, then, in each such event, the Exercise Price shall,
simultaneously with the happening of such event, be adjusted by multiplying the then
Exercise Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such event and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such event,
and the product so obtained shall thereafter be the Exercise Price then in effect. The
Exercise Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Section 4. Following an
extraordinary event regarding Common Stock as described in subsections (a), (b) and (c) of
this Section 4, the number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall
be increased (or decreased as applicable) to a number determined by multiplying the number
of shares of Common Stock that would otherwise (but for the provisions of this Section 4)
be issuable on such exercise by a fraction of which (a) the numerator is the Exercise
Price that would otherwise (but for the provisions of this Section 4) be in effect, and
(b) the denominator is the Exercise Price in effect on the date of such exercise.

           5.     Certificate as to Adjustments. In each case of any adjustment
or readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrant, the Company at its expense will promptly cause its Chief
Financial Officer or other appropriate designee to compute such adjustment or readjustment
in accordance with the terms of the Warrant and prepare a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration received or
receivable by the Company for any additional shares of Common Stock (or Other Securities)
issued or sold or deemed to have been issued or sold, (b) the number of shares of Common
Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise
Price and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or
readjusted as provided in this Warrant. The Company will forthwith mail a copy of each
such certificate to the holder of the Warrant and any Warrant agent of the Company
(appointed pursuant to Section 11 hereof).

           6.     Reservation of Stock, Etc., Issuable on Exercise of Warrant.
The Company will at all times reserve and keep available, solely for issuance and delivery
on the exercise of the Warrant, shares of Common Stock (or Other Securities) from time to
time issuable on the exercise of the Warrant.

           7.     Assignment; Exchange of Warrant. Subject to compliance with
applicable securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") in whole or in part. On the
surrender for exchange of this Warrant, with the Transferor's endorsement in the form of
Exhibit B attached hereto (the "Transferor Endorsement Form") and together with evidence
reasonably satisfactory to the Company demonstrating compliance with applicable securities
laws, which shall include, without limitation, the provision of a legal opinion from the
Transferor's counsel (at the Company's expense) that such transfer is exempt from the
registration requirements of applicable securities laws, and with payment by the
Transferor of any applicable transfer taxes) will issue and deliver to or on the order of
the Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or
the transferee(s) specified in such Transferor Endorsement Form (each a "Transferee"),
calling in the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant so surrendered by the Transferor.

           8.     Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an
indemnity agreement or security reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the
Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.

           9.     Registration Rights. The Holder of this Warrant has been
granted certain registration rights by the Company. These registration rights are set
forth in a Registration Rights Agreement entered into by the Company and Purchaser dated
as of even date of this Warrant.

           10.     Maximum Exercise. The Holder shall not be entitled to
exercise this Warrant on an exercise date, in connection with that number of shares of
Common Stock which would be in excess of the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date, and (ii)
the number of shares of Common Stock issuable upon the exercise of this Warrant with
respect to which the determination of this proviso is being made on an exercise date,
which would result in beneficial ownership by the Holder and its affiliates of more than
4.99% of the outstanding shares of Common Stock of the Company on such date. For the
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 Regulation 13d-3 thereunder. Notwithstanding the foregoing, the restriction
described in this paragraph may be revoked upon 75 days prior notice from the Holder to
the Company and is automatically null and void upon an Event of Default under the Note.

           11.     Warrant Agent. The Company may, by written notice to the each
Holder of the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant
pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the
foregoing, and thereafter any such issuance, exchange or replacement, as the case may be,
shall be made at such office by such agent.

           12.     Transfer on the Company's Books. Until this Warrant is
transferred on the books of the Company, the Company may treat the registered holder
hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.

           13.     Notices, Etc. All notices and other communications from the
Company to the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to the Company
in writing by such Holder or, until any such Holder furnishes to the Company an address,
then to, and at the address of, the last Holder of this Warrant who has so furnished an
address to the Company.

           14.     Voluntary Adjustment by the Company. The Company may at any
time during the term of this Warrant reduce the then current Exercise Price to any amount
and for any period of time deemed appropriate by the Board of Directors of the Company.

           15.     Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be governed by and construed in accordance with the laws of
State of New York without regard to principles of conflicts of laws. Any action brought
concerning the transactions contemplated by this Warrant shall be brought only in the
state courts of New York or in the federal courts located in the state of New York;
provided, however, that the Holder may choose to waive this provision and bring an action
outside the state of New York. The individuals executing this Warrant on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial by jury. The
prevailing party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Warrant is invalid or
unenforceable under any applicable statute or rule of law, then such provision shall be
deemed inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which may prove
invalid or unenforceable under any law shall not affect the validity or enforceability of
any other provision of this Warrant. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof. The
invalidity or unenforceability of any provision hereof shall in no way affect the validity
or enforceability of any other provision hereof. The Company acknowledges that legal
counsel participated in the preparation of this Warrant and, therefore, stipulates that
the rule of construction that ambiguities are to be resolved against the drafting party
shall not be applied in the interpretation of this Warrant to favor any party against the
other party.

[Balance of page intentionally left blank;

signature page follows.]

           IN WITNESS WHEREOF, the Company has executed this
Warrant as of the date first written above.  

	 	 	MAGIC LANTERN GROUP, INC.
	 	 	 
	WITNESS:	 	 
	 	 	By:	
    
 

    
	 	 	Name:	Robert A. Goddard
	 	 	Title:	President & CEO

 

 

 

                             

                          
                        
                      
                    
                  
                
              
            
          
        
      
    
  

EXHIBIT A

FORM OF SUBSCRIPTION

(To Be Signed Only On Exercise Of Warrant)

TO: Magic Lantern Group, Inc.

 

Attention: Chief Financial Officer

The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.____), hereby irrevocably elects to purchase (check applicable box):

	 	 	________ shares of the Common Stock
    covered by such Warrant; or

	 	 	 
	
	

The undersigned herewith makes payment of the full Exercise Price for
such shares at the price per share provided for in such Warrant, which is $___________.
Such payment takes the form of (check applicable box or boxes):

			
    $__________ in lawful
    money of the United States; and/or

			
	
	
	 	 	 
	
	
	

The undersigned requests that the certificates for such shares be
issued in the name of, and delivered to ______________________________________________
whose address is
___________________________________________________________________________.

The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable upon exercise of the within Warrant shall be
made pursuant to registration of the Common Stock under the Securities Act of 1933, as
amended (the "Securities Act") or pursuant to an exemption from registration under the
Securities Act.

	Dated:	 	 	 
	 	 	(Signature must conform to name of holder as
    specified on the face of the Warrant)
	 	 	 
	 	 	Address:	 
	 	 	 	 

Exhibit B

FORM OF TRANSFEROR ENDORSEMENT

(To Be Signed Only On Transfer Of Warrant)

For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of shares of
Common Stock of Magic Lantern Group, Inc. into which the within Warrant relates specified
under the headings "Percentage Transferred" and "Number Transferred," respectively,
opposite the name(s) of such person(s) and appoints each such person Attorney to transfer
its respective right on the books of Magic Lantern Group, Inc. with full power of
substitution in the premises.

	Transferees	 	Address	 	Percentage

    Transferred	 	Number Transferred

	 	 	 	 	 	 	 
	 
	 	 
	 	 
	 	 

	 	 	 	 	 	 	 
	 
	 	 
	 	 
	 	 

	 	 	 	 	 	 	 
	 
	 	 
	 	 
	 	 

	 	 	 	 	 	 	 
	 
	 	 
	 	 
	 	 

 

	Dated:	 	 	 
	 	 	(Signature must conform to name
    of holder as specified on the face of the Warrant)
	 	 	 
			Address:	
    

	 	 	 	 

 

		SIGNED IN THE PRESENCE OF:
	 	 
	 	 

	 	(Name)

	ACCEPTED AND AGREED:	 
	[TRANSFEREE]	 
	 	 
	 	 
	 
	 
	(Name)

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