Document:

f10qsb0307ex10q.htm

    

     

    
      
        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

     

    
      
        	
                Clinton
                  Township, Michigan

              	 
	
                
                  November
                    6, 2007

                

              	
                
                  $488,000

                

              

      

    

     

    FOR
      VALUE RECEIVED, MIDNIGHT HOLDINGS
      GROUP, INC.,
a Delaware corporation (hereinafter called the “Borrower”), hereby
      promises to pay to the order of AJW Offshore, Ltd. or registered assigns (the
      “Holder”) the sum of
      $488,000, on November 6, 2010 (the “Maturity Date”), and to pay
      interest on the unpaid principal balance hereof at the rate of ten percent
      (10%)
      per annum from November 6, 2007 (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 on March 31, June 30,
      September 30 and December 31 of each year beginning on the last day of the
      first full quarter after Issue Date.  All payments due hereunder (to
      the extent not converted into common stock, $.00005 par value per share, of
      the
      Borrower (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. 

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

       

       

      
        Each
          capitalized term used herein, and not otherwise defined, shall have the
          meaning
          ascribed thereto in that certain Securities Purchase Agreement, dated November
          6, 2007, 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 by and between the Borrower and
      the Holder of even date herewith.

     

    The
      following terms shall apply to this Note:

     

     

    ARTICLE
      I.  CONVERSION RIGHTS

     

    1.1  Conversion
      Right.  The
      Holder shall
      have the right from time to time, and at any time on or prior to the earlier
      of
      (i) the Maturity Date and (ii) the date of payment of the Default Amount (as
      defined in Article III) pursuant to Section 1.6(a) or Article III, the Optional
      Prepayment Amount (as defined in Section 5.1) or (iii) any payments pursuant
      to
      Section 1.7, 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 4.9% 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”).  

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

       

      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 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 1.3 and
        1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights
        Agreement, dated as of November 6, 2007, executed in connection with the
        initial
        issuance of this Note and the other Notes issued on the Issue Date (the “Registration Rights
        Agreement”).

    

     

    1.2  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, 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 Over-the-Counter
      Bulletin Board (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 25%; provided, however, that the Applicable Percentage shall be increased
      to (i) 30% in the event that the Registration Statement (as defined in the
      Registration Rights Agreement) is filed on or before the Filing Date (as defined
      in the Registration Rights Agreement) and (ii) 40% in the event that the
      Registration Statement (as defined in the Registration Rights Agreement) becomes
      effective on or before the Effectiveness Deadline) as defined in the
      Registration Rights Agreement).  The “Fixed Conversion Price” shall
      mean $.02.

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (b)  Conversion
      Price During
      Major Announcements.  Notwithstanding
      anything contained in Section 1.2(a) to the contrary, in the event the Borrower
      (i) makes a public announcement that it intends to consolidate or merge with
      any
      other corporation (other than a merger in 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 1.2(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 1.2(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 1.2(b) to become operative.

     

    1.3  Authorized
      Shares.  Subject
      to the
      completion of the Charter Amendment Actions (as defined in the Purchase
      Agreement), 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 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 I (a “Conversion
      Default”), subject to Section 4.8, the Borrower shall issue to the Holder
      all of the shares of Common Stock which are then available to effect such
      conversion. 

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

       

       

      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
        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 the Borrower elects to make 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 the Borrower elects to make 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 I (so long as there is then a sufficient number of authorized shares
      of
      Common Stock).

     

    

    The
      Borrower’s election shall be made in writing to the Holder 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 Borrower shall be deemed to have elected to remit Common
      Stock.  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).

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    1.4  Method
      of
      Conversion.

     

    (a)  Mechanics
      of
      Conversion.  Subject
      to
      Section 1.1, 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 1.4(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 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 1.4, 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 five
      (5)
      business days after such receipt (and, solely in the case of conversion of
      the
      entire unpaid principal amount hereof, surrender of this Note) (such second
      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).

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (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.

     

    (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 1.1
      and in this Section 1.4, 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) days
      after the Deadline (other than a failure due to the circumstances described
      in
      Section 1.3 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.

     

    1.5  Concerning
      the
      Shares.  The
      shares of
      Common Stock issuable upon conversion of this Note may not be sold or
      transferred unless  (i) such shares are sold pursuant to an effective
      registration statement under the Act or (ii) the Borrower or its transfer 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 1.5 and who is an Accredited Investor (as defined in the Purchase
      Agreement).  

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

       

      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 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.

     

    1.6  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:  

     

     

    
      
        
        

      

      
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      (i)
        be
        deemed to be an Event of Default (as defined in Article III) 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 III) or (ii) be treated pursuant to Section 1.6(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 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 1.6(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.

     

     

    
      
        
        

      

      
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    (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 1.6(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 Fixed
      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, 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 Fixed Conversion Price then in effect, then the Fixed Conversion
      Price shall be equal to such price 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 Fixed Conversion Price then
      in
      effect, then the Fixed 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 Fixed Conversion Price will be made upon the actual issuance of such
      Common Stock upon conversion or exchange of such Convertible
      Securities.

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

     

    (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 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.

     

    1.7  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”).  

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

       

       

      With
        respect to each Holder of Notes, the Maximum Share Amount shall refer to
        such
        Holder’s prorata
        share thereof
        determined in accordance with Section 4.8 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.

    

     

    1.8  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 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 1.3 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 1.3) for the Borrower’s failure to convert this
      Note.

     

     

    ARTICLE
      II.   CERTAIN COVENANTS

     

    2.1  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.

     

     

     

    
      
        
        

      

      
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    2.2  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.

     

    2.3  Borrowings.  So
      long as the
      Borrower shall have any obligation under this Note, the Borrower shall not,
      without the Holder’s written consent, create, incur, assume or suffer to exist
      any liability for borrowed money in excess of $50,000, 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.

     

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

     

    2.5  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.

     

    2.6  Contingent
      Liabilities.  So long
      as the
      Borrower shall have any obligation under this Note, the Borrower shall not,
      without the Holder’s written consent, 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
      III.   EVENTS OF DEFAULT

     

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

     

    3.1  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
      1.7, upon acceleration or otherwise;

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

     

    3.2  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 1.3 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;

     

    3.3  Failure
      to Timely File
      Registration or Effect Registration.  The
      Borrower
      fails to file the Registration Statement within sixty (60) 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
      two
      hundred fifty (250) 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 twenty (20)
      consecutive days or forty (40) days in any twelve month period after the
      Registration Statement becomes effective;

     

    3.4  Breach
      of
      Covenants.  The
      Borrower
      breaches any material covenant or other material term or condition contained
      in
      Sections 1.3, 1.6 or 1.7 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;

     

    3.5  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;

     

    3.6  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;

     

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

     

    3.7  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;

     

    3.8  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;

     

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

     

    3.10  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, then, upon the occurrence and during the
      continuation of any Event of Default specified in Section 3.1, 3.2, 3.3, 3.4,
      3.5, 3.7, 3.9, or 3.10, 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 3.6 or 3.8, 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 1.3 and 1.4(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 I, 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.

     

     

    
      
        
        

      

      
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    ARTICLE
      IV.   MISCELLANEOUS

     

    4.1  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.

     

    4.2  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 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 22600 Hall Road, Suite 205
      Clinton Township, MI 48036, facsimile number: 586-468-8768.  Both the
      Holder and the Borrower may change the address for service by service of written
      notice to the other as herein provided.

     

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

     

    4.4  Assignability.  This
      Note shall
      be binding upon the Borrower and its successors and assigns, and shall inure
      to
      be the benefit of the Holder 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 bonafide
      margin account
      or other lending arrangement.

     

    4.5  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.

     

    4.6  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. 

     

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

       

       

      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.

    

     

    4.7  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.

     

    4.8  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.

     

    4.9  Damages
      Shares.  The
      shares of
      Common Stock that may be issuable to the Holder pursuant to Sections 1.3 and
      1.4(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.

     

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    4.10  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.

     

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

     

    4.12  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 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.

     

    4.13  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.

     

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      V.  CALL OPTION

     

    5.1  Call
      Option.  Notwithstanding
      anything to the contrary contained in this Article V, 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 $.04 per share, 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 5.1), to prepay all
      of
      the outstanding Notes in accordance with this Section 5.1.  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 of the Notes issued on the Issue Date and
      (2)
      the date of prepayment (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) 135% (for prepayments occurring within
      thirty (30) days of the Issue Date), (ii) 145% for prepayments occurring
      between thirty-one (31) and ninety (90) days of the Issue Date, or (iii) 150%
      (for prepayments occurring after the ninetieth (90th)
      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 1.3 and 1.4(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 I 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 5.1.

     

    

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

     

     

    IN
      WITNESS WHEREOF, Borrower
      has caused this Note to be signed in its name by its duly authorized officer
      as
      of the date first above written.

     

    

    MIDNIGHT
      HOLDINGS GROUP,
      INC.

    

    

    

    By:
/s/
      Nicholas Cocco            

    Nicholas
      Cocco

    Chief
      Executive Officer

     

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

     

     

    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, par value $.00005 per
      share (“Common Stock”),
      of Midnight Holdings Group, Inc., a Delaware corporation (the “Borrower”) according to the
      conditions of the convertible Notes of the Borrower dated as of November 6,
      2007
      (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:____________________________________

     

     

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

     

    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.

     

     

     

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    
      

      

    

     

    
      

      
        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

       

      
        
          	
                  Clinton
                    Township, Michigan

                	 
	
                  November
                    6, 2007

                	
                  
                    $88,000

                  

                

        

      

       

      FOR
        VALUE RECEIVED, MIDNIGHT HOLDINGS
        GROUP, INC.,
a Delaware corporation (hereinafter called the “Borrower”), hereby
        promises to pay to the order of AJW Partners, LLC or registered assigns (the
        “Holder”) the sum of
$88,000
        on November 6, 2010 (the “Maturity Date”), and to
        pay
        interest on the unpaid principal balance hereof at the rate of ten percent
        (10%)
        per annum from November 6, 2007 (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 on March 31, June 30,
        September 30 and December 31 of each year beginning on the last day of the
        first full quarter after Issue Date.  All payments due hereunder (to
        the extent not converted into common stock, $.00005 par value per share,
        of the
        Borrower (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.    

       

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

         

         

        Each
          capitalized term used herein, and not otherwise defined, shall have the
          meaning
          ascribed thereto in that certain Securities Purchase Agreement, dated November
          6, 2007, 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 by and between the Borrower
        and
        the Holder of even date herewith.

       

      The
        following terms shall apply to this Note:

       

       

      ARTICLE
        I.  CONVERSION RIGHTS

       

      1.1  Conversion
        Right.  The
        Holder shall
        have the right from time to time, and at any time on or prior to the earlier
        of
        (i) the Maturity Date and (ii) the date of payment of the Default Amount
        (as
        defined in Article III) pursuant to Section 1.6(a) or Article III, the Optional
        Prepayment Amount (as defined in Section 5.1) or (iii) any payments pursuant
        to
        Section 1.7, 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 4.9% 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”).  

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

         

         

        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 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 1.3 and
          1.4(g) hereof or pursuant to Section 2(c) of that certain Registration
          Rights
          Agreement, dated as of November 6, 2007, executed in connection with the
          initial
          issuance of this Note and the other Notes issued on the Issue Date (the
“Registration Rights
          Agreement”).

      

       

      1.2  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, 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 Over-the-Counter
        Bulletin Board (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 25%; provided, however, that the Applicable Percentage shall be increased
        to (i) 30% in the event that the Registration Statement (as defined in the
        Registration Rights Agreement) is filed on or before the Filing Date (as
        defined
        in the Registration Rights Agreement) and (ii) 40% in the event that the
        Registration Statement (as defined in the Registration Rights Agreement)
        becomes
        effective on or before the Effectiveness Deadline) as defined in the
        Registration Rights Agreement).  The “Fixed Conversion Price” shall
        mean $.02.

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      (b)  Conversion
        Price During
        Major Announcements.  Notwithstanding
        anything contained in Section 1.2(a) to the contrary, in the event the Borrower
        (i) makes a public announcement that it intends to consolidate or merge with
        any
        other corporation (other than a merger in 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 1.2(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 1.2(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 1.2(b) to become operative.

       

      1.3  Authorized
        Shares.  Subject
        to the
        completion of the Charter Amendment Actions (as defined in the Purchase
        Agreement), 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 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 I (a “Conversion
        Default”), subject to Section 4.8, the Borrower shall issue to the Holder
        all of the shares of Common Stock which are then available to effect such
        conversion. 

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

         

         

        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
          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 the Borrower elects to make 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 the Borrower elects to make 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 I (so long as there is then a sufficient number of authorized shares
        of
        Common Stock).

       

      

      The
        Borrower’s election shall be made in writing to the Holder 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 Borrower shall be deemed to have elected to remit Common
        Stock.  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).

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      1.4  Method
        of
        Conversion.

       

      (a)  Mechanics
        of
        Conversion.  Subject
        to
        Section 1.1, 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 1.4(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 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 1.4, 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 five
        (5)
        business days after such receipt (and, solely in the case of conversion of
        the
        entire unpaid principal amount hereof, surrender of this Note) (such second
        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).

       

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      (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.

       

      (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
        1.1
        and in this Section 1.4, 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) days
        after the Deadline (other than a failure due to the circumstances described
        in
        Section 1.3 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.

       

      1.5  Concerning
        the
        Shares.  The
        shares of
        Common Stock issuable upon conversion of this Note may not be sold or
        transferred unless  (i) such shares are sold pursuant to an effective
        registration statement under the Act or (ii) the Borrower or its transfer
        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 1.5 and who is an Accredited Investor (as defined in the Purchase
        Agreement).  

       

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

         

         

        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 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.

       

      1.6  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:  

       

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

         

         

        (i)
          be
          deemed to be an Event of Default (as defined in Article III) 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 III) or (ii) be treated pursuant to Section 1.6(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 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 1.6(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.

       

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

       

      (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 1.6(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 Fixed
        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,
        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 Fixed Conversion Price then in effect, then the Fixed Conversion
        Price shall be equal to such price 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 Fixed Conversion Price
        then in
        effect, then the Fixed 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 Fixed Conversion Price will be made upon the actual issuance of such
        Common Stock upon conversion or exchange of such Convertible
        Securities.

       

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

       

      (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 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.

       

      1.7  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”).  

       

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

         

         

        With
          respect to each Holder of Notes, the Maximum Share Amount shall refer to
          such
          Holder’s prorata
          share thereof
          determined in accordance with Section 4.8 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.

      

       

      1.8  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 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 1.3 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 1.3) for the Borrower’s failure to convert this
        Note.

       

       

      ARTICLE
        II.   CERTAIN COVENANTS

       

      2.1  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.

       

       

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      2.2  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.

       

      2.3  Borrowings.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, create, incur, assume or suffer to exist
        any liability for borrowed money in excess of $50,000, 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.

       

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

       

      2.5  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.

       

      2.6  Contingent
        Liabilities.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, 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
        III.   EVENTS OF DEFAULT

       

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

       

      3.1  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
        1.7, upon acceleration or otherwise;

       

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

       

      3.2  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 1.3 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;

       

      3.3  Failure
        to Timely File
        Registration or Effect Registration.  The
        Borrower
        fails to file the Registration Statement within sixty (60) 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
        two
        hundred fifty (250) 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 twenty
        (20)
        consecutive days or forty (40) days in any twelve month period after the
        Registration Statement becomes effective;

       

      3.4  Breach
        of
        Covenants.  The
        Borrower
        breaches any material covenant or other material term or condition contained
        in
        Sections 1.3, 1.6 or 1.7 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;

       

      3.5  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;

       

      3.6  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;

       

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

       

      3.7  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;

       

      3.8  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;

       

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

       

      3.10  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, then, upon the occurrence and during
        the
        continuation of any Event of Default specified in Section 3.1, 3.2, 3.3,
        3.4,
        3.5, 3.7, 3.9, or 3.10, 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 3.6 or 3.8, 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 1.3 and 1.4(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 I, 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.

       

       

      
        
          
          

        

        
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      ARTICLE
        IV.   MISCELLANEOUS

       

      4.1  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.

       

      4.2  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 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 22600 Hall Road, Suite
        205
        Clinton Township, MI 48036, facsimile number: 586-468-8768.  Both the
        Holder and the Borrower may change the address for service by service of
        written
        notice to the other as herein provided.

       

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

       

      4.4  Assignability.  This
        Note shall
        be binding upon the Borrower and its successors and assigns, and shall inure
        to
        be the benefit of the Holder 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 bonafide
        margin account
        or other lending arrangement.

       

      4.5  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.

       

      4.6  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. 

       

       

      
        
          
          

        

        
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        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.

      

       

      4.7  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.

       

      4.8  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.

       

      4.9  Damages
        Shares.  The
        shares of
        Common Stock that may be issuable to the Holder pursuant to Sections 1.3
        and
        1.4(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.

       

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      4.10  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.

       

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

       

      4.12  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 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.

       

      4.13  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.

       

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        V.  CALL OPTION

       

      5.1  Call
        Option.  Notwithstanding
        anything to the contrary contained in this Article V, 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 $.04 per share, 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 5.1), to prepay all
        of
        the outstanding Notes in accordance with this Section 5.1.  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 of the Notes issued on the Issue Date
        and (2)
        the date of prepayment (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) 135% (for prepayments occurring within
        thirty (30) days of the Issue Date), (ii) 145% for prepayments occurring
        between thirty-one (31) and ninety (90) days of the Issue Date, or (iii)
        150%
        (for prepayments occurring after the ninetieth (90th)
        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 1.3 and 1.4(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 I 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 5.1.

       

      

       

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK]

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

       

       

      IN
        WITNESS WHEREOF, Borrower
        has caused this Note to be signed in its name by its duly authorized officer
        as
        of the date first above written.

       

      

      MIDNIGHT
        HOLDINGS GROUP,
        INC.

      

      

      

      By:
/s/
        Nicholas Cocco            

      Nicholas
        Cocco

      Chief
        Executive Officer

       

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

       

       

      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, par value $.00005 per
        share (“Common Stock”),
        of Midnight Holdings Group, Inc., a Delaware corporation (the “Borrower”) according to the
        conditions of the convertible Notes of the Borrower dated as of November
        6, 2007
        (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:____________________________________

       

       

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

       

      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.

    

     

     

     

     

     

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    
      

      

    

     

     

    
      
        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

       

      
        
          	
                  Clinton
                    Township, Michigan

                	 
	
                  November
                    6, 2007

                	
                  
                    
                      $216,000

                    

                  

                

        

      

       

      FOR
        VALUE RECEIVED, MIDNIGHT HOLDINGS
        GROUP, INC.,
a Delaware corporation (hereinafter called the “Borrower”), hereby
        promises to pay to the order of AJW Qualified Partners, LLC or registered
        assigns (the “Holder”)
        the sum of $216,000
        on November 6, 2010 (the “Maturity Date”), and to pay
        interest on the unpaid principal balance hereof at the rate of ten percent
        (10%)
        per annum from November 6, 2007 (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 on March 31, June 30,
        September 30 and December 31 of each year beginning on the last day of the
        first full quarter after Issue Date.  All payments due hereunder (to
        the extent not converted into common stock, $.00005 par value per share,
        of the
        Borrower (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.    

       

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

         

         

        Each
          capitalized term used herein, and not otherwise defined, shall have the
          meaning
          ascribed thereto in that certain Securities Purchase Agreement, dated November
          6, 2007, 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 by and between the Borrower
        and
        the Holder of even date herewith.

       

      The
        following terms shall apply to this Note:

       

       

      ARTICLE
        I.  CONVERSION RIGHTS

       

      1.1  Conversion
        Right.  The
        Holder shall
        have the right from time to time, and at any time on or prior to the earlier
        of
        (i) the Maturity Date and (ii) the date of payment of the Default Amount
        (as
        defined in Article III) pursuant to Section 1.6(a) or Article III, the Optional
        Prepayment Amount (as defined in Section 5.1) or (iii) any payments pursuant
        to
        Section 1.7, 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 4.9% 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”).  

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

         

         

        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 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 1.3 and
          1.4(g) hereof or pursuant to Section 2(c) of that certain Registration
          Rights
          Agreement, dated as of November 6, 2007, executed in connection with the
          initial
          issuance of this Note and the other Notes issued on the Issue Date (the
“Registration Rights
          Agreement”).

      

       

      1.2  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, 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 Over-the-Counter
        Bulletin Board (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 25%; provided, however, that the Applicable Percentage shall be increased
        to (i) 30% in the event that the Registration Statement (as defined in the
        Registration Rights Agreement) is filed on or before the Filing Date (as
        defined
        in the Registration Rights Agreement) and (ii) 40% in the event that the
        Registration Statement (as defined in the Registration Rights Agreement)
        becomes
        effective on or before the Effectiveness Deadline) as defined in the
        Registration Rights Agreement).  The “Fixed Conversion Price” shall
        mean $.02.

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      (b)  Conversion
        Price During
        Major Announcements.  Notwithstanding
        anything contained in Section 1.2(a) to the contrary, in the event the Borrower
        (i) makes a public announcement that it intends to consolidate or merge with
        any
        other corporation (other than a merger in 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 1.2(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 1.2(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 1.2(b) to become operative.

       

      1.3  Authorized
        Shares.  Subject
        to the
        completion of the Charter Amendment Actions (as defined in the Purchase
        Agreement), 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 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 I (a “Conversion
        Default”), subject to Section 4.8, the Borrower shall issue to the Holder
        all of the shares of Common Stock which are then available to effect such
        conversion. 

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

         

         

        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
          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 the Borrower elects to make 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 the Borrower elects to make 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 I (so long as there is then a sufficient number of authorized shares
        of
        Common Stock).

       

      

      The
        Borrower’s election shall be made in writing to the Holder 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 Borrower shall be deemed to have elected to remit Common
        Stock.  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).

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      1.4  Method
        of
        Conversion.

       

      (a)  Mechanics
        of
        Conversion.  Subject
        to
        Section 1.1, 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 1.4(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 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 1.4, 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 five
        (5)
        business days after such receipt (and, solely in the case of conversion of
        the
        entire unpaid principal amount hereof, surrender of this Note) (such second
        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).

       

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      (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.

       

      (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
        1.1
        and in this Section 1.4, 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) days
        after the Deadline (other than a failure due to the circumstances described
        in
        Section 1.3 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.

       

      1.5  Concerning
        the
        Shares.  The
        shares of
        Common Stock issuable upon conversion of this Note may not be sold or
        transferred unless  (i) such shares are sold pursuant to an effective
        registration statement under the Act or (ii) the Borrower or its transfer
        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 1.5 and who is an Accredited Investor (as defined in the Purchase
        Agreement).  

       

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

         

         

        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 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.

       

      1.6  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:  

       

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

         

         

        (i)
          be
          deemed to be an Event of Default (as defined in Article III) 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 III) or (ii) be treated pursuant to Section 1.6(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 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 1.6(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.

       

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

       

      (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 1.6(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 Fixed
        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,
        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 Fixed Conversion Price then in effect, then the Fixed Conversion
        Price shall be equal to such price 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 Fixed Conversion Price
        then in
        effect, then the Fixed 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 Fixed Conversion Price will be made upon the actual issuance of such
        Common Stock upon conversion or exchange of such Convertible
        Securities.

       

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

       

      (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 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.

       

      1.7  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”).  

       

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

         

         

        With
          respect to each Holder of Notes, the Maximum Share Amount shall refer to
          such
          Holder’s prorata
          share thereof
          determined in accordance with Section 4.8 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.

      

       

      1.8  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 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 1.3 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 1.3) for the Borrower’s failure to convert this
        Note.

       

       

      ARTICLE
        II.   CERTAIN COVENANTS

       

      2.1  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.

       

       

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      2.2  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.

       

      2.3  Borrowings.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, create, incur, assume or suffer to exist
        any liability for borrowed money in excess of $50,000, 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.

       

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

       

      2.5  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.

       

      2.6  Contingent
        Liabilities.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, 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
        III.   EVENTS OF DEFAULT

       

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

       

      3.1  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
        1.7, upon acceleration or otherwise;

       

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

       

      3.2  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 1.3 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;

       

      3.3  Failure
        to Timely File
        Registration or Effect Registration.  The
        Borrower
        fails to file the Registration Statement within sixty (60) 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
        two
        hundred fifty (250) 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 twenty
        (20)
        consecutive days or forty (40) days in any twelve month period after the
        Registration Statement becomes effective;

       

      3.4  Breach
        of
        Covenants.  The
        Borrower
        breaches any material covenant or other material term or condition contained
        in
        Sections 1.3, 1.6 or 1.7 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;

       

      3.5  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;

       

      3.6  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;

       

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

       

      3.7  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;

       

      3.8  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;

       

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

       

      3.10  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, then, upon the occurrence and during
        the
        continuation of any Event of Default specified in Section 3.1, 3.2, 3.3,
        3.4,
        3.5, 3.7, 3.9, or 3.10, 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 3.6 or 3.8, 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 1.3 and 1.4(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 I, 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.

       

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        IV.   MISCELLANEOUS

       

      4.1  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.

       

      4.2  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 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 22600 Hall Road, Suite
        205
        Clinton Township, MI 48036, facsimile number: 586-468-8768.  Both the
        Holder and the Borrower may change the address for service by service of
        written
        notice to the other as herein provided.

       

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

       

      4.4  Assignability.  This
        Note shall
        be binding upon the Borrower and its successors and assigns, and shall inure
        to
        be the benefit of the Holder 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 bonafide
        margin account
        or other lending arrangement.

       

      4.5  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.

       

      4.6  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. 

       

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

         

         

        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.

      

       

      4.7  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.

       

      4.8  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.

       

      4.9  Damages
        Shares.  The
        shares of
        Common Stock that may be issuable to the Holder pursuant to Sections 1.3
        and
        1.4(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.

       

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      4.10  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.

       

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

       

      4.12  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 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.

       

      4.13  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.

       

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        V.  CALL OPTION

       

      5.1  Call
        Option.  Notwithstanding
        anything to the contrary contained in this Article V, 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 $.04 per share, 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 5.1), to prepay all
        of
        the outstanding Notes in accordance with this Section 5.1.  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 of the Notes issued on the Issue Date
        and (2)
        the date of prepayment (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) 135% (for prepayments occurring within
        thirty (30) days of the Issue Date), (ii) 145% for prepayments occurring
        between thirty-one (31) and ninety (90) days of the Issue Date, or (iii)
        150%
        (for prepayments occurring after the ninetieth (90th)
        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 1.3 and 1.4(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 I 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 5.1.

       

      

       

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        OF PAGE INTENTIONALLY LEFT BLANK]

       

      
        
          
          

        

        
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      IN
        WITNESS WHEREOF, Borrower
        has caused this Note to be signed in its name by its duly authorized officer
        as
        of the date first above written.

       

      

      MIDNIGHT
        HOLDINGS GROUP,
        INC.

      

      

      

      By:
/s/
        Nicholas Cocco            

      Nicholas
        Cocco

      Chief
        Executive Officer

       

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

       

       

      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, par value $.00005 per
        share (“Common Stock”),
        of Midnight Holdings Group, Inc., a Delaware corporation (the “Borrower”) according to the
        conditions of the convertible Notes of the Borrower dated as of November
        6, 2007
        (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:____________________________________

       

       

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

       

      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.

       

       

       

       

       

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

    

     

    
      
        

        

      

      

      
        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

       

      
        
          	
                  Clinton
                    Township, Michigan

                	 
	
                  November
                    6, 2007

                	
                  
                    
                      $16,000

                    

                  

                

        

      

       

      FOR
        VALUE RECEIVED, MIDNIGHT HOLDINGS
        GROUP, INC.,
a Delaware corporation (hereinafter called the “Borrower”), hereby
        promises to pay to the order of New Millennium Capital Partners II, LLC or
        registered assigns (the “Holder”) the sum of $16,000on
        November 6, 2010 (the “Maturity
        Date”), and to pay interest on the unpaid principal balance hereof at the
        rate of ten percent (10%) per annum from November 6, 2007 (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 on March 31, June 30,
        September 30 and December 31 of each year beginning on the last day of the
        first full quarter after Issue Date.  All payments due hereunder (to
        the extent not converted into common stock, $.00005 par value per share,
        of the
        Borrower (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.  

       

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

         

         

        Each
          capitalized term used herein, and not otherwise defined, shall have the
          meaning
          ascribed thereto in that certain Securities Purchase Agreement, dated November
          6, 2007, 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 by and between the Borrower
        and
        the Holder of even date herewith.

       

      The
        following terms shall apply to this Note:

       

       

      ARTICLE
        I.  CONVERSION RIGHTS

       

      1.1  Conversion
        Right.  The
        Holder shall
        have the right from time to time, and at any time on or prior to the earlier
        of
        (i) the Maturity Date and (ii) the date of payment of the Default Amount
        (as
        defined in Article III) pursuant to Section 1.6(a) or Article III, the Optional
        Prepayment Amount (as defined in Section 5.1) or (iii) any payments pursuant
        to
        Section 1.7, 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 4.9% 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”).  

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

         

         

        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 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 1.3 and
          1.4(g) hereof or pursuant to Section 2(c) of that certain Registration
          Rights
          Agreement, dated as of November 6, 2007, executed in connection with the
          initial
          issuance of this Note and the other Notes issued on the Issue Date (the
“Registration Rights
          Agreement”).

      

       

      1.2  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, 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 Over-the-Counter
        Bulletin Board (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 25%; provided, however, that the Applicable Percentage shall be increased
        to (i) 30% in the event that the Registration Statement (as defined in the
        Registration Rights Agreement) is filed on or before the Filing Date (as
        defined
        in the Registration Rights Agreement) and (ii) 40% in the event that the
        Registration Statement (as defined in the Registration Rights Agreement)
        becomes
        effective on or before the Effectiveness Deadline) as defined in the
        Registration Rights Agreement).  The “Fixed Conversion Price” shall
        mean $.02.

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      (b)  Conversion
        Price During
        Major Announcements.  Notwithstanding
        anything contained in Section 1.2(a) to the contrary, in the event the Borrower
        (i) makes a public announcement that it intends to consolidate or merge with
        any
        other corporation (other than a merger in 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 1.2(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 1.2(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 1.2(b) to become operative.

       

      1.3  Authorized
        Shares.  Subject
        to the
        completion of the Charter Amendment Actions (as defined in the Purchase
        Agreement), 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 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 I (a “Conversion
        Default”), subject to Section 4.8, the Borrower shall issue to the Holder
        all of the shares of Common Stock which are then available to effect such
        conversion. 

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

         

         

        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
          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 the Borrower elects to make 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 the Borrower elects to make 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 I (so long as there is then a sufficient number of authorized shares
        of
        Common Stock).

       

      

      The
        Borrower’s election shall be made in writing to the Holder 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 Borrower shall be deemed to have elected to remit Common
        Stock.  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).

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      1.4  Method
        of
        Conversion.

       

      (a)  Mechanics
        of
        Conversion.  Subject
        to
        Section 1.1, 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 1.4(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 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 1.4, 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 five
        (5)
        business days after such receipt (and, solely in the case of conversion of
        the
        entire unpaid principal amount hereof, surrender of this Note) (such second
        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).

       

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      (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.

       

      (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
        1.1
        and in this Section 1.4, 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) days
        after the Deadline (other than a failure due to the circumstances described
        in
        Section 1.3 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.

       

      1.5  Concerning
        the
        Shares.  The
        shares of
        Common Stock issuable upon conversion of this Note may not be sold or
        transferred unless  (i) such shares are sold pursuant to an effective
        registration statement under the Act or (ii) the Borrower or its transfer
        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 1.5 and who is an Accredited Investor (as defined in the Purchase
        Agreement).  

       

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

         

         

        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 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.

       

      1.6  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:  

       

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

         

         

        (i)
          be
          deemed to be an Event of Default (as defined in Article III) 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 III) or (ii) be treated pursuant to Section 1.6(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 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 1.6(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.

       

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

       

      (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 1.6(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 Fixed
        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,
        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 Fixed Conversion Price then in effect, then the Fixed Conversion
        Price shall be equal to such price 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 Fixed Conversion Price
        then in
        effect, then the Fixed 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 Fixed Conversion Price will be made upon the actual issuance of such
        Common Stock upon conversion or exchange of such Convertible
        Securities.

       

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

       

      (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 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.

       

      1.7  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”).  

       

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

         

         

        With
          respect to each Holder of Notes, the Maximum Share Amount shall refer to
          such
          Holder’s prorata
          share thereof
          determined in accordance with Section 4.8 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.

      

       

      1.8  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 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 1.3 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 1.3) for the Borrower’s failure to convert this
        Note.

       

       

      ARTICLE
        II.   CERTAIN COVENANTS

       

      2.1  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.

       

       

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      2.2  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.

       

      2.3  Borrowings.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, create, incur, assume or suffer to exist
        any liability for borrowed money in excess of $50,000, 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.

       

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

       

      2.5  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.

       

      2.6  Contingent
        Liabilities.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, 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
        III.   EVENTS OF DEFAULT

       

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

       

      3.1  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
        1.7, upon acceleration or otherwise;

       

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

       

      3.2  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 1.3 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;

       

      3.3  Failure
        to Timely File
        Registration or Effect Registration.  The
        Borrower
        fails to file the Registration Statement within sixty (60) 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
        two
        hundred fifty (250) 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 twenty
        (20)
        consecutive days or forty (40) days in any twelve month period after the
        Registration Statement becomes effective;

       

      3.4  Breach
        of
        Covenants.  The
        Borrower
        breaches any material covenant or other material term or condition contained
        in
        Sections 1.3, 1.6 or 1.7 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;

       

      3.5  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;

       

      3.6  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;

       

       

      
        
          
          

        

        
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      3.7  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;

       

      3.8  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;

       

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

       

      3.10  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, then, upon the occurrence and during
        the
        continuation of any Event of Default specified in Section 3.1, 3.2, 3.3,
        3.4,
        3.5, 3.7, 3.9, or 3.10, 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 3.6 or 3.8, 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 1.3 and 1.4(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 I, 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.

       

       

      
        
          
          

        

        
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      ARTICLE
        IV.   MISCELLANEOUS

       

      4.1  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.

       

      4.2  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 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 22600 Hall Road, Suite
        205
        Clinton Township, MI 48036, facsimile number: 586-468-8768.  Both the
        Holder and the Borrower may change the address for service by service of
        written
        notice to the other as herein provided.

       

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

       

      4.4  Assignability.  This
        Note shall
        be binding upon the Borrower and its successors and assigns, and shall inure
        to
        be the benefit of the Holder 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 bonafide
        margin account
        or other lending arrangement.

       

      4.5  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.

       

      4.6  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. 

       

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

         

         

        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.

      

       

      4.7  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.

       

      4.8  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.

       

      4.9  Damages
        Shares.  The
        shares of
        Common Stock that may be issuable to the Holder pursuant to Sections 1.3
        and
        1.4(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.

       

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      4.10  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.

       

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

       

      4.12  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 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.

       

      4.13  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.

       

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        V.  CALL OPTION

       

      5.1  Call
        Option.  Notwithstanding
        anything to the contrary contained in this Article V, 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 $.04 per share, 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 5.1), to prepay all
        of
        the outstanding Notes in accordance with this Section 5.1.  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 of the Notes issued on the Issue Date
        and (2)
        the date of prepayment (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) 135% (for prepayments occurring within
        thirty (30) days of the Issue Date), (ii) 145% for prepayments occurring
        between thirty-one (31) and ninety (90) days of the Issue Date, or (iii)
        150%
        (for prepayments occurring after the ninetieth (90th)
        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 1.3 and 1.4(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 I 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 5.1.

       

      

       

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK]

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

       

       

      IN
        WITNESS WHEREOF, Borrower
        has caused this Note to be signed in its name by its duly authorized officer
        as
        of the date first above written.

       

      

      MIDNIGHT
        HOLDINGS GROUP,
        INC.

      

      

      

      By:
/s/
        Nicholas Cocco            

      Nicholas
        Cocco

      Chief
        Executive Officer

       

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

       

       

      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, par value $.00005 per
        share (“Common Stock”),
        of Midnight Holdings Group, Inc., a Delaware corporation (the “Borrower”) according to the
        conditions of the convertible Notes of the Borrower dated as of November
        6, 2007
        (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:____________________________________

       

       

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

       

      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.

       

       

       

       

      
        
          
          

        

        
          22ex10_3.htm

    Exhibit
      10.3

     

    EXCLUSIVE
      LICENSE AGREEMENT

    For
      Licensing Patent Rights

    

    THIS
      AGREEMENT is made
      and entered into this _____ of November, 2007, by and between the Regents Of
      The
      University Of Colorado, a body corporate, having its principal office at 1800
      Grant Street, 8th Floor, Denver, CO 80203 (hereinafter “University”) and V-Clip
      Pharmaceuticals, Inc.(“V-Clip”), a California corporation having its principal
      office at 1321 Mountain View Circle, Azusa, California 91702, and Viral
      Genetics, Inc, a Delaware corporation having its principal office at 1321
      Mountain View Circle, Azusa, California 91702 (“Viral Genetics”).

    

    WITNESSETH

    

    WHEREAS,
      University is
      the owner of certain Patent Rights (as later defined herein) developed by
      inventor Dr. Karen Newell (“Dr. Newell”), et al., and has the right to grant
      licenses under said Patent Rights, and;

    

    WHEREAS,
      V-Clip and Viral Genetics  are interested in licensing and further
      developing the Patent Rights for commercial applications, and;

    

    WHEREAS,
      University desires to have the Patent Rights developed and commercialized to
      benefit the public and is willing to grant a license hereunder;

    

    NOW,
      THEREFORE, in consideration of the premises and the mutual covenants
      contained herein, the parties hereto agree as follows:

    

    

    ARTICLE
      1 DEFINITIONS

     

    1.01          “Licensee”
      shall mean V-Clip, but in the event of, and upon, merger of V-Clip entirely
      into
      Viral Genetics, Inc., then licensee shall mean Viral Genetics, Inc.

     

    1.02          “Affiliate(s)”
      shall mean every corporation, or entity, which, directly or indirectly, or
      through one or more intermediaries, controls, is controlled by, or is under
      common control with Licensee.  For the purposes of this definition,
      the term “control” means (a) beneficial ownership of at least fifty percent
      (50%) of the voting securities of a business organization with voting
      securities, or (b) a fifty percent (50%) or greater interest in the net assets
      or profits of a partnership or business organization without voting
      securities.

     

    1.03          “Effective
      Date” shall mean the date of the last signature on this Agreement.

     

    1.04          “Fields
      of Use” shall mean the fields of use identified in Appendix
      B.

     

    1.05          “Know-How”
      shall mean, and be limited to: (a) University's proprietary information that
      has
      been created, developed, or fixed in any tangible medium of expression prior
      to
      or as of the Effective Date and which is directly related to the use of, or
      desirable for the practice of, the licensed Patent Rights; and (b) University's
      proprietary information that is directly related to the use of, or desirable
      for
      the practice of, the licensed Patent Rights developed by Dr. Newell after the
      Effective Date while Dr. Newell remains an employee of University and is an
      active participant in Licensee as an employee, board member or
      consultant.

    

    
      
        
          
          

        

        
          Page
            1 of 21

          
            

          

        

        
          
          

        

      

    

     

    1.06        
      “Licensed Process(es)” shall mean any process, art, or method that is covered in
      whole or in part by an issued, unexpired claim or a pending claim contained
      in
      the Patent Rights.

     

    1.07        
      “Licensed Product(s)” shall mean any:

     

    (a)           product
      or part thereof that is covered in whole or in part by an issued, unexpired
      claim or a pending claim contained in the Patent Rights in the country in which
      any such product or part thereof is made, used or sold; and

     

    (b)           product,
      apparatus, or part thereof that is manufactured by using a process covered
      in
      whole or in part by an issued, unexpired claim or a pending claim contained
      in
      the Patent Rights in the country in which any Licensed Processes is
      used.

     

    1.08         “Net
      Sales” shall mean the total gross receipts for sales of Licensed Products or
      practice of Licensed Processes by or on behalf of Licensee or its Affiliates,
      and from leasing, renting, or otherwise making Licensed Products available
      to
      others without sale or other dispositions, whether invoiced or not, less returns
      and allowances, packing costs, insurance costs, freight out, taxes or excise
      duties imposed on the transaction (if separately invoiced and paid), and
      wholesaler and cash discounts in amounts customary in the trade to the extent
      actually granted.  No deductions shall be made for commissions, or for
      the costs of collections.  Net Sales shall also include the fair
      market value of any non-cash consideration received by Licensee or its
      Affiliates for the sale, lease, or transfer of Licensed Products or Licensed
      Processes.

     

    1.09         “Patent
      Rights” shall mean all of the following University intellectual
      property:

     

    (a)           the
      United States and foreign patents and/or patent
      applications,  provisional patent applications, and invention
      disclosures listed in Appendix A;

     

    (b)           United
      States and foreign patents issued from the applications listed in
Appendix A and from divisionals and continuations of
      these applications;

     

    (c)           claims
      of U.S. and foreign continuation-in-part applications, and of the resulting
      patents, that are directed to subject matter specifically described in the
      U.S.
      and foreign applications listed in Appendix
      A;

     

    (d)           claims
      of all foreign patent applications, and of the resulting patents, that are
      directed to subject matter specifically described in the United States patents
      and/or patent applications described in (a), (b) or (c) above; and

     

    (e)           any
      reissues of United States patents described in (a), (b) or (c)
      above.

     

    1.10      
        “Territory” shall be as stated in Appendix
      B.

    

    
      
        
          
          

          
          

        

        
          Page
            2 of 21

          
            

          

        

        
          
          

        

      

    

    

    ARTICLE 
      2      GRANT OF RIGHTS AND
      ACCEPTANCE

    

    2.01         University
      hereby grants and Licensee accepts, during the term and subject to the terms
      and
      conditions of this Agreement, and further subject to University's right to
      do so
      without incurring liability to third parties,

    

    (a)           an
      exclusive license to use the Know-How in the Territory and in the Field of
      Use;
      and

     

    (b)           an
      exclusive license of University’s Patent Rights in the Territory to make , use,
      sell, offer to sell, and import any Licensed Product(s) in the Field of Use
      and
      to practice any Licensed Process(es) in the Field of Use.

     

    2.02         This
      Agreement confers no license or rights by implication, estoppel, or otherwise
      under any patent applications or patents of University other than licensed
      Patent Rights.

     

    2.03         This
      Agreement shall be subject to the mandatory public laws in any country where
      this Agreement will produce an effect.

     

    ARTICLE
      3      FUTURE IMPROVEMENTS AND
      ADDITIONS

     

    3.01          Improvements.  Provided
      that Dr. Newell is at the time obligated to assign intellectual property to
      University and is involved as an employee, board member, or consultant to
      Licensee, and in the event that Dr. Newell, or anybody working in a laboratory
      under the supervision or direction of Dr. Newell develops any patentable
      invention the practice of which would also require the practice of an invention
      claimed in or covered by the Licensed Patent Rights and which is a modification
      of, or addition to, the invention claimed in or covered by the Licensed Patent
      Rights in (“Improvement”), then University shall disclose each such Improvement
      to Licensee in reasonable written detail.  All Improvements made in the
      Field of Use as a result of the sponsored research of Article 8 (“SRA
      Improvements”) will be considered part of this Agreement at no additional cost
      to Licensee, and all Improvements in the Field of Use not resulting from such
      sponsored research (“Non-SRA Improvements”) shall be considered part of this
      Agreement provided that Licensee makes a one time up front payment of twenty
      thousand dollars ($20,000) to University for each such Non-SRA Improvement
      within sixty (60) days of the disclosure of each such Non-SRA Improvement to
      Licensee; provided, however that all such payments shall be waived the until
      execution of the Sponsored Research Agreement referred to in Article
      8.

     

    3.02          Independent
      Inventions.  Provided that Dr. Newell is at the time obligated to
      assign intellectual property to University and is involved as an employee,
      board
      member, or consultant to Licensee, University hereby grants to Licensee an
      exclusive option (“Option”) to obtain the exclusive, worldwide, commercial
      rights to each Independent Invention on terms and conditions to be negotiated
      by
      the parties following the exercise by Licensee of the
      Option.  Licensee shall have [REDACTED]from the date of disclosure by
      University to exercise the Option.  An Independent Invention shall be
      an invention that:

     

    (a)           Is
      made by Dr. Newell, or anybody working in a laboratory under the supervision
      or
      direction of Dr. Newell; and

    

    
      
        
          
          

          
          

        

        
          Page
            3 of 21

          
            

          

        

        
          
          

        

      

    

    
       

      (b)           Is
        in the Field of Use, the practice of which would not require the practice
        of an
        invention claimed in or covered by the Licensed Patent Rights and

       

      (c)           
        Is not subject to any prior contractual or legal obligations.

       

      3.03         Field
        of Use Expansion.  University shall disclose to Licensee in
        reasonable written detail, after the University’s Technology Transfer Office
        (“TTO”) receives notification from the inventor(s)
        of such invention, each invention that has been made that would be an
        Improvement or an Independent Invention that would involve applications outside
        the Field of Use, and Licensee shall have a [REDACTED] exclusive right of
        first
        negotiation to expand the Field of Use hereunder (provided there are no
        conflicts with pre-existing University obligations) to include such invention
        in
        one or more additional fields for Licensed Product or Licensed Process (for
        example, and by way of example only, in the diagnosis or treatment of bacterial
        or other viral diseases not already included in The Fields of Use), on terms
        and
        conditions to be negotiated by the parties based on industry economic and
        diligence standards; provided, however, that said right of first negotiation
        shall not extend to the fields of autoimmune diseases or energy
        metabolism.

       

    

    3.04         University
      shall disclose each Independent Invention to Licensee in reasonable written
      detail after the TTO receives notification from the inventor(s) that such
      Independent Invention has been made, and Licensee shall have [REDACTED] days
      (the “Option Period”) following receipt of such invention disclosure to exercise
      the Option with respect to such Independent Invention by delivering to
      University written notice indicating that Licensee desires to exercise the
      Option.  Upon such notice, the parties shall negotiate in good faith
      for a period of up to sixty (60) days commercially reasonable terms and
      conditions for a license under the intellectual property rights relating to
      such
      Independent Invention;

     

    3.05         Notwithstanding
      any other provision in this Agreement to the contrary, and whether or not such
      work is in the Field or Field of Use Expansion, University shall not own or
      have
      (and nothing in this Agreement shall constitute a grant of) any rights in,
      to or
      under any patents, inventions, technology, know how, or other intellectual
      property:

     

    (a)           That
      may be created or developed at any time by Licensee, or by Karen Newell working
      or consulting at Licensee independent of her work performed or contemplated
      under funded research or employment agreement at the University, using
      Licensee’s own facilities, for Licensee’s own account and benefit;
      or

     

    (b)           That
      may be created or developed at any time by Licensee, using its own facilities,
      or under a contract with, or under a grant from, a Third Person

     

    ARTICLE
      4      SUBLICENSING

     

    4.01       
       Upon prior written approval by University, such approval not to be
      unreasonably withheld, Licensee and or its Affiliates may sublicense to one
      or
      more third parties the rights granted in Article 2 subject to the following
      limitations:

     

    (a)           Licensee
      agrees that any sublicenses granted by it shall impose restrictions and
      conditions upon sublicensees at least equivalent in scope to those imposed
      upon
      Licensee;

    

      
        
          
          

          
          

        

        
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    (b)           Licensee
      agrees that, in the event University terminates this Agreement pursuant to
      §12.03, any sublicenses granted, in University's sole discretion, shall be
      directly enforceable by University; and

     

    (c)           Licensee
      agrees that any sublicenses granted shall adequately protect University's
      security and property interest in University's Know-How and Patent
      Rights.

     

    4.02         Licenses
      transferred to Affiliates shall not be considered sublicenses for purposes
      herein unless such Affiliates are involved in the use of the Licensed Process
      or
      Patent.

     

    4.03         Any
      sublicenses granted by Licensee shall provide only for cash consideration from
      sublicensees unless University has expressly consented otherwise in writing
      in
      advance, which consent shall not be unreasonably withheld.

     

    4.04         Licensee
      agrees to forward to University a copy of each fully executed sublicense
      agreement postmarked within thirty (30) days of the execution of such
      agreement.

     

    ARTICLE
      5      GOVERNMENT AND UNIVERSITY
      RIGHTS

     

    5.01         Notwithstanding
      any use of descriptive terms within this Agreement such as “exclusive”, this
      Agreement is subject to all of the terms and conditions of Title 35 U.S.C.
§§
200 et al (“Bayh-Dole Act”) and 37 C.F.R. 401, as such may be
      amended.  Further, Licensee agrees to take all reasonable action
      necessary to enable University to satisfy its obligations under the Bayh-Dole
      Act.

     

    5.02         University
      shall have the non-transferable right to practice the Patent Rights and Know-How
      for its own research and education, including sponsored research, provided
      that
      the sponsor, other than a government agency under Bayh-Dole, has no right in
      the
      results of such sponsored research.

     

    5.03         University
      shall have the right to publish any information included in the Patent Rights
      and the Know-How provided that University provides Licensee with a copy of
      the
      proposed publication at least thirty (30) days prior to publication, and takes
      reasonable steps to avoid the loss of any patent rights as a result of
      University exercising its rights under this Article 5.

     

    ARTICLE
      6      ROYALTIES

     

    6.01         Licensee
      agrees to pay University a nonrefundable and non-creditable license issue fee
      as
      set forth in Appendix C.

     

    6.02         Licensee
      agrees to pay to University an annual, nonrefundable minimum royalty as set
      forth in Appendix C.  The minimum annual
      royalty is due and payable on first business day of each calendar year and
      may
      be credited against any Earned Royalties, including Eearned Sublicense
      Royalties, due for net sales made that year.

     

    6.03         Licensee
      agrees
      to pay University the Earned Royalty set forth in Appendix
      C.  In the event that the Patent Rights
      are dominated by an issued patent that is owned or controlled by a third party
      (the "Dominant Patent") and Licensee enters into a license with said third
      party
      with respect to the Dominant Patent, whether before or after the Effective
      Date,
      and agrees to pay a royalty thereunder in order to make, use, or sell the
      Licensed Products or Licensed Processes, the royalty specified in
Appendix C shall be adjusted for stacking in accordance
      with Article 6.06.

    

      
        
          
          

          
          

        

        
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      6.04         Licensee
        agrees to pay University benchmark royalties as set forth in Appendix
        C.

       

      6.05         Licensee
        agrees to pay University sublicensing royalties, in the percentages as set
        forth
        in Appendix C, of all consideration in any form received by
        Licensee or Affiliates in connection with
        a
        grant to any third party of a sublicense of the rights granted in Article
        2
        (“Sublicense Revenue”).  Sublicense Revenue shall include without
        limitation up front fees, maintenance fees, royalties on net sales by
        sublicensees, milestone payments, the unearned portion of any minimum royalties,
        equity, and research and development funding in excess of the costs of
        performing such research and development.  Royalty for sublicenses
        shall not in any event include any amount paid to Licensee by any sublicensee
        or
        other person, (a) as fair consideration for research and/or development
        services, (b) as an investment or loan to Licensee, or (c) as consideration
        for
        any other property, rights or services that have been or are expected to
        be
        furnished by Licensee to such sublicensee or person.

    

     

    6.06         In
      the event that the Licensee must enter into a license with a third party and
      agrees to pay a royalty thereunder in order to make, use, or sell a Licensed
      Product(s), the Earned Royalty shall be reduced by fifty percent (50%)
      of  the royalty paid to said third party during a given reporting
      period. However, in no event shall the Earned Royalty paid to University be
      less
      one half the specified royalty.

     

    6.07         No
      multiple royalties shall be payable because any Licensed Products or Licensed
      Processes are covered by more than one of the Patent Rights.

     

    6.08         On
      sales of Licensed Products by Licensee to sublicensees or on sales made in
      other
      than arm’s-length transactions, the value of the Net Sales attributed under this
      Article 6 to such a transaction shall be that which would have been received
      in
      an arm’s-length transaction, based on a like transaction at that
      time.

     

    6.09         Unless
      otherwise provided herein, all payments required under this Agreement shall
      be
      due within thirty (30) days of written notice from
      University.  Payments past due shall bear interest at the rate of one
      and on-half percent (1.5%) per month compounded, or the maximum interest rate
      allowed by applicable law, whichever is
      less. 

     

    ARTICLE
      7      REPORTS, RECORDS AND
      AUDITS

     

    7.01         Starting
      with the first sale of Licensed Product or Practice of Licensed Process for
      which Net Sales has been received by Licensee, or for which a sublicensing
      Royalty has been received, Licensee shall, without request by University, and
      within forty-five (45) days of the respective period, render to University
      written accounts for each calendar quarter of the Net Sales of Licensed Products
      and/or Licensed Processes subject to royalty hereunder made during the prior
      three (3) month period and shall simultaneously pay to University the royalties
      due on such Net Sales, if any, in United States Dollars.  Minimum
      annual royalties, if any, that are due University for any calendar year, shall
      be paid by Licensee along with the written report due under this
      Agreement.  The written report shall be in the form of the report of
Appendix D.

    

    
      
        
          
          

          
          

        

        
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    7.02         Licensee
      shall
      keep accurate records in sufficient detail to reflect its operations under
      this
      Agreement and to enable the royalties accrued and payable under this Agreement
      to be determined.  Such records shall be retained for at least three
      (3) years after the close of the period to which they pertain, or for such
      longer time as may be required to finally resolve any question or discrepancy
      raised by University.

     

    7.03         Upon
      the request of University, with reasonable notice, but not more frequently
      than
      once a year, Licensee shall permit an independent public accountant selected
      and
      paid by University to have access during regular business hours to such records
      as may be necessary to verify the accuracy of royalty payments made or payable
      hereunder.  Said accountant shall disclose information acquired to
      University only to the extent that it should properly have been contained in
      the
      royalty reports required under this Agreement. If an inspection shows an
      underreporting or underpayment in excess of five percent (5%) for any twelve
      (12) month period, then Licensee shall reimburse University for the cost of
      the
      inspection and pay the amount of the underpayment including any interest as
      required by this Agreement.

     

    7.04         Licensee
      acknowledges that University is subject to the Colorado Public Records Act
      (C.R.S. §§ 24-72-201 et seq.).  All plans and reports marked
“Confidential” shall be treated by University as confidential to the extent
      permitted under §§ 24-72-204.

     

    7.05         Each
      Party shall vigilantly protect the confidential information related to the
      Patent Rights and Know-How from disclosure to third parties; and no such
      disclosure shall be made without the disclosing Party’s written
      permission.  All written documents containing confidential information
      and other material in tangible form received by either Party under this
      Agreement shall remain the property of the disclosing Party, and such documents
      and materials, together with copies of excerpts thereof, shall promptly be
      returned to disclosing Party upon request, except one copy may be retained
      for
      archival purposes.

     

    ARTICLE
      8      SPONSORED RESEARCH

     

    8.01         Licensee
      shall sponsor research related to Licensed Process(es) and Licensed Product(s)
      at University, to be memorialized in a separate Sponsored Research Agreement
      (“SRA”) to be negotiated between University and
      Licensee.    Licensee agrees that the SRA will include
      Licensee’s obligation to make the following payments to, or for the benefit of,
      the lab of Dr. Newell at the University of Colorado, each of said payments
      to
      have an indirect cost rate as determined by UCCS administration: Twenty Five
      Thousand Dollars ($25,000.00) on the first day of each of April, July, and
      October of 2008, and of each April, July, and October and January
      thereafter,  ending with the payment in January 2012, provided that at
      the time any such payment is due, Dr. Newell is employed by
      University.  Any Improvements and Independent Inventions resulting
      from such research shall be subject to Article 3 of this Agreement.

     

    ARTICLE
      9      DUE DILIGENCE AND
      PERFORMANCE

     

    9.01         Licensee
      shall use its best efforts to bring Licensed Products and Licensed Processes
      to
      market through a thorough, vigorous and diligent program for exploitation of
      the
      Patent Rights, to develop manufacturing capabilities, to continue active,
      diligent marketing efforts, and to satisfy the needs of such market with the
      Licensed Products and Licensed Processes throughout the life of this
      Agreement.  Licensee acknowledges and agrees to the performance
      milestones defined in Appendix E.

    

    
      
        
          
          

          
          

        

        
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    9.02         Licensee
      agrees
      to develop a vigorous sublicensing program to effect commercialization of
      Licensed Products and Licensed Processes in any Field of Use or Territory that
      Licensee decides not to exploit for its own self.

     

    Article
      10      PATENTS, COSTS, AND
      ENFORCEMENT

     

    10.01       Licensee
      shall reimburse University within thirty (30) days of University’s invoice, an
      amount of unreimbursed patent expenses (currently estimated at $3,500.00)
      incurred by University through the Effective Date of this
      Agreement.  Remaining costs incurred from August 31, 2007 through the
      Effective Date of this Agreement shall be invoiced by University and paid by
      Licensee within thirty (30) days of invoice.

     

    10.02       Licensee
      shall control the preparation, filing, prosecution, and maintenance of any
      and
      all patent applications or patents included in the Patent Rights on or after
      the
      Effective Date including all costs, associated with the perfection and
      maintenance of Patent Rights. Licensee’s patent counsel shall keep University
      advised as to the status of the Patent Rights by providing University, in a
      timely manner prior to their due date, with copies of all official documents
      and
      correspondence relating to the prosecution, maintenance, and validity of the
      Patent Rights.  Licensee shall consult with University in such prosecution
      and maintenance, shall diligently seek University’s advice on all matters
      pertaining to the Patent Rights, shall diligently seek strong and broad claims
      under the Patent Rights, and shall not abandon prosecution of any patent
      application without first notifying University sixty (60) days prior to any
      bar
      date, of Licensee’s intention and reason therefore, and providing University
      with reasonable opportunity to assume responsibility for prosecution,
      maintenance and associated costs of such patents and patent applications. 
If University pursues such patent protection, then from that time forward all
      such patent applications and any patents arising there from shall no longer
      be
      considered Patent Rights under this Agreement and Licensee shall forfeit all
      rights under this Agreement to such patent applications and any patents arising
      there from.

     

    10.03       No
      claims of the Patent Rights shall be significantly modified, deleted, or
      abandoned by Licensee or its patent counsel without the express, prior written
      approval of University.  Such approval shall not be unreasonably
      withheld or delayed, and if an objection by University not given within 45
      days
      then University approval shall be deemed given.  Licensee’s obligations
      under this Article 10.03 shall include, without limitation, an obligation to
      inform University in a timely manner that Licensee will not pursue patents
      in
      any foreign countries where patent protection may be available such that
      University may prosecute patents in such countries if University so
      desires.  If University pursues such foreign patent protection, then from
      that time forward all such subject patent applications and any patents arising
      there from shall no longer be considered Patent Rights under this Agreement
      and
      Licensee shall forfeit all rights under this Agreement to such patent
      applications and any patents arising there from.  University shall be
      responsible for all costs associated with those patent applications and patents
      it decides to pursue and maintain.

     

    10.04       At
      any time, University may provide Licensee with written notice that University
      wishes to resume control, at University’s expense, of the preparation, filing,
      prosecution, and maintenance of any and all patent applications or patents
      included in the Patent Rights.  If University elects to resume such
      responsibilities, Licensee agrees to cooperate fully with University, its
      attorneys, and agents in the preparation, filing, prosecution, and maintenance
      of any and all patent applications or patents and to provide University with
      complete copies of any and all documents or other materials that University
      deems necessary to undertake such responsibilities.  The
      forfeiture provisions of Articles 10.02 and 10.03 shall not apply to Patent
      Rights in patent applications, and patents arising therefrom, referred to in
      this Article 10.04.

    

    
      
        
          
          

          
          

        

        
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    10.05      University
      and Licensee agree to inform the other party promptly in writing of any
      suspected infringement of the Patent Rights by a third party.  During
      the exclusive period of this license, Licensee shall have the first right to
      bring an infringement action to enforce the Patent Rights.  Licensee
      shall notify University within ninety (90) days of receiving notice of an
      alleged infringement of its intention, or lack thereof, to enforce the Patent
      Rights. In any such action, Licensee, may, at it option, join University as
      a
      plaintiff.  If Licensee declines to institute suit, University shall
      have the right to institute an action for infringement of the Patent Rights
      against such third party.  Any action for infringement shall be
      managed in accordance with the following:

     

    (a)           For
      any suit brought in Licensee’s name or in both parties’ names, the out-of-pocket
      costs thereof shall be borne by Licensee. For any recovery or settlement,
      Licensee shall first be reimbursed for its out-of-pocket costs and then Licensee
      shall pay University the portion of the recovery or settlement for past
      infringement for royalties due, or an appropriate compensation in the event
      of a
      cross-license or other non-cash settlement.  University, at its
      option, may be represented by separate counsel of its own selection, the fees
      for which shall be paid by University.

     

    (b)           If
      Licensee declines to institute suit, University may, but is not obligated to,
      institute suit.  If University decides to institute suit, it shall
      notify Licensee in writing.  Licensee’s failure to notify University
      in writing within thirty (30) days after the date of University’s notice, that
      it will join in enforcing the Patent Rights pursuant to the terms hereof, shall
      be deemed conclusively to be Licensee’s assignment to University of all rights,
      causes of action, and damages resulting from any such alleged
      infringement.  University shall bear the entire cost of such
      litigation and shall be entitled to retain the entire amount of any recovery
      or
      settlement; and

     

    (c)           If
      Licensee undertakes to defend the Patent Rights by litigation, Licensee may
      deduct from its royalty payments to University with respect to the Patent Rights
      subject to suit an amount not exceeding fifty (50%) of Licensee's expenses
      and
      costs of such action, including reasonable attorney's fees, provided however,
      that such reduction shall not exceed fifty percent (50%) of the total royalty
      due to University for each calendar year.

     

    10.06       In
      the event that an action alleging invalidity or non-infringement of any of
      the
      Patent Rights shall be brought against Licensee by declaratory judgment action
      or raised by way of counterclaim or affirmative defense in an infringement
      suit
      brought by Licensee under Article 10.05, pursuant to this Agreement and the
      provisions of Chapter 29 of Title 35, U.S. Code or other statutes, Licensee
      may:

     

    
      
        
          
          

          
          

        

        
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    (a)           defend
      the suit in its own name, at its own expense, and on its own behalf for
      presumably valid claims in the Patent Rights; (b) in any such suit, ultimately
      to enjoin infringement and to collect for its use, damages, profits, and awards
      of whatever nature recoverable for such infringement consistent with Article
      10.05; and

     

    (b)           settle
      any claim or suit for declaratory judgment involving the Patent Rights, except
      that Licensee shall have no right to deny the validity of any patent, patent
      claim, or patent application included in the Patent Rights in any compromise
      or
      settlement of any claim or suit for declaratory judgment without the express
      prior written consent of University; provided however, that University shall
      have the first right to take such actions described in (a) and (b) and shall
      have a continuing right to intervene in such suit.  Licensee shall
      take no action to compel University either to initiate or to join in any such
      declaratory judgment action.  If Licensee elects not to defend against
      such declaratory judgment action, University, at its option, may do so at its
      own expense and shall be entitled to retain the entire amount of any recovery
      or
      settlement.

     

    10.07      
      In all cases, Licensee agrees to keep University reasonably apprised of the
      status and progress of any litigation.

     

    ARTICLE
      11      WARRANTIES, INDEMNIFICATIONS AND
      INSURANCE

     

    11.01      
      UNIVERSITY MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY KIND, EITHER
      EXPRESS OR IMPLIED, AND ASSUMES NO RESPONSIBILITIES WHATSOEVER WITH RESPECT
      TO
      USE, SALE, OR OTHER DISPOSITION BY LICENSEE, SUBLICENSEE(S), OR THEIR VENDEES
      OR
      OTHER TRANSFEREES OF LICENSED PRODUCTS OR LICENSED PROCESSES INCORPORATING
      OR
      MADE BY USE OF THE PATENT RIGHTS.  THERE ARE NO EXPRESS OR IMPLIED
      WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT
      THE
      USE OR SALE OF SUCH PRODUCTS OR PROCESSES WILL NOT INFRINGE ANY PATENT,
      COPYRIGHT, TRADEMARK, SERVICE MARK, OR OTHER RIGHTS.

     

    11.02  
          Notwithstanding anything in this Agreement to the
      contrary, nothing in this Agreement shall be construed as:

     

    (a)           A
      warranty or representation by University as to rights in Know-How or the
      validity or scope of any of the Patent Rights;

     

    (b)           A
      warranty or representation that the Patent Rights or anything made, used, sold
      or otherwise disposed of under the License will or will not infringe patents,
      copyrights or other rights of third parties; or

     

    (c)           An
      obligation to furnish any know-how or technology not agreed to in this
      Agreement, to bring or prosecute actions or suits against third parties for
      infringement or to provide any services other than those specified in this
      Agreement.

     

    11.03      
      Except to the extent of University’s own negligence, Licensee shall indemnify,
      defend, and hold University, its regents, employees, students, officers, agents,
      affiliates, and representatives harmless from and against all liability,
      demands, damages, losses, and expenses (including attorney fees), for death,
      personal injury, illness, property damage, noncompliance with applicable laws
      and any other claim, proceeding, demand, expense and liability of any kind
      whatsoever in connection with or arising out of:

    

    
      
        
          
          

          
          

        

        
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    (a)           the
      use by or on behalf of Licensee, its sublicensees, Affiliates, directors,
      officers, employees, or third parties of any Patent Rights;

     

    (b)           the
      design, manufacture, production, distribution, advertisement, consumption,
      sale,
      lease, sublicense or use of any Licensed Product(s), Licensed Process(es) or
      materials by Licensee, or other products or processes developed in connection
      with or arising out of the Patent Rights; or

     

    (c)           any
      right or obligation of Licensee under this Agreement.

     

    11.04       Licensee
      shall obtain general liability insurance, including product liability insurance,
      on such terms and in such amounts as are reasonable and customary within its
      industry for companies similarly situated.

     

    ARTICLE
      12      DURATION, TERMINATION AND
      CONVERSION

     

    12.01       This
      Agreement shall become effective as of the Effective Date and shall expire
      on
      the expiration date of the last to expire patents within Patent
      Rights.

     

    12.02       Licensee
      may terminate this Agreement at any time on ninety (90) days written notice
      to
      University if Licensee:

     

    (a)           pays
      all amounts due as well as all non-cancelable costs to University through the
      termination date;

     

    (b)           submits
      a final report of the type described in Article 7;

     

    (c)           returns
      any confidential materials provided to Licensee by University in connection
      with
      this Agreement;

     

    (d)           suspends
      its use and sales of the Licensed Product(s) and Licensed Process(es); provided
      however, that subject to making the payments required by Article 6 and the
      reports required by Article 7, Licensee may, for a period of ninety (90) days
      after the effective date of such termination, sell all Licensed Products that
      may be in inventory; and

     

    (e)           provides
      University the right to access any regulatory information filed with any U.S.
      or
      foreign government agency with respect to Licensed Products and Licensed
      Processes.

     

    12.03      University
      may terminate this Agreement in the event that:

     

    (a)           Licensee
      fails to pay University any amounts when due to University hereunder and
      Licensee fails to make such payment within sixty (60) days of prior written
      notice;

     

    (b)           Licensee
      voluntarily files for Chapter 7 under the Bankruptcy Act; or

     

    
      
        
        

      

      
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    (c)           Licensee
      is in breach or default of this Agreement other than those occurrences listed
      in
      Articles 12.03(a) and 12.03(b) and Licensee fails to cure the breach or default
      within  ninety (90) days of written notice of the breach or default.
      Events constituting a breach or default shall include, but are not limited
      to,
      the following:

     

    (i)         
        failure by Licensee to meet any due diligence requirement of
Appendix E; in this event, University retains the right
      to convert this Agreement to a non-exclusive Agreement.

     

    (ii)           operation,
      manufacture, use of or sale of the Licensed Products or Licensed Processes
      outside the Fields of Use or Territory;

     

    (iii)           failure
      to keep adequate records or permit inspection or audit.

     

    (d)           Licensee,
      directly or indirectly, challenges or causes to be challenged the validity
      or
      enforceability of any Patent Rights, or Licensor’s ownership of any Patent Right
      before any court, agency or tribunal.

     

    (e)           Termination
      shall be effected by written notice after the period of time referred to in
      the
      relevant Article 12.03(a) or 12.03(c) or the event referred to in Article
      12.03(d) and shall be effective immediately upon such written
      notice.

     

    

    ARTICLE
      13      MISCELLANEOUS

     

    13.01     
      This Agreement shall be binding upon and inure to the benefit of the respective
      successors and assigns of the parties hereto.  However, Licensee may
      not assign its rights in this Agreement without prior written approval by
      University, such approval not to be unreasonably withheld or
      delayed.

     

    13.02     
      This Agreement shall be governed by and construed in accordance with the laws
      of
      the State of Colorado.

     

    13.03      
      Notice hereunder shall be deemed sufficient if given by registered mail, postage
      prepaid, and addressed to the party to receive such notice at the address given
      below, or such other address as may hereafter be designated by notice in
      writing.

     

     

    
      	
              University:

              To:  Kathe
                Zaslow

              Office
                of Technology Transfer

              University
                of Colorado, 588 SYS

              Suite
                390, 4001 Discovery Drive

              Boulder,
                CO 80309-0589

              CC:      Lynn
                Pae

              CC:
                David Poticha

            	
              Licensee:

              ____________________

              President

              V-Clip Pharmaceuticals, Inc

              1321 Mountain View Circle

              Azusa, California 91702

               

              _____________________

            

    

     

    or
      to the
      address noticed by a party in writing or to the address of a successor in
      interest noticed by a party in writing.

     

    
      
        
        

      

      
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    14.04      
      Except as required by law or by Federal or State regulation, Licensee agrees
      not
      to identify University in any promotional advertising, press releases, sales
      literature or other promotional materials to be disseminated to the public
      or
      any portion thereof without University prior written consent in each case,
      except that Licensee may state that it has a license for the Patent Rights
      from
      University. Licensee further agrees not to use the name of University or any
      University
      faculty member, inventor, employee or student or any trademark, service mark,
      trade name, copyright or symbol of University, without the prior written consent
      of the University, entity or person whose name is sought to be
      used.

     

    14.05      
      Licensee agrees to:

    

    
      	
               

            	
              (a)

            	
              cause
                Licensed Products or the product of Licensed Processes sold under
                this
                license to be marked with the notice of the patent numbers or patent
                pending, as may be feasible and
                appropriate.

            

    

     

    
      	
               

            	
              (b)

            	
              comply
                with all laws and regulations of the United States and any other
                country
                as appropriate concerning or controlling the import or export of
                the
                Licensed Products, data, software, laboratory prototypes or other
                commodities.  University makes no representation that a license
                or consent for export will not be required by applicable governmental
                agencies, or if required, that it will be
                issued.

            

    

     

    
      	
               

            	
              (c)

            	
              comply
                with all applicable statutes, regulations, and guidelines, including
                applicable governmental regulations, policies and guidelines in its
                use of
                any University - supplied materials.  Licensee agrees not to use
                the materials for research involving human subjects or clinical trials
                in
                the United States without complying with 21 C.F.R. Part 50 and 45
                C.F.R.
                Part 46 (as those regulations may be amended from time to
                time).  Licensee agrees not to use the materials for research
                involving human subjects or clinical trials outside of the United
                States
                without notifying University in writing, of such research or trials
                and
                complying with the applicable regulations of the appropriate national
                control authorities.  Written notification to University of
                research involving human subjects or clinical trials outside of the
                United
                States shall be given no later than sixty (60) days prior to commencement
                of such research or trials.

            

    

     

    14.06    
        In the event of any dispute arising out of or relating to this
      Agreement, the affected party shall promptly notify the other party (“Notice
      Date”), and the parties shall attempt in good faith to resolve the
      matter.  Any disputes not so resolved shall be referred to senior
      executives, who shall meet at a mutually acceptable time and location within
      thirty (30) days of the Notice Date and shall attempt to negotiate a
      settlement.  If the senior executives fail to meet within thirty (30)
      days of the Notice Date, or if the matter remains unresolved for a period of
      sixty (60) days after the Notice Date, the parties hereby irrevocably submit
      to
      the jurisdiction of a court of competent jurisdiction in the State of Colorado,
      and, by execution and delivery of this Agreement, each (a) accepts, generally
      and unconditionally, the jurisdiction of such court and any related appellate
      court, and (b) irrevocably waives any objection it may now or hereafter have
      as
      to the venue of any such suit, action or proceeding brought in such court or
      that such court is an inconvenient forum.

    

    
      
        
        

      

      
        Page
          13 of 21

        
          

        

      

      
        
        

      

    

     

    14.07     
      The terms and provisions contained in this Agreement constitute the entire
      Agreement between the parties and shall supersede all previous communications,
      representations, agreements or understandings, either oral or written, between
      the parties hereto with respect to the subject matter hereof, and no agreement
      or understanding varying or extending this Agreement will be binding upon either
      party hereto, unless in writing that specifically refers to this Agreement,
      signed by duly authorized officers or representatives of the respective parties,
      and
      the
      provisions of this Agreement not specifically amended thereby shall remain
      in
      full force and effect according to their terms.

    

    14.08      The
      provisions and clauses of this Agreement are severable, and in the event that
      any provision or clause is determined to be invalid or unenforceable under
      any
      controlling body of the law, such invalidity or unenforceability will not in
      any
      way affect the validity or enforceability of the remaining provisions and
      clauses hereof.

     

    
      14.09  
           This
        Agreement does not establish a joint venture, agency or partnership between
        the
parties,
        nor create an employer - employee relationship.

    

    

    14.10  
         The parties agree that nothing in this Agreement is intended
      or shall be construed as a waiver, either express or implied, of any of the
      immunities, rights, benefits, defenses or protections provided to University
      under governmental or sovereign immunity laws from time to time applicable
      to
      University, including, without limitation, the Colorado Governmental Immunity
      Act (C.R.S. §§ 24-10-101, et seq.) and the Eleventh Amendment to the United
      States Constitution.

    

    14.11   
        Any provisions of this Agreement that by its nature is intended to
      survive, shall survive any termination or expiration of this
      Agreement.

    

    14.12  
         This Agreement shall be binding upon and inure to the benefit
      of the respective successors and assigns of the Parties
      hereto.  Licensee may not assign its rights in this Agreement without
      prior written approval by University, such approval not to be unreasonably
      withheld or delayed, provided, however, that Licensee may assign its rights
      to
      Viral Genetics, Inc. in connection with a merger of V-Clip into Viral Genetics
      without the prior approval of University.

    

    14.13   
        This agreement may be executed in counterpart, and photocopy,
      facsimile, electronic or other copies shall have the same effect for all
      purposes as an ink-signed original.

    

     

    Signature
      Page Follows

     

    

    
      
        
          
          

          
          

        

        
          Page
            14 of 21

          
            

          

        

        
          
          

        

      

    

     

    IN
      WITNESS WHEREOF the parties hereto have caused this Agreement, which is
      effective on the date of the last to sign below, to be executed in duplicate
      by
      their respective duly authorized officers.

     

    

     

    
      	
              University:

               

              By:      
                _________________________________

              Title:   
                _________________________________

              Date:   
                _________________________________

              Office
                of Technology Transfer

              University
                of Colorado

               

               

            	
              V-Clip
                Pharmaceuticals, Inc.:

               

              By:     
                _________________________________

              Title:   
                President

              Date:  
                _________________________________

              .

               

               

               

            
	 	
              Viral
                Genetics, Inc.:

               

              By:       
                _________________________________

              Title:     
                President

              Date:    
                _________________________________

              Viral
                Genetics, Inc

               

            

    

    

    

    

    
      
        
          
          

          
          

        

        
          Page
            15 of 21

          
            

          

        

        
          
          

        

      

    

    

    APPENDIX
      A

    PATENT
      RIGHTS

    

    INVENTION
      DISCLOSURES

    

    INVENTION
      DISCLOSURE: CU1760C

     

    United
      States Patent Application No. 60/886,852, Titled “METHODS OF MODULATING IMMUNE
      FUNCTION THROUGH TARGETING OF INVARIANT CHAIN/CD74 AND CLIP”

     

    and

     

    United
      States Patent Application No. 60/906,731, titled “IMMUNE MECHANISM FOR THE
      DEPLETION OF CD4+ T CELLS”.

     

    

    INVENTION
      DISCLOSURES: CU1969C and CU1971C

     

    United
      States Patent Application No. No. 61/000,152, filed October 23, 2007, titled
      “COMPETITIVE INHIBITORS OF INVARIANT CHAIN EXPRESSION AND/OR ECTOPIC CLIP
      BINDING”.

    

     

    

    

    

    

    

    
      
        
          
          

          
          

        

        
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            16 of 21

          
            

          

        

        
          
          

        

      

    

    

    

    APPENDIX  B

    

    FIELD
      OF USE and TERRITORY

    

    

    Field
      of Use:  The diagnosis and treatment of HIV, AIDS, Hepatitis C,
      and Herpes.

    

    Territory:  worldwide

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    

    
      
        
          
          

          
          

        

        
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            17 of 21

          
            

          

        

        
          
          

        

      

    

    

    APPENDIX
      C

    

    ROYALTIES

    

    License
      Issue Fee:

    

    Within
      30
      days of the Effective Date, Licensee shall issue to University License Equity
      Holdings, Inc., a Colorado nonprofit corporation ("ULEHI"), shares of V-Clip's
      common stock representing six percent (6%) of all outstanding shares of capital
      stock of V-Clip on a fully diluted basis (the "Percentage
      Ownership").  Such shares shall be issued pursuant to ULEHI's standard
      form stock subscription agreement, a copy of which is attached
      hereto.  The Percentage Ownership shall remain at six percent (6%) and
      shall have anti-dilution until such time as:

    

    (a)        V-Clip
      shall at any time sell equity securities to third parties (“New Shares”) for
      cumulative cash consideration of more than $2 million (the Anti-Dilution
      Threshold”) -- in the event that V-Clip sells New Shares for cumulative cash
      consideration below and up to the Anti-Dilution Threshold, ULEHI shall receive
      and V-Clip shall issue additional shares of common stock of V-Clip in an amount
      such that ULEHI remains at the Percentage Ownership; or

     

    (b)      V-Clip
      is merged with and into Viral Genetics, Inc.

    

    Minimum
      annual royalty:

    

    Twenty
      Five Thousand Dollars ($25,000.00) by January 1, 2009.

    

    Twenty
      Five Thousand Dollars ($25,000.00) in each calendar year thereafter until first
      commercial sales occur.

    

    Seventy
      Five Thousand Dollars ($75,000.00) in each calendar year after first commercial
      sales occur.

    

    Earned
      royalty:  [REDACTED] Percent ([REDACTED]) of Net Sales
      from sales in developed countries, and [REDACTED] Percent ([REDACTED]%) from
      sales in undeveloped countries.  Developed countries are herein
      defined as United States of America, Canada, Western and Eastern Europe, Japan,
      Australia, New Zealand, Israel, Russia, and other countries of the former Soviet
      Union, Hong Kong, Singapore, South Korea, Taiwan.  Undeveloped
      countries are herein defined as countries other than developed
      countries.

    

    Benchmark
      royalties as follows:

    

    Provided
      that a patent has issued on the subject matter, the following amounts shall
      be
      paid to University within ninety (90) days of the following events:

     

    

    
      	
               

            	
              1.

            	
              [REDACTED]upon
                filing each Investigational New Drug Application (INDA) with the
                Food and
                Drug Administration (FDA) or with the European Agency for the Evaluation
                of Medicinal Products (EMEA)

            

    

    
      	
               

            	
              2.

            	
              [REDACTED]within
                ninety (90) days of each first indication in Phase
                I.

            

    

    
      	
               

            	
              3.

            	
              [REDACTED]within
                ninety (90) days of the first indication in Phase
                II.

            

    

    
      	
               

            	
              4.

            	
              [REDACTED]within
                ninety (90) days of each first indication in Phase
                III.

            

    

    
      	
               

            	
              5.

            	
              [REDACTED]within
                ninety (90) days FDA approval of a first
                indication.

            

    

    
      	
               

            	
              6.

            	
              One-half
                of all aforementioned milestones for each second and subsequent
                indications.

            

    

    

    
      
        
        

      

      
        Page
          18 of 21

        
          

        

      

      
        
        

      

    

     

    Payment
      of sublicensing royalties as follows:

    

    Sublicensing
      royalties payable to the University shall be, with respect to each sublicense,
      in accordance with the following, but not to exceed the Earned Royalty rate
      in
      the case of royalties paid by a sublicensee on Net Sales by a
      sublicensee:

     

    
      	 	1. 	
              For
                the first twelve (12) months 

            	
              [REDACTED]of
                Sublicense Revenue. 

            
	 	2. 	
              From
                month 13 through month 36

            	
              [REDACTED]of
                Sublicense Revenue.

            
	 	3. 	
              After
                month 36

            	
              [REDACTED]of
                Sublicense Revenue.

            

    

     

     

     

     

     

     

     

    
 

    

    
      
        
          
          

          
          

        

        
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            19 of 21

          
            

          

        

        
          
          

        

      

    

    

    APPENDIX
      D

    

    FORM
      OF ROYALTY REPORT

    

    ROYALTY
      REPORT

     

    
      
        	
                Licensee:

              	 	 	 	 	
                CU
                  Case No.:

              	 	 	 	 
	
                Inventor:

              	 	 	 	 	
                Patent
                  #:

              	 	 	 	 
	
                Period
                  Covered: From:

              	
                /

              	
                /

              	 	
                 

              	
                
                  Through:

                

              	 	
                /

              	
                /

              	 
	
                Prepared
                  By:

              	 	 	 	 	
                Date:

              	 	 	 	 
	
                Approved
                  By:

              	 	 	 	 	
                Date:

              	 	 	 	 

      

    

     

    If
      license covers several major product lines, please prepare a separate
      report

    for
      each
      line.  Then combine all product lines into a summary
      report.

     

    Report
      Type:     ____ Single Product Line Report: 
_____________________________

    ____
      Multiproduct Summary Report.  Page 1 of _____ Pages

    ____
      Product Line Detail.  Line: _____ Trademark:
      _____    Pages: _____

     

    Report
      Currency: _____ U.S.
      Dollars     _____     
Other_________________________

     

    
      	 	
              Gross

            	
              *
                Less:

            	
              Net

            	
              Royalty

            	
              Period
                Royalty Amount

            
	
              Country

            	
              Sales

            	
              Allowances

            	
              Sales

            	
              Rate

            	
              This
                Year

            	
              Last
                Year

            
	
              U.S.A.

            	 	 	 	 	 	 
	
              Canada

            	 	 	 	 	 	 
	
              Europe

            	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	
              Japan

            	 	 	 	 	 	 
	
              Other:

            	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	
              TOTAL:

            	 	 	 	 	 	 

    

    

    Sublicense
      Fees this quarter: $________ (attach page showing names, addresses, and
      telephone numbers; and amount of fees received; territory; field of
      use)

     

    Total
      Royalty: $________  Conversion Rate:
      ________    Royalty U.S. Dollars: $______

     

    

    
      
        
          
          

          
          

        

        
          Page
            20 of 21

          
            

          

        

        
          
          

        

      

    

     

    APPENDIX
      E

    

    PERFORMANCE
      MILESTONES

    

    Licensee
      shall use reasonable efforts to proceed with the development, manufacture,
      exploitation and sale or lease of Licensed Products and Licensed
      Processes and to diligently develop markets for the
      Licensed Products and Licensed Processes as follows:

    

    [REDACTED]

    

    

     

     

     

     

    Page
      21 of 21

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