Document:

Unassociated Document

    Magal
Board Responds to Position Letter Received From Shareholders

     

    
      Yahud,
ISRAEL, July 22, 2010  -- Magal S3's (NASDAQ:MAGS) Board of
Directors Responds to Position Letter Received From
Shareholders

    

     

    
      Dear
Shareholders of Magal Security Systems Ltd.

    

     

    
      We have
read the position letter of Clough Capital Partners, LP, Prescott Group Capital
Management and Diker, GP LLC and were disappointed to see the numerous
inaccuracies, half-truths and misinformation that is included in that letter. We
wish to clarify the situation.

    

     

    
      BOARD
NOMINEES- PROPOSED MANAGEMENT TEAM

    

     

    
      The
dissident shareholders are being led by Mr. Yoav Stern, who was previously
employed by Magal as Interim President beginning in November 2008 and as Interim
President and Chief Executive Officer from February 2009 until July
2009.

    

     

    
      During
his tenure, Mr. Stern terminated, or caused the termination, of numerous senior
employees (some of whom were improperly terminated) and caused an almost
irreparable damage in the morale of the remaining employees. During his term in
office the employees operated in a hostile environment and were terrified by his
managerial style. Suppliers were insulted and the relationships of the Company
with its business partners were harmed as a result of his arrogant and erratic
behavior.

    

     

    
      After Mr.
Stern joined the Company, he clearly indicated to certain employees that his
real intention was to cause a management buy-out where the shares of the Company
would be purchased at a low price by management.

    

     

    
      As to the
other nominees, it is evident that most of them do not have any experience or
knowledge with respect to perimeter security or homeland security. Mr. Israel
(Relik) Shafir was recruited as an employee by Mr. Stern, spent less than a year
in our company and in our opinion during this period, his contribution to the
Company was minimal. While the nominees are not affiliated with the dissident
shareholders, they are all associated with Mr. Stern as they served together in
the Israeli Air Force and some of them have been or are presently his business
partners.

    

     

    
      Looking
at Mr. Stern's and Mr. Nedivi's business background, we urge you to look into
the financial results of Bogen Communications International, Inc., a former
public company that is Co-Chaired by Mr. Stern and which reported an over 20%
reduction in sales and a loss of $11.6 million in 2009, as well as the Chapter
11 filing of Kellstrom Industries Inc., which company was managed by Mr. Nedivi
as President and CEO and Mr. Stern as Chairman.

    

     

    
      On the
other hand, the current Board of Directors of Magal represents a broad spectrum
of experience and success in business and in the security
market.

    

     

    
      THIS BOARD RECEIVED THE SUPPORT OF
MORE THAN 80% OF THE SHAREHOLDERS WHO PARTICIPATED IN THE LAST ANNUAL GENERAL
MEETING OF THE COMPANY.

    

     

    
      WASTEFUL
EXPENDITURES/COMPENSATION

    

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    
      With
respect to the compensation that was paid to Mr. Kobi Even-Ezra, the retired
Chairman of the Board of Director of the Company, we would like to draw your
attention to the fact that this compensation package was approved
by shareholders (including
the dissenting shareholders) at the Company’s 2007 Annual General
Meeting.

    

     

    
      We point
out that Mr. Stern's consultancy agreement cost the Company approximately
$500,000 (not including expenses) for a period of eight (8)
months!

    

     

    
      In
addition, when Yoav left the Company, he demanded, and was paid, a sum equal to
the 10% salary cut that he took and so proudly mentioned again and
again.

    

     

    
      You
should also be aware that Mr. Stern demanded that he receive the following
compensation package should he be hired as a permanent CEO:

    

     

    
      
        	
              	
                · 

              	
                monthly
      fee payments of NIS 177,500 (approximately US$45,000) namely an annual payment of
      approximately $540,000;
plus

              

      

    

     

    
      
        	
              	
                · 

              	
                an
      annual performance bonus, which could have amounted to 170% of the annual
      salary; plus

              

      

    

     

    
      
        	
              	
                · 

              	
                options
      to purchase 400,000 ordinary shares of the
  Company.

              

      

    

     

    
      FINANCIAL
RESULTS OF THE COMPANY

    

     

    
      As
mentioned above, Mr. Stern led the Company during an eight month period during
2008-2009 and he cannot avoid assuming part of the responsibility for the
Company's results during that period.

    

     

    
      As we
have explained before, the Company had to overcome the tumultuous period it
underwent during Mr. Stern’s term in office.

    

     

    
      The Board
of Directors installed a new management team led by Mr. Eitan Livneh with the
following priorities: to stabilize the Company, lift the morale of its employees
and restore their confidence in the Company, while at the same time refocusing
the Company’s position in the changing global markets. We are confident that the
results of these steps taken by the Board and management will be apparent in the
future.

    

     

    
      SIGNIFICANT
MANAGEMENT LOSS

    

     

    
      We were
astonished to read the allegation of the dissident shareholders that our current
management was responsible for the turnover in management. The facts are that
most of these employees were either terminated by Mr. Stern, some of them
inappropriately, or left because of him, as described above.

    

     

    
      FUTURE
FINANCING

    

     

    We have
carefully reviewed the financing proposals that were solicited by the dissident
shareholders, neither of which were ever delivered directly to the Company. The
proposal from Optex is conditioned upon the replacement of this Board of
Directors and therefore could not be considered by the Company. As to the
proposal from Plenus, the Company will approach Plenus to gain greater
clarification. For the time being, the only valid and binding undertaking that
we have is Mr. Nathan Kirsh’s agreement to fund the Company as described in the
proxy statement.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    In connection with the rights offering,
we intend to retain the services of a reputable banker to advise us as to the
pricing and other terms of the offering to ensure that they are fair and
equitable to ALL shareholders. The rights offering will allow any shareholder to
subscribe for additional shares that are not subscribed for as a result
of other shareholders not exercising their subscription rights.

     

    
      As
clearly stated in the proxy statement the proposed additional financing is being
sought mainly in order to finance the Company’s strategic
plan.

    

     

    
      TO
SUMMARIZE

    

     

    We
completely refute the allegations included in the position letter.

     

    After
working with Mr. Stern and observing his management style and personality, as
well as his present inappropriate behavior, we are all of the opinion that the
best interest of the Company and its shareholders would be best served by your
voting AGAINST PROPOSALS 1A AND
1B AND FOR PROPOSAL 2.

     

    Should
you feel that further discussion or explanations are required please do not
hesitate to contact Mr. Jacob Perry, the Chairman of the Company’s Board of
Directors at JacobP@Magal-S3.com.

     

     

    
      	
            	
               
      

            	
              Very
      Truly Yours

            

    

     

    
      	
            	
               
      

            	
              The
      Board of Directors of 

                Magal
      Security Systems Ltd.

              

            

    

    
    

    

    
 

    
      Contact:

    

    
      Magal
S3

    

    
      Eitan
Livneh, President & CEO

    

    
      Tel:
+972-3-539-1444

    

    
      Fax:
+972-3-536-6245

    

    
      Assistant:
Ms. Elisheva Almog

    

    
      E-mail:
ElishevA@magal-s3.com

    

    

    
      Financial
Communication Public & Investor Relations

    

    
      Hadas
Friedman

    

    
      Tel:
+972-3-695-4333 Ext. 6

    

    
      E-mail:
hadas@fincom.co.il

    

    
      Mobile:
+972-54-230-3100

       

      
        
          
          

        

        
          3[FORM
OF SENIOR SECURED CONVERTIBLE NOTE]

     

    NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.  ANY TRANSFEREE OF THIS NOTE
SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND
18(a) HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND,
ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE
AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
NOTE.

    

    THIS
NOTE IS SUBJECT IN ALL RESPECTS TO THE DEBT SUBORDINATION AND INTERCREDITOR
AGREEMENT, DATED JULY 19, 2010 (“SUBORDINATION AGREEMENT") AMONG THE COMPANY,
ROSENTHAL & ROSENTHAL, INC., ALL HOLDERS OF NOTES, AND CNH DIVERSIFIED
OPPORTUNITIES MASTER ACCOUNT, L.P., IN ITS CAPACITY AS COLLATERAL AGENT FOR ALL
HOLDERS OF NOTES, UNDER WHICH THE COMPANY’S OBLIGATIONS AND THE HOLDERS RIGHTS
HEREUNDER ARE SUBORDINATED IN THE MANNER SET FORTH THEREIN TO THE PRIOR PAYMENT
OF THE SENIOR CREDITOR INDEBTEDNESS (AS DEFINED IN THE SUBORDINATION
AGREEMENT).

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    SouthPeak
Interactive Corporation

     

    Senior
Secured Convertible Note

     

    
      	
              Issuance
      Date:  July 19, 2010

            	
              Original
      Principal Amount: U.S. $[__________]

            

    

    

    FOR VALUE RECEIVED, SouthPeak
Interactive Corporation, a Delaware  corporation (the "Company"), hereby promises to
pay to [CNH DIVERSIFIED OPPORTUNITIES MASTER ACCOUNT, L.P.] [CNH CA MASTER
ACCOUNT, L.P] [AQR DIVERSIFIED ARBITRAGE FUND] [TERRY PHILLIPS] or registered
assigns (the "Holder")
the amount set out above as the Original Principal Amount (as reduced pursuant
to the terms hereof pursuant to redemption, conversion or otherwise, the "Principal") when due, whether
upon the Maturity Date (as defined below), acceleration, redemption or otherwise
(in each case in accordance with the terms hereof) and to pay interest ("Interest") on any outstanding
Principal at the applicable Interest Rate from the date set out above as the
Issuance Date (the "Issuance Date") until the same becomes
due and payable, whether upon an Interest Date (as defined below), the Maturity
Date, acceleration, conversion, redemption or otherwise (in each case in
accordance with the terms hereof).  This Senior Secured Convertible
Note (including all Senior Secured Convertible Notes issued in exchange,
transfer or replacement hereof, this "Note") is one of an issue of
Senior Secured Convertible Notes issued pursuant to the Securities Purchase
Agreement on the Closing Date (collectively, the "Notes" and such other Senior
Secured Convertible Notes, the "Other Notes").  Certain
capitalized terms used herein are defined in Section 28.

     

    (1)           PAYMENTS OF
PRINCIPAL.  On the Maturity Date, the Company shall pay to the
Holder an amount in cash representing all outstanding Principal, accrued and
unpaid Interest and accrued and unpaid Late Charges on such Principal and
Interest.  The "Maturity Date" shall be July 19, 2013,
as may be extended at the option of the Holder (i) in the event that, and for so
long as, an Event of Default (as defined in Section 4(a)) shall have occurred
and be continuing on the Maturity Date (as may be extended pursuant to this
Section 1) or any event shall have occurred and be continuing on the Maturity
Date (as may be extended pursuant to this Section 1) that with the passage of
time and the failure to cure would result in an Event of Default and (ii)
through the date that is ten (10) Business Days after the consummation of a
Change of Control in the event that a Change of Control is publicly announced or
a Change of Control Notice (as defined in Section 5(b)) is delivered prior to
the Maturity Date.  Other than as specifically permitted by this Note,
the Company may not prepay any portion of the outstanding Principal, accrued and
unpaid Interest or accrued and unpaid Late Charges on Principal and Interest, if
any.

     

    (2)           INTEREST; INTEREST
RATE.  (a) Interest on this Note shall commence accruing on the
Issuance Date and shall be computed on the basis of a 360-day year and twelve
30-day months and shall be payable in arrears for each Semi-Annual Period on the
last date of such Semi-Annual Period during the period beginning on the Issuance
Date and ending on, and including, the Maturity Date (each, an "Interest Date"), with  the
first Interest Date being December 31, 2010.  Interest shall be
payable on each Interest Date, to the record holder of this Note on the
applicable Interest Date, in cash.  Prior to the payment of Interest
on an Interest Date, Interest on this Note shall accrue at the Interest Rate and
be payable in cash.  From and after the occurrence and during the
continuance of an Event of Default, the Interest Rate shall be increased to
fifteen percent (15.0%).  In the event that such Event of Default is
subsequently cured, the adjustment referred to in the preceding sentence shall
cease to be effective as of the date of such cure; provided that the Interest as
calculated and unpaid at such increased rate during the continuance of such
Event of Default shall continue to apply to the extent relating to the days
after the occurrence of such Event of Default through and including the date of
cure of such Event of Default.

     

    (3)           CONVERSION OF
NOTES.  This Note shall be convertible into shares of the
Company's common stock, par value $0.0001 per share (the "Common Stock"), on the terms
and conditions set forth in this Section 3.

     

    
      
         

      

      
        - 2
-

        
          

        

      

      
         

      

    

    (a)          Conversion
Right.  Subject to the provisions of Section 3(d), at any time
or times on or after the Issuance Date, the Holder shall be entitled to convert
any portion of the outstanding and unpaid Conversion Amount (as defined below)
into fully paid and nonassessable shares of Common Stock in accordance with
Section 3(c), at the Conversion Rate (as defined below).  The Company
shall not issue any fraction of a share of Common Stock upon any
conversion.  If the issuance would result in the issuance of a
fraction of a share of Common Stock, the Company shall round such fraction of a
share of Common Stock to the nearest whole share.  The Company shall
pay any and all transfer, stamp and similar taxes that may be payable with
respect to the issuance and delivery of Common Stock upon conversion of any
Conversion Amount.

     

    (b)          Conversion
Rate.  The number of shares of Common Stock issuable upon
conversion of any Conversion Amount pursuant to Section 3(a) shall be determined
by dividing (x) such Conversion Amount by (y) the Conversion Price (the "Conversion
Rate").

     

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

     

    (ii)           "Conversion Price" means, as of
any Conversion Date (as defined below) or other date of determination, $0.431,
subject to adjustment as provided herein.

     

    (c)          Mechanics of
Conversion.

     

    (i)           Optional
Conversion.  To convert any Conversion Amount into shares of
Common Stock on any date (a "Conversion Date"), the Holder
shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior
to 11:59 p.m., New York Time, on such date, a copy of an executed notice of
conversion in the form attached hereto as Exhibit I (the "Conversion Notice") to the
Company and (B) if required by Section 3(c)(iii), surrender this Note to a
common carrier for delivery to the Company as soon as practicable on or
following such date (or an indemnification undertaking with respect to this Note
in the case of its loss, theft or destruction).  On or before the
first (1st)
Business Day following the date of receipt of a Conversion Notice, the Company
shall transmit by facsimile a confirmation of receipt of such Conversion Notice
to the Holder and the Company's transfer agent (the "Transfer
Agent").  On or before the third (3rd)
Business Day following the date of receipt of a Conversion Notice (the "Share Delivery Date"), the Company shall (1)
(x) provided that the Transfer Agent is participating in the Depository Trust
Company's ("DTC") Fast
Automated Securities Transfer Program, credit such aggregate number of shares of
Common Stock to which the Holder shall be entitled to the Holder's or its
designee's balance account with DTC through its Deposit/Withdrawal at Custodian
system or (y) if the Transfer Agent is not participating in the DTC Fast
Automated Securities Transfer Program, issue and deliver to the address as
specified in the Conversion Notice, a certificate, registered in the name of the
Holder or its designee, for the number of shares of Common Stock to which the
Holder shall be entitled and (2) pay to the Holder in cash, by wire transfer of
immediately available funds, an amount equal to the accrued and unpaid Interest
on the Conversion Amount and Late Charges, if any, on such Conversion Amount and
Interest.  If this Note is physically surrendered for conversion as
required by Section 3(c)(iii) and the outstanding Principal of this Note is
greater than the Principal portion of the Conversion Amount being converted,
then the Company shall as soon as practicable and in no event later than three
(3) Business Days after receipt of this Note and at its own expense, issue and
deliver to the holder a new Note (in accordance with Section 18(d)) representing
the outstanding Principal not converted.  The Person or Persons
entitled to receive the shares of Common Stock issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date.

     

    
      
         

      

      
        - 3
-

        
          

        

      

      
         

      

    

    (ii)           Company's Failure to Timely
Convert.  If the Company shall fail to issue a certificate to
the Holder or credit the Holder's balance account with DTC, as applicable, for
the number of shares of Common Stock to which the Holder is entitled upon
conversion of any Conversion Amount on or prior to the date which is three (3)
Trading Days after the Conversion Date (a "Conversion Failure"), then the
Holder, upon written notice to the Company, may void its Conversion Notice with
respect to, and retain or have returned, as the case may be, any portion of this
Note that has not been converted pursuant to such Conversion Notice; provided that the
voiding of a Conversion Notice shall not affect the Company's obligations to
make any payments which have accrued prior to the date of such notice pursuant
to this Section 3(c)(ii) or otherwise.  In addition to the foregoing,
if within three (3) Trading Days after the Company's receipt of the facsimile
copy of a Conversion Notice the Company shall fail to issue and deliver a
certificate to the Holder or credit the Holder's balance account with DTC for
the number of shares of Common Stock to which the Holder is entitled upon such
holder's conversion of any Conversion Amount or on any date of the Company's
obligation to deliver shares of Common Stock as contemplated pursuant to clause
(y) below, and if on or after such Trading Day the Holder purchases (in an open
market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by the Holder of Common Stock issuable upon such conversion that the Holder
anticipated receiving from the Company (a "Buy-In"), then the Company
shall, within three (3) Trading Days after the Holder's request and in the
Holder's discretion, either (x) pay cash to the Holder in an amount equal to the
Holder's total purchase price (including brokerage commissions and other out of
pocket expenses, if any) for the shares of Common Stock so purchased (the "Buy-In Price"), at which point
the Company's obligation to deliver such certificate (and to issue such Common
Stock) shall terminate and the applicable portion of the Note will be deemed to
have been converted, or (y) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Common Stock and pay cash
to the Holder in an amount equal to the excess (if any) of the Buy-In Price over
the product of (I) such number of shares of Common Stock, times (II) the Closing
Bid Price on the Conversion Date.

     

    
      
         

      

      
        - 4
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    (iii)           Registration;
Book-Entry.  The Company shall maintain a register (the "Register") for the recordation
of the names and addresses of the holders of each Note and the principal amount
of the Notes held by such holders (the "Registered
Notes").  The entries in the Register shall be conclusive and
binding for all purposes absent manifest error.  The Company and the
holders of the Notes shall treat each Person whose name is recorded in the
Register as the owner of a Note for all purposes, including, without limitation,
the right to receive payments of Principal and Interest, if any, hereunder,
notwithstanding notice to the contrary.  A Registered Note may be
assigned or sold in whole or in part only by registration of such assignment or
sale on the Register.  Upon its receipt of a request to assign or sell
all or part of any Registered Note by a Holder, the Company shall record the
information contained therein in the Register and issue one or more new
Registered Notes in the same aggregate principal amount as the principal amount
of the surrendered Registered Note to the designated assignee or transferee
pursuant to Section 18.  Notwithstanding anything to the contrary in
this Section 3(c)(iii), a Holder may assign any Note or any portion thereof to
an Affiliate of such Holder or a Related Fund of such Holder without delivering
a request to assign or sell such Note to the Company and the recordation of such
assignment or sale in the Register (a "Related Party Assignment");
provided, that
(x) the Company may continue to deal solely with such assigning or selling
Holder unless and until such Holder has delivered a request to assign or sell
such Note or portion thereof to the Company for recordation in the Register; (y)
the failure of such assigning or selling Holder to deliver a request to assign
or sell such Note or portion thereof to the Company shall not affect the
legality, validity, or binding effect of such assignment or sale and (z) such
assigning or selling Holder shall, acting solely for this purpose as a
non-fiduciary agent of the Company, maintain a register (the "Related Party Register")
comparable to the Register on behalf of the Company, and any such assignment or
sale shall be effective upon recordation of such assignment or sale in the
Related Party Register.  Notwithstanding anything to the contrary set
forth herein, upon conversion of any portion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this Note
to the Company unless (A) the full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting physical
surrender and reissue of this Note.  The Holder and the Company shall
maintain records showing the Principal and Interest and Late Charges, if any,
converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Company, so as not to require
physical surrender of this Note upon conversion.

     

    (iv)           Pro Rata Conversion;
Disputes.  In the event that the Company receives a Conversion
Notice from more than one holder of Notes for the same Conversion Date and the
Company can convert some, but not all, of such portions of the Notes submitted
for conversion, the Company, subject to Section 3(d), shall convert from each
holder of Notes electing to have Notes converted on such date a pro rata amount
of such holder's portion of its Notes submitted for conversion based on the
principal amount of Notes submitted for conversion on such date by such holder
relative to the aggregate principal amount of all Notes submitted for conversion
on such date.  In the event of a dispute as to the number of shares of
Common Stock issuable to the Holder in connection with a conversion of this
Note, the Company shall issue to the Holder the number of shares of Common Stock
not in dispute and resolve such dispute in accordance with Section
23.

     

    
      
         

      

      
        - 5
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    (v)          Mandatory
Conversion.

     

    (1)           General.  If
at any time from and after the Issuance Date (the "Mandatory Conversion Eligibility
Date"), (1) the arithmetic average of the Weighted Average Price of the
Common Stock for any thirty (30) consecutive Trading Days following the
Mandatory Conversion Eligibility Date (the "Mandatory Conversion Measuring
Period") equals or exceeds 200% of the Conversion Price (subject to
appropriate adjustments for any stock dividend, stock split, stock combination,
reclassification or similar transaction after the Subscription Date) and (2)
there is not then an Equity Conditions Failure, the Company shall have the right
to require the Holder to convert all or any portion of the Company Conversion
Amount then remaining under this Note, in each case as designated in the
Mandatory Conversion Notice (as defined below) into fully paid, validly issued
and nonassessable shares of Common Stock in accordance with Section 3(c)
hereof at the Conversion Rate as of the Mandatory Conversion Date (as defined
below) (a "Mandatory
Conversion").  The Company may exercise its right to require
conversion under this Section 3(c)(v) by delivering within
not more than five (5) Trading Days following the end of such Mandatory
Conversion Measuring Period a written notice thereof by facsimile and overnight
courier to all, but not less than all, of the holders of Notes and the Transfer
Agent (the "Mandatory
Conversion Notice" and the date all of the holders received such notice
by facsimile is referred to as the "Mandatory Conversion Notice
Date").  The Mandatory Conversion Notice shall be
irrevocable.  The Mandatory Conversion Notice shall (y) state (I) the
Trading Day selected for the Mandatory Conversion, which Trading Day shall be no
sooner than twenty (20) Trading Days nor later than sixty (60) Trading Days
following the Mandatory Conversion Notice Date (the "Mandatory Conversion Date"),
(II) the aggregate Conversion Amount of the Notes subject to Mandatory
Conversion from the Holder and all of the holders of the Notes pursuant to this
Section 3(c)(v) (and analogous provisions under the Other Notes), (III) the
number of shares of Common Stock to be issued to the Holder on the Mandatory
Conversion Date and (z) certify that there
has been no Equity Conditions Failure.  The mechanics of conversion
set forth in Section 3(c) shall apply to any Mandatory Conversion as if the
Company and the Transfer Agent had received from the Holder on the Mandatory
Conversion Date a Conversion Notice with respect to the Conversion Amount being
converted pursuant to the Mandatory Conversion.  Notwithstanding the
foregoing, the Company may not effect a Mandatory Conversion until a minimum of
five (5) consecutive Trading Days have elapsed after any prior Mandatory
Conversion Date.

     

    (2)           Pro Rata Conversion
Requirement.  If the Company elects to cause a conversion of
any Conversion Amount of this Note pursuant to Section 3(c)(v)(A), then it must
simultaneously take the same action in the same proportion with respect to the
Other Notes.  If the Company elects a Mandatory Conversion of this
Note pursuant to Section 3(c)(v)(A) (or similar provisions under the Other
Notes) with respect to less than all of the Conversion Amounts of the Notes then
outstanding, then the Company shall require conversion of a Conversion Amount
from each of the holders of the Notes equal to the product of (1) the aggregate
Conversion Amount of Notes which the Company has elected to cause to be
converted pursuant to Section 3(c)(v)(A), multiplied by (2) the fraction, the
numerator of which is the sum of the aggregate Original Principal Amount of the
Notes purchased by such holder of outstanding Notes and the denominator of which
is the sum of the aggregate Original Principal Amount of the Notes purchased by
all holders holding outstanding Notes (such fraction with respect to each holder
is referred to as its "Conversion Allocation Percentage," and
such amount with respect to each holder is referred to as its "Pro Rata Conversion Amount");
provided, however, that in the event that any holder's Pro Rata Conversion
Amount exceeds the outstanding Principal amount of such holder's Note, then such
excess Pro Rata Conversion Amount shall be allocated amongst the remaining
holders of Notes in accordance with the foregoing formula.  In the
event that the initial holder of any Notes shall sell or otherwise transfer any
of such holder's Notes, the transferee shall be allocated a pro rata portion of
such holder's Conversion Allocation Percentage and the Pro Rata Conversion
Amount.

     

    
      
         

      

      
        - 6
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    (d)           Limitations on Conversions;
Beneficial Ownership.  The Company shall not effect any
conversion of this Note, and the Holder of this Note shall not have the right to
convert any portion of this Note pursuant to Section 3(a), to the extent that
after giving effect to such conversion, the Holder (together with the Holder's
affiliates) would beneficially own in excess of 4.99% (the "Maximum Percentage") of the
number of shares of Common Stock outstanding immediately after giving effect to
such conversion.  For purposes of the foregoing sentence, the number
of shares of Common Stock beneficially owned by the Holder and its affiliates
shall include the number of shares of Common Stock issuable upon conversion of
this Note with respect to which the determination of such sentence is being
made, but shall exclude the number of shares of Common Stock which would be
issuable upon (A) conversion of the remaining, nonconverted portion of this Note
beneficially owned by the Holder or any of its affiliates and (B) exercise or
conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any Other Notes or warrants) subject
to a limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its
affiliates.  Except as set forth in the preceding sentence, for
purposes of this Section 3(d)(i), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange
Act").  For purposes of this Section 3(d)(i), in determining
the number of outstanding shares of Common Stock, the Holder may rely on the
number of outstanding shares of Common Stock as reflected in (1) the Company's
most recent Form 10-K, Form 10-Q, Form 8-K or other public filing with the SEC,
as the case may be, (2) a more recent public announcement by the Company or (3)
any other notice by the Company or the Transfer Agent setting forth the number
of shares of Common Stock outstanding.  For any reason at any time,
upon the written or oral request of the Holder, the Company shall within one (1)
Business Day confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding.  In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to the conversion
or exercise of securities of the Company, including this Note, by the Holder or
its affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.  By written notice to the Company, the
Holder may increase or decrease the Maximum Percentage to any other percentage
not in excess of 9.99% specified in such notice; provided that (x) any such
increase or decrease will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company, and (y) any such increase or
decrease will apply only to the Holder and not to any other holder of
Notes.

     

    
      
         

      

      
        - 7
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    (4)          RIGHTS UPON EVENT OF
DEFAULT.

     

    (a)          Event of
Default.  Each of the following events shall constitute an
"Event of
Default":

     

    (i)          the
failure of the applicable Registration Statement required to be filed pursuant
to the Registration Rights Agreement to be declared effective by the SEC on or
prior to the date that is sixty (60) days after the applicable Effectiveness
Deadline (as defined in the Registration Rights Agreement), or, while the
applicable Registration Statement is required to be maintained effective
pursuant to the terms of the Registration Rights Agreement, the effectiveness of
the applicable Registration Statement lapses for any reason (including, without
limitation, the issuance of a stop order) or is unavailable to any holder of the
Notes for sale of all of such holder's Registrable Securities (as defined in the
Registration Rights Agreement) in accordance with the terms of the Registration
Rights Agreement, and such lapse or unavailability continues for a period of ten
(10) consecutive days or for more than an aggregate of thirty (30) days in any
365-day period (other than days during an Allowable Grace Period (as defined in
the Registration Rights Agreement));

     

    (ii)         the
suspension from trading or failure of the Common Stock to be listed on an
Eligible Market for a period of five (5) consecutive Trading Days or for more
than an aggregate of fifteen (15) Trading Days in any 365-day
period;

     

    (iii)        the
Company's (A) failure to cure a Conversion Failure by delivery of the required
number of shares of Common Stock within ten (10) Business Days after the
applicable Conversion Date or (B) notice, written or oral, to any holder of the
Notes, including by way of public announcement or through any of its agents, at
any time, of its intention not to comply with a request for conversion of any
Notes into shares of Common Stock that is tendered in accordance with the
provisions of the Notes, other than pursuant to Section 3(d);

     

    (iv)        at
any time following the tenth (10th)
consecutive Business Day that the Holder's Authorized Share Allocation is less
than the number of shares of Common Stock that the Holder would be entitled to
receive upon a conversion of the full Conversion Amount of this Note (without
regard to any limitations on conversion set forth in Section 3(d) or
otherwise);

     

    (v)         the
Company's failure to pay to the Holder any amount of Principal, Interest, Late
Charges or other amounts when and as due under this Note (including, without
limitation, the Company's failure to pay any redemption amounts hereunder) or
any other Transaction Document (as defined in the Securities Purchase Agreement)
or any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated hereby and thereby to which the
Holder is a party, except, in the case of a failure to pay Interest and/or Late
Charges when and as due, in which case only if such failure continues for a
period of at least seven (7) Business Days;

     

    
      
         

      

      
        - 8
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    (vi)        any
default under, redemption of or acceleration prior to maturity of any
Indebtedness in excess of $250,000, individually or in the aggregate, of the
Company or any of its Subsidiaries (as defined in Section 3(a) of the Securities
Purchase Agreement) other than with respect to any Other Notes;

     

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

     

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

     

    (ix)         a
final judgment or judgments for the payment of money aggregating in excess of
$250,000 are rendered against the Company or any of its Subsidiaries and which
judgments are not, within sixty (60) days after the entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within sixty (60)
days after the expiration of such stay; provided, however, that (a) any judgment
which is covered by insurance or an indemnity from a credit worthy party shall
not be included in calculating the $250,000 amount set forth above so long as
the Company provides the Holder a written statement from such insurer or
indemnity provider (which written statement shall be reasonably satisfactory to
the Holder) to the effect that such judgment is covered by insurance or an
indemnity and the Company will receive the proceeds of such insurance or
indemnity within thirty (30) days of the issuance of such judgment and (b) the
calculation of the $250,000 amount set forth above shall exclude any judgments
that have been accrued on the Company's balance sheet as of the Subscription
Date, but only to the extent of such accrual, as set forth on Schedule 3(pp) of
the Securities Purchase Agreement.

     

    (x)          the
Company breaches any representation, warranty, covenant or other term or
condition of any Transaction Document, except, in the case of a breach of a
covenant or other term or condition of any Transaction Document which is
curable, only if such breach continues for a period of at least ten (10)
consecutive Business Days;

     

    (xi)         any
breach or failure in any respect to comply with either of Section 14 of this
Note;

     

    
      
         

      

      
        - 9
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    (xii)        any
material provision of any Security Document (as determined by the Collateral
Agent) shall at any time for any reason (other than pursuant to the express
terms thereof) cease to be valid and binding on or enforceable against the
Company or any Subsidiary intended to be a party thereto, or the validity or
enforceability thereof shall be contested by the Company or any Subsidiary or a
proceeding shall be commenced by the Company or any Subsidiary or any
governmental authority having jurisdiction over any of them, seeking to
establish the invalidity or unenforceability thereof, or the Company or any
Subsidiary shall deny in writing that it has any liability or obligation
purported to be created under any Security Document;

     

    (xiii)       any
Security Document, after delivery thereof pursuant hereto, shall for any reason
fail or cease to create a valid and perfected and, except to the extent
permitted by the terms hereof or thereof, first priority Lien in favor of the
Collateral Agent for the benefit of the holders of the Notes on any Collateral
(as defined in the Security Documents) purported to be covered
thereby;

     

    (xiv)      the
failure of the Company to cause the Charter Amendment (as defined in the
Securities Purchase Agreement) to be filed with the Secretary of State of the
State of Delaware and become effective on or before the one (1) year anniversary
of Issuance Date;

     

    (xv)       (i)
any material damage to, or loss, theft or destruction of, a material amount of
Collateral, whether or not insured, (ii) or any strike, lockout, labor dispute,
embargo, condemnation, act of God or public enemy, or other casualty which
causes, for more than fifteen (15) consecutive days, the cessation or
substantial curtailment of revenue producing activities at any facility of the
Company or any Subsidiary, if any such damage, loss, theft, destruction, event
or circumstance discussed in clauses (i) or (ii) above could reasonably be
expected to have a Material Adverse Effect (as defined in the Securities
Purchase Agreement); or

     

    (xvi)      any
Event of Default (as defined in the Other Notes) occurs with respect to any
Other Notes.

     

    (b)          Redemption
Right.  Upon the occurrence of an Event of Default with respect
to this Note or any Other Note, the Company shall within one (1) Business Day
deliver written notice thereof via facsimile and overnight courier (an "Event of Default Notice") to
the Holder.  At any time after the earlier of the Holder's receipt of
an Event of Default Notice and the Holder becoming aware of an Event of Default,
the Required Holders may require the Company to redeem all or any portion of
this Note (and a pro rata portion of all Other Notes) by delivering written
notice thereof (the "Event of
Default Redemption Notice") to the Company, which Event of Default
Redemption Notice shall indicate the Conversion Amount of this Note the Required
Holders are electing to require the Company to redeem.  Each portion
of this Note subject to redemption by the Company pursuant to this Section 4(b)
shall be redeemed by the Company at a price equal to the greater of (i) the
product of (A) the Conversion Amount to be redeemed and (B) the Redemption
Premium and (ii) the product of (A) the Conversion Rate with respect to such
Conversion Amount in effect at such time as the Holder delivers an Event of
Default Redemption Notice and (B) the greatest Closing Sale Price of the Common
Stock on any Trading Day during the period commencing on the date immediately
preceding such Event of Default and ending on the date the Holder delivers the
Event of Default Redemption Notice (the "Event of Default Redemption
Price").  Redemptions required by this Section 4(b) shall be
made in accordance with the provisions of Section 14.  To the extent
redemptions required by this Section 4(b) are deemed or determined by a court of
competent jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments.  The parties
hereto agree that in the event of the Company's redemption of any portion of the
Note under this Section 4(b), the Holder's damages would be uncertain and
difficult to estimate because of the parties' inability to predict future
interest rates and the uncertainty of the availability of a suitable substitute
investment opportunity for the Holder.  Accordingly, any Redemption
Premium due under this Section 4(b) is intended by the parties to be, and shall
be deemed, a reasonable estimate of the Holder's actual loss of its investment
opportunity and not as a penalty.

     

    
      
         

      

      
        - 10
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    (5)          RIGHTS UPON FUNDAMENTAL
TRANSACTION AND CHANGE OF CONTROL.

     

    (a)           Assumption.  The
Company shall not enter into or be party to a Fundamental Transaction unless
(i)  the Successor Entity assumes in writing all of the obligations of the
Company under this Note and the other Transaction Documents in accordance with
the provisions of this Section 5(a) pursuant to written agreements in form and
substance reasonably satisfactory to the Required Holders and approved by the
Required Holders prior to such Fundamental Transaction, including agreements to
deliver to each holder of Notes in exchange for such Notes a security of the
Successor Entity evidenced by a written instrument substantially similar in form
and substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest rates
of the Notes then outstanding held by such holder, having similar conversion
rights and having similar ranking to the Notes, and satisfactory to the Required
Holders and (ii) the Successor Entity (including its Parent Entity) is a
publicly traded corporation whose common stock is quoted on or listed for
trading on an Eligible Market (a "Public Successor
Entity").  Upon the occurrence of any Fundamental Transaction,
the Successor Entity shall succeed to, and be substituted for (so that from and
after the date of such Fundamental Transaction, the provisions of this Note
referring to the "Company" shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Note with the same effect as if such
Successor Entity had been named as the Company herein.  Upon
consummation of the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon conversion of this
Note at any time after the consummation of the Fundamental Transaction, in lieu
of the shares of the Company's Common Stock (or other securities, cash, assets
or other property) issuable upon the conversion of the Notes prior to such
Fundamental Transaction, such shares of the publicly traded common stock (or
their equivalent) of the Successor Entity (including its Parent Entity), as
adjusted in accordance with the provisions of this Note.  The
provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
on the conversion or redemption of this Note.

     

    
      
         

      

      
        - 11
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    (b)           Redemption
Right.  No sooner than fifteen (15) days nor later than ten
(10) days prior to the consummation of a Change of Control, but not prior to the
public announcement of such Change of Control, the Company shall deliver written
notice thereof via facsimile and overnight courier to the Holder (a "Change of Control Notice").  At any
time during the period commencing on the earlier to occur of (x) any oral or
written agreement by the Company or any of its Subsidiaries, which upon
consummation of the transaction contemplated thereby would reasonably be
expected to result in a Change of Control and (y) the Holder's receipt of a
Change of Control Notice and ending twenty (20) Trading Days after the date of
the consummation of such Change of Control, the Required Holders may require the
Company to redeem all or any portion (and a pro rata portion of all Other Notes)
of this Note by delivering written notice thereof ("Change of Control Redemption
Notice") to the Company, which Change of Control Redemption Notice shall
indicate the Conversion Amount the Holder is electing to require the Company to
redeem.  The portion of this Note subject to redemption pursuant to
this Section 5(b) shall be redeemed by the Company in cash at a price equal to
the greater of (i) 115% of the Conversion Amount being redeemed  and
(ii) the product of (A) the Conversion Amount being redeemed multiplied by (B)
the quotient determined by dividing (1) the greatest Closing Sale Price of the
shares of Common Stock during the period beginning on the date immediately
preceding the earlier to occur of (x) the consummation of the Change of Control
and (y) the public announcement of such Change of Control and ending on the date
the Holder delivers the Change of Control Redemption Notice by (2) the
Conversion Price by (2) the Conversion Price (the "Change of Control Redemption
Price").  Redemptions required by this Section 5 shall be made
in accordance with the provisions of Section 14 and shall have priority to
payments to stockholders in connection with a Change of Control.  To
the extent redemptions required by this Section 5(b) are deemed or determined by
a court of competent jurisdiction to be prepayments of the Note by the Company,
such redemptions shall be deemed to be voluntary
prepayments.  Notwithstanding anything to the contrary in this Section
5, but subject to Section 3(d), until the Change of Control Redemption Price
(together with any interest thereon) is paid in full, the Conversion Amount
submitted for redemption under this Section 5(c) (together with any interest
thereon) may be converted, in whole or in part, by the Holder into Common Stock
pursuant to Section 3.  The parties hereto agree that in the event of
the Company's redemption of any portion of the Note under this Section 5(b), the
Holder's damages would be uncertain and difficult to estimate because of the
parties' inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the
Holder.  Accordingly, any Change of Control redemption premium due
under this Section 5(b) is intended by the parties to be, and shall be deemed, a
reasonable estimate of the Holder's actual loss of its investment opportunity
and not as a penalty.

     

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

     

    (a)           Purchase
Rights.  If at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase
Rights"), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete conversion of this Note (without taking into
account any limitations or restrictions on the convertibility of this Note)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.

     

    
      
         

      

      
        - 12
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    (b)           Other Corporate
Events.  In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a "Corporate
Event"), the Company shall make appropriate provision to insure that the
Holder will thereafter have the right to receive upon a conversion of this Note,
at the Holder's option, in lieu of the shares of Common Stock otherwise
receivable upon such conversion, such securities or other assets received by the
holders of shares of Common Stock in connection with the consummation of such
Corporate Event in such amounts as the Holder would have been entitled to
receive had this Note initially been issued with conversion rights for the form
of such consideration (as opposed to shares of Common Stock) at a conversion
rate for such consideration commensurate with the Conversion
Rate.  Provision made pursuant to the preceding sentence shall be in a
form and substance satisfactory to the Required Holders.  The
provisions of this Section shall apply similarly and equally to successive
Corporate Events and shall be applied without regard to any limitations on the
conversion or redemption of this Note.

     

    (7)          RIGHTS UPON ISSUANCE OF
OTHER SECURITIES.

     

    (a)  Adjustment of Conversion
Price upon Issuance of Common Stock.  If and whenever on or
after the Subscription Date, the Company issues or sells, or in accordance with
this Section 7(a) is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding Excluded Securities and shares of
Common Stock deemed to have been issued or sold by the Company in connection
with any Excluded Securities) for a consideration per share (the "New Issuance Price") less than
a price (the "Applicable
Price") equal to the Conversion Price in effect immediately prior to such
issue or sale (the foregoing a "Dilutive Issuance"), then
immediately after such Dilutive Issuance the Conversion Price then in effect
shall be reduced to an amount equal to the New Issuance Price.  For
purposes of determining the adjusted Conversion Price under this Section 7(a),
the following shall be applicable:

     

    (i)           Issuance of
Options.  If the Company in any manner grants any Options and
the lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such Option is less than
the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share.  For
purposes of this Section 7(a)(i), the "lowest price per share for
which one share of Common Stock is issuable upon exercise of any such Options or
upon conversion, exercise or exchange of any such Convertible Securities
issuable upon exercise of such Option" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option and upon conversion, exercise or exchange of
any Convertible Security issuable upon exercise of such Option less any
consideration paid or payable by the Company with respect to such one share of
Common Stock upon the granting or sale of such Option, upon exercise of such
Option and upon conversion, exercise or exchange of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Exercise
Price or number of Warrant Shares shall be made upon the actual issuance of such
shares of Common Stock or of such Convertible Securities upon the exercise of
such Options or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.

     

    
      
         

      

      
        - 13
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    (ii)          Issuance of Convertible
Securities.  If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance or sale of such Convertible Securities for such price per
share.  For the purposes of this Section 7(a)(ii), the "lowest price
per share for which one share of Common Stock is issuable upon the conversion,
exercise or exchange" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the Convertible Security and
upon conversion, exercise or exchange of such Convertible Security less any
consideration paid or payable by the Company with respect to such one share of
Common Stock upon the issuance or sale of such Convertible Security and upon
conversion, exercise or exchange of such Convertible Security.  No
further adjustment of the Exercise Price or number of Warrant Shares shall be
made upon the actual issuance of such shares of Common Stock upon conversion,
exercise or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of this Warrant has been or is to be made pursuant to other
provisions of this Section 7(a), no further adjustment of the Exercise Price or
number of Warrant Shares shall be made by reason of such issue or
sale

     

    (iii)         Change in Option Price or
Rate of Conversion.  If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion, exchange or exercise of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable or
exercisable for Common Stock changes at any time, the Conversion Price in effect
at the time of such change shall be adjusted to the Conversion Price which would
have been in effect at such time had such Options or Convertible Securities
provided for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold.  For purposes of this Section 7(a)(iii), if the terms of any
Option or Convertible Security that was outstanding as of the Subscription Date
are changed in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such change.  No adjustment shall be made if such
adjustment would result in an increase of the Conversion Price then in
effect.

     

    
      
         

      

      
        - 14
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    (iv)         In
case any Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated transaction, (x)
the Options will be deemed to have been issued for a value determined by use of
the Black Scholes Option Pricing Model (the "Option Value") and (y) the
other securities issued or sold in such integrated transaction shall be deemed
to have been issued for the difference of (I) the aggregate consideration
received by the Company less any consideration paid or payable by the Company
pursuant to the terms of such other securities of the Company, less (II) the
Option Value.  If any shares of Common Stock, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold for cash,
the consideration received therefor will be deemed to be the net amount received
by the Company therefor.  If any shares of Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of such consideration received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Closing Sale Price of such security on the date of receipt.  If any
shares of Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such shares of Common Stock,
Options or Convertible Securities, as the case may be.  The fair value
of any consideration other than cash or securities will be determined jointly by
the Company and the Required Holders.  If such parties are unable to
reach agreement within ten (10) days after the occurrence of an event requiring
valuation (the "Valuation
Event"), the fair value of such consideration will be determined within
five (5) Business Days after the tenth day following the Valuation Event by an
independent, reputable appraiser jointly selected by the Company and the
Required Holders.  The determination of such appraiser shall be final
and binding upon all parties absent manifest error and the fees and expenses of
such appraiser shall be borne by the Company.

     

    (v)         Record
Date.  If the Company takes a record of the holders of Common
Stock for the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities or
(B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.

     

    (b)           Adjustment of Conversion
Price upon Subdivision or Combination of Common Stock.  If the
Company at any time on or after the Subscription Date subdivides (by any stock
dividend, stock split, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced.  If the Company at any time on or after the
Subscription Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior to such
combination will be proportionately increased.

     

    (c)           Other
Events.  If any event occurs of the type contemplated by the
provisions of this Section 7 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Holder under this Note; provided that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 7.

     

    
      
         

      

      
        - 15
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    (d)           Voluntary
Decrease.  The Company may at any time during the term of this
Note reduce the then current Conversion Price to any amount and for any period
of time deemed appropriate by the Board of Directors.

     

    (8)          OPTIONAL REDEMPTION AT THE
COMPANY'S ELECTION.

     

    (a)           General.  At
any time after the second (2nd) anniversary of the Issuance Date, so long as
there is no Equity Conditions Failure, the Company shall have the right to
redeem all or any portion of the Company Conversion Amount then remaining under
this Note (the "Company
Optional Redemption
Amount") as designated in the Company Optional Redemption Notice on the
Company Optional Redemption Date (each as defined below) (a "Company Optional
Redemption").  The portion of this Note subject to redemption
pursuant to this Section 8(a) shall be redeemed by the Company in cash at a
price equal to the sum of (i) 103% of the Conversion Amount being redeemed plus
(ii) any accrued and unpaid Interest on the Conversion Amount and Late Charges,
if any, on such Conversion Amount and Interest (the "Company Optional Redemption
Price").  The Company may exercise its right to require
redemption under this Section 8 by delivering a written notice thereof by
facsimile and overnight courier to all, but not less than all, of the holders of
Notes (the "Company Optional
Redemption Notice" and the date all of the holders received such notice
is referred to as the "Company
Optional Redemption Notice Date").  Each Company Optional
Redemption Notice shall be irrevocable.  The Company Optional
Redemption Notice shall state (1) the date on which the Company Optional
Redemption shall occur (the "Company Optional Redemption
Date"), which date shall not be less than twenty (20) Business Days nor
more than sixty (60) Business Days following the Company Optional Redemption
Notice Date, and
(2) the aggregate Conversion Amount of the Notes which the Company has elected
to be subject to Company Optional Redemption from the Holder and all of the
other holders of the Notes pursuant to this Section 8(a) (and analogous
provisions under the Other Notes) on the Company Optional Redemption
Date.  The Company may not effect a Company Optional Redemption until
a minimum of five (5) consecutive Trading Days have elapsed after any prior
Company Optional Redemption Date.  Notwithstanding anything to the
contrary in this Section 8, until the Company Optional Redemption Price is paid,
in full, the Company Optional Redemption Amount may be converted, in whole or in
part, by the Holders into shares of Common Stock pursuant to Section
3.  If the Holder so elects, any or all of the Conversion Amounts
converted by the Holder after the Company Optional Redemption Notice Date shall
reduce the Company Optional Redemption Amount of this Note required to be
redeemed on the Company Optional Redemption Date.  Redemptions made
pursuant to this Section 8 shall be made in accordance with Section
14.

     

    
      
         

      

      
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    (b)           Pro Rata Redemption
Requirement.  If the Company elects to cause a Company Optional
Redemption pursuant to Section 8(a), then it must simultaneously take the same
action in the same proportion with respect to the Other Notes.  If the
Company elects to cause a Company Optional Redemption pursuant to Section 8(a)
(or similar provisions under the Other Notes) with respect to less than all of
the Conversion Amounts of the Notes then outstanding, then the Company shall
require redemption of a Conversion Amount from each of the holders of the Notes
equal to the product of (i) the aggregate Conversion Amount of Notes which the
Company has elected to cause to be redeemed pursuant to Section 8(a), multiplied
by (ii) the fraction, the numerator of which is the sum of the aggregate
Original Principal Amount of the Notes purchased by such holder of outstanding
Notes and the denominator of which is the sum of the aggregate Original
Principal Amount of the Notes purchased by all holders holding outstanding Notes
(such fraction with respect to each holder is referred to as its "Company Redemption Allocation
Percentage", and such amount with respect to each holder is referred to
as its "Pro Rata Company
Redemption Amount"); provided, however that in the event that any
holder's Pro Rata Company Redemption Amount exceeds the outstanding Principal
amount of such holder's Note, then such excess Pro Rata Company Redemption
Amount shall be allocated amongst the remaining holders of Notes in accordance
with the foregoing formula.  In the event that the initial holder of
any Notes shall sell or otherwise transfer any of such holder's Notes, the
transferee shall be allocated a pro rata portion of such holder's Company
Redemption Allocation Percentage and Pro Rata Company Redemption
Amount.

     

    (9)          
HOLDER'S RIGHT OF
OPTIONAL REDEMPTION.   If there has been an EBITDA 2011
Failure, at any time and from time to time after such EBITDA 2011 Failure, the
Holder shall have the right, in its sole discretion, to require that the Company
redeem all or any portion of the Holder Redemption Amount then remaining under
the Note (the "Holder Optional
Redemption Amount") by delivering written notice thereof (a "Holder Optional Redemption
Notice" and the date the Holder delivers such notice, the "Holder Optional Redemption Notice
Date"), which notice shall set forth the Holder Optional Redemption
Amount.  The portion of this Note subject to redemption pursuant to
this Section 9 shall be redeemed by the Company in cash on the Holder Optional
Redemption Date (as defined in Section 12) at a price equal to the Holder
Optional Redemption Amount being redeemed (the "Holder Optional Redemption
Price").  Redemptions required by this Section 9 shall be made
in accordance with the provisions of Section 12.  Notwithstanding
anything to the contrary in this Section 9, but subject to Section 3(d), until
the Holder receives the Holder Optional Redemption Price, any portion of the
Holder Optional Redemption Amount may be converted, in whole or in part, by the
Holder into Common Stock pursuant to Section 3 and such amount shall be deducted
from the Holder Optional Redemption Price.

     

    (10)         NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Certificate of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Note, and will at all
times in good faith carry out all of the provisions of this Note and take all
action as may reasonably be required to protect the rights of the Holder of this
Note.

     

    
      
         

      

      
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    (11)        RESERVATION OF AUTHORIZED
SHARES.

     

    (a)           Reservation.  The
Company shall initially reserve out of its authorized and unissued Common Stock
a number of shares of Common Stock for each of the Notes equal to 130% of the
Conversion Rate with respect to the Conversion Amount of each such Note as of
the Issuance Date.  So long
as any of the Notes are outstanding, the Company shall take all action necessary
to reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes, 130% of the
number of shares of Common Stock as shall from time to time be necessary to
effect the conversion of all of the Notes then outstanding; provided that at no
time shall the number of shares of Common Stock so reserved be less than the
number of shares required to be reserved by the previous sentence (without
regard to any limitations on conversions) (the "Required Reserve
Amount").  The initial number of shares of Common Stock
reserved for conversions of the Notes and each increase in the number of shares
so reserved shall be allocated pro rata among the holders of the Notes based on
the principal amount of the Notes held by each holder at the Closing (as defined
in the Securities Purchase Agreement) or increase in the number of reserved
shares, as the case may be (the "Authorized Share
Allocation").  In the event that a holder shall sell or
otherwise transfer any of such holder's Notes, each transferee shall be
allocated a pro rata portion of such holder's Authorized Share
Allocation.  Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.

     

    (b)           Insufficient Authorized
Shares.  If at any time while any of the Notes remain
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon conversion of the Notes at least a number of shares of Common
Stock equal to the Required Reserve Amount (an "Authorized Share Failure"),
then the Company shall immediately take all action necessary to increase the
Company's authorized shares of Common Stock to an amount sufficient to allow the
Company to reserve the Required Reserve Amount for the Notes then outstanding,
including by acting in accordance with the provisions of Section 4(m) of the
Securities Purchase Agreement.  Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than sixty (60) days after
the occurrence of such Authorized Share Failure, the Company shall either (i)
hold a meeting of its stockholders for the approval of an increase in the number
of authorized shares of Common Stock or (ii) obtain such approval by written
consent and take all action necessary to rectify the Authorized Share
Failure.  In connection with such meeting, the Company shall provide
each stockholder with a proxy statement and shall use its best efforts to
solicit its stockholders' approval of such increase in authorized shares of
Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.  In connection with such
written consent, the Company shall provide each stockholder with an information
statement and shall use its best efforts to solicit its stockholders' approval
of such increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such
proposal.

     

    
      
         

      

      
        - 18
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    (12)        REDEMPTIONS.

     

    (a)           Mechanics.  The
Company shall deliver the applicable Event of Default Redemption Price to the
Holder within five (5) Business Days after the Company's receipt of the Holder's
Event of Default Redemption Notice.  If the Holder has submitted a
Change of Control Redemption Notice in accordance with Section 5(b), the Company
shall deliver the applicable Change of Control Redemption Price to the Holder
(i) concurrently with the consummation of such Change of Control if such notice
is received prior to the consummation of such Change of Control and (ii) within
five (5) Business Days after the Company's receipt of such notice
otherwise.  If the Holder has submitted a Holder Optional Redemption
Notice in accordance with Section 9, the Company shall deliver the applicable
Holder Option Redemption Price within five (5) Business Days after the Holder
Optional Redemption Notice Date.  In the event of a redemption of less
than all of the Conversion Amount of this Note, the Company shall promptly cause
to be issued and delivered to the Holder a new Note (in accordance with Section
18(d)) representing the outstanding Principal which has not been
redeemed.  In the event that the Company does not pay the applicable
Redemption Price to the Holder within the time period required, at any time
thereafter and until the Company pays such unpaid Redemption Price in full, the
Holder shall have the option, in lieu of redemption, to require the Company to
promptly return to the Holder all or any portion of this Note representing the
Conversion Amount that was submitted for redemption and for which the applicable
Redemption Price (together with any Late Charges thereon) has not been
paid.  Upon the Company's receipt of such notice, (x) the applicable
Redemption Notice shall be null and void with respect to such Conversion Amount,
(y) the Company shall immediately return this Note, or issue a new Note (in
accordance with Section 18(d)) to the Holder representing such Conversion Amount
to be redeemed and (z) the Conversion Price of this Note or such new Notes shall
be adjusted to the lesser of (A) the Conversion Price as in effect on the date
on which the applicable Redemption Notice is voided and (B) the lowest Closing
Bid Price of the Common Stock during the period beginning on and including the
date on which the applicable Redemption Notice is delivered to the Company and
ending on and including the date on which the applicable Redemption Notice is
voided.  The Holder's delivery of a notice voiding a Redemption Notice
and exercise of its rights following such notice shall not affect the Company's
obligations to make any payments of Late Charges which have accrued prior to the
date of such notice with respect to the Conversion Amount subject to such
notice.

     

    (b)           Redemption by Other
Holders.  Upon the Company's receipt of notice from any of the
holders of the Other Notes for redemption or repayment as a result of an event
or occurrence substantially similar to the events or occurrences described in
Section 4(b), Section 5(b) or Section 9 (each, an "Other Redemption Notice"), the
Company shall immediately, but no later than one (1) Business Day of its receipt
thereof, forward to the Holder by facsimile a copy of such notice.  If
the Company receives a Redemption Notice and one or more Other Redemption
Notices, during the seven (7) Business Day period beginning on and including the
date which is three (3) Business Days prior to the Company's receipt of the
Holder's Redemption Notice and ending on and including the date which is three
(3) Business Days after the Company's receipt of the Holder's Redemption Notice
and the Company is unable to redeem all principal, interest and other amounts
designated in such Redemption Notice and such Other Redemption Notices received
during such seven (7) Business Day period, then the Company shall redeem a pro
rata amount from each holder of the Notes (including the Holder) based on the
principal amount of the Notes submitted for redemption pursuant to such
Redemption Notice and such Other Redemption Notices received by the Company
during such seven Business Day period.

     

    (13)         VOTING
RIGHTS.  The Holder shall have no voting rights as the holder
of this Note, except as required by law, including, but not limited to, the
General Corporation Law of the State of Delaware, and as expressly provided in
this Note.

     

    
      
         

      

      
        - 19
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    (14)        COVENANTS.

     

    (a)           Rank &
Security.   All payments due under this Note (A) shall
rank pari passu with
all Other Notes and (B) shall be senior to all other Indebtedness of the Company
and its Subsidiaries.  Additionally, all Indebtedness evidenced by
this Note shall pursuant to the terms of the Security Documents be secured by a
perfected first priority lien on and security interest in the properties and
assets of the Company.

     

    (b)           Incurrence of
Indebtedness.  So long as this Note is outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to, directly
or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness,
other than Permitted Indebtedness.

     

    (c)           Existence of
Liens.  So long as this Note is outstanding, the Company shall
not, and the Company shall not permit any of its Subsidiaries to, directly or
indirectly, allow or suffer to exist any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, "Liens") other than Permitted
Liens.

     

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

     

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

     

    (f)           Financial
Covenants.

     

    (i)           EBITDA.  So
long as this Note is outstanding, the consolidated EBITDA of the Company and its
Subsidiaries for the Company's 2011 Fiscal Year shall be greater than the 2011
Goodwill/EBITDA Calculation (the "EBITDA Test").

     

    (ii)          Operating Results
Announcement.  The Company shall announce (such date, the
"Announcement Date") its
operating results (the "Operating Results") from which
the EBITDA Test can be determined for its 2011 Fiscal Year (the "2011 EBITDA Announcement") no
later than the ninetieth (90th) day
after such fiscal year (the "Announcement Date Deadline")
and, in the event the Company shall have satisfied the EBITDA Test for the
Company's 2011 Fiscal Year, such announcement shall include a statement to the
effect that the Company is not in breach of the EBITDA Test for such fiscal
year.  On the Announcement Date, the Company shall provide to the
Holders a certification, executed on behalf of the Company by the Chief
Financial Officer of the Company, certifying that the Company satisfied the
EBITDA Test for such fiscal year.

    
      
         

      

      
        - 20
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    (g)           Change in Nature of
Business.  The Company shall not make, or permit any of its
Subsidiaries to make, any change in the nature of its business as described in
the Company's most recent annual report filed on Form 10-K with the
SEC.  The Company shall not modify its corporate structure or
purpose.

     

    (h)           Preservation of Existence,
Etc.  The Company shall maintain and preserve, and cause each
of its Subsidiaries to maintain and preserve, its existence, rights and
privileges, and become or remain, and cause each of its Subsidiaries to become
or remain, duly qualified and in good standing in each jurisdiction in which the
character of the properties owned or leased by it or in which the transaction of
its business makes such qualification necessary.

     

    (i)           Maintenance of Properties,
Etc.  The Company shall maintain and preserve, and cause each
of its Subsidiaries to maintain and preserve, all of its properties which are
necessary or useful in the proper conduct of its business in good working order
and condition, ordinary wear and tear excepted, and comply, and cause each of
its Subsidiaries to comply, at all times with the provisions of all leases to
which it is a party as lessee or under which it occupies property, so as to
prevent any loss or forfeiture thereof or thereunder.

     

    (j)           Maintenance of
Insurance.  The Company shall maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations (including, without limitation, comprehensive general
liability, hazard, rent and business interruption insurance) with respect to its
properties (including all real properties leased or owned by it) and business,
in such amounts and covering such risks as is required by any governmental
authority having jurisdiction with respect thereto or substantially similar to
the Company's insurance coverage as of the date hereof.

     

    (k)           Transactions with
Affiliates.  The Company shall not, nor shall it permit any of
its Subsidiaries to, enter into, renew, extend or be a party to, any transaction
or series of related transactions (including, without limitation, the purchase,
sale, lease, transfer or exchange of property or assets of any kind or the
rendering of services of any kind) with any Affiliate, except in the ordinary
course of business in a manner and to an extent consistent with past practice
and necessary or desirable for the prudent operation of its business, for fair
consideration and on terms no less favorable to it or its Subsidiaries than
would be obtainable in a comparable arm's length transaction with a Person that
is not an Affiliate thereof.

     

    (15)        PARTICIPATION.  The
Holder, as the holder of this Note, shall be entitled to receive such dividends
paid and distributions made to the holders of Common Stock to the same extent as
if the Holder had converted this Note into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and
distributions.  Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common
Stock.

    
      
         

      

      
        - 21
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    (16)        VOTE TO ISSUE, OR CHANGE THE
TERMS OF, NOTES.  This Note may not be amended without the
written consent of the Required Holders and the Company.

     

    (17)        TRANSFER.  This
Note and any shares of Common Stock issued upon conversion of this Note may be
offered, sold, assigned or transferred by the Holder without the consent of the
Company, subject only to the provisions of Section 2(f) of the Securities
Purchase Agreement.

     

    (18)        REISSUANCE OF THIS
NOTE.

     

    (a)           Transfer.  If
this Note is to be transferred, the Holder shall surrender this Note to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of the Holder a new Note (in accordance with Section 18(d)), registered as the
Holder may request, representing the outstanding Principal being transferred by
the Holder and, if less then the entire outstanding Principal is being
transferred, a new Note (in accordance with Section 18(d)) to the Holder
representing the outstanding Principal not being transferred.  The
Holder and any assignee, by acceptance of this Note, acknowledge and agree that,
by reason of the provisions of Section 3(c)(iii) following conversion or
redemption of any portion of this Note, the outstanding Principal represented by
this Note may be less than the Principal stated on the face of this
Note.

     

    (b)           Lost, Stolen or Mutilated
Note.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with
Section 18(d)) representing the outstanding Principal.

     

    (c)           Note Exchangeable for
Different Denominations.  This Note is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new
Note or Notes (in accordance with Section 18(d) and in principal amounts of at
least $100,000) representing in the aggregate the outstanding Principal of this
Note, and each such new Note will represent such portion of such outstanding
Principal as is designated by the Holder at the time of such
surrender.

     

    (d)           Issuance of New
Notes.  Whenever the Company is required to issue a new Note
pursuant to the terms of this Note, such new Note (i) shall be of like tenor
with this Note, (ii) shall represent, as indicated on the face of such new Note,
the Principal remaining outstanding (or in the case of a new Note being issued
pursuant to Section 18(a) or Section 18(c), the Principal designated by the
Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued and unpaid
Interest and Late Charges, if any, on the Principal and Interest of this Note,
from the Issuance Date.

    
      
         

      

      
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    (19)        REMEDIES, CHARACTERIZATIONS,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The
remedies provided in this Note shall be cumulative and in addition to all other
remedies available under this Note and any of the other Transaction Documents at
law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the Holder's right to pursue
actual and consequential damages for any failure by the Company to comply with
the terms of this Note.  Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the Holder and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof).  The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate.  The Company
therefore agrees that, in the event of any such breach or threatened breach, the
Holder shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.

     

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

     

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

     

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

     

    (23)        DISPUTE
RESOLUTION.  In the case of a dispute as to the determination
of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
or the arithmetic calculation of the Conversion Rate, the Conversion Price or
any Redemption Price, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within one (1) Business Day of receipt, or
deemed receipt, of the Conversion Notice or Redemption Notice or other event
giving rise to such dispute, as the case may be, to the Holder.  If
the Holder and the Company are unable to agree upon such determination or
calculation within one (1) Business Day of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within one Business Day submit via facsimile (a) the disputed determination of
the Closing Bid Price, the Closing Sale Price or the Weighted Average Price to
an independent, reputable investment bank selected by the Company and approved
by the Holder or (b) the disputed arithmetic calculation of the Conversion Rate,
Conversion Price or any Redemption Price to the Company's independent, outside
accountant.  The Company, at the Company's expense, shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than five (5) Business Days from the time it receives the
disputed determinations or calculations.  Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.

    
      
         

      

      
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    (24)        NOTICES;
PAYMENTS.

     

    (a)           Notices.  Whenever
notice is required to be given under this Note, unless otherwise provided
herein, such notice shall be given in accordance with Section 10(f) of the
Securities Purchase Agreement.  The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Note, including
in reasonable detail a description of such action and the reason
therefore.  Without limiting the generality of the foregoing, the
Company will give written notice to the Holder (i) immediately upon any
adjustment of the Conversion Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least twenty (20)
days prior to the date on which the Company closes its books or takes a record
(A) with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any pro rata subscription offer to holders of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to the Holder.

     

    (b)           Payments.  Whenever
any payment of cash is to be made by the Company to any Person pursuant to this
Note, such payment shall be made in lawful money of the United States of America
by a check drawn on the account of the Company and sent via overnight courier
service to such Person at such address as previously provided to the Company in
writing (which address, in the case of each of the Purchasers, shall initially
be as set forth on the Schedule of Buyers attached to the Securities Purchase
Agreement); provided that the Holder may elect to receive a payment of cash via
wire transfer of immediately available funds by providing the Company with prior
written notice setting out such request and the Holder's wire transfer
instructions.  Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day and, in the case of
any Interest 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.  Any amount of
Principal or other amounts due under the Transaction Documents which is not paid
when due shall result in a late charge being incurred and payable by the Company
in an amount equal to interest on such amount at the rate of ten percent (10%)
per annum from the date such amount was due until the same is paid in full
("Late
Charge").

     

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

    
      
         

      

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

     

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

     

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

     

    (a)           "2010 Fiscal Year" means the
12 month fiscal year ending June 30, 2010.

     

    (b)           "2010 Goodwill/EBITDA
Calculation" means the lesser of (A) $0.00 and (B) the consolidated
EBITDA for the Company and its subsidiaries for the Company's 2010 Fiscal Year
recalculated without giving effect to the 2010 Goodwill Impairment
Amount.

     

    (c)           "2010 Goodwill Impairment
Amount" means the amount, if any, by which the Goodwill line item on the
Company's balance sheet as of June 30, 2010 is reduced by the goodwill
impairment required by the Company's auditors, calculated in accordance with
GAAP and consistent with past practices for the Company's 2010 Fiscal
Year.

    
      
         

      

      
        - 25
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    (d)           "2010 Goodwill Impairment
Overage" means (x) the amount, if any, by which the absolute value of the
2010 Goodwill Impairment Amount exceeds $1,500,000, or (y) if there is no such
excess, $0.00.

     

    (e)           "2011 Fiscal Year" means the
12 month fiscal year ending June 30, 2011.

     

    (f)           "2011 Goodwill/EBITDA
Calculation" means the sum of (x) the 2010 Goodwill Impairment Overage
plus (y) the absolute value of the 2010 Goodwill/EBITDA
Calculation.

     

    (g)          "Affiliate" means, with respect
to any Person, any other Person that directly or indirectly controls, is
controlled by, or is under common control with, such Person, it being understood
for purposes of this definition that "control" of a Person means the power
directly or indirectly either to vote 10% or more of the stock having ordinary
voting power for the election of directors of such Person or direct or cause the
direction of the management and policies  of such Person whether by
contract or otherwise.

     

    (h)          "Approved Stock Plan" means any
employee benefit plan which has been approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to any
employee, officer or director for services provided to the Company; provided
that the issuance price, conversion price or exercise price, as the case may be,
may not be less than the Closing Sale Price of the Company's Common Stock on the
date of any such issuance.

     

    (i)            "Bloomberg" means Bloomberg
Financial Markets.

     

    (j)           "Business Day" means any day
other than Saturday, Sunday or other day on which commercial banks in The City
of New York are authorized or required by law to remain closed.

     

    (k)           "Change of Control" means any
Fundamental Transaction other than (i) any reorganization, recapitalization or
reclassification of the Common Stock in which holders of the Company's voting
power immediately prior to such reorganization, recapitalization or
reclassification continue after such reorganization, recapitalization or
reclassification to hold publicly traded securities and, directly or indirectly,
are, in all material respect, the holders of the voting power of the surviving
entity (or entities with the authority or voting power to elect the members of
the board of directors (or their equivalent if other than a corporation) of such
entity or entities) after such reorganization, recapitalization or
reclassification.

    
      
         

      

      
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    (l)           "Closing Bid Price" and "Closing Sale Price" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the
Holder.  If the Company and the Holder are unable to agree upon the
fair market value of such security, then such dispute shall be resolved pursuant
to Section 25.  All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination, reclassification or
similar transaction during the applicable calculation period.

     

    (m)         "Closing Date" shall have the
meaning set forth in the Securities Purchase Agreement, which date is the date
the Company initially issued Notes pursuant to the terms of the Securities
Purchase Agreement.

     

    (n)          "Collateral Agent" shall have
the meaning set forth in the Securities Purchase Agreement.

     

    (o)          "Company Conversion Amount"
means as of any date of determination, the lesser of (i) the Conversion Amount
then remaining under the Note and (ii) the product of (A) Holder Pro Rata Amount
and (B) five percent (5.0%) of Daily Dollar Trading Volume during the applicable
Mandatory Conversion Measuring Period.

     

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

     

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

     

    (r)           "Daily Dollar Trading Volume"
means, on any date of determination, the product of (i) the daily trading volume
of the Common Stock as reported by Bloomberg on such Trading Day and (ii) the
Weighted Average Price of the Common Stock on such Trading Day.

    
      
         

      

      
        - 27
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    (s)           "EBITDA" means EBITDA
calculated as earnings or loss before interest, taxes, depreciation, and
amortization, calculated in accordance with GAAP and consistent with past
practice.

     

    (t)            "EBITDA 2011 Failure" means for
the Company's 2011 Fiscal Year, either (i) a failure of the EBITDA Test or (ii)
a breach of Section 14(f)(ii) with respect to the Company's 2011 Fiscal
Year.

     

    (u)           "Eligible Market" means the
Principal Market, The New York Stock Exchange, Inc., the NYSE Amex, The Nasdaq
Global Select Market, The Nasdaq Capital Market or The Nasdaq Global
Market.

     

    (v)           "Equity Conditions" means that
each of the following conditions is satisfied:  (i) on each day during
the period beginning six (6) month prior to the applicable date of determination
and ending on and including the applicable date of determination (the "Equity Conditions Measuring
Period"), either (x) the Registration Statement filed pursuant to the
Registration Rights Agreement shall be effective and available for the resale of
all remaining Registrable Securities in accordance with the terms of the
Registration Rights Agreement and there shall not have been any Grace
Periods (as defined in the Registration Rights Agreement) or (y) all shares
of Common Stock issuable upon conversion of the Notes and exercise of the
Warrants shall be eligible for sale without restriction or limitation and
without the requirement to be in compliance with Rule 144(c)(1) and without the
need for registration under any applicable federal or state securities laws;
(ii) on each day during the Equity Conditions Measuring Period, the Common Stock
is designated for quotation on the Principal Market or any other Eligible Market
and shall not have been suspended from trading on such exchange or market (other
than suspensions of not more than two (2) days and occurring prior to the
applicable date of determination due to business announcements by the Company)
nor shall delisting or suspension by such exchange or market been threatened or
pending either (A) in writing by such exchange or market or (B) by falling below
the then effective minimum listing maintenance requirements of such exchange or
market; (iii) during the one (1) year period ending on and including the date
immediately preceding the applicable date of determination, the Company shall
have delivered shares of Common Stock upon conversion of the Notes and upon
exercise of the Warrants to the holders on a timely basis as set forth in
Section 3(c)(ii) hereof (and analogous provisions under the Other Notes) and
Section 1(a) of the Warrants; (iv) any applicable shares of Common Stock to be
issued in connection with the event requiring determination may be issued in
full without violating Section 3(d) hereof and the rules or regulations of the
Principal Market or any applicable Eligible Market; (v) the Company shall not
have failed to timely make any payments within five (5) Business Days of when
such payment is due pursuant to any Transaction Document; (vi) during the Equity
Conditions Measuring Period, there shall not have occurred either (A) the public
announcement of a pending, proposed or intended Fundamental Transaction which
has not been abandoned, terminated or consummated, or (B) an Event of Default or
(C) an event that with the passage of time or giving of notice would constitute
an Event of Default; (vii) the Company shall have no knowledge of any fact that
would cause (x) the Registration Statements required pursuant to the
Registration Rights Agreement not to be effective and available for the resale
of all remaining Registrable Securities in accordance with the terms of the
Registration Rights Agreement or (y) any shares of Common Stock issuable upon
conversion of the Notes and issuable upon exercise of the Warrants not to be
eligible for sale without restriction or limitation pursuant to Rule 144 and
without the requirement to be in compliance with Rule 144(c)(1) and any
applicable state securities laws; and (viii) the Company otherwise shall not
have breached any material provision, covenant, representation or warranty of
any Transaction Document.

    
      
         

      

      
        - 28
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    (w)          "Equity Conditions Failure"
means that (ii) on any day during the period commencing ten (10) Trading Days
prior to the applicable Mandatory Conversion Notice Date through the applicable
Mandatory Conversion Notice Date, or (ii) on any day during the period
commencing ten (10) Trading Days prior to the applicable Company Optional
Redemption Notice Date through the applicable Company Optional Redemption Date,
the Equity Conditions have not been satisfied (or waived in writing by the
Holder).

     

    (x)           "Excluded Securities" means the
shares of Common Stock issued or issuable: (i) in connection with any Approved
Stock Plan; provided that the option term, exercise price or similar provisions
of any issuances pursuant to such Approved Stock Plan are not amended, modified
or changed on or after the Subscription Date (ii) upon exercise of the Warrants
or conversion of the Notes, and (iii) upon conversion of any Options or
Convertible Securities which are outstanding on the day immediately preceding
the Subscription Date, provided that the terms of such Options or Convertible
Securities are not amended, modified or changed on or after the Subscription
Date.

     

    (y)           "Fundamental Transaction" means
that (A) the Company or any of its Subsidiaries shall, directly or indirectly,
in one or more related transactions, (i) consolidate or merge with or into
(whether or not the Company or any of its Subsidiaries is the surviving
corporation) another Person or Persons, or (ii) sell, assign, transfer, convey
or otherwise dispose of all or substantially all of the properties or assets of
the Company to another Person, or (iii) allow another Person to make a purchase,
tender or exchange offer that is accepted by the holders of more than 50% of the
outstanding shares of Voting Stock of the Company (not including any shares of
Voting Stock of the Company held by the Person or Persons making or party to, or
associated or affiliated with the Persons making or party to, such purchase,
tender or exchange offer), or (iv) consummate a stock purchase agreement or
other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person whereby
such other Person acquires more than the 50% of the outstanding shares of Voting
Stock of the Company (not including any shares of Voting Stock of the Company
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), or (v) reorganize, recapitalize or
reclassify the Voting Stock of the Company or (B) any "person" or "group" (as
these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act) is or shall become the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 50% of the aggregate Voting Stock
of the Company.

     

    (z)           "GAAP" means United States
generally accepted accounting principles, consistently applied.

    
      
         

      

      
        - 29
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    (aa)         "Holder Redemption Amount"
means as of any date of determination, the lesser of (i) the Conversion Amount
then remaining under the Note and (ii) the sum of (A) one-third of the Original
Principal Amount; (B) accrued and unpaid Interest with respect to such Principal
and (C) accrued and unpaid Late Charges with respect to such Principal and
Interest.

     

    (bb)        "Holder Pro Rata Amount" means
a fraction (i) the numerator of which is the Principal amount of this Note on
the Closing Date and (ii) the denominator of which is the aggregate principal
amount of all Notes issued to the initial purchasers pursuant to the Securities
Purchase Agreement on the Closing Date.

     

    (cc)         "Indebtedness" of any Person
means, without duplication (i) all indebtedness for borrowed money, (ii) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including (without limitation) "capital leases" in
accordance with GAAP (other than trade payables entered into in the ordinary
course of business), (iii) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (iv) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (v) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (vi) all monetary obligations under any
leasing or similar arrangement which, in connection with GAAP, consistently
applied for the periods covered thereby, is classified as a capital lease, (vii)
all indebtedness referred to in clauses (i) through (vi) above secured by (or
for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (viii) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (i)
through (vii) above.

     

    (dd)        "Interest Rate" means ten percent
(10.0%) per annum, subject to adjustment as set forth in Section 2.

     

    (ee)          "Options" means any rights,
warrants or options to subscribe for or purchase shares of Common Stock or
Convertible Securities.

     

    (ff)          "Parent Entity" of a Person
means an entity that, directly or indirectly, controls the applicable Person and
whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.

    
      
         

      

      
        - 30
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    (gg)        "Permitted Indebtedness" means
(i) Indebtedness incurred by the Company that is made expressly subordinate in
right of payment to the Indebtedness evidenced by this Note, as reflected in a
written agreement acceptable to the Required Holders and approved by the
Required Holders in writing, and which Indebtedness does not provide at any time
for (1) the payment, prepayment, repayment, repurchase or defeasance, directly
or indirectly, of any principal or premium, if any, thereon until ninety-one
(91) days after the Maturity Date or later and (2) total interest and fees at a
rate in excess of eight percent (8.00%) per annum, (ii) Indebtedness to trade
creditors incurred in the ordinary course of business; (iii) Indebtedness
secured by Permitted Liens described in clauses (iv) and (v) of the definition
of Permitted Liens; (v) any other
indebtedness listed on Schedule 28(gg) attached hereto, and (vi) extensions,
refinancings and renewals of any items in clauses (i) through (v) above,
provided that the principal amount is not increased or the terms modified to
impose more burdensome terms upon the Company or its Subsidiary, as the case may
be.

     

    (hh)        "Permitted Liens" means (i) any
Lien for taxes not yet due or delinquent or being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of
business by operation of law with respect to a liability that is not yet due or
delinquent, (iii) any Lien created by operation of law, such as materialmen's
liens, mechanics' liens and other similar liens, arising in the ordinary course
of business with respect to a liability that is not yet due or delinquent or
that are being contested in good faith by appropriate proceedings, (iv) Liens
securing the Company's obligations under the Notes; (v) Liens (A) upon or in any
equipment acquired or held by the Company or any of its Subsidiaries to secure
the purchase price of such equipment or indebtedness incurred solely for the
purpose of financing the acquisition or lease of such equipment, or (B) existing
on such equipment at the time of its acquisition, provided that the Lien is
confined solely to the property so acquired and improvements thereon, and the
proceeds of such equipment; (vi) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of the
type described in clauses (i) and (v) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the Indebtedness being extended,
renewed or refinanced does not increase, (vii) leases or subleases and licenses
and sublicenses granted to others in the ordinary course of the Company's
business, not interfering in any material respect with the business of the
Company and its Subsidiaries taken as a whole, (viii) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payments of
custom duties in connection with the importation of goods, and (ix) Liens
arising from judgments, decrees or attachments in circumstances not constituting
an Event of Default under Section 3(a)(ix) and (xii) Liens described on Schedule
28(hh) attached hereto, but not the extension of coverage thereof to other
property or assets (other than to replacements, substitutions, attachments,
accessions and proceeds thereof, to the extent covered thereyby).

     

    (ii)           "Person" means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

     

    (jj)           "Principal Market" means the
OTC Bulletin Board.

     

    (kk)         "Redemption Notices" means,
collectively, the Event of Default Redemption Notices, the Change of Control
Redemption Notices, the Company Option Redemption Notice and Holder Optional
Redemption Notice, and each of the foregoing, individually, a Redemption
Notice.

    
      
         

      

      
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    (ll)           "Redemption Premium" means (i)
in the case of the Events of Default described in Section 4(a)(i) - (vi) and
(ix) - (xv) or, in the case of (xvi), if such Event of Default is an Event of
Default described in Section 4(a)(i) - (vi) and (ix) - (vx) of such Other Note),
125% or (ii) in the case of the Events of Default described in Section 4(a)(vii)
- (viii) or, in the case of (xvi), if such Event of Default is an Event of
Default described in Section 4(a)(vii) - (viii) of such
Other Note), 100%.

     

    (mm)       "Redemption Prices" means,
collectively, the Event of Default Redemption Price, Change of Control
Redemption Price, the Company Optional Redemption Price and the Holder Optional
Redemption Price, and each of the foregoing, individually, a Redemption
Price.

     

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

     

    (oo)        "Related Fund" means, with
respect to any Person, a fund or account managed by such Person or an Affiliate
of such Person.

     

    (pp)        "Required Holders" means the
holders of Notes representing at least a majority of the aggregate principal
amount of the Notes then outstanding.

     

    (qq)        "SEC" means the United States
Securities and Exchange Commission.

     

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

     

    (ss)         "Semi-Annual Period" means each
of: the period beginning on and including January 1 and ending on and including
June 30; and the period beginning on and including July 1 and ending on and
including December 31.

     

    (tt)          "Subscription Date" means July
16, 2010.

     

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

     

    (vv)        "Trading Day" means any day on
which the Common Stock is traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is
then traded; provided that "Trading Day" shall not include any day on which the
Common Stock is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York
Time).

    
      
         

      

      
        - 32
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    (ww)       "Voting Stock" of a Person
means capital stock of such Person of the class or classes pursuant to which the
holders thereof have the general voting power to elect, or the general power to
appoint, at least a majority of the board of directors, managers or trustees of
such Person (irrespective of whether or not at the time capital stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).

     

    (xx)         "Warrants" has the meaning
ascribed to such term in the Securities Purchase Agreement, and shall include
all warrants issued in exchange therefor or replacement thereof.

     

    (yy)        "Weighted Average Price" means,
for any security as of any date, the dollar volume-weighted average price for
such security on the Principal Market during the period beginning at 9:30:01
a.m., New York Time (or such other time as the Principal Market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York
Time (or such other time as the Principal Market publicly announces is the
official close of trading) as reported by Bloomberg through its "Volume at
Price" functions, or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York Time (or such other time as such market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York
Time (or such other time as such market publicly announces is the official close
of trading) as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by Pink Sheets
LLC (formerly the National Quotation Bureau, Inc.).  If the Weighted
Average Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Weighted Average Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
Holder.  If the Company and the Holder are unable to agree upon the
fair market value of such security, then such dispute shall be resolved pursuant
to Section 25.  All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination, reclassification or
similar transaction during the applicable calculation period.

     

    (29)        DISCLOSURE. Upon
receipt or delivery by the Company of any notice in accordance with the terms of
this Note, unless the Company has in good faith determined that the matters
relating to such notice do not constitute material, nonpublic information
relating to the Company or its Subsidiaries, the Company shall within one (1)
Business Day after any such receipt or delivery publicly disclose such material,
nonpublic information on a Current Report on Form 8-K or
otherwise.  In the event that the Company believes that a notice
contains material, nonpublic information relating to the Company or its
Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the
Holder shall be allowed to presume that all matters relating to such notice do
not constitute material, nonpublic information relating to the Company or its
Subsidiaries.

    
      
         

      

      
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    [Signature
Page Follows]

    
      
         

      

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

    

    
      
        
          	
                  SOUTHPEAK
      INTERACTIVE CORPORATION

                
	 
      
	
                  By:

                	 
      
	 
      	
                  Name:

                
	 
      	
                  Title:

                

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
I

    

    SOUTHPEAK
INTERACTIVE CORPORATION

    CONVERSION
NOTICE

     

    Reference
is made to the Senior Secured Convertible Note (the "Note") issued to the
undersigned by SouthPeak Interactive Corporation (the "Company").  In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into shares of Common Stock par value $0.0001 per share (the "Common Stock") of the Company,
as of the date specified below.

    
      

      
        
          
            	
                    Date of Conversion:  

                  	 
      

          

        

      

      

      
        
          
            	
                    Aggregate Conversion Amount to be converted:  

                  	 
      

          

        

      

       

      
        Please
confirm the following information:

      

      

      
        
          
            	
                    Conversion Price:  

                  	 
      

          

        

      

      

      
        
          
            
              	
                      Number of shares of Common Stock to

                      be
      issued:

                    	 
      

            

          

        

      

      
         

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

      

       

      
        
          
            
              
                	
                        Issue to:  

                      	 
      
	 	 
	 	 

              

            

          

        

      

      

      
        
          
            	
                    Facsimile Number:  

                  	 
      

          

        

      

      

      
        
          
            	
                    Authorization: 

                  	 
      

          

        

      

      

      
        
          
            	
                    By:  

                  	 
      

          

        

      

      

      
        
          
            
              	
                      Title:  

                    	 
      

            

          

        

      

      

      
        
          
            	
                    Dated: 

                  	 
      

          

        

      

      

      
        
          
            
              	
                      Account Number:

                    	 
      
	
                      (if
      electronic book entry
transfer)

                    

            

          

        

      

      

      
        
          
            
              
                	
                        Transaction Code Number:

                      	 
      
	
                        (if
      electronic book entry
transfer)

                      

              

            

          

        

      

    
 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ACKNOWLEDGMENT

     

    The
Company hereby acknowledges this Conversion Notice and hereby directs American
Stock Transfer & Trust Company, LLC to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
July [__], 2010 from the Company and
acknowledged and agreed to by American Stock Transfer & Trust Company,
LLC.

    

    
      
        
          	
                  SOUTHPEAK
      INTERACTIVE CORPORATION

                
	 
      
	
                  By:

                	 
      
	 
      	
                  Name:

                
	 
      	
                  Title:

                

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Schedule
28(gg)

    Permitted
Indebtedness

    

    Indebtedness
to Rosenthal & Rosenthal, Inc., pursuant to the Factoring Agreement, dated
as of July 7, 2010, by and between Rosenthal & Rosenthal, Inc. and the
Company.

    

    Indebtedness
to SouthWest Securities FSB, a Federal Savings Bank, pursuant to the Loan
Agreement, dated January 28, 2009, by and between SouthWest Securities FSB and
the Company.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Schedule
28(hh)

    Permitted
Liens

    

    Lien in
favor of Southwest Securities, FSB, as evidenced by U.C.C. Financing
Statement  #2009 0896628 filed with Delaware Department of State on
March 20, 2009.

    

    Lien in
favor of Rosenthal & Rosenthal, Inc., as evidenced by U.C.C. Financing
Statement #2010 2421331 filed with Delaware Department of State on July 12,
2010.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00176-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00176-of-00352.parquet"}]]