Document:

WWW.EXFILE.COM, INC. -- 14950 -- ZAP -- EXHIBIT 10.2 TO FORM 8-K

    EXHIBIT
      10.2

    PURCHASE
      AND AMENDMENT AGREEMENT

    

    This
      Purchase and Amendment Agreement (this “Agreement”),
      dated
      as of February 20, 2007 (the “Amendment
      Agreement Date”),
      is
      entered into by and among ZAP, a California corporation (the “Company”),
      and
      each of the entities whose names appear on the signature pages hereof (each,
      an
“Investor”
and,
      collectively, the “Investors”).

    

    R
      E C I T A L S:

    

      WHEREAS,
      the Company and certain Investors (the “Original
      Investors”)
      are
      parties to that certain Securities Purchase Agreement, dated as of December
      5,
      2006 (the “Purchase
      Agreement”),
      and
      that certain Registration Rights Agreement, dated as of December 5, 2006 (the
      “Registration
      Rights Agreement”);
      capitalized terms used in this Agreement and not otherwise defined have the
      respective meanings ascribed thereto in the Purchase Agreement.

    

    WHEREAS,
      pursuant to the Purchase Agreement, the Company issued 8% Senior Convertible
      Notes (the “Original
      Notes”)
      and
      Warrants (the “Original
      Warrants”)
      to the
      Original Investors;

    

    WHEREAS,
      Grey K Offshore Leveraged Fund, Ltd. (“Grey
      K Fund”
and,
      collectively with the Original Investors, the “Investors”)
      was
      not an Original Investor but wishes to participate in the transactions
      contemplated by this Agreement on the terms and conditions set forth
      below;

    

    WHEREAS,
      the Company wishes to issue and sell to the Investors, and the Investors wish
      to
      purchase from the Company, upon the terms and subject to the conditions set
      forth in the Purchase Agreement and in this Agreement, additional 8% Senior
      Convertible Notes with terms substantially similar to the Original Notes and
      in
      the form attached hereto as Exhibit
      A
      (the
“Additional
      Notes”)
      and
      warrants with terms (other than the exercise price, which shall be $1.32)
      substantially similar to the Original Warrants and in the form attached hereto
      as Exhibit
      B
      (the
“Additional
      Warrants”
and,
      together with the Additional Notes, the “Additional
      Securities”);
      and

    

    WHEREAS,
      the parties wish to include the shares of the Company’s common stock issuable
      under the Additional Notes and Additional Warrants as “Registrable Securities”
under the Registration Rights Agreement;

     

    A
      G R E E M E N T:

    

    NOW,
      THEREFORE, in consideration of the foregoing and subject to the terms and
      conditions herein contained, the parties hereto agree as follows:

    

    Section
      1    Purchase
      and Sale.

    

    1.1    Closing.
      Upon
      the terms and subject to the satisfaction or waiver of the conditions set forth
      herein and in the Purchase Agreement, the Company agrees to sell and each
      Investor agrees to purchase (i) an Additional Note with a principal amount
      equal
      to the amount set forth 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    below
      such Investor’s name on the signature pages hereof and (ii) an Additional
      Warrant exercisable into the number of shares of Common Stock set forth below
      such Investor’s name on the signature pages hereof. The closing of the purchase
      and sale of the Additional Securities (the “Additional
      Closing”)
      will
      occur on the date (the “Additional
      Closing Date”)
      on
      which (A) this Agreement is executed and delivered by all of the parties hereto,
      (B) each of the conditions to Closing described in Section 5 of the Purchase
      Agreement has been satisfied or waived as specified therein, and (C) payment
      of
      each Investor’s Purchase Price payable with respect to the Additional Note and
      Additional Warrant being purchased by such Investor at the Additional Closing
      has been made by wire transfer of immediately available funds. At the Additional
      Closing, the Company shall deliver to each Investor duly executed instruments
      representing the Additional Note and Additional Warrant purchased by such
      Investor at the Additional Closing. 

    

    1.2    Terms
      and Conditions; Amendments to Purchase Agreement.
      The
      terms and conditions of the Purchase Agreement, as amended hereby, shall govern
      the purchase and sale of the Additional Securities, as follows:

    

    (a)    The
      provisions of Section 1 of the Purchase Agreement shall apply to the purchase
      and sale of the Additional Securities, except that Section 1.1 of the Purchase
      Agreement is hereby replaced by the new Section 1.1 to this Agreement.

    

    (b)    Each
      party to this Agreement shall be deemed to have made, as of the Additional
      Closing Date, each representation and warranty made by it in the Purchase
      Agreement under Section 2 or 3 thereof, as applicable.

     

    (c)    The
      Company and each Investor shall comply with the provisions of Section 4 of
      the
      Purchase Agreement applicable to it.

    

    (d)    The
      Additional Closing shall be subject to the satisfaction (or waiver by the
      appropriate party) of the conditions set forth in Section 5 of the Purchase
      Agreement.

    

    (e)    The
      provisions of Section 6 of the Purchase Agreement shall apply to the purchase
      and sale of the Additional Securities, except that the amount specified in
      Section 6.10 shall be changed from $25,000 to $15,000.

    

    (f)    For
      purposes of the purchase and sale of the Additional Securities, all references
      in the Purchase Agreement to the term (i) “Execution Date” shall be deemed to
      mean the Amendment Agreement Date; (ii) “Closing” shall mean the Additional
      Closing; (iii) “Closing Date” shall mean the Additional Closing Date; and (iv)
“Agreement” shall include this Agreement.

    

    (g)    The
      Purchase Agreement, the Original Notes and the Original Warrants are each hereby
      amended so that (i) the term a “Note” or the “Notes” shall include the
      Additional Notes; and (ii) a “Warrant” or the “Warrants” shall include the
      Additional Warrants.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Section
      2    Registration
      Rights Agreement. The
      Registration Rights Agreement is hereby amended so that (i) the term a “Note” or
      the “Notes” shall include the Additional Notes; and (ii) a “Warrant” or the
“Warrants” shall include the Additional Warrants. The Company acknowledges that
      the shares of Common Stock issuable under the Additional Notes and Additional
      Warrants will be included as Registrable Securities (as defined in the
      Registration Rights Agreement) in the initial Registration Statement filed
      pursuant to the Registration Rights Agreement.

    

    Section
      3    Miscellaneous.

    

    3.1    Except
      as
      amended hereby and for the purposes described herein, the Purchase Agreement
      and
      the Registration Rights Agreement shall remain in full force and effect in
      accordance with their respective terms.

    

    3.2    Notwithstanding
      anything contained in the Purchase Agreement, the Original Notes or the Original
      Warrants to the contrary, the Original Investors consent to the issuance of
      an
      Additional Note and Additional Warrant to Grey K Fund pursuant to the terms
      hereof. 

    

    3.3    This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of California applicable to contracts made and to be performed within
      such
      state.

    

    

    [Signature
      Pages Following]

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
      first-above written.

     

    ZAP

    

    

    By: 
      /s/ Steven Schneider

    
      

    

    Name:
      Steven Schneider

    Title:
      Chief Executive Officer

    

    

    GEMINI
      MASTER FUND, LTD.

    

    By:
       Gemini
      Strategies, LLC

    

    

    By: 
      /s/ Steven W. Winters

    
      

    

    Name:
      Steven W. Winters

    Title:
      President

    

    
      	
              Principal
                Amount of Additional Note Purchased at Additional Closing:  
                $500,000

              
                

              

            	 
	 	 
	
              Number of Shares into which Additional Warrant
                Exercisable:   150,000

              
                

              

            	 

    

     

    ADDRESS:

    

    c/o
      Gemini Strategies, LLC 

    12220
      El
      Camino Real, Suite 400

    San
      Diego, CA 92130-2091 

    Attn: Steven
      Winters

    Tel:
       (858)
      480-2828  

    Fax:
       (858)
      509-8808

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
      first-above written.

     

    
      ZAP

      

      

      By:

      
        

      

      Name:

      Title:

      

      

      GREY
        K
        OFFSHORE FUND, LTD.

      

      By:
 RNK
        Capital LLC

      

      

      By: 
        /s/ Robert Koltun

      
        

      

      Name:
        Robert Koltun

      Title:
        Managing Partner

      

      
        	
                Principal
                  Amount of Additional Note Purchased at Additional Closing:  
                  $380,800

                
                  

                

              	 
	 	 
	
                Number of Shares into which Additional Warrant
                  Exercisable:   114,240

                
                  

                

              	 

      

       

    

    ADDRESS:

     

    c/o
      RNK
      Capital LLC

    527
      Madison Avenue

    6th
      Floor

    New
      York,
      NY 10022

    Attn: Andrew
      Farago

    Tel:
       (212)
      419-3967  

    Fax:
       (212)
      419-3950 

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
      first-above written.

     

    
      
        ZAP

        

        

        By:

        
          

        

        Name:

        Title:

        

        

        GREY
          K
          FUND, LP

        

        By:
 RNK
          Capital LLC

        

        

        By: 
          /s/ Robert Koltun

        
          

        

        Name:
          Robert Koltun

        Title:
          Managing Member

        

        
          	
                  Principal
                    Amount of Additional Note Purchased at Additional Closing:  
                    $165,200

                  
                    

                  

                	 
	 	 
	
                  Number of Shares into which Additional Warrant
                    Exercisable:    49,560

                  
                    

                  

                	 

        

         

      

    

    ADDRESS:

     

    c/o
      RNK
      Capital LLC

    527
      Madison Avenue

    6th
      Floor

    New
      York,
      NY 10022 

    Attn: Andrew
      Farago

    Tel:
       (212)
      419-3967  

    Fax:
       (212)
      419-3950 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
      first-above written.

     

    
      
        ZAP

        

        

        By:

        
          

        

        Name:

        Title:

        

        

        GREY
          K
          OFFSHORE LEVERAGED FUND, LTD.

        

        By:
 RNK
          Capital LLC

        

        

        By: 
          /s/ Robert Koltun

        
          

        

        Name:
          Robert Koltun

        Title:
          Managing Member

        

        
          	
                  Principal
                    Amount of Additional Note Purchased at Additional Closing:  
                    $154, 000

                  
                    

                  

                	 
	 	 
	
                  Number of Shares into which Additional Warrant
                    Exercisable:    46,200

                  
                    

                  

                	 

        

         

      

    

    ADDRESS:

    

    

    c/o
      RNK
      Capital LLC

    527
      Madison Avenue

    6th
      Floor

    New
      York,
      NY 10022 

    Attn: Andrew
      Farago

    Tel:
       (212)
      419-3967  

    Fax:
       (212)
      419-3950WWW.EXFILE.COM, INC. -- 14950 -- ZAP -- EXHIBIT 10.3 TO FORM 8-K

    EXHIBIT
      10.3

    

    Schedule
      Prepared in accordance with Instruction 2 to Item 601 of Regulation
      S-K

    

    The
      8%
      Senior Convertible Notes dated February 20, 2007 are substantially identical
      in
      all material respects except as to the noteholder and the principal
      amount.

     

    

      
        	
                Noteholder

              	
                Principal
                  Amount

              
	 	 
	
                Gemini
                  Master Fund, Ltd.

              	
                $500,000

              
	
                Grey
                  K Offshore Fund, Ltd.

              	
                $380,800

              
	
                Grey
                  K Fund, LP

              	
                $165,200

              
	
                Grey
                  K Offshore Leveraged Fund, Ltd.

              	
                $154,000

              

      

    

     

    

 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    THIS
      SENIOR CONVERTIBLE NOTE (THIS “NOTE”) AND
      THE
      SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
      BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”), OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE OR SOLD
      UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
      LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM REGISTRATION
      UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE
      IN
      CONNECTION WITH SUCH OFFER OR SALE. THIS NOTE AND THE SECURITIES ISSUABLE UPON
      CONVERSION
      HEREOF
      (I) MAY BE PLEDGED OR HYPOTHECATED IN CONNECTION WITH A BONA FIDE MARGIN LOAN
      OR
      OTHER FINANCING SECURED BY SUCH SECURITIES OR (II) MAY BE TRANSFERRED OR
      ASSIGNED TO AN AFFILIATE OF THE HOLDER HEREOF WITHOUT THE NECESSITY OF AN
      OPINION OF COUNSEL OR THE CONSENT OF THE ISSUER HEREOF.

    

    THIS
      NOTE
      DOES
      NOT REQUIRE PHYSICAL SURRENDER HEREOF IN ORDER TO EFFECT A PARTIAL PAYMENT,
      REDEMPTION OR CONVERSION HEREOF. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT
      OF THIS NOTE
      MAY
      BE LESS THAN THE PRINCIPAL AMOUNT SHOWN BELOW.

    

    

    

    ZAP

    

    8%
      SENIOR CONVERTIBLE NOTE

    

    

    $500,000

    Issue
      Date: February 20, 2007

    

    FOR
      VALUE RECEIVED, ZAP, a
      California corporation (the
      “Company”),
      hereby promises to pay to the order of GEMINI MASTER FUND, LTD. or its permitted
      successors or assigns (the “Holder”)
      the
      sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000) in same day funds, on or before
      the two (2) year anniversary of the Issue Date (the “Maturity
      Date”).
      The
      Holder may convert principal of and interest accrued on this Note into shares
      (“Conversion
      Shares”)
      of the
      Company’s common stock, no par value (the “Common
      Stock”),
      on
      the terms set forth herein. 

    

    Except
      as
      specifically provided by the terms of Section
      6,
      and the
      Scheduled Principal Payments contemplated in Section
      2(a),
      the
      Company shall not have the right to prepay any principal of this
      Note.

     

    The
      Company has issued this Note pursuant to a Securities Purchase Agreement, dated
      as of December 5, 2006, as amended by the Purchase and Amendment Agreement
      dated
      as of February 20, 2007 (the “Securities
      Purchase Agreement”).
      The
      Notes issued by the Company pursuant to the 

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

    Securities
      Purchase Agreement, including this Note, are collectively referred to herein
      as
      the “Notes”.
      

    

    The
      following terms shall apply to this Note:

    

    1.    DEFINITIONS.

    

    “Business
      Day”
means
      any day other than a Saturday, a Sunday or a day on which the Principal Market
      is closed or on which banks in the City of New York are required or authorized
      by law to be closed.

    

    “Change
      of Control”
means
      the existence or occurrence of any of the following: (a) the sale, conveyance
      or
      disposition of all or substantially all of the assets of the Company; (b) the
      effectuation of a transaction or series of transactions in which more than
      fifty
      percent (50%) of the voting power of the Company is disposed of; (c) the
      consolidation, merger or other business combination of the Company with or
      into
      any other entity, immediately following which the prior stockholders of the
      Company fail to own, directly or indirectly, at least fifty percent (50%) of
      the
      surviving entity; (d) a transaction or series of transactions in which any
      Person or group acquires more than fifty percent (50%) of the voting equity
      of
      the Company; or (e) the Continuing Directors do not at any time constitute
      at
      least a majority of the Board of Directors of the Company.

    

    “Continuing
      Director”
means,
      at any date, a member of the Company’s Board of Directors (i) who was a member
      of such board on the date of the Securities Purchase Agreement or (ii) who
      was
      nominated or elected by at least a majority of the directors who were Continuing
      Directors at the time of such nomination or election or whose election to the
      Company’s Board of Directors was recommended or endorsed by at least a majority
      of the directors who were Continuing Directors at the time of such nomination
      or
      election or such lesser number comprising a majority of a nominating committee
      if authority for such nominations or elections has been delegated to a
      nominating committee whose authority and composition have been approved by
      at
      least a majority of the directors who were Continuing Directors at the time
      such
      committee was formed.

    

    “Conversion”
has
      the
      meaning set forth in Section
      3(a)
      of this
      Note.

     

    “Conversion
      Date”
has
      the
      meaning set forth in Section
      3(b)
      of this
      Note.

     

    “Conversion
      Default”
has
      the
      meaning set forth in Section
      3(e)
      of this
      Note.

     

    “Conversion
      Notice”
has
      the
      meaning set forth in Section
      3(b)
      of this
      Note.

     

    “Conversion
      Price”
means,
      as of any date, one
      dollar ($1.00),
      subject to adjustment as provided herein.

     

    “Convertible
      Securities” means
      any
      stock or securities (other than Options) of the Company convertible into or
      exercisable or exchangeable for Common Stock.

     

    “Current
      Price”
means,
      as of a particular date, the average of the daily VWAP for each of the five
      (5)
      consecutive Trading Days occurring immediately prior to (but not including)
      such
      date.

    

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

    “Default
      Interest Rate”
means
      the lower of twelve (12%) and the maximum rate permitted by applicable law
      or by
      the applicable rules or regulations of any governmental agency or of any stock
      exchange or other self-regulatory organization having jurisdiction over the
      Company or the trading of its securities.

    

    “Delivery
      Date”
has
      the
      meaning set forth in Section
      3(d)
      of this
      Note.

    

    “Determination
      Date”
has
      the
      meaning set forth in Section
      4(c)
      of this
      Note.

    

    “Dispute
      Procedure”
has
      the
      meaning set forth in Section
      3(b)
      of this
      Note.

    

    “Distribution,”
      “Distribution
      Date”
and
      “Distribution
      Notice”
have
      the respective meanings set forth in Section
      4(c)
      of this
      Note.

    

    “Equity
      Conditions”
means
      each of the following:

    

    (i)    
the
      Registration Statement shall have been declared effective, not be the subject
      of
      any stop order, be available to the Holder, and cover the number of Registrable
      Securities required by the Registration Rights Agreement;

    

    (ii)    the
      Reserved Amount must be equal to or greater than the number of shares of Common
      Stock that the Company is required to reserve by the Securities Purchase
      Agreement;

    

    (iii)   trading
      in the Common Stock shall not have been suspended on the Principal Market;
      

    

    (iv)   the
      shares of Common Stock that the Holder would beneficially own, after giving
      effect to the contemplated issuance of Company securities for which these Equity
      Conditions must be satisfied, shall not exceed the limitation set forth in
      Section
      3(f)
      (unless
      such limitation has been waived by the Holder in accordance with Section
      3(f);
      and

    

    (v)    an
      Event
      of Default, or an event that with the passage of time or giving of notice,
      or
      both, would constitute an Event of Default, has not occurred and is not
      continuing.

    

    “Event
      of Default”
means
      the occurrence of any of the following events: 

     

    (i)    
a
      Liquidation Event occurs or is publicly announced;

     

    (ii)    the
      Company fails to make any payment of principal or interest on this Note in
      full
      as and when such payment is due, and such payment remains unpaid for five (5)
      Business Days following written notice thereof from the Holder; 

     

    (iii)   other
      than a breach described in clause
      (ii)
      above,
      the Company breaches or provides notice of its intent to breach any material
      term or condition of this Note, the 

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    Securities
      Purchase Agreement, the Warrant or the Registration Rights Agreement (including,
      without limitation, the occurrence of a Conversion Default, an Exercise Default
      (as defined in the Warrants) or a Registration Default (as defined in the
      Registration Rights Agreement); and such breach continues for a period of five
      (5) Business Days following written notice thereof from the Holder;

     

    (iv)   any
      representation or warranty made by the Company in this Note, the Securities
      Purchase Agreement, the Warrant or the Registration Rights Agreement was
      inaccurate or misleading in any material respect as of the date such
      representation or warranty was made; or

     

    (v)    a
      default
      occurs or is declared, or any amounts are accelerated, under or with respect
      to
      any instrument that evidences Debt of the Company or any of its Subsidiaries
      in
      a principal amount exceeding $25,000.

     

    “Excluded
      Securities”
means
      (i) securities purchased under the Securities Purchase Agreement; (ii)
      securities issued upon conversion or exercise of the Notes, the Warrants, or
      any
      other options, warrants or convertible securities outstanding as of the Issue
      Date and disclosed on Schedule 3.5 of the Securities Purchase Agreement; (iii)
      shares of Common Stock issuable or issued to employees from time to time upon
      the exercise of options, in such case granted or to be granted in the discretion
      of the Board of Directors pursuant to one or more employee stock option plans
      or
      restricted stock plans in effect as of the Issue Date or adopted after the
      Issue
      Date by the independent members of the Board of Directors; (iv) shares of Common
      Stock issued in connection with any stock split, stock dividend or
      recapitalization of the Company; (v) shares of Common Stock issued in exchange
      for services, in leasing transactions, or for purchase of assets, in each case,
      negotiated on an arms’ length basis and charged at a reasonable market rates;
      and (vi) securities issued in connection with a merger or a consolidation
      involving the Company or a Subsidiary or the acquisition of the capital stock
      or
      the assets of any Person, provided
      in
      each
      case that the transaction is approved by the written consent of the Investors
      holding at least a majority of the principal amount of the Notes then
      outstanding, such consent not to be unreasonably withheld.

     

    “Floor
      Price”
means,
      as of any date, the lesser of (i) $0.75 (as
      appropriately adjusted for any stock dividend, stock split, reverse stock split
      or other similar transaction) and (ii) the Conversion Price in effect as of
      such
      date.

     

    “Forced
      Conversion”
has
      the
      meaning set forth in Section
      7(a) of
      this
      Note.

     

    “Forced
      Conversion Date”
has
      the
      meaning set forth in Section
      7(b)
      of this
      Note.

     

    “Forced
      Conversion Period”
has
      the
      meaning set forth in Section
      7(a)
      of this
      Note.

     

    “Forced
      Conversion Price”
means,
      as of any date, the lesser of (i) $2.00 (as appropriately adjusted for any
      stock
      dividend, stock split, reverse stock split or other similar transaction) and
      (ii) two hundred percent (200%) of the Conversion Price in effect as of such
      date.

     

    “Governmental
      Authority”
means
      any nation or government, any state, provincial or political subdivision thereof
      and any entity exercising executive, legislative, judicial, regulatory or
      administrative functions of or pertaining to government, including without
      limitation any stock exchange, securities market or self-regulatory
      organization.

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    “Interest”
and
      “Interest
      Payment Date”
have
      the respective meanings set forth in Section
      2(b)(i)
      of this
      Note.

    

    “Interest
      Stock Option”
has
      the
      meaning set forth in Section
      2(b)(ii)
      of this
      Note.

    

    “Interest
      Stock Option Delivery Date”
has
      the
      meaning set forth in Section
      2(b)(v)
      of this
      Note.

    

    “Interest
      Stock Option Notice”
has
      the
      meaning set forth in Section
      2(b)(iv)
      of this
      Note.

    

    “Issue
      Date”
means
      the date on which this Note is issued pursuant to the Securities Purchase
      Agreement.

    

    “Liquidation
      Event”
means
      the (i) institution of any insolvency or bankruptcy proceedings, or any
      receivership, liquidation, reorganization or other similar proceedings in
      connection therewith, relative to the Company or
      any
      Subsidiary of the Company,
      or (ii)
      the dissolution or other winding up of the Company
      or any
      Subsidiary of the Company,
      whether
      voluntary or involuntary and whether or not involving insolvency or bankruptcy
      proceedings, or (iii) any assignment for the benefit of creditors or any
      marshalling of the material assets or material liabilities of the
      Company
      or any
      Subsidiary of the Company.

    

    “Major
      Transaction”
means
      a
      merger, consolidation, business combination, tender offer, exchange of shares,
      recapitalization, reorganization, redemption or other similar event, as a result
      of which shares of Common Stock shall be changed into the same or a different
      number of shares of the same or another class or classes of stock or securities
      or other assets of the Company or another entity or the Company shall sell
      all
      or substantially all of its assets.

    

    “Mandatory
      Redemption,”
      “Mandatory
      Redemption Date”
and
      “Mandatory
      Redemption Notice”
have
      the respective meanings set forth in Section
      5(a)
      of this
      Note.

    

    “Mandatory
      Redemption Price”
means
      one hundred and twenty percent (120%) of (A) the unpaid principal amount of
      this
      Note being redeemed plus
      (B) all
      accrued and unpaid Interest (including default interest).

    

    “Optional
      Redemption”,
      “Optional
      Redemption Date”
and
      “Optional
      Redemption Notice”
have
      the respective meanings set forth in Section
      6(a)
      of this
      Note.

    

    “Optional
      Redemption Price”
means
      one hundred and twenty percent (120%) of (A) the unpaid principal amount of
      this
      Note plus
      (B) all
      accrued and unpaid Interest (including default interest).

    

    “Options”
means
      any rights, warrants or options to subscribe for, purchase or receive Common
      Stock or Convertible Securities.

    

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    “Person”
means
      any individual, corporation, trust, association, company, partnership, joint
      venture, limited liability company, joint stock company, Governmental Authority
      or other entity. 

    

    “Principal
      Market”
means
      the principal exchange, market or quotation system on which the Common Stock
      is
      listed, traded or quoted.

    

    “Principal
      Payment”
      has
      the
      meaning set forth in Section
      2(a)(i)
      of this
      Note.

    

    “Principal
      Payment Response Notice”
and
      “Principal Payment Suspension Notice” have the respective meanings
      set
      forth in Section
      2(a)(vi)
      of this
      Note.

    

    “Principal
      Payment Share Price”
means,
      as of a Scheduled Principal Payment Date, the lesser of (i) ninety
      percent (90%) of the lowest daily VWAP for any Trading Day among the ten (10)
      consecutive Trading Days occurring immediately prior to (but not including)
      such
      Scheduled Principal Payment Date and (ii) the Conversion Price in effect as
      of
      such Scheduled Principal Payment Date.

    

    “Principal
      Stock Option”
      has
      the
      meaning set forth in Section
      2(a)(ii)
      of this
      Note

    

    “Principal
      Stock Option Delivery Date”
      has
      the
      meaning set forth in Section
      2(a)(v)
      of this
      Note

    

    “Principal
      Stock Option Notice”
      has
      the
      meaning set forth in Section
      2(a)(iv)
      of this
      Note

    

    “Purchase
      Rights”
means
      any options, warrants or other rights to purchase or subscribe for Common Stock
      or Convertible Securities.

    

    “Record
      Date”
has
      the
      meaning set forth in Section
      4(c)
      of this
      Note.

    

    “Registrable
      Securities”
has
      the
      meaning set forth in the Registration Rights Agreement.

    

    “Registration
      Rights Agreement”
means
      the agreement between the Holder and the Company pursuant to which the Company
      has agreed to register the resale of the shares of Common Stock issuable under
      the Notes and the Warrants.

    

    “Registration
      Statement”
has
      the
      meaning set forth in the Registration Rights Agreement.

    

    “Scheduled
      Interest Payment Date”
means
      each April 1, July 1, October 1, and January 1 following the Issue Date, with
      the first Scheduled Interest Payment Date occurring on April 1, 2007,
provided,
      that if
      any of such days in any year is not a Business Day, then the Scheduled Interest
      Payment Date shall be the Business Day immediately following such date.

    

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

    “Scheduled
      Principal Payment Date”
means
      the first day of each calendar month, with the first Scheduled Principal Payment
      Date occurring on June 1, 2007, provided,
      that if
      any of such days in any year is not a Business Day, then the Scheduled Principal
      Payment Date shall be the Business Day immediately following such date.

    

    “Trading
      Day”
means
      a
      Business Day on which shares of Common Stock are purchased and sold on the
      Principal Market.

    

    “Transaction
      Documents”
means
      (i) the Securities Purchase Agreement, (ii) the Notes, (iii) the Warrants,
      (iv)
      the Registration Rights Agreement, and (v) all other agreements, documents
      and
      other instruments executed and delivered by or on behalf of the Company and
      any
      of its officers at the Closing.

    

    “VWAP”
on
      a
      Trading Day means the volume weighted average price of the Common Stock for
      such
      Trading Day on the Principal Market as reported by Bloomberg Financial Markets
      or, if Bloomberg Financial Markets is not then reporting such prices, by a
      comparable reporting service of national reputation selected by the Holders
      and
      reasonably satisfactory to the Company. If VWAP cannot be calculated for the
      Common Stock on such Trading Day on the foregoing bases, then the Company shall
      submit such calculation to an independent investment banking firm of national
      reputation reasonably acceptable to the Investors, and shall cause such
      investment banking firm to perform such determination and notify the Company
      and
      the Investors of the results of determination no later than two (2) Business
      Days from the time such calculation was submitted to it by the Company. All
      such
      determinations shall be appropriately adjusted for any stock dividend, stock
      split, reverse stock split or other similar transaction during such
      period.

    

    “Warrants”
means
      the warrants issued pursuant to the Securities Purchase Agreement.

    

    All
      definitions contained in this Note are equally applicable to the singular and
      plural forms of the terms defined. The words “hereof”, “herein” and “hereunder”
and words of similar import refer to this Note as a whole and not to any
      particular provision of this Note. Any capitalized term used but not defined
      herein has the meaning specified in the Securities Purchase
      Agreement.

    

    2.    PAYMENT
      OF PRINCIPAL AND INTEREST.
      

    

    (a)    Principal.
      

    

    (i)    
Schedule
      and Amount of Payments.
      Subject
      to Section
      2(a)(vi),
      the
      Company shall pay
      to
      the Holder, in cash, on
      each
      Scheduled Principal Payment Date, an amount of principal equal to the lesser
      of
      (x) 8.333% of the original principal amount of this Note and (y) the then total
      remaining unpaid principal of this Note (each,
      a
“Principal
      Payment”).
      

    

    (ii)    Payment
      of Principal.
      The
      Company shall make each Principal Payment in
      cash
      by wire transfer of immediately available funds; provided,
      however,
      that,
      subject to the satisfaction of all of the Equity Conditions as specified in
      Section
      2(a)(iii),
      the
      Company may elect to pay all or a portion of a Principal Payment due on a
      Scheduled Principal Payment Date
      in
      shares
      of Common Stock 

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    (the
      “Principal
      Stock Option”).
      A
      Principal Payment that is not paid as and when due in accordance with this
      Section
      2(a)
      shall
      bear interest until paid at the Default Interest Rate.

    

    (iii)   Conditions
      to Principal Payment in Common Stock.
      The
      Company shall be entitled to exercise the Principal Stock Option with respect
      to
      a Scheduled Principal Payment Date only if, on the Principal Stock Option
      Delivery Date for such Scheduled Principal Payment Date and on each of the
      ten
      (10) Trading Days immediately preceding such date, all of the Equity Conditions
      are satisfied in full. In
      the
      event that any of the Equity Conditions are not satisfied as of the applicable
      Principal Stock Option Delivery
      Date
and
      each
      such Trading Day (and regardless of whether the Company has delivered a
      Principal Stock Option Notice), the Company shall not be permitted to exercise
      the Principal Stock Option and must pay
      the
      entire Principal Payment due on such Scheduled Principal Payment Date in cash
      by
      wire transfer of immediately available funds on such Scheduled Principal Payment
      Date, and such amounts due but not paid on such Scheduled Principal Payment
      Date
      shall accrue interest at the Default Interest Rate until paid in full.
      Notwithstanding the foregoing, in no event shall the Company be permitted to
      exercise the Principal Stock Option to the extent that, upon receipt of the
      shares of Common Stock deliverable thereby, the Holder would beneficially own
      more than 4.99% of the number of shares of Common Stock then
      outstanding.

    

    (iv)   Principal
      Stock Option Notice.
      In
      order to exercise the Principal Stock Option with respect to a Scheduled
      Principal Payment Date, the Company must deliver, on or before the tenth
      (10th)
      calendar day immediately prior to such date, written notice to the Holder
      stating that the Company wishes to exercise such option and the amount of the
      Principal Payment to be paid in shares of Common Stock (a “Principal
      Stock Option Notice”).
      A
      Principal Stock Option Notice, once delivered by the Company, shall be
      irrevocable (provided
      that
      if
      the Company is prohibited under Section
      2(a)(iii)
      from
      exercising the Principal Stock Option contemplated in such Principal Stock
      Option Notice; such Principal Stock Option Notice shall be deemed cancelled).
      In
      the event that the Company does not deliver a Principal Stock Option Notice
      on
      or before such tenth day, the Company will be deemed to have elected to pay
      all
      of the Principal Payment then due in cash.

    

    (v)    Delivery
      of Shares.
      If the
      Company has validly exercised the Principal Stock Option with respect to a
      Scheduled Principal Payment Date, the Company must deliver to the Holder, on
      or
      before the fifth (5th)
      Business Day following such Scheduled Principal Payment Date (the “Principal
      Stock Option Delivery Date”),
      a
      number of shares of Common Stock equal to (A) the amount of the Principal
      Payment for which the Company has elected to pay in Common Stock on such
      Scheduled Principal Payment Date divided
      by
      (B) the
      Principal Payment Share Price as of such Scheduled Principal Payment Date.
      The
      Company must deliver such shares of Common Stock to the Holder in accordance
      with the provisions of Section
      3(d)
      of this
      Note, with the Principal Stock Option Delivery Date being deemed the Delivery
      Date for purposes hereof, and in the event of the Company’s failure to effect
      such delivery on the applicable Delivery Date therefor, the Holder shall have
      the remedies specified in Section
      3(e)
      of this
      Note. If any fractional share would be issuable upon exercise of the Principal
      Stock Option, such fractional share shall be disregarded and the number of
      shares issuable shall, in the aggregate, be equal to the nearest whole number
      of
      shares.

    

    (vi)   Suspension
      of Principal Payment.
      

    

    (1)    Notwithstanding
      Section
      2(a)(i),
      the
      obligation of the Company to 

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

    make
      a
      Principal Payment on a Scheduled Principal Payment Date shall be suspended
      as
      and to
      the extent provided in Section
      2(a)(vi)(3) if
      (a)
      the Company has timely delivered a Principal Stock Option Notice with respect
      to
      such Principal Payment, (b) the Principal Payment Share Price is less than
      the
      Floor Price as of such Scheduled Principal Payment Date, (c) the Company
      provides written notice thereof (the “Principal
      Payment Suspension Notice”) to
      the
      Holder prior to 5 p.m., New York City time on such Scheduled Principal Payment
      Date, and (d) the Holder fails to provide written notice (the “Principal
      Payment Response Notice”) to
      the
      Company within two Business Days of receiving such Principal Payment Suspension
      Notice stating that the Holder is willing to receive such Principal Payment
      in
      shares of Common Stock based on a per share price equal to such Floor Price
      (and
      not the Principal Payment Share Price). If the Company fails to timely deliver
      a
      Principal Payment Suspension Notice with respect to a Principal Payment, then
      the Company shall be obligated to make such Principal Payment in shares of
      Common Stock at the applicable Principal Payment Share Price, even if such
      price
      is below the Floor Price.

    

    (2)    If
      the
      Holder timely delivers a Principal Payment Response Notice in response to a
      Principal Payment Suspension Notice, then the Company shall, in full
      satisfaction of the Principal Payment to which such Principal Payment Response
      Notice relates, deliver to
      the
      Holder, on or before the Principal Stock Option Delivery Date for such Principal
      Payment, a number of shares of Common Stock equal to (A) the amount of such
      Principal Payment divided
      by
      (B) the
      Floor Price as of such Scheduled Principal Payment Date. Notwithstanding the
      foregoing, if any
      of
      the Equity Conditions are not satisfied (or waived by the Holder) as of such
      Principal Stock Option Delivery Date and on each of the ten
      (10)
      Trading Days immediately preceding such date, then the Company shall not be
      entitled or permitted to make such Principal Payment, and such Principal Payment
      shall be deemed suspended as
      and to
      the extent provided in Section
      2(a)(vi)(3).
      The
      Company must deliver the shares of Common Stock required to be delivered by
      it
      under this Section
      2(a)(vi)(2)
      to the
      Holder in accordance with the provisions of Section
      3(d)
      of this
      Note, with the applicable Principal Stock Option Delivery Date being deemed
      the
      Delivery Date for purposes hereof, and in the event of the Company’s failure to
      effect such delivery on such Principal Stock Option Delivery Date, the Holder
      shall have the remedies specified in Section
      3(e)
      of this
      Note. If any fractional share would be issuable upon the making of a Principal
      Payment hereunder, such fractional share shall be disregarded and the number
      of
      shares issuable shall, in the aggregate, be equal to the nearest whole number
      of
      shares.

    

    (3)    If
      the
      Holder does not timely deliver a Principal Payment Response Notice to a
      Principal Payment Suspension Notice (or, if upon timely delivery by the Holder
      of a Principal Payment Response Notice to a Principal Payment Suspension Notice,
      any of the Equity Conditions are not satisfied in accordance with Section
      2(a)(vi)(2)),
      the
      Company’s obligation to make the Principal Payment to which such Principal
      Payment Suspension Notice relates shall be suspended until the next Scheduled
      Principal Payment Date; in which case, (i) all Principal Payments previously
      suspended and not paid plus
      (2)
      the
      Principal Payment regularly scheduled to be paid on such Scheduled Principal
      Payment Date, shall be due and payable in full as of such Scheduled Principal
      Payment Date in accordance with, and subject to the limitations of, this
Section
      2(a).

    

    (b)    Interest.

    

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

    (i)    
Interest
      Accrual.
      This
      Note shall bear interest on the unpaid principal amount hereof (“Interest”)
      at an
      annual rate equal to eight percent (8%), computed on the basis of a 360-day
      year
      and calculated using the actual number of days elapsed since the Issue Date
      or
      the date on which Interest was most recently paid, as the case may be, and
      if
      not timely paid as provided herein, compounded monthly. The
      Company shall pay accrued Interest (x) on each Scheduled Interest Payment Date,
      (y) on the Maturity Date and (z) on
      any
      date on which the entire principal amount of this Note is paid in full (whether
      through conversion or otherwise) (each of the foregoing clauses (x),
      (y)
      and
(z)
      being
      referred to herein as an “Interest
      Payment Date”).
      

    

    (ii)    Interest
      Payments.
      The
      Company shall pay Interest in
      cash
      by wire transfer of immediately available funds; provided,
      however,
      that,
      subject to the satisfaction of all of the Equity Conditions as specified in
      Section
      2(b)(iii),
      the
      Company may elect to pay all or a portion of the Interest due on a Scheduled
      Interest Payment Date
      in
      shares
      of Common Stock (the “Interest
      Stock Option”).
      Interest that is not paid as and when due in accordance with this Section
      2(b)
      shall
      bear interest until paid at the Default Interest Rate.

    

    (iii)   Conditions
      to Interest Payment in Common Stock.
      The
      Company shall be entitled to exercise the Interest Stock Option with respect
      to
      a Scheduled Interest Payment Date only if, on the Interest Stock Option Delivery
      Date for such Scheduled Interest Payment Date and on each of the ten (10)
      Trading Days immediately preceding such date, all of the Equity Conditions
      are
      satisfied in full. In
      the
      event that any Equity Conditions is not satisfied as of the applicable
Interest
      Stock Option Delivery Date and
      each
      such Trading Day (and regardless of whether the Company has delivered an
      Interest Stock Option Notice), the Company shall not be permitted to exercise
      the Interest Stock Option and must pay
      all
      amounts due on such Scheduled Interest Payment Date in cash by wire transfer
      of
      immediately available funds on such Scheduled Interest Payment Date, and such
      amounts due but not paid on such Scheduled Interest Payment Date shall accrue
      interest at the Default Interest Rate until paid in full. Notwithstanding the
      foregoing, in no event shall the Company be permitted to exercise the Interest
      Stock Option to the extent that, upon receipt of the shares of Common Stock
      deliverable thereby, the Holder would beneficially own more than 4.99% of the
      number of shares of Common Stock then outstanding.

    

    (iv)   Interest
      Stock Option Notice.
      In
      order to exercise the Interest Stock Option with respect to a Scheduled Interest
      Payment Date, the Company must deliver, on or before the tenth (10th)
      calendar day immediately prior to such date, written notice to the Holder
      stating that the Company wishes to exercise such option and the amount of
      Interest to be paid in shares of Common Stock (an “Interest
      Stock Option Notice”).
      An
      Interest Stock Option Notice, once delivered by the Company, shall be
      irrevocable (provided
      that
      if
      the Company is prohibited under Section
      2(b)(iii)
      from
      exercising the Interest Stock Option contemplated in such Interest Stock Option
      Notice, such Interest Stock Option Notice shall be deemed cancelled). In the
      event that the Company does not deliver an Interest Stock Option Notice on
      or
      before such tenth day, the Company will be deemed to have elected to pay all
      Interest then due in cash.

    

    (v)    Delivery
      of Shares.
      If the
      Company has validly exercised the Interest Stock Option with respect to a
      Scheduled Interest Payment Date, the Company must deliver to the Holder, on
      or
      before the fifth (5th)
      Business Day following such Scheduled Interest Payment Date (the “Interest
      Stock Option Delivery Date”),
      a
      number of shares of Common Stock equal to (A) the amount of 

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

    Interest
      accrued and payable with respect to this Note as of such Scheduled Interest
      Payment Date divided
      by
      (B)
      ninety-five percent (95%) of the Current Price in effect on such Scheduled
      Interest Payment Date. The Company must deliver such shares of Common Stock
      to
      the Holder in accordance with the provisions of Section
      3(d)
      of this
      Note, with the Interest Stock Option Delivery Date being deemed the Delivery
      Date for purposes hereof, and in the event of the Company’s failure to effect
      such delivery on the applicable Delivery Date therefor, the Holder shall have
      the remedies specified in Section
      3(e)
      of this
      Note. If any fractional share would be issuable upon exercise of the Interest
      Stock Option, such fractional share shall be disregarded and the number of
      shares issuable shall, in the aggregate, be equal to the nearest whole number
      of
      shares.

    

    3.    CONVERSION.
      

     

    (a)    Right
      to Convert.
      The
      Holder shall have the right, at any time and from time to time, to convert
      (i)
      all or any part of the outstanding and unpaid principal amount of this Note
      and
      (ii) at the Holder’s option, in its sole discretion, all or any part of unpaid
      Interest (and any other amounts) accrued hereon, into such number of fully
      paid
      and non-assessable Conversion Shares as is determined in accordance with the
      terms hereof (a “Conversion”).
      The
      Company may not refuse any conversion request by the Holder for any reason
      or no
      reason unless and until the Company obtains an injunction and posts bond with
      respect thereto.

     

    (b)    Conversion
      Notice.
      In
      order to convert principal of (and, if the Holder so elects, Interest accrued
      on) this Note, the Holder shall send by facsimile transmission (followed by
      a
      telephonic or email confirmation that such facsimile was sent), at any time
      prior to 5:00 p.m., New York City time, on the Business Day on which the Holder
      wishes to effect such Conversion (the “Conversion
      Date”),
      a
      properly completed notice of conversion to the Company, in the form set forth
      on
Annex
      I
      hereto,
      stating the amount of principal (and accrued Interest and any other amounts,
      if
      applicable) to be converted and a calculation of the number of shares of Common
      Stock issuable upon such Conversion (a “Conversion
      Notice”).
      Subject
      to Section
      8(d),
      the
      Conversion Notice shall also state the name or names (with address) in which
      the
      shares of Common Stock that are issuable on such Conversion shall be issued.
      The
      Holder shall not be required to physically surrender this Note to the Company
      in
      order to effect a Conversion. The Company shall maintain a record showing,
      at
      any given time, the unpaid principal amount of this Note and the date of each
      Conversion or other payment of principal hereof. In the case of a dispute as
      to
      the number of Conversion Shares issuable upon a Conversion (including without
      limitation as a result of adjustments to the Conversion Price made in accordance
      with Section
      4
      below),
      the Company shall promptly issue to the Holder the number of Conversion Shares
      that are not disputed, the Company and the Holder shall provide each other
      with
      their respective calculations, and the Company shall submit the disputed
      calculations to a certified public accounting firm of national recognition
      (other than the Company’s independent accountants) within two (2) Business Days
      following the later of the date on which the Holder delivers its calculations
      to
      the Company and the receipt of the Holder’s Conversion Notice. The Company shall
      use its best efforts to cause such accountants to calculate the Conversion
      Price
      as provided herein and to notify the Company and the Holder of the results
      in
      writing no later than two (2) Business Days following the day on which such
      accountant received the disputed calculations (the “Dispute
      Procedure”).
      Such
      accountant’s calculation shall be deemed conclusive absent manifest error. The
      fees of any such accountant shall be borne by the party whose calculations
      are
      most at variance with those of such accountant.

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

    (c)    Number
      of Conversion Shares; Reduction of Principal and Interest.
      The
      number of Conversion Shares to be delivered by the Company pursuant to a
      Conversion shall be equal to the principal amount of (and, if the Holder so
      elects, Interest and any other amounts accrued on) this Note being
      converted divided
      by
      the
      Conversion Price in effect on the Conversion Date.
      Upon the
      valid delivery of the Conversion Shares by the Company, the amounts subject
      to
      such Conversion shall be credited towards the principal amount of (and,
      if
      the Holder so elected, Interest and any other amounts accrued on) this
      Note, provided
      that all
      amounts credited towards future payments of principal shall be credited in
      the
      order that such principal payments are to become due and payable. 

     

    (d)    Delivery
      of Common Stock Upon Conversion.
      Upon
      receipt of a Conversion Notice, the Company shall, no later than the close
      of
      business on the sixth (6th) Business Day following the Conversion Date set
      forth
      in such Conversion Notice (the “Delivery
      Date”),
      issue
      and deliver or cause to be delivered to the Holder the number of Conversion
      Shares determined pursuant to Section
      3(c)
      above,
provided,
      however,
      that
      any Conversion Shares that are the subject of a Dispute Procedure shall be
      delivered no later than the close of business on the sixth (6th) Business Day
      following the determination made pursuant thereto. The
      Company shall effect delivery of Conversion Shares to the Holder, as long as
      the
      Company’s
      designated transfer agent or co-transfer agent in the United States for the
      Common Stock (the “Transfer
      Agent”)
      participates in the Depository Trust Company (“DTC”)
      Fast
      Automated Securities Transfer program (“FAST”),
      by
      crediting the account of the Holder or its nominee at DTC (as specified in
      the
      applicable Conversion Notice) with the number of Conversion Shares required
      to
      be delivered, no later than the close of business on such Delivery Date. In
      the
      event that the Transfer Agent is not a participant in FAST or if the Holder
      so
      specifies in a Conversion Notice or otherwise in writing on or before the
      Conversion Date, the Company shall effect delivery of Conversion Shares by
      delivering to the Holder or its nominee physical certificates representing
      such
      Conversion Shares, no later than the close of business on such Delivery Date.
      If
      any
      Conversion would create a fractional Conversion Share, such fractional
      Conversion Share shall be disregarded and the number of Conversion Shares
      issuable upon such Conversion, in the aggregate, shall be the nearest whole
      number of Conversion Shares. Conversion Shares delivered to the Holder shall
      not
      contain any restrictive legend unless such legend is required pursuant to the
      terms of the Securities Purchase Agreement.

     

    (e)    Failure
      to Deliver Conversion Shares.
      

     

    (i)    
In
      the
      event that the Company fails for any reason to deliver to the Holder the number
      of Conversion Shares specified in a Conversion Notice (without any restrictive
      legend to the extent permitted by applicable law and the terms of the Securities
      Purchase Agreement) on or before the Delivery Date therefor, or fails to remove
      any restrictive legend from outstanding Conversion Shares at the request of
      the
      Holder in accordance with Section
      2.5
      of the
      Securities Purchase Agreement on or before the tenth (10th) Business Day
      following such request (a “Conversion
      Default”),
      the
      Holder shall have the right to receive from the Company an amount equal to
      (i)
      (N/365) multiplied
      by
      (ii) the
      principal amount of, and any Interest and any other amounts accrued on, this
      Note represented by the Conversion Shares which remain the subject of such
      Conversion Default multiplied
      by
      (iii)
      the Default Interest Rate, where “N” equals the number of days elapsed between
      the original Delivery Date of such Conversion Shares (or from such tenth
      Business Day in the event of a failure to remove a legend from outstanding
      Conversion Shares) and the date on which such Conversion Default has been cured.
      In the event that shares of Common Stock are purchased by or on behalf of the
      Holder in order to
      make
      delivery on a sale effected in anticipation of receiving 

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

    Conversion
      Shares upon a Conversion, and there is a Conversion Default with respect to
      such
      Conversion, the Holder shall have the right to receive from the Company, in
      addition to the foregoing amounts, (i) the aggregate amount paid by or on behalf
      of the Holder for such shares of Common Stock minus
      (ii) the
      aggregate amount of net proceeds, if any, received by the Holder from the sale
      of the Conversion Shares issued by the Company pursuant to such Conversion.
      Amounts
      payable under this Section
      3(e)(i) shall
      be
      paid to the Holder in immediately available funds on or before the second
      (2nd)
      Business Day following written notice from the Holder to the Company specifying
      the amount owed to it by the Company pursuant to this Section
      3(e)(i)
      and, if
      a Conversion Default continues to exist thereafer, at the end of each period
      of
      thirty (30) days following such second Business Day.

     

    (ii)    In
      addition to its rights under Section
      3(e)(i)
      above,
      the Holder shall have the right to pursue all other remedies available to it
      at
      law or in equity (including, without limitation, a decree of specific
      performance and/or injunctive relief). 

     

    (f)    
Limitations
      on Right to Convert.
      In no
      event shall the Holder be permitted to convert principal of or Interest (or
      other amounts) on this Note if, upon such conversion, (x) the number of
      Conversion Shares to be issued pursuant to such Conversion plus
      (y) the
      number of shares of Common Stock beneficially owned by the Holder (other than
      Common Stock which may be deemed beneficially owned except for being subject
      to
      a limitation on conversion or exercise analogous to the limitation contained
      in
      this Section
      3(f))
      would
      exceed 4.99% of the number of shares of Common Stock then issued and
      outstanding, it being the intent of the Company and the Holder that the Holder
      not be deemed at any time to have the power to vote or dispose of greater than
      4.99% of the number of shares of Common Stock issued and outstanding at any
      time. Nothing contained herein shall be deemed to restrict the right of the
      Holder to convert such excess principal amount at such time as such Conversion
      does not violate the provisions of this Section3(f).
      As
      used
      herein, beneficial ownership shall be determined in accordance with Section
      13(d) of the Exchange Act. To the extent that the limitation contained in this
      Section
      3(f)
      applies
      (and without limiting any rights the Company may otherwise have), the submission
      of a Conversion Notice by the Holder shall be deemed to be the Holder’s
      representation that this Note is convertible
      pursuant
      to the terms hereof,
      the
      Company may rely on the Holder’s representation that this Note
      is
      convertible pursuant to the terms hereof,
      and the
      Company shall have no obligation whatsoever to verify or confirm the accuracy
      of
      such representation. The Company shall have no liability to any person if the
      Holder’s determination of whether this Note is convertible pursuant to the terms
      hereof is incorrect. The holders of Common Stock are to be deemed third-party
      beneficiaries of the limitation imposed hereby and, accordingly, this
Section
      3(f)
      may not
      be amended without the consent of the holders of a majority of the shares of
      Common Stock then outstanding; provided,
      however,
      that
      the Holder shall have the right, upon sixty (60) days’ prior written notice to
      the Company, to waive the provisions of this Section
      3(f)
      without
      obtaining such consent.

    

    4.    ADJUSTMENTS
      TO FIXED CONVERSION PRICE.

    

    (a)    Stock
      Splits, Stock Interests, Etc.
      If, at
      any time on or after the Issue Date, the number of outstanding shares of Common
      Stock is increased by a stock split, stock dividend, reclassification or other
      similar event, the Conversion Price shall be proportionately reduced, or if
      the
      number of outstanding shares of Common Stock is decreased by a reverse stock
      split, combination, reclassification or other similar event, the Conversion
      Price shall be proportionately 

     

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

    increased.
      In such event, the Company shall notify the Company’s transfer agent of such
      change on or before the effective date thereof.

     

    (b)    Major
      Transactions.
      If, at
      any time after the Issue Date, any Major Transaction shall occur, then the
      Holder shall thereafter have the right to receive upon Conversion, in lieu
      of
      the shares of Common Stock otherwise issuable, such shares of stock, securities
      and/or other property as would have been issued or payable upon such Major
      Transaction with respect to or in exchange for the number of shares of Common
      Stock which would have been issuable upon Conversion had such Major Transaction
      not taken place (without giving effect to any limitations on such Conversion
      contained in this Note or the Securities Purchase Agreement). The Company shall
      not effect any Major Transaction unless (i) the Holder has received written
      notice of such transaction at least thirty (30) days prior thereto (which period
      shall be increased to sixty one (61) days if, at such time, without giving
      effect to the limitation on conversion contained in Section
      3(f)
      hereof,
      the Holder would beneficially own more than 4.99% of the Common Stock then
      outstanding, and the Holder has notified the Company in writing of such
      circumstance) but in no event later than fifteen (15) days prior to the record
      date for the determination of stockholders entitled to vote with respect
      thereto; provided,
      however,
      that
      the Company shall publicly disclose the material terms of any such Major
      Transaction on or before the date on which it delivers notice of a Major
      Transaction to the Holder, and (ii) the resulting successor or acquiring entity
      (if not the Company) assumes by written instrument (in form and substance
      reasonable satisfactory to the Holder) the obligations of the Company under
      this
      Note (including, without limitation, the obligation to make payments of
      principal and Interest accrued but unpaid through the date of such
      consolidation, merger or sale and accruing thereafter). The above provisions
      shall apply regardless of whether or not there would have been a sufficient
      number of shares of Common Stock authorized and available for issuance upon
      conversion of this Note as of the date of such transaction, and shall similarly
      apply to successive Major Transactions. Notwithstanding the foregoing, if a
      Major Transaction constitutes a Change of Control, the Holder may, in lieu
      of
      exercising its rights under this Section
      4(b),
      exercise its rights under Section
      5
      of this
      Note.

     

    (c)    Distributions.
      If, at
      any time after the Issue Date, the Company declares or makes any distribution
      of
      cash or any other assets (or rights to acquire such assets) to holders of Common
      Stock, including without limitation any dividend or distribution to the
      Company’s stockholders in shares (or rights to acquire shares) of capital stock
      of a subsidiary) (a “Distribution”),
      the
      Company shall deliver written notice of such Distribution (a “Distribution
      Notice”)
      to the
      Holder at least fifteen (15) days prior to the earlier to occur of (i) the
      record date for determining stockholders entitled to such Distribution (the
      “Record
      Date”)
      and
      (ii) the date on which such Distribution is made (the “Distribution
      Date”)
      (the
      earlier of such dates being referred to as the “Determination
      Date”).
      Upon
      receipt of the Distribution Notice, the Holder shall promptly (but in no event
      later than three (3) Business Days) notify the Company whether it has elected
      (A) to receive the same amount and type of assets (including, without
      limitation, cash) being distributed as though the Holder were, on the
      Determination Date, a holder of a number of shares of Common Stock into which
      this Note is convertible as of such Determination Date (such number of shares
      to
      be determined without giving effect to any limitations on such conversion)
      or
      (B) upon any exercise of this Note on or after the Distribution Date, to reduce
      the Conversion Price in effect on the Business Day immediately preceding the
      Record Date by an amount equal to the fair market value of the assets to be
      distributed divided
      by
      the
      number of shares of Common Stock as to which such Distribution is to be made,
      such fair market value to be reasonably determined in good faith by the

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

    independent
      members of the Company’s Board of Directors. Upon receipt of such election
      notice from the Holder, the Company shall timely effectuate the transaction
      or
      adjustment contemplated in the foregoing clause
      (A) or
      (B),
      as
      applicable. 
      If the
      Holder does not notify the Company of its election pursuant to the preceding
      sentence on or prior to the Determination Date, the Holder shall be deemed
      to
      have elected clause
      (A)
      of the
      preceding sentence.

     

    (d)    Convertible
      Securities; Options.
      If, at
      any time after the Issue Date, the Company issues Convertible Securities or
      Options to the record holders of the Common Stock, whether or not such
      Convertible Securities or Options are immediately convertible, exercisable
      or
      exchangeable, then the Holders shall be entitled, upon any Conversion of this
      Note after the date of record for determining stockholders entitled to receive
      such Convertible Securities or Options (or if no such record is taken, the
      date
      on which such Convertible Securities or Options are issued), to receive the
      aggregate number of Convertible Securities or Options which the Holder would
      have received with respect to the shares of Common Stock issuable upon such
      conversion (without giving effect to any limitations on such Conversion
      contained in this Note or the Securities Purchase Agreement) had the Holder
      been
      the holder of such shares of Common Stock on the record date for the
      determination of stockholders entitled to receive such Convertible Securities
      or
      Options (or if no such record is taken, the date on which such Convertible
      Securities or Options were issued). 

     

    (e)    Dilutive
      Issuances.

     

    (i)    
Adjustment
      Upon Dilutive Issuance.
      If, at
      any time after the Issue Date and on or prior to the later of (1) the earlier
      of
      (x) the Effective Date and (y) the two year anniversary of the Issue Date,
      and
      (2) the six month anniversary of the Issue Date, the Company issues or sells,
      or
      in accordance with Section
      4(e)(ii)
      of this
      Note is deemed to have issued or sold, any shares of Common Stock for no
      consideration or for a consideration per share less than the Conversion Price
      on
      the date of such issuance or sale (or deemed issuance or sale) (a “Dilutive
      Issuance”),
      then
      effective immediately upon the Dilutive Issuance, the Conversion Price shall
      be
      adjusted so as to equal the consideration received or receivable by the Company
      (on a per share basis) for the additional shares of Common Stock so issued,
      sold
      or deemed issued or sold in such Dilutive Issuance (which, in the case of a
      deemed issuance or sale, shall be calculated in accordance with Section
      4(e)(ii)
      of this
      Note). Notwithstanding the foregoing, no adjustment shall be made pursuant
      hereto if such adjustment would result in an increase in the Conversion
      Price.

     

    (ii)    Effect
      On Conversion Price Of Certain Events.
      For
      purposes of determining the adjusted Conversion Price under Section
      4(e)(i) of
      this
      Note, the following will be applicable:

     

    (A)   Issuance
      Of Options.
      If the
      Company issues or sells any Options, whether or not immediately exercisable,
      and
      the price per share for which Common Stock is issuable upon the exercise of
      such
      Options (and the price of any conversion of Convertible Securities, if
      applicable) is less than the Conversion Price in effect on the date of issuance
      or sale of such Options, then the maximum total number of shares of Common
      Stock
      issuable upon the exercise of all such Options (assuming full conversion,
      exercise or exchange of Convertible Securities, if applicable) shall, as of
      the
      date of the issuance or sale of such Options, be deemed to be outstanding and
      to
      have been issued and sold by the Company for such price per share. For purposes
      of the preceding sentence, the “price per share for which Common Stock is
      issuable upon the exercise of such Options” shall be determined by 

     

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

    dividing
      (x) the
      total amount, if any, received or receivable by the Company as consideration
      for
      the issuance or sale of all such Options, plus
      the
      minimum aggregate amount of additional consideration, if any, payable to the
      Company upon the exercise of all such Options, plus,
      in the
      case of Convertible Securities issuable upon the exercise of such Options,
      the
      minimum aggregate amount of additional consideration payable upon the
      conversion, exercise or exchange thereof (determined in accordance with the
      calculation method set forth in Section
      4(e)(ii)(B)
      below)
      at the time such Convertible Securities first become convertible, exercisable
      or
      exchangeable, by (y) the maximum total number of shares of Common Stock issuable
      upon the exercise of all such Options (assuming full conversion, exercise or
      exchange of Convertible Securities, if applicable). No further adjustment to
      the
      Conversion Price shall be made upon the actual issuance of such Common Stock
      upon the exercise of such Options or upon the conversion, exercise or exchange
      of Convertible Securities issuable upon exercise of such Options. To
      the
      extent that shares of Common Stock or Convertible Securities are not delivered
      pursuant to such Options, upon the expiration or termination of such Options,
      the Conversion Price shall be readjusted to the Conversion Price that would
      then
      be in effect had the adjustments made upon the issuance of such Options been
      made on the basis of delivery of only the number of shares of Common Stock
      actually delivered.

     

    (B)    Issuance
      Of Convertible Securities.
      If the
      Company issues or sells any Convertible Securities, whether or not immediately
      convertible, exercisable or exchangeable, and the price per share for which
      Common Stock is issuable upon such conversion, exercise or exchange is less
      than
      the Conversion Price in effect on the date of issuance or sale of such
      Convertible Securities, then the maximum total number of shares of Common Stock
      issuable upon the conversion, exercise or exchange of all such Convertible
      Securities shall, as of the date of the issuance or sale of such Convertible
      Securities, be deemed to be outstanding and to have been issued and sold by
      the
      Company for such price per share. If the Convertible Securities so issued or
      sold do not have a fluctuating conversion or exercise price or exchange ratio,
      then for the purposes of the immediately preceding sentence, the “price per
      share for which Common Stock is issuable upon such conversion, exercise or
      exchange” shall be determined by dividing
      (A) the
      total amount, if any, received or receivable by the Company as consideration
      for
      the issuance or sale of all such Convertible Securities,
      plus
      the
      minimum aggregate amount of additional consideration, if any, payable to the
      Company upon the conversion, exercise or exchange thereof (determined in
      accordance with the calculation method set forth in this Section
      4(e)(ii)(B))
      at the
      time such Convertible Securities first become convertible, exercisable or
      exchangeable, by (B) the maximum total number of shares of Common Stock issuable
      upon the exercise, conversion or exchange of all such Convertible
      Securities.
      If the
      Convertible Securities so issued or sold have a fluctuating conversion or
      exercise price or exchange ratio (a “Variable
      Rate Convertible Security”),
      then
      for purposes of the first sentence of this Section
      4(e)(ii)(B),
      the
“price per share for which Common Stock is issuable upon such conversion,
      exercise or exchange” shall be deemed to be the lowest price per share which
      would be applicable (assuming all holding period and other conditions to any
      discounts contained in such Variable Rate Convertible Security have been
      satisfied) if the conversion price of such Variable Rate Convertible Security
      on
      the date of issuance or sale thereof were equal to the actual conversion price
      on such date (or such higher minimum conversion price if such Variable Rate
      Convertible Security is subject to a minimum conversion price) (the

     

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

    “Assumed
      Variable Market Price”),
      and,
      further, if the conversion price of such Variable Rate Convertible Security
      at
      any time or times thereafter is less than or equal to the Assumed Variable
      Market Price last used for making any adjustment under this Section
      4(e)
      with
      respect to any Variable Rate Convertible Security, the Conversion Price in
      effect at such time shall be readjusted to equal the Conversion Price which
      would have resulted if the Assumed Variable Market Price at the time of issuance
      of the Variable Rate Convertible Security had been equal to the actual
      conversion price of such Variable Rate Convertible Security existing at the
      time
      of the adjustment required by this sentence; provided,
      however,
      that if
      the conversion or exercise price or exchange ratio of a Convertible Security
      may
      fluctuate solely as a result of provisions designed to protect against dilution,
      such Convertible Security shall not be deemed to be a Variable Rate Convertible
      Security. No further adjustment to the Conversion Price shall be made upon
      the
      actual issuance of such Common Stock upon conversion, exercise or exchange
      of
      such Convertible Securities.

     

    (C)    Change
      In Option Price Or Conversion Rate.
      If
      there is a change at any time (including, without limitation, a change with
      respect to any Options or Convertible Securities outstanding as of the Issue
      Date) in (x) the amount of additional consideration payable to the Company
      upon
      the exercise of any Options; (y) the amount of additional consideration, if
      any,
      payable to the Company upon the conversion, exercise or exchange of any
      Convertible Securities; or (z) the rate at which any Convertible Securities
      are
      convertible into or exercisable or exchangeable for Common Stock (in each such
      case, other than under or by reason of provisions designed to protect against
      dilution), the Conversion Price in effect at the time of such change shall
      be
      readjusted to the Conversion Price which would have been in effect at such
      time
      had such Options or Convertible Securities still outstanding provided for such
      changed additional consideration or changed conversion, exercise or exchange
      rate, as the case may be, at the time initially issued or sold.

     

    (D)   Calculation
      Of Consideration Received.
      If any
      Common Stock, Options or Convertible Securities are issued or sold for cash,
      the
      consideration received therefor will be the amount received by the Company
      therefor. In case any Common Stock, Options or Convertible Securities are issued
      or sold for a consideration part or all of which shall be other than cash,
      the
      amount of the consideration other than cash received by the Company (including
      the net present value of the consideration expected by the Company for the
      provided or purchased services) shall be the fair market value of such
      consideration. In case any Common Stock, Options or Convertible Securities
      are
      issued in connection with any merger or consolidation in which the Company
      is
      the surviving corporation, the amount of consideration therefor will be deemed
      to be the fair market value of such portion of the net assets and business
      of
      the non-surviving corporation as is attributable to such Common Stock, Options
      or Convertible Securities, as the case may be. The independent members of the
      Company’s Board of Directors shall calculate reasonably and in good faith, using
      standard commercial valuation methods appropriate for valuing such assets,
      the
      fair market value of any consideration.

    

    (iii)   Exceptions
      To Adjustment Of Conversion Price.
      Notwithstanding the foregoing, no adjustment to the Conversion Price shall
      be
      made pursuant to this Section
      4(e)
      upon the
      issuance of any Excluded Securities. 

    

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

    (iv)   Notice
      Of Adjustments.
      Upon
      the occurrence of each adjustment or readjustment of the Conversion Price
      pursuant to this Section
      4(e)
      resulting in a change in the Conversion Price by more than one percent (1%),
      or
      any change in the number or type of stock, securities and/or other property
      issuable upon Conversion of this Note, the Company, at its expense, shall
      promptly compute such adjustment, readjustment or change and prepare and furnish
      to the Holder a certificate setting forth such adjustment, readjustment or
      change and showing in detail the facts upon which such adjustment, readjustment
      or change is based. The Company shall, upon the written request at any time
      of
      the Holder, furnish to the Holder a like certificate setting forth (i) such
      adjustment, readjustment or change, (ii) the Conversion Price at the time in
      effect and (iii) the number of shares of Common Stock and the amount, if any,
      of
      other securities or property which at the time would be received upon Conversion
      of this Note.

     

    (f)    
Adjustments;
      Additional Shares, Securities or Assets.
      In the
      event that at any time, as a result of an adjustment made pursuant to this
      Section
      4,
      the
      Holder of this Note shall, upon conversion of this Note, become entitled to
      receive securities or assets (other than Common Stock) then, wherever
      appropriate, all references herein to shares of Common Stock shall be deemed
      to
      refer to and include such shares and/or other securities or assets; and
      thereafter the number of such shares and/or other securities or assets shall
      be
      subject to adjustment from time to time in a manner and upon terms as nearly
      equivalent as practicable to the provisions of this Section
      4.
      

     

    5.    EVENTS
      OF DEFAULT; MANDATORY REDEMPTION.

     

    (a)    Mandatory
      Redemption.
      In the
      event that an Event of Default or a Change of Control occurs, the Holder shall
      have the right, upon written notice to the Company (a “Mandatory
      Redemption Notice”),
      to
      have all or any portion of the unpaid principal amount of this Note,
plus
      all
      accrued and unpaid Interest (including default interest (if any), redeemed
      by
      the Company (a “Mandatory
      Redemption”)
      at the
      Mandatory Redemption Price in same day funds. The Mandatory Redemption Notice
      shall specify the effective date of such Mandatory Redemption (the “Mandatory
      Redemption Date”),
      which
      date must be at least two (2) Business Days following the Business Day on which
      the Mandatory Redemption Notice is delivered to the Company, and the amount
      of
      principal and interest (and other amounts, if any) to be redeemed. In order
      to
      effect a Mandatory Redemption hereunder, the Holder must deliver a Mandatory
      Redemption Notice no later than, in the case of an Event of Default, the close
      of business on the third (3rd)
      Business Day following the date on which an Event of Default is no longer
      continuing and, with respect to a Change of Control, the close of business
      on
      the third (3rd)
      Business Day following the date on which the Change of Control is
      completed.

     

    (b)    Payment
      of Mandatory Redemption Price.

     

    (i)    
The
      Company shall pay the Mandatory Redemption Price to the Holder on the Mandatory
      Redemption Date. In the event that the Company redeems the entire remaining
      unpaid principal amount of this Note, all accrued and unpaid Interest and any
      other amounts due hereunder, and pays such amount to the Holder in cash, the
      Holder shall return this Note to the Company for cancellation.

     

    (ii)    If
      the
      Company fails to pay the Mandatory Redemption Price to the Holder on Mandatory
      Redemption Date, the Holder shall be entitled to interest thereon at the Default
      Interest 

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

    Rate
      from
      the Mandatory Redemption Date until the date on which Mandatory Redemption
      Price
      has been paid in full.

     

    6.    OPTIONAL
      REDEMPTION.

    

    (a)    Redemption.
      Upon
      the satisfaction of the Equity Conditions on the Optional Redemption Date and
      on
      each of the twenty (20) Trading Days occurring immediately prior to such date,
      the Company shall have the right, at any time after the Issue Date, to redeem
      all
      but
      not less than all of the unpaid principal amount of this Note, plus
      all
      accrued and unpaid Interest,
      at the
      Optional Redemption Price (an “Optional
      Redemption”).
      In
      order to effect an Optional Redemption, the Company must deliver to the Holder
      written notice thereof (an “Optional
      Redemption Notice”),
      specifying the
      effective date of such Optional Redemption (the “Optional
      Redemption Date”),
      which
      date must be at
      least
      twenty (20)
      Trading Days following delivery of the Optional Redemption
      Notice
      to the Holder. In the event that the Company effects an Optional Redemption
      with
      respect to this Note, it must contemporaneously effect an Optional Redemption
      of
      all but not less than all of the other Notes. Notwithstanding
      the delivery by the Company of an Optional Redemption Notice, the right of
      the
      Company to exercise its redemption rights under this Section
      6(a)
      shall be
      subordinate to and shall not limit in any way (x) the right of the Holder to
      convert this Note prior to the Optional Redemption Date, (y) the availability
      of
      any and all remedies that are provided to the Holder hereunder in the event
      that
      the Company does not satisfy its obligations with respect to any such
      conversion, or (z) the right of the Holder to effect a Mandatory Redemption
      pursuant to Section
      5.
      

     

    (b)    Payment
      of Optional Redemption Price.

     

    (i)     The
      Company shall pay the Optional Redemption Price to the Holder on the Optional
      Redemption Date. In the event that the Company redeems the entire remaining
      unpaid principal amount of this Note, and pays to the Holder the Optional
      Redemption Price and all other amounts due in connection therewith, the Holder
      shall return this Note to the Company for cancellation.

     

    (ii)    If
      the
      Company fails to pay the Optional Redemption Price to the Holder on the Optional
      Redemption Date, the Holder shall be entitled to interest thereon at the Default
      Interest Rate from the Optional Redemption Date until the date on which Optional
      Redemption Price and accrued and unpaid default interest thereon have been
      paid
      in full.

     

    7.    FORCED
      CONVERSION.
      

    

    (a)    Forced
      Conversion.
      Subject
      to the terms and conditions of this Section
      7(a),
      the
      Company shall have the right, exercisable at any time after December 31, 2007,
      to require Conversion of this Note (a “Forced
      Conversion”).
      In
      order to effect a Forced Conversion, (i) the daily VWAP must, on each of twenty
      (20) Trading Days occurring during any period of thirty (30) consecutive Trading
      Days (such period of thirty Trading Days, a “Forced
      Conversion Period”),
      be
      equal to or greater than the Forced Conversion Price and (ii) each of the Equity
      Conditions must be satisfied on each Trading Day occurring during the Forced
      Conversion Period and through and including the Forced Conversion Date.
      Notwithstanding the foregoing, in no event shall the Company be permitted to
      effect a Forced Conversion to the extent that, upon receipt of the shares of
      Common Stock deliverable 

     

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

    thereby,
      the Holder would beneficially own more than 4.99% of the number of shares of
      Common Stock then outstanding. 

    

    (b)    Forced
      Conversion Notice; Number of Conversion Shares.
      In
      order to effect a Forced Conversion hereunder, the Company must deliver to
      the
      Holder written notice thereof (a “Forced
      Conversion Notice”)
      at any
      time after the fifth (5th)
      Business Day immediately following the last Trading Day of the Forced Conversion
      Period but not later than the tenth (10th)
      Business Day following such last Trading Day. A Forced Conversion Notice shall
      specify the aggregate principal amount of the Notes that the Company elects
      to
      submit to a Forced Conversion. A Forced Conversion shall be effected on the
      date
      (the “Forced
      Conversion Date”)
      that
      is the third (3rd)
      Trading
      Day immediately following delivery of a Forced Conversion Notice to the Holder.
      On the Forced Conversion Date, the Company must deliver to the Holder a number
      of shares of Common Stock equal to (A) the amount of principal being converted
      as set forth on the applicable Forced Conversion Notice plus
      all
      Interest accrued and unpaid thereon as of such Forced Conversion Date
divided
      by
      the (B)
      the Conversion Price in effect on such date. The Company must deliver such
      shares of Common Stock to the Holder in accordance with the provisions of
Section
      3(d)
      of this
      Note, with the Forced Conversion Date being deemed the Delivery Date for
      purposes hereof. If any fractional share would be issuable upon a Forced
      Conversion, such fractional share shall be disregarded and the number of shares
      issuable shall, in the aggregate, be equal to the nearest whole number of
      shares.

    

    (c)    Notwithstanding
      the delivery by the Company of a Forced Conversion Notice, nothing contained
      herein shall be deemed to limit in any way (x) the right of the Holder to
      convert this Note prior to the Forced Conversion Date or (y) the availability
      of
      any and all remedies that are provided to the Holder hereunder, including
      without limitation in the event that the Company fails to deliver Conversion
      Shares upon a Forced Conversion as required by the terms of Section
      3
      of this
      Note, provided,
      that,
      in
      the event of such failure, the Forced Conversion shall be terminated with
      respect to the Holder upon the delivery of written notice thereof by the Holder
      to the Company, and the Company shall forfeit its right to require a Forced
      Conversion of the Notes thereafter. In
      the
      event of multiple Forced Conversions, at least sixty (60) days must elapse
      between Forced Conversion Dates.

    

    8.    MISCELLANEOUS.

     

    (a)    Failure
      to Exercise Rights 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 any other
      or
      further exercise thereof. All rights and remedies of the Holder hereunder are
      cumulative and not exclusive of any rights or remedies otherwise available.
      In
      the event that the Company does not pay any amount under this Note when such
      amount becomes due, the Company shall bear all costs incurred by the Holder
      in
      collecting such amount, including without limitation reasonable legal fees
      and
      expenses. 

     

    (b)    Notices.
      Any
      notice, demand or request required or permitted to be given by the Company
      or
      the Holder pursuant to the terms of this Note shall be in writing and shall
      be
      deemed delivered (i) when delivered personally or by verifiable facsimile
      transmission, unless such delivery is made on a day that is not a Business
      Day,
      in which case such delivery will be deemed to be made on the next succeeding
      Business Day, (ii) on the next Business Day after timely delivery to an
      overnight courier and (iii) on the Business Day actually received if deposited
      in the U.S. mail 

     

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

    (certified
      or registered mail, return receipt requested, postage prepaid), addressed as
      follows:

    

    If
      to
      the Company:

    

    ZAP

    501
      Fourth Street

    Santa
      Rosa, California 95401  

    Attn:
       
      Steven
      Kim

    Tel: (707) 525-8658

    Fax:
       (707)
      525-8692  

    

    with
      a copy (which
      shall not constitute notice) to:

    

    Donahue
      Gallagher Woods LLP

    Suite
      1900

    300
      Lakeside Drive

    Oakland,
      CA 94612

    Attn: Michael
      J. Dalton

    Tel: (510)
      451-0544

    Fax: (510)
      832-1486

    

    and
      if to
      the Holder, to
      such
      address for the Holder as shall appear on the signature page of the Securities
      Purchase Agreement executed by the Holder, or as shall be designated by the
      Holder in writing to the other parties hereto in accordance this Section
      8(b).

    

    (c)    Amendments
      and Waivers.
      No
      amendment, modification or other change to, or waiver of any provision of,
      this
      Note or any other Note may be made unless such amendment, modification or
      change, or request for waiver, is (A) set forth in writing and is signed by
      the
      Company, (B) consented to in writing by the holders of at least sixty-six
      percent (66%) of the unpaid principal amount of the Notes, and (C) applied
      to
      all of the Notes. Upon the satisfaction of the conditions described in (A),
      (B)
      and (C) above, this Note shall be deemed to incorporate any the amendment,
      modification, change or waiver effected thereby as of the effective date
      thereof, even if the Holder did not consent to such amendment, modification,
      change or waiver. Notwithstanding
      the foregoing, the limitation on beneficial ownership set forth in Section
      3(f)
      may not
      be amended without the consent of the holders of a majority of the shares of
      Common Stock then outstanding; provided,
      however,
      that
      such limitation may be waived by the Holder upon sixty (60) days’ prior written
      notice to the Company, and such waiver shall be valid and shall not require
      the
      consent of the Company or any other holder of Common Stock or
      Notes.

     

     

    (d)    Transfer
      of Note.
      The
      Holder may sell, transfer or otherwise dispose of all or any part of this Note
      (including without limitation pursuant to a pledge) to any person or entity
      as
      long as such sale, transfer or disposition is the subject of an effective
      registration statement under the Securities Act of 1933, as amended, and
      applicable state securities laws, or is exempt from registration thereunder,
      and
      is otherwise made in accordance with the applicable provisions of the Securities
      Purchase Agreement. From and after the date of any such sale, transfer or
      disposition, the transferee hereof shall be deemed to be the holder of a Note
      in
      the principal amount acquired by 

     

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

    such
      transferee, and the Company shall, as promptly as practicable, issue and deliver
      to such transferee a new Note identical in all respects to this Note, in the
      name of such transferee. The Company shall be entitled to treat the original
      Holder as the holder of this entire Note unless and until it receives written
      notice of the sale, transfer or disposition hereof.

     

    (e)    Lost
      or Stolen Note.
      Upon
      receipt by the Company of evidence of the loss, theft, destruction or mutilation
      of this Note, and (in the case of loss, theft or destruction) of indemnity
      or
      security reasonably satisfactory to the Company, and upon surrender and
      cancellation of the Note, if mutilated, the Company shall execute and deliver
      to
      the Holder a new Note identical in all respects to this Note.

     

    (f)    Governing
      Law.
      This
      Note shall be governed by and construed in accordance with the laws of the
      State
      of California applicable
      to contracts made and to be performed entirely within the State of
      California.

     

    (g)    Successors
      and Assigns.
      The
      terms and conditions of this Note
      shall
      inure to the benefit of and be binding upon the respective successors (whether
      by merger or otherwise) and permitted assigns of the Company and the Holder.
      The
      Company may not assign its rights or obligations under this Note
      except
      as specifically required or permitted pursuant to the terms hereof.

    

    (h)    Usury.
      This
      Note
      is subject to the express condition that at no time shall the Company be
      obligated or required to pay interest hereunder at a rate which could subject
      the Holder to either civil or criminal liability as a result of being in excess
      of the maximum interest rate which the Company is permitted by applicable law
      to
      contract or agree to pay.  If by the terms of this Note, the Company is at
      any time required or obligated to pay interest hereunder at a rate in excess
      of
      such maximum rate, the rate of interest under this Note shall be deemed to
      be
      immediately reduced to such maximum rate and the interest payable shall be
      computed at such maximum rate and all prior interest payments in excess of
      such
      maximum rate shall be applied and shall be deemed to have been payments in
      reduction of the principal balance of this Note.  

    

     

    

    [Signature
      Page to Follow]

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

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

    

    ZAP

    

    

    By: 
      /s/ Steven Schneider

    
      

    

    Name:
      Steven Schneider

    Title:
      Chief Executive Officer

    

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

    ANNEX
      I

    

    

    NOTICE
      OF CONVERSION

    

    The
      undersigned hereby elects to convert principal of the 8% Senior Convertible
      Note
      (the “Note”)
      issued
      by ZAP (the “Company”)
      into
      shares of common stock (“Common
      Stock”)
      of the
      Company according to the terms and conditions of the Note. Capitalized terms
      used herein and not otherwise defined shall have the respective meanings set
      forth in the Note. 

    

    
      	 	
              Date
                of Conversion:

              
                

              

              

              Principal
                Amount of 

              Note
                to be Converted:

              
                

              

              

              Amount
                of Interest

              to
                be Converted (if any):

              
                

              

               

              Number
                of Shares of

              Common
                Stock to be Issued:

              
                

              

              

              Name
                of Holder:

              
                

              

              

              Address:

              
                

              

               

                

              

               

                

              

               

              Signature:

              
                

              

              Name:

              Title:
 

    

    

    Holder
      Requests Delivery to be made:
      (check
      one)

    

    
      	
              ྐྵ

            	
              By
                Delivery of Physical Certificates to the Above
                Address

            

    

    

    
      	
              ྐྵ

            	
              Through
                Depository Trust Corporation

            

    

    (Account 
      _______________)

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