Document:

Unassociated Document

    AMENDMENT
AND EXCHANGE AGREEMENT

     

    AMENDMENT AND EXCHANGE
AGREEMENT (this “Agreement”), dated as of
December 22, 2008, by and among DigitalFX International, Inc., a Florida
corporation, with headquarters located at 3035 East Patrick Lane, Suite 9, Las
Vegas, NV 89120 (the “Company”), and
_______________________________________ (the “Investor”).

     

    WHEREAS:

     

    A.           The
Company, the Investor and certain other investors (the “Other Investors”, and
collectively with the Investor, the “Investors”) are parties to
that certain (i) Securities Purchase Agreement, dated as of November 29, 2007
(the “Existing Securities
Purchase Agreement”), and (ii) Amendment and Exchange Agreement, dated as
of March 24, 2008 (the “Amendment and Exchange
Agreement”) pursuant to which, among other things, the Investors
purchased from the Company (i) senior secured convertible notes (as amended from
time to time, the “Existing
Notes”), which are convertible into shares of the Company’s common stock,
par value $0.001 per share (the “Common Stock”), in accordance
with the terms thereof, and (ii) warrants (as amended from time to time, the
“Existing Warrants”),
which are exercisable into shares of Common Stock.

     

    B.           As
a consequence of the occurrence of an Event of Default under the Existing Notes
by reason of the occurrence of one or more Financial Covenant Failures (as
defined in the Existing Notes) with respect to the Company’s fiscal quarter
ended June 30, 2008, the Company, each Investor and Richard H. Kall (“Kall”) entered into Note
Purchase Agreements on October 15, 2008 pursuant to which Kall purchased from
the Investors, on a pro rata basis, (i) an aggregate of $350,000 of the unpaid
principal amount of the Existing Notes, (ii) Existing Warrants to purchase an
aggregate of 90,518 shares of the Company’s Common Stock and (iii) an aggregate
of 120,000 shares of Common Stock, in consideration for, among other things,
each Investor’s forbearance from enforcing, for a period of 30 days, any rights
regarding redemption of the Existing Notes that may have arisen by reason of the
aforementioned Financial Covenant Failures.

     

    C.           The
Company and the Investor desire to enter into this Agreement, pursuant to which,
among other things,

     

    (i)                 the
Company shall redeem in cash from the Investor a principal amount of the
Existing Note equal to such Investor’s pro rata portion of $650,000 (such
Investor’s “Redemption Payment
Amount”), as set forth opposite such Investor’s name in column (3) on the
Securities Schedule attached hereto,

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (ii)                 the
Company shall amend and restate a portion of such Investor’s Existing Note for a
note in the form attached hereto as Exhibit A (the “Note”) with a principal amount
to be determined based on when the Second Closing Date occurs (for example
purposes only, the amount set forth opposite the Investor’s name in column (4)
of the Securities Schedule 1 (Exhibit B1)
contemplates a Closing Date of December 22, 2008 and the amount set forth
opposite the Investor’s name in column (4) of the Securities Schedule 2 (Exhibit B2)
contemplates a Second Closing Date of January 30, 2009, which shall be
convertible into Common Stock (the “Conversion Shares”), and which
principal shall also include the interest payable on (i) such Investor’s
Existing Note through the Closing Date and (ii) the principal of such Investor’s
Existing Note to be exchanged for the Note and Common Shares from the Closing
Date through the Second Closing Date (collectively, the “2008 Interest Payment”) in an
amount to be determined based on when the Second Closing Date occurs (for
example purposes only, the amount set forth opposite the Investor’s name in
column (7) of the Securities Schedule 2 contemplates a Second Closing Date of
January 30, 2009),

     

    (iii)                 the
Company shall amend and restate a portion of such Investor’s Existing Note for
that aggregate number of shares of Common Stock, set forth opposite such
Investor’s name in column (5) on the Securities Schedule attached hereto
(collectively, the “Common
Shares”) (which aggregate number for all Investors shall be 5,149,440
(assuming a closing on December 22, 2008) Common Shares and which the parties
shall deem exchanged for a portion of the Existing Note with a principal amount
equal to such Investor’s pro rata portion of $600,000 as set forth opposite such
Investor’s name in column (5) on the Securities Schedule attached hereto),
and

     

    (iv)                 the
Company shall amend and restate a portion of such Investor’s Existing Note
for  that aggregate number of shares of common stock of WoozyFly Inc.
set forth opposite such Investor’s name in column (6) on the Securities Schedule
attached hereto (collectively, the “WoozyFly Shares”) (which
aggregate number for all Investors shall be 5,520,000 WoozyFly Shares and which
the parties shall deem exchanged for a portion of the Existing Note with a
principal amount equal to such Investor’s pro rata portion of $800,000 as set
forth opposite such Investor’s name in column (6) on the Securities Schedule
attached hereto).

     

    D.           The
amendment and restatement of the Existing Note for the Note and the Common
Shares is being made in reliance upon the exemption from registration provided
by Section 3(a)(9) of the Securities Act of 1933, as amended (the “1933 Act”).

     

    E.           To
maintain compliance with listing requirements, the issuance and/or listing of
new shares of Common Stock (as a listed class) by the Company as contemplated by
this Agreement must be pre-approved by the American Stock Exchange (“AMEX”) based on an application
for additional listing (the “AMEX Approval”), and such
application was submitted by counsel to the Company on December 15, 2008 with a
petition for expedited review.

     

    F.           Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings ascribed to them in the Existing Securities Purchase Agreement or the
Amendment and Exchange Agreement, as applicable.

     

    NOW, THEREFORE, in
consideration of the foregoing recitals and the mutual promises hereinafter set
forth, the Company and the Investor hereby agree as follows:

    
      
         

      

      
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              1.

            	
              REDEMPTION OF EXISTING
      NOTE; INTEREST PAYMENT; AMENDMENT AND RESTATEMENT OF EXISTING NOTE;
      ISSUANCE OF COMMON SHARES; EXCHANGE FOR WOOZYFLY
      SHARES.

            

    

     

    (a)           Redemption.  Subject
to satisfaction (or waiver) of the conditions set forth in Sections 5 and 6
below, at the closing contemplated by this Agreement (the “Closing”), the Company shall
redeem in cash from the Investor an amount equal to the Investor’s Redemption
Payment Amount, as set forth opposite such Investor’s name in column (3) on the
Securities Schedule attached hereto (it being understood and agreed that such
Redemption Payment Amount satisfies the Installment Amounts (as defined in the
Notes) due November 1, 2008 and December 1, 2008).  The Parties hereby
further agree and acknowledge that the Investor’s Redemption Payment Amount
shall not and does not constitute a commission or other remuneration paid or
given, directly or indirectly, in connection with the exchange of the Investor’s
Existing Note for the Note, Common Shares and WoozyFly Shares pursuant to the
terms of Section 1(b).

     

    (b)           Amendment and Restatement of
Existing Note.  Subject to satisfaction (or waiver) of the
conditions set forth in Sections 5 and 6 below, at the Closing or the Second
Closing (as defined below) (as applicable), (i) the Investor shall surrender to
Stubbs (as defined below) its Existing Note, (ii) the Company shall issue and
deliver to the Investor (A) a Note in the principal amount to be determined
based on when the Second Closing Date occurs (for example purposes only, the
amount set forth opposite the Investor’s name in column (4) of the Securities
Schedule 2 contemplates a Second Closing Date of January 30, 2009) and (B)
promptly after (and in no event, later than three (3) business days after)
receipt of the AMEX Approval regarding listing the Common Shares on AMEX, the
number of Common Shares as is set forth opposite the Investor’s name in column
(5) on the Securities Schedule 1 as adjusted and (iii) the Company shall
transfer to the Investor the number of WoozyFly Shares as is set forth opposite
the Investor’s name in column (6) on the Securities Schedule 1, and shall
deliver to the transfer agent of WoozyFly Inc., within three (3) Business Days
of the Closing Date, all documents necessary to enable the transfer agent of
WoozyFly Inc. to deliver to the Investor certificates registered in the
Investor’s name representing number of WoozyFly Shares as is set forth opposite
the Investor’s name in column (6) on the Securities Schedule 1.

     

    (c)           Closing
Date.  The date and time of the Closing (the “Closing Date”) shall be 1:00
p.m., New York Time, on the date hereof, subject to notification of satisfaction
(or waiver) of the conditions to the Closing set forth in Sections 5 and 6 below
(or such other time and date as is mutually agreed to by the Company and the
Investor).

     

    
      	
               
      

            	
              2.

            	
              AMENDMENTS TO
      TRANSACTION DOCUMENTS.

            

    

     

    (a)           Reaffirmation.  The
Company hereby confirms and agrees that, except as otherwise expressly provided
herein:

    
      
         

      

      
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    (i)           the
Existing Securities Purchase Agreement, the Amendment and Exchange Agreement and
each other Transaction Document is, and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects, except that on and
after the Closing Date (i) all references in the Existing Securities Purchase
Agreement to “this Agreement”, “hereto”, “hereof”, “hereunder” or words of like
import referring to the Securities Purchase Agreement shall mean the Existing
Securities Purchase Agreement as amended by the Amendment and Exchange Agreement
and this Agreement and (ii) all references in the other Transaction Documents to
the “Securities Purchase Agreement”, “thereto”, “thereof”, “thereunder” or words
of like import referring to the Securities Purchase Agreement shall mean the
Existing Securities Purchase Agreement as amended by the Amendment and Exchange
Agreement and this Agreement.  REFERENCES TO NOTES IN ALL TRANSACTION
DOCUMENTS MEANS NOTES UNDER THIS AGREEMENT;

     

    (ii)           to
the extent that the Existing Securities Purchase Agreement, as amended by the
Amendment and Exchange Agreement and this Agreement, or any other Transaction
Document purports to assign or pledge to the Collateral Agent for the Buyers and
the holders of the Securities, or to grant to the Collateral Agent a security
interest in or lien on, any collateral as security for the obligations of the
Company from time to time existing in respect of the Existing Notes and any
other existing Transaction Document, such pledge, assignment and/or grant of the
security interest or lien is hereby ratified and confirmed in all respects, and
shall apply with respect to the obligations under the Notes and no additional
filing is required to be made in order to maintain the perfection of the
security interest in, or lien, on such collateral; and

     

    (iii)           the
execution, delivery and effectiveness of this Agreement shall not operate as an
amendment of any right, power or remedy of the Collateral Agent or the Investors
under any Transaction Document, nor constitute an amendment of any provision of
any Transaction Document.

     

    (b)           Amendment to Transaction
Documents.  Each of the Transaction Documents is hereby amended
as follows:

     

    (i)           All
references to “Notes” shall be amended to mean the Notes as defined in this
Agreement.

     

    (ii)           The
defined term “Transaction Documents” is hereby amended to include this
Agreement.

     

    (iii)           The
defined term “Securities” is hereby amended to include the Common
Shares.

     

    (c)           Amendment to Amendment and
Exchange Agreement.  Each of Section 4(d), Section 4(e) and
Section 4(h) of the Amendment and Exchange Agreement is hereby amended in its
entirety to read as follows:

     

    “Intentionally
omitted.”

    
      
         

      

      
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              3.

            	
              REPRESENTATIONS AND
      WARRANTIES

            

    

     

    (a)           Investor Bring
Down.  The Investor hereby represents and warrants to the
Company with respect to itself only as set forth in Section 2 of the Existing
Securities Purchase Agreement as if such representations and warranties were
made as of the date hereof and set forth in their entirety in this
Agreement.  Such representations and warranties to the transactions
thereunder and the securities issued thereby are hereby deemed for purposes of
this Agreement to be references to the transactions hereunder and the issuance
of the securities hereby.

     

    (b)           Company Bring
Down.  Except as set forth in the Disclosure Schedules to the
Existing Securities Purchase Agreement as amended as of the date hereof and
attached as Exhibit
C, the Company hereby represents and warrants to the Investor as set
forth in Section 3 of the Existing Securities Purchase Agreement, as if such
representations and warranties were made as of the date hereof and set forth in
their entirety in this Agreement.  Such representations and warranties
to the transactions thereunder and the securities issued thereby are hereby
deemed for purposes of this Agreement to be references to the transactions
hereunder and the issuance of the securities hereby, references therein to
“Closing Date” being deemed references to the Closing Date as defined in Section
1(c) above, and references to “the date hereof” being deemed references to the
date of this Agreement.

     

    (c)           Title to the WoozyFly
Shares.  The Company hereby represents and warrants to the
Investor that the Company is the lawful owner of the WoozyFly Shares with good
and marketable title thereto, and the Company has the absolute right to sell,
assign, convey, transfer and deliver the WoozyFly Shares, free and clear of all
the following (collectively called “Claims”) of any nature
whatsoever: security interests, liens, pledges, claims (pending or threatened),
charges, escrows, encumbrances, lock-up arrangements, options, rights of first
offer or refusal, community property rights, mortgages, indentures, security
agreements or other agreements, arrangements, contracts, commitments,
understandings or obligations, whether written or oral and whether or not
relating in any way to credit or the borrowing of money.  Delivery to
the Investor of the WoozyFly Shares will (i) pass good and marketable title to
the WoozyFly Shares to the Investor, free and clear of all Claims (assuming that
the Investor is a bona fide purchaser within the meaning of Section 8-302 of the
New York Uniform Commercial Code), and (ii) convey, free and clear of all
Claims, any and all rights and benefits incident to the ownership of such
WoozyFly Shares.

     

    (d)           No Event of
Default.  The Company represents and warrants to the Investor
that after giving effect to the terms of this Agreement, the Kall Agreement (as
defined below) and the Other Agreements (as defined below), no Event of Default
(as defined in the Note) shall have occurred and be continuing as of the Second
Closing Date (as defined below).

     

    
      
         

      

      
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    (e)           Holding
Period.  For the purposes of Rule 144, the Company acknowledges
that the holding period of (i) the Notes (including the corresponding Conversion
Shares) may be tacked onto the holding period of the Existing Notes and (ii) the
Common Shares may
be tacked onto the holding period of the Existing Notes, and the Company agrees
not to take a position contrary to this Section 3(e).  The Company
agrees to take all actions, including, without limitation, the issuance by its
legal counsel of any necessary legal opinions, necessary to issue to the
Investor Conversion Shares and Common Shares that are freely tradable on an
Eligible Market without restriction and not containing any restrictive legend
without the need for any action by the Investor; provided, however, that to the
extent the representation and warranty of the Investor in Section 3(g) of this
Agreement does not continue to be accurate on the date of such issuance and
during the preceding three-month period (except for purposes of this proviso,
references in Section 3(g) to “the date hereof” shall be deemed to be references
to “the date of such issuance”), the trading of such shares shall be subject to
compliance with Rule 144.

     

    (f)           Investor
Status.  As of the date hereof (immediately prior to giving
effect to the transactions contemplated by this Agreement) and during the
preceding three-month period, such Investor, together with any other person with
whom such Investor must aggregate sales under Rule 144, does not, and has not,
(i) beneficially owned in excess of 10% of the Common Stock, (ii) appointed any
member to the board of directors of the Company or (iii) participated in the
management or daily operations of the Company.

     

    (g)           Shell Company Status.
The Company has complied with all of the requirements set forth in Rule
144(i)(2).

     

    
      	
               
      

            	
              4.

            	
              CERTAIN COVENANTS AND
      AGREEMENTS; WAIVER

            

    

     

     

    (a)           Best
Efforts.  Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 5
and 6 of this Agreement.

     

    (b)           Disclosure of Transactions
and Other Material Information.  On or before 8:30 a.m., New
York City time, on the first Business Day following the date of this Agreement,
the Company shall issue a press release and file a Current Report on Form 8-K,
which the Collateral Agent shall have approved prior to its release and filing,
describing the terms of the transactions contemplated by this Agreement in the
form required by the 1934 Act and attaching the material Transaction Documents
not previously filed (including, without limitation, the form of this Agreement,
the Kall Agreement (as defined below), the form of the Notes (and the schedules
thereto) and the Kall Note (as defined below)) (including all attachments, the
“8-K
Filing”).  From and after the filing of the 8-K Filing with the
SEC, the Investor shall not be in possession of any material, nonpublic
information received from the Company, any of its Subsidiaries or any of its or
their respective officers, directors, employees or agents that is not disclosed
in the 8-K Filing.  The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors, employees
and agents, not to, provide the Investor with any material, nonpublic
information regarding the Company or any of its Subsidiaries from and after the
filing of the 8-K Filing with the SEC without the express written consent of the
Investor.  If the Investor has, or believes it has, received any such
material, nonpublic information regarding the Company or any of its
Subsidiaries, it shall provide the Company with written notice
thereof.  The Company shall, within five (5) Trading Days (as defined
in the Notes) of receipt of such notice, make public disclosure of such
material, nonpublic information.  In the event of a breach of the
foregoing covenant by the Company, any of its Subsidiaries, or any of its or
their respective officers, directors, employees and agents, in addition to any
other remedy provided herein or in the Transaction Documents, the Investor shall
have the right to make a public disclosure, in the form of a press release,
public advertisement or otherwise, of such material, nonpublic information
without the prior approval by the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees or agents.  The
Investor shall not have any liability to the Company, its Subsidiaries, or any
of its or their respective officers, directors, employees, stockholders or
agents for any such disclosure.  Subject to the foregoing, neither the
Company, its Subsidiaries nor the Investor shall issue any press releases or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of  the Investor, to make any press release or other public
disclosure with respect to such transactions (i) in substantial conformity with
the 8-K Filing and contemporaneously therewith and (ii) as is required by
applicable law and regulations (provided that in the case of clause (i) the
Investor shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release).  Without the
prior written consent of the Investor, neither the Company nor any of its
Subsidiaries or affiliates shall disclose the name of the Investor in any filing
(other than as is required by applicable law or regulations), announcement,
release or otherwise.

    
      
         

      

      
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    (c)           Waiver.  Effective
as of the Second Closing, the Investor hereby irrevocably waives forever any
past, present and future claims it might be entitled to against the Company as a
result of a failure to meet any and/or all of the Financial Covenants (as
defined in the Existing Note) prior to the Second Closing.  For the
avoidance of doubt, the Investor does not waive any rights it has under the Note
being issued pursuant to this Agreement.

     

    (d)           Right of
Repurchase.

     

    (i)           For
the one-year period commencing on the Closing Date and ending at 5:00 p.m., New
York City time, on the date immediately prior to the first anniversary thereof
(the “Repurchase
Period”), the Company shall have the right (but not the obligation) to
repurchase, at a per share price of $0.1747 (900,000/5,149,440) (the “Repurchase Price”), any or all
of the Common Shares issued to the Investor (the “Repurchase Right”); provided
that the Repurchase Right shall not (i) restrict in any way the Investor’s right
or ability to transact in, sell or dispose of the Common Shares at any time or
(ii) apply to any Common Shares sold by the Investor prior to the Investor
receiving the notice described in Section 4(d)(ii) below.  Each
exercise of the Repurchase Right shall be done pro rata among the Investors
based on the number of Common Shares issued by the Company; provided that if any
Investor has less than its pro rata share of Common Shares available for
repurchase, the shortfall shall be made up by the other Investors pro rata based
on the number of Common Shares issued to such remaining Investors by the Company
(subject again to this proviso, if necessary).

     

    (ii)           The
Company shall exercise the Repurchase Right by written notice delivered to the
Investor prior to the expiration of the Repurchase Period, which notice shall
set forth the date on which the repurchase is to be effected (which date shall
be at least five Business Days, but no more than ten Business Days, from the
date notice is delivered).  The Company may not deliver more than one
such notice to the Investor in any 30-day period.  The Investor shall
deliver the certificate(s) representing the Common Shares to be repurchased,
properly endorsed for transfer, to the Company prior to the close of business on
the date specified for the repurchase.  The Company shall,
concurrently with the receipt of such certificate(s), pay to the Investor the
aggregate Repurchase Price for the Common Shares repurchased.  Payment
shall be made via wire transfer of immediately available funds to an account
designated by the Investor.

    
      
         

      

      
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    (e)           Fees and
Expenses.  [The Company shall reimburse the Investor, in the
maximum aggregate amount of $5,000 for its legal and due diligence fees and
expenses in connection with the preparation and negotiation of this Agreement
and the transactions contemplated thereby by paying any such amount to Schulte
Roth & Zabel LLP (the “Investor Counsel
Expense”).  The Investor Counsel Expense shall be paid by the
Company whether or not the transactions contemplated by this Agreement are
consummated.]  Except as otherwise set forth in this Agreement, each
party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and performance of this
Agreement.

     

    (f)           The
Company shall deliver to the Company’s transfer agent, with a copy to the
Investor, promptly after (and in no event, later than three (3) Business Days
after) the earlier of (i) the Company’s receipt of the AMEX Approval and (ii)
the Company’s Common Stock being listed on the OTC Bulletin Board, Irrevocable
Transfer Agent Instructions in the form of Exhibit G attached
hereto.

     

    (g)           The
Company shall not take the position that the Investor is an affiliate of the
Company for purposes of the 1933 Act or the rules promulgated thereunder as a
result of the transactions contemplated by this Agreement.

     

    (h)           The
Company acknowledges and agrees that the Exercise Price (as defined in the
Existing Warrants) of the Existing Warrants will, by the terms thereof, be
reduced to $0.24 as a result of the transactions contemplated by this
Agreement.

     

    (i)           Listing.  If the
Common Stock is suspended from trading or fails to be listed on the Principal
Market for a period of five consecutive Trading Days, the Company shall use its
best efforts to list the Common Stock on an Eligible Market as soon as
practicable thereafter.

     

    (j)           AMEX
Approval.  The Company shall use its best efforts to obtain the
AMEX Approval no later than January 30, 2009.  In the event that the
AMEX Approval is not obtained by such date, the Company shall use its best
efforts to have the Common Stock listed on the OTC Bulletin Board and consummate
the Second Closing as soon as practicable thereafter, but in no event later than
the close of business (PST) on February 13, 2009.

     

    (k)           Forbearance.  The
Investor hereby covenants and agrees that, until the close of business (PST) on
February 13, 2009, it shall forbear from taking, or causing any other Person to
take, any action to enforce any rights that either of them may have,
individually or together with the Other Investors, as a result of any Event of
Default that has occurred or may occur prior to such date with respect to
Company’s failure to satisfy one or more Financial Covenants set forth in the
Existing Notes.

     

    (l)           Standstill.  The
Company shall not issue or commit to issue any shares of Common Stock or
securities convertible into or exchangeable for shares of Common Stock (other
than those set forth in the Disclosure Schedules attached as Exhibit C) to any
third party until after the Second Closing.

     

    
      
         

      

      
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              5.

            	
              CONDITIONS TO
      COMPANY’S OBLIGATIONS
HEREUNDER.

            

    

     

    The
obligations of the Company to the Investor hereunder are subject to the
satisfaction of each of the following conditions, provided that these conditions
are for the Company’s sole benefit and may be waived by the Company at any time
in its sole discretion by providing the Investor with prior written notice
thereof:

    

    (a)           The
Investor shall have executed this Agreement and delivered the same to the
Company.

     

    (b)           The
Investor shall have delivered to Stubbs, Alderton & Marlikes LLP, the
Company’s counsel (“Stubbs”), the Investor’s
Existing Note to Stubbs to be held in escrow pending the Second Closing, at
which time it shall be delivered to the Company for cancellation.

     

    (c)           The
representations and warranties of the Investor shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date, which shall be true and correct as of such specified
date) and the Investor shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Investor at or
prior to the Closing Date.

     

    
      	
               
      

            	
              6.

            	
              CONDITIONS TO
      INVESTOR’S OBLIGATIONS
HEREUNDER.

            

    

     

    The
obligations of the Investor hereunder are subject to the satisfaction of each of
the following conditions, provided that these conditions are for the Investor’s
sole benefit and may be waived by the Investor at any time in its sole
discretion by providing the Company with prior written notice
thereof:

    

    (a)           The
Company shall have executed this Agreement and delivered the same to the
Investor.

     

    (b)           The
Company shall have delivered to the Investor its Redemption Payment Amount
(plus, in the case of Portside Growth and Opportunity Fund, the amounts due
pursuant to Section 4(e) hereof).

     

    (c)           The
Company shall have delivered to the Investor the WoozyFly Shares being
transferred to such Investor at the Closing.

     

    (d)           Each
of the Other Investors shall have (i) executed agreements identical to this
Agreement (the “Other
Agreements”) (other than proportional changes (the “Proportionate Changes”) in the
numbers reflecting the different dollar amount of such Investor’s Notes, the
number of Common Shares being issued to such Investor and the number of WoozyFly
Shares being issued to such Investor and Section 4(e)), (ii) satisfied or waived
all conditions to the closings contemplated by such agreements and (iii)
surrendered their Existing Notes to Stubbs to be held in escrow pending the
Second Closing, at which time it shall be delivered to the Company for
cancellation.

    
      
         

      

      
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    (e)           Kall
shall have (i) executed an agreement in the form attached hereto as Exhibit D (the “Kall Agreement”), (ii)
satisfied or waived all conditions to the closing contemplated by the Kall
Agreement and (iii) surrendered his Existing Notes to Stubbs to be held in
escrow pending the Second Closing, at which time it shall be delivered to the
Company for cancellation in exchange for a new note in the form attached hereto
as Exhibit E
(the “Kall
Note”).

     

    (f)           WoozyFly
Inc. shall have executed the Registration Rights Agreement relating to the
WoozyFly Shares, in the form attached hereto as Exhibit F, and
delivered the same to the Investor.

     

    (g)           The
Company shall have delivered to the Investor a certificate, executed by the
Secretary of the Company and dated as of the Closing Date, as to the resolutions
approving the transactions contemplated hereby as adopted by the Board in a form
reasonably acceptable to the Investor.

     

    (h)           The
representations and warranties of the Company hereunder shall be true and
correct in all material respects (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects) as of the date when made and as of
the Closing Date (except as set forth in the Disclosure Schedules to the
Existing Securities Purchase Agreement as amended as of the date hereof) as
though made at that time (except for representations and warranties that speak
as of a specific date, which shall be true and correct as of such specified
date) and the Company shall have performed, satisfied and complied in all
respects with the covenants, agreements and conditions required by this
Agreement and the other Transaction Documents to be performed, satisfied or
complied with by the Company at or prior to the Closing Date and after giving
effect to the terms of this Agreement and the Other Agreements, no default or
Event of Default shall have occurred and be continuing as of the Closing
Date.  The Investor shall have received a certificate, executed by the
President of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by the Investor in
the form attached hereto as  Exhibit
H.

     

    (i)           The
Common Stock (I) shall be designated for quotation or listed on the Principal
Market and (II) shall not have been suspended, as of the Closing Date, by the
SEC or the Principal Market from trading on the Principal Market.

     

    (j)           The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities.

     

    (k)           The
Company shall have delivered to the Investor such other documents relating to
the transactions contemplated by this Agreement as the Investor or its counsel
may reasonably request.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              7.

            	
              TERMINATION.

            

    

     

    In the
event that the Closing does not occur on or before five (5) Business Days from
the date hereof, due to the Company’s or the Investor’s failure to satisfy the
conditions set forth in Sections 5 and 6 hereof (and the nonbreaching party’s
failure to waive such unsatisfied conditions(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party[; provided, however, if this
Agreement is terminated pursuant to this Section 7, the Company shall remain
obligated to reimburse the Investor for the expenses described in Section 4(e)
above].  Upon such termination, the terms hereof shall be null and
void and the parties shall continue to comply with all terms and conditions of
the Transaction Documents, as in effect prior to the execution of this
Agreement.

    

    8.           SECOND
CLOSING.

    

    No more
than three (3) Business Days following the earlier of (i) the Company’s receipt
of the AMEX Approval and (ii) the Company’s Common Stock being listed on the OTC
Bulletin Board (such date being the “Second Closing Date”), and
only if the AMEX Approval or OTC Bulletin Board listing has been completed, a
second Closing (the “Second
Closing”) shall be held at which:

    

    (a)           The
Company shall execute and deliver to the Investor the Investor’s Note and Common
Shares.

    

    (b)           The
Company shall execute and deliver to each Other Investor such Other Investor’s
Notes and Common Shares.

    

    (c)           The
Company shall execute and deliver to Kall the Kall Note.

    

    (d)           The
Company shall cancel the Existing Notes of the Investor, the Other Investors and
Kall.

    

    If the
Second Closing has not occurred by the close of business (PST) on February 13,
2009, the Company shall cause Stubbs to return to the Investor its Existing Note
in principal amount equal to the principal of the Investor’s Existing Note that
was to be exchanged for the Note and Common Shares at the Second
Closing.

    

    The Company shall file a Current Report
on Form 8-K announcing the Second Closing on or before 8:30 a.m., New York City
time, on the first Business Day following the Second Closing.

    

    Notwithstanding anything to the
contrary set forth in this Agreement, the Existing Note shall be deemed to be
outstanding for all purposes with respect to the principal amount to be
exchanged for the Note and the Common Shares until the Second Closing shall have
occurred.

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    

    9.           MISCELLANEOUS.

     

    (a)           Counterparts.  This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if the
signature were an original, not a facsimile signature.

     

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

     

    (c)           Severability.  If
any provision of this Agreement is prohibited by law or otherwise determined to
be invalid or unenforceable by a court of competent jurisdiction, the provision
that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable,
and the invalidity or unenforceability of such provision shall not affect the
validity of the remaining provisions of this Agreement so long as this Agreement
as so modified continues to express, without material change, the original
intentions of the parties as to the subject matter hereof and the prohibited
nature, invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties.  The parties will endeavor in good faith
negotiations to replace the prohibited, invalid or unenforceable provision(s)
with a valid provision(s), the effect of which comes as close as possible to
that of the prohibited, invalid or unenforceable provision(s).

     

    (d)           Governing Law; Jurisdiction;
Jury Trial.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.  Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof.  Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by
law.  EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH
OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    (e)           No Third Party
Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.

     

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

     

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

     

    (h)           Entire Agreement; Effect on
Prior Agreements; Amendments.  Except for the Transaction
Documents in effect prior to this Agreement (to the extent any such Transaction
Document is not amended by this Agreement), this Agreement supersedes all other
prior oral or written agreements between the Investor, the Company, their
affiliates and Persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters.  No
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the Investor.  No provision hereof
may be waived other than by an instrument in writing signed by the party against
whom enforcement is sought.  No consideration shall be offered or paid
to any Person to amend or consent to a waiver or modification of any provision
of any of the Transaction Documents unless the same consideration also is
offered to all of the parties to the Transaction Documents, holders of Notes or
holders of the Existing Warrants, as the case may be.  The Company has
not, directly or indirectly, made any agreements with any of the Investors
relating to the terms or conditions of the transactions contemplated by the
Transaction Documents, including through any agreement that is not identical to
this Agreement, except as set forth in the Transaction Documents.  In
the event that the Company enters into any such agreement with more favorable
terms than those set forth in this Agreement and the documents contemplated
hereby, the Investor shall be granted the benefit of such more beneficial
terms.

     

    (i)           Notices.  Any
notices, consents, waivers or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered:  (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided confirmation of transmission
is mechanically or electronically generated and kept on file by the sending
party); or (iii) one Business Day after deposit with an overnight courier
service, in each case properly addressed to the party to receive the
same.  The addresses and facsimile numbers for such communications
shall be:

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    If to the
Company:

     

    DigitalFX
International, Inc.

    3035 East
Patrick Lane, Suite 9

    Las
Vegas, Nevada 89120

    Facsimile:(702)
938-4052

    Attention:  Abraham
Sofer, Esq.

     

    If to the
Investor, to its address and facsimile number set forth in the Securities
Schedule attached hereto, or to such other address and/or facsimile number
and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change.  Written confirmation of receipt (A)
given by the recipient of such notice, consent, waiver or other communication,
(B) mechanically or electronically generated by the sender’s facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by an overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt from
an overnight courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

     

    (j)           Successors and
Assigns.  This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including
any purchasers of the Notes.  The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Investor, including by way of a Fundamental Transaction (unless
the Company is in compliance with the applicable provisions governing
Fundamental Transactions set forth in the Notes).  The Investor may
assign some or all of its rights hereunder without the consent of the Company,
in which event such assignee shall be deemed to be an Investor hereunder with
respect to such assigned rights.

     

    (k)           Survival.  Unless
this Agreement is terminated under Section 7, the representations and warranties
of the Company and the Investor contained herein and the agreements and
covenants set forth herein shall survive the Closing.

     

    (l)           Remedies.  The
Investor and each holder of the Securities shall have all rights and remedies
set forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law.  Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law.  Furthermore, the Company
recognizes that in the event that it fails to perform, observe, or discharge any
or all of its obligations under this Agreement, any remedy at law may prove to
be inadequate relief to the Investor.  The Company therefore agrees
that the Investor shall be entitled to seek temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages and
without posting a bond or other security.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    (m)           Indemnification.  In
consideration of the Investor’s execution and delivery of the Transaction
Documents, acquiring the Securities thereunder and entering into this Agreement
and in addition to all of the Company’s other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless the
Investor and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons’ agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against
any and all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees
and disbursements (the “Indemnified Liabilities”),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by the Investor pursuant to Section 4(b), or (iv) the status of
the Investor or holder of the Securities as an investor in the Company pursuant
to the transactions contemplated by the Transaction Documents.  To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.  Except as otherwise set forth herein, the mechanics
and procedures with respect to the rights and obligations under this Section
9(m) shall be the same as those set forth in Section 6 of the Registration
Rights Agreement.

     

    (n)           Independent Nature of
Investor’s Obligations and Rights.  The obligations of the
Investor under any Transaction Document (including this Agreement) are several
and not joint with the obligations of any Other Investor, and the Investor shall
not be responsible in any way for the performance of the obligations of any
Other Investor under any Transaction Document.  Nothing contained
herein or in any other Transaction Document, and no action taken by the Investor
pursuant hereto, shall be deemed to constitute the Investor and Other Investors
as a partnership, an association, a joint venture or any other kind of entity,
or create a presumption that the Investor and Other Investors are in any way
acting in concert or as a group, and the Company will not assert any such claim
with respect to the obligations or the transactions contemplated by the
Transaction Documents and the Company acknowledges that the Investor and Other
Investors are not acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction
Documents.  The Company acknowledges and the Investor confirms that
the Investor has independently participated in the negotiation of the
transactions contemplated hereby with the advice of its own counsel and
advisors.  The Investor shall be entitled to independently protect and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any Other Investor to be joined as an additional party in any
proceeding for such purpose.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    [Signature
Page Follows]

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    

    IN WITNESS WHEREOF, the
Investor and the Company have caused their respective signature pages to this
Agreement to be duly executed as of the date first written above.

     

    
      
        
          
            	
                    COMPANY:

                  
	 
      
	
                    DIGITALFX
      INTERNATIONAL, INC.

                  
	 
      
	 
      
	
                    By:

                  	   
      
	 
      	
                    Name:  Abraham
      Sofer

                    Title:  President

                  

          

        

      

    

     

    
      [Signature
Page to Amendment and Exchange Agreement]

       

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    IN WITNESS WHEREOF, the
Investor and the Company have caused their respective signature pages to this
Agreement to be duly executed as of the date first written above.

     

    
      
        
          
            
              	
                      INVESTOR:

                       

                       

                            
                        
      

                    
	 
      	 
      
	 
      	 
      
	
                      By:

                    	   
      
	 
      	
                      Name:

                      Title:

                    

            

          

        

      

    

    
       

      [Signature
Page to Amendment and Exchange Agreement]

       

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
A

     

    FORM
OF SECOND AMENDED AND RESTATED NOTE

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
B1

    SECURITIES
SCHEDULE 1

    

    
      
        
          
            
              
                	
                        (1)

                      	 	 	
                        (2)

                      	 	 	
                        (3)

                      	 	 	
                        (4)

                      	 	 	
                        (5)

                      	 	 	
                        (6)

                      	 	 	
                        (7)

                      	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                        Investor

                      	 	 	
                        Address
      and

                        Facsimile
      Number

                      	 	 	
                        Redemption
      Payment 

                        Amount

                      	 	 	
                        Aggregate

                        Principal

                        Amount
      of Second 

                        Amended
      and 

                        Restated

                        Notes

                      	 	 	
                        Number
      of Common 

                        Shares

                      	 	 	
                        Number
      of

                        WoozyFly
      Shares

                      	 	 	
                        2008
      Interest Payment

                      	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                        Portside
      Growth and Opportunity Fund

                      	 	 	
                        c/o
      Ramius LLC

                        599
      Lexington Ave., 20th Floor

                        New
      York, New York 10022

                        Attention: Jeffrey
      Smith

                                         
       Owen Littman

                        Facsimile: (212)
      201-4802

                                        
       (212) 845-7986

                        Telephone:
      (212) 845-7955

                                           
       (212) 201-4841

                        Residence: Cayman
      Islands

                      	 	 	$	464,285.71
      	 	 	$	408,767.15
      	 	 	 	3,678,172	 	 	 	3,942,857
      	 	 	$	51,624.30
      	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                        Highbridge
      International LLC

                      	 	 	
                        c/o
      Highbridge Capital Management, LLC

                        9
      West 57th St, 27th Floor

                        New
      York, NY 10019

                        Attn:
      Ari J. Storch /

                        Adam
      J. Chill

                        Tel:
      212-287-4720

                        Fax:
      212-751-0755

                        Residence:
      Cayman Islands

                      	 	 	$	139,285.71
      	 	 	$	122,630.15
      	 	 	 	1,103,451
      	 	 	 	1,182,857
      	 	 	$	15,487.29
      	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                        Iroquois
      Master Fund, Ltd.

                      	 	 	
                        641
      Lexington Avenue

                         26th
      Floor

                        New
      York, New York 10022

                        Attention: Joshua
      Silverman

                        Facsimile: (212)
      207-3452

                        Telephone:
      (212) 974-3070

                        Residence: Cayman
      Islands

                      	 	 	$	46,428.57
      	 	 	$	40,876.72
      	 	 	 	367,817
      	 	 	 	394,286
      	 	 	$	5,162.43
      	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                        TOTAL

                      	 	 	 	 	 	$	650,000.00	 	 	$	572,274.02
      	 	 	 	5,147,440
      	 	 	 	5,520,000
      	 	 	$	72,274.02
      	 

              

            

          

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      
        	
                EXHIBIT B2

                SECURITIES
      SCHEDULE 2

              

      

    

    

    
      
        	
                 (1)

              	 	 	
                 (2)

              	 	 	
                 (3)

              	 	 	
                 (4)

              	 	 	
                 (5)

              	 	 	
                 (6)

              	 	 	
                 (7)

              	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                
                  Investor

                

              	 	 	
                
                  Address
      and

                  Facsimile
      Number

                

              	 	 	
                
                  Redemption
      Payment 

                  Amount

                

              	 	 	
                
                  Aggregate

                  Principal

                  Amount
      of Second 

                  Amended
      and 

                  Restated

                  Notes

                

              	 	 	
                
                  Number
      of Common 

                  Shares

                

              	 	 	
                
                  Number
      of

                  WoozyFly
      Shares

                

              	 	 	
                
                  2008
      Interest Payment

                

              	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Portside
      Growth and Opportunity Fund

              	 	 	
                c/o
      Ramius LLC

                599
      Lexington Ave., 20th Floor

                New
      York, New York 10022

                Attention: Jeffrey
      Smith

                 Owen
      Littman

                Facsimile: (212)
      201-4802

                               
       (212) 845-7986

                Telephone:
      (212) 845-7955

                                 
       (212) 201-4841

                Residence: Cayman
      Islands

              	 	 	$	464,285.71	 	 	$	432,678.63	 	 	 	3,690,748	 	 	 	3,942,857	 	 	$	75,535.77	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Highbridge
      International LLC

              	 	 	
                c/o
      Highbridge Capital Management, LLC

                9
      West 57th St, 27th Floor

                New
      York, NY 10019

                Attn:
      Ari J. Storch /

                Adam
      J. Chill

                Tel:
      212-287-4720

                Fax:
      212-751-0755

                Residence:
      Cayman Islands

              	 	 	$	139,285.71	 	 	$	129,803.59	 	 	 	1,107,224	 	 	 	1,182,857	 	 	$	22,660.73	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Iroquois
      Master Fund, Ltd.

              	 	 	
                641
      Lexington Avenue

                 26th
      Floor

                New
      York, New York 10022

                Attention: Joshua
      Silverman

                Facsimile: (212)
      207-3452

                Telephone:
      (212) 974-3070

                Residence: Cayman
      Islands

              	 	 	$	46,428.58	 	 	$	43,267.86	 	 	 	369,074	 	 	 	394,286	 	 	$	7,553.58	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                TOTAL

              	 	 	 	 	 	$	650,000.00	 	 	$	605,750.08	 	 	 	5,167,046	 	 	 	5,520,000	 	 	$	105,750.08	 

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
C

     

    DISCLOSURE
SCHEDULE

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
D

     

    FORM
OF KALL AGREEMENT

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
E

     

    FORM
OF KALL SECOND AMENDED AND RESTATED NOTE

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
F

     

    FORM
OF WOOZYFLY INC. REGISTRATION RIGHTS AGREEMENT

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
G

     

    FORM
OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
H

     

    FORM
OF OFFICER’S CERTIFICATENEITHER
THE ISSUANCE AND SALE OF THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS
CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS.  THESE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THESE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A REASONABLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE
FOREGOING, THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.  ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE
TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a)
HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND,
ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE
AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
NOTE.

     

    DigitalFX
International, Inc.

     

    Second
Amended and Restated Senior Secured Convertible Note

     

    
      	
              Issuance
      Date:  November 30, 2007

            	
              Original
      Principal Amount: U.S.$___________

            

    

    

    FOR VALUE RECEIVED, DigitalFX
International, Inc., a Florida corporation (the “Company”), hereby promises to
pay to _________________________________________ or registered assigns (“Holder”) the amount set out
above as the Original Principal Amount (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether
upon the Maturity Date (as defined below), on any Installment Date with respect
to the Installment Due on such Installment Date (each as defined herein),
acceleration, redemption or otherwise (in each case in accordance with the terms
hereof) and to pay interest (“Interest”) on any outstanding
Principal at the applicable Interest Rate, from the date set out above as the
Issuance Date (the “Issuance Date”) until the same becomes
due and payable, whether upon an Interest Date (as defined below), any
Installment Date, the Maturity Date, acceleration, conversion, redemption or
otherwise (in each case in accordance with the terms hereof).  This
Second Amended and Restated Senior Secured Convertible Note amends, supplements,
modifies and completely restates and supersedes the Amended and Restated Senior
Secured Convertible Note, dated as of the Issuance Date (the “Existing Note”), issued by the
Company to the Holder with an Original Principal Amount of ________________, but
shall not, except as specifically amended hereby or as set forth in the Holder’s
Amendment and Exchange Agreement (as defined below), constitute a release,
satisfaction or novation of any of the obligations under the Existing Note or
any other Transaction Document (as defined in the Securities Purchase
Agreement).  This Second Amended and Restated Senior Secured
Convertible Note (including all Second Amended and Restated Senior Secured
Convertible Notes issued in exchange, transfer or replacement hereof, this
“Note”) is one of an
issue of Second Amended and Restated Senior Secured Convertible Notes
(collectively, the “Notes” and such other Second
Amended and Restated Senior Secured Convertible Notes, the “Other Notes”) amending and restating
the terms of the Existing Note pursuant to [Section 1 of those certain Amendment
and Exchange Agreements, dated as of December 22, 2008 (the “Replacement Date”), by and
between each of the Buyers (as defined in the Securities Purchase Agreement) and
the Company (individually, with respect to any Buyer, the “Amendment and Exchange
Agreement” and collectively, with respect to all Buyers, the “Amendment and Exchange
Agreements”)][that certain Framework Agreement dated as of December 22,
2008 (the “Replacement
Date”), by and between the Company and Richard Kall].  Certain
capitalized terms used herein are defined in Section 29.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    (1)           PAYMENTS OF
PRINCIPAL.  On each Installment Date, the Company shall pay to
the Holder an amount equal to the Installment Amount due on such Installment
Date in accordance with Section 8.  On the Maturity Date, the Company
shall pay to the Holder an amount in cash representing all outstanding
Principal, accrued and unpaid Interest and accrued and unpaid Late Charges, if
any, on such Principal and Interest.  The “Maturity Date” shall be November 30,
2010, as may be extended at the option of the Holder (i) in the event that, and
for so long as, an Event of Default (as defined in Section 4(a)) shall have
occurred and be continuing on the Maturity Date (as may be extended pursuant to
this Section 1) or any event that shall have occurred and be continuing that
with the passage of time and the failure to cure would result in an Event of
Default and (ii) through the date that is ten (10) Business Days after the
consummation of a Change of Control in the event that a Change of Control is
publicly announced or a Change of Control Notice (as defined in Section 5(b)) is
delivered prior to the Maturity Date.  The Company may, at any time
while this Note is outstanding, prepay any portion of the outstanding Principal,
accrued and unpaid Interest or accrued and unpaid Late Charges, if any, on such
Principal and Interest.

     

    (2)           INTEREST; INTEREST
RATE.  Interest on this Note shall commence accruing on the
Replacement Date and shall be computed on the basis of a 360-day year comprised
of twelve (12) thirty (30) day months and shall be payable in arrears for each
Calendar Quarter on the first day of the succeeding Calendar Quarter during the
period beginning on the Replacement Date and ending on, and including, the
Maturity Date (each, an “Interest Date”) with the first Interest
Date being April 1, 2009, in cash.  Prior to the payment of Interest
on an Interest Date, Interest on this Note shall accrue at the Interest Rate and
be payable by way of inclusion of the Interest in the Conversion Amount in
accordance with Section 3(b)(i).  From and after the occurrence of an
Event of Default, the Interest Rate shall be increased to twelve percent
(12.0%).  In the event that such Event of Default is subsequently
cured, the adjustment referred to in the preceding sentence shall cease to be
effective as of the date of such cure; provided that the Interest as calculated
at such increased rate during the continuance of such Event of Default shall
continue to apply to the extent relating to the days after the occurrence of
such Event of Default through and including the date of cure of such Event of
Default.

    
      
         

      

      
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    (3)           CONVERSION OF
NOTES.  This Note shall be convertible into shares of the
Company’s common stock, par value $0.001 per share (the “Common Stock”), on the terms
and conditions set forth in this Section 3.

     

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

     

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

     

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

     

    (ii)           “Conversion Price” means, as of
any Conversion Date (as defined below) or other date of determination, $0.24,
subject to adjustment as provided herein.

     

    (c)           Mechanics of
Conversion.

     

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

    
      
         

      

      
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    (ii)           Company’s Failure to Timely
Convert.  If within three (3) Trading Days after the Company’s
receipt of the facsimile copy of a Conversion Notice the Company shall fail to
issue and deliver a certificate to the Holder or credit the Holder’s balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon conversion of any Conversion Amount (a “Conversion Failure”), then (A)
the Company shall pay damages to the Holder for each day of such Conversion
Failure in an amount equal to 1.5% of the product of (I) the sum of the number
of shares of Common Stock not issued to the Holder on or prior to the Share
Delivery Date and to which the Holder is entitled, and (II) the Closing Sale
Price of the Common Stock on the Share Delivery Date and (B) the Holder, upon
written notice to the Company, may void its Conversion Notice with respect to,
and retain or have returned, as the case may be, any portion of this Note that
has not been converted pursuant to such Conversion Notice; provided that the
voiding of a Conversion Notice shall not affect the Company’s obligations to
make any payments which have accrued prior to the date of such notice pursuant
to this Section 3(c)(ii) or otherwise.  In addition to the foregoing,
if within three (3) Trading Days after the Company’s receipt of the facsimile
copy of a Conversion Notice the Company shall fail to issue and deliver a
certificate to the Holder or credit the Holder’s balance account with DTC for
the number of shares of Common Stock to which the Holder is entitled upon such
holder’s conversion of any Conversion Amount, and if on or after such Trading
Day the Holder purchases (in an open market transaction or otherwise) Common
Stock to deliver in satisfaction of a sale by the Holder of Common Stock
issuable upon such conversion that the Holder anticipated receiving from the
Company (a “Buy-In”),
then the Company shall, within three (3) Trading Days after the Holder’s request
and in the Holder’s discretion, either (i) pay cash to the Holder in an amount
equal to the Holder’s total purchase price (including brokerage commissions and
other out-of-pocket expenses, if any) for the shares of Common Stock so
purchased (the “Buy-In
Price”), at which point the Company’s obligation to issue and deliver
such certificate or to credit the Holder’s balance account with DTC for the
number of shares of Common Stock to which the Holder is entitled upon such
Holder’s conversion of any Conversion Amount shall terminate, or (ii) promptly
honor its obligation to deliver to the Holder a certificate or certificates
representing such Common Stock and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the Conversion
Date.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    (iii)           Registration;
Book-Entry.  The Company shall maintain a register (the “Register”) for the recordation
of the names and addresses of the holders of each Note and the principal amount
of the Notes held by such holders (the “Registered
Notes”).  The entries in the Register shall be conclusive and
binding for all purposes absent manifest error.  The Company and the
holders of the Notes shall treat each Person whose name is recorded in the
Register as the owner of a Note for all purposes, including, without limitation,
the right to receive payments of principal and interest hereunder,
notwithstanding notice to the contrary.  A Registered Note may be
assigned or sold in whole or in part only by registration of such assignment or
sale on the Register.  Upon its receipt of a request to assign or sell
all or part of any Registered Note by a Holder, the Company shall record the
information contained therein in the Register and issue one or more new
Registered Notes in the same aggregate principal amount as the principal amount
of the surrendered Registered Note to the designated assignee or transferee
pursuant to Section 18.  Notwithstanding anything to the contrary set
forth herein, upon conversion of any portion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this Note
to the Company unless (A) the full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting
reissuance of this Note upon physical surrender of this Note.  The
Holder and the Company shall maintain records showing the Principal, Interest
and Late Charges, if any, converted and the dates of such conversions or shall
use such other method, reasonably satisfactory to the Holder and the Company, so
as not to require physical surrender of this Note upon conversion.

     

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

     

    (v)           Company’s Right of Mandatory
Conversion.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    (A)           Mandatory
Conversion.  If at any time from and after the Replacement Date
(the “Mandatory Conversion
Eligibility Date”), (i) the Closing Sale Price of the Common Stock equals
or exceeds for each of any ten (10) consecutive Trading Days following the
Mandatory Conversion Eligibility Date (the “Initial Mandatory Conversion Measuring
Period”) $0.288 (as adjusted for any stock splits, stock dividends,
recapitalizations, combinations, reverse stock splits or other similar events
during such period) and (ii) there shall not have been any Equity Conditions
Failure, the Company shall have the right to require the Holder to convert fifty
percent (50%) of the Conversion Amount then remaining under this Note into fully
paid, validly issued and non-assessable shares of Common Stock in accordance
with Section 3(c) hereof at the Conversion Rate as of the Initial Mandatory
Conversion Date (as defined below) with respect to fifty percent (50%) of the
Conversion Amount (the “Initial Mandatory Conversion”);
provided, however, that the Company cannot require the Holder to convert any
Conversion Amount that would result in the issuance of shares of Common Stock in
excess of the Share Cap (as defined below).  If at any time beginning
at least five (5) trading days from and after the Initial Mandatory Conversion
Date, the Closing Sale Price of the Common Stock equals or exceeds for each of
any ten (10) consecutive Trading Days following such five (5)-day period (the
“Second Mandatory Conversion Measuring
Period”) $0.312 (as adjusted for any stock splits, stock dividends,
recapitalizations, combinations, reverse stock splits or other similar events
during such period), the Company shall have the right to require the Holder to
convert the Conversion Amount then remaining under this Note into fully paid,
validly issued and non-assessable shares of Common Stock in accordance with
Section 3(c) hereof at the Conversion Rate as of the Second Mandatory
Conversion Date (as defined below) with respect to such Conversion Amount (the
“Second Mandatory
Conversion”); provided, however, that the Company cannot require the
Holder to convert any Conversion Amount that would result in the issuance of
shares of Common Stock in excess of the Share Cap.  The Initial
Mandatory Conversion Measuring Period and the Second Mandatory Conversion
Measuring Period are hereinafter sometimes referred to as a “Mandatory Conversion Measuring
Period,” and the Initial Mandatory Conversion and the Second Mandatory
Conversion are hereinafter sometimes referred to as a “Mandatory
Conversion.”  The Company may exercise its right to require
conversion under this Section 3(c)(v)(A) by delivering within not more than two
(2) Trading Days following the end of any such Mandatory Conversion Measuring
Period a written notice thereof by facsimile and overnight courier to all, but
not less than all, of the holders of Notes and the Transfer Agent (the “Mandatory Conversion Notice”
and the date all of the holders received such notice is referred to as the
“Mandatory Conversion Notice
Date”).  The Company may deliver one (1) Mandatory Conversion
Notice hereunder with respect to each of the Initial Mandatory Conversion and
the Second Mandatory Conversion and each such Mandatory Conversion Notice shall
be irrevocable.  The Mandatory Conversion Notice shall state (1) the
Trading Day selected for the Mandatory Conversion in accordance herewith, which
Trading Day shall be at least twenty (20) Trading Days but not more than sixty
(60) Trading Days following the Mandatory Conversion Notice Date (with respect
to the Initial Mandatory Conversion, the “Initial Mandatory Conversion Date,”
with respect to the Second Mandatory Conversion, the “Second Mandatory Conversion
Date” and each hereinafter sometimes referred to as a “Mandatory Conversion Date”),
(2) the aggregate Conversion Amount of the Notes subject to mandatory conversion
from all of the holders of the Notes pursuant hereto (and analogous provisions
under the Other Notes) and (3) the number of shares of Common Stock to be issued
to the Holder on the applicable Mandatory Conversion Date.  All
Conversion Amounts converted by the Holder after each Mandatory Conversion
Notice Date shall reduce the Conversion Amount of this Note required to be
converted on the applicable Mandatory Conversion Date.  The mechanics
of conversion set forth in Section 3(c) shall apply to any Mandatory Conversion
as if the Company and the Transfer Agent had received from the Holder on the
Mandatory Conversion Date a Conversion Notice with respect to the Conversion
Amount being converted pursuant to the Mandatory
Conversion.  Notwithstanding the foregoing, if the Company cannot
effect a Mandatory Conversion, in whole or in part, of the Conversion Amount of
this Note (such portion, the “Unconverted Amount”) as
contemplated in any Mandatory Conversion Notice due to the limitation on
conversions set forth in Section 3(d)(i), then, as of the applicable Mandatory
Conversion Date, Interest on such Unconverted Amount shall cease to accrue, no
further installment amounts shall be payable with respect to such Unconverted
Amount and such Unconverted Amount shall be converted in accordance with Section
3(c)(i) on such date such conversion is permitted under Section
3(d)(i).

    
      
         

      

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

     

    (d)           Limitations on
Conversions.

     

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

    
      
         

      

      
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    (ii)           Principal Market
Regulation.  The Company shall not be obligated to issue any
shares of Common Stock upon conversion of this Note, and the Holder of this Note
shall not have the right to receive upon conversion of this Note any shares of
Common Stock, if the issuance of such shares of Common Stock would exceed the
aggregate number of shares of Common Stock which the Company may issue upon
conversion or exercise, as applicable, of the Notes and Warrants without
breaching the Company’s obligations under the rules or regulations of the
Principal Market (which the parties acknowledge is currently 19.99% of the
outstanding shares of Common Stock on the date immediately prior to the
Replacement Date) (the “Exchange Cap”), except that
such limitation shall not apply in the event that the Company (A) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market for issuances of Common Stock in excess of such amount or (B)
obtains a written opinion from outside counsel to the Company that such approval
is not required, which opinion shall be reasonably satisfactory to the Required
Holders.  Until such approval or written opinion is obtained, no
purchaser of the Notes pursuant to the Securities Purchase Agreement (each a
“Purchaser” and,
collectively, the “Purchasers”) shall be issued
in the aggregate, upon conversion or exercise, as applicable, of Notes or
Warrants, shares of Common Stock in an amount greater than the product of the
Exchange Cap multiplied by a fraction, the numerator of which is the principal
amount of Notes issued to each Purchaser pursuant to the Securities Purchase
Agreement on the Closing Date and the denominator of which is the aggregate
principal amount of all Notes issued to the Purchasers pursuant to the
Securities Purchase Agreement on the Closing Date (with respect to each
Purchaser, the “Exchange Cap
Allocation”).  In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser’s Notes, the transferee shall be
allocated a pro rata portion of such Purchaser’s Exchange Cap Allocation, and
the restrictions of the prior sentence shall apply to such transferee with
respect to the portion of the Exchange Cap Allocation allocated to such
transferee.  In the event that any holder of Notes shall convert all
of such holder’s Notes into a number of shares of Common Stock which, in the
aggregate, is less than such holder’s Exchange Cap Allocation, then the
difference between such holder’s Exchange Cap Allocation and the number of
shares of Common Stock actually issued to such holder shall be allocated to the
respective Exchange Cap Allocations of the remaining holders of Notes on a pro
rata basis in proportion to the aggregate principal amount of the Notes then
held by each such holder.

    
      
         

      

      
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    (iii)           No Conversion in Excess of
Cap.  Notwithstanding anything herein to the contrary, the
Company shall not be obligated to issue shares of Common Stock upon conversion
of the Notes and the exercise of the Warrants in excess of 45,000,000 in the
aggregate (the “Share
Cap”).  To the extent that any conversion hereunder would
require the Company to issue shares in excess of the Share Cap, the Company
shall only be obligated to issue to the Holder upon such conversion that amount
of shares which would not exceed the Share Cap.

     

    (4)           RIGHTS UPON EVENT OF
DEFAULT.

     

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

     

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

     

    (ii)           the
suspension from trading or failure of the Common Stock to be listed on an
Eligible Market for a period of five (5) consecutive Trading Days or for more
than an aggregate of ten (10) Trading Days in any 365-day period;

     

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

     

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

     

    (v)           the
Company’s failure to pay to the Holder any amount of Principal, Redemption
Price, Interest, Late Charges or other amounts when and as due under this Note
or any other Transaction Document (as defined in the Securities Purchase
Agreement) or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated hereby and thereby to
which the Holder is a party, except, in the case of a failure to pay Interest
and Late Charges when and as due, in which case only if such failure continues
for a period of at least three (3) Business Days;

    
      
         

      

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

     

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

     

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

     

    (ix)          a
final judgment or judgments for the payment of money aggregating in excess of
the Judgment Default Amount are rendered against the Company or any of its
Subsidiaries and which judgments are not, within sixty (60) days after the entry
thereof, bonded, discharged or stayed pending appeal, or are not discharged
within sixty (60) days after the expiration of such stay; provided, however,
that any judgment which is covered by insurance or an indemnity from a
creditworthy party shall not be included in calculating the Judgment Default
Amount so long as the Company provides the Holder a written statement from such
insurer or indemnity provider (which written statement shall be reasonably
satisfactory to the Holder) to the effect that such judgment is covered by
insurance or an indemnity and the Company will receive the proceeds of such
insurance or indemnity within thirty (30) days of the issuance of such
judgment;

     

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

     

    (xi)          any
breach or failure in any respect to comply with Section 14 of this Note or any
Financial Covenant Failure (as defined below), except, in the case of a breach
of a covenant which is curable, only if such breach continues for a period of at
least ten (10) consecutive Business Days;

     

    (xii)         a
Public Information Failure (as defined in the Securities Purchase Agreement)
only if such failure continues for a period of at least three (3) consecutive
Business Days; or

     

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

    
      
         

      

      
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    (b)           Redemption
Right.  Upon the occurrence of an Event of Default with respect
to this Note or any Other Note, the Company shall within one (1) Business Day
deliver written notice thereof via facsimile and overnight courier (an “Event of Default Notice”) to
the Holder.  At any time after the earlier of the Holder’s receipt of
an Event of Default Notice and the Holder becoming aware of an Event of Default,
the Holder may require the Company to redeem all or any portion of this Note by
delivering written notice thereof (the “Event of Default Redemption
Notice”) to the Company, which Event of Default Redemption Notice shall
indicate the portion of this Note the Holder is electing to redeem; provided,
that notwithstanding the foregoing, solely with respect to any Event of Default
set forth in Sections 4(a)(ii) and (iv), the Holder may not submit an Event of
Default Redemption Notice after the thirtieth (30th) Business Day after the
later of (x) the date such Event of Default is cured or otherwise resolved and
(y) the date the Company delivers the Event of Default Notice with respect to
such Event of Default to the Holder.  Each portion of this Note
subject to redemption by the Company pursuant to this Section 4(b) shall be
redeemed by the Company at a price equal to the greater of (i) the product of
(A) the Conversion Amount to be redeemed and (B) the Redemption Premium and (ii)
the product of (A) the Conversion Rate with respect to such Conversion Amount in
effect at such time as the Holder delivers an Event of Default Redemption Notice
and (B) the greater of (I) the Closing Sale Price of the Common Stock on the
date immediately preceding such Event of Default, (II) the Closing Sale Price of
the Common Stock on the date immediately after such Event of Default and (III)
the Closing Sale Price of the Common Stock on the date the Holder delivers the
Event of Default Redemption Notice (the “Event of Default Redemption
Price”).  Redemptions required by this Section 4(b) shall be
made in accordance with the provisions of Section 12.  To the extent
redemptions required by this Section 4(b) are deemed or determined by a court of
competent jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments.  The parties
hereto agree that in the event of the Company’s redemption of any portion of the
Note under this Section 4(b), the Holder’s damages would be uncertain and
difficult to estimate because of the parties’ inability to predict future
interest rates and the uncertainty of the availability of a suitable substitute
investment opportunity for the Holder.  Accordingly, any Redemption
Premium due under this Section 4(b) is intended by the parties to be, and shall
be deemed, a reasonable estimate of the Holder’s actual loss of its investment
opportunity and not as a penalty.  In the event of a partial
redemption of this Note pursuant hereto, the principal amount redeemed shall be
deducted from the Installment Amounts relating to the applicable Installment
Dates or from the Maturity Date Payment or from any other amount owing from the
Company pursuant hereto as set forth in the Event of Default Redemption
Notice.

    
      
         

      

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

     

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

     

    (b)           Redemption
Right.  No sooner than fifteen (15) days nor later than ten
(10) days prior to the consummation of a Change of Control, but not prior to the
public announcement of such Change of Control, the Company shall deliver written
notice thereof via facsimile and overnight courier to the Holder (a “Change of Control Notice”).  At any
time during the period beginning on the date of the Holder’s receipt of a Change
of Control Notice and ending twenty (20) Trading Days after the consummation of
such Change of Control, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof (“Change of Control Redemption
Notice”) to the Company, which Change of Control Redemption Notice shall
indicate the Conversion Amount the Holder is electing to redeem.  The
portion of this Note subject to redemption pursuant to this Section 5 shall be
redeemed by the Company in cash at a price equal to the greater of (i) the
product of (x) the Conversion Amount being redeemed and (y) the quotient
determined by dividing (A) the greater of the Closing Sale Price of the Common
Stock immediately prior to the consummation of the Change of Control, the
Closing Sale Price immediately following the public announcement of such
proposed Change of Control and the Closing Sale Price of the Common Stock
immediately prior to the public announcement of such proposed Change of Control
by (B) the Conversion Price and (ii) 125% of the Conversion Amount being
redeemed (the “Change of
Control Redemption Price”).  Redemptions required by this
Section 5 shall be made in accordance with the provisions of Section 12 and
shall have priority to payments to stockholders in connection with a Change of
Control.  To the extent redemptions required by this Section 5(b) are
deemed or determined by a court of competent jurisdiction to be prepayments of
the Note by the Company, such redemptions shall be deemed to be voluntary
prepayments.  Notwithstanding anything to the contrary in this Section
5, but subject to Section 3(d), until the Change of Control Redemption Price
(together with any interest thereon) is paid in full, the Conversion Amount
submitted for redemption under this Section 5(c) may be converted, in whole or
in part, by the Holder into shares of Common Stock, or in the event the
Conversion Date is after the consummation of the Change of Control, shares of
publicly traded common stock (or their equivalent) of the Successor Entity
pursuant to Section 3.  The parties hereto agree that in the event of
the Company’s redemption of any portion of the Note under this Section 5(b), the
Holder’s damages would be uncertain and difficult to estimate because of the
parties’ inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the
Holder.  Accordingly, any redemption premium due under this Section
5(b) is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder’s actual loss of its investment opportunity and not as a
penalty.  In the event of a partial redemption of this Note pursuant
hereto, the principal amount redeemed shall be deducted from the Installment
Amounts relating to the applicable Installment Dates or from the Maturity Date
Payment or from any other amount owing from the Company pursuant hereto as set
forth as set forth in the Change of Control Redemption Notice.

    
      
         

      

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

     

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

     

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

    
      
         

      

      
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    (7)           RIGHTS UPON ISSUANCE OF
OTHER SECURITIES.

     

    (a)           Adjustment of Conversion
Price upon Issuance of Common Stock.  If and whenever on or
after the Subscription Date through the eighteen (18) month anniversary of the
Issuance Date, the Company issues or sells, or in accordance with this Section
7(a) is deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
or sold by the Company in connection with any Excluded Security) for a
consideration per share (the “New Issuance Price”) less than
a price (the “Applicable
Price”) equal to $0.24 (as adjusted for any stock splits, stock
dividends, recapitalizations, combinations, reverse stock splits or other
similar events) (the foregoing a “Dilutive Issuance”), then
immediately after such Dilutive Issuance, the Conversion Price then in effect
shall be reduced to an amount equal to the New Issuance Price.  If and
whenever after the eighteen (18) month anniversary of the Issuance Date, the
Company issues or sells, or in accordance with this Section 7(a) is deemed to
have issued or sold, any shares of Common Stock (including the issuance or sale
of shares of Common Stock owned or held by or for the account of the Company,
but excluding shares of Common Stock deemed to have been issued or sold by the
Company in connection with any Excluded Security) in a Dilutive Issuance, then
immediately after such Dilutive Issuance, the Conversion Price then in effect
shall be reduced to an amount equal the product of (A) the Conversion Price
in effect immediately prior to such Dilutive Issuance and (B) the quotient
determined by dividing (1) the sum of (I) the product derived by
multiplying the Conversion Price in effect immediately prior to such Dilutive
Issuance and the number of shares of Common Stock Deemed Outstanding immediately
prior to such Dilutive Issuance plus (II) the consideration, if any,
received by the Company upon such Dilutive Issuance, by (2) the product derived
by multiplying (I) the Conversion Price in effect immediately prior to such
Dilutive Issuance by (II) the number of shares of Common Stock Deemed
Outstanding immediately after such Dilutive Issuance.  For purposes of
determining the adjusted Conversion Price under this Section 7(a), the following
shall be applicable:

     

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

    
      
         

      

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

    (d)           De Minimis
Adjustments.  No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.01 in such price; provided, however, that any adjustment which by
reason of this Section 7(d) is not required to be made shall be carried forward
and taken into account in any subsequent adjustments under this Section
7.  All calculations under this Section 7 shall be made by the Company
in good faith and shall be made to the nearest cent or to the nearest one
hundredth of a share, as applicable.  No adjustment need be made for a
change in the par value or no par value of the Company’s Common
Stock.

    
      
         

      

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

     

    (8)           INSTALLMENTS. On each
applicable Installment Date, the Company shall pay to the Holder of this Note
the Installment Amount due as of such date.  The Installment Amount
shall be payable by the Company in cash on the applicable Installment Date by
wire transfer of immediately available funds.  Notwithstanding
anything to the contrary in this Section 8 until the applicable Installment
Amount (together with any interest thereon) is paid in full, the Installment
Amount (together with any interest thereon) may be converted, in whole or in
part, by the Holder into Common Stock pursuant to Section 3.  In the
event the Holder elects to convert all or any portion of the Installment Amount
prior to the applicable Installment Date as set forth in the immediately
preceding sentence, the Conversion Amount so converted shall be deducted from
the Installment Amounts relating to the Installment Dates as set forth in the
applicable Conversion Notice.

     

    (9)           SECURITY.  This
Note and the Other Notes are secured to the extent and in the manner set forth
in the Security Documents (as defined in the Securities Purchase
Agreement).

     

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

     

    (11)           RESERVATION OF AUTHORIZED
SHARES.

     

    (a)           Reservation.  The
Company shall initially reserve out of its authorized and unissued Common Stock
a number of shares of Common Stock for each of the Notes equal to 100% of the
Conversion Rate with respect to the Conversion Amount of each such Note as of
the Issuance Date.  So long
as any of the Notes are outstanding, the Company shall take all action necessary
to reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes, 100% of the
number of shares of Common Stock as shall from time to time be necessary to
effect the conversion of all of the Notes then outstanding; provided that at no
time shall the number of shares of Common Stock so reserved be less than the
number of shares required to be reserved by the previous sentence (without
regard to any limitations on conversions) (the “Required Reserve
Amount”).  The initial number of shares of Common Stock
reserved for conversions of the Notes and each increase in the number of shares
so reserved shall be allocated pro rata among the holders of the Notes based on
the principal amount of the Notes held by each holder at the Closing (as defined
in the Securities Purchase Agreement) or increase in the number of reserved
shares, as the case may be (the “Authorized Share
Allocation”).  In the event that a holder shall sell or
otherwise transfer any of such holder’s Notes, each transferee shall be
allocated a pro rata portion of such holder’s Authorized Share
Allocation.  Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.

    
      
         

      

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

     

    (12)           HOLDER’S
REDEMPTIONS.

     

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

    
      
         

      

      
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    (b)           Redemption by Other
Holders.  Upon the Company’s receipt of notice from any of the
holders of the Other Notes for redemption or repayment as a result of an event
or occurrence substantially similar to the events or occurrences described in
Section 4(b), Section 5(b) or Section 8 (each, an “Other Redemption Notice”), the
Company shall immediately, but no later than two (2) Business Days of its
receipt thereof, forward to the Holder by facsimile a copy of such
notice.  If the Company receives a Redemption Notice and one or more
Other Redemption Notices, during the seven (7) Business Day period beginning on
and including the date which is three (3) Business Days prior to the Company’s
receipt of the Holder’s Redemption Notice and ending on and including the date
which is three (3) Business Days after the Company’s receipt of the Holder’s
Redemption Notice and the Company is unable to redeem all principal, interest
and other amounts designated in such Redemption Notice and such Other Redemption
Notices received during such seven (7) Business Day period, then the Company
shall redeem a pro rata amount from each holder of the Notes (including the
Holder) based on the principal amount of the Notes submitted for redemption
pursuant to such Redemption Notice and such Other Redemption Notices received by
the Company during such seven (7) Business Day period.

     

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

     

    (14)           COVENANTS.

     

    (a)           Rank. All payments
due under this Note (i) shall rank pari passu with all Other
Notes and (ii) shall be senior to all other Indebtedness of the Company and its
Subsidiaries, other than Permitted Indebtedness secured by Permitted
Liens.

     

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

     

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

    
      
         

      

      
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    (d)           Restricted
Payments.  The Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Indebtedness (other than this Note and the Other Notes), whether by way of
payment in respect of principal of (or premium, if any) or interest on such
Indebtedness, if at the time such payment is due or is otherwise made or, after
giving effect to such payment, an event constituting, or that with the passage
of time and without being cured would constitute, an Event of Default has
occurred and is continuing; provided that notwithstanding the foregoing, no
principal (or any portion thereof) of any Subordinated Indebtedness may be paid
(whether upon maturity, redemption, acceleration or otherwise) so long as this
Note is outstanding.

     

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

     

    (f)           Financial Covenants;
Announcement of Operating Results.

     

    (i)           Consolidated Revenue
Test.  So long as this Note is outstanding, the Company’s
Consolidated Revenues as of the end of each Fiscal Quarter following the
Replacement Date shall equal or exceed the amount equal to the applicable
Consolidated Revenue threshold set forth in the first row of the Table of
Financial Thresholds attached hereto as Schedule I with
respect to such Fiscal Quarter (the “Consolidated Revenue
Test”).

     

    (ii)           Consolidated EBITDA
Test.  So long as this Note is outstanding, the Company’s
Consolidated EBITDA as of the end of each Fiscal Quarter following the
Replacement Date shall equal or exceed the amount equal to the applicable
Consolidated EBITDA threshold set forth in the second row of the Table of
Financial Thresholds attached hereto as Schedule I with
respect to such Fiscal Quarter (the “Consolidated EBITDA Test,” and
together with the Consolidated Revenue Test, the “Financial
Tests”).

     

    (iii)          Operating Results
Announcement.  Commencing with the Fiscal Quarter ending March
31, 2008, the Company shall publicly disclose and disseminate (such date, the
“Announcement Date”) its
operating results (the “Operating Results”) (x) for
each of the first three Fiscal Quarters of each fiscal year no later than the
forty-fifth (45th) day
after the end of such Fiscal Quarter and (y) for the fourth Fiscal Quarter
of each Fiscal Year, no later than the ninetieth (90th) day
after the end of such Fiscal Year, and in the event the Company shall have
satisfied the Financial Tests such announcement shall include a statement to the
effect that the Company is not in breach of the Financial Tests for such Fiscal
Quarter.  On the Announcement Date, the Company shall also provide to
the Holders a certification, executed on behalf of the Company by the Chief
Financial Officer of the Company, certifying that the Company satisfied the
Financial Tests for such Fiscal Quarter.  If the Company has failed to
meet any Financial Test for such Fiscal Quarter (a “Financial Covenant Failure”),
the foregoing written certification that the Company provides to the Holders
shall also state each Financial Test that has not been met (a “Financial Covenant Failure
Notice”).  Concurrently with the delivery of each Financial
Covenant Failure Notice (which shall constitute delivery of an Event of Default
Notice) to the Holders, the Company shall also make publicly available (as part
of a Quarterly Report on Form 10-Q, Annual Report on Form 10-K or on a Current
Report on Form 8-K, or otherwise) the Operating Results, the Financial Covenant
Failure Notice and the fact that an Event of Default has occurred under the
Notes.

    
      
         

      

      
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    (g)           Intellectual
Property.  So long as any Note is outstanding, the Company
shall not, and shall not permit any Subsidiary to, directly or indirectly, (i)
assign, transfer or otherwise encumber or allow any other Person to have any
rights or license to any of the Intellectual Property Rights (as defined in the
Securities Purchase Agreement) of the Company or its Subsidiaries other than
Permitted Indebtedness and Permitted Liens, (ii) grant any royalties and other
Indebtedness with respect to any of the Intellectual Property Rights other than
Permitted Indebtedness or (ii) take any action or inaction to impair the value
of their Intellectual Property Rights.

     

    (h)           Creation of New
Subsidiaries.  So long as the obligations of the Company under
this Note are outstanding, if the Company shall create or acquire any
Subsidiary, simultaneous with the creation or acquisition of such Subsidiary,
the Company shall (i) promptly cause such Subsidiary to become a guarantor by
executing a guaranty in favor of the Holder in form and substance reasonably
acceptable to the Company, the Subsidiary and the Holder, (ii) promptly cause
such Subsidiary to become a grantor under the Security Agreement by executing a
joinder to the Security Agreement in form and substance reasonably acceptable to
the Company, the Subsidiary and the Holder, (iii) promptly cause such Subsidiary
to become a pledgor by the Company and such Subsidiary executing a pledge
agreement in form and substance reasonably acceptable to the Company, the
Subsidiary and the Holder, and (iv) promptly cause such Subsidiary to duly
execute and/or deliver such opinions of counsel and other documents, in form and
substance reasonable acceptable to the Holder, as the Holder shall reasonably
request with respect thereto.

     

    (i)           Collateral
Accounts.

     

    (i)           If
at any time after the Closing Date, the average daily balance of any account of
the Company that is not subject to an account control agreement in favor of the
Collateral Agent exceeds $50,000 during any calendar month (including the
calendar month in which the Closing Date occurs), the Company shall, within
twenty (20) Business Days following the last day of such calendar month, deliver
to the Collateral Agent an account control agreement, in form and substance
reasonably satisfactory to the Collateral Agent, duly executed by the Company
and the depositary bank in which such account is maintained.

     

    (ii)           Notwithstanding
anything to the contrary contained in clause (a) above, and without limiting any
of the foregoing, if at any time on or after the date that is twenty (20)
Business Days following the Closing Date, the total aggregate amount of the
Company’s cash that is not subject to a control agreement in favor of the
Collateral Agent exceeds $100,000 (the “Maximum Free Cash Amount”),
the Company shall within two (2) Business Days following such date, transfer to
an account subject to an account agreement in favor of the Collateral Agent an
amount sufficient to reduce the total aggregate amount of the Company’s cash
that is not subject to an account control agreement in favor of the Collateral
Agent to an amount not in excess of the Maximum Free Cash
Amount.

    
      
         

      

      
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    (j)           Change in Collateral;
Collateral Records.  The Company shall (i) give the Collateral
Agent (as defined in the Securities Purchase Agreement) not less than thirty
(30) days’ prior written notice of any change in the location of any
Collateral (as defined in the Security Documents (as defined in the Securities
Purchase Agreement)) with respect to which the Collateral Agent has filed
financing statements and otherwise fully perfected its Liens thereon,
(ii) advise the Collateral Agent promptly, in sufficient detail, of any
material adverse change relating to the type, quantity or quality of the
Collateral or the Lien granted thereon and (iii) execute and deliver, and
cause each of its Subsidiaries to execute and deliver, to the Collateral Agent
for the benefit of the Holder and holders of the Other Notes from time to time,
solely for the Collateral Agent’s convenience in maintaining a record of
Collateral, such written statements and schedules as the Collateral Agent may
reasonably require, designating, identifying or describing the
Collateral.

     

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

     

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

     

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

     

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

    
      
         

      

      
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    (o)           Maintenance of
Insurance.  The Company shall maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations (including, without limitation, comprehensive general
liability insurance) with respect to its properties (including all real
properties leased or owned by it) and business, in such amounts and covering
such risks as is required by any governmental authority having jurisdiction with
respect thereto or as is carried generally in accordance with sound business
practice by companies in similar businesses similarly situated and in any event
in amount, adequacy and scope reasonably satisfactory to the Collateral
Agent.  All policies covering the Collateral are to be made payable to
the Collateral Agent for the benefit of the Holder and the holder of the Other
Notes, as its interests may appear, in case of loss, under a standard
non-contributory “lender” or “secured party” clause and are to contain such
other provisions as the Collateral Agent may require to fully protect the
interest of the Holder and the holder of the Other Notes in the Collateral and
to any payments to be made under such policies.  All certificates of
insurance are to be delivered to the Collateral Agent and the policies are to be
premium prepaid, with the loss payable and additional insured endorsement in
favor of the Collateral Agent and such other Persons as the Collateral Agent may
designate from time to time, and shall provide for not less than thirty (30)
days’ prior written notice to the Collateral Agent of the exercise of any right
of cancellation.  If the Company or any of its Subsidiaries fails to
maintain such insurance, the Collateral Agent may arrange for such insurance,
but at the Company’s expense and without any responsibility on the Collateral
Agent’s part for obtaining the insurance, the solvency of the insurance
companies, the adequacy of the coverage, or the collection of
claims.  Upon the occurrence and during the continuance of an Event of
Default, the Collateral Agent shall have the sole right, in the name of the
Holder and the holders of the Other Notes, the Company and its Subsidiaries, to
file claims under any insurance policies, to receive, receipt and give
aquittance for any payments that may be payable thereunder, and to execute any
and all endorsements, receipts, releases, assignments, reassignments or other
documents that may be necessary to effect the collection, compromise or
settlement of any claims under any such insurance policies.

     

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

     

    (16)           VOTE TO ISSUE, OR CHANGE THE
TERMS OF, NOTES.  The affirmative vote at a meeting duly called
for such purpose or the written consent without a meeting of the Required
Holders shall be required for any change or amendment to this Note or the Other
Notes.  No consideration shall be offered or paid to any holder of
Notes to amend or consent to a waiver or modification of the Notes unless the
same consideration also is offered to all of the holders of Notes.

     

    (17)           TRANSFER.  This
Note may be offered, sold, assigned or transferred by the Holder without the
consent of the Company, subject only to the provisions of Section 2(f) of the
Securities Purchase Agreement.

    
      
         

      

      
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    (18)           REISSUANCE OF THIS
NOTE.

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

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

     

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

     

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

     

    (23)           DISPUTE
RESOLUTION.  In the case of a dispute as to the determination
of the Closing Bid Price or the Closing Sale Price or the arithmetic calculation
of the Conversion Rate or any Redemption Price, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two (2)
Business Days of receipt, or deemed receipt, of the Conversion Notice or
Redemption Notice or other event giving rise to such dispute, as the case may
be, to the Holder.  If the Holder and the Company are unable to agree
upon such determination or calculation within three (3) Business Days of such
disputed determination or arithmetic calculation being submitted to the Holder,
then the Company shall, within two (2) Business Days submit via facsimile (a)
the disputed determination of the Closing Bid Price or the Closing Sale Price to
an independent, reputable investment bank selected by the Company and approved
by the Holder or (b) the disputed arithmetic calculation of the Conversion Rate
or any Redemption Price to the Company’s independent, outside
accountant.  The Company, at the Company’s expense, shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten (10) Business Days from the time it receives the
disputed determinations or calculations.  Such investment bank’s or
accountant’s determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.

    
      
         

      

      
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    (24)           NOTICES;
PAYMENTS.

     

    (a)           Notices.  Whenever
notice is required to be given under this Note, unless otherwise provided
herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement.  The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Note, including
in reasonable detail a description of such action and the reason
therefor.  Without limiting the generality of the foregoing, the
Company will give written notice to the Holder (i) immediately upon any
adjustment of the Conversion Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least twenty (20)
days prior to the date on which the Company closes its books or takes a record
(A) with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any pro rata subscription offer to holders of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to the Holder.

     

    (b)           Payments.  Whenever
any payment of cash is to be made by the Company to any Person pursuant to this
Note, such payment shall be made in lawful money of the United States of America
by a check drawn on the account of the Company and sent via overnight courier
service to such Person at such address as previously provided to the Company in
writing (which address, in the case of each of the Purchasers, shall initially
be as set forth on the Schedule of Buyers attached to the Securities Purchase
Agreement); provided that the Holder may elect to receive a payment of cash via
wire transfer of immediately available funds by providing the Company with prior
written notice setting out such request and the Holder’s wire transfer
instructions.  Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day and, in the case of
any Interest Date which is not the date on which this Note is paid in full, the
extension of the due date thereof shall not be taken into account for purposes
of determining the amount of Interest due on such date.  Any amount of
Principal or other amounts due under the Transaction Documents which is not paid
when due shall result in a late charge being incurred and payable by the Company
in an amount equal to interest on such amount at the rate of eighteen percent
(18%) per annum from the date such amount was due until the same is paid in full
(“Late
Charge”).

     

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

     

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

    
      
         

      

      
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    (27)           GOVERNING LAW; JURISDICTION; JURY
TRIAL.  This Note shall be construed and enforced in accordance
with, and all questions concerning the construction, validity, interpretation
and performance of this Note shall be governed by, the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York.  The Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper.  The Company hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address it set forth
on the signature page hereto and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law.  Nothing contained herein shall be deemed or operate
to preclude the Holder from bringing suit or taking other legal action against
the Company in any other jurisdiction to collect on the Company’s obligations to
the Holder, to realize on any collateral or any other security for such
obligations, or to enforce a judgment or other court ruling in favor of the
Holder.  THE COMPANY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH
OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED
HEREBY.

     

    (28)           SEVERABILITY. If any
provision of this Note is prohibited by law or otherwise determined to be
invalid or unenforceable by a court of competent jurisdiction, the provision
that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable,
and the invalidity or unenforceability of such provision shall not affect the
validity of the remaining provisions of this Note so long as this Note as so
modified continues to express, without material change, the original intentions
of the parties as to the subject matter hereof and the prohibited nature,
invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties.  The parties will endeavor in good faith
negotiations to replace the prohibited, invalid or unenforceable provision(s)
with a valid provision(s), the effect of which comes as close as possible to
that of the prohibited, invalid or unenforceable provision(s).

     

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

     

    (a)           “Approved Stock Plan” means any
employee benefit plan which has been approved by the Board of Directors of the
Company, pursuant to which the Company’s securities may be issued to any
employee, officer or director for services provided to the Company.

     

    (b)           “Bloomberg” means Bloomberg
Financial Markets.

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

     

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

     

    (d)           “Calendar Quarter” means each
of: the period beginning on and including January 1 and ending on and including
March 31; the period beginning on and including April 1 and ending on and
including June 30; the period beginning on and including July 1 and ending on
and including September 30; and the period beginning on and including October 1
and ending on and including December 31.

     

    (e)           “Change of Control” means any
Fundamental Transaction other than (i) any reorganization, recapitalization or
reclassification of the Common Stock in which holders of the Company’s voting
power immediately prior to such reorganization, recapitalization or
reclassification continue after such reorganization, recapitalization or
reclassification to hold publicly traded securities and, directly or indirectly,
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities, or (ii) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.

     

    (f)           “Closing Bid Price” and “Closing Sale Price” means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the “pink sheets” by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the
Holder.  If the Company and the Holder are unable to agree upon the
fair market value of such security, then such dispute shall be resolved pursuant
to Section 23.  All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.

     

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

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

     

    (h)           “Common Stock Deemed
Outstanding” means, at any given time, the number of shares of Common
Stock outstanding at such time, plus the number of shares of Common Stock deemed
to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii) hereof regardless of
whether the Options or Convertible Securities are actually exercisable at such
time, but excluding any Common Stock owned or held by or for the account of the
Company or issuable upon conversion or exercise, as applicable, of the Notes and
the Warrants.

     

    (i)           “Consolidated EBITDA” means,
for any period, Consolidated Net Income for such period (without giving effect
to any extraordinary gains or losses) adjusted by adding thereto (in each case
to the extent deducted in determining Consolidated Net Income for such period),
without duplication, the amount of (i) total interest expense (subtracting
therefrom any interest income) (inclusive of amortization of deferred financing
fees and other original issue discount and banking fees and charges (e.g., letter of
credit fees and commitment fees) including those arising from any beneficial
conversion feature of the Notes) of the Company and its Subsidiaries determined
on a consolidated basis for such period, (ii) all expenses and accounting
charges associated with the amendment and restatement of the Existing Notes,
including the loss, if any, on extinguishment of the Existing Notes, legal and
consulting fees, and other related expenses, (iii) provision for taxes based on
income and foreign withholding taxes for the Company and its Subsidiaries
determined on a consolidated basis for such period, (iv) all depreciation
and amortization expense of the Company and its Subsidiaries determined on a
consolidated basis for such period, and (v) all non-cash stock compensation
expenses of the Company (i.e., expenses paid through the issuance of equity
interests of Company, or options therefor, rather than in cash) incurred during
such period (except to the extent any such expense will require a cash payment
in a future period).

     

    (j)           “Consolidated Net Income”
means, for any period, the net income (or loss) of the Company and its
Subsidiaries for such period, determined on a consolidated basis (after any
deduction for minority interests).

     

    (k)           “Consolidated Revenues” means,
for any period, the total consolidated revenues of the Company and its
Subsidiaries for such period, as determined in accordance with
GAAP.

     

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

     

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

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

     

    (n)           “Eligible Market” means the
Principal Market, the OTC Bulletin Board, The New York Stock Exchange, Inc., The
NASDAQ Global Market, The NASDAQ Global Select Market or The Nasdaq Capital
Market.

     

    (o)           “Eligible Marketable
Securities” as of any date means marketable securities which would be
reflected on a consolidated balance sheet of the Company and its Subsidiaries
prepared as of such date in accordance with GAAP, and which are permitted under
the Company’s investment policies as in effect on the Issuance Date or approved
thereafter by the Company’s Board of Directors.

     

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

    
      
         

      

      
        30

        
          

        

      

      
         

      

    

     

    (q)           “Equity Conditions Failure”
means that on any day during the period commencing ten (10) Trading Days prior
to the Mandatory Conversion Notice Date through the Mandatory Conversion Date
the Equity Conditions have not been satisfied (or waived in writing by the
Holder).

     

    (r)           “Exchange Act” means the
Securities Exchange Act of 1934, as amended.

     

    (s)           “Excluded Securities” means any
Common Stock issued or issuable: (i) in connection with any Approved Stock Plan,
provided, however, that to the extent such Common Stock would result in a
Dilutive Issuance such number of shares of Common Stock does not exceed
1,000,000 shares of Common Stock in any twelve month period nor 3,000,000 shares
of Common Stock, in the aggregate; (ii) upon conversion of the Notes or the
exercise of the Warrants; (iii) pursuant to a bona fide firm commitment
underwritten public offering with Maxim Group LLC or another nationally
recognized underwriter which generates gross proceeds to the Company of at least
$10,000,000 (other than an “at-the-market offering” as defined in Rule 415(a)(4)
under the 1933 Act and “equity lines”); (iv) upon conversion, exercise or
exchange of any Options or Convertible Securities which are outstanding on the
day immediately preceding the Replacement Date, provided that the terms of such
Options or Convertible Securities are not amended, modified or changed on or
after the Replacement Date; (v) in connection with mergers, acquisitions,
strategic business partnerships or joint ventures, in each case with
non-affiliated third parties and otherwise on an arm’s-length basis, the primary
purpose of which, in the reasonable judgment of the Company’s Board of
Directors, is not to raise additional capital; (vi) upon conversion of 3,000,000
shares of Series A 12% Cumulative Convertible Preferred Stock issued or issuable
to Richard Kall as of the date hereof (including upon exercise of a warrant with
respect to 1,000,000 such shares); and (vii) aggregating to 1,500,000 shares
issued to John T. Moran on the Replacement Date pursuant to that certain
Consulting Agreement.

     

    (t)           “Fiscal Quarter” means each of the fiscal
quarters adopted by the Company for financial reporting purposes that correspond
to the Company’s fiscal year as of the date hereof that ends on December
31.

     

    (u)           “Fiscal Year” means the fiscal year
adopted by the Company for financial reporting purposes that ends on December
31.

    
      
         

      

      
        31

        
          

        

      

      
         

      

    

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

     

    (w)           “GAAP” means United States
generally accepted accounting principles, consistently applied in accordance
with past practices.

     

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

     

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

     

    
      
         

      

      
        32

        
          

        

      

      
         

      

    

     

    (z)           “Installment Amount” means,
with respect to any Installment Date, the lesser of (i) the sum of (A) the
product of $25,000 multiplied
by the Holder Pro Rata Amount plus (B) any accrued and unpaid Interest on such
amount and (ii) the Principal amount (plus any accrued and unpaid interest
thereon) under this Note as of such Installment Date, as any such Installment
Amount may be reduced pursuant to the terms of this Note, whether upon
conversion, redemption or otherwise.  For the avoidance of doubt, any
accrued and unpaid interest which may be paid pursuant to this definition shall
be deducted from the total interest to be paid on any subsequent Interest
Payment Date.

     

    (aa)           “Installment Date” means July
1, 2009 and the first (1st) day of
each calendar month thereafter prior to the Maturity Date.

     

    (bb)           “Interest Rate” means seven and
one-half percent (7.50%) per annum, subject to periodic adjustment pursuant to
Section 2.

     

    (cc)           “Judgment Default Amount”
means, as of any given date, the lesser of (i) $1,000,000 and (ii) 1% of the sum
of the Consolidated Revenue for the four completed Fiscal Quarters immediately
preceding such date.

     

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

     

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

     

    (ff)           “Permitted Indebtedness” means
(i) Indebtedness incurred by the Company that is made expressly subordinate in
right of payment to the Indebtedness evidenced by this Note, as reflected in a
written agreement acceptable to the Holder and approved by the Holder in
writing, and which Indebtedness does not provide at any time for (1) the
payment, prepayment, repayment, repurchase or defeasance, directly or
indirectly, of any principal or premium, if any, thereon until ninety-one (91)
days after the Maturity Date or later and (2) total interest and fees at a rate
in excess of seven and one-half percent (7.50%) per annum (collectively, the
“Subordinated Indebtedness”), (ii) Indebtedness secured by Permitted Liens
(other than the Existing Liens), (iii) Indebtedness evidenced by this Note and
the Other Notes, and (iv) extensions, refinancings and renewals of any items in
clauses (i) through (iii) above, provided that the principal amount is not
increased or the terms modified to impose more burdensome terms upon the Company
or its Subsidiaries, as the case may be.

    
      
         

      

      
        33

        
          

        

      

      
         

      

    

    (gg)        “Permitted Liens” means (i) any
Lien for taxes not yet due or delinquent or being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of
business by operation of law with respect to a liability that is not yet due or
delinquent, (iii) any Lien created by operation of law, such as materialmen’s
liens, mechanics’ liens and other similar liens, arising in the ordinary course
of business with respect to a liability that is not yet due or delinquent or
that are being contested in good faith by appropriate proceedings, (iv) Liens
(A) upon or in any equipment (as defined in the Security Agreement) acquired or
held by the Company or any of its Subsidiaries to secure the purchase price of
such equipment or indebtedness incurred solely for the purpose of financing the
acquisition or lease of such equipment, or (B) existing on such equipment at the
time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment, (v) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (i) and (iv) above, provided that any extension, renewal or replacement
Lien shall be limited to the property encumbered by the existing Lien and the
principal amount of the Indebtedness being extended, renewed or refinanced does
not increase, (vi) Liens securing the Company’s obligations under the Notes;
(vii) leases or subleases and licenses and sublicenses granted to others in the
ordinary course of the Company’s business, not interfering in any material
respect with the business of the Company and its Subsidiaries taken as a whole,
(viii) Liens in favor of customs and revenue authorities arising as a matter of
law to secure payments of custom duties in connection with the importation of
goods, (ix) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 4(a)(ix), and
(x) Liens created in favor of certain financial institutions to secure the
Company’s obligations under its automated teller machine cash
agreements.

     

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

     

    (ii)           “Principal Market” means the
American Stock Exchange.

     

    (jj)           “Redemption Notices” means,
collectively, the Event of Default Redemption Notices and the Change of Control
Redemption Notices, each of the foregoing, individually, a Redemption
Notice.

     

    (kk)         “Redemption Premium” means (i)
in the case of the Events of Default described in Section 4(a)(i) - (vi) and
(ix) - (xii), 125% or (ii) in the case of the Events of Default described in
Section 4(a)(vii) - (viii), 100%.

     

    (ll)           “Redemption Prices” means,
collectively, the Event of Default Redemption Price and Change of Control
Redemption Price, each of the foregoing, individually, a Redemption
Price.

     

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

     

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

    
      
         

      

      
        34

        
          

        

      

      
         

      

    

     

    (oo)        “SEC” means the United States
Securities and Exchange Commission.

     

    (pp)        “Securities Purchase Agreement”
means that certain securities purchase agreement dated as of the Subscription
Date by and among the Company and the initial holders of the Notes pursuant to
which the Company issued the Notes and the Warrants, as may be amended from time
to time in accordance with its terms.

     

    (qq)        “Subscription Date” means
November 29, 2007.

     

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

     

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

     

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

     

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

     

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

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

    
      
         

      

      
        35

        
          

        

      

      
         

      

    

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

    

    
      
        	 
      	
                DIGITALFX
      INTERNATIONAL, INC.

              
	 
      	 
      
	 
      	
                By:

              	 
      
	 
      	 
      	
                Name:
      Abraham Sofer

              
	 
      	 
      	
                Title:
      President

              

      

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Schedule
I

     

    Table of Financial
Thresholds

     

    (U.S.
Dollars in Millions)

     

    
      
        
          
            	 
      	 	
                    Fiscal

                    Quarter

                    ending

                    March

                    31, 2009

                  	 	 	
                    Fiscal

                    Quarter

                    Ending

                     June 30,

                    2009

                  	 	 	
                    Fiscal

                    Quarter

                    ending

                    September

                    30, 2009

                  	 	 	
                    Fiscal

                    Quarter

                    ending

                    December

                    31, 2009

                  	 	 	
                    Fiscal

                    Quarter

                    ending

                    March 31,

                    2010

                  	 	 	
                    Fiscal

                    Quarter

                    ending

                    June 30,

                    2010

                  	 	 	
                    Fiscal

                    Quarter

                    ending

                    September

                    30, 2010

                  	 	 	
                    Fiscal

                    Quarter

                    ending

                    December

                    31, 2010

                    and each

                    Fiscal

                    Quarter

                    thereafter

                  	 
	
                    Consolidated
      Revenue

                  	 	$	1.50	 	 	$	1.75	 	 	$	2.00	 	 	$	2.25	 	 	$	3.00	 	 	$	3.50	 	 	$	4.00	 	 	$	4.50	 
	
                    Consolidated
      EBITDA

                  	 	$	(1.20	)	 	$	(1.10	)	 	$	(0.70	)	 	$	(0.50	)	 	$	(0.25	)	 	$	0.00	 	 	$	0.25	 	 	$	0.50	 

          

        

      

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    EXHIBIT
I

     

    DIGITALFX
INTERNATIONAL, INC.

     

    CONVERSION
NOTICE

     

    Reference
is made to the Amended and Restated Senior Secured Convertible Note (the “Note”) issued to the
undersigned by DigitalFX International, Inc. (the “Company”).  In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into shares of Common Stock par value $0.001 per share (the “Common Stock”) of the Company,
as of the date specified below.

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          
                                                            
                                                              
                                                                
                                                                  
                                                                    
                                                                      
                                                                        
                                                                          
                                                                            
                                                                              
                                                                                
                                                                                  
                                                                                    
                                                                                      
                                                                                        
                                                                                          
                                                                                            
                                                                                              
                                                                                                
                                                                                                  
                                                                                                    
                                                                                                      
                                                                                                        
                                                                                                          
                                                                                                            	
                                                                                                                    Date
      of Conversion:

                                                                                                                  	 
      
	 	 
	
                                                                                                                    Aggregate
      Conversion Amount to be converted:

                                                                                                                  	 
      
	 	 
	
                                                                                                                    Maturity
      Date payment, or any other amounts owing

                                                                                                                    from
      the Company to be reduced at Holder’s option:

                                                                                                                  	 
      
	 	 
	
                                                                                                                    Please
      confirm the following information:

                                                                                                                  
	 
	
                                                                                                                    Conversion
      Price:

                                                                                                                  	 
      
	 	 
	
                                                                                                                    Number
      of shares of Common Stock to be issued:

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

                                                                                                                  
	 
	
                                                                                                                    Issue to:

                                                                                                                  	 
      
	 	 
	 	 
	 	 
	 	 
	 
      	 
      
	
                                                                                                                    Facsimile Number:

                                                                                                                  	 
      
	 	 
	
                                                                                                                    Authorization:

                                                                                                                  	 
      
	 	 
	
                                                                                                                    By:

                                                                                                                  	 
      
	 	 
	
                                                                                                                    Title:

                                                                                                                  	 
      
	 	 
	
                                                                                                                                Dated:

                                                                                                                  	 
      
	 	 
	
                                                                                                                    Account Number:

                                                                                                                    (if electronic book entry transfer)

                                                                                                                  	 
      
	 	 
	
                                                                                                                    Transaction Code Number:

                                                                                                                  	 
      
	 	 
	
                                                                                                                    (if electronic book entry transfer)

                                                                                                                  	 
      

                                                                                                          

                                                                                                        

                                                                                                      

                                                                                                    

                                                                                                  

                                                                                                

                                                                                              

                                                                                            

                                                                                          

                                                                                        

                                                                                      

                                                                                    

                                                                                  

                                                                                

                                                                              

                                                                            

                                                                          

                                                                        

                                                                      

                                                                    

                                                                  

                                                                

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

     

    ACKNOWLEDGMENT

     

    The
Company hereby acknowledges this Conversion Notice and hereby directs
Continental Stock Transfer & Trust Company to issue the above indicated
number of shares of Common Stock in accordance with the Transfer Agent
Instructions dated March 26, 2008 from the Company and acknowledged and agreed
to by Continental Stock Transfer & Trust Company.

     

    

    
      
        	 
      	
                DIGITALFX
      INTERNATIONAL, INC.

              
	 
      	 
      
	 
      	
                By:

              	 
      
	 
      	 
      	
                Name:
      Abraham Sofer

              
	 
      	 
      	
                Title:
      President

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00151-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00151-of-00352.parquet"}]]