Document:

Exchange, Purchase and Amendment Agreement

    Exhibit
      10.1

     

    EXCHANGE,
      PURCHASE AND AMENDMENT AGREEMENT

    

    This
      Exchange, Purchase and Amendment Agreement (this “Agreement”),
      dated
      as of April 19, 2007 (the “Amendment
      Agreement Date”),
      is
      entered into by and among Surge Global Energy, Inc., a Delaware corporation
      (the
“Company”),
      and
      Gemini Master Fund, Ltd. (“Investor”).

    

    R
      E C I T A L S:

    

    WHEREAS,
      the Company and the Investor are parties to that certain Securities Purchase
      Agreement, dated as of November 28, 2006 (the “Purchase
      Agreement”)
      and
      that certain Registration Rights Agreement, dated as of November 28, 2006 (the
      “Registration
      Rights Agreement”);
      capitalized terms used in this Agreement and not otherwise defined have the
      respective meanings ascribed thereto in the Purchase Agreement;

     

    WHEREAS,
      pursuant to the Purchase Agreement, the Company issued 2,000,000 shares of
      common stock, par
      value
      $0.001 per share (“Common
      Stock”),
      of
      the Company (the “Shares”)
      and
      Warrants (the “Warrants”)
      to the
      Investor;

     

    WHEREAS,
      the Company has failed to timely cause a Registration Statement to be declared
      effective pursuant to the Registration Rights Agreement, and therefore the
      Company is current liable to the Investor for partial liquidated damages
      thereunder in accordance therewith;

     

    WHEREAS,
      the Company is seeking a waiver of such breach and consequential partial
      liquidated damages;

     

    WHEREAS,
      the Company wishes to issue and sell to the Investor, and the Investor wishes
      to
      purchase from the Company, upon the terms and subject to the conditions set
      forth herein and the same terms and conditions set forth in the Purchase
      Agreement, a Convertible Note Due May 1, 2008 in the original principal amount
      of $1,150,000, in the form attached hereto as Exhibit
      A
      (the
“Note”),
      in
      consideration for such waiver, surrender of the Shares and $250,000 in
      additional cash; and

     

    WHEREAS,
      the parties wish to include the shares of the Company’s Common Stock issuable
      upon conversion of the Note as “Registrable Securities” under the Registration
      Rights Agreement and to effect such other amendments to the Transaction
      Documents as set forth herein;

     

    A
      G R E E M E N T:

    

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

    

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    Section
      1    Purchase
      and Sale; Amendments.

    

    1.1    Closing.
      Upon
      the terms and subject to the conditions set forth herein, the Company agrees
      to
      sell to the Investor, and the Investor agrees to purchase from the Company,
      a
      Note with a principal amount equal to $1,150,000 for a purchase price consisting
      of (a) the exchange of 2,000,000 Shares and (b) cash consideration of $250,000
      (the “Cash Purchase Price”). Upon consummation of the transactions contemplated
      hereby (the “Additional Closing”), the Investor shall deliver to the Company the
      Cash Purchase Price via wire transfer of immediately available funds (less
      any
      offset for expenses as set forth below) and the Shares, and the Company shall
      deliver the Note with a principal amount equal to $1,150,000 to the Investor.
      The Additional Closing shall occur at the offices of Investor’s Counsel, or such
      other location as the parties shall mutually agree, and the date of the
      Additional Closing shall constitute the “Additional Closing Date”.

     

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

    

    (a)    The
      definitions of Article I of the Purchase Agreement shall apply to the purchase
      and sale of the Note. 

     

    (b)    Each
      party to this Agreement hereby makes, and shall be deemed to have made, as
      of
      the date hereof and the Additional Closing Date, each representation and
      warranty made by it in the Purchase Agreement (as amended hereby) under Article
      III thereof, as applicable. Without limiting the foregoing, the Company
      represents and warrants that it has in good faith determined the value of its
      net assets after diligent analysis, that the value of its net assets exceeds
      its
      capital, and that the capital of the Company is not currently impaired nor
      will
      the consummation of the transactions contemplated hereby cause any impairment
      of
      the Company’s capital.

     

    (c)    The
      Company and the Investor shall comply with the provisions of Article IV of
      the
      Purchase Agreement applicable to it.

     

    (d)    The
      Additional Closing shall be subject to the satisfaction (or waiver by the
      appropriate party) of the conditions set forth in Article II of the Purchase
      Agreement, as applicable, with the term Closing and Closing Date applying to
      the
      Additional Closing and Additional Closing Date, respectively, provided that
      no
      legal opinion of Company counsel shall be required.

     

    (e)    The
      provisions of Article V of the Purchase Agreement shall apply to the purchase
      and sale of the Note, except that in Section 5.1 the additional amount payable
      by the Company in connection with the transactions contemplated by this
      Agreement shall be $5,000 instead of $35,000 (which $5,000 may be offset from
      the Cash Purchase Price payable hereunder).

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (f)    The
      Purchase Agreement is hereby amended so that (i) the term “Shares” shall also
      mean the shares of Common Stock issuable upon conversion of the Note; (ii)
      the
      term “Securities” shall also include the Note and the shares of Common Stock
      issuable upon conversion of the Note; and (iii) the term “Transaction Documents”
shall also include this Agreement and the Note. To the extent such terms are
      incorporated by reference in the Registration Rights Agreement, such terms
      shall
      have such amended meanings therein.

     

    (g)    The
      Company shall issue a press release and file an 8-K describing the transactions
      contemplated hereby in the same manner and in the same time frames as described
      in Section 4.6 of the Purchase Agreement. 

    

    Section
      2    Registration
      Rights Agreement. The
      Registration Rights Agreement is hereby amended so that (i) the term “Filing
      Date” shall apply with respect to the filing deadline for a new initial
      Registration Statement covering the shares underlying the Note or the filing
      of
      an appropriate amendment to the previously filed Registration Statement, and
      shall mean the 30th
      calendar
      following the Amendment Agreement Date, and (ii) the term “Effectiveness Date”
shall mean with respect to the initial Registration Statement required to be
      filed, the 120th
      calendar
      following the Amendment Agreement Date. The Registration Rights Agreement shall
      apply mutatis
      mutandis
      to the
      shares of Common Stock issuable upon conversion of the Note (and shall continue
      to apply to the Warrant Shares) and, without limiting the foregoing, a new
      or
      amended Registration Statement covering such shares shall be filed on before
      such amended Filing Date. Any partial liquidated damages currently due under
      the
      Registration Rights Agreement are hereby waived (provided that such waiver
      only
      applies to amounts currently due and shall not apply to any damages which may
      be
      payable in the future under the terms of the Registration Rights Agreement
      as
      amended hereby).

    

    Section
      3    Miscellaneous.

    

    3.1    Except
      as
      amended hereby and for the purposes described herein, the Purchase Agreement
      and
      the Registration Rights Agreement shall remain in full force and effect in
      accordance with their respective terms. For clarification, the Warrants remain
      outstanding and in full force and effect and shall not be affected
      hereby.

     

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

    

    

    [Signature
      Pages Following]

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

       

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

    

     

    SURGE
      GLOBAL ENERGY, INC.

    

    

    By:
      /s/ Bill Greene        

    Name:
      Bill Greene

    Title:
      CFO

    

    

    GEMINI
      MASTER FUND, LTD.

    By:    Gemini
      Strategies, LLC, as investment manager

    

    

     By:
      /s/ Steven
      Winters                                       

    Name:
      Steven Winters

    Title:
      President

    

    

    ADDRESS:

    

     c/o
      Gemini Strategies, LLC 

     12220
      El Camino Real, Suite 400

     San
      Diego, CA 92130-2091

     Attn: Steven
      Winters

     Tel:
       (858)
      480-2828  

     Fax:
       (858)
      509-8808

    

    With
      a copy to:

    Peter
      J.
      Weisman, P.C.

    52
      Vanderbilt Avenue, 17th
      Floor

    New
      York,
      NY 10017  

    Fax:
      (212)
      317-8855

     

     

     

     

    4Convertible Note

    Exhibit
      10.2

    
 

    THIS
      CONVERTIBLE NOTE DUE MAY 1, 2008 (THIS “NOTE”) AND
      THE
      SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
      BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”), OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE OR SOLD
      UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
      LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM REGISTRATION
      UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE
      IN
      CONNECTION WITH SUCH OFFER OR SALE. THIS NOTE AND THE SECURITIES ISSUABLE UPON
      CONVERSION
      HEREOF
      (I) MAY BE PLEDGED OR HYPOTHECATED IN CONNECTION WITH A BONA FIDE MARGIN LOAN
      OR
      OTHER FINANCING SECURED BY SUCH SECURITIES OR (II) MAY BE TRANSFERRED OR
      ASSIGNED TO AN AFFILIATE OF THE HOLDER HEREOF WITHOUT THE NECESSITY OF AN
      OPINION OF COUNSEL OR THE CONSENT OF THE ISSUER HEREOF.

    

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

    

     

    SURGE
      GLOBAL ENERGY, INC.

    

    CONVERTIBLE
      NOTE DUE MAY 1, 2008

    

    

    
      	Issue Date: April 19,
              2007	
              $1,150,000

            

    

     

    FOR
      VALUE RECEIVED, SURGE
      GLOBAL ENERGY, INC., a
      Delaware corporation (the
      “Company”),
      hereby promises to pay to the order of GEMINI MASTER FUND, LTD. or its permitted
      successors or assigns (the “Holder”)
      the
      sum of ONE MILLION ONE HUNDRED FIFTY THOUSAND DOLLARS ($1,150,000) in same
      day
      funds, on or before May 1, 2008 (the “Maturity
      Date”).
      The
      Holder may convert the principal of and any interest accrued on this Note into
      shares (“Conversion
      Shares”)
      of the
      Company’s common stock, par value $0.001 per share (the “Common
      Stock”),
      on
      the terms set forth herein. 

    

    Except
      as
      specifically provided by the terms of Section
      6,
      the
      Company shall not have the right to prepay any principal of this
      Note.

     

    The
      Company has issued this Note pursuant to that certain Exchange, Purchase and
      Amendment Agreement (“Amendment Agreement”) dated on or about the date hereof,
      pursuant to which the Company issued this Note in consideration and exchange
      for
      $250,000 cash and 2 million shares of Common Stock, among other things, which
      shares were purchased by the original Holder hereof from the Company pursuant
      to
      that certain Securities Purchase Agreement dated as of November 28, 2006 (as
      amended by the Amendment Agreement, the “Securities Purchase
      Agreement”).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    The
      following terms shall apply to this Note:

    

    1.    DEFINITIONS.

     

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

     

    “Change
      of Control”
means
      the existence or occurrence of any of the following: (a) the sale, conveyance
      or
      disposition of all or substantially all of the assets of the Company; (b) the
      effectuation of a transaction or series of transactions in which more than
      fifty
      percent (50%) of the voting power of the Company is disposed of; (c) the
      consolidation, merger or other business combination of the Company with or
      into
      any other entity, immediately following which the prior stockholders of the
      Company fail to own, directly or indirectly, at least fifty percent (50%) of
      the
      surviving entity; (d) a transaction or series of transactions in which any
      Person or group acquires more than fifty percent (50%) of the voting equity
      of
      the Company; or (e) the Continuing Directors do not at any time constitute
      at
      least a majority of the Board of Directors of the Company; provided
      however,
      that a
      Change of Control shall not be deemed to have occurred solely as a result of
      the
      issuance of securities of the Company or its direct or indirect Subsidiaries
      (i)
      to the former shareholders of Peace Oil Corp. in connection with the acquisition
      by Cold Flow Energy ULC, the Company’s indirectly-owned Canadian subsidiary, of
      Peace Oil Corp., a corporation organized under the laws of Alberta, Canada
      (the
“Peace Oil Transaction”), or (ii) in connection with financing obtained by the
      Company used, and only to the extent used, to satisfy up to CDN$5,600,000 due
      under promissory notes issued in connection with the Peace Oil
      Transaction.

     

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

     

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

     

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

     

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

     

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

     

    “Conversion
      Price”
means,
      as of any date, thirty-seven
      cents ($0.37),
      subject to adjustment as provided herein.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

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

     

    “Default
      Interest Rate”
means
      the lower of eighteen (18%) and the maximum rate permitted by applicable law
      or
      by the applicable rules or regulations of any governmental agency or of any
      stock exchange or other self-regulatory organization having jurisdiction over
      the Company or the trading of its securities.

     

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

     

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

     

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

     

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

     

    “Equity
      Conditions”
means
      each of the following:

    

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

     

    (ii)    the
      Company shall have duly reserved for issuance upon conversion of this Note
      and
      exercise of the Warrants a number of shares of Common Stock equal to 120% of
      the
      number of shares then issuable upon conversion of this Note in full and exercise
      of the Warrants in full;

     

    (iii)    trading
      in the Common Stock shall not have been suspended on the Principal Market and
      the Common Stock shall be traded on the OTC Bulletin Board, Nasdaq Stock Market,
      American Stock Exchange or New York Stock Exchange; 

     

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

     

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

    

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

     

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

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

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

     

    (iii)    other
      than a breach described in clause
      (ii)
      above,
      the Company breaches or provides notice of its intent to breach any material
      term or condition of this Note, the Securities Purchase Agreement (including
      the
      Amendment Agreement), the Warrant or the Registration Rights Agreement
      (including, without limitation, the occurrence of a Conversion Default, a
      default upon exercise of the Warrants or an Event (as defined in the
      Registration Rights Agreement) under the Registration Rights Agreement (as
      amended by the Amendment Agreement)); and such breach continues for a period
      of
      five (5) Business Days following written notice thereof from the
      Holder;

     

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

     

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

     

    “Excluded
      Securities”
means
      (i) securities purchased under the Securities Purchase Agreement; (ii)
      securities issued upon conversion or exercise of this Note, the Warrants, or
      any
      other options, warrants or convertible securities outstanding as of the Issue
      Date so long as the terms of such other options, warrants or convertible
      securities have not been amended since the Issue Date; and (iii) shares of
      Common Stock issuable or issued to employees from time to time upon the exercise
      of options, in such case granted or to be granted in the discretion of the
      Board
      of Directors pursuant to one or more employee stock option plans or restricted
      stock plans in effect as of the Issue Date or duly adopted after the Issue
      Date
      by the independent members of the Board of Directors.

     

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

     

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

     

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

     

    “Forced
      Conversion Price”
means,
      as of any date, $0.90 (as appropriately adjusted for any stock dividend, stock
      split, reverse stock split or other similar transaction).

     

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

     

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

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

       

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

    

    

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

    

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

    

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

    

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

     

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

    

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

    

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

    

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

     

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

    

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

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

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

    

    “Registration
      Rights Agreement”
means
      the agreement between the Holder and the Company dated as of November 28, 2006,
      as amended by the Amendment Agreement, pursuant to which the Company has agreed
      to register the resale of the shares of Common Stock issuable upon conversion
      of
      this Note and exercise of the Warrants.

    

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

     

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

    

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

    

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

    

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

    

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

    

    2.    RESERVATION
      AND ISSUANCE OF UNDERLYING SECURITIES.
      The
      Company covenants that it will at all times reserve and keep available out
      of
      its authorized and unissued Common Stock solely for the purpose of issuance
      upon
      conversion of this Note, free from preemptive rights or any other actual
      contingent purchase rights of persons other than the Holder, not less than
      120%
      of such number of shares of Common Stock as shall (subject to any additional
      requirements of the Company as to reservation of such shares set forth in the
      Securities Purchase Agreement) be issuable (taking into account the adjustments
      under Section 3 hereof but without regard to any ownership limitations contained
      herein) upon the conversion of this Note. The Company covenants that all shares
      of Common Stock that shall be so issuable shall, upon issue, be duly authorized,
      validly issued, fully paid, nonassessable and free of any claims, encumbrances
      or restrictions (except for applicable securities laws).

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    3.    CONVERSION.
      

     

    (a)    Right
      to Convert.
      The
      Holder shall have the right, at any time and from time to time, to convert
      all
      or any part of the outstanding and unpaid principal amount of this Note into
      such number of fully paid and non-assessable Conversion Shares as is determined
      in accordance with the terms hereof (a “Conversion”).
      The
      Company may not refuse any conversion request by the Holder for any reason
      or no
      reason.

     

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

     

    (c)    Number
      of Conversion Shares; Reduction of Principal and Interest.
      The
      number of Conversion Shares to be delivered by the Company pursuant to a
      Conversion shall be equal to the principal amount of this Note being
      converted divided
      by
      the
      Conversion Price in effect on the Conversion Date.
      Upon the
      valid delivery of the Conversion Shares by the Company, the amounts subject
      to
      such Conversion shall be credited towards the principal amount of this Note.
      

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

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

     

    (e)    Failure
      to Deliver Conversion Shares.
      

     

    (i)    In
      the
      event that the Company fails for any reason to deliver to the Holder the number
      of Conversion Shares specified in a Conversion Notice (without any restrictive
      legend to the extent permitted by applicable law and the terms of the Securities
      Purchase Agreement) on or before the Delivery Date therefor, or fails to remove
      any restrictive legend from outstanding Conversion Shares at the request of
      the
      Holder in accordance with the Transaction Documents on or before the tenth
      (10th) day following such request (a “Conversion
      Default”),
      the
      Holder shall have the right to receive from the Company an amount equal to
      (i)
      (N/365) multiplied
      by
      (ii) the
      principal amount of this Note represented by the Conversion Shares which remain
      the subject of such Conversion Default multiplied
      by
      (iii)
      the Default Interest Rate, where “N” equals the number of days elapsed between
      the original Delivery Date of such Conversion Shares (or from such tenth day
      in
      the event of a failure to remove a legend from outstanding Conversion Shares)
      and the date on which such Conversion Default has been cured. In the event
      that
      shares of Common Stock are purchased by or on behalf of the Holder in order
      to
      make
      delivery on a sale effected in anticipation of receiving Conversion Shares
      upon
      a Conversion, and there is a Conversion Default with respect to such Conversion,
      the Holder shall have the right to receive from the Company, in addition to
      the
      foregoing amounts, (i) the aggregate amount paid by or on behalf of the Holder
      for such shares of Common Stock minus
      the
      aggregate amount of net proceeds, if any, received by the Holder from the sale
      of the Conversion Shares issued by the Company pursuant to such Conversion.
      Amounts
      payable under this Section
      3(e)(i) shall
      be
      paid to the Holder in immediately available funds on or before the second
      (2nd)
      Business Day following written notice from the Holder to the Company specifying
      the amount owed to it by the Company pursuant to this Section
      3(e)(i)
      and (ii)
      if a Conversion Default continues to exist thereafter, an amount equal to 2%
      of
      the value of the Conversion Shares which the Company has failed to deliver
      (based on the highest closing sale price during such 30-day period), at the
      end
      of each period of thirty (30) days following such second Business Day (pro-rated
      for any partial 30-day period).

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

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

     

    (f)    Limitations
      on Right to Convert.
      In no
      event shall the Holder be permitted to convert principal of (or other amounts)
      on this Note if, upon such conversion, (x) the number of Conversion Shares
      to be
      issued pursuant to such Conversion plus
      (y) the
      number of shares of Common Stock beneficially owned by the Holder (other than
      Common Stock underlying Convertible Securities or Options which have a
      limitation on conversion or exercise analogous to the limitation contained
      in
      this Section
      3(f))
      would
      exceed 4.99% of the number of shares of Common Stock then issued and outstanding
      (“Beneficial Ownership Limitation”), it being the intent of the Company and the
      Holder that the Holder not be deemed at any time to have the power to vote
      or
      dispose of greater than 4.99% of the number of shares of Common Stock issued
      and
      outstanding at any time. Nothing contained herein shall be deemed to restrict
      the right of the Holder to convert such excess principal amount at such time
      as
      such Conversion does not violate the provisions of this Section3(f).
      As
      used
      herein, beneficial ownership shall be determined in accordance with Section
      13(d) of the Exchange Act. To the extent that the limitation contained in this
      Section
      3(f)
      applies
      (and without limiting any rights the Company may otherwise have), the submission
      of a Conversion Notice by the Holder shall be deemed to be the Holder’s
      representation that this Note is convertible
      pursuant
      to the terms hereof,
      the
      Company may rely on the Holder’s representation that this Note
      is
      convertible pursuant to the terms hereof,
      and the
      Company shall have no obligation whatsoever to verify or confirm the accuracy
      of
      such representation. The Company shall have no liability to any person if the
      Holder’s determination of whether this Note is convertible pursuant to the terms
      hereof is incorrect. The provisions of this Section
      3(f)
      may be
      waived by the Holder, or such Beneficial Ownership Limitation increased, at
      the
      election of the Holder, upon not less than 61 days’ prior notice to the Company,
      and the provisions of this Section
      3(f)
      shall
      continue to apply until such 61st day (or such later date, as determined by
      the
      Holder, as may be specified in such notice of waiver).

    

    4.    ADJUSTMENTS
      TO CONVERSION PRICE.

    

    (a)    Stock
      Splits, Stock Interests, Etc.
      If, at
      any time on or after the Issue Date, the number of outstanding shares of Common
      Stock is increased by a stock split, stock dividend, reclassification or other
      similar event, the Conversion Price shall be proportionately reduced, or if
      the
      number of outstanding shares of Common Stock is decreased by a reverse stock
      split, combination, reclassification or other similar event, the Conversion
      Price shall be proportionately increased. In such event, the Company shall
      notify the Company’s transfer agent of such change on or before the effective
      date thereof.

     

    (b)    Major
      Transactions.
      If, at
      any time after the Issue Date, any Major Transaction shall occur, then the
      Holder shall thereafter have the right to receive upon Conversion, in lieu
      of
      the shares of Common Stock otherwise issuable, such shares of stock, securities
      and/or other property as would have been issued or payable upon such Major
      Transaction with respect to or in exchange for the number of shares of Common
      Stock which would have been issuable upon Conversion had such Major Transaction
      not taken place (without giving effect to any limitations on such Conversion
      contained in this Note or the Securities Purchase Agreement). The Company shall
      not effect any Major Transaction unless

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

       

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

       

      (c)    Distributions.
        If, at
        any time after the Issue Date, the Company declares or makes any distribution
        of
        cash or any other assets (or rights to acquire such assets) to holders of
        Common
        Stock, including without limitation any dividend or distribution to the
        Company’s stockholders in shares (or rights to acquire shares) of capital stock
        of a subsidiary) (a “Distribution”),
        the
        Company shall deliver written notice of such Distribution (a “Distribution
        Notice”)
        to the
        Holder at least fifteen (15) days prior to the earlier to occur of (i) the
        record date for determining stockholders entitled to such Distribution (the
        “Record
        Date”)
        and
        (ii) the date on which such Distribution is made (the “Distribution
        Date”)
        (the
        earlier of such dates being referred to as the “Determination
        Date”).
        Upon
        receipt of the Distribution Notice, the Holder shall promptly (but in no
        event
        later than three (3) Business Days) notify the Company whether it has elected
        (A) to receive the same amount and type of assets (including, without
        limitation, cash) being distributed as though the Holder were, on the
        Determination Date, a holder of a number of shares of Common Stock into which
        this Note is convertible as of such Determination Date (such number of shares
        to
        be determined without giving effect to any limitations on such conversion)
        or
        (B) upon any exercise of this Note on or after the Distribution Date, to
        reduce
        the Conversion Price in effect on the Trading Day immediately preceding the
        Record Date by an amount equal to the fair market value of the assets to
        be
        distributed divided
        by
        the
        number of shares of Common Stock as to which such Distribution is to be made,
        such fair market value to be reasonably determined in good faith by the
        independent members of the Company’s Board of Directors. Upon receipt of such
        election notice from the Holder, the Company shall timely effectuate the
        transaction or adjustment contemplated in the foregoing clause
        (A) or
        (B),
        as
        applicable. 
        If the
        Holder does not notify the Company of its election pursuant to the preceding
        sentence on or prior to the Determination Date, the Holder shall be deemed
        to
        have elected clause
        (A)
        of the
        preceding sentence.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

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

       

      (e)    Dilutive
        Issuances.

       

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

       

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

       

      (A)    Issuance
        Of Options.
        If the
        Company issues or sells any Options, whether or not immediately exercisable,
        and
        the price per share for which Common Stock is issuable upon the exercise
        of such
        Options (and the price of any conversion of Convertible Securities, if
        applicable) is less than the Conversion Price in effect on the date of issuance
        or sale of such Options, then the maximum total number of shares of Common
        Stock
        issuable upon the exercise of all such Options (assuming full conversion,
        exercise or exchange of Convertible Securities, if applicable, and without
        regard to any limitation on beneficial ownership or issuance contained therein)
        shall, as of the date of the issuance or sale of such Options, be deemed
        to be
        outstanding and to have been issued and sold by the Company for such price
        per
        share. For purposes of the preceding sentence, the “price per share for which
        Common Stock is issuable upon the exercise of such Options” shall be determined
        by dividing
        (x) the
        total amount, if any, received or receivable by the Company as consideration
        for
        the issuance or sale of all such Options, plus
        the
        minimum aggregate amount of additional consideration, if any, payable to
        the
        Company upon the exercise of all such Options, plus,
        in the
        case of Convertible Securities issuable upon the exercise of such Options,
        the
        minimum aggregate amount of additional consideration payable upon the
        conversion, exercise or exchange thereof (determined in accordance with the
        calculation method set forth in Section
        4(e)(ii)(B)
        below)
        at the time such Convertible Securities first become convertible, exercisable
        or
        exchangeable, by (y) the maximum total number of shares of Common Stock issuable
        upon the exercise of all such Options (assuming full conversion, exercise
        or
        exchange of Convertible Securities, if applicable). No further adjustment
        to the
        Conversion Price shall be made upon the actual issuance of such Common Stock
        upon the exercise of such Options or upon the conversion, exercise or exchange
        of Convertible Securities issuable upon exercise of such Options.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      (B)    Issuance
        Of Convertible Securities.
        If the
        Company issues or sells any Convertible Securities, whether or not immediately
        convertible, exercisable or exchangeable, and the price per share for which
        Common Stock is issuable upon such conversion, exercise or exchange is less
        than
        the Conversion Price in effect on the date of issuance or sale of such
        Convertible Securities, then the maximum total number of shares of Common
        Stock
        issuable upon the conversion, exercise or exchange of all such Convertible
        Securities shall, as of the date of the issuance or sale of such Convertible
        Securities, be deemed to be outstanding and to have been issued and sold
        by the
        Company for such price per share (without regard to any limitation on beneficial
        ownership or issuance contained therein). If the Convertible Securities so
        issued or sold do not have a fluctuating conversion or exercise price or
        exchange ratio, then for the purposes of the immediately preceding sentence,
        the
“price per share for which Common Stock is issuable upon such conversion,
        exercise or exchange” shall be determined by dividing
        (A) the
        total amount, if any, received or receivable by the Company as consideration
        for
        the issuance or sale of all such Convertible Securities,
        plus
        the
        minimum aggregate amount of additional consideration, if any, payable to
        the
        Company upon the conversion, exercise or exchange thereof (determined in
        accordance with the calculation method set forth in this Section
        4(e)(ii)(B))
        at the
        time such Convertible Securities first become convertible, exercisable or
        exchangeable, by (B) the maximum total number of shares of Common Stock issuable
        upon the exercise, conversion or exchange of all such Convertible
        Securities.
        If the
        Convertible Securities so issued or sold have a fluctuating conversion or
        exercise price or exchange ratio (a “Variable
        Rate Convertible Security”),
        then
        for purposes of the first sentence of this Section
        4(e)(ii)(B),
        the
“price per share for which Common Stock is issuable upon such conversion,
        exercise or exchange” shall be deemed to be the lowest price per share which
        would be applicable (assuming all holding period and other conditions to
        any
        discounts contained in such Variable Rate Convertible Security have been
        satisfied) if the conversion price of such Variable Rate Convertible Security
        on
        the date of issuance or sale thereof were equal to the actual conversion
        price
        on such date (or such higher minimum conversion price if such Variable Rate
        Convertible Security is subject to a minimum conversion price) (the
“Assumed
        Variable Market Price”),
        and,
        further, if the conversion price of such Variable Rate Convertible Security
        at
        any time or times thereafter is less than or equal to the Assumed Variable
        Market Price last used for making any adjustment under this Section
        4(e)
        with
        respect to any Variable Rate Convertible Security, the Conversion Price in
        effect at such time shall be readjusted to equal the Conversion Price which
        would have resulted if the Assumed Variable Market Price at the time of issuance
        of the Variable Rate Convertible Security had been equal to the actual
        conversion price of such Variable Rate Convertible Security existing at the
        time
        of the adjustment required by this sentence; provided,
        however,
        that if
        the conversion or exercise price or exchange ratio of a Convertible Security
        may
        fluctuate solely as a result of provisions designed to protect against dilution,
        such Convertible Security shall not be deemed to be a Variable Rate Convertible
        Security. No further adjustment to the Conversion Price shall be made upon
        the
        actual issuance of such Common Stock upon conversion, exercise or exchange
        of
        such Convertible Securities.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

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

       

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

    

    

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

     

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

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (v)    Multiple
      Issuances.
      In the
      event that more than one type of security is issued in any transaction with
      respect to any Dilutive Issuance, the adjustments contained herein shall be
      applied to each security separately. 

     

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

     

    5.    EVENTS
      OF DEFAULT; MANDATORY REDEMPTION.

     

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

     

    (b)    Payment
      of Mandatory Redemption Price.
      The
      Company shall pay the Mandatory Redemption Price to the Holder on the Mandatory
      Redemption Date. If the Company fails to pay the Mandatory Redemption Price
      to
      the Holder on Mandatory Redemption Date, the Holder shall be entitled to
      interest thereon at the Default Interest Rate from the Mandatory Redemption
      Date
      until the date on which Mandatory Redemption Price has been paid in
      full.

     

    6.    OPTIONAL
      REDEMPTION.

    

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

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (b)    Payment
      of Optional Redemption Price.

     

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

     

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

     

    7.    FORCED
      CONVERSION.
      

     

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

     

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

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

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

    

    8.    MISCELLANEOUS.

     

    (a)    Failure
      to Exercise Rights not Waiver.
      No
      failure or delay on the part of the Holder in the exercise of any power, right
      or privilege hereunder shall operate as a waiver thereof, nor shall any single
      or partial exercise of any such power, right or privilege preclude any other
      or
      further exercise thereof. All rights and remedies of the Holder hereunder are
      cumulative and not exclusive of any rights or remedies otherwise available.
      In
      the event that the Company does not pay any amount under this Note when such
      amount becomes due, the Company shall bear all costs incurred by the Holder
      in
      collecting such amount, including without limitation reasonable legal fees
      and
      expenses. 

     

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

    

    If
      to
      the Company:

    

    SURGE
      GLOBAL ENERGY, INC.

    12220
      El
      Camino Real, Suite 400

    San
      Diego, California 92130  

    Attn:
       
      Bill
      Greene

    Tel: 858-704-5010
      

    Fax:
       858-704-5011
        

    

    and
      if to
      the Holder, to
      such
      address for the Holder as shall appear on the signature page of the Securities
      Purchase Agreement executed by the Holder, with a copy to Peter J. Weisman,
      P.C., 52 Vanderbilt Avenue, 17th
      Floor,
      New York, NY 10017, or as shall be designated by the Holder in writing to the
      other parties hereto in accordance this Section
      8(b).

     

    (c)    Amendments
      and Waivers.
      No
      amendment, modification or other change to, or waiver of any provision of,
      this
      Note may be made unless such amendment, modification or change, or request
      for
      waiver, is set forth in writing and is signed by the Company and the Holder.
      Upon the satisfaction of the foregoing condition, this Note shall be deemed
      to
      incorporate any the amendment, modification, change or waiver effected thereby
      as of the effective date thereof.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    (d)    Transfer
      of Note.
      The
      Holder may sell, transfer or otherwise dispose of all or any part of this Note
      (including without limitation pursuant to a pledge) to any person or entity
      as
      long as such sale, transfer or disposition is the subject of an effective
      registration statement under the Securities Act of 1933, as amended, and
      applicable state securities laws, or is exempt from registration thereunder,
      and
      is otherwise made in accordance with the applicable provisions of the Securities
      Purchase Agreement (as amended). From and after the date of any such sale,
      transfer or disposition, the transferee hereof shall be deemed to be the holder
      of a Note in the principal amount acquired by such transferee, and the Company
      shall, as promptly as practicable, issue and deliver to such transferee a new
      Note identical in all respects to this Note, in the name of such transferee.
      The
      Company shall be entitled to treat the original Holder as the holder of this
      entire Note unless and until it receives written notice of the sale, transfer
      or
      disposition hereof.

     

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

     

    (f)    Governing
      Law; Jurisdiction.
      This
      Note shall be governed by and construed in accordance with the laws of the
      State
      of New
      York
      applicable to contracts made and to be performed entirely within the State
      of
      New York.
      The
      Company irrevocably submits to the non-exclusive jurisdiction of any State
      or
      Federal Court sitting in San Diego, California, over any suit, action, or
      proceeding arising out of or relating to this Note. The Company irrevocably
      waives, to the fullest extent permitted by law, any objection which it may
      now
      or hereafter have to the laying of the venue of any such suit, action, or
      proceeding brought in such a court and any claim that suit, action, or
      proceeding has been brought in an inconvenient forum. The Company agrees that
      the service of process upon it mailed by certified or registered mail (and
      service so made shall be deemed complete three days after the same has been
      posted as aforesaid) or by personal service shall be deemed in every respect
      effective service of process upon it in any such suit or proceeding. Nothing
      herein shall affect Holder's right to serve process in any other manner
      permitted by law. The Company agrees that a final non-appealable judgment in
      any
      such suit or proceeding shall be conclusive and may be enforced in other
      jurisdictions by suit on such judgment or in any other lawful manner. THE
      COMPANY HERETO KNOWINGLY AND VOLUNTARILY WAIVES ANY AND ALL RIGHTS IT MAY HAVE
      TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED ON, OR ARISING OUT
      OF,
      UNDER, OR IN CONNECTION WITH, THIS NOTE.

     

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

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

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

    

    

    

    

    [Signature
      Page to Follow]

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

       

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

    

    

    SURGE
      GLOBAL ENERGY, INC.

    

    

    By:   
      /s/ Bill Greene        

      Name:
      Bill Greene

      Title:
      CFO

    

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    
ANNEX
      I

    

    

    NOTICE
      OF CONVERSION

    

    The
      undersigned hereby elects to convert principal of the Convertible Note Due
      May
      1, 2008 (the “Note”)
      issued
      by SURGE GLOBAL ENERGY, INC. (the “Company”)
      into
      shares of common stock (“Common
      Stock”)
      of the
      Company according to the terms and conditions of the Note. Capitalized terms
      used herein and not otherwise defined shall have the respective meanings set
      forth in the Note. 

    

     

    
      	 	
              Date
                of Conversion:

               

              Principal
                Amount of

              Note
                to be Converted:______________________________

              

              Number
                of Shares of

              Common
                Stock to be Issued:_________________________

               

              Name
                of Holder:___________________________________

               

              Address:    ___________________________________

              
                 

                          ___________________________________

              

               

                       
___________________________________

               

              Signature:   ___________________________________

               Name:

               Title:

            

    

    
Holder
      Requests Delivery to be made:
      (check
      one)

    

    
      	
              
                o

              

            	
              By
                Delivery of Physical Certificates to the Above
                Address

            

    

    

    
      	
              o

            	
              Through
                Depository Trust Corporation

              (Account
                _________________________)

            

    

     

     

    20

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