Document:

SOURCEFORGE,
INC.

     

    RESTATED
EMPLOYMENT AGREEMENT

     

    This
Restated Employment Agreement (the “Agreement”) is made and entered into by and
between Jon Sobel (“Executive”) and SourceForge, Inc. (the “Company”), effective
as of April 9, 2009 (the “Effective Date”).

    

    WHEREAS,
the Company and Executive entered into an employment agreement dated October 11,
2007 (the “Prior Employment Agreement”); and

    

    WHEREAS,
the Company and Executive wish to restate the terms of Executive’s employment
and replace in its entirety the Prior Employment Agreement, in order to come
into compliance with Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”), and the final regulations and other official guidance
promulgated thereunder (“Section 409A”), as set forth below.

    

    NOW
THEREFORE, in consideration of the foregoing and of the respective covenants and
agreements set forth herein, the Company and Executive agree that the Prior
Employment Agreement is restated and replaced in its entirety as
follows:

     

    
      	
            	
              1.

            	
              Duties and Scope of
      Employment.

            

    

     

    (a)           Position and
Duties.  Executive will continue to serve as Group President
Media of the Company.  Executive will continue to render such business
and professional services in the performance of Executive’s duties, consistent
with Executive’s position within the Company, as will reasonably be assigned by
the Company’s Board of Directors (the “Board”).  The Board may modify
Executive’s job title and duties as it deems necessary and appropriate in light
of the Company’s needs and interests from time to time.  The period of
Executive’s employment under this Agreement is referred to herein as the
“Employment Term.”

     

    (b)           Obligations.  Executive
will continue to perform Executive’s duties faithfully and to the best of
Executive’s ability and will continue to devote Executive’s full business
efforts and time to the Company.  For the duration of the Employment
Term, Executive agrees not to actively engage in any other employment,
occupation or consulting activity for any direct or indirect remuneration
without the prior approval of the Board.

     

    2.           
At-Will
Employment.  The Company and Executive acknowledge that
Executive’s employment is and will continue to be at-will, as defined under
applicable law.  If Executive’s employment terminates for any reason,
including (without limitation) any termination prior to or following a Change of
Control, Executive will not be entitled to any acceleration of Award vesting or
severance pay based on termination of employment other than as provided by this
Agreement.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	
            	
              3.

            	
              Compensation.

            

    

     

    (a)           Base
Salary.  As of the Effective Date, the Company will continue to
pay Executive an annual salary of Two Hundred Seventy Three Thousand Dollars
($273,000) as compensation for Executive’s services (the “Base
Salary”).  The Base Salary will be paid periodically in accordance
with the Company’s normal payroll practices and be subject to the usual,
required withholdings.  Executive’s salary will be subject to review
and adjustments will be made based upon the Company’s normal performance review
practices.

     

    (b)           Discretionary
Bonus.  Executive will continue to be eligible to receive an
annual discretionary bonus of up to Fifty Percent (50%) of Executive’s Base
Salary, less applicable withholdings, upon achievement of performance objectives
to be determined by the Board in its sole discretion.  Executive will
continue to be eligible to participate in the Company’s Named Executive Officer
Bonus Policy and Plan.

     

    (c)           Equity.  Executive
will continue to be eligible to receive awards of stock options, restricted
stock, restricted stock units, stock appreciation rights, performance units and
performance shares or other equity awards (“Awards”) pursuant to any plans or
arrangements the Company may have in effect from time to time.  The
Board or its committee will determine in its discretion whether Executive will
be granted any such Awards and the terms of any such Award in accordance with
the terms of any applicable plan or arrangement that may be in effect from time
to time.

     

    4.           
Employee
Benefits.  Executive will continue to be entitled to
participate in the employee benefit plans currently and hereafter maintained by
the Company of general applicability to other senior executives of the
Company.  The Company reserves the right to cancel or change the
benefit plans and programs it offers to its employees at any time.

     

    5.           
Vacation.  Executive
will continue to be entitled to paid vacation in accordance with the Company’s
vacation policy, with the timing and duration of specific vacations mutually and
reasonably agreed to by the parties hereto.  Upon Executive’s
termination of employment, Executive will be entitled to receive Executive’s
accrued but unpaid vacation through the date of Executive’s
termination.

     

    6.           
Expenses.  The
Company will reimburse Executive for reasonable travel, entertainment or other
expenses incurred by Executive in the furtherance of or in connection with the
performance of Executive’s duties hereunder, in accordance with the Company’s
expense reimbursement policy as in effect from time to time.

    
      
         

      

      
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              7.

            	
              Severance
      Benefits.

            

    

     

    (a)           Termination for other than
Cause, Death or Disability Prior to a Change of Control or after Twelve Months
Following a Change of Control.  If prior to a Change of Control
or after twelve (12) months following a Change of Control, the Company (or any
parent or subsidiary of the Company) terminates Executive’s employment other
than for Cause, death or Disability, then, subject to Section 7(c) below,
Executive will receive the following severance from the Company:

     

    (i)           Severance
Payment.  Executive will receive: (A) continuing payments of
severance pay (less applicable withholding taxes) for a period of six (6) months
from the date of such termination equal to the pro-rata portion of Executive’s
Base Salary (as in effect immediately prior to Executive’s termination) and (B)
Executive’s quarterly bonus under the Company’s Named Executive Officer Bonus
Policy and Plan for the entire quarter in which such termination occurred based
on the achievement of the performance goals under such plan and the quarterly
bonus that would have otherwise been earned.

     

    (ii)           Accelerated Vesting;
Post-Termination Exercise Period.  If Executive holds unvested
Awards then the unvested portion of each Award that would normally vest over the
three (3) months following termination will immediately vest and become
exercisable.  Executive’s outstanding Awards will remain exercisable
for at least ninety (90) days following the date of such termination or such
longer period as prescribed in the respective stock plan and agreement for each
Award.  Notwithstanding the foregoing, in no event may the Award be
exercised after its expiration date as provided in the respective agreement for
each Award.

     

    (iii)           Continued Employee
Benefits.  Executive will receive Company-paid coverage for a
period of six (6) months for the cost of continuation coverage for Executive and
Executive’s eligible dependents under the Company’s Benefit Plans.

     

    (b)           Termination for other than
Cause, Death or Disability or Constructive Termination Within Twelve Months
Following a Change of Control.  If within twelve (12) months
following a Change of Control, (i) the Company (or any parent or subsidiary of
the Company) terminates Executive’s employment other than for Cause, death or
Disability, or (ii) upon Executive’s Constructive Termination with the Company
(or any parent or subsidiary of the Company), then, subject to Section 7(c)
below, Executive will receive the following severance from the
Company:

     

    (i)           Severance
Payment.  Executive will receive: (A) continuing payments of
severance pay (less applicable withholding taxes) for a period of twelve (12)
months from the date of such termination equal to the pro-rata portion of
Executive’s Base Salary (as in effect immediately prior to Executive’s
termination) and (B) Executive’s quarterly bonus under the Company’s Named
Executive Officer Bonus Policy and Plan for the entire quarter in which such
termination occurred based on the achievement of the performance goals under
such plan and the quarterly bonus that would have otherwise been
earned.

    
      
         

      

      
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    (ii)           Accelerated
Vesting.  If Executive holds unvested Awards then the unvested
portion of each Award that would normally vest over the twelve (12) months
following termination will immediately vest and become
exercisable.  The Awards will remain exercisable, to the extent
applicable, following the termination for the period prescribed in the
respective stock plan and agreement for each Award.

     

    (iii)           Continued Employee
Benefits.  Executive will receive Company-paid coverage for a
period of twelve (12) months for the cost of continuation coverage for Executive
and Executive’s eligible dependents under the Company’s Benefit
Plans.

     

    (c)           Separation and Release of
Claims Agreement.  The receipt of any severance payments or
benefits pursuant to this Agreement is subject to the Executive signing and not
revoking a separation and release of claims agreement in a form reasonably
acceptable to the Company (the “Release”), which must become effective no later
than the 60th day
following the Executive’s termination of employment (the “Release Deadline”),
and if not, the Executive will forfeit any right to severance payments or
benefits under this Agreement.  To become effective, the Release must
be executed by the Executive and any revocation periods (as required by statute,
regulation, or otherwise) must have expired without the Executive having revoked
the Release.  In addition, no severance payments or benefits will be
paid or provided until the Release actually becomes effective.  In the
event the Executive’s termination of employment occurs at a time during the
calendar year where the Release Deadline could occur in the calendar year
following the calendar year in which Executive’s termination occurs, then any
severance payments or benefits under this Agreement that would be considered
Deferred Compensation Separation Benefits (as defined in Section 7(h)) will be
paid on the first payroll date to occur during the calendar year following the
calendar year in which such termination occurs, or such later time as required
by (i) the payment schedule applicable to each payment or benefit as set forth
in Section 7(a) and 7(b), (ii) the date the Release becomes effective,
or (iii) Section 7(h).

     

    (d)           Timing of Severance
Payments.  The Company will pay the severance payments to which
Executive is entitled as salary continuation with the same timing as in effect
immediately prior to Executive’s termination of employment.  If
Executive should die before all amounts have been paid, such unpaid amounts will
be paid in a lump sum payment (less any withholding taxes) to Executive’s
designated beneficiary, if living, or otherwise to the personal representative
of Executive’s estate.

     

    (e)           Voluntary Resignation;
Termination due to Death or Disability.  If Executive’s
employment with the Company (or any parent or subsidiary of the Company)
terminates voluntarily by Executive (except upon Constructive Termination
following a Change of Control), or due to Executive’s death or Disability, then
(i) all vesting will terminate immediately with respect to Executive’s
outstanding Awards, (ii) all payments of compensation by the Company to
Executive hereunder will terminate immediately (except as to amounts already
earned through the date of termination), and (iii) Executive will not be
entitled to receive severance or other benefits except for those benefits (if
any) which do not concern acceleration of Award vesting or severance pay based
on termination of employment as may then be established under other Company
policies or programs, if any.

    
      
         

      

      
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    (f)           Termination for
Cause.  If Executive’s employment with the Company terminates
for Cause by the Company (or any parent or subsidiary of the Company), then (i)
all vesting will terminate immediately with respect to Executive’s outstanding
Awards, (ii) all payments of compensation by the Company to Executive hereunder
will terminate immediately (except as to amounts already earned as of the date
Executive receives written notification of Executive’s termination for Cause),
and (iii) Executive will not be entitled to receive severance or other benefits
except for those benefits (if any) which do not concern acceleration of Award
vesting or severance pay based on termination of employment as may then be
established under other Company policies or programs, if any.

     

    (g)           Exclusive
Remedy.  In the event of a termination of Executive’s
employment with the Company (or any parent or subsidiary of the Company), the
provisions of this Section 7 are intended to be and are exclusive and in lieu of
any other rights or remedies to which Executive or the Company may otherwise be
entitled, whether at law, tort or contract, in equity, or under this
Agreement.  Executive will be entitled to no severance or other
benefits upon termination of employment with respect to acceleration of Award
vesting or severance pay other than those benefits expressly set forth in this
Section 7.

     

    (h)           Section
409A.  

     

    (i)           Notwithstanding
anything to the contrary in this Agreement, if Executive is a “specified
employee” within the meaning of Section 409A at the time of Executive’s
termination, then, if required, the severance and benefits payable to Executive
pursuant to this Agreement (other than due to death), if any, and any other
severance payments or separation benefits which may be considered deferred
compensation under Section 409A (together, the “Deferred Compensation Separation
Benefits”), which are otherwise due to Executive on or within the six (6) month
period following Executive’s termination will accrue during such six (6) month
period and will become payable in a lump sum payment on the date six (6) months
and one (1) day following the date of Executive’s termination of employment or
the date of Executive’s death, if earlier.  All subsequent Deferred
Compensation Separation Benefits, if any, will be payable in accordance with the
payment schedule applicable to each payment or benefit.

     

    (ii)           Any
amount paid under this Agreement that qualifies as a payment made as a result of
an involuntary separation from service pursuant to Section 1.409A-1(b)(9)(iii)
of the Treasury Regulations that does not exceed the Section 409A Limit (as
defined below) will not constitute Deferred Compensation Separation Benefits for
purposes of clause (i) above.

     

    (iii)           The
foregoing provisions are intended to comply with the requirements of Section
409A so that none of the severance payments and benefits to be provided
hereunder will be subject to the additional tax imposed under Section 409A, and
any ambiguities herein will be interpreted to so comply.  Executive
and the Company agree to work together in good faith to consider amendments to
this Agreement and to take such reasonable actions which are necessary,
appropriate or desirable to avoid imposition of any additional tax or income
recognition prior to actual payment to Executive under Section
409A.

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

     

    8.           
Limitation on
Payments.  In the event that the severance and other benefits
provided for in this Agreement or otherwise payable to Executive (i) constitute
“parachute payments” within the meaning of Section 280G of the Code and (ii) but
for this Section 8, would be subject to the excise tax imposed by Section 4999
of the Code, then Executive’s severance benefits will be either:

     

    
      	
            	
              (a)

            	
              delivered
      in full, or

            

    

     

    
      
        	
              	
                (b)

              	
                delivered
      as to such lesser extent which would result in no portion of such
      severance benefits being subject to the excise tax under Section 4999 of
      the Code,

              

      

    

     

    whichever
of the foregoing amounts, taking into account the applicable federal, state and
local income taxes and the excise tax imposed by Section 4999, results in the
receipt by Executive on an after-tax basis, of the greatest amount of severance
benefits, notwithstanding that all or some portion of such severance benefits
may be taxable under Section 4999 of the Code.  If a reduction in the
severance and other benefits constituting “parachute payments” is necessary so
that no portion of such severance benefits is subject to the excise tax under
Section 4999 of the Code, the reduction shall occur in the following order
unless the Company determines in writing a different order: (1) reduction
of the severance payments under Sections 7(a)(i) or 7(b)(i); (2) cancellation of
accelerated vesting of Awards; and (3) reduction of continued employee
benefits.  In the event that acceleration of vesting of Award
compensation is to be reduced, such acceleration of vesting shall be cancelled
in the reverse order of the date of grant of Executive’s Awards.

     

    Unless
the Company and Executive otherwise agree in writing, any determination required
under this Section 8 will be made in writing by an independent firm immediately
prior to Change of Control (the “Firm”), whose determination will be conclusive
and binding upon Executive and the Company for all purposes.  For
purposes of making the calculations required by this Section 8, the Firm
may make reasonable assumptions and approximations concerning applicable taxes
and may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code.  The Company and
Executive will furnish to the Firm such information and documents as the Firm
may reasonably request in order to make a determination under this
Section.  The Company will bear all costs the Firm may reasonably
incur in connection with any calculations contemplated by this Section
8.

     

    9.            
Definition of
Terms.  The following terms referred to in this Agreement will
have the following meanings:

     

    (a)           Benefit
Plans.  For purposes of this Agreement, “Benefit Plans” means
plans, policies or arrangements that the Company sponsors (or participates in)
and that immediately prior to Executive’s termination of employment provide
Executive and/or Executive’s eligible dependents with medical, dental and vision
benefits.  Benefit Plans do not include any other type of benefit
(including, but not by way of limitation, disability, life insurance or
retirement benefits). A requirement that the Company provide Executive and
Executive’s eligible dependents with coverage under the Benefit Plans will not
be satisfied unless the coverage is no less favorable than that provided to
senior executives of the Company at any applicable time during the period
Executive is entitled to receive severance pursuant to Section 7.  The
Company may, at its option, satisfy any requirement that the Company provide
coverage under any Benefit Plan by (i) reimbursing Executive’s premiums
under Title X of the Consolidated Budget Reconciliation Act of 1985, as
amended (“COBRA”) after Executive has properly elected continuation coverage
under COBRA (in which case Executive will be solely responsible for electing
such coverage for Executive’s  eligible dependents), or
(ii) providing coverage under a separate plan or plans providing coverage
that is sufficient to provide Executive and Executive’s eligible dependents with
equivalent coverage that is reasonably available to Executive and/or Executive’s
eligible dependents.

    
      
         

      

      
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    (b)           Cause.  “Cause”
is defined as a determination by the Company of any of the following: (i) any
act of personal dishonesty involving Executive in connection with Executive’s
responsibilities as an employee of the Company; (ii) Executive’s conviction of,
or plea of guilty or nolo contendere to, a felony;
(iii) a willful act by Executive which constitutes gross misconduct and which is
injurious to the Company;  (iv) continued violations by Executive of
Executive’s obligations as an employee of the Company which are demonstrably
willful and deliberate on Executive’s part after there has been delivered to
Executive a written demand for performance from the Company which describes the
basis for the Company's belief that Executive has not substantially performed
Executive’s duties (unless such violation by its nature cannot be cured, in
which case notice and an opportunity to cure shall not be required); or (v)
Executive’s arrest for any crime involving fraud, embezzlement or any other act
of moral turpitude.

     

    (c)           Change of
Control.  “Change of Control” means the occurrence of any of
the following events:

     

    (i)           the
acquisition by any one person, or more than one person acting as a group (for
these purposes, persons will be considered to be acting as a group if they are
owners of a corporation that enters into a merger, consolidation, purchase or
acquisition of stock, or similar business transaction with the Company),
(“Person”) that or is or becomes the owner, directly or indirectly, of
securities of the Company representing more than fifty percent (50%) of the
total voting power represented by the Company’s then outstanding securities (the
“Voting Securities”); provided, however, that for purposes of this subsection
(i), the acquisition of additional securities by any one Person, who is
considered to own more than fifty percent (50%) of the total voting power of the
securities of the Company shall not be considered a Change of Control;
or

     

    (ii)           a
change in the ownership of a substantial portion of the Company’s assets which
occurs on the date that any Person acquires (or has acquired during the twelve
(12) month period ending on the date of the most recent acquisition by such
person or persons) assets from the Company that have a total gross fair market
value equal to or more than fifty percent (50%) of the total fair market value
of all of the assets of the Company immediately prior to such acquisition or
acquisitions; provided, however, that for purposes of this Section 9(c)(ii) the
following shall not constitute a change in the ownership of a substantial
portion of the Company’s assets: (1) a transfer to an entity that is controlled
by the Company’s shareholders immediately after the transfer; or (2) a transfer
of assets by the Company to: (A) a shareholder of the Company (immediately
before the asset transfer) in exchange for or with respect to the Company’s
securities; (B) an entity, fifty percent (50%) or more of the total value or
voting power of which is owned, directly or indirectly, by the Company; (C) a
Person, that owns, directly or indirectly, fifty percent (50%) or more of the
total value or voting power of all the outstanding stock of the Company; or (D)
an entity, at least fifty percent (50%) of the total value or voting power of
which is owned, directly or indirectly, by a Person described in subsection
(C).  For purposes of this Section 9(c)(ii), gross fair market value
means the value of the assets of the Company, or the value of the assets being
disposed of, determined without regard to any liabilities associated with such
assets.

    
      
         

      

      
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    Notwithstanding the foregoing, a transaction shall not
constitute a Change of Control if: (i) its sole purpose is to change the
state of the Company’s incorporation; (ii) its sole purpose is to create a
holding company that will be owned in substantially the same proportions by the
persons who held the Company’s securities immediately before such transaction;
or (iii) it does not constitute a change in control event under Treasury
Regulation 1.409A-3(i)(5)(v) or (vii).

     

    (d)           Constructive
Termination.  “Constructive Termination” means Executive’s
resignation within thirty (30) days following the expiration of any Company cure
period (discussed below) following the occurrence of one or more of the
following events without Executive’s consent: (i) the assignment to Executive of
any duties or the reduction of Executive’s duties, either of which results in a
material diminution in Executive’s authority, duties or responsibilities with
the Company in effect immediately prior to such assignment, or the removal of
Executive from such position and responsibilities, unless Executive is provided
with comparable authority, duties or responsibilities; provided, however, it being understood that a
new position within a larger combined company does not constitute
“Constructive Termination” if it is in the same
area of operations and involves similar scope of management responsibility
notwithstanding that Executive may not retain as senior a position overall
within the larger combined company as Executive’s prior position; (ii) a
material reduction of Executive’s Base Salary; (iii) a material change in the
geographic location at which Executive must perform services (for purposes of
this Agreement, the relocation of Executive to a facility or a location less
than fifty (50) miles from Executive’s then-present location shall not be
considered a material change in geographic location); or (iv) any material
breach by the Company of any material provision of this
Agreement.  Executive will not resign for Constructive Termination
without first providing the Company with written notice of the acts or omissions
constituting the grounds for “Constructive Termination” within ninety (90) days
of the initial existence of the grounds for “Constructive Termination” and a
reasonable cure period of not less than thirty (30) days following the date of
such notice.

     

    (e)           Disability.  “Disability”
will mean that Executive has been unable to perform Executive’s Company duties
as the result of Executive’s incapacity due to physical or mental illness, and
such inability, at least twenty-six (26) weeks after its commencement, is
determined to be total and permanent by a physician selected by the Company or
its insurers and acceptable to Executive or Executive’s legal representative
(such Agreement as to acceptability not to be unreasonably
withheld).  Termination resulting from Disability may only be effected
after at least thirty (30) days’ written notice by the Company of its intention
to terminate Executive’s employment.  In the event that Executive
resumes the performance of substantially all of Executive’s duties hereunder
before the termination of Executive’s employment becomes effective, the notice
of intent to terminate will automatically be deemed to have been
revoked.

     

    (f)           Section 409A
Limit.  For purposes of this Agreement, “Section 409A Limit”
means the lesser of two (2) times: (i) Executive’s annualized compensation based
upon the annual rate of pay paid to Executive during the Company’s taxable year
preceding the Company’s taxable year of Executive’s termination of employment as
determined under Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any Internal
Revenue Service guidance issued with respect thereto; or (ii) the maximum
amount that may be taken into account under a qualified plan pursuant to
Section 401(a)(17) of the Code for the year in which Executive’s employment
is terminated.

    
      
         

      

      
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              10.

            	
              Successors.

            

    

     

    (a)           The Company’s
Successors.  Any successor to the Company (whether direct or
indirect and whether by purchase, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company’s business and/or assets
will assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession.  For all purposes under this Agreement, the term “Company”
will include any successor to the Company’s business and/or assets which
executes and delivers the assumption agreement described in this Section 10(a)
or which becomes bound by the terms of this Agreement by operation of
law.  The failure of the Company to obtain the assumption of this
Agreement by any successor will constitute a material breach of a material part
of this Agreement.

     

    (b)           Executive’s
Successors.  The terms of this Agreement and all rights of
Executive hereunder will inure to the benefit of, and be enforceable by,
Executive’s personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.

     

    
      	
            	
              11.

            	
              Notice.

            

    

     

    (a)           General.  Notices
and all other communications contemplated by this Agreement will be in writing
and will be deemed to have been duly given when personally delivered or when
mailed by U.S. registered or certified mail, return receipt requested and
postage prepaid.  In the case of Executive, mailed notices will be
addressed to Executive at the home address which Executive most recently
communicated to the Company in writing.  In the case of the Company,
mailed notices will be addressed to its corporate headquarters, and all notices
will be directed to the attention of its Chief Executive Officer.

     

    (b)           Notice of
Termination.  Any termination by the Company for Cause or by
Executive for Constructive Termination or as a result of a voluntary resignation
by Executive will be communicated by a notice of termination to the other party
hereto given in accordance with Section 11(a) of this Agreement.  Such
notice will indicate the specific termination provision in this Agreement relied
upon, will set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision so indicated, and will
specify the termination date (which will be not more than thirty (30) days after
the giving of such notice).  The failure by Executive to include in
the notice any fact or circumstance which contributes to a showing of
Constructive Termination will not waive any right of Executive hereunder or
preclude Executive from asserting such fact or circumstance in enforcing
Executive’s rights hereunder.

     

    
      
        
        

      

      
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              12.

            	
              Arbitration.

            

    

     

    (a)           Arbitration.  In
consideration of Executive’s employment with the Company, its promise to
arbitrate all employment-related disputes, and
Executive’s receipt of the compensation, pay raises and other benefits paid to
Executive by the Company, at present and in the future, Executive agrees that
any and all controversies, claims, or disputes with anyone (including the
Company and any employee, officer, director, shareholder or benefit plan of the
Company in their capacity as such or otherwise) arising out of, relating to, or
resulting from Executive’s employment with the Company or termination thereof,
including any breach of this Agreement, will be subject to binding arbitration
under the Arbitration Rules set forth in California Code of Civil Procedure
Section 1280 through 1294.2, including Section 1281.8 (the “Act”), and
pursuant to California law.  The Federal Arbitration Act shall also
continue to apply with full force and effect, notwithstanding the application of
procedural rules set forth under the Act.

     

    (b)           Dispute
Resolution.  Disputes that Executive agrees to
arbitrate, and thereby agrees to waive any right to a trial by jury, include any
statutory claims under local, state, or federal law, including, but not
limited to, claims under Title VII of the Civil Rights Act of 1964, the
Americans with Disabilities Act of 1990, the Age Discrimination in Employment
Act of 1967, the Older Workers Benefit Protection Act, the Sarbanes Oxley Act,
the Worker Adjustment and Retraining Notification Act, the California Fair
Employment and Housing Act, the Family and Medical Leave Act, the California
Family Rights Act, the California Labor Code, Claims of harassment,
discrimination, and wrongful termination, and any statutory or common law
claims.  Executive further understands that this Agreement to
arbitrate also applies to any disputes that the Company may have with
Executive.

     

    (c)           Procedure.  Executive
agrees that any arbitration will be administered by the Judicial Arbitration
& Mediation Services, Inc. (“JAMS”), pursuant to its Employment Arbitration
Rules & Procedures (the “JAMS Rules”).  The arbitrator shall have
the power to decide any motions brought by any party to the arbitration,
including motions for summary judgment and/or adjudication, motions to dismiss
and demurrers, and motions for class certification, prior to any arbitration
hearing.  The arbitrator shall have the power to award any remedies
available under applicable law, and the arbitrator shall award attorneys’ fees
and costs to the prevailing party, except as prohibited by law.  The
Company will pay for any administrative or hearing fees charged by the
administrator or JAMS, except that Executive shall pay any filing fees
associated with any arbitration that Executive initiates, but only so much of
the filing fee as Executive would have instead paid had Executive filed a
complaint in a court of law.  Executive agrees that the arbitrator
shall administer and conduct any arbitration in accordance with California law,
including the California Code of Civil Procedure, and that the arbitrator shall
apply substantive and procedural California law to any dispute or claim, without
reference to the rules of conflict of law.  To the extent that the
JAMS Rules conflict with California law, California law shall take
precedence.  The decision of the arbitrator shall be in
writing.  Any arbitration under this Agreement shall be conducted in
Santa Clara County, California.

     

    (d)           Remedy.  Except
as provided by the Act, arbitration shall be the sole, exclusive, and final
remedy for any dispute between Executive and the Company.  Accordingly, except as provided by
the Act and this Agreement, neither Executive nor the Company will be permitted
to pursue court action regarding claims that are subject to
arbitration.  Notwithstanding, the arbitrator will not have the
authority to disregard or refuse to enforce any lawful Company policy, and the
arbitrator will not order or require the Company to adopt a policy not otherwise
required by law which the Company has not adopted.

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

     

    (e)           Administrative
Relief.  Executive is not prohibited from pursuing an
administrative claim with a local, state, or federal administrative body or
government agency that is authorized to enforce or administer laws related to
employment, including, but not limited to, the Department of Fair Employment and
Housing, the Equal Employment Opportunity Commission, the National Labor
Relations Board, or the Workers’ Compensation Board.  However,
Executive may not pursue court action regarding any such claim, except as
permitted by law.

     

    (f)           Voluntary Nature of
Agreement.  Executive acknowledges and agrees that Executive is
executing this Agreement voluntarily and without any duress or undue influence
by the Company or anyone else.  Executive further acknowledges and
agrees that Executive has carefully read this Agreement and that Executive has
asked any questions needed for Executive to understand the terms, consequences
and binding effect of this Agreement and fully understands it, including that
EXECUTIVE
IS WAIVING EXECUTIVE’S RIGHT TO A JURY TRIAL.  Finally,
Executive agrees that Executive has been provided an opportunity to seek the
advice of an attorney of Executive’s choice before signing this
Agreement.

     

    
      	
            	
              13.

            	
              Miscellaneous
      Provisions.

            

    

     

    (a)           No Duty to
Mitigate.  Executive will not be required to mitigate the
amount of any payment contemplated by this Agreement, nor will any such payment
be reduced by any earnings that Executive may receive from any other
source.

     

    (b)           Amendment.  No
provision of this Agreement will be modified, waived or discharged unless the
modification, waiver or discharge is agreed to in writing and signed by
Executive and by an authorized officer of the Company (other than Executive)
that is expressly designated as an amendment to this Agreement.

     

    (c)           Waiver.  No
waiver by either party of any breach of, or of compliance with, any condition or
provision of this Agreement by the other party will be considered a waiver of
any other condition or provision or of the same condition or provision at
another time.

     

    (d)           Headings.  All
captions and section headings used in this Agreement are for convenient
reference only and do not form a part of this Agreement.

     

    (e)           Entire
Agreement.  This Agreement constitutes the entire agreement of
the parties hereto as to the subject matter herein and supersedes and replaces
all prior or contemporaneous agreements whether written or oral including,
without limitation, the Prior Employment Agreement and the Amendment to the
Prior Employment Agreement.  Executive acknowledges and agrees that
this Agreement encompasses all the rights of Executive to any acceleration of
Award vesting or severance pay based on termination of employment and Executive
hereby agrees that he or she has no such rights except as stated herein, and
Executive agrees that any such rights, whether in an employment agreement, offer
letter, stock option agreement, stock option plan or other agreement, are hereby
waived.

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

     

    (f)           Choice of
Law.  The validity, interpretation, construction and
performance of this Agreement will be governed by the laws of the State of
California (with the exception of its conflict of laws provisions).

     

    (g)           Severability.  The
invalidity or unenforceability of any provision or provisions of this Agreement
will not affect the validity or enforceability of any other provision hereof,
which will remain in full force and effect.

     

    (h)           Withholding.  All
payments made pursuant to this Agreement will be subject to all applicable
withholdings, including all applicable income and employment taxes, as
determined in the Company’s reasonable judgment.

     

    (i)           Counterparts.  This
Agreement may be executed in counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same
instrument.

     

    IN
WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of
the Company by its duly authorized officer, as of the Effective
Date.

     

    
      	
              COMPANY

            	
              SOURCEFORGE,
      INC.

            
	 
      	 
      
	 
      	
              By:

            	/s/ Scott
      L.Kauffman
	 
      	 
      	 
      
	 
      	
              Title:

            	President
      and CEO
	 
      	 
      	 
      
	 	 	 
	
              EXECUTIVE

            	
              By:

            	/s/ Jon
      Sobel
	 
      	 
      	 
      
	 
      	
              Title:

            	Group President,
      Media

    

    
 

    
      
         

      

      
        -12-EXHIBIT 10.1

                         SENIOR SECURED CONVERTIBLE NOTE

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

                        RED ROCK PICTURES HOLDINGS, INC.

                         SENIOR SECURED CONVERTIBLE NOTE

Issuance Date:  December __, 2008       Original Principal Amount: U.S. $100,000

     FOR VALUE RECEIVED, Red Rock Pictures Holdings,  Inc., a Nevada corporation
(the  "Company"),  hereby  promises  to pay to Emerald  Asset  Advisors,  LLC, a
company domiciled in Delaware,  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), acceleration, redemption
or  otherwise  (in each case in  accordance  with the terms  hereof)  and to pay
interest  ("Interest") on any outstanding  Principal at the applicable  Interest
Rate,  from the date set out above as the Issuance  Date (the  "Issuance  Date")
until the same  becomes  due and  payable,  whether  upon an  Interest  Date (as
defined  below),  the Maturity  Date,  acceleration,  conversion,  redemption or
otherwise  (in each case in  accordance  with the  terms  hereof).  This  Senior
Secured  Convertible Note (including all Senior Secured Convertible Notes issued
in exchange,  transfer or  replacement  hereof,  this "Note") is being issued in
connection with the Holder's delivery of $100,000 to the Company on December __,
2008. Certain capitalized terms used herein are defined in Section 29.

                                       21
<PAGE>

PAYMENTS OF PRINCIPAL. On the Maturity Date, the Company shall pay to the Holder
an amount in cash  representing  all outstanding  Principal,  accrued and unpaid
Interest  and accrued and unpaid Late  Charges,  if any, on such  Principal  and
Interest.  The "Maturity Date" shall be December __, 2009, 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 prepay any portion of the outstanding Principal,  accrued and unpaid
Interest or accrued  and unpaid Late  Charges,  if any,  on such  Principal  and
Interest, without penalty for early payment.

INTEREST;  INTEREST RATE.  Interest on this Note shall commence  accruing on the
Issuance Date at a rate of ten percent (10.0%) per annum  ("Interest  Rate") 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 cash on the Maturity  Date (an "Interest
Date").  Prior to the payment of Interest on the 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), provided a
conversion  occurs.  From and after the  occurrence of an Event of Default,  the
Interest Rate shall be increased to twenty percent  (20.0%)  ("Default  Interest
Rate").  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 the
Default  Interest  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.

                                       22
<PAGE>

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.

Conversion  Right.  Subject to the  provisions  of Section  3(d), at any time or
times on or after the date  hereof,  the Holder shall be entitled to convert any
portion of the outstanding and unpaid  Conversion Amount (as defined below) into
fully paid and  nonassessable  shares of Common Stock in accordance with Section
3(c), at the Conversion Rate (as defined below). The Company shall not issue any
fraction of a share of Common Stock upon any  conversion.  If the issuance would
result in the  issuance  of a fraction of a share of Common  Stock,  the Company
shall  round such  fraction of a share of Common  Stock 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.

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").

"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.

"Conversion  Price" means, as of any Conversion Date (as defined below) or other
date of determination, $006, subject to adjustment as provided herein.

Mechanics of Conversion.

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)

                                       23
<PAGE>

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.

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

                                       24
<PAGE>

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.

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.

Limitations on Conversions.  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

                                       25
<PAGE>

respect to which the  determination  of such  sentence is being made,  but shall
exclude the number of shares of Common  Stock  which would be issuable  upon (A)
conversion  of the  remaining,  nonconverted  portion of this Note  beneficially
owned by the Holder or any of its  affiliates  and (B) exercise or conversion of
the unexercised or nonconverted  portion of any other  securities of the Company
(including,  without  limitation,  any Other Notes)  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-Q 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 or
oral  request of the  Holder,  the Company  shall  within one (1)  Business  Day
confirm orally and in writing to the Holder the number of shares of Common Stock
then outstanding.  In any case, the number of outstanding shares of Common Stock
shall be  determined  after  giving  effect to the  conversion  or  exercise  of
securities of the Company,  including this Note, by the Holder or its affiliates
since the date as of which such number of outstanding shares of Common Stock was
reported.  By written  notice to the  Company,  the Holder may 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.

RIGHTS UPON EVENT OF DEFAULT.
----------------------------

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

the  failure of the  Company to timely file its SEC reports on Form 10-Q or Form
10-K;

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;

                                       26
<PAGE>

the failure of the Company to redeem all  outstanding  Principal and Interest of
the Note upon its completion of a Qualified Financing.

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;

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);

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 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;

any  default  under,  redemption  of or  acceleration  prior to  maturity of any
Indebtedness of the Company or any of its subsidiaries ("Subsidiaries");

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;

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;

a final judgment or judgments for the payment of money  aggregating in excess of
$75,000 are rendered  against the Company or any of its  Subsidiaries  and which
judgments  are not,  within  sixty  (60) days after the entry  thereof,  bonded,
discharged or stayed pending  appeal,  or are not  discharged  within sixty (60)
days after the  expiration of such stay;  provided,  however,  that any judgment
which is covered by insurance or an indemnity  from a  creditworthy  party shall
not be included in calculating the $75,000 amount set forth above so long as the
Company  provides the Holder a written  statement from such insurer or indemnity
provider  (which  written  statement  shall be  reasonably  satisfactory  to the
Holder) to the effect that such judgment is covered by insurance or an indemnity
and the Company will receive the proceeds of such insurance or indemnity  within
thirty (30) days of the issuance of such judgment;

                                       27
<PAGE>

the Company  breaches any  representation,  warranty,  covenant or other term or
condition of the Note,  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; or

any breach or failure in any respect to comply with Section 14 of this Note.

Redemption  Right.  Upon the  occurrence  of an Event of Default with respect to
this 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. 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.

                                       28
<PAGE>

Mandatory Redemption. In the event that the Company raises gross proceeds in the
amount of  $1,000,000  or more at anytime  while this Note is  outstanding,  the
Company  shall be required  to  immediately  redeem all of the then  outstanding
Principal, Interest and Penalties, if any, then due under this Note.

RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
---------------------------------------------------------

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 Holder and approved by the
Holder 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 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  (specifically  excluding the Principal  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.

                                       29
<PAGE>

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.

                                       30
<PAGE>

RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.
------------------------------------------------------------------

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.

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 Holder.  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.

                                       31
<PAGE>

RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
----------------------------------------

Adjustment of Conversion Price upon Issuance of Common Stock. If and whenever on
or after 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  the  Conversion  Price  in  effect
immediately  prior to such issue or sale (the foregoing a "Dilutive  Issuance"),
then  immediately  after such Dilutive  Issuance,  the Conversion  Price then in
effect  shall be  reduced  to an amount  equal to the New  Issuance  Price.  For
purposes of determining the adjusted  Conversion  Price under this Section 7(a),
the following shall be applicable:

         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.

                                       32
<PAGE>

         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.

         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.

         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,

                                       33
<PAGE>

     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
     Holder.  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 Holder.  The  determination of such
     appraiser shall be deemed binding upon all parties absent manifest error.

         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.

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.

                                       34
<PAGE>

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.

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.

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.

Reserved.
--------

SECURITY.  This Note is secured to the extent and in the manner set forth in the
Security Agreement dated as of even date herewith.

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

RESERVATION OF AUTHORIZED SHARES.
--------------------------------

Reservation.  The Company  shall  initially  reserve out of its  authorized  and
unissued  Common  Stock a number of shares of Common Stock for each of the Notes
equal to 130% of the Conversion  Rate with respect to the  Conversion  Amount of

                                       35
<PAGE>

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

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.

                                       36
<PAGE>

HOLDER'S REDEMPTIONS.  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. The Company shall deliver the Holder Optional Redemption Price to the
Holder within five (5) Business  Days after the Company's  receipt of the Holder
Redemption  Notice.  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.

                                       37
<PAGE>

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 Delaware
General Corporation Law of theF State of Delaware and as expressly provided in
this Note.

COVENANTS.

Rank.  All  payments  due  under  this  Note  shall  rank  senior  to all  other
Indebtedness  of  the  Company  and  its  Subsidiaries,   other  than  Permitted
Indebtedness secured by Permitted Liens.

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 (ii)  Permitted
Indebtedness.

Right of First Refusal to Participate in any Future Financings.  So long as this
Note is  outstanding,  the Company  shall first offer to the Holder the right to
participate in 100% of any subsequent financing through its sale and issuance of
equity, debt or any combination  thereof. The Company shall deliver a term sheet
describing the material terms of any such  transaction to the Holder at least 10
days prior to the proposed closing of such transaction and the Holder shall have
5 days to indicate to the Company how much, if any, of such subsequent financing
Holder  intends  to  purchase.  If the terms of such  subsequent  financing  are
changed  materially  after the Holder  determines not to participate in any such
subsequent  financing,  then the Holder  shall be notified of any such change at
least 10 days prior to the proposed  closing of such  modified  transaction  and
shall have 5 days to indicate to the Company its  willingness to participate and
to what extent. This right shall not be extinguished if the Company subsequently
raises additional funds if the Holder either does or does not participate in any
previous  transaction  to which it was  entitled  to  pursuant  to its  right of
participation herein.

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.

                                       38
<PAGE>

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.

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 Holder.

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 any  intellectual  property  rights 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.

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.

                                       39
<PAGE>

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.

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.

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.

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.

                                       40
<PAGE>

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

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.

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
Holder  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.

TRANSFER. This Note may be offered, sold, assigned or transferred by the Holder
without the consent of the Company.

REISSUANCE OF THIS NOTE.
-----------------------

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

                                       41
<PAGE>

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.

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.

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.

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.

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

                                       42
<PAGE>

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.

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.

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.

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.

                                       43
<PAGE>

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

NOTICES; PAYMENTS.
-----------------

Notices.  Whenever  notice is  required  to be given  under  this  Note,  unless
otherwise  provided  herein,  such notice shall be given Emerald Asset Advisors,
LLC, 425 Broadhollow Road, Melville, NY 11747, Attention: Michael Xirinachs. The
Company shall provide the Holder with prompt written notice of all actions taken
pursuant to this Note,  including in  reasonable  detail a  description  of such
action  and  the  reason  therefore.  Without  limiting  the  generality  of the
foregoing,  the Company will give written  notice to the Holder (i)  immediately

                                       44
<PAGE>

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.

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 twenty
percent  (20.0%)  per annum from the date such  amount was due until the same is
paid in full ("Late Charge").

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

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.

                                       45
<PAGE>

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.

                                       46
<PAGE>

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).

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

                                       47
<PAGE>

"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.

"Bloomberg" means Bloomberg Financial Markets.

"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.

"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.

"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.

"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

                                       48
<PAGE>

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.

"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.

"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.

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

"Eligible Market" means the Principal Market, The New York Stock Exchange, Inc.,
The NASDAQ Global Market,  The NASDAQ Global Select  Market,  The Nasdaq Capital
Market or the OTC Bulletin Board.

"Excluded  Securities"  means  any  Common  Stock  issued  or  issuable:  (i) in
connection  with any  Approved  Stock Plan to the extent such Common Stock would
not result in a Dilutive  Issuance;  (ii) upon  conversion  of the Notes;  (iii)
pursuant  to a bona fide firm  commitment  underwritten  public  offering  which

                                       49
<PAGE>

generates gross proceeds to the Company in excess of $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  date  hereof,  provided  that  the  terms of such  Options  or  Convertible
Securities are not amended, modified or changed on or after the date hereof; and
(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.

"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.

"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,  or (ii) sell, assign, transfer, convey or otherwise dispose of all
or  substantially  all of the  properties  or assets of the  Company  to another
Person,  or (iii) allow  another  Person to make a purchase,  tender or exchange
offer that is accepted  by the  holders of more than 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),  or (iv)
consummate a stock purchase agreement or other business combination  (including,
without limitation,  a reorganization,  recapitalization,  spin-off or scheme of
arrangement)  with another Person  whereby such other Person  acquires more than
the 50% of the  outstanding  shares of Voting Stock (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.

                                       50
<PAGE>

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

"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.

"Interest  Rate"  means ten  percent  (10.0%)  per annum,  subject  to  periodic
adjustment pursuant to Section 2.

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

                                       51
<PAGE>

"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.

"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 ten  percent  (10.0%) 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,  (iv) up to an  additional  $300,000  loaned to the Company by
Holder or its Affiliates,  and (v) extensions,  refinancings and renewals of any
items in clauses (i) through (iv) 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.

"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

                                       52
<PAGE>

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,  and (ix) Liens arising from
judgments,  decrees or attachments in circumstances not constituting an Event of
Default under Section 4(a)(ix),  (x) Liens created in favor of certain financial
institutions  to secure the Company's  obligations  under its  automated  teller
machine cash agreements.

"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.

"Principal Market" means the OTC Bulletin Board.

"Redemption  Notices"  means,  collectively,  the  Event of  Default  Redemption
Notices,  the Change of Control  Redemption  Notices  and the Holder  Redemption
Notice, each of the foregoing, individually, a Redemption Notice.

"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%.

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

""SEC" means the United States Securities and Exchange Commission.

"Security  Agreement"  means that  certain  security  agreement  dated even date
herewith securing the obligations due pursuant to this Note.

"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.

                                       53
<PAGE>

"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).

"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).

"Weighted  Average  Price"  means,  for any security as of any date,  the dollar
volume-weighted  average price for such security on the Principal  Market during
the period  beginning at 9:30:01 a.m.,  New York Time (or such other time as the
Principal Market publicly announces is the official open of trading), and ending
at  4:00:00  p.m.,  New York Time (or such other  time as the  Principal  Market
publicly  announces is the  official  close of trading) as reported by Bloomberg
through its "Volume at Price"  functions,  or, if the foregoing  does not apply,
the   dollar   volume-weighted   average   price   of  such   security   in  the
over-the-counter  market on the  electronic  bulletin  board  for such  security
during the period  beginning at 9:30:01 a.m.,  New York Time (or such other time
as such market publicly  announces is the official open of trading),  and ending
at  4:00:00  p.m.,  New York Time (or such other  time as such  market  publicly
announces is the official close of trading) as reported by Bloomberg,  or, if no
dollar volume-weighted  average price is reported for such security by Bloomberg
for such  hours,  the  average of the  highest  closing bid price and the lowest
closing ask price of any of the market  makers for such  security as reported in
the "pink sheets" by Pink Sheets LLC (formerly  the National  Quotation  Bureau,
Inc.).  If the Weighted  Average Price cannot be calculated for such security on
such particular date on any of the foregoing  bases,  the Weighted Average Price
of such  security  on such  date  shall be the  fair  market  value as  mutually
determined  by the  Company and the  Holders.  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  22.  All such  determinations  to be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during the applicable calculation period.

                                       54
<PAGE>

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.

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

                            [Signature Page Follows]

                                       55
<PAGE>

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

                                        RED ROCK PICTURES HOLDINGS, INC.

                                        By: ____________________________________
                                            Name:
                                            Title:

<PAGE>

                                    EXHIBIT I

                        RED ROCK PICTURES HOLDINGS, INC.

                                CONVERSION NOTICE

Reference is made to the Senior Secured  Convertible Note (the "Note") issued to
the  undersigned  by Red  Rock  Pictures  Holdings,  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:___________________________

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)

<PAGE>

                                 ACKNOWLEDGMENT

     The Company hereby  acknowledges  this Conversion Notice and hereby directs
[____________________]  [TRANSFER  AGENT] to issue the above indicated number of
shares of Common Stock in accordance with the Conversion Notice attached hereto.

                                        RED ROCK PICTURES HOLDINGS, INC.
                                        By: ____________________________________
                                            Name:
                                            Title:

                                       58

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