Document:

EXHIBIT
      4.12.2

    

    ADDITIONAL
      WARRANT

    

    THE
      WARRANT EVIDENCED OR CONSTITUTED HEREBY, AND ALL SHARES OF COMMON STOCK
      DELIVERABLE UPON EXERCISE HEREUNDER, HAVE BEEN AND WILL BE ISSUED WITHOUT
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“THE ACT”) AND MAY
      NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT
      REGISTRATION UNDER THE ACT UNLESS EITHER (A) THE COMPANY HAS RECEIVED AN OPINION
      OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO
      THE
      EFFECT THAT REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH DISPOSITION
      OR
      (B) THE SALE OF SUCH SECURITIES IS MADE PURSUANT TO SECURITIES AND EXCHANGE
      COMMISSION RULE 144.

    

    Date:                                                 
      , 2008

    

    WARRANT
      TO PURCHASE COMMON STOCK

    

    OF

    

    INTERMETRO
      COMMUNICATIONS, INC.

     

    

    THIS
      CERTIFIES THAT, for value
      received,                                   
(“Holder”),
      is
      entitled, subject to the terms and conditions of this Warrant, at any time
      or
      from time to time on or after the date hereof, to purchase up to
      (                       
 ) shares of Common Stock (the “Warrant Shares”), from InterMetro
      Communications, Inc., a Nevada corporation (the “Company”),
      at an
      exercise price per share equal to one dollar ($1.00) (as adjusted from time
      to
      time, the “Purchase Price). This Warrant shall expire at 5:00 p.m. Pacific time
      on                                    
, 2014 (the “Expiration
      Date”).
      Both
      the number of shares of Common Stock purchasable upon exercise of this Warrant
      (the “Warrant
      Shares”)
      and
      the Purchase Price are subject to adjustment and change as provided herein.
      This
      Warrant is one constituent part of a multi-part Unit issued pursuant to the
      Loan
      and Security Agreement dated January 16, 2008, between the Company, the
      Subsidiaries, the Agent and the Lenders named therein, including Holder (the
      “Loan Agreement”).

    

    1.
      CERTAIN
      DEFINITIONS.
      As used
      in this Warrant the following terms shall have the following respective
      meanings:

    

    “1933
      Act”
shall
      mean the Securities Act of 1933, as amended.

    

    “Common
      Stock”
shall
      mean the Common Stock, par value $0.001 per share, of the Company and any other
      securities at any time receivable or issuable upon exercise of this
      Warrant.

    

    “Fair
      Market Value”
or
      “FMV”
of
      a
      share of Common Stock as of a particular date shall mean:

    

    (a)
      If
      traded on a national securities exchange or the Nasdaq Capital Market, the
      Fair
      Market Value shall be deemed to be the average of the closing prices of the
      Common Stock of the Company on such exchange or market over the five (5) trading
      days ending immediately prior to the applicable date of valuation;

    

    (b)
      If
      actively traded over-the-counter, the Fair Market Value shall be deemed to
      be
      the average of the closing bid prices over the 10 trading days ending
      immediately prior to the applicable date of valuation; and

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c)
      If
      there is no active public market, the Fair Market Value shall be the value
      as
      determined in good faith by the Company’s Board of Directors upon a review of
      relevant factors, including due consideration of the Holder’s determination of
      the value of the Company. The foregoing notwithstanding, if Holder advises
      the
      Board of Directors in writing that Holder disagrees with such determination,
      then the Company and Holder shall promptly agree upon a reputable investment
      banking firm to undertake such valuation. If the valuation of such investment
      banking firm is greater than that determined by the board of directors, then
      all
      fees and expenses of such investment banking firm shall be paid by the Company.
      In all other circumstances, such fees and expenses shall be paid by
      Holder.

    

    “Note”
shall
      mean the Company’s Secured Convertible Promissory Note issued to Holder pursuant
      to the Loan Agreement.

    

    “SEC”
shall
      mean the Securities and Exchange Commission.

     

    2.
      EXERCISE
      OF WARRANT

    

    2.1
      Payment.
      Subject
      to compliance with the terms and conditions of this Warrant and applicable
      securities laws, this Warrant may be exercised, in whole or in part at any
      time
      or from time to time, on or before the Expiration Date by the delivery
      (including, without limitation, delivery by facsimile) of the form of Notice
      of
      Exercise attached hereto as Exhibit
      1
      (the
“Notice
      of Exercise”),
      duly
      executed by the Holder, at the address of the Company as set forth herein,
      and
      as soon as practicable after such date,

    

    (a)
      surrendering this Warrant at the address of the Company, and either

    

    (b)
      providing payment, by check or by wire transfer, or, if applicable, by
      cancellation of any debt of the Company to the Holder or Section 21 Payment
      (as
      defined in Section 21) payable to the Holder as of immediately prior to such
      exercise, of an amount equal to the product obtained by multiplying the number
      of shares of Common Stock being purchased upon such exercise by the then
      effective Purchase Price (the “Exercise
      Amount”),
      or

    

    (c)
      electing, by written notice to the Company on the Notice of Exercise duly
      executed by the Holder, to receive a number of Warrant Shares, determined in
      accordance with the formula set forth below (the “Election”), in which event the
      Company shall issue to the Holder a number of Warrant Shares computed using
      the
      following formula:

    

    X=
      Y(A-B)

    A

    

    Where
      X =
      The number of Warrant Shares to be issued to the Holder upon an
      Election.

    

    
      	 	
              Y
                =

            	
              The
                number of Warrant Shares in respect of which this Warrant is being
                exercised.

            

    

    

    
      	 	
              A
                =

            	
              The
                FMV of one Warrant Share on the date that the relevant Notice of
                Exercise
                is received by the Company.

            

    

    

    
      	 	
              B
                =

            	
              The
                Purchase Price (as adjusted to the date of the Election) in accordance
                with Section 4 hereof

            

    

    

    2.2
      Common
      Stock Certificates; Fractional Shares.
      As soon
      as practicable on or after the date of an exercise of this Warrant and in any
      event within 10 days thereafter, the Company shall deliver to the person or
      persons entitled to receive the same a certificate or certificates for the
      number of whole shares of Common Stock issuable upon such exercise. No
      fractional shares or scrip representing fractional shares of Common Stock shall
      be issued upon an exercise of this Warrant. In lieu thereof the Company shall
      pay Holder the Fair Market Value of such fractional share.

    

    2.3
      Partial
      Exercise: Effective Date of Exercise.
      In case
      of any partial exercise of this Warrant, the Holder and the Company shall cancel
      this Warrant upon surrender hereof and shall execute and deliver a new Warrant
      of like tenor and date for the balance of the shares of Common Stock purchasable
      hereunder. This Warrant shall be deemed to have been exercised immediately
      prior
      to the close of business on the date of its surrender for exercise as provided
      above. The Company acknowledges that the person entitled to receive the shares
      of Common Stock issuable upon exercise of this Warrant shall be treated for
      all
      purposes as the holder of record of such shares as of the close of business
      on
      the date the Holder is deemed to have exercised this Warrant.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    3.
      TAXES.
      The
      Company shall pay all taxes and other governmental charges that may be imposed
      in respect of the delivery of shares upon exercise of this Warrant; provided,
      however
      , that
      the Company shall not be required to pay any tax or other charge imposed in
      connection with any transfer involved in the delivery of any certificate for
      shares of Common Stock in any name other than that of the Holder of this
      Warrant, and in such case the Company shall not be required to deliver any
      stock
      certificate until such tax or other charge has been paid, or it has been
      established to the Company’s reasonable satisfaction that no tax or other charge
      is due.

    

    4.
      ADJUSTMENT
      OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON STOCK.
      The
      number of shares of Common Stock deliverable upon exercise of this Warrant
      (or
      any shares of stock or other securities or property receivable upon exercise
      of
      this Warrant) and the Purchase Price are subject to adjustment upon occurrence
      of the following:

    

    4.1
      Adjustment
      for Stock Splits, Stock Subdivisions or Combinations of Shares of Common
      Stock.
      The
      Purchase Price of this Warrant shall be proportionally decreased and the number
      of shares of Common Stock deliverable upon exercise of this Warrant (or any
      shares of stock or other securities at the time deliverable upon exercise of
      this Warrant) shall be proportionally increased to reflect any stock split
      or
      subdivision of the Company’s Common Stock. The Purchase Price of this Warrant
      shall be proportionally increased and the number of shares of Common Stock
      deliverable upon exercise of this Warrant (or any shares of stock or other
      securities at the time deliverable upon exercise of this Warrant) shall be
      proportionally decreased to reflect any combination of the Company’s Common
      Stock.

    

    4.2
      Adjustment
      for Dividends or Distributions of Stock or Other Securities or
      Property.
      In case
      the Company shall make or issue, or shall fix a record date for the
      determination of eligible holders entitled to receive, a dividend or other
      distribution with respect to the Common Stock (or any shares of stock or other
      securities at the time issuable upon exercise of the Warrant) payable in (a)
      securities of the Company or (b) assets (excluding cash dividends paid or
      payable solely out of retained earnings), then, in each such case, the Holder
      of
      this Warrant on exercise hereof at any time after the consummation, effective
      date or record date of such dividend or other distribution, shall receive,
      in
      addition to the shares of Common Stock (or such other stock or securities)
      issuable on such exercise prior to such date, and without the payment of
      additional consideration therefor, the securities or such other assets of the
      Company to which such Holder would have been entitled upon such date if such
      Holder had exercised this Warrant immediately prior to such making, issuance
      or
      record date.

    

    4.3
      Reclassification,
      Conversion.
      If the
      Company, by reclassification of securities or conversion of securities or
      otherwise, shall change any of the securities as to which purchase rights under
      this Warrant exist into the same or a different number of securities of any
      other class or classes, this Warrant shall thereafter represent the right to
      acquire such number and kind of securities as would have been issuable if this
      Warrant had been exercised immediately prior to such reclassification or
      conversion or other change and the Purchase Price therefore shall be
      appropriately adjusted, all subject to further adjustment as provided in this
      Section 4. 

    

    4.4
      Adjustment
      for Capital Reorganization. Merger or Consolidation.
      In case
      of any capital reorganization of the capital stock of the Company (other than
      a
      combination, reclassification, exchange or subdivision of shares otherwise
      provided for herein), or any merger or consolidation of the Company with or
      into
      another corporation, or the sale of all or substantially all the assets of
      the
      Company then, and in each such case, as a part of such reorganization, merger,
      consolidation, sale or transfer, lawful provision shall be made so that the
      Holder of this Warrant shall thereafter be entitled to receive upon exercise
      of
      this Warrant the number of shares of stock or other securities or property
      that
      a holder of the shares deliverable upon exercise of this Warrant would have
      been
      entitled to receive in such reorganization, consolidation, merger, sale or
      transfer if this Warrant had been exercised immediately before such
      reorganization, merger, consolidation, sale or transfer, all subject to further
      adjustment as provided in this Section 4. The foregoing provisions of this
      Section 4.4 shall similarly apply to successive reorganizations, consolidations,
      mergers, sales and transfers and to the stock or securities of any other
      corporation that are at the time receivable upon the exercise of this Warrant.
      If the per-share consideration payable to the Holder hereof for shares in
      connection with any such transaction is in a form other than cash or marketable
      securities, then the value of such consideration shall be determined in good
      faith by the Company’s Board of Directors. In all events, appropriate adjustment
      (as determined in good faith by the Company’s Board of Directors) shall be made
      in the application of the provisions of this Warrant with respect to the rights
      and interests of the Holder after the transaction, to the end that the
      provisions of this Warrant shall be applicable after that event, as near as
      reasonably may be, in relation to any shares or other property deliverable
      after
      that event upon exercise of this Warrant.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    4.5
      Notice
      of Adjustment.
      Whenever the number of shares of Common Stock purchasable upon the exercise
      of
      this Warrant or the Purchase Price is adjusted, or the Company’s Board of
      Directors makes a determination of Fair Market Value in connection with any
      such
      adjustment, the Company shall promptly notify the Holder in writing of any
      such
      adjustment or FMV determination, setting forth a brief statement of the facts
      requiring such adjustment, the computation by which such adjustment was made,
      and the basis for the FMV determination.

    

    4.6 No
      Impairment.
      The
      Company will not, by any voluntary action, avoid or seek to avoid the observance
      or performance of any of the terms of this Warrant to be observed or performed
      by the Company, but shall at all times in good faith assist in the carrying
      out
      of all provisions of this Section 4 and in the taking of all such action as
      may
      be necessary or appropriate in order to protect the rights of the Holder of
      this
      Warrant against impairment.

    

    5.
      LOSS
      OR MUTILATION.
      Upon
      receipt of evidence reasonably satisfactory to the Company of the ownership
      of
      and the loss, theft, destruction or mutilation of this Warrant, and of indemnity
      reasonably satisfactory to it, and (in the case of mutilation) upon surrender
      and cancellation of this Warrant, the Company will cause to be executed and
      delivered in lieu thereof a new Warrant of like tenor as the lost, stolen,
      destroyed or mutilated Warrant.

    

    6.
      REPRESENTATION
      AND COVENANT.
      The
      Company hereby represents and warrants that all shares issuable pursuant to
      this
      Warrant, when delivered pursuant to the terms hereof, shall be validly issued,
      fully paid and nonassessable and free and clear of all liens, security
      interests, charges and other encumbrances or restrictions on sale and free
      and
      clear of all preemptive rights, except encumbrances or restrictions arising
      under federal or state securities laws. Further, the Company hereby covenants
      to
      reserve such number of authorized but unissued shares of Common Stock as needed
      for issuance pursuant to this Warrant.

    

    7.
      TRANSFER.
      Subject
      to Section 10, this Warrant and all rights hereunder may be transferred by
      the
      Holder upon delivery of the form of Assignment attached hereto as Exhibit
      2
      (the
“Assignment”),
      duly
      executed by the Holder, surrender of this Warrant properly endorsed at the
      address of the Company and payment of any necessary transfer tax or other
      governmental charge imposed upon such transfer. Upon any partial transfer,
      the
      Holder and Company will cause to be issued and delivered to the Holder a new
      Warrant or Warrants with respect to the portion of this Warrant not so
      transferred. Each taker and holder of this Warrant, by taking or holding the
      same, consents and agrees that when this Warrant shall have been so endorsed,
      the person in possession of this Warrant may be treated by the Company, and
      all
      other persons dealing with this Warrant, as the absolute owner hereof for any
      purpose and as the person entitled to exercise the rights represented hereby,
      any notice to the contrary notwithstanding; provided, however that until a
      transfer of this Warrant is duly registered on the books of the Company, the
      Company may treat the Holder hereof as the owner for all purposes.

    

    8.
      REGISTRATION
      RIGHTS.
      Pursuant to the terms of a Registration Rights Agreement of even date herewith
      between the Company and Holders of Registrable Securities (as defined in the
      Registration Rights Agreement) the Holder shall have and be entitled to exercise
      the rights of registration with respect to shares of Common Stock issued
      pursuant to this Agreement as provided for in such Agreement.

     

    9.
      RESTRICTIONS
      ON TRANSFER.
      The
      Holder, by acceptance hereof, agrees that, absent an effective registration
      statement filed with the SEC under the 1933 Act, covering the disposition or
      sale of this Warrant or the Common Stock issued or issuable pursuant hereto
      and
      registration or qualification under applicable state securities laws, such
      Holder will not sell, transfer, pledge, or hypothecate any or all such Warrants
      or Common Stock, as the case may be, unless either (i) the Company has received
      an opinion of counsel, in form and substance reasonably satisfactory to the
      Company, to the effect that such registration is not required in connection
      with
      such disposition or (ii) the sale of such securities is made pursuant to SEC
      Rule 144.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    10.
      COMPLIANCE
      WITH SECURITIES LAWS.
      By
      acceptance of this Warrant, the Holder hereby represents, warrants and covenants
      that he/she/it is an “accredited investor” as that term is defined under Rule
      501 of Regulation D, that any shares of stock purchased upon exercise of this
      Warrant or acquired pursuant hereto shall be acquired for investment only and
      not with a view to, or for sale in connection with, any distribution thereof,
      that the Holder has had such opportunity as such Holder has deemed adequate
      to
      obtain from representatives of the Company such information as is necessary
      to
      permit the Holder to evaluate the merits and risks of its investment in the
      Company; that the Holder is able to bear the economic risk of holding such
      shares as may be acquired pursuant to this Warrant for an indefinite period;
      that the Holder understands that the shares of stock acquired pursuant to this
      Warrant will not be registered under the 1933 Act (unless otherwise required
      pursuant to exercise by the Holder of the registration rights, if any,
      previously granted to the Holder) and will be “restricted securities” within the
      meaning of Rule 144 under the 1933 Act and that the exemption from registration
      under Rule 144 will not be available for at least six months from the date
      the
      shares are acquired, and even then will not be available unless a public market
      then exists for the stock, adequate information concerning the Company is then
      available to the public, and other terms and conditions of Rule 144 are complied
      with; and that all stock certificates representing shares of stock issued to
      the
      Holder pursuant to this Warrant may have affixed thereto a legend substantially
      in the following form:

     

    THE
      SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
      ACT
      OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE.
      THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
      AND
      MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND ANY
      APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
      THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
      FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER
      OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
      SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE
      IS
      IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
      LAWS.

    

    11.
      NO
      RIGHTS OR LIABILITIES AS STOCKHOLDERS.
      This
      Warrant shall not entitle the Holder to any voting rights or other rights as
      a
      stockholder of the Company. Until the Holder acquires Common Stock pursuant
      to
      this Warrant, no provisions of this Warrant, and no enumeration herein of the
      rights or privileges of the Holder hereof shall cause such Holder hereof to
      be a
      shareholder of the Company for any purpose.

    

    12.
      NOTICES.
      All
      notices and other communications required or permitted hereunder shall be in
      writing and shall be delivered by registered or certified mail, postage prepaid,
      return receipt requested, or by telecopier, or by email or otherwise delivered
      by hand or by messenger, addressed, telecopied or emailed to the person to
      whom
      such notice or communication is being given at its address set forth after
      its
      signature hereto. In order to be effective, a copy of any notice or
      communication sent by telecopier or email must be sent by registered or
      certified mail, postage prepaid, return receipt requested, by nationally
      recognized overnight courier or delivered personally to the person to whom
      such
      notice or communication is being at its address set forth after its signature
      hereto. If notice is provided by mail, notice shall be deemed to be given five
      (5) business days after proper deposit with the United States mail or the next
      business day after deposit with a nationally recognized overnight courier,
      or
      immediately upon personal delivery thereof. If notice is provided by telecopier,
      notice shall be deemed to be given upon confirmation by the telecopier machine
      of the receipt of such notice. If notice is provided by email, notice shall
      be
      deemed to be given upon confirmation by the sender’s email program that the
      recipient received the email. The addresses set forth after the signatures
      hereto may be changed by written notice complying with the terms of this Section
      12.

    

    13.
      HEADINGS.
      The
      headings in this Warrant are for purposes of convenience in reference only,
      and
      shall not be deemed to constitute a part hereof.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    14.
      LAW
      GOVERNING AND VENUE.
      This
      Warrant shall be construed and enforced in accordance with, and governed by,
      the
      laws of the State of California, without giving effect to the principles of
      conflicts of law. The Company and Holder agree that the sole jurisdiction and
      venue for any litigation arising out of this Warrant involving the Company
      or
      Holder shall be in the appropriate federal or state court located in Los Angeles
      County, California.

    

    15.
      NOTICES
      OF RECORD DATE.
      In
      case:

    

    15.1
      the
      Company shall take a record of the holders of its Common Stock (or other stock
      or securities at the time receivable upon the exercise of this Warrant), for
      the
      purpose of entitling them to receive any dividend or other distribution, or
      any
      right to subscribe for or purchase any shares of stock of any class or any
      other
      securities or to receive any other right; or

    

    15.2
      of
      any consolidation or merger of the Company with or into another corporation,
      any
      capital reorganization of the Company, any reclassification of the capital
      stock
      of the Company, or any conveyance of all or substantially all of the assets
      of
      the Company to another corporation in which holders of the Company’s stock are
      to receive stock, securities or property of another corporation; or

    

    15.3
      of
      any voluntary or involuntary dissolution, liquidation or winding-up of the
      Company; or

    

    15.4
      of
      any redemption of any outstanding capital stock of the Company; then, and in
      each such case, the Company will mail or cause to be mailed to the Holder of
      this Warrant a notice specifying, as the case may be, (i) the date on which
      a
      record is to be taken for the purpose of such dividend, distribution or right
      and the amount and character of any such dividend, distribution or right, or
      (ii) the date on which such reorganization, reclassification, consolidation,
      merger, conveyance, dissolution, liquidation, winding-up, redemption or
      conversion is to take place, and the time, if any is to be fixed, as of which
      the holders of record of Common Stock (or such stock or securities as at the
      time are receivable upon the exercise of this Warrant) shall be entitled to
      exchange their shares of Common Stock (or such other stock or securities) for
      securities or other property deliverable upon such reorganization,
      reclassification, consolidation, merger, conveyance, dissolution, liquidation
      or
      winding-up. Such notice shall be delivered at least thirty (30) days prior
      to
      the date therein specified.

    

    16.
      SEVERABILITY.
      If any
      term, provision, covenant or restriction of this Warrant is held by a court
      of
      competent jurisdiction to be invalid, void or unenforceable, the remainder
      of
      the terms, provisions, covenants and restrictions of this Warrant shall remain
      in full force and effect and shall in no way be affected, impaired or
      invalidated.

    

    17.
      COUNTERPARTS.
      For the
      convenience of the parties, any number of counterparts of this Warrant may
      be
      executed by the parties hereto and each such executed counterpart shall be,
      and
      shall be deemed to be, an original instrument.

    

    18.
      SATURDAYS,
      SUNDAYS AND HOLIDAYS.
      If the
      Expiration Date falls on a Saturday, Sunday or legal holiday, the Expiration
      Date shall automatically be extended until 5:00 p.m. on the next business
      day.

    

    19.
      ATTORNEY’S
      FEES.
      Should
      either party hereto institute any action or proceeding to enforce or interpret
      this Warrant or any provisions hereof or for a declaration of rights under
      this
      Warrant, the prevailing party in such action or proceeding shall be entitled
      to
      receive from the other party all costs and expenses, including reasonable
      attorney’s fees, in connection therewith.

    

    20.
      CERTAIN
      PAYMENTS.
      To the
      extent that this Warrant is unexercised on February 1, 2009, the following
      payment (the “Section 20 Payment”) shall be payable to the Holder
      hereof:

    

    20.1 Amount
      of Payment.
      The
      amount of the Section 20 Payment shall be equal to the product of (a) the
      amount, if any, by which $2.00 exceeds the 30 Day VWAP determined as of January
      30, 2009 multiplied by (b) the number of Warrant Shares for which this Warrant
      is then exercisable (with the dollar amount and number of shares being subject
      to adjustment for stock splits, stock subdivisions or combinations of shares
      of
      Common Stock). If the 30 Day VWAP determined as of January 30, 2009 is equal
      to
      $2.00 or more (with such dollar amount being subject to adjustment for stock
      splits, stock subdivisions or combinations of shares of Common Stock), there
      shall be no Section 20 Payment and the provisions of this Section 20 shall
      immediately terminate. 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    20.2 Form
      of Payment.
      The
      Section 20 Payment shall be made by the Company in the form of cash or Common
      Stock. The choice of form of payment shall be in the sole discretion of the
      Company. 

    

    20.3 Timing
      of Payment.
      The
      Section 20 Payment shall be made, in whole or in part, at
      such
      time or times as the Holder shall, in its sole discretion, determine by notice
      to the Company, provided that such payment may be requested no earlier than
      February 1, 2009 and no later than the Expiration Date. The amount requested
      by
      Holder to be paid (whether in cash or Common Stock) shall be delivered by the
      Company promptly, but in any event within 10 days of receipt of the Holder’s
      notice. 

    

    20.4 Valuation
      of Common Stock.
      In the
      event that the Company elects to make a Section 20 Payment in the form of Common
      Stock, such Common Stock shall be valued at the Fair Market Value thereof on
      the
      date of the Holder’s notice requesting payment. In no event shall the Company be
      obligated to issue more than one share of Common Stock per Warrant Share for
      which this Warrant was originally exercisable (with such share amount being
      subject to adjustment for stock splits, stock subdivisions or combinations
      of
      shares of Common Stock). In the event that, but for the preceding sentence,
      the
      Section 20 Payment would, if paid in shares of Common Stock, exceed the number
      of shares for which this Warrant was originally exercisable (with such share
      amount being subject to adjustment for stock splits, stock subdivisions or
      combinations of shares of Common Stock), the Company shall not be obligated
      to
      make any additional cash payment hereunder and the stock issuance contemplated
      by the preceding sentence shall be the entire Section 20 Payment obligation
      of
      the Company. 

    

    20.5 Call
      Option.
      If a
      Section 20 Payment is due Holder, in lieu of making such payment, the Company
      shall have the right (“Call Option”) to cancel this Warrant and terminate
      Holder’s rights hereunder by payment to Holder of an amount in cash equal to
      $3.00 times the number of shares for which this Warrant is exercisable on
      February 1, 2009, payable with the notice referred to in Section 20.6 (with
      such
      dollar and share amounts being subject to adjustment for stock splits, stock
      subdivisions or combinations of shares of Common Stock).

    

    20.6 Notice.
      No
      later than February 10, 2009, the Company shall send a notice to the Holder
      which shall state (i) the amount of the Section 20 Payment, (ii) the
      Company’s election to make the Section 20 Payment in cash or in Common Stock,
      which election shall be irrevocable, or (iii) that the Company elects to
      exercise its Call Option in lieu of making the Section 20 Payment. 

    

    20.7 Definition
      of VWAP.
      VWAP
      means, for any date, the price determined by the first of the following clauses
      that applies: (a) if the Common Stock is then traded on a national securities
      exchange or the NASDAQ Capital Market), the daily volume weighted average price
      of the Common Stock for such date (or the nearest preceding date) on the primary
      trading market on which the Common Stock is then listed or quoted as reported
      by
      Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. EST to 4:02
      p.m.
      Eastern Time) using the VAP function or (b) if the Common Stock is not then
      listed or quoted on such a trading market and if prices for the Common Stock
      are
      then reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a
      similar organization or agency succeeding to its functions of reporting prices),
      the most recent bid price per share of the Common Stock so
      reported.

    

    21. Survival.
      Anything to the contrary notwithstanding, Sections 12, 13, 14, 16, 18 and 19
      hereof shall survive any cancellation or termination of this
      Warrant.

     

    [SIGNATURE
      PAGE TO FOLLOW]

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have executed this Warrant as of date first
      written above.

     

    
      
        	
                INTERMETRO
                  COMMUNICATIONS, INC.

              	 	
                HOLDER:

              	 
	 	 	 	 	 
	
                By:

              	 	 	 	 
	
                Name:
                  Charles Rice

              	 	
                Signature

              	 
	
                Title:
                  President and Chief Executive Officer

              	 	 	 
	 	 	 	 	 
	 	 	 	
                Print
                  Name

              	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	
                Title
                  if applicable

              	 
	 	 	 	 	 
	
                Address
                  for Notices:

              	 	
                Address
                  for Notices:

              	 
	 	 	 	 
	
                2685
                  Park Center Drive, Building

              	 	 	 
	
                Simi
                  Valley, California 93065

              	 	 	 
	
                Fax:

              	 	 	
                Fax:

              	 	 
	
                Email:
                  Charles.Rice @Intermetro.net

              	 	
                Email:

              	 	 

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      1

    

    NOTICE
      OF EXERCISE

    

    (To
      be
      executed upon exercise of Warrant)

    

    
      	
              _________________

            	
              WARRANT
                NO. ___

            

    

    

    The
      undersigned hereby irrevocably elects to exercise the right of purchase
      represented by the within Warrant Certificate for, and to purchase thereunder,
      securities of InterMetro Communications, Inc., as provided for therein, and
      (check the applicable box):

     

    
      
        	
              	o	
                
                  Tenders
                    herewith payment of the exercise price in full in the form of
                    cash or a
                    certified or official bank check in same-day funds in the amount
                    of
                    $____________ for _________ such
                    securities.

                

              

      

    

    

      
        
          
            	
                  	o	
                    Elects
                      to convert the Warrant pursuant to the cashless exercise feature
                      set forth
                      in Section 2.1(c) as to ____________
                      Warrant Shares.

                  

          

        

      

    

    

    Please
      issue a certificate or certificates for such securities in the name of, and
      pay
      any cash for any fractional share to (please print name, address and social
      security number):

     

    
      	
              Name:
                

            	
               

            
	 	 
	
              Address:
                

            	
               

            
	 	 
	
              Signature:
                

            	
               

            

    

    

    Note:
      The
      above signature should correspond exactly with the name on the first page of
      this Warrant Certificate or with the name of the assignee appearing in the
      assignment form below.

    

    If
      said
      number of shares shall not be all the shares purchasable under the within
      Warrant Certificate, a new Warrant Certificate is to be issued in the name
      of
      said undersigned for the balance remaining of the shares purchasable thereunder
      rounded up to the next higher whole number of shares.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      2

    

    ASSIGNMENT

    

    
      	
              (To
                be executed only upon assignment of Warrant
                Certificate)

            	
              WARRANT
                NO.__

            

    

    

    For
      value
      received, _________ hereby sells, assigns and transfers unto
      _______________________ the within Warrant Certificate, together with all right,
      title and interest therein, and does hereby irrevocably constitute and appoint
      _______________________ attorney, to transfer said Warrant Certificate on the
      books of the within-named Company with respect to the number of Warrants set
      forth below, with full power of substitution in the premises:

    

    
      	
              Name(s)
                of Assignee(s)

            	 	
              Address

            	 	
              #
                of Warrants

            	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 

    

    

    And
      if
      said number of Warrants shall not be all the Warrants represented by the Warrant
      Certificate, a new Warrant Certificate is to be issued in the name of said
      undersigned for the balance remaining of the Warrants registered by said Warrant
      Certificate.

    

    Dated:
      __________ , 200_

    

    Signature:
      _____________________

    

    Notice:
      The signature to the foregoing Assignment must correspond to the name as written
      upon the face of this security in every particular, without alteration or any
      change whatsoever; signature(s) must be guaranteed by an eligible guarantor
      institution (banks, stock brokers, savings and loan associations and credit
      unions with membership in an approved signature guarantee medallion program)
      pursuant to Securities and Exchange Commission Rule l7Ad-15.EXHIBIT
      10.12

    

    LOAN
      AND SECURITY AGREEMENT 

    

    This
      Loan
      and Security Agreement ("Agreement") is entered into on January 16, 2008, among
      InterMetro Communications, Inc., a Nevada corporation (the “Borrower,” “Pledgor”
or the “Company”), each Subsidiary of Borrower (together with the Borrower, the
“Pledgors” or individually a “Pledgor”) and the lenders signing the signature
      page hereto (each individually a “Lender” and collectively the “Lenders”), and
      Glenhaven Corporation, as agent for the Lenders hereunder (the “Agent”). Certain
      capitalized terms used and not otherwise defined herein are defined on Exhibit
      A
      hereto.

    

    RECITALS

     

    A. The
      Company is currently in need of funds to help finance its operations until
      the
      closing of its next round of equity financing.

     

    B. The
      Lenders are willing to advance funds to the Company in exchange for the issuance
      to them of units (the “Units”), each consisting of (i) a Secured
      Convertible Promissory Note issued by the Borrower to each Lender at the Closing
      in the form of Exhibit B hereto (the “Notes”), (ii)
      a
      warrant, in the form of Exhibit E hereto, to purchase one share of the
      Borrower’s Common Stock (the “Common Stock”) for each dollar of the original
      principal amount of such Lender’s Note (the “Initial Warrants”) and (iii) a
      warrant, in the form of Exhibit F hereto, to purchase one share of Common Stock
      for each dollar of original principal amount of such Lender’s Note (the
“Additional Warrants,” and together with the Initial Warrants, the
“Warrants”).

     

    C. The
      Company and the Lenders acknowledge that (i) each constituent part of the Units
      is an essential part of the transactions contemplated by this Agreement and
      that
      no Lender is being permitted to receive any one part of the Unit without
      purchasing the entire Unit and (ii) that the Company and the Lenders did not
      separately value the constituent parts of the Unit separately but instead
      arrived at the terms of the Units as part of an integrated transaction.

     

    NOW
      THEREFORE, the parties hereby agree as follows:

     

    Loan.

     

    Loan.
      Subject
      to the terms and conditions hereof, each Lender, severally and not jointly,
      shall make a loan (collectively, the “Loan”) to Borrower in the principal sum
      set forth under its signature on this Agreement. The total Loan shall be not
      less than $850,000 nor more than $3,000,000. Each Loan shall be evidenced by
      a
      Note. In the event of a conflict between the Notes and this Agreement, the
      terms
      of this Agreement will govern.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Interest.
      Each
      Note and all other monetary Obligations shall bear interest at the lesser of
      (i)
      10% per annum or (ii) the highest rate permitted by law. Interest shall be
      payable in arrears on the Maturity Date referred to below. Any interest not
      paid
      when due shall be added to the principal and shall thereafter bear like interest
      as the principal of the Notes. Interest accruing after the Maturity Date shall
      be compounded monthly, without waiving any rights or remedies of the Lenders
      by
      reason of the failure to pay the same when due.

     

    Maturity
      Date.
      Unless
      the Notes are earlier converted into securities of the Borrower as provided
      in
      the Notes, on the Maturity Date set forth in the Notes, the entire outstanding
      principal balance of the Notes and all accrued and unpaid interest thereon
      and
      all other monetary Obligations with respect to the respective Notes shall be
      due
      and payable in full.

     

    Payments.
      For all
      purposes of this Agreement any payments by Borrower shall be made ratably on
      all
      outstanding Notes. Payment will only be deemed received when received in
      immediately available funds and any immediately available funds received later
      than 10:00 a.m. (California time) on any Business Day shall be deemed to have
      been received on the following Business Day and any applicable interest or
      fee
      shall continue to accrue during such period. 

     

    Prepayment.
      The
      Borrower may at any time prepay the Notes as provided therein. 

     

    Warrants.
      Concurrently with the issuance of a Note, the Borrower will issue and deliver
      to
      each Lender an Initial Warrant and an Additional Warrant.

     

    Security
      Interest and Subordination.
      

     

    Grant
      of Security Interest.
      As an inducement for the Lenders to extend the Loan, each Pledgor grants Agent,
      for the ratable benefit of each Lender, a security interest in all of the assets
      and property described in Exhibit A
      hereto
      (the “Collateral”) to secure the following (the “Obligations”): the obligation
      to pay all principal of, and interest on, the Notes, and all other debts,
      liabilities, obligations, guaranties, covenants and duties now or hereafter
      owing by the Pledgors to Lenders or Agent under, arising out of, or relating
      to
      this Agreement or the Loan Documents, including without limitation all interest,
      reasonable and customary fees and costs, and other sums now or hereafter due
      to
      the Lenders or Agent, absolute or contingent, liquidated or unliquidated. This
      Agreement creates in favor of the Agent for the benefit of the Lenders a valid
      security interest in the Collateral, subject only to Permitted Liens, securing
      the payment and performance of the Obligations. Each Pledgor will not,
      hereafter, without Agent’s prior written consent, enter into a license or
      agreement which contains a provision prohibiting the grant of a security
      interest in its rights thereunder, unless such license or agreement is not
      material to the business of the Pledgors taken as a whole. Each Pledgor shall
      take all such actions as Agent requests from time to time, in its good faith
      business judgment, to perfect or continue the perfection of the security
      interest granted hereunder. 

     

    
      
        
        

      

      
        -
          2 -

        
          

        

      

      
        
        

      

    

    Subordination.
      Provided no Event of Default exists at the time a Pledgor obtains A/R Financing
      (as defined below), each Lender agrees to subordinate payment of the Obligations
      of Pledgors to such Lender, and any renewals, amendments, substitutions or
      revisions thereof, to any credit facility provided to a Pledgor in the future
      which is based on and secured solely by Accounts (“A/R Financing”) and further
      agrees that the Lender’s security interest in Accounts only shall be
      subordinated to and junior in priority to any lien or security interest on
      Accounts that secures A/R Financing. Each Lender hereby authorizes Agent, for
      and on behalf of such Lender, to execute and deliver such subordination,
      intercreditor or other agreements or instruments as the lender of the A/R
      Financing shall reasonably request to carry out the intent of this Section
      2(b).
      Subject to the rights, if any, of lenders of A/R Financing under this Section
      2(b), nothing contained in this Section 2(b) shall impair, as between the
      Pledgors and the Lenders, the obligation of the Pledgors, subject to the terms
      and conditions hereof, to pay the Obligations as and when the same become due
      and payable, or shall prevent any Lender, upon an Event of Default, from
      exercising all rights, powers and remedies otherwise provided herein or by
      applicable law.

     

    Representations
      and Warranties.
      Each
      Pledgor represents to the Lenders as of each Closing Date and, as to subsections
      (a)(i) and (b)(ii), as of each date on which securities of the Borrower are
      issued upon the conversion of the Notes or pursuant to the Warrants
      (collectively, the “Lender Securities”) as follows (and the following
      representations shall be deemed continuing until the time set forth in Section
      17 of this Agreement):

     

    Authorization;
      Subsidiaries. 

     

    (i) Each
      Pledgor is and will continue to be, duly organized, validly existing and in
      good
      standing under the laws of its respective state of incorporation, and is and
      will continue to be qualified and licensed to do business in the State of
      California and in all jurisdictions in which any failure to do so would result
      in a Material Adverse Change. The execution, delivery and performance by each
      Pledgor of this Agreement and the Loan Documents have been duly and validly
      authorized by all necessary corporate action, and do not violate its Articles
      of
      Incorporation or Bylaws, or, in any material respect, any law or any material
      agreement or instrument which is binding upon it or its property. This Agreement
      and the Loan Documents are, or when executed and delivered will be, valid and
      binding obligations of each Pledgor enforceable in accordance with their
      respective terms, except as the same may be limited by equitable principles
      and
      by bankruptcy, insolvency, moratorium and other laws of general application
      affecting the enforcement of creditors’ rights. The Company has duly reserved
      for future issuance a sufficient number of authorized but unissued shares of
      Common Stock as required to permit the conversion of the Notes and the exercise
      of the Warrants in full.

     

    (ii) Other
      than the Subsidiaries, Borrower has no direct or indirect wholly-owned or
      partially owned subsidiaries and is not a member, partner or joint venturer
      in
      any limited liability company, partnership or joint venture. Each Pledgor’s
      correct name is set forth in this Agreement and if a Pledgor hereafter gives
      Agent written notice within 15 days after any future change in its name this
      representation shall not be deemed to be breached. All of the outstanding shares
      of the capital stock of the Subsidiaries have been validly authorized and
      issued, are fully paid and non-assessable, and, in the case of Intermetro
      Communications, Inc., a Delaware corporation (“IMC Delaware”) are owned by
      Borrower and in the case of Advanced Tel, Inc., a California corporation, are
      owned by IMC Delaware, in each case of record and beneficially free and clear
      of
      any Lien other
      than restrictions on transfer under state and/or federal securities laws (the
      “Pledged Securities”).

    
      
        
        

      

      
        -
          3 -

        
          

        

      

      
        
        

      

    

    Capitalization;
      Securities.
      

     

    (i) The
      authorized capital of the Borrower consists of the securities shown on Exhibit
      D
      hereto. All outstanding shares of stock of the Borrower are duly and validly
      authorized and issued, fully paid and nonassessable, and were issued in
      compliance with all applicable state and federal securities laws. Except as
      shown on Exhibit D, (i) there are no outstanding options, warrants, rights
      (including conversion privileges and preemptive rights) or agreements for the
      purchase or acquisition from the Borrower of any shares of its capital stock,
      and (ii) the Borrower is not a party or subject to any agreement or
      understanding, and, to the Borrower’s knowledge, there is no agreement or
      understanding between any Persons which affects or relates to the voting or
      giving of written consents with respect to any security, provided that this
      representation shall not be deemed to be breached if Borrower gives Agent
      written notice promptly after Borrower in the future becomes aware of any such
      agreement or understanding. 

     

    (ii) When
      issued in accordance with the terms of this Agreement and the documents relating
      thereto and for the consideration therein stated, the Lender Securities will
      be
      duly and validly issued, fully paid and nonassessable and, assuming the accuracy
      of the Lenders’ representations and warranties herein, such securities will be
      free of restrictions on transfer, other than restrictions on transfer under
      this
      Agreement and under applicable state and federal securities laws. 

    

    (iii) Except
      as
      set forth on Exhibit C, other than the Lenders’ right pursuant to the
      Registration Rights Agreement referred to in Section 5(c)(vi), no Person has
      any
      right to cause the Company to file a registration statement under the Securities
      Act or has “piggyback” registration rights with respect to any Company
      securities.

    

    Places
      of Business; Locations of Collateral.
      The
      address set forth in this Agreement under Borrower’s signature is Borrower's
      chief executive office. The Pledgors have places of business and Collateral
      is
      located only at the locations set forth on Exhibit C hereto, provided that
      this
      representation shall not be deemed to be breached if a Pledgor in the future
      does any of the following, provided it gives written notice thereof to the
      Agent
      within 15 days after any of the following occurs: Pledgor changes its chief
      executive office, or any of the Collateral is moved to outside the United
      States, or Pledgor opens a place of business in another state (other than a
      state in which Agent’s security interest is perfected). 

     

    
      
        
        

      

      
        -
          4 -

        
          

        

      

      
        
        

      

    

    Title
      to Collateral; Permitted Liens.
      The
      Pledgors are now, and will at all times in the future be, the sole owners of
      all
      the Collateral, except for property which is leased or licensed. The Collateral
      now is and will remain free and clear of any and all Liens, except for Permitted
      Liens, and Pledgors will at all times defend Agent, the Lenders, and the
      Collateral against all claims of others. The value of the Excluded Assets (as
      defined in Exhibit A, Section 1.1) for financial statement purposes does not
      exceed $1,500,000.

     

    Tax
      Returns and Payments.
      The
      Pledgors have timely filed, and will timely file, all tax returns and reports
      required by applicable law, and the Pledgors have timely paid, and will timely
      pay, all applicable taxes, assessments,
      deposits and contributions now or in the future owed by them. A Pledgor may,
      however, defer payment
      of any
      contested taxes, provided that Pledgor (i) in good faith contests Pledgor’s
      obligation to pay the taxes by appropriate proceedings promptly and diligently
      instituted
      and
      conducted, (ii) notifies Agent in writing of the commencement of, and any
      material development in, the proceedings, and (iii) posts bonds or takes any
      other steps required to keep the contested taxes from becoming a lien upon
      any
      of the Collateral. 

     

    Compliance
      with Law.
      Each
      Pledgor has complied, and will comply, in all material respects, with all
      provisions of all applicable laws and regulations, including, but not limited
      to, those relating to the Pledgor’s ownership of real or personal property, the
      conduct of the Pledgor’s business, and all environmental matters, except where
      the failure to do so would not result in a Material Adverse Change.

     

    Litigation.
      Except
      as set forth on Exhibit C, there is no claim or litigation pending or (to
      Pledgor’s knowledge) threatened against Pledgor. Pledgor will promptly inform
      Agent in writing of any claim or litigation in the future which, either
      separately or in the aggregate, involves more than $50,000. There is no action,
      proceeding or investigation pending, or to Pledgor’s knowledge threatened,
      against the Pledgor or its officers, directors or shareholders, or to the best
      knowledge of Pledgor, against employees or consultants of Pledgor, or any basis
      therefor known to Pledgor, involving the prior employment of any of the
      Pledgor’s employees, their use in connection with the Pledgor’s business of any
      Intellectual Property of their former employers, or their obligations under
      any
      agreements with prior employers, which individually or in the aggregate could
      result in a Material Adverse Change. 

     

    Information.
      All
      information provided to Agent or any Lender by or on behalf of Pledgor by a
      duly
      authorized officer on or prior to the date of this Agreement is true and correct
      in all material respects, all information hereafter provided to Agent or any
      Lender by or on behalf of Pledgor by a duly authorized officer will be true
      and
      correct in all material respects, and no representation or other statement
      made,
      previously, now or hereafter, to Agent or any Lender by or on behalf of Pledgor
      by a duly authorized officer contains or will contain, at the time made, any
      untrue statement of a material fact or omits or will omit, at the time made,
      any
      material facts necessary to make any statements made to Agent or such Lender
      not
      misleading at the time made. For the purpose of this paragraph, “information”
means written information that (i) relates to any material aspect of Pledgor’s
      business, operations or financial condition, (ii) relates to Collateral, or
      (iii) which is provided by the Pledgor to a Lender or Agent pursuant to this
      Agreement. 

     

    
      
        
        

      

      
        -
          5 -

        
          

        

      

      
        
        

      

    

    Intellectual
      Property.
      Pledgor
      is the sole and exclusive owner of all right, title and interest in and to
      all
      Intellectual Property necessary for its business as now conducted and as
      proposed to be conducted without any conflict with, or infringement with the
      rights of, others. The Pledgor has not received any communications alleging
      that
      it has violated or, by conducting its business as proposed, would violate any
      Intellectual Property of any other Person. Pledgor is not aware that any of
      its
      employees is obligated under any contract (including licenses, covenants or
      commitments of any nature) or other agreement, or subject to any judgment,
      decree, or order of any court or administrative agency, that would interfere
      with the use of such employee's best efforts to promote the interest of Pledgor
      or that would conflict with Pledgor’s business as proposed to be conducted.
      Neither the execution or delivery of this Agreement, nor the carrying on of
      the
      Pledgor’s business as proposed, will, to the best of the Pledgor’s knowledge
      after due inquiry, conflict with or result in a breach of the terms, conditions,
      or provisions of, or constitute a default under, any contract, covenant or
      instrument under which any such employee is now obligated. Pledgor does not
      believe it is or will be necessary to use any inventions of any of its employees
      (or persons it currently intends to hire) made prior to their employment by
      Pledgor. Pledgor is not aware of any violation or infringement by a third party
      of any of its Intellectual Property. Pledgor is not aware of any technological
      development or product that would have a material adverse effect on its business
      or its Intellectual Property. Exhibit C contains a complete list of each
      Pledgor’s Intellectual Property. Except as set forth on Exhibit C, there are no
      outstanding options, licenses or agreements of any kind relating to the
      Pledgor’s Intellectual Property, nor is Pledgor bound by or a party to any
      options, licenses or agreements of any kind relating to the Intellectual
      Property of any other Person. 

     

    Proprietary
      Agreements; Employees.
      Each
      current and former employee and consultant of a Pledgor has executed an
      agreement with such Pledgor agreeing to maintain the confidentiality of
      proprietary information and agreeing to assign certain inventions to such
      Pledgor. No Pledgor is aware that any of its employees or consultants is in
      violation thereof and will use its best efforts to prevent any such
      violation. 

     

    Seniority
      and Valid Security Interest.
      Except
      as set forth on Exhibit G, as of the Closing Date, no Indebtedness or equity
      is
      senior to the Notes in right of payment, whether with respect to interest or
      upon liquidation or dissolution or otherwise other than Indebtedness secured
      by
      Permitted Liens. This Agreement creates in favor of the Agent for the benefit
      of
      the Lenders a valid security interest in the Collateral subject only to the
      Permitted Liens securing the payment and performance of the Obligations, and
      upon filing the appropriate financing statements pursuant to the Uniform
      Commercial Code (UCC) the security interest created hereby in any Collateral
      which may be perfected by filing a UCC financing statement shall be a first
      priority, duly perfected security interest.

     

    
      
        
        

      

      
        -
          6 -

        
          

        

      

      
        
        

      

    

    SEC
      Reports; Financial Statements.
      Except
      as set forth in Exhibit C, Company has filed all reports, schedules, forms,
      statements and other documents required to be filed by it under the Securities
      Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
      for the two years preceding the date hereof (or such shorter period as the
      Company was required by law to file such material) (the foregoing materials,
      including the exhibits thereto and documents incorporated by reference therein,
      being collectively referred to herein as the “SEC
      Reports”)
      on a
      timely basis or has received a valid extension of such time of the filing and
      has filed any such SEC Reports prior to the expiration of any such extension.
      As
      of their respective dates, the SEC Reports complied in all material respects
      with the requirements of the Securities Act and the Exchange Act and the rules
      and regulations of the Commission promulgated thereunder, and none of the SEC
      Reports, when filed, contained any untrue statement of a material fact or
      omitted to state a material fact required to be stated therein or necessary
      in
      order to make the statements therein, in the light of the circumstances under
      which they were made, not misleading. The financial statements of the Company
      included in the SEC Reports comply in all material respects with applicable
      accounting requirements and the rules and regulations of the Commission with
      respect thereto as in effect at the time of filing. Such financial statements
      have been prepared in accordance with United States generally accepted
      accounting principles applied on a consistent basis during the periods involved
      (“GAAP”), except as may be otherwise specified in such financial statements or
      the notes thereto and except that unaudited financial statements may not contain
      all footnotes required by GAAP, and fairly present in all material respects
      the
      financial position of the Company and its consolidated subsidiaries as of and
      for the dates thereof and the results of operations and cash flows for the
      periods then ended, subject, in the case of unaudited statements, to normal,
      immaterial, year-end audit adjustments.

     

    Material
      Changes.
      Since
      the date of the latest financial statements included within the SEC Reports,
      except as disclosed in the SEC Reports, (i) there has been no event, occurrence
      or development that has had or that could reasonably be expected to result
      in a
      Material Adverse Change, (ii) the Pledgors have not incurred any liabilities
      (contingent or otherwise) other than (A) trade payables and accrued expenses
      incurred in the ordinary course of business consistent with past practice and
      (B) liabilities not required to be reflected in the Company’s financial
      statements pursuant to GAAP or required to be disclosed in filings made with
      the
      Commission, (iii) the Company has not altered its method of accounting, (iv)
      the
      Company has not declared or made any interest or distribution of cash or other
      property to its stockholders or purchased, redeemed or made any agreements
      to or
      distribution of cash or other property to its stockholders or purchased,
      redeemed or made any agreements to purchase or redeem any shares of its capital
      stock and (v) the Company has not issued any equity securities to any officer,
      director or Affiliate, except as set forth on Exhibit C. Except for the issuance
      of the Securities contemplated by this Agreement, no event, liability or
      development has occurred or exists with respect to the Company or its
      Subsidiaries or their respective business, properties, operations or financial
      condition, that would be required to be disclosed by the Company under
      applicable securities laws.

     

    
      
        
        

      

      
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          7 -

        
          

        

      

      
        
        

      

    

    Disclosure.
      Except
      with respect to the material terms and conditions of the transaction
      contemplated by this Agreement, the Company confirms that neither it nor any
      other Person acting on its behalf has provided the Agent or any of the Lenders
      or their agents or counsel with any information that constitutes material
      nonpublic information. The Company understands and confirms that the Agent
      and
      Lenders will rely on the foregoing representations and covenants in effecting
      transactions in securities of the Company.

     

    Solvency.
      The
      Pledgors are not bankrupt and are generally able to pay its debts as they become
      due and will be able to do so after giving effect to the transactions
      contemplated in this Agreement. The Pledgors do not intend to incur Indebtedness
      beyond their ability to pay such Indebtedness as it matures (taking into account
      the timing and amounts of cash to be payable on or in respect of their
      Indebtedness). No Pledgor has any knowledge of any facts or circumstances which
      leads it to believe that it will file for reorganization or liquidation under
      the bankruptcy or reorganization laws of any jurisdiction within one year from
      the Closing Date. The SEC Reports set forth as of the dates thereof all
      outstanding secured and unsecured Indebtedness of the Company and the
      Subsidiaries, or for which the Company or any Subsidiary has commitments.
      Neither the Company nor any Subsidiary is in material default with respect
      to
      any Indebtedness.

     

    Covenants.

     

    Inspection.
      A
      designated officer of Agent shall have the right to review Borrower’s books and
      records and audit and inspect the Collateral, from time to time, upon seven
      days’ notice to Borrower, provided that such inspections shall be limited to two
      in any consecutive twelve-month period (but such limit shall not apply to
      inspections at the time that any Event of Default or event which, with notice
      or
      time or both, as set forth in Section 6 hereof, would constitute an Event of
      Default has occurred and is continuing). Borrower will cause its chief executive
      officer and/or chief financial officer to discuss matters concerning the
      Pledgors with Agent and to answer its questions concerning the Pledgors upon
      seven days’ prior notice. Borrower will reimburse Agent for the reasonable costs
      it may incur from time to time in such inspections and review.

     

    Insurance.
      The
      Pledgors will maintain insurance on the Collateral and their business, in
      amounts and of a type that are customary to similar businesses and Agent will
      be
      named in a lender’s loss payable endorsement in favor of Agent, in form
      reasonably acceptable to Agent.

     

    Negative
      Covenants. 

     

    (i)
      So
      long as any principal and/or interest remain outstanding under any of the Notes,
      no Pledgor shall, without the prior written consent of the Agent, which consent
      or decision not to consent must be provided to the Borrower in writing within
      ten (10) Business Days of Agent’s receipt of the Borrower’s written request for
      such consent or the Agent will be deemed to have consented, do any of the
      following: 

     

    
      	 	
              A.

            	
              merge
                or consolidate with, or acquire by purchase or otherwise, another
                corporation or entity, excluding (i) any consolidation or merger
                effected
                between or among the Company and the Subsidiaries or effected exclusively
                to change its domicile, (ii) any consolidation or merger with, or
                acquisition of, an entity that has positive cash flow and EBITDA
                as of the
                closing of such consolidation or merger provided that the holders
                of
                voting equity securities of the Company immediately preceding such
                merger
                or consolidation hold, immediately thereafter, at least a majority
                of the
                voting equity securities of the surviving entity, the Lenders' security
                interest granted hereby is not impaired in any respect and the surviving
                or acquired entity becomes a party to this Agreement as a “Pledgor,” or
                (iii) any consolidation or merger in which the Borrower repays the
                Obligations in full and honors the
                Warrants;

            

    

     

    
      
        
        

      

      
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          8 -

        
          

        

      

      
        
        

      

    

    
      	 	
              B.

            	
              acquire
                any assets of an Affiliate of the Borrower;

            

    

     

    
      	 	
              C.

            	
              sell,
                lease, or transfer any Collateral except for sales of Inventory and
                obsolete or unneeded Equipment in the ordinary course of business;
                

            

    

     

    
      	 	
              D.

            	
              transfer,
                sell or license any Intellectual Property, except for (i) the licensing
                of
                any Intellectual Property in the ordinary course of business or (ii)
                from
                one Pledgor to another Pledgor; 

            

    

     

    
      	 	
              E.

            	
              pay
                or declare any dividends on its stock, except for (i) dividends payable
                solely in stock of Borrower or (ii) from a Pledgor (other than Borrower)
                to its parent company; 

            

    

     

    
      	 	
              F.

            	
              redeem,
                purchase or otherwise acquire any of its Common Stock;
                

            

    

     

    
      	 	
              G.

            	
              make
                any loans or advances to any Persons in excess of $50,000 in the
                aggregate
                outstanding at any given time other than (i) expense advances to
                employees
                in the ordinary course of business as currently conducted or (ii)
                from one
                Pledgor to another Pledgor; 

            

    

     

    
      	 	
              H.

            	
              directly
                or indirectly enter into any material transaction with any Affiliate
                except for loans by any Affiliate to a Pledgor, investments by any
                Affiliate in a Pledgor, and transactions that are in the ordinary
                course
                of Pledgor’s business (collectively, the “Affiliate Transactions”),
                provided such Affiliate Transactions are on fair and reasonable terms
                that
                are no less favorable than would be obtained in an arm’s length
                transaction with a non-Affiliated Person;

            

    

     

    
      	 	
              I.

            	
              make
                any payment on any Indebtedness which is subordinate to the Obligations
                other than a payment on any Permitted Indebtedness or other than
                in
                accordance with a subordination agreement in favor of Agent relating
                thereto; 

            

    

     

    
      	 	
              J.

            	
              create,
                incur, assume or suffer to exist any Lien on or with respect to any
                of the
                Collateral, other than Permitted Liens;

            

    

     

    
      	 	
              K.

            	
              create,
                incur, assume, or suffer to exist, any Indebtedness, except Permitted
                Indebtedness; 

            

    

     

    
      	 	
              L.

            	
              directly
                or indirectly, make or hold any Investment in any Person (whether
                in cash,
                securities or other property of any kind) other than Investments
                in
                Permitted Investments; 

            

    

     

    
      
        
        

      

      
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          9 -

        
          

        

      

      
        
        

      

    

    
      	 	
              M.

            	
              increase
                the number of shares of Common Stock reserved for issuance to employees,
                directors or consultants pursuant to stock option, stock purchase,
                stock
                bonus or similar plans to more than 15% of Borrower’s then outstanding
                shares of Common Stock, on a fully diluted basis;
                

            

    

     

    
      	 	
              N.

            	
              until
                the Obligations are repaid in full, pay any cash bonus to executive
                officers or increase any other compensation payable to executive
                officers
                from that provided for in the employment agreements described in
                the
                Company’s Schedule 14C filed with the Commission on May 9, 2007;
                

            

    

     

    
      	 	
              O.

            	
              voluntarily
                dissolve or liquidate; or

            

    

     

    
      	 	
              P.

            	
              agree
                to do any of the foregoing.

            

    

     

    (ii)
      So
      long as any principal and/or interest remain outstanding under any of the Notes,
      Borrower shall give written notice to the Agent
      within
      ten (10) days after any Pledgor does any of the following:

     

    (A)
       enters
      into a transaction outside the ordinary course of business; 

    (B)
       directly
      or indirectly, gives any indemnity, except for indemnities given in the ordinary
      course of business; or

    (C)
       amends,
      alters or repeals any provision of the Articles of Incorporation (including
      any
      filing of a Certificate of Designation) or the Bylaws of Borrower.

    

    Intellectual
      Property.
      Each
      Pledgor will use reasonable efforts promptly to register all of its software
      and
      other copyrightable Intellectual Property with the United States Copyright
      Office and to file and prosecute patent applications with the United States
      Patent and Trademark Office on all patentable Intellectual Property developed
      or
      acquired by it from time to time hereafter, and will provide evidence of same
      to
      Agent within five (5) Business Days after written request from Agent. Each
      Pledgor will execute such documents and take such other actions as Agent may
      reasonably request to perfect the security interest granted in all Intellectual
      Property. 

     

    Use
      of
      Proceeds.
      Borrower
      will use the proceeds of the Loan for general operating purposes and shall
      not
      in any event use such proceeds for investment activities. 

     

    Rule
      144 Reporting.
      With
      a
      view to making available to the Lenders the benefits of certain rules and
      regulations of the Commission which may permit the sale of Common Stock to
      the
      public without registration, so long as any Lender owns Lender Securities
      Borrower agrees to use its best efforts to: 

     

    (i) Make
      and
      keep public information available, as those terms are understood and defined
      in
      Commission Rule 144 or any similar or analogous rule promulgated under the
      Securities Act;

     

    (ii) File
      with
      the Commission, in a timely manner, all reports and other documents required
      of
      Borrower under the Exchange Act; and

     

    
      
        
        

      

      
        -
          10 -

        
          

        

      

      
        
        

      

    

    (iii) Furnish
      to such Lender forthwith upon request: a written statement by Borrower as to
      its
      compliance with the requirements of clauses (i) and (ii) above; a copy of the
      most recent annual or quarterly report of Borrower; and such other reports
      and
      documents as the Lender may reasonably request in availing itself of any rule
      or
      regulation of the Commission allowing it to sell any of its Common Stock without
      registration. 

    Closing.

     

    Closing
      Date.
      The
      Loan shall be made at one or more closings (a "Closing") to be held at such
      times and locations as the Company and the Agent shall agree at any time between
      the date hereof and March 30, 2008. The date of each Closing is referred to
      as
      the Closing Date.

     

    Delivery.
      Subject
      to the terms of this Agreement, at the Closing the Borrower will deliver an
      executed Note and Warrants to each Lender against payment of the purchase price
      therefor by, at the option of such Lender, a check or checks payable to the
      order of the Company or by wire transfer.

     

    Conditions
      to the Lenders’ Obligations.
      The
      obligation of each Lender to make its Loan at a Closing is subject to the
      fulfillment to its satisfaction, on or prior to the Closing Date, of the
      following conditions, any of which may be waived by such Lender; provided,
      however, that any such waiver shall not be effective against any Lender who
      has
      not consented in writing thereto: 

     

    (i) Representations
      and Warranties Correct; Performance of Obligations.
      The
      representations and warranties made by the Pledgors in Section 3 hereof shall
      be
      true and correct on and as of the Closing Date. Each Pledgor shall have
      performed all obligations and conditions herein required to be performed or
      observed by it on or prior to the Closing Date. 

     

    (ii) Consents
      and Waivers.
      Each
      Pledgor shall have obtained in a timely fashion any and all consents, permits
      and waivers necessary or appropriate for consummation of the transactions
      contemplated by this Agreement and the Loan Documents and the same shall be
      effective as of the Closing Date. 

     

    (iii) Compliance
      Certificate.
      Borrower shall have delivered a Certificate, executed by the Chief Executive
      Officer of Borrower, dated as of the Closing Date, certifying to the fulfillment
      of the conditions specified in subsections (i) and (ii) of this Section
      5(c).

     

    (iv) Minimum
      Loan.
      The
      aggregate amount of the Loan made by the Lenders at the first Closing shall
      be
      at least $850,000. 

     

    (v) UCC-1
      Financing Statement.
      At the
      first Closing, each Pledgor shall have executed and delivered to Agent a UCC-1
      Financing Statement in form and content satisfactory to the Agent and the
      certificates or other instruments which evidence the Pledged Securities together
      with executed undated stock powers endorsed in blank.

     

    
      
        
        

      

      
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          11 -

        
          

        

      

      
        
        

      

    

    (vi) Registration
      Rights Agreement.
      The
      Borrower shall have executed and delivered to each Lender a Registration Rights
      Agreement in the form of Exhibit H hereto.

    

    (vii) Satisfaction
      of Counsel.
      All
      corporate and other proceedings in connection with the transactions contemplated
      at the Closing and all documents incident thereto shall be reasonably
      satisfactory in form and substance to Agent’s counsel, who shall have received
      all such counterpart original and certified or other copies of such documents
      as
      she may reasonably request.

    

    Events
      of Default.
      Any one
      or more of the following shall constitute an Event of Default under the
      Notes:

     

    Borrower
      shall fail to pay any principal of or interest on any Loans or any other
      monetary Obligations within five (5) Business Days after the date due;
      or

     

    Borrower
      shall fail to honor the exercise of the Warrants, if such exercise complies
      with
      the terms and conditions of the Warrants, which failure is not cured within
      five
      (5) Business Days after such failure occurs; or

     

    Any
      Pledgor shall fail to comply with or perform any other provision of this
      Agreement, the Loan Documents or any other non-monetary Obligation, which
      failure is not cured within ten (10) Business Days after such failure occurs;
      or

     

    Any
      Pledgor shall breach any of its representations or warranties contained in
      this
      Agreement or any Loan Document, which breach is not cured within ten (10)
      Business Days after such breach occurs; or

     

    Any
      Pledgor shall (i) fail to pay any indebtedness for borrowed money in excess
      of
      $50,000 owing to any Person other than Lenders, when due, unless such failure
      is
      waived in writing by such Person or cured within any applicable cure period,
      or
      (ii) otherwise
      be in breach or default in any of its obligations under any agreement with
      respect to any such indebtedness, if the effect of such breach, default or
      failure to pay is to cause such indebtedness for borrowed money in excess of
      $50,000 to become due or redeemed or permit the holder or holders of such
      indebtedness to declare such indebtedness due or require such indebtedness
      to be
      redeemed prior to its stated maturity, unless such breach is waived in writing
      by such holder or cured within any applicable cure period; or

     

    Any
      Pledgor shall be in material breach or default in any of its obligations under
      any material contract or agreement to which it is a party, unless (i) such
      breach or default is waived in writing by the other parties thereto, (ii) such
      breach or default is cured within any applicable cure period, or (iii) the
      Pledgor in good faith disputes the other party’s assertion of the occurrence of
      a material breach or default by appropriate actions or proceedings promptly
      and
      diligently instituted and conducted, and promptly notifies Agent of the other
      party’s assertion and Pledgor’s response thereto;

     

    
      
        
        

      

      
        -
          12 -

        
          

        

      

      
        
        

      

    

    Dissolution,
      termination of existence, or insolvency of a Pledgor; or appointment of a
      receiver, trustee or custodian for all or any material part of the property
      of,
      assignment for the benefit of creditors by, or the commencement of any
      proceeding by or against any Pledgor under any reorganization, bankruptcy,
      insolvency, arrangement, readjustment of debt, dissolution or liquidation law
      or
      statute of any jurisdiction, now or in the future in effect (except that, in
      the
      case of a proceeding commenced against a Pledgor, such Pledgor shall have 30
      days after the date such proceeding was commenced to have it dismissed);
      or

     

    The
      occurrence of a Material Adverse Change, except that if the Material Adverse
      Change is curable by the Pledgors, the Pledgors shall have 30 days after the
      Material Adverse Change occurs to cure such Material Adverse
      Change.

     

    Remedies.
      

     

    Remedies.
      Upon the
      occurrence and during the continuance of any Event of Default, Agent may (at
      its
      option), do any one or more of the following, without notice except for such
      notices as are required by law and as provided in this Agreement: (a) accelerate
      and declare all but not less than all of the Notes and the other Obligations
      to
      be immediately due, payable, and performable, notwithstanding any deferred
      or
      installment payments allowed by any instrument evidencing or relating to any
      Obligation; (b) take possession of any or all of the Collateral wherever it
      may
      be found, and for that purpose each Pledgor hereby authorizes Agent to enter
      its
      premises without interference to search for, take possession of, keep, store,
      or
      remove any of the Collateral, and remain on the premises or cause a custodian
      to
      remain on the premises, without charge by Pledgor in order to complete the
      enforcement of its rights under this Agreement or any other agreement; (c)
      require each Pledgor to assemble any or all of the Collateral and make it
      available to Agent at places designated by Agent which are reasonably convenient
      to Agent and Pledgor, and to remove the Collateral to such locations as Agent
      may reasonably deem advisable; (d) complete the processing, manufacturing or
      repair of any Collateral prior to a disposition thereof and, for such purpose
      and for the purpose of removal, Agent shall have the right to use each Pledgor’s
      premises, equipment and all other property without charge by Pledgor; (e)
      collect, receive, dispose of and realize upon any Investment Property, including
      withdrawal of any and all funds from any securities accounts; (f) demand payment
      of, and collect any Accounts, General Intangibles or other Collateral and,
      in
      connection therewith, each Pledgor irrevocably authorizes Agent to endorse
      or
      sign Pledgor’s name on all collections, receipts, instruments and other
      documents, and, in Agent's good faith business judgment, to grant extensions
      of
      time to pay, compromise claims and settle accounts, general intangibles and
      the
      like for less than face value; or (g) sell, lease or otherwise dispose of any
      of
      the Collateral, at one or more public or private sales, in lots or in bulk,
      for
      cash, exchange or other property, or on credit, and to adjourn any such sale
      from time to time without notice other than oral announcement at the time
      scheduled for sale. Agent shall have the right to conduct such disposition
      on a
      Pledgor’s premises without charge, should the Collateral be located on such
      Pledgor’s premises, at such time or times as Agent deems reasonable, or on
      Agent's premises, or elsewhere and the Collateral need not be located at the
      place of disposition. Each Pledgor recognizes that Agent may be unable to make
      a
      public sale of any or all of the Investment Property, by reasons of prohibitions
      contained in applicable securities laws or otherwise, and expressly agrees
      that
      a private sale of any or all of the Investment Property for which public sale
      is
      prohibited to a restricted group of purchasers for investment and not with
      a
      view to any distribution thereof shall be considered a commercially reasonable
      sale. All reasonable attorneys' fees, expenses, costs, liabilities and
      obligations incurred by Agent with respect to the foregoing shall be added
      to
      and become part of the Obligations, and shall be due on demand.

     

    
      
        
        

      

      
        -
          13 -

        
          

        

      

      
        
        

      

    

    
 

     

    Application
      of Proceeds.
      All
      proceeds realized as the result of any sale or other disposition of the
      Collateral shall be applied by Agent in the following order: (i) to the
      reasonable costs, expenses, liabilities, obligations and attorneys' fees
      incurred by Agent in the exercise of its rights under this Agreement, (ii)
      to
      pay the Additional Amount (as defined in Section 11(e)), pro rata, to any Lender
      entitled thereto pursuant to Section 11(e), (iii) to any Foreclosure Costs,
      including Excess Costs (as defined in Section 11(e)) that have been paid or
      reimbursed by any Lender, (iv) to the interest due upon any of the Obligations,
      and (v) to the principal of the Obligations. Any surplus shall be paid to the
      Pledgors or other Persons legally entitled thereto; the Pledgors shall remain
      liable to the Lenders for any deficiency. If Agent, in its good faith business
      judgment, directly or indirectly enters into a deferred payment or other credit
      transaction with any purchaser at any sale of Collateral, Agent shall have
      the
      option, exercisable at any time, in its sole discretion, of either reducing
      the
      Obligations by the principal amount of the purchase price or deferring the
      reduction of the Obligations until the actual receipt by Agent of the cash
      therefor.

     

    Set-Off.
      Upon the
      occurrence and during the continuance of any Event of Default, each Lender
      is
      hereby authorized at any time and from time to time, without notice to the
      Borrower (any such notice being expressly waived by the Borrower, except as
      expressly set forth below), to set-off and apply any and all deposits (general
      or special, time or demand, provisional or final) at any time held and other
      indebtedness at any time owing by such Lender to or for the credit or the
      account of the Borrower against any and all of the Obligations, irrespective
      of
      whether or not the Agent or such Lender shall have made any demand under this
      Agreement or such Lender’s Note and although such obligations may be unmatured.
      Each Lender agrees promptly to notify the Borrower (with a copy to the Agent)
      after any such set-off and application, provided that the failure to give such
      notice shall not affect the validity of such set-off and application. The rights
      of each Lender under this Section are in addition to other rights and remedies
      (including, without limitation, other rights of set-off) which each such Lender
      may have.

     

    Remedies
      Cumulative.
      In
      addition to the rights and remedies set forth in this Agreement relating to
      the
      Notes, with respect to the Notes only Agent shall have all the other rights
      and
      remedies accorded a secured party under
      the
      California Uniform Commercial Code and under all other applicable laws, and
      under any other instrument or agreement now or in the future entered into
      between Agent, Lenders and Pledgors, and all of such rights and remedies
      relating to the Notes are cumulative and none is exclusive. Exercise or partial
      exercise by Agent of one or more of such rights or remedies shall not be deemed
      an election, nor bar Agent or any Lender from subsequent
      exercise
      or partial exercise of any other rights or remedies. The failure or delay of
      Agent or any Lender to exercise any such rights or remedies shall not operate
      as
      a waiver thereof, but all such rights and remedies shall continue in full force
      and effect
      until
      all of the Obligations have been fully paid and performed. No Event of Default
      or exercise of rights or remedies as a result thereof shall affect any Lender’s
      other rights under this Agreement, his Note or the Warrants, all of which shall
      continue in full force and effect.

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

    Power
      of Attorney.
      After
      the occurrence and during the continuance of an Event of Default, each Pledgor
      irrevocably appoints Agent (and any of Agent’s designated employees or agents)
      as its true and lawful attorney in fact to: endorse its name on any checks
      or
      other forms of payment; make, settle and adjust all claims under and decisions
      with respect to its policies of insurance; settle and adjust disputes and claims
      respecting Accounts, General Intangibles and other Collateral; execute and
      deliver all notices, instruments and agreements in connection with the
      perfection of the security interest granted in this Agreement; for the sole
      purpose of enforcing its rights under this Agreement, sell, lease or otherwise
      dispose of all or any part of the Collateral; and take any other action or
      sign
      any other documents required to be taken or signed by Pledgor, or reasonably
      necessary to enforce Agent’s rights or remedies or otherwise carry out the
      purposes of this Agreement. The appointment of Agent as Pledgor’s attorney in
      fact, and each of Agent’s rights and powers, being coupled with an interest, are
      irrevocable until all Obligations owing to the Lenders have been paid and
      performed in full.

     

    Waivers
      and Amendments.
      

     

    The
      failure of Agent (so long as the Agent has authority pursuant to Section 11(a))
      or any Lender at any time or times to require Pledgors to strictly comply with
      any of the provisions of this Agreement, the Loan Documents or any other present
      or future agreement between Pledgors and Agent or any Lender shall not waive
      or
      diminish any right of Agent or any Lender later to demand and receive strict
      compliance therewith. Any waiver of any default shall not waive or affect any
      other default, whether prior or subsequent, and whether or not similar.

     

    So
      long
      as the Agent has authority pursuant to Section 11(a), no amendment,
      modification, termination, or waiver of any provision of this Agreement or
      any
      Loan Document to which any Pledgor is a party, nor consent to any departure
      by
      any Pledgor from this Agreement or any Loan Document to which it is a party,
      shall in any event be effective unless the same shall be in writing and signed
      by the Agent, and then such waiver or consent shall be effective only in the
      specific instance and for the specific purpose for which given, provided,
      however, that no amendment, waiver or consent shall, unless in writing and
      signed by the Agent and the Requisite Lenders, do any of the following: (i)
      reduce the principal of, or interest on, the Notes, or any fees hereunder,
      or
      modify any provisions relating to conversion of the Notes, or any other economic
      terms of the Notes; (ii) change any date fixed for any payment of principal
      of,
      or interest on, the Notes or any fees thereunder or hereunder; (iii) change
      the
      percentage of the unpaid principal amount of the Notes which shall be required
      for the Lenders or any of then to take action hereunder; or (iv) amend, modify
      or waive any provision of this Section, and provided further than no amendment,
      waiver, or consent shall, unless in writing and signed by the Agent in addition
      to the Lenders required above to take such action, affect the rights or duties
      of the Agent under this Agreement or any of the Loan Documents. After the
      Agent’s authority terminates pursuant to Section 11(a), neither this Agreement,
      nor any term hereof, may be amended, waived or terminated except by a written
      instrument signed by the Pledgors and the Requisite Lenders, and any such
      amendment, waiver or termination shall be binding on all Lenders.
      Notwithstanding the foregoing, each Lender shall have the right, without the
      consent of the other Lenders, to agree to any modification or amendment to
      its
      Warrants or Note, but such Lender shall give prompt written notice of the same
      to the other Lenders and Agent, and the Borrower, on request of any other Lender
      shall enter into the same modification or amendment with such other Lender
      as to
      its Warrants or Note.

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

    Each
      Pledgor waives demand, protest, notice of protest and notice of default
      or
      dishonor, notice of payment and nonpayment, release,
      compromise, settlement, extension or renewal of any commercial paper,
      instrument, account, general intangible, document or guaranty at any time held
      by Agent or any Lender on which it is or may in any way be liable, and notice
      of
      any action taken by Agent or any Lender, unless expressly required by this
      Agreement.

     

    Costs;
      Indemnity.
      Borrower shall reimburse Agent, on demand, for all of the following ("Costs"):
      all reasonable attorneys' fees and all reasonable and customary filing,
      recording, search, title insurance, appraisal, audit, and other costs incurred
      by Agent, pursuant to, in connection with, or relating to this Agreement or
      its
      enforcement (whether or not any lawsuit is filed), including, but not limited
      to, any reasonable attorneys' fees and costs Agent incurs relating to the
      preparation and negotiation of this Agreement and the documents relating to
      this
      Agreement. Agent shall provide an itemized statement of Costs to Borrower,
      if so
      requested by Borrower. If either Agent, a Lender or a Pledgor files any lawsuit
      against the other predicated on a breach of this Agreement, the prevailing
      party
      in such action shall be entitled to recover its reasonable costs, including
      (but
      not limited to) reasonable attorneys' fees incurred in connection therewith.
      Each Pledgor shall indemnify Agent and the Lenders for any losses, claims,
      actions, causes of action, penalties, and reasonable costs and expenses
      (including reasonable attorneys' fees), which Agent or any other Lender may
      sustain or incur based upon, arising out of, or relating to this Agreement,
      any
      of the Obligations, any of the Loans, or any other present or future documents
      or agreements relating hereto or contemplated hereby, except any such amounts
      sustained or incurred as the result of the gross negligence or willful
      misconduct of the person to be indemnified or any of its directors, officers,
      employees, agents, attorneys, or any other person affiliated with or
      representing such person. The indemnity agreement set forth in this Section
      shall survive any termination of this Agreement and shall continue in full
      force
      and effect.

     

    Notices.
      

     

    General.
      All
      notices or communications pursuant to this Agreement shall be in writing and
      shall be deemed to have been given (a) upon receipt, when delivered by hand
      or
      by electronic facsimile transmission if sent during normal business hours and,
      if not, then the next Business Day, or (b) upon receipt, when delivered by
      overnight courier, or (c) five days after mailing by certified mail return
      receipt requested, addressed to each party (to Borrower only in the case of
      notice to any Pledgor) at the addresses indicated below their signatures
      below. 

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

     

    Notices
      of Record Date.
      If the
      Borrower shall propose at any time:

     

    (i) to
      declare any dividend or distribution upon its Common Stock other than a
      distribution payable solely in Common Stock;

    

    (ii) to
      offer
      for subscription pro rata to the holders of any class or series of its stock
      any
      additional shares of stock of any class or series or other rights;

    

    (iii) to
      effect
      any reclassification or recapitalization of its Common Stock; or

    

    (iv) to
      merge
      or consolidate with or into any other corporation, or sell, lease or convey
      all
      or substantially all its property or business, or to liquidate, dissolve or
      wind
      up;

    

    then,
      in
      connection with each such event Borrower shall send to the Lenders and
      Agent:

    

    (1) at
      least
      20 days’ prior written notice of the date on which a record shall be taken for
      such dividend, distribution or subscription rights (and specifying the date
      on
      which the holders of Common Stock shall be entitled thereto) or for determining
      rights to vote in respect of the matters referred to in (iii) and (iv) above;
      and

    

    (2) in
      the
      case of the matters referred to in (iii) and (iv) above, at least 20 days’ prior
      written notice of the date when the same shall take place (and specifying the
      date on which the holders of Common Stock shall be entitled to exchange their
      Common Stock for securities or other property deliverable upon the occurrence
      of
      such event).

    

    Agency
      Provisions.

     

    Authorization
      and Action.
      Subject
      to the last sentence of this subsection (a) and the provisions of Section 11(f)
      hereof, each Lender hereby irrevocably appoints and authorizes the Agent to
      take
      such action as agent on its behalf and to exercise such powers under this
      Agreement as are delegated to the Agent by the terms hereof, together with
      such
      powers as are reasonably incidental thereto, including the power to take any
      action, or refrain from taking any action, in its sole and absolute discretion
      as to any matter that may arise under this Agreement or the Loan Documents
      as to
      which the Lenders or the Requisite Lenders are not given express authority
      hereunder. The Agent shall not by reason of this Agreement be deemed a trustee
      or fiduciary for any Lender. The Agent shall have no duties or responsibilities
      except those expressly set forth herein. As to any matters not expressly
      provided for by this Agreement, the Agent may exercise its discretion as
      aforesaid or may, at its sole option, take any action, or refrain from acting
      (and shall be fully protected in so acting or so refraining from acting) upon
      the instructions of the Requisite Lenders, and such instructions shall be
      binding upon all Lenders and all holders of Notes; provided
      however,
      that the
      Agent shall not be required to take any action which, in Agent’s good faith
      judgment, exposes the Agent to personal liability or which is contrary to this
      Agreement or applicable law. All action, decisions and instructions of the
      Agent
      in accordance with this Agreement shall be conclusive and binding upon all
      of
      the Lenders and holders of Notes and their successors and assigns and Borrower
      shall be entitled to rely upon any instruction, notice or decision of the Agent
      made in accordance with this Agreement. The authority of the Agent granted
      hereby shall terminate on such date as all of the Notes are paid in full or
      converted into equity securities of the Borrower and all other monetary
      Obligations are paid in full.

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

    Liability
      of Agent.
      Neither
      the Agent nor any of its directors, officers, agents or employees shall be
      liable to any Lender or to any Pledgor for any action taken or omitted to be
      taken by it or them under or in connection with this Agreement (including,
      without limitation, any action taken or omitted to be taken by it or them upon
      the occurrence of an Event of Default) in the absence of its or their own gross
      negligence or willful misconduct. Without limitation of the generality of the
      foregoing, the Agent (1) may treat the payee of any Note as the holder thereof
      until the Agent receives written notice of the assignment or transfer thereof
      signed by such payee and in form satisfactory to the Agent; (2) may consult
      with
      legal counsel (including counsel for the Borrower), independent public
      accountants and other experts selected by it and shall not be liable for any
      action taken or omitted to be taken in good faith by it in accordance with
      the
      advice of such counsel, accountants, or experts; (3) makes no warranty or
      representation to any Lender and shall not be responsible to any Lender for
      any
      statements, warranties, or representations made in or in connection with this
      Agreement; (4) shall not have any duty to ascertain or to inquire as to the
      performance or observance of any of the terms, covenants, or conditions of
      this
      Agreement on the part of any Pledgor, or to inspect the Collateral (including
      the books and records) of any Pledgor; (5) shall not be responsible to any
      Lender for the due execution, legality, validity, enforceability, genuineness,
      perfection, sufficiency, or value of this Agreement or any other instrument
      or
      document furnished pursuant thereto; and (6) shall incur no liability to any
      Lender or to any Pledgor under or in respect to this Agreement by acting upon
      any notice, consent, certificate, or other instrument or writing (which may
      be
      sent by telegram, telex, or facsimile transmission) believed by it to be genuine
      and signed or sent by the proper party or parties.

     

    Rights
      of Agent as a Lender.
      With
      respect to the Loans made by it or its Affiliates and the Note issued to it
      or
      its Affiliates, the Agent and its Affiliates shall have the same rights and
      powers under this Agreement as any other Lender and may exercise the same as
      though it were not the Agent; and the term “Lender” or “Lenders” shall, unless
      otherwise expressly indicated, include the Agent or its Affiliates in their
      individual capacities. The Agent and its Affiliates may accept deposits from,
      lend money to, act as trustee under indentures of, and generally engage in
      any
      kind of business with, the Borrower, and any Person who may do business with
      or
      own securities of the Borrower, all as if the Agent were not the Agent and
      without any duty to account therefor to the Lenders. The Lenders expressly
      acknowledge and understand that Affiliates of the Agent are shareholders of
      the
      Company and one such Affiliate is serving as a consultant to
      Borrower.

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

    Independent
      Credit Decisions.
      Each
      Lender acknowledges that it has, independently and without reliance upon the
      Agent or any other Lender and based on such documents and information as it
      has
      deemed appropriate, made its own credit analysis and decision to enter into
      this
      Agreement. Each Lender also acknowledges that it will, independently and without
      reliance upon the Agent or any other Lender and based on such documents and
      information as it shall deem appropriate at the time, continue to make its
      own
      credit or investment decisions in taking or not taking action under this
      Agreement or the Loan Documents. Except for notices, reports and other documents
      and information expressly required to be furnished to the Lenders by the Agent
      hereunder, the Agent shall have no duty or responsibility to provide any Lender
      with any credit or other information concerning the affairs, financial condition
      or business of the Borrower or any of its Affiliates which may come into the
      possession of the Agent or any of its Affiliates.

     

    Indemnification.
      The
      Lenders agree to indemnify the Agent, ratably according to the respective
      amounts of the original principal amount of the Notes issued to them pursuant
      to
      this Agreement, from and against any and all liabilities, obligations, losses,
      damages, penalties, actions, judgments, suits, costs, expenses or disbursements
      of any kind or nature whatsoever which may be imposed on, incurred by, or
      asserted against the Agent in any way relating to or arising out of this
      Agreement or any action taken or omitted by the Agent under this Agreement,
      provided that no Lender shall be liable for any portion of any of the foregoing
      resulting from the Agent’s gross negligence or willful misconduct. Without
      limitation of the foregoing, and without relieving any Pledgor of its
      obligations pursuant to Section 9, if Borrower has not reimbursed Agent in
      full
      for its Costs pursuant to Section 9 of this Agreement within ten (10) Business
      Days of demand therefore by Agent, each Lender agrees to reimburse the Agent
      promptly upon demand for its ratable share of (i) any Costs, other than Costs
      incurred in connection with a sale or disposition of Collateral pursuant to
      Section 7 hereof (“Foreclosure Costs”), not reimbursed by Borrower up to $25,000
      in the aggregate for all Lenders, and (ii) Foreclosure Costs not reimbursed
      by
      Borrower up to $50,000 (less any amounts reimbursed pursuant to clause (i)
      (the
“Maximum Indemnity”) in the aggregate for all Lenders. Any Lender (a
“Participating Lender”) who voluntarily reimburses Agent for any Foreclosure
      Costs that exceed the Maximum Indemnity (“Excess Costs”) shall receive, to the
      extent of any proceeds realized pursuant to Section 7 and in addition to
      reimbursement of such Excess Costs pursuant to Section 7(b)(iii), such
      Participating Lender’s pro rata share (based on the total Excess Costs
      reimbursed by all Participating Lenders) of the amount of Excess Costs that
      would have been paid by non-Participating Lenders to reimburse Agent had all
      Lenders paid their ratable share (based on the principal amount of the Notes
      held by all Lenders) of all Excess Costs (the “Additional Amount”) in accordance
      with Section 7(b)(ii) hereof. The indemnity set forth in this Section 11(e)
      shall survive any termination of this Agreement and shall continue in full
      force
      and effect.

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

    Removal;
      Successor Agent.
      The
      Agent may be removed at any time upon the written consent of the Requisite
      Lenders, provided that the Requisite Lenders concurrently appoint a successor
      Agent (who shall have accepted such appointment) and give prompt notice thereof
      to Borrower. The Agent may resign at any time by giving at least 60 days’ prior
      written notice thereof to the Lenders and the Borrower. Upon any such
      resignation, the Requisite Lenders shall have the right to appoint a successor
      Agent. If no successor Agent shall have been so appointed by the Requisite
      Lenders, and shall have accepted such appointment, within 30 days after the
      resigning Agent’s giving notice of resignation, then the resigning Agent may, on
      behalf of the Lenders, appoint a successor Agent, which shall be a commercial
      bank organized under the laws of the United States of America or of any State
      thereof, having a combined capital and surplus of at least $200,000,000 and
      mutually acceptable to the Agent and the Borrower, with the Borrower’s consent
      not to be unreasonably withheld. Upon the acceptance of any appointment as
      Agent
      hereunder by a successor Agent, such successor Agent shall thereupon succeed
      to
      and become vested with all the rights, powers, privileges and duties of the
      removed or resigning Agent, and the removed or resigning Agent shall be
      discharged from its duties and obligations under this Agreement. After any
      Agent’s removal or resignation, the provisions of this Section 11 shall inure to
      its benefit as to any actions taken or omitted to be taken by it while it was
      Agent under this Agreement.

     

    Sharing
      of Payments, Etc.
      If any
      Lender shall obtain any payment (whether voluntary, involuntary, through the
      exercise of any right of set-off, or otherwise) on account of the Note held
      by
      it, other than a payment made in accordance with Section 1(c) of this Agreement,
      in excess of its ratable share of payments on account of the Notes obtained
      by
      all the Lenders, such Lender shall purchase from the other Lenders such
      participations in the Notes held by them as shall be necessary to cause such
      purchasing Lender to share the excess payment ratably with each of the other
      Lenders, provided, however, that if all or any portion of such excess payment
      is
      thereafter recovered from such purchasing Lender, such purchase from each Lender
      shall be rescinded and each Lender shall repay to the purchasing Lender the
      purchase price to the extent of such recovery together with an amount equal
      to
      such Lender’s ratable share (according to the proportion of (1) the amount of
      such Lender’s required repayment to (2) the total amount so recovered from the
      purchasing Lender) of any interest or other amount paid or payable by the
      purchasing Lender in respect of the total amount so recovered. The Borrower
      agrees that any Lender so purchasing a participation from another Lender
      pursuant to this Section may, to the fullest extent permitted by law, exercise
      all its rights of payment (including the right of set-off) with respect to
      such
      participation as fully as if such Lender were the direct creditor of the
      Borrower in the amount of such participation.

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

    Representations,
      Warranties and Agreements of the Lenders.

     

    Each
      of
      the Lenders represents and warrants to Borrower and, as to Section 12(a)(1)
      only, to Agent, as of the Closing Date and as of the date any Lender acquires
      the Units, the Note, the Warrants, the securities issuable upon conversion
      of
      the Note (the “Conversion Securities”) and any Common Stock issuable upon
      exercise of the Warrants or upon exercise or conversion of the Conversion
      Securities (collectively, the “Securities”) as follows:

     

    (1) It
      has
      full power and authority and has taken all required action necessary to permit
      it to execute and deliver and to carry out the terms of this Agreement and
      all
      other documents or instruments required hereby.

     

    (2) It
      is its
      present intention to acquire the Securities for its own account and without
      a
      view to the distribution thereof. Each of the Lenders agrees that it will not
      sell or transfer any of the Securities without registration under applicable
      federal and state securities laws, or the availability of exemptions therefrom.
      Each of the Lenders agrees that the documents evidencing the Securities will
      each bear a restrictive legend stating that the Securities represented thereby
      have not been registered under applicable federal and state securities laws
      and
      referring to restrictions on their transferability and sale.

     

    (3) It
      is an
“accredited investor” (as defined in Rule 501(a) under the Securities Act) and
      it acknowledges that it currently has, and had immediately prior to its Loan
      hereunder, such knowledge and experience in financial and business matters
      that
      it is capable of evaluating the merits and risks of this investment and further
      acknowledges that it is able to bear the economic risk of this investment.
      During the course of this transaction and prior to the sale to the Lenders
      of
      the Units hereunder, it acknowledges that it had the opportunity to ask
      questions of, and receive answers from, management of the Borrower concerning
      the terms and conditions of this investment and to obtain any additional
      information of the same kind that is specified in Rule 502 of Regulation D
      of
      the Securities Act, or that is necessary to verify the accuracy of the other
      information obtained. It has received such information as it
      deems
      necessary to enable it to make its investment decision.

     

    Restrictions
      on Disposition.
      Without
      in any way limiting the representations set forth in Section 12(a) above, each
      Lender further agrees not to make any disposition of all or any portion of
      the
      Securities unless and until the transferee has agreed in writing for the benefit
      of Borrower to be bound by this Section 12, and in addition thereto, one of
      the
      following conditions is satisfied: (i) there is then in effect a registration
      statement under the Securities Act covering such proposed disposition and such
      disposition is made in accordance with such registration statement; or (ii)
      such
      Lender shall have (A) notified Borrower of the proposed disposition and shall
      have furnished Borrower with a detailed statement of the circumstances
      surrounding the proposed disposition and (B) if reasonably requested by
      Borrower, furnished Borrower with an opinion of counsel, reasonably satisfactory
      to Borrower, that such disposition will not require registration of such
      securities under the Securities Act; provided, however, that Borrower will
      not
      require opinions of counsel for transactions made pursuant to Rule 144, except
      in unusual circumstances.

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

     

    Governing
      Law; Jurisdiction; Venue.
      This
      Agreement and all acts and transactions hereunder and all rights and obligations
      of Agent, Lenders and the Pledgors shall be governed by the internal laws (and
      not the conflict of laws rules) of the State of California. Any dispute arising
      out of or relating to this Agreement shall be determined solely and exclusively
      by a retired superior or federal court judge acting as a referee (“Judge”)
      pursuant to California Code of Civil Procedure Section 638 (or any other similar
      or applicable law) (the “Reference”). Borrower and Agent shall mutually agree
      upon a Judge. If the parties are unable to agree within ten (10) Business Days,
      either Agent or Borrower, upon three Business Days advance notice to the other,
      shall be entitled to file an application with Presiding Judge of the Los
      Angeles County
      Superior Court requesting the appointment of a Judge. 

     

    Any
      decision of the Judge shall contain a reasoned statement of decision explaining
      the basis for the decision and shall be enforceable in the Los Angeles Superior
      Court or any other court of competent jurisdiction. The resulting judgment
      of
      the court shall be subject to appeal and all other rights, remedies and motions
      that apply with respect to a judgment of a court. 

     

    While
      the
      Reference is proceeding, Lenders on the one hand, for their ratable share,
      and
      Borrower, on the other hand, shall each pay one-half of the Judge’s charges for
      the Judge’s services, but the Judge is vested with the discretion to allocate
      such charges among the parties as the Judge deems fit in the Judge’s final
      written decision. In the exercise of such jurisdiction, the Judge shall have,
      and the parties hereby vest in the Judge, the authority to award attorneys’ fees
      and costs to the prevailing party. As used herein, “attorneys’ fees” means the
      full and actual cost of any legal services actually performed in connection
      with
      the matter for which fees are sought, based upon the usual and customary fees
      charged by the attorneys performing such services, and shall not be limited
      to
“reasonable attorneys’ fees” as that term may be used in statutory or decisional
      law. 

    

    General.
      Should
      any provision of this Agreement be held by any court of competent jurisdiction
      to be void or unenforceable, such defect shall not affect the remainder of
      this
      Agreement, which shall continue in full force and effect. This Agreement and
      such other written agreements, documents and instruments as may be executed
      in
      connection herewith are the final, entire and complete agreement between the
      Pledgors, Lenders and Agent and supersede all prior and contemporaneous
      negotiations and oral representations and agreements, all of which are merged
      and integrated in this Agreement. There are no oral understandings,
      representations or agreements between the parties which are not set forth in
      this Agreement or in other written agreements signed by the parties in
      connection herewith. Subject to Section 12(b), any Lender may assign all or
      any
      part of its interest in the Notes and this Agreement and the Obligations to
      any
      person or entity, or grant a participation in, or security interest in, any
      interest in this Agreement or the Notes, without notice to, or consent of,
      Borrower. No Pledgor may assign any obligation, right under or interest in
      this
      Agreement or the Loan Documents without the Agent’s prior written consent. This
      Agreement shall be binding upon, and inure to the benefit of, the respective
      parties’ heirs, executors, administrators, permitted assigns and successors.
      This Agreement may be executed in two or more counterparts, each of which shall
      be deemed an original, but all of which shall constitute one agreement.
      Facsimile signature pages shall be deemed to be originals.

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

    Termination
      of Security Interest.
      Upon all
      of the Notes being paid in full or converted into securities of the Borrower
      as
      provided therein, and payment in full of all other monetary Obligations, the
      security interest granted pursuant to Section 2 shall terminate and the Agent
      and the Lenders shall take all such actions as Borrower shall reasonably request
      to evidence the termination of all security interests granted to Agent and
      the
      Lenders including delivery of the certificates representing the Pledged
      Securities and related stock powers to the Borrower and filing UCC-3 termination
      statements with each public office at which UCC-1 financing statements were
      previously filed.

     

    Termination
      of Certain Provisions.
      Except
      to the extent that representations are made as of the date(s) that any Lender
      Securities are issued pursuant to the first sentence of Section 3, all
      representations in Section 3 shall cease to be continuing and Pledgors’
obligations pursuant to Sections 4(a), 4(b), 4(c), 4(d), 4(e) and 10(b) of
      this
      Agreement, shall terminate on the date all of the Notes are paid in full or
      converted in full. 

     

    Survival.
      The
      representations, warranties and covenants of the Pledgors and the Lenders
      contained in or made pursuant to this Agreement shall survive the execution
      and
      delivery of this Agreement, any Closing Date, and any conversion of the Notes
      for so long as the applicable statute of limitations.

     

    Separate
      Counsel.
      The
      Agent’s attorney has been involved in the preparation and negotiation of this
      Agreement and the Loan Documents on behalf of the Agent as such and as a Lender.
      Each of the parties hereto acknowledges that (i) such counsel does not represent
      or owe any duties to any party, other than Agent, in the absence of a clear
      and
      explicit written agreement to such effect between such party and such counsel;
      (ii) the undersigned has had an adequate and meaningful opportunity to review
      and discuss this Agreement and the Loan Documents with legal counsel of his
      own
      choosing; and (iii) no drafting inferences will be made for or against any
      party
      in connection with the interpretation or construction of this Agreement or
      the
      Loan Documents.

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

    

      
        	
                Agent:

              	 	
                Borrower
                  and Pledgor:

              
	
                GLENHAVEN
                  CORPORATION

              	 	
                INTERMETRO
                  COMMUNICATIONS, INC., 

                a
                  Nevada corporation

              
	 	 	 	 	 
	
                By

              	 
	 	
                By

              	 

	 	
                David
                  Marshall, Chief Executive Officer

              	 	
                Title

              	 

	 	 	 
	
                Address
                  for notices:

              	 	
                Address
                  for notices:

              
	 
	 	 
	 
	 	 
	 
	 	 
	 	 	 	 	 
	
                Pledgor:

              	 	
                Pledgor:

              
	 	 	 	 
	
                INTERMETRO
                  COMMUNICATIONS, INC., 

                a
                  Delaware corporation

              	 	
                ADVANCED
                  TEL, INC, 

                a California corporation

              
	 	 	 	 	 
	
                By

              	 
	 	
                By

              	 

	
                Title

              	 
	 	
                Title

              	 

      

    

    
      	
              Lenders:

            	 	
              Lenders:

            
	 	 	 	 	 
	
                   
                X

            	 	 
	
              Signature

            	 	
              Signature

            
	 	 	 	 
	 	 	 
	
              Print
                Name

            	 	
              Print
                Name

            
	 	 	 	 
	 	 	 
	
              Title
                if Applicable

            	 	
              Title
                if Applicable

            
	 	 	 	 	
               

            
	
              Amount of Loan:

            	
              $

            	   
	 	
              Amount of Loan:

            	
              $

            	     

	 	 	 	 	 
	
              Address:

            	 	
              Address:

            
	 	 	 	 	 
	   
	 	   

	    
	 	    

	    
	 	   

    

    
    

     

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

     

    
      	
              Lenders:

            	 	
              Lenders:

            	 
	 	 	 	 
	   
	 	  

	
              Signature

            	 	
              Signature

            
	 	 	 
	   
	 	   

	
              Print
                Name

            	 	
              Print
                Name

            
	 	 	 
	   
	 	   

	
              Title
                if Applicable

            	 	
              Title
                if Applicable

            
	 	 	 	 	 
	
              Amount of Loan:

            	
              $

            	  
	 	
              Amount of Loan:

            	
              $

            	  

	 	 	 	 	 
	
              Address:

            	 	
              Address:

            
	 	 	 	 	 
	  
	 	    

	  
	 	   

	  
	 	    
              

    

    
      
        
        

      

      
        -25-

        
          

        

      

      
        
        

      

    

    EXHIBIT A

    

    Certain
      Definitions

    

    As
      used
      in this Agreement, the following terms have the following meanings:

    

    1. Collateral
      Related Definitions.
      

     

    
      	 	
              1.1

            	
              “Collateral”
                means all assets of each Pledgor, including, but not limited to,
                all
                right, title and interest of each Pledgor in and to the following,
                whether
                now owned or hereafter arising or acquired and wherever
                located:

            

    

     

    All
      Accounts;

     

    All
      Inventory;

     

    All
      Equipment;

     

    All
      General Intangibles (including without limitation all Intellectual Property
      and
      Deposit Accounts);

     

    All
      Investment Property; 

     

    All
      Other
      Property; and

     

    Any
      and
      all claims, rights and interests in any of the above, and all guaranties and
      security for any of the above, and all substitutions and replacements for,
      additions, accessions, attachments, accessories, and improvements to, and
      proceeds and insurance proceeds of, any of the above, and all Pledgor’s books
      relating to any of the above.

     

    Except
      for the following assets: 

    

    
      	
              Name

            	 	
              Units

            
	 	 	 
	
              Dell
                Laptops - Vencore Lease No. 2

            	 	 
	
              Dell
                Desktops - Dell Lease No. 2

            	 	 
	
              Dell
                Monitors - Dell Lease No. 3

            	 	 
	
              Dell
                Desktops - Dell Lease No. 4

            	 	 
	 	 	 
	
              Sonus
                Equipment - Vencore Lease No. 10

            	 	
              6

            
	
              Cantata-IMGs
                - Vencore Lease No. 11

            	 	
              2

            
	
              Dell
                Servers - Dell Lease No. 5

            	 	 
	
              Dell
                Servers - Dell Lease No. 6

            	 	 
	
              Nextone
                - Vencore Lease No. 12

            	 	
              1

            
	
              Cantata
                IMGs

            	 	
              30

            
	
              Cantata
                Servers

            	 	
              4

            
	
              Lucent
                APXs

            	 	
              4

            
	
              Lucent
                Max TNTs 

            	 	
              44

            

    

    
      
        
        

      

      
        -1-

        
          

        

      

      
        
        

      

    

    

    (collectively,
      the “Excluded Assets”).

    

    
      	 	
              1.2

            	
              “Accounts”
                means “accounts” as defined in the California Uniform Commercial Code in
                effect on the date hereof with such additions to such term as may
                hereafter be made, and includes without limitation all accounts receivable
                and other sums owing to Pledgors.

            

    

     

    
      	 	
              1.3

            	
              “Deposit
                Accounts” means “deposit accounts” as defined in the California Uniform
                Commercial Code in effect on the date hereof with such additions
                to such
                term as may hereafter be made, and includes without limitation all
                general
                and special bank accounts, demand accounts, checking accounts, savings
                accounts and certificates of
                deposit.

            

    

     

    
      	 	
              1.4

            	
              “Equipment”
                means “equipment” as defined in the California Uniform Commercial Code in
                effect on the date hereof with such additions to such term as may
                hereafter be made, and includes without limitation all machinery,
                fixtures, goods, vehicles (including motor vehicles and trailers),
                and any
                interest in any of the foregoing.

            

    

     

    
      	 	
              1.5

            	
              “General
                Intangibles” means “general intangibles” as defined in the California
                Uniform Commercial Code in effect on the date hereof with such additions
                to such term as may hereafter be made, and includes without limitation
                all
                Intellectual Property, Deposit Accounts, royalties, contract rights,
                goodwill, franchise agreements, purchase orders, customer lists,
                route
                lists, telephone numbers, domain names, claims, income tax refunds,
                security and other deposits, options to purchase or sell real or
                personal
                property, rights in all litigation presently or hereafter pending
                (whether
                in contract, tort or otherwise), insurance policies (including without
                limitation key man, property damage, and business interruption insurance),
                payments of insurance and rights to payment of any
                kind.

            

    

     

    
      	 	
              1.6

            	
              “Intellectual
                Property” means all (a) copyrights, copyright rights, copyright
                applications, copyright registrations and like protections in each
                work of
                authorship and derivative work thereof, whether published or unpublished,
                (b) trade secret rights, including all rights to unpatented inventions
                and
                know-how, and confidential information; (c) mask work or similar
                rights
                available for the protection of semiconductor chips; (d) patents,
                patent
                applications and like protections including without limitation
                improvements, divisions, continuations, renewals, reissues, extensions
                and
                continuations-in-part of the same; (e) trademarks, service marks,
                trade
                styles, and trade names, whether or not any of the foregoing are
                registered, and all applications to register and registrations of
                the same
                and like protections, and the entire goodwill of the business of
                Pledgors
                connected with and symbolized by any such trademarks; (f) computer
                software and computer software products; (g) designs and design rights;
                (h) technology; (i) all claims for damages by way of past, present
                and
                future infringement of any of the rights included above; (j) all
                licenses
                or other rights to use any property or rights of a type described
                above.

            

    

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    
      	 	
              1.7

            	
              “Inventory”
                means “inventory” as defined in the California Uniform Commercial Code in
                effect on the date hereof with such additions to such term as may
                hereafter be made, and includes without limitation all merchandise,
                raw
                materials, parts, supplies, packing and shipping materials, work
                in
                process and finished products, including without limitation such
                inventory
                as is temporarily out of a Pledgor’s custody or possession or in transit
                and including any returned goods and any documents of title representing
                any of the above.

            

    

     

    
      	 	
              1.8

            	
              “Investment
                Property” means all investment property, securities, stocks, bonds,
                debentures, debt securities, partnership interests, limited liability
                company interests, options, security entitlements, securities accounts,
                commodity contracts, commodity accounts, and all financial assets
                held in
                any securities account or otherwise, wherever located, and all other
                securities of every kind, whether certificated or
                uncertificated.

            

    

     

    
      	 	
              1.9

            	
              “Other
                Property” means the following as defined in the California Uniform
                Commercial Code in effect on the date hereof with such additions
                to such
                term as may hereafter be made, and all rights relating thereto:
                “documents”, “instruments”, “chattel paper”, “letters of credit”,
                “fixtures”, and “money”.

            

    

     

    2. Other
      Definitions.
      

     

    
      	 	
              2.1

            	
              “Affiliate”
                means as to any Person, any other Person who directly or indirectly
                controls, is under common control with, is controlled by or is a
                director
                or officer of such Person. As used in this definition, "control"
                (including its correlative meanings, "controlled by" and "under common
                control with") means possession, directly or indirectly, of the power
                to
                direct or cause the direction of management or policies (whether
                through
                ownership of voting securities or partnership or other ownership
                interests, by contract or otherwise), provided that, in any event,
                any
                Person who owns directly or indirectly ten percent (10%) or more
                of the
                securities having ordinary voting power for the election of the members
                of
                the board of directors or other governing body of a corporation or
                twenty
                percent (20%) or more of the partnership or other ownership interests
                of
                any other Person (other than as a limited partner of such other Person)
                will be deemed to control such corporation, partnership or other
                Person.

            

    

     

    
      	 	
              2.2

            	
              “Business
                Day” means any day other than a Saturday, Sunday or any other day on which
                commercial banks in Los Angeles, California are required or permitted
                by
                law to close.

            

    

     

    
      	 	
              2.3

            	
              “Cash
                Equivalents’ means (i) securities issued, guaranteed or insured by
                the United States or any of its agencies with maturities of not more
                than
                one year from the date acquired; (ii) certificates of deposit with
                maturities of not more than one year from the date acquired, issued
                by any
                U.S. federal or state chartered commercial bank of recognized standing
                which has capital and unimpaired surplus in excess of $100,000,000;
                (iii) investments in money market funds registered under the
                Investment Company Act of 1940; and (iv) other instruments,
                commercial paper or investments acceptable to Agent in its sole
                discretion

            

    

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

    
      	 	
              2.4

            	
              “Commission”
                means the Securities and Exchange
                Commission.

            

    

     

    
      	 	
              2.5

            	
              “EBITDA,”
                for any period, means the following, without duplication, each calculated
                for such period: (a) Net Income; plus (b) interest expenses paid
                or
                accrued and deducted in determining Net Income; (c) plus income taxes
                paid
                or accrued and deducted in determining Net Income; (d) plus amortization
                and depreciation; (e) plus or minus income or loss from extraordinary
                items (f) plus stock-based charges.

            

    

     

    
      	 	
              2.6

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

            

    

     

    
      	 	
              2.7

            	
              “Indebtedness”
                means (i)
                indebtedness or liability for borrowed money; (ii) obligations
                evidenced by bonds, debentures, notes, or other similar instruments;
                (iii)
                obligations for the deferred purchase price of property or services
                (including trade obligations); (iv) obligations as lessee under capital
                leases; (v) obligations under letters of credit; (vi) obligations
                under
                acceptance facilities; (vii) all guaranties, endorsements (other
                than for
                collection or deposit in the ordinary course of business), and other
                contingent obligations to purchase, to provide funds for payment,
                to
                supply funds to invest in any Person or entity, or otherwise to assure
                a
                creditor against loss; and (viii) obligations of third parties secured
                by
                any Liens on assets of any Pledgor, whether or not the obligations
                have
                been assumed.

            

    

     

    
      	 	
              2.8

            	
              “Investment”
                means as of the date of determination thereof, any payment or
                contribution, or commitment to make a payment or contribution, to
                any
                Person including, without limitation, property contributed or committed
                to
                be contributed to any Person, for or in connection with any acquisition
                of
                any stock, bonds, notes, debentures, partnership or other ownership
                interest or any other security or any evidence of indebtedness by
                reason
                of a loan, advance, extension of credit, guaranty or other similar
                obligation for any debt, liability or
                indebtedness.

            

    

     

    
      	 	
              2.9

            	
              “Lien”
                means any
                mortgage, deed of trust, pledge, security interest, hypothecation,
                assignment, deposit arrangement, encumbrance, lien (statutory or
                other),
                or preference, priority, or other security agreement or preferential
                arrangement, charge, or encumbrance of any kind or nature whatsoever
                (including, without limitation, any conditional sale or other title
                retention agreement, any financing lease having substantially the
                same
                economic effect as any of the foregoing, and the filing of any financing
                statement under the Uniform Commercial Code or comparable law of
                any
                jurisdiction to evidence any of the
                foregoing).

            

    

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    
      	 	
              2.10

            	
              “Loan
                Document” means any present or future document, instrument or agreement
                relating to this Agreement, including without limitation the Notes
                and the
                Warrants.

            

    

     

    
      	 	
              2.11

            	
              “Material
                Adverse Change” means (i) any effect that is materially adverse to
                the scope of any Pledgor’s business as currently conducted, or to the
                results of operations, assets, liabilities or financial or other
                condition
                of the Pledgors taken as a whole, or (ii) the impairment of any
                Pledgor's ability to perform its Obligations or of Agent’s or Lenders’
                ability to enforce the Obligations or realize upon the Collateral,
                or
                (iii) a material adverse change in the value of the
                Collateral.

            

    

     

    
      	 	
              2.12

            	
              “Net
                Income” means the net income of the entity determined in accordance with
                GAAP.

            

    

     

    
      	 	
              2.13

            	
              “Permitted
                Indebtedness” means (i)
                Indebtedness of the Borrower under this Agreement or the Notes; (ii)
                Indebtedness of a Pledgor subordinated on terms satisfactory to the
                Agent
                to the Obligations; (iii) accounts payable to trade creditors for
                goods or
                services and current operating liabilities (other than for borrowed
                money), in each case incurred in the ordinary course of business,
                as
                presently conducted; (iv) Indebtedness secured by Permitted Liens;
                (v)
                Indebtedness arising from the endorsement of instruments in the ordinary
                course of business; (vi) Indebtedness existing on the date hereof
                and set
                forth on Exhibit C (and any refinancing thereof); (vii) overdrafts;
                (viii)
                corporate credit cards used for ordinary business expenses; (ix)
                lines of
                credit and other loans issued by banks or other similar financial
                institutions; (x) letters of credit and similar instruments incurred
                in
                the ordinary course of business; and (xi) A/R
                Financing.

            

    

     

    
      	 	
              2.14

            	
              “Permitted
                Investments” means (i)
                Cash Equivalents; (ii) temporary advances to cover incidental expenses
                to
                be incurred in the ordinary course of business; (iii) advances
                to employees in accordance with procedures established by the Board
                of
                Directors in an aggregate amount outstanding at any one time not
                to exceed
                $50,000; (iv) Investments
                approved by the Board of Directors in accordance with the Company’s
                investment policy and consented to in writing by the Agent which
                consent
                or
                decision not to consent must be provided to the Borrower within ten
                (10)
                Business Days of Agent’s receipt of the Borrower’s written request for
                such consent or the Agent will be deemed to have consented;
                (v)
                deposit and savings accounts established in the ordinary course of
                business. 

            

    

     

    
      	 	
              2.15

            	
              “Permitted
                Liens” means (i)
                the Liens created by this Agreement, (ii) Liens upon any equipment
                or
                other personal property acquired by a Pledgor to secure (A) the
                purchase price of such equipment or other personal property or
                (B) lease obligations or indebtedness incurred solely for the purpose
                of financing the acquisition of such equipment or other personal
                property;
                (iii) Liens for fees, taxes, levies, imposts, duties or other governmental
                charges of any kind which are not yet delinquent or which are being
                contested in good faith by appropriate proceedings (provided,
                however,
                that such Lien does not have any priority over the security interest
                of
                the Lenders); (iv) Liens to secure payment of worker’s compensation,
                employment insurance, old age pensions or other social security
                obligations of a Pledgor in the ordinary course of its business;
                (v) Liens
                on goods in favor of customs and revenue authorities to secure payments
                of
                customs duties in connection with the importation of such
                goods;
                (vi) liens of materialmen, mechanics, warehousemen, carriers, or
                other similar liens arising in the ordinary course of business and
                securing obligations which are not delinquent more than 30 days or
                are
                being contested in good faith by appropriate proceedings; (vii) any
                judgment, attachment or similar lien, which has been discharged or
                execution on which has been stayed and which has been bonded against
                pending appeal within 30 days of the entry thereof; (viii) Liens
                which
                constitute banker's liens, rights of set-off or similar rights and
                remedies as to deposit accounts or other funds maintained with any
                bank or
                other financial institution; (ix) the interests of any lessors of
                Equipment to a Pledgor or licensors of Intellectual Property to a
                Pledgor;
                and (x) Liens on Accounts to secure A/R
                Financing.

            

    

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    
      	 	
              2.16

            	
              “Person”
                means any individual, sole proprietorship, partnership, joint venture,
                limited liability company, trust, unincorporated organization, joint
                stock
                company, association, corporation, institution, entity, party or
                government (including any division, agency or department thereof)
                or any
                other legal entity, whether acting in an individual, fiduciary or
                other
                capacity, and, as applicable, the successors, heirs and assigns of
                each.

            

    

     

    
      	 	
              2.17

            	
              “Requisite
                Lenders” means at any time Lenders holding at least 662/3%
                of the then aggregate unpaid principal amount of the Notes held by
                all
                Lenders.

            

    

     

    
      	 	
              2.18

            	
              “Subsidiary”
                or “Subsidiaries” means InterMetro Communications, Inc., a Delaware
                corporation, and Advanced Tel, Inc., a California
                corporation.

            

    

     

    
      	 	
              2.19

            	
              “Securities
                Act” means the Securities Act of 1933, as
                amended.

            

    

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    EXHIBIT B

    

    Secured
      Convertible Promissory Note

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      C

    

    Exceptions

    

    
      	3.(b)(iii)	
              Existing
                registration rights:

            

    

     

    Additional
      Registration Rights Agreement dated December 29, 2006 included in the Pledgor’s
      Form 8-K filing under the previous company name of Lucy’s Café, Inc. dated
      January 9, 2007

     

    
      	3.(c)	
              List
                of the Pledgors’ places of business and locations of collateral:
                

            

    

     

    Places
      of business:
      

     

    Simi
      Valley, California (InterMetro Communications, Inc.)

    Trabuco
      Canyon, California (Advanced Tel, Inc.)

     

    Locations
      of collateral:
      

     

    California,
      Illinois, Colorado, Texas, Georgia, Florida, New York and Hawaii.

     

    
      	3.(h)	
              List
                of legal claims or litigation: 

            

    

     

    In
      April
      2007, InterMetro Communications filed a lawsuit in California district court
      against KMC Data, LLC, et al (“KMC”) regarding invoices for access charges and
      the ability to receive certain voice traffic. KMC filed a counter suit regarding
      the same and the matter is currently unresolved.

     

    InterMetro
      Communications, Inc. has disputed certain install charges for services ordered
      from AT&T in California the beginning of 2006. AT&T has denied this
      dispute and the parties are currently in negotiations to resolve this dispute
      as
      well as the repayment of unpaid monthly charges related to these services.
      

     

    
      	3.(j)	
              List
                of Intellectual
                Property or outstanding options, licenses or agreements of any kind
                relating to Intellectual Property:

            

    

     

    The
      Pledgors own three patent applications filed with the U.S. Patent and Trademark
      Office. 

     

    The
      Pledgors currently own these trademarks:

    InterMetro
      Communications; One Company, One Network, One Solution; Talk Is Cheap; Enhanced
      Origination Services; Zerocents

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	3.(l)	
              SEC
                Reports

            

    

     

    InterMetro
      Communications, Inc. did not timely file its form 10-QSB for the period ended
      September 30, 2007. The filing was made one day after the allowable extension
      and the filing is currently deemed deficient by the SEC and will remain
      deficient until such time the Company files an amended form 10-QSB that includes
      a review of the financial statements contained therein by a qualified
      Independent Accountant.

     

    Exhibit
      A
      2.11 Permitted Indebtedness: Listed in Exhibit G.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT D

    

    Capitalization

    

    1. Authorized
      Capital:

    

    Common
      Stock – 150,000,000 shares

    Preferred
      Stock – 10,000,000 shares

    

    2. Outstanding
      Shares:

    

    Common
      Stock – 59,575,194 shares

    Preferred
      Stock – 0 shares

    

    3. Shares
      reserved:

    

    Warrants
      to purchase Common Stock – 11,740,938

    Options
      to purchase Common Stock – 8,903,410

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      E

    

    Warrant
      Agreement for Initial Warrants

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      F

    

    Warrant
      Agreement for Additional Warrants

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      G

    

    Senior
      Indebtedness

    

    Wells
      Fargo Line of Credit - $100,000

    

    Bank
      of
      America Line of Credit - $100,000

    

    David
      Singer, ATI Seller Note - $75,000 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      H

    

    Registration
      Rights Agreement

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