Document:

f10qsb0307ex10j.htm

    REGISTRATION
      RIGHTS
      AGREEMENT

     

    REGISTRATION
      RIGHTS AGREEMENT (this “Agreement”), dated as of
      October 19, 2007, and among Midnight Holdings Group, Inc., a Delaware
      corporation with its headquarters located at 22600 Hall Road, Suite 205, Clinton
      Township, MI  48036 (the “Company”), and each of the
      undersigned (together with their respective affiliates and any assignee or
      transferee of all of their respective rights hereunder, the “Initial
      Investors”).

     

    WHEREAS:

     

    A.  In
      connection with the Securities Purchase Agreement by and among the parties
      hereto of even date herewith (the “Securities Purchase Agreement”), the Company
      has agreed, upon the terms and subject to the conditions contained therein,
      to
      issue and sell to the Initial Investors (i) secured convertible notes in
      the aggregate principal amount of up to Three Hundred Sixty-Seven Thousand
      Six
      Hundred Forty-Five Dollars ($367,645) (the “Notes”) that are convertible into
      shares of the Company’s common stock (the “Common Stock”), upon the terms and
      subject to the limitations and conditions set forth in such Notes and
      (ii) warrants (the “Warrants”) to acquire an aggregate of 735,290 shares of
      Common Stock, upon the terms and conditions and subject to the limitations
      and
      conditions set forth in the Warrants; and

     

    B.  To
      induce
      the Initial Investors to execute and deliver the Securities Purchase Agreement,
      the Company has agreed to provide certain registration rights under the
      Securities Act of 1933, as amended, and the rules and regulations thereunder,
      or
      any similar successor statute (collectively, the “1933 Act”), and applicable
      state securities laws;

     

    NOW,
      THEREFORE, in
      consideration of the premises and the mutual covenants contained herein and
      other good and valuable consideration, the receipt and sufficiency of which
      are
      hereby acknowledged, the Company and each of the Initial Investors hereby agree
      as follows:

     

    1.  DEFINITIONS.

     

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

     

    (i)  “Investors”
means
      the Initial
      Investors and any transferee or assignee who agrees to become bound by the
      provisions of this Agreement in accordance with Section 9 hereof.

     

    (ii)  “register,”
“registered,”
and
“registration”
refer
      to a
      registration effected by preparing and filing a Registration Statement or
      Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
      1933 Act or any successor rule providing for offering securities on a continuous
      basis (“Rule 415”), and
      the declaration or ordering of effectiveness of such Registration Statement
      by
      the United States Securities and Exchange Commission (the “SEC”).

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (iii)  “Registrable
      Securities” means
      the Conversion Shares issued or issuable upon conversion or otherwise pursuant
      to the Notes and Additional Notes (as defined in the Securities Purchase
      Agreement) including, without limitation, Damages Shares (as defined in the
      Notes) issued or issuable pursuant to the Notes, shares of Common Stock issued
      or issuable in payment of the Standard Liquidated Damages Amount (as defined
      in
      the Securities Purchase Agreement), shares issued or issuable in respect of
      interest or in redemption of the Notes in accordance with the terms thereof)
      and
      Warrant Shares issuable, upon exercise or otherwise pursuant to the Warrants
      and
      Additional Warrants (as defined in the Securities Purchase Agreement), and
      any
      shares of capital stock issued or issuable as a dividend on or in exchange
      for
      or otherwise with respect to any of the foregoing.

     

    (iv)  “Registration
      Statement” means
      a registration statement of the Company under the 1933 Act.

     

    b.  Capitalized
      terms used herein and not otherwise defined herein shall have the respective
      meanings set forth in the Securities Purchase Agreement or the Convertible
      Note.

     

    2.  REGISTRATION.

     

    a.  Mandatory
      Registration.  The Company shall prepare, and, on or
      prior to one hundred and twenty (120) days from the date of Closing (as defined
      in the Securities Purchase Agreement) (the “Filing Date”), file with the
      SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then available,
      on such form of Registration Statement as is then available to effect a
      registration of the Registrable Securities, subject to the consent of the
      Initial Investors, which consent will not be unreasonably withheld) covering
      the
      resale of the Registrable Securities underlying the Notes and Warrants issued
      or
      issuable pursuant to the Securities Purchase Agreement, which Registration
      Statement, to the extent allowable under the 1933 Act and the rules and
      regulations promulgated thereunder (including Rule 416), shall state that such
      Registration Statement also covers such indeterminate number of additional
      shares of Common Stock as may become issuable upon conversion of or otherwise
      pursuant to the Notes and exercise of the Warrants to prevent dilution resulting
      from stock splits, stock dividends or similar transactions.  The
      number of shares of Common Stock initially included in such Registration
      Statement shall be no less than an amount equal to two (2) times the sum of
      the
      number of Conversion Shares that are then issuable upon conversion of the Notes
      and Additional Notes (based on the Variable Conversion Price as would then
      be in
      effect and assuming the Variable Conversion Price is the Conversion Price at
      such time), and the number of Warrant Shares that are then issuable upon
      exercise of the Warrants, without regard to any limitation on the Investor’s
      ability to convert the Notes or exercise the Warrants.  The Company
      acknowledges that the number of shares initially included in the Registration
      Statement represents a good faith estimate of the maximum number of shares
      issuable upon conversion of the Notes and upon exercise of the
      Warrants.

     

    b.  Underwritten
      Offering.  If any offering pursuant to a Registration
      Statement pursuant to Section 2(a) hereof involves an underwritten offering,
      the
      Investors who hold a majority in interest of the Registrable Securities subject
      to such underwritten offering, with the consent of a majority-in-interest of
      the
      Initial Investors, shall have the right to select one legal counsel and an
      investment banker or bankers and manager or managers to administer the offering,
      which investment banker or bankers or manager or managers shall be reasonably
      satisfactory to the Company.

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    c.  Payments
      by the
      Company.  The Company shall use its best efforts to
      obtain effectiveness of the Registration Statement as soon as
      practicable.  If (i) the Registration Statement(s) covering the
      Registrable Securities required to be filed by the Company pursuant to Section
      2(a) hereof is not filed by the Filing Date or declared effective by the SEC
      on
      or prior to one hundred and twenty (120) days from the Filing Date, or
      (ii) after the Registration Statement has been declared effective by the
      SEC, sales of all of the Registrable Securities cannot be made pursuant to
      the
      Registration Statement, or (iii) the Common Stock is not listed or included
      for quotation on the Nasdaq National Market (“Nasdaq”), the Nasdaq SmallCap
      Market (“Nasdaq
      SmallCap”), the New York Stock Exchange (the “NYSE”) or the American
      Stock
      Exchange (the “AMEX”)
      after being so listed or included for quotation, or (iv) the Common Stock
      ceases to be traded on the Over-the-Counter Bulletin Board (the “OTCBB”) or any equivalent
      replacement exchange prior to being listed or included for quotation on one
      of
      the aforementioned markets, then the Company will make payments to the Investors
      in such amounts and at such times as shall be determined pursuant to this
      Section 2(c) as partial relief for the damages to the Investors by reason of
      any
      such delay in or reduction of their ability to sell the Registrable Securities
      (which remedy shall not be exclusive of any other remedies available at law
      or
      in equity).  The Company shall pay to each holder of the Notes or
      Registrable Securities an amount equal to the then outstanding principal amount
      of the Notes (and, in the case of holders of Registrable Securities, the
      principal amount of Notes from which such Registrable Securities were converted)
      (“Outstanding Principal
      Amount”), multiplied by the Applicable Percentage (as defined below)
      times the sum of:  (i) the number of months (prorated for partial
      months) after the Filing Date or the end of the aforementioned one hundred
      and
      twenty (120) day period and prior to the date the Registration Statement is
      declared effective by the SEC, provided, however, that there shall be excluded
      from such period any delays which are solely attributable to changes required
      by
      the Investors in the Registration Statement with respect to information relating
      to the Investors, including, without limitation, changes to the plan of
      distribution, or to the failure of the Investors to conduct their review of
      the
      Registration Statement pursuant to Section 3(h) below in a reasonably prompt
      manner; (ii) the number of months (prorated for partial months) that sales
      of
      all of the Registrable Securities cannot be made pursuant to the Registration
      Statement after the Registration Statement has been declared effective
      (including, without limitation, when sales cannot be made by reason of the
      Company’s failure to properly supplement or amend the prospectus included
      therein in accordance with the terms of this Agreement, but excluding any days
      during an Allowed Delay (as defined in Section 3(f)); and (iii) the number
      of
      months (prorated for partial months) that the Common Stock is not listed or
      included for quotation on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX
      or
      that trading thereon is halted after the Registration Statement has been
      declared effective.  The term “Applicable Percentage” means
      two hundredths (.02).  (For example, if the Registration Statement
      becomes effective one (1) month after the end of such one hundred and twenty
      (120) day period, the Company would pay $5,000 for each $250,000 of Outstanding
      Principal Amount.  If thereafter, sales could not be made pursuant to
      the Registration Statement for an additional period of one (1) month, the
      Company would pay an additional $5,000 for each $250,000 of Outstanding
      Principal Amount.)  Such amounts shall be paid in cash or, at the
      Company’s option, in shares of Common Stock priced at the Conversion Price (as
      defined in the Notes) on such payment date.

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    d.  Piggy-Back
      Registrations.  Subject to the last sentence of this
      Section 2(d), if at any time prior to the expiration of the Registration Period
      (as hereinafter defined) the Company shall determine to file with the SEC a
      Registration Statement relating to an offering for its own account or the
      account of others under the 1933 Act of any of its equity securities (other
      than
      on Form S-4 or Form S-8 or their then equivalents relating to equity securities
      to be issued solely in connection with any acquisition of any entity or business
      or equity securities issuable in connection with stock option or other bonafide,
      employee
      benefit plans), the Company shall send to each Investor who is entitled to
      registration rights under this Section 2(d) written notice of such determination
      and, if within fifteen (15) days after the effective date of such notice, such
      Investor shall so request in writing, the Company shall include in such
      Registration Statement all or any part of the Registrable Securities such
      Investor requests to be registered, except that if, in connection with any
      underwritten public offering for the account of the Company the managing
      underwriter(s) thereof shall impose a limitation on the number of shares of
      Common Stock which may be included in the Registration Statement because, in
      such underwriter(s)’ judgment, marketing or other factors dictate such
      limitation is necessary to facilitate public distribution, then the Company
      shall be obligated to include in such Registration Statement only such limited
      portion of the Registrable Securities with respect to which such Investor has
      requested inclusion hereunder as the underwriter shall permit. Any exclusion
      of
      Registrable Securities shall be made pro rata among the Investors seeking to
      include Registrable Securities in proportion to the number of Registrable
      Securities sought to be included by such Investors; provided, however,
      that the
      Company shall not exclude any Registrable Securities unless the Company has
      first excluded all outstanding securities, the holders of which are not entitled
      to inclusion of such securities in such Registration Statement or are not
      entitled to pro rata inclusion with the Registrable Securities; and provided, further,
however,
      that, after
      giving effect to the immediately preceding proviso, any exclusion of Registrable
      Securities shall be made pro rata with holders of other securities having the
      right to include such securities in the Registration Statement other than
      holders of securities entitled to inclusion of their securities in such
      Registration Statement by reason of demand registration rights.  No
      right to registration of Registrable Securities under this Section 2(d) shall
      be
      construed to limit any registration required under Section 2(a)
      hereof.  If an offering in connection with which an Investor is
      entitled to registration under this Section 2(d) is an underwritten offering,
      then each Investor whose Registrable Securities are included in such
      Registration Statement shall, unless otherwise agreed by the Company, offer
      and
      sell such Registrable Securities in an underwritten offering using the same
      underwriter or underwriters and, subject to the provisions of this Agreement,
      on
      the same terms and conditions as other shares of Common Stock included in such
      underwritten offering.  Notwithstanding anything to the contrary set
      forth herein, the registration rights of the Investors pursuant to this Section
      2(d) shall only be available in the event the Company fails to timely file,
      obtain effectiveness or maintain effectiveness of any Registration Statement
      to
      be filed pursuant to Section 2(a) in accordance with the terms of this
      Agreement.

     

    e.  Eligibility
      for Form S-3,
      SB-2 or S-1; Conversion to Form S-3.  If the Company is
      not currently eligible to use Form S-3, not later than five (5) business days
      after the Company first meets the registration eligibility and transaction
      requirements for the use of Form S-3 (or any successor form) for registration
      of
      the offer and sale by the Initial Investors and any other Investors of
      Registrable Securities, the Company shall file a Registration Statement on
      Form
      S-3 (or such successor form) with respect to the Registrable Securities covered
      by the Registration Statement on Form SB-2 or Form S-1, whichever is applicable,
      filed pursuant to Section 2(a) (and include in such Registration Statement
      on
      Form S-3 the information required by Rule 429 under the 1933 Act) or convert
      the
      Registration Statement on Form SB-2 or Form S-1, whichever is applicable, filed
      pursuant to Section 2(a) to a Form S-3 pursuant to Rule 429 under the 1933
      Act
      and cause such Registration Statement (or such amendment) to be declared
      effective no later than forty-five (45) days after filing.  In the
      event of a breach by the Company of the provisions of this Section 2(e), the
      Company will be required to make payments pursuant to Section 2(c)
      hereof.

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

     

    3.  OBLIGATIONS
      OF THE
      COMPANY.

     

    In
      connection with the registration of the Registrable Securities, the Company
      shall have the following obligations:

     

    a.  The
      Company shall prepare promptly, and file with the SEC not later than the Filing
      Date, a Registration Statement with respect to the number of Registrable
      Securities provided in Section 2(a), and thereafter use its best efforts to
      cause such Registration Statement relating to Registrable Securities to become
      effective as soon as possible after such filing but in no event later than
      one
      hundred and twenty (120) days from the Filing Date), and keep the Registration
      Statement effective pursuant to Rule 415 at all times until such date as is
      the
      earlier of (i) the date on which all of the Registrable Securities have been
      sold and (ii) the date on which the Registrable Securities (in the opinion
      of
      counsel to the Initial Investors) may be immediately sold to the public without
      registration or restriction (including, without limitation, as to volume by
      each
      holder thereof) under the 1933 Act (the “Registration Period”), which
      Registration Statement (including any amendments or supplements thereto and
      prospectuses contained therein) shall not contain any untrue statement of a
      material fact or omit to state a material fact required to be stated therein,
      or
      necessary to make the statements therein not misleading.

     

    b.  The
      Company shall prepare and file with the SEC such amendments (including
      post-effective amendments) and supplements to the Registration Statements and
      the prospectus used in connection with the Registration Statements as may be
      necessary to keep the Registration Statements effective at all times during
      the
      Registration Period, and, during such period, comply with the provisions of
      the
      1933 Act with respect to the disposition of all Registrable Securities of the
      Company covered by the Registration Statements until such time as all of such
      Registrable Securities have been disposed of in accordance with the intended
      methods of disposition by the seller or sellers thereof as set forth in the
      Registration Statements.  In the event the number of shares available
      under a Registration Statement filed pursuant to this Agreement is insufficient
      to cover all of the Registrable Securities issued or issuable upon conversion
      of
      the Notes and exercise of the Warrants, the Company shall amend the Registration
      Statement, or file a new Registration Statement (on the short form available
      therefor, if applicable), or both, so as to cover all of the Registrable
      Securities, in each case, as soon as practicable, but in any event within
      fifteen (15) days after the necessity therefor arises (based on the market
      price
      of the Common Stock and other relevant factors on which the Company reasonably
      elects to rely).  The Company shall use its best efforts to cause such
      amendment and/or new Registration Statement to become effective as soon as
      practicable following the filing thereof, but in any event within thirty (30)
      days after the date on which the Company reasonably first determines (or
      reasonably should have determined) the need therefor.  The provisions
      of Section 2(c) above shall be applicable with respect to such obligation,
      with
      the ninety (90) days running from the day the Company reasonably first
      determines (or reasonably should have determined) the need
      therefor.

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    c.  The
      Company shall furnish to each Investor whose Registrable Securities are included
      in a Registration Statement and its legal counsel (i) promptly (but in no
      event more than two (2) business days) after the same is prepared and publicly
      distributed, filed with the SEC, or received by the Company, one copy of each
      Registration Statement and any amendment thereto, each preliminary prospectus
      and prospectus and each amendment or supplement thereto, and, in the case of
      the
      Registration Statement referred to in Section 2(a), each letter written by
      or on
      behalf of the Company to the SEC or the staff of the SEC, and each item of
      correspondence from the SEC or the staff of the SEC, in each case relating
      to
      such Registration Statement (other than any portion of any thereof which
      contains information for which the Company has sought confidential treatment),
      and (ii) promptly (but in no event more than two (2) business days) after
      the Registration Statement is declared effective by the SEC, such number of
      copies of a prospectus, including a preliminary prospectus, and all amendments
      and supplements thereto and such other documents as such Investor may reasonably
      request in order to facilitate the disposition of the Registrable Securities
      owned by such Investor.  The Company will immediately notify each
      Investor by facsimile of the effectiveness of each Registration Statement or
      any
      post-effective amendment.  The Company will promptly (but in no event
      more than five (5) business days) respond to any and all comments received
      from
      the SEC (which comments shall promptly be made available to the Investors upon
      request), with a view towards causing each Registration Statement or any
      amendment thereto to be declared effective by the SEC as soon as practicable,
      shall promptly file an acceleration request as soon as practicable (but in
      no
      event more than two (2) business days) following the resolution or clearance
      of
      all SEC comments or, if applicable, following notification by the SEC that
      any
      such Registration Statement or any amendment thereto will not be subject to
      review and shall promptly file with the SEC a final prospectus as soon as
      practicable (but in no event more than two (2) business days) following receipt
      by the Company from the SEC of an order declaring the Registration Statement
      effective.  In the event of a breach by the Company of the provisions
      of this Section 3(c), the Company will be required to make payments pursuant
      to
      Section 2(c) hereof.

     

    d.  The
      Company shall use reasonable efforts to (i) register and qualify the
      Registrable Securities covered by the Registration Statements under such other
      securities or “blue sky” laws of such jurisdictions in the United States as the
      Investors who hold a majority in interest of the Registrable Securities being
      offered reasonably request, (ii) prepare and file in those jurisdictions
      such amendments (including post-effective amendments) and supplements to such
      registrations and qualifications as may be necessary to maintain the
      effectiveness thereof during the Registration Period, (iii) take such other
      actions as may be necessary to maintain such registrations and qualifications
      in
      effect at all times during the Registration Period, and (iv) take all other
      actions reasonably necessary or advisable to qualify the Registrable Securities
      for sale in such jurisdictions; provided, however,
      that the
      Company shall not be required in connection therewith or as a condition thereto
      to (a) qualify to do business in any jurisdiction where it would not
      otherwise be required to qualify but for this Section 3(d), (b) subject
      itself to general taxation in any such jurisdiction, (c) file a general
      consent to service of process in any such jurisdiction, (d) provide any
      undertakings that cause the Company undue expense or burden, or (e) make
      any change in its charter or bylaws, which in each case the Board of Directors
      of the Company determines to be contrary to the best interests of the Company
      and its shareholders.

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    e.  In
      the
      event Investors who hold a majority-in-interest of the Registrable Securities
      being offered in the offering (with the approval of a majority-in-interest
      of
      the Initial Investors) select underwriters for the offering, the Company shall
      enter into and perform its obligations under an underwriting agreement, in
      usual
      and customary form, including, without limitation, customary indemnification
      and
      contribution obligations, with the underwriters of such offering.

     

    f.  As
      promptly as practicable after becoming aware of such event, the Company shall
      notify each Investor of the happening of any event, of which the Company has
      knowledge, as a result of which the prospectus included in any Registration
      Statement, as then in effect, includes an untrue statement of a material fact
      or
      omission to state a material fact required to be stated therein or necessary
      to
      make the statements therein not misleading, and use its best efforts promptly
      to
      prepare a supplement or amendment to any Registration Statement to correct
      such
      untrue statement or omission, and deliver such number of copies of such
      supplement or amendment to each Investor as such Investor may reasonably
      request; provided that, for not more than ten (10) consecutive trading days
      (or
      a total of not more than twenty (20) trading days in any twelve (12) month
      period), the Company may delay the disclosure of material non-public information
      concerning the Company (as well as prospectus or Registration Statement
      updating) the disclosure of which at the time is not, in the good faith opinion
      of the Company, in the best interests of the Company (an “Allowed Delay”); provided,
      further, that the Company shall promptly (i) notify the Investors in
      writing of the existence of (but in no event, without the prior written consent
      of an Investor, shall the Company disclose to such investor any of the facts
      or
      circumstances regarding) material non-public information giving rise to an
      Allowed Delay and (ii) advise the Investors in writing to cease all sales
      under such Registration Statement until the end of the Allowed Delay. Upon
      expiration of the Allowed Delay, the Company shall again be bound by the first
      sentence of this Section 3(f) with respect to the information giving rise
      thereto.

     

    g.  The
      Company shall use its best efforts to prevent the issuance of any stop order
      or
      other suspension of effectiveness of any Registration Statement, and, if such
      an
      order is issued, to obtain the withdrawal of such order at the earliest possible
      moment and to notify each Investor who holds Registrable Securities being sold
      (or, in the event of an underwritten offering, the managing underwriters) of
      the
      issuance of such order and the resolution thereof.

     

    h.  The
      Company shall permit a single firm of counsel designated by the Initial
      Investors to review such Registration Statement and all amendments and
      supplements thereto (as well as all requests for acceleration or effectiveness
      thereof) a reasonable period of time prior to their filing with the SEC, and
      not
      file any document in a form to which such counsel reasonably objects and will
      not request acceleration of such Registration Statement without prior notice
      to
      such counsel.  The sections of such Registration Statement covering
      information with respect to the Investors, the Investor’s beneficial ownership
      of securities of the Company or the Investors intended method of disposition
      of
      Registrable Securities shall conform to the information provided to the Company
      by each of the Investors.

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    i.  The
      Company shall make generally available to its security holders as soon as
      practicable, but not later than ninety (90) days after the close of the period
      covered thereby, an earnings statement (in form complying with the provisions
      of
      Rule 158 under the 1933 Act) covering a twelve-month period beginning not later
      than the first day of the Company’s fiscal quarter next following the effective
      date of the Registration Statement.

     

    j.  At
      the
      request of any Investor, the Company shall furnish, on the date that Registrable
      Securities are delivered to an underwriter, if any, for sale in connection
      with
      any Registration Statement or, if such securities are not being sold by an
      underwriter, on the date of effectiveness thereof (i) an opinion, dated as
      of such date, from counsel representing the Company for purposes of such
      Registration Statement, in form, scope and substance as is customarily given
      in
      an underwritten public offering, addressed to the underwriters, if any, and
      the
      Investors and (ii) a letter, dated such date, from the Company’s
      independent certified public accountants in form and substance as is customarily
      given by independent certified public accountants to underwriters in an
      underwritten public offering, addressed to the underwriters, if any, and the
      Investors.

     

    k.  The
      Company shall make available for inspection by (i) any Investor,
      (ii) any underwriter participating in any disposition pursuant to a
      Registration Statement, (iii) one firm of attorneys and one firm of
      accountants or other agents retained by the Initial Investors, (iv) one
      firm of attorneys and one firm of accountants or other agents retained by all
      other Investors, and (v) one firm of attorneys retained by all such
      underwriters (collectively, the “Inspectors”) all pertinent
      financial and other records, and pertinent corporate documents and properties
      of
      the Company, including without limitation, records of conversions by other
      holders of convertible securities issued by the Company and the issuance of
      stock to such holders pursuant to the conversions (collectively, the “Records”), as shall be
      reasonably deemed necessary by each Inspector to enable each Inspector to
      exercise its due diligence responsibility, and cause the Company’s officers,
      directors and employees to supply all information which any Inspector may
      reasonably request for purposes of such due diligence; provided, however,
      that each
      Inspector shall hold in confidence and shall not make any disclosure (except
      to
      an Investor) of any Record or other information which the Company determines
      in
      good faith to be confidential, and of which determination the Inspectors are
      so
      notified, unless (a) the disclosure of such Records is necessary to avoid
      or correct a misstatement or omission in any Registration Statement,
      (b) the release of such Records is ordered pursuant to a subpoena or other
      order from a court or government body of competent jurisdiction, or (c) the
      information in such Records has been made generally available to the public
      other than by disclosure in violation of this or any other
      agreement.  The Company shall not be required to disclose any
      confidential information in such Records to any Inspector until and unless
      such
      Inspector shall have entered into confidentiality agreements (in form and
      substance satisfactory to the Company) with the Company with respect thereto,
      substantially in the form of this Section 3(k).  Each Investor agrees
      that it shall, upon learning that disclosure of such Records is sought in or
      by
      a court or governmental body of competent jurisdiction or through other means,
      give prompt notice to the Company and allow the Company, at its expense, to
      undertake appropriate action to prevent disclosure of, or to obtain a protective
      order for, the Records deemed confidential.  Nothing herein (or in any
      other confidentiality agreement between the Company and any Investor) shall
      be
      deemed to limit the Investor’s ability to sell Registrable Securities in a
      manner which is otherwise consistent with applicable laws and
      regulations.

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    l.  The
      Company shall hold in confidence and not make any disclosure of information
      concerning an Investor provided to the Company unless (i) disclosure of
      such information is necessary to comply with federal or state securities laws,
      (ii) the disclosure of such information is necessary to avoid or correct a
      misstatement or omission in any Registration Statement, (iii) the release
      of such information is ordered pursuant to a subpoena or other order from a
      court or governmental body of competent jurisdiction, or (iv) such
      information has been made generally available to the public other than by
      disclosure in violation of this or any other agreement.  The Company
      agrees that it shall, upon learning that disclosure of such information
      concerning an Investor is sought in or by a court or governmental body of
      competent jurisdiction or through other means, give prompt notice to such
      Investor prior to making such disclosure, and allow the Investor, at its
      expense, to undertake appropriate action to prevent disclosure of, or to obtain
      a protective order for, such information.

     

    m.  The
      Company shall (i) cause all the Registrable Securities covered by the
      Registration Statement to be listed on each national securities exchange on
      which securities of the same class or series issued by the Company are then
      listed, if any, if the listing of such Registrable Securities is then permitted
      under the rules of such exchange, or (ii) to the extent the securities of
      the same class or series are not then listed on a national securities exchange,
      secure the designation and quotation, of all the Registrable Securities covered
      by the Registration Statement on Nasdaq or, if not eligible for Nasdaq, on
      Nasdaq SmallCap or, if not eligible for Nasdaq or Nasdaq SmallCap, on the OTCBB
      and, without limiting the generality of the foregoing, to arrange for at least
      two market makers to register with the National Association of Securities
      Dealers, Inc. (“NASD”)
      as such with respect to such Registrable Securities.

     

    n.  The
      Company shall provide a transfer agent and registrar, which may be a single
      entity, for the Registrable Securities not later than the effective date of
      the
      Registration Statement.

     

    o.  The
      Company shall cooperate with the Investors who hold Registrable Securities
      being
      offered and the managing underwriter or underwriters, if any, to facilitate
      the
      timely preparation and delivery of certificates (not bearing any restrictive
      legends) representing Registrable Securities to be offered pursuant to a
      Registration Statement and enable such certificates to be in such denominations
      or amounts, as the case may be, as the managing underwriter or underwriters,
      if
      any, or the Investors may reasonably request and registered in such names as
      the
      managing underwriter or underwriters, if any, or the Investors may request,
      and,
      within three (3) business days after a Registration Statement which includes
      Registrable Securities is ordered effective by the SEC, the Company shall
      deliver, and shall cause legal counsel selected by the Company to deliver,
      to
      the transfer agent for the Registrable Securities (with copies to the Investors
      whose Registrable Securities are included in such Registration Statement) an
      instruction in a form reasonably acceptable to the Investors and an opinion
      of
      such counsel in a form reasonably acceptable to the Investors.

     

    p.  At
      the
      request of the holders of a majority-in-interest of the Registrable Securities,
      the Company shall prepare and file with the SEC such amendments (including
      post-effective amendments) and supplements to a Registration Statement and
      any
      prospectus used in connection with the Registration Statement as may be
      necessary in order to change the plan of distribution set forth in such
      Registration Statement.

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    q.  From
      and
      after the date of this Agreement, the Company shall not, and shall not agree
      to,
      allow the holders of any securities of the Company to include any of their
      securities in any Registration Statement under Section 2(a) hereof or any
      amendment or supplement thereto under Section 3(b) hereof without the consent
      of
      the holders of a majority-in-interest of the Registrable
      Securities.

     

    r.  The
      Company shall take all other reasonable actions necessary to expedite and
      facilitate disposition by the Investors of Registrable Securities pursuant
      to a
      Registration Statement.

     

    4.  OBLIGATIONS
      OF THE
      INVESTORS.

     

    In
      connection with the registration of the Registrable Securities, the Investors
      shall have the following obligations:

     

    a.  It
      shall
      be a condition precedent to the obligations of the Company to complete the
      registration pursuant to this Agreement with respect to the Registrable
      Securities of a particular Investor that such Investor shall furnish to the
      Company such information regarding itself, the Registrable Securities held
      by it
      and the intended method of disposition of the Registrable Securities held by
      it
      as shall be reasonably required to effect the registration of such Registrable
      Securities and shall execute such documents in connection with such registration
      as the Company may reasonably request.  At least three (3) business
      days prior to the first anticipated filing date of the Registration Statement,
      the Company shall notify each Investor of the information the Company requires
      from each such Investor.

     

    b.  Each
      Investor, by such Investor’s acceptance of the Registrable Securities, agrees to
      cooperate with the Company as reasonably requested by the Company in connection
      with the preparation and filing of the Registration Statements hereunder, unless
      such Investor has notified the Company in writing of such Investor’s election to
      exclude all of such Investor’s Registrable Securities from the Registration
      Statements.

     

    c.  In
      the
      event Investors holding a majority-in-interest of the Registrable Securities
      being registered (with the approval of the Initial Investors) determine to
      engage the services of an underwriter, each Investor agrees to enter into and
      perform such Investor’s obligations under an underwriting agreement, in usual
      and customary form, including, without limitation, customary indemnification
      and
      contribution obligations, with the managing underwriter of such offering and
      take such other actions as are reasonably required in order to expedite or
      facilitate the disposition of the Registrable Securities, unless such Investor
      has notified the Company in writing of such Investor’s election to exclude all
      of such Investor’s Registrable Securities from such Registration
      Statement.

     

    d.  Each
      Investor agrees that, upon receipt of any notice from the Company of the
      happening of any event of the kind described in Section 3(f) or 3(g), such
      Investor will immediately discontinue disposition of Registrable Securities
      pursuant to the Registration Statement covering such Registrable Securities
      until such Investor’s receipt of the copies of the supplemented or amended
      prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the
      Company, such Investor shall deliver to the Company (at the expense of the
      Company) or destroy (and deliver to the Company a certificate of destruction)
      all copies in such Investor’s possession, of the prospectus covering such
      Registrable Securities current at the time of receipt of such
      notice.

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    e.  No
      Investor may participate in any underwritten registration hereunder unless
      such
      Investor (i) agrees to sell such Investor’s Registrable Securities on the
      basis provided in any underwriting arrangements in usual and customary form
      entered into by the Company, (ii) completes and executes all
      questionnaires, powers of attorney, indemnities, underwriting agreements and
      other documents reasonably required under the terms of such underwriting
      arrangements, and (iii) agrees to pay its pro rata share of all
      underwriting discounts and commissions and any expenses in excess of those
      payable by the Company pursuant to Section 5 below.

     

    5.  EXPENSES
      OF
      REGISTRATION.

     

    All
      reasonable expenses, other than underwriting discounts and commissions, incurred
      in connection with registrations, filings or qualifications pursuant to Sections
      2 and 3, including, without limitation, all registration, listing and
      qualification fees, printers and accounting fees, the fees and disbursements
      of
      counsel for the Company, and the reasonable fees and disbursements of one
      counsel selected by the Initial Investors pursuant to Sections 2(b) and 3(h)
      hereof shall be borne by the Company.

     

    6.  INDEMNIFICATION.

     

    In
      the
      event any Registrable Securities are included in a Registration Statement under
      this Agreement:

     

    a.  To
      the
      extent permitted by law, the Company will indemnify, hold harmless and defend
      (i) each Investor who holds such Registrable Securities, (ii) the
      directors, officers, partners, employees, agents and each person who controls
      any Investor within the meaning of the 1933 Act or the Securities Exchange
      Act
      of 1934, as amended (the “1934
      Act”), if any, (iii) any underwriter (as defined in the 1933 Act)
      for the Investors, and (iv) the directors, officers, partners, employees
      and each person who controls any such underwriter within the meaning of the
      1933
      Act or the 1934 Act, if any (each, an “Indemnified Person”), against
      any joint or several losses, claims, damages, liabilities or expenses
      (collectively, together with actions, proceedings or inquiries by any regulatory
      or self-regulatory organization, whether commenced or threatened, in respect
      thereof, “Claims”) to
      which any of them may become subject insofar as such Claims arise out of or
      are
      based upon: (i) any untrue statement or alleged untrue statement of a material
      fact in a Registration Statement or the omission or alleged omission to state
      therein a material fact required to be stated or necessary to make the
      statements therein not misleading; (ii) any untrue statement or alleged untrue
      statement of a material fact contained in any preliminary prospectus if used
      prior to the effective date of such Registration Statement, or contained in
      the
      final prospectus (as amended or supplemented, if the Company files any amendment
      thereof or supplement thereto with the SEC) or the omission or alleged omission
      to state therein any material fact necessary to make the statements made
      therein, in light of the circumstances under which the statements therein were
      made, not misleading; or (iii) any violation or alleged violation by the Company
      of the 1933 Act, the 1934 Act, any other law, including, without limitation,
      any
      state securities law, or any rule or regulation thereunder relating to the
      offer
      or sale of the Registrable Securities (the matters in the foregoing clauses
      (i)
      through (iii) being, collectively, “Violations”).  

     

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

       

       

      Subject
        to the restrictions set forth in Section 6(c) with respect to the number
        of
        legal counsel, the Company shall reimburse the Indemnified Person, promptly
        as
        such expenses are incurred and are due and payable, for any reasonable legal
        fees or other reasonable expenses incurred by them in connection with
        investigating or defending any such Claim.  Notwithstanding anything
        to the contrary contained herein, the indemnification agreement contained
        in
        this Section 6(a): (i) shall not apply to a Claim arising out of or based
        upon a
        Violation which occurs in reliance upon and in conformity with information
        furnished in writing to the Company by any Indemnified Person or underwriter
        for
        such Indemnified Person expressly for use in connection with the preparation
        of
        such Registration Statement or any such amendment thereof or supplement thereto,
        if such prospectus was timely made available by the Company pursuant to Section
        3(c) hereof; (ii) shall not apply to amounts paid in settlement of any Claim
        if
        such settlement is effected without the prior written consent of the Company,
        which consent shall not be unreasonably withheld; and (iii) with respect
        to any
        preliminary prospectus, shall not inure to the benefit of any Indemnified
        Person
        if the untrue statement or omission of material fact contained in the
        preliminary prospectus was corrected on a timely basis in the prospectus,
        as
        then amended or supplemented, such corrected prospectus was timely made
        available by the Company pursuant to Section 3(c) hereof, and the Indemnified
        Person was promptly advised in writing not to use the incorrect prospectus
        prior
        to the use giving rise to a Violation and such Indemnified Person,
        notwithstanding such advice, used it.  Such indemnity shall remain in
        full force and effect regardless of any investigation made by or on behalf
        of
        the Indemnified Person and shall survive the transfer of the Registrable
        Securities by the Investors pursuant to Section 9.

    

     

    b.  In
      connection with any Registration Statement in which an Investor is
      participating, each such Investor agrees severally and not jointly to indemnify,
      hold harmless and defend, to the same extent and in the same manner set forth
      in
      Section 6(a), the Company, each of its directors, each of its officers who
      signs
      the Registration Statement, each person, if any, who controls the Company within
      the meaning of the 1933 Act or the 1934 Act, any underwriter and any other
      shareholder selling securities pursuant to the Registration Statement or any
      of
      its directors or officers or any person who controls such shareholder or
      underwriter within the meaning of the 1933 Act or the 1934 Act (collectively
      and
      together with an Indemnified Person, an “Indemnified Party”), against
      any Claim to which any of them may become subject, under the 1933 Act, the
      1934
      Act or otherwise, insofar as such Claim arises out of or is based upon any
      Violation by such Investor, in each case to the extent (and only to the extent)
      that such Violation occurs in reliance upon and in conformity with written
      information furnished to the Company by such Investor expressly for use in
      connection with such Registration Statement; and subject to Section 6(c) such
      Investor will reimburse any legal or other expenses (promptly as such expenses
      are incurred and are due and payable) reasonably incurred by them in connection
      with investigating or defending any such Claim; provided, however,
      that the
      indemnity agreement contained in this Section 6(b) shall not apply to amounts
      paid in settlement of any Claim if such settlement is effected without the
      prior
      written consent of such Investor, which consent shall not be unreasonably
      withheld; provided, further,
however,
      that the
      Investor shall be liable under this Agreement (including this Section 6(b)
      and
      Section 7) for only that amount as does not exceed the net proceeds to such
      Investor as a result of the sale of Registrable Securities pursuant to such
      Registration Statement.  

     

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

       

       

      Such
        indemnity shall remain in full force and effect regardless of any investigation
        made by or on behalf of such Indemnified Party and shall survive the transfer
        of
        the Registrable Securities by the Investors pursuant to Section 9.
        Notwithstanding anything to the contrary contained herein, the indemnification
        agreement contained in this Section 6(b) with respect to any preliminary
        prospectus shall not inure to the benefit of any Indemnified Party if the
        untrue
        statement or omission of material fact contained in the preliminary prospectus
        was corrected on a timely basis in the prospectus, as then amended or
        supplemented.

    

     

    c.  Promptly
      after receipt by an Indemnified Person or Indemnified Party under this Section
      6
      of notice of the commencement of any action (including any governmental action),
      such Indemnified Person or Indemnified Party shall, if a Claim in respect
      thereof is to be made against any indemnifying party under this Section 6,
      deliver to the indemnifying party a written notice of the commencement thereof,
      and the indemnifying party shall have the right to participate in, and, to
      the
      extent the indemnifying party so desires, jointly with any other indemnifying
      party similarly noticed, to assume control of the defense thereof with counsel
      mutually satisfactory to the indemnifying party and the Indemnified Person
      or
      the Indemnified Party, as the case may be; provided, however,
      that an
      Indemnified Person or Indemnified Party shall have the right to retain its
      own
      counsel with the fees and expenses to be paid by the indemnifying party, if,
      in
      the reasonable opinion of counsel retained by the indemnifying party, the
      representation by such counsel of the Indemnified Person or Indemnified Party
      and the indemnifying party would be inappropriate due to actual or potential
      differing interests between such Indemnified Person or Indemnified Party and
      any
      other party represented by such counsel in such proceeding.  The
      indemnifying party shall pay for only one separate legal counsel
      for  the Indemnified Persons or the Indemnified Parties, as
      applicable, and such legal counsel shall be selected by Investors holding a
      majority-in-interest of the  Registrable Securities included in the
      Registration Statement to which the Claim relates (with the approval of a
      majority-in-interest of the Initial Investors), if the Investors are entitled
      to
      indemnification hereunder, or the Company, if the Company is entitled to
      indemnification hereunder, as applicable.  The failure to deliver
      written notice to the indemnifying party within a reasonable time of the
      commencement of any such action shall not relieve such indemnifying party of
      any
      liability to the Indemnified Person or Indemnified Party under this Section
      6,
      except to the extent that the indemnifying party is actually prejudiced in
      its
      ability to defend such action.  The indemnification required by this
      Section 6 shall be made by periodic payments of the amount thereof during the
      course of the investigation or defense, as such expense, loss, damage or
      liability is incurred and is due and payable.

     

    7.  CONTRIBUTION.

     

    To
      the
      extent any indemnification by an indemnifying party is prohibited or limited
      by
      law, the indemnifying party agrees to make the maximum contribution with respect
      to any amounts for which it would otherwise be liable under Section 6 to the
      fullest extent permitted by law; provided, however,
      that
      (i) no contribution shall be made under circumstances where the maker would
      not have been liable for indemnification under the fault standards set forth
      in
      Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
      misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
      be
      entitled to contribution from any seller of Registrable Securities who was
      not
      guilty of such fraudulent misrepresentation, and (iii)contribution (together
      with any indemnification or other obligations under this Agreement) by any
      seller of Registrable Securities shall be limited in amount to the net amount
      of
      proceeds received by such seller from the sale of such Registrable
      Securities.

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    8.  REPORTS
      UNDER THE 1934
      ACT.

     

    With
      a
      view to making available to the Investors the benefits of Rule 144 promulgated
      under the 1933 Act or any other similar rule or regulation of the SEC that
      may
      at any time permit the investors to sell securities of the Company to the public
      without registration (“Rule
      144”), the Company agrees to:

     

    a.  make
      and
      keep public information available, as those terms are understood and defined
      in
      Rule 144;

     

    b.  file
      with
      the SEC in a timely manner all reports and other documents required of the
      Company under the 1933 Act and the 1934 Act so long as the Company remains
      subject to such requirements (it being understood that nothing herein shall
      limit the Company’s obligations under Section 4(c) of the Securities Purchase
      Agreement) and the filing of such reports and other documents is required for
      the applicable provisions of Rule 144; and

     

    c.  furnish
      to each Investor so long as such Investor owns Registrable Securities, promptly
      upon request, (i) a written statement by the Company that it has complied
      with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act,
      (ii) a copy of the most recent annual or quarterly report of the Company
      and such other reports and documents so filed by the Company, and
      (iii) such other information as may be reasonably requested to permit the
      Investors to sell such securities pursuant to Rule 144 without
      registration.

     

    9.  ASSIGNMENT
      OF REGISTRATION
      RIGHTS.

     

    The
      rights under this Agreement shall be automatically assignable by the Investors
      to any transferee of all or any portion of Registrable Securities if:
      (i) the Investor agrees in writing with the transferee or assignee to
      assign such rights, and a copy of such agreement is furnished to the Company
      within a reasonable time after such assignment, (ii) the Company is, within
      a reasonable time after such transfer or assignment, furnished with written
      notice of (a) the name and address of such transferee or assignee, and
      (b) the securities with respect to which such registration rights are being
      transferred or assigned, (iii) following such transfer or assignment, the
      further disposition of such securities by the transferee or assignee is
      restricted under the 1933 Act and applicable state securities laws, (iv) at
      or
      before the time the Company receives the written notice contemplated by clause
      (ii) of this sentence, the transferee or assignee agrees in writing with the
      Company to be bound by all of the provisions contained herein, (v) such transfer
      shall have been made in accordance with the applicable requirements of the
      Securities Purchase Agreement, and (vi) such transferee shall be an “accredited investor” as that
      term defined in Rule 501 of Regulation D promulgated under the 1933
      Act.

     

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

     

    10.  AMENDMENT
      OF REGISTRATION
      RIGHTS.

     

    Provisions
      of this Agreement may be amended and the observance thereof may be waived
      (either generally or in a particular instance and either retroactively or
      prospectively), only with written consent of the Company, each of the Initial
      Investors (to the extent such Initial Investor still owns Registrable
      Securities) and Investors who hold a majority interest of the Registrable
      Securities.  Any amendment or waiver effected in accordance with this
      Section 10 shall be binding upon each Investor and the Company.

     

    11.  MISCELLANEOUS.

     

    a.  A
      person
      or entity is deemed to be a holder of Registrable Securities whenever such
      person or entity owns of record such Registrable Securities.  If the
      Company receives conflicting instructions, notices or elections from two or
      more
      persons or entities with respect to the same Registrable Securities, the Company
      shall act upon the basis of instructions, notice or election received from
      the
      registered owner of such Registrable Securities.

     

    b.  Any
      notices required or permitted to be given under the terms hereof shall be sent
      by certified or registered mail (return receipt requested) or delivered
      personally or by courier (including a recognized overnight delivery service)
      or
      by facsimile and shall be effective five days after being placed in the mail,
      if
      mailed by regular United States mail, or upon receipt, if delivered personally
      or by courier (including a recognized overnight delivery service) or by
      facsimile, in each case addressed to a party.  The addresses for such
      communications shall be:

     

    If
      to the
      Company:

     

    Midnight
      Holdings Group, Inc.

    22600
      Hall Road, Suite 205

    Clinton
      Township, MI  48036

    Attention:  Chief
      Executive Officer

    Telephone:  586-468-8741

    Facsimile:   586-468-8768

     

    

    With
      a
      copy to:

     

    Anslow
      & Jaclin, LLP

    195
      Route
      9 South, Suite 204

    Manalapan,
      NJ  07726

    Attention:  Gregg
      E. Jaclin, Esq.

    Telephone:  732-409-1212

    Facsimile:   732-577-1188

     

    

     

    If
      to an
      Investor: to the address set forth immediately below such Investor’s name on the
      signature pages to the Securities Purchase Agreement.

     

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

     

    With
      a
      copy to:

     

    Ballard
      Spahr Andrews & Ingersoll, LLP

    1735
      Market Street

    51st
      Floor

    Philadelphia,
      Pennsylvania  19103

    Attention:  Gerald
      J. Guarcini, Esq.

    Telephone:  215-865-8625

    Facsimile:  215-864-8999

    Email:  guarcini@ballardspahr.com

     

    c.  Failure
      of any party to exercise any right or remedy under this Agreement or otherwise,
      or delay by a party in exercising such right or remedy, shall not operate as
      a
      waiver thereof.

     

    d.  THIS
      AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
      LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
      ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF
      LAWS.  THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION
      OF THE UNITED STATES FEDERAL COURTS LOCATED NEW YORK, NEW YORK WITH RESPECT
      TO
      ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN
      CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH
      PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE
      MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE
      THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
      IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT
      OR
      PROCEEDING.  NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE
      PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.  BOTH PARTIES AGREE THAT
      A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE
      CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT
      OR IN ANY OTHER LAWFUL MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN
      ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES
      AND
      EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN
      CONNECTION WITH SUCH DISPUTE.

     

    e.  In
      the
      event that any provision of this Agreement is invalid or unenforceable under
      any
      applicable statute or rule of law, then such provision shall be deemed
      inoperative to the extent that it may conflict therewith and shall be deemed
      modified to conform with such statute or rule of law.  Any provision
      hereof which may prove invalid or unenforceable under any law shall not affect
      the validity or enforceability of any other provision hereof.

     

    f.  This
      Agreement, the Notes, the Warrants and the Securities Purchase Agreement
      (including all schedules and exhibits thereto) constitute the entire agreement
      among the parties hereto with respect to the subject matter hereof and
      thereof.  

     

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

       

       

      There
        are
        no restrictions, promises, warranties or undertakings, other than those set
        forth or referred to herein and therein.  This Agreement and the
        Securities Purchase Agreement supersede all prior agreements and understandings
        among the parties hereto with respect to the subject matter hereof and
        thereof.

    

     

    g.  Subject
      to the requirements of Section 9 hereof, this Agreement shall be binding upon
      and inure to the benefit of the parties and their successors and
      assigns.

     

    h.  The
      headings in this Agreement are for convenience of reference only and shall
      not
      form part of, or affect the interpretation of, this Agreement.

     

    i.  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 and the same agreement
      and shall become effective when counterparts have been signed by each party
      and
      delivered to the other party.  This Agreement, once executed by a
      party, may be delivered to the other party hereto by facsimile transmission
      of a
      copy of this Agreement bearing the signature of the party so delivering this
      Agreement.

     

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

     

    k.  Except
      as
      otherwise provided herein, all consents and other determinations to be made
      by
      the Investors pursuant to this Agreement shall be made by Investors holding
      a
      majority of the Registrable Securities, determined as if the all of the Notes
      then outstanding have been converted into for Registrable
      Securities.

     

    l.  The
      Company acknowledges that a breach by it of its obligations hereunder will
      cause
      irreparable harm to each Investor by vitiating the intent and purpose of the
      transactions contemplated hereby.  Accordingly, the Company
      acknowledges that the remedy at law for breach of its obligations under this
      Agreement will be inadequate and agrees, in the event of a breach or threatened
      breach by the Company of any of the provisions under this Agreement, that each
      Investor shall be entitled, in addition to all other available remedies in
      law
      or in equity, and in addition to the penalties assessable herein,  to
      an injunction or injunctions restraining, preventing or curing any breach of
      this Agreement and to enforce specifically the terms and provisions hereof,
      without the necessity of showing economic loss and without any bond or other
      security being required.

     

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

     

    

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

     

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

     

    IN
      WITNESS WHEREOF, the
      Company and the undersigned Initial Investors have caused this Agreement to
      be
      duly executed as of the date first above written.

     

    MIDNIGHT
      HOLDINGS GROUP,
      INC.

     

    /s/ 
Nicholas
      Cocco                    

    Nicholas
      Cocco

    Chief
      Executive Officer

     

    AJW
      PARTNERS, LLC

    By:  SMS
      Group, LLC

     

    /s/ 
Corey
      S.
      Ribotsky                  

    Corey
      S.
      Ribotsky

    Manager

     

    AJW
      OFFSHORE,
      LTD.

    By:  First
      Street Manager II, LLC

    

    /s/ 
Corey
      S.
      Ribotsky                  

    Corey
      S.
      Ribotsky

    Manager

     

    AJW
      QUALIFIED PARTNERS,
      LLC

    By:  AJW
      Manager, LLC

     

    /s/ 
Corey
      S.
      Ribotsky                  

    Corey
      S.
      Ribotsky

    Manager

     

    NEW
      MILLENNIUM CAPITAL PARTNERS II,
      LLC

    By:  First
      Street Manager II, LLC

     

    /s/ 
Corey
      S.
      Ribotsky                  

    Corey
      S.
      Ribotsky

    Manager

    
18f10qsb0307ex10k.htm

    

     

    

     

    
      THE
        SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
        THE
        SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THE SECURITIES MAY
        NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
        STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN
        FORM,
        SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS
        THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT
        TO RULE
        144 OR REGULATION S UNDER SAID ACT.

    

    
 

    CALLABLE
      SECURED CONVERTIBLE
      NOTE

     

    
      
        	
                Clinton
                  Township, Michigan

              	 
	
                October
                  19, 2007

              	
                $222,795

              

      

    

     

    FOR
      VALUE RECEIVED, MIDNIGHT HOLDINGS
      GROUP, INC.,
a Delaware corporation (hereinafter called the “Borrower”), hereby promises
      to
      pay to the order of AJW Offshore, Ltd. or registered assigns (the “Holder”) the sum of $222,795
      on October 19, 2010 (the “Maturity Date”), and to pay
      interest on the unpaid principal balance hereof at the rate of ten percent
      (10%)
      per annum from October 19, 2007 (the “Issue Date”) until the same
      becomes due and payable, whether at maturity or upon acceleration or by
      prepayment or otherwise.  Any amount of principal or interest on this
      Note which is not paid when due shall bear interest at the rate of fifteen
      percent (15%) per annum from the due date thereof until the same is paid (“Default
      Interest”).  Interest shall commence accruing on the issue
      date, shall be computed on the basis of a 365-day year and the actual number
      of
      days elapsed and shall be payable, quarterly on March 31, June 30,
      September 30 and December 31 of each year beginning on the last day of the
      first full quarter after Issue Date.  All payments due hereunder (to
      the extent not converted into common stock, $.00005 par value per share, of
      the
      Borrower (the “Common
      Stock”) in accordance with the terms hereof) shall be made in lawful
      money of the United States of America.  All payments shall be made at
      such address as the Holder shall hereafter give to the Borrower by written
      notice made in accordance with the provisions of this Note.  Whenever
      any amount expressed to be due by the terms of this Note is due on any day
      which
      is not a business day, the same shall instead be due on the next succeeding
      day
      which is a business day and, in the case of any interest payment date which
      is
      not the date on which this Note is paid in full, the extension of the due date
      thereof shall not be taken into account for purposes of determining the amount
      of interest due on such date.  As used in this Note, the term
“business day” shall mean any day other than a Saturday, Sunday or a day on
      which commercial banks in the city of New York, New York are authorized or
      required by law or executive order to remain closed.  

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

       

       

      Each
        capitalized term used herein, and not otherwise defined, shall have the meaning
        ascribed thereto in that certain Securities Purchase Agreement, dated October
        19, 2007, pursuant to which this Note was originally issued (the “Purchase
        Agreement”).

    

     

    This
      Note
      is free from all taxes, liens, claims and encumbrances with respect to the
      issue
      thereof and shall not be subject to preemptive rights or other similar rights
      of
      shareholders of the Borrower and will not impose personal liability upon the
      holder thereof.  The obligations of the Borrower under this Note shall
      be secured by that certain Security Agreement by and between the Borrower and
      the Holder of even date herewith.

     

    The
      following terms shall apply to this Note:

     

     

    ARTICLE
      I.  CONVERSION RIGHTS

     

    1.1  Conversion
      Right.  The
      Holder shall
      have the right from time to time, and at any time on or prior to the earlier
      of
      (i) the Maturity Date and (ii) the date of payment of the Default Amount (as
      defined in Article III) pursuant to Section 1.6(a) or Article III, the Optional
      Prepayment Amount (as defined in Section 5.1) or (iii) any payments pursuant
      to
      Section 1.7, each in respect of the remaining outstanding principal amount
      of
      this Note to convert all or any part of the outstanding and unpaid principal
      amount of this Note into fully paid and non-assessable shares of Common Stock,
      as such Common Stock exists on the Issue Date, or any shares of capital stock
      or
      other securities of the Borrower into which such Common Stock shall hereafter
      be
      changed or reclassified at the conversion price  (the “Conversion Price”) determined
      as provided herein (a “Conversion”); provided,
however,
      that in no
      event shall the Holder be entitled to convert any portion of this Note in excess
      of that portion of this Note upon conversion of which the sum of (1) the number
      of shares of Common Stock beneficially owned by the Holder and its affiliates
      (other than shares of Common Stock which may be deemed beneficially owned
      through the ownership of the unconverted portion of the Notes or the unexercised
      or unconverted portion of any other security of the Borrower (including, without
      limitation, the warrants issued by the Borrower pursuant to the Purchase
      Agreement) subject to a limitation on conversion or exercise analogous to the
      limitations contained herein) and (2) the number of shares of Common Stock
      issuable upon the conversion of the portion of this Note with respect to which
      the determination of this proviso is being made, would result in beneficial
      ownership by the Holder and its affiliates of more than 4.9% of the outstanding
      shares of Common Stock.  For purposes of the proviso to the
      immediately preceding sentence, beneficial ownership shall be determined in
      accordance with Section 13(d) of the Securities Exchange Act of 1934, as
      amended, and Regulations 13D-G thereunder, except as otherwise provided in
      clause (1) of such proviso.  The number of shares of Common Stock to
      be issued upon each conversion of this Note shall be determined by dividing
      the
      Conversion Amount (as defined below) by the applicable Conversion Price then
      in
      effect on the date specified in the notice of conversion, in the form attached
      hereto as Exhibit A (the “Notice of Conversion”),
      delivered to the Borrower by the Holder in accordance with Section 1.4 below;
      provided that the Notice of Conversion is submitted by facsimile (or by other
      means resulting in, or reasonably expected to result in, notice) to the Borrower
      before 6:00 p.m., New York, New York time on such conversion date (the “Conversion
      Date”).  

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

       

      The
        term
“Conversion Amount”
means, with respect
        to any conversion of this Note, the sum of (1) the principal
        amount of this Note to be converted in such conversion plus (2) accrued
        and
        unpaid interest, if any, on such principal amount at the interest rates provided
        in this Note to the Conversion Date plus (3) Default
        Interest, if any, on the amounts referred to in the immediately preceding
        clauses (1) and/or (2) plus (4) at
        the
        Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and
        1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights
        Agreement, dated as of October 19, 2007, executed in connection with the
        initial
        issuance of this Note and the other Notes issued on the Issue Date (the “Registration Rights
        Agreement”).

    

     

    1.2  Conversion
      Price.

     

    (a)  Calculation
      of Conversion
      Price.  The
      Conversion
      Price shall be the lesser of (i) the Variable Conversion Price (as defined
      herein) and (ii) the Fixed Conversion Price (as defined herein) (subject, in
      each case, to equitable adjustments for stock splits, stock dividends or rights
      offerings by the Borrower relating to the Borrower’s securities or the
      securities of any subsidiary of the Borrower, combinations, recapitalization,
      reclassifications, extraordinary distributions and similar
      events).  The “Variable Conversion Price”
shall mean the Applicable
      Percentage (as defined herein) multiplied by the
      Market Price (as defined herein).  “Market Price” means the
      average of the lowest three (3) Trading Prices (as defined below) for the Common
      Stock during the twenty (20) Trading Day period ending one Trading Day prior
      to
      the date the Conversion Notice is sent by the Holder to the Borrower via
      facsimile (the “Conversion
      Date”).  “Trading Price” means, for
      any
      security as of any date, the intraday trading price on the Over-the-Counter
      Bulletin Board (the “OTCBB”) as reported by a
      reliable reporting service mutually acceptable to and hereafter designated
      by
      Holders of a majority in interest of the Notes and the Borrower or, if the
      OTCBB
      is not the principal trading market for such security, the intraday trading
      price of such security on the principal securities exchange or trading market
      where such security is listed or traded or, if no intraday trading price of
      such
      security is available in any of the foregoing manners, the average of the
      intraday trading prices of any market makers for such security that are listed
      in the “pink sheets” by the National Quotation Bureau, Inc.  If the
      Trading Price cannot be calculated for such security on such date in the manner
      provided above, the Trading Price shall be the fair market value as mutually
      determined by the Borrower and the holders of a majority in interest of the
      Notes being converted for which the calculation of the Trading Price is required
      in order to determine the Conversion Price of such Notes.  “Trading Day” shall mean any
      day on which the Common Stock is traded for any period on the OTCBB, or on
      the
      principal securities exchange or other securities market on which the Common
      Stock is then being traded.  “Applicable Percentage” shall
      mean 25%; provided, however, that the Applicable Percentage shall be increased
      to (i) 30% in the event that the Registration Statement (as defined in the
      Registration Rights Agreement) is filed on or before the Filing Date (as defined
      in the Registration Rights Agreement) and (ii) 40% in the event that the
      Registration Statement (as defined in the Registration Rights Agreement) becomes
      effective on or before the Effectiveness Deadline) as defined in the
      Registration Rights Agreement).  The “Fixed Conversion Price” shall
      mean $.02.

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (b)  Conversion
      Price During
      Major Announcements.  Notwithstanding
      anything contained in Section 1.2(a) to the contrary, in the event the Borrower
      (i) makes a public announcement that it intends to consolidate or merge with
      any
      other corporation (other than a merger in which the Borrower is the surviving
      or
      continuing corporation and its capital stock is unchanged) or sell or transfer
      all or substantially all of the assets of the Borrower or (ii) any person,
      group
      or entity (including the Borrower) publicly announces a tender offer to purchase
      50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the
      date of the announcement referred to in clause (i) or (ii) is hereinafter
      referred to as the  “Announcement Date”), then the
      Conversion Price shall, effective upon the Announcement Date and continuing
      through the Adjusted Conversion Price Termination Date (as defined below),
      be
      equal to the lower of (x) the Conversion Price which would have been applicable
      for a Conversion occurring on the Announcement Date and (y) the Conversion
      Price
      that would otherwise be in effect. From and after the Adjusted Conversion Price
      Termination Date, the Conversion Price shall be determined as set forth in
      this
      Section 1.2(a).  For purposes hereof,  “Adjusted Conversion Price
      Termination
      Date” shall mean, with respect to any proposed transaction or tender
      offer (or takeover scheme) for which a public announcement as contemplated
      by
      this Section 1.2(b) has been made, the date upon which the Borrower (in the
      case
      of clause (i) above) or the person, group or entity (in the case of clause
      (ii)
      above) consummates or publicly announces the termination or abandonment of
      the
      proposed transaction or tender offer (or takeover scheme) which caused this
      Section 1.2(b) to become operative.

     

    1.3  Authorized
      Shares.  Subject
      to the
      completion of the Charter Amendment Actions (as defined in the Purchase
      Agreement), the Borrower covenants that during the period the conversion right
      exists, the Borrower will reserve from its authorized and unissued Common Stock
      a sufficient number of shares, free from preemptive rights, to provide for
      the
      issuance of Common Stock upon the full conversion of this Note and the other
      Notes issued pursuant to the Purchase Agreement.  The Borrower is
      required at all times to have authorized and reserved two times the number
      of
      shares that is actually issuable upon full conversion of the Notes (based on
      the
      Conversion Price of the Notes or the Exercise Price of the Warrants in effect
      from time to time) (the “Reserved
      Amount”).  The Reserved Amount shall be increased from time to
      time in accordance with the Borrower’s obligations pursuant to Section 4(h) of
      the Purchase Agreement.  The Borrower represents that upon issuance,
      such shares will be duly and validly issued, fully paid and
      non-assessable.  In addition, if the Borrower shall issue any
      securities or make any change to its capital structure which would change the
      number of shares of Common Stock into which the Notes shall be convertible
      at
      the then current Conversion Price, the Borrower shall at the same time make
      proper provision so that thereafter there shall be a sufficient number of shares
      of Common Stock authorized and reserved, free from preemptive rights, for
      conversion of the outstanding Notes.  The Borrower (i) acknowledges
      that it has irrevocably instructed its transfer agent to issue certificates
      for
      the Common Stock issuable upon conversion of this Note, and (ii) agrees
      that its issuance of this Note shall constitute full authority to its officers
      and agents who are charged with the duty of executing stock certificates to
      execute and issue the necessary certificates for shares of Common Stock in
      accordance with the terms and conditions of this Note.

     

    If,
      at
      any time a Holder of this Note submits a Notice of Conversion, and the Borrower
      does not have sufficient authorized but unissued shares of Common Stock
      available to effect such conversion in accordance with the provisions of this
      Article I (a “Conversion
      Default”), subject to Section 4.8, the Borrower shall issue to the Holder
      all of the shares of Common Stock which are then available to effect such
      conversion. 

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

       

       

      The
        portion of this Note which the Holder included in its Conversion Notice and
        which exceeds the amount which is then convertible into available shares
        of
        Common Stock (the “Excess
        Amount”) shall, notwithstanding anything to the contrary contained
        herein, not be convertible into Common Stock in accordance with the terms
        hereof
        until (and at the Holder’s option at any time after) the date additional shares
        of Common Stock are authorized by the Borrower to permit such conversion,
        at
        which time the Conversion Price in respect thereof shall be the lesser of
        (i)
        the Conversion Price on the Conversion Default Date (as defined below) and
        (ii)
        the Conversion Price on the Conversion Date thereafter elected by the Holder
        in
        respect thereof.  In addition, the Borrower shall pay to the Holder
        payments (“Conversion Default
        Payments”) for a Conversion Default in the amount of (x) the sum of
        (1) the then
        outstanding principal amount of this Note plus (2) accrued
        and
        unpaid interest on the unpaid principal amount of this Note through the
        Authorization Date (as defined below) plus (3) Default
        Interest, if any, on the amounts referred to in clauses (1) and/or (2), multiplied by (y)
        .24, multiplied
        by (z) (N/365), where N = the number of days from the day the holder
        submits a Notice of Conversion giving rise to a Conversion Default (the “Conversion Default Date”) to
        the date (the “Authorization
        Date”) that the Borrower authorizes a sufficient number of shares of
        Common Stock to effect conversion of the full outstanding principal balance
        of
        this Note.  The Borrower shall use its best efforts to authorize a
        sufficient number of shares of Common Stock as soon as practicable following
        the
        earlier of (i) such time that the Holder notifies the Borrower or that the
        Borrower otherwise becomes aware that there are or likely will be insufficient
        authorized and unissued shares to allow full conversion thereof and (ii)
        a
        Conversion Default.  The Borrower shall send notice to the Holder of
        the authorization of additional shares of Common Stock, the Authorization
        Date
        and the amount of Holder’s accrued Conversion Default Payments.  The
        accrued Conversion Default Payments for each calendar month shall be paid
        in
        cash or shall be convertible into Common Stock (at such time as there are
        sufficient authorized shares of Common Stock) at the applicable Conversion
        Price, at the Borrower’s option, as follows:

    

     

    (a)  In
      the
      event the Borrower elects to make such payment in cash, cash payment shall
      be
      made to Holder by the fifth (5th)
      day of the month
      following the month in which it has accrued; and

     

    

    (b)   In
      the event the Borrower elects to make such payment in Common Stock, the Holder
      may convert such payment amount into Common Stock at the Conversion Price (as
      in
      effect at the time of conversion) at any time after the fifth day of the month
      following the month in which it has accrued in accordance with the terms of
      this
      Article I (so long as there is then a sufficient number of authorized shares
      of
      Common Stock).

     

    

    The
      Borrower’s election shall be made in writing to the Holder at any time prior to
      6:00 p.m., New York, New York time, on the third day of the month following
      the
      month in which Conversion Default payments have accrued.  If no
      election is made, the Borrower shall be deemed to have elected to remit Common
      Stock.  Nothing herein shall limit the Holder’s right to pursue actual
      damages (to the extent in excess of the Conversion Default Payments) for the
      Borrower’s failure to maintain a sufficient number of authorized shares of
      Common Stock, and each holder shall have the right to pursue all remedies
      available at law or in equity (including degree of specific performance and/or
      injunctive relief).

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    1.4  Method
      of
      Conversion.

     

    (a)  Mechanics
      of
      Conversion.  Subject
      to
      Section 1.1, this Note may be converted by the Holder in whole or in part at
      any
      time from time to time after the Issue Date, by (A) submitting to the
      Borrower a Notice of Conversion (by facsimile or other reasonable means of
      communication dispatched on the Conversion Date prior to 6:00 p.m., New York,
      New York time) and (B) subject to Section 1.4(b), surrendering this Note at
      the principal office of the Borrower.

     

    (b)  Surrender
      of Note Upon
      Conversion.  Notwithstanding
      anything to the contrary set forth herein, upon conversion of this Note in
      accordance with the terms hereof, the Holder shall not be required to physically
      surrender this Note to the Borrower unless the entire unpaid principal amount
      of
      this Note is so converted.  The Holder and the Borrower shall maintain
      records showing the principal amount so converted and the dates of such
      conversions or shall use such other method, reasonably satisfactory to the
      Holder and the Borrower, so as not to require physical surrender of this Note
      upon each such conversion.  In the event of any dispute or
      discrepancy, such records of the Borrower shall be controlling and determinative
      in the absence of manifest error.  Notwithstanding the foregoing, if
      any portion of this Note is converted as aforesaid, the Holder may not transfer
      this Note unless the Holder first physically surrenders this Note to the
      Borrower, whereupon the Borrower will forthwith issue and deliver upon the
      order
      of the Holder a new Note of like tenor, registered as the Holder (upon payment
      by the Holder of any applicable transfer taxes) may request, representing in
      the
      aggregate the remaining unpaid principal amount of this Note.  The
      Holder and any assignee, by acceptance of this Note, acknowledge and agree
      that,
      by reason of the provisions of this paragraph, following conversion of a portion
      of this Note, the unpaid and unconverted principal amount of this Note
      represented by this Note may be less than the amount stated on the face
      hereof.

     

    (c)  Payment
      of
      Taxes.  The
      Borrower
      shall not be required to pay any tax which may be payable in respect of any
      transfer involved in the issue and delivery of shares of Common Stock or other
      securities or property on conversion of this Note in a name other than that
      of
      the Holder (or in street name), and the Borrower shall not be required to issue
      or deliver any such shares or other securities or property unless and until
      the
      person or persons (other than the Holder or the custodian in whose street name
      such shares are to be held for the Holder’s account) requesting the issuance
      thereof shall have paid to the Borrower the amount of any such tax or shall
      have
      established to the satisfaction of the Borrower that such tax has been
      paid.

     

    (d)  Delivery
      of Common Stock
      Upon Conversion.  Upon
      receipt by
      the Borrower from the Holder of a facsimile transmission (or other reasonable
      means of communication) of a Notice of Conversion meeting the requirements
      for
      conversion as provided in this Section 1.4, the Borrower shall issue and deliver
      or cause to be issued and delivered to or upon the order of the Holder
      certificates for the Common Stock issuable upon such conversion within five
      (5)
      business days after such receipt (and, solely in the case of conversion of
      the
      entire unpaid principal amount hereof, surrender of this Note) (such second
      business day being hereinafter referred to as the “Deadline”) in accordance with
      the terms hereof and the Purchase Agreement (including, without limitation,
      in
      accordance with the requirements of Section 2(g) of the Purchase Agreement
      that
      certificates for shares of Common Stock issued on or after the effective date
      of
      the Registration Statement upon conversion of this Note shall not bear any
      restrictive legend).

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (e)  Obligation
      of Borrower to
      Deliver Common Stock.  Upon
      receipt by
      the Borrower of a Notice of Conversion, the Holder shall be deemed to be the
      holder of record of the Common Stock issuable upon such conversion, the
      outstanding principal amount and the amount of accrued and unpaid interest
      on
      this Note shall be reduced to reflect such conversion, and, unless the Borrower
      defaults on its obligations under this Article I, all rights with respect to
      the
      portion of this Note being so converted shall forthwith terminate except the
      right to receive the Common Stock or other securities, cash or other assets,
      as
      herein provided, on such conversion.  If the Holder shall have given a
      Notice of Conversion as provided herein, the Borrower’s obligation to issue and
      deliver the certificates for Common Stock shall be absolute and unconditional,
      irrespective of the absence of any action by the Holder to enforce the same,
      any
      waiver or consent with respect to any provision thereof, the recovery of any
      judgment against any person or any action to enforce the same, any failure
      or
      delay in the enforcement of any other obligation of the Borrower to the holder
      of record, or any setoff, counterclaim, recoupment, limitation or termination,
      or any breach or alleged breach by the Holder of any obligation to the Borrower,
      and irrespective of any other circumstance which might otherwise limit such
      obligation of the Borrower to the Holder in connection with such
      conversion.  The Conversion Date specified in the Notice of Conversion
      shall be the Conversion Date so long as the Notice of Conversion is received
      by
      the Borrower before 6:00 p.m., New York, New York time, on such
      date.

     

    (f)  Delivery
      of Common Stock by
      Electronic Transfer.  In lieu
      of
      delivering physical certificates representing the Common Stock issuable upon
      conversion, provided the Borrower’s transfer agent is participating in the
      Depository Trust Company (“DTC”) Fast Automated
      Securities Transfer (“FAST”) program, upon request
      of the Holder and its compliance with the provisions contained in Section 1.1
      and in this Section 1.4, the Borrower shall use its best efforts to cause its
      transfer agent to electronically transmit the Common Stock issuable upon
      conversion to the Holder by crediting the account of Holder’s Prime Broker with
      DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

     

    (g)  Failure
      to Deliver Common
      Stock Prior to Deadline.  Without
      in any
      way limiting the Holder’s right to pursue other remedies, including actual
      damages and/or equitable relief, the parties agree that if delivery of the
      Common Stock issuable upon conversion of this Note is more than two (2) days
      after the Deadline (other than a failure due to the circumstances described
      in
      Section 1.3 above, which failure shall be governed by such Section) the Borrower
      shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline
      that the Borrower fails to deliver such Common Stock.  Such cash
      amount shall be paid to Holder by the fifth day of the month following the
      month
      in which it has accrued or, at the option of the Holder (by written notice
      to
      the Borrower by the first day of the month following the month in which it
      has
      accrued), shall be added to the principal amount of this Note, in which event
      interest shall accrue thereon in accordance with the terms of this Note and
      such
      additional principal amount shall be convertible into Common Stock in accordance
      with the terms of this Note.

     

    1.5  Concerning
      the
      Shares.  The
      shares of
      Common Stock issuable upon conversion of this Note may not be sold or
      transferred unless  (i) such shares are sold pursuant to an effective
      registration statement under the Act or (ii) the Borrower or its transfer agent
      shall have been furnished with an opinion of  counsel (which opinion
      shall be in form, substance and scope customary for opinions of counsel in
      comparable transactions) to the effect that the shares to be sold or transferred
      may be sold or transferred pursuant to an exemption from such registration
      or
      (iii) such shares are sold or transferred pursuant to Rule 144 under the
      Act (or a successor rule) (“Rule 144”) or (iv) such shares
      are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who
      agrees to sell or otherwise transfer the shares only in accordance with this
      Section 1.5 and who is an Accredited Investor (as defined in the Purchase
      Agreement).  

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

       

      Except
        as
        otherwise provided in the Purchase Agreement (and subject to the removal
        provisions set forth below), until such time as the shares of Common Stock
        issuable upon conversion of this Note have been registered under the Act
        as
        contemplated by the Registration Rights Agreement or otherwise may be sold
        pursuant to Rule 144 without any restriction as to the number of securities
        as
        of a particular date that can then be immediately sold, each certificate
        for
        shares of Common Stock issuable upon conversion of this Note that has not
        been
        so included in an effective registration statement or that has not been sold
        pursuant to an effective registration statement or an exemption that permits
        removal of the legend, shall bear a legend substantially in the following
        form,
        as appropriate:

    

     

    
      “THE
        SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
        THE
        SECURITIES ACT OF 1933, AS AMENDED.  THE SECURITIES MAY NOT BE SOLD,
        TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
        FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
        AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT
        REGISTRATION IS NOT REQUIRED UNDER SAID ACT  UNLESS SOLD PURSUANT TO
        RULE 144 OR REGULATION S UNDER SAID ACT.”

    

     

    The
      legend set forth above shall be removed and the Borrower shall issue to the
      Holder a new certificate therefor free of any transfer legend if (i) the
      Borrower or its transfer agent shall have received an opinion of counsel, in
      form, substance and scope customary for opinions of counsel in comparable
      transactions, to the effect that a public sale or transfer of such Common Stock
      may be made without registration under the Act and the shares are so sold or
      transferred, (ii) such Holder provides the Borrower or its transfer agent with
      reasonable assurances that the Common Stock issuable upon conversion of this
      Note (to the extent such securities are deemed to have been acquired on the
      same
      date) can be sold pursuant to Rule 144 or (iii) in the case of the Common Stock
      issuable upon conversion of this Note, such security is registered for sale
      by
      the Holder under an effective registration statement filed under the Act or
      otherwise may be sold pursuant to Rule 144 without any restriction as to the
      number of securities as of a particular date that can then be immediately
      sold.  Nothing in this Note shall (i) limit the Borrower’s obligation
      under the Registration Rights Agreement or (ii) affect in any way the Holder’s
      obligations to comply with applicable prospectus delivery requirements upon
      the
      resale of the securities referred to herein.

     

    1.6  Effect
      of Certain
      Events.

     

    (a)  Effect
      of Merger,
      Consolidation, Etc.  At the
      option of
      the Holder, the sale, conveyance or disposition of all or substantially all
      of
      the assets of the Borrower, the effectuation by the Borrower of a transaction
      or
      series of related transactions in which more than 50% of the voting power of
      the
      Borrower is disposed of, or the consolidation, merger or other business
      combination of the Borrower with or into any other Person (as defined below)
      or
      Persons when the Borrower is not the survivor shall
      either:  

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

       

       

      (i)
        be
        deemed to be an Event of Default (as defined in Article III) pursuant to
        which
        the Borrower shall be required to pay to the Holder upon the consummation
        of and
        as a condition to such transaction an amount equal to the Default Amount
        (as
        defined in Article III) or (ii) be treated pursuant to Section 1.6(b)
        hereof.  “Person” shall mean any
        individual, corporation, limited liability company, partnership, association,
        trust or other entity or organization.

    

     

    (b)  Adjustment
      Due to Merger,
      Consolidation, Etc.  If,
      at any time
      when this Note is issued and outstanding and prior to conversion of all of
      the
      Notes, there shall be any merger, consolidation, exchange of shares,
      recapitalization, reorganization, or other similar event, as a result of which
      shares of Common Stock of the Borrower shall be changed into the same or a
      different number of shares of another class or classes of stock or securities
      of
      the Borrower or another entity, or in case of any sale or conveyance of all
      or
      substantially all of the assets of the Borrower other than in connection with
      a
      plan of complete liquidation of the Borrower, then the Holder of this Note
      shall
      thereafter have the right to receive upon conversion of this Note, upon the
      basis and upon the terms and conditions specified herein and in lieu of the
      shares of Common Stock immediately theretofore issuable upon conversion, such
      stock, securities or assets which the Holder would have been entitled to receive
      in such transaction had this Note been converted in full immediately prior
      to
      such transaction (without regard to any limitations on conversion set forth
      herein), and in any such case appropriate provisions shall be made with respect
      to the rights and interests of the Holder of this Note to the end that the
      provisions hereof (including, without limitation, provisions for adjustment
      of
      the Conversion Price and of the number of shares issuable upon conversion of
      the
      Note) shall thereafter be applicable, as nearly as may be practicable in
      relation to any securities or assets thereafter deliverable upon the conversion
      hereof.  The Borrower shall not effect any transaction described in
      this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty
      (30) days prior written notice (but in any event at least fifteen (15) days
      prior written notice) of the record date of the special meeting of shareholders
      to approve, or if there is no such record date, the consummation of, such
      merger, consolidation, exchange of shares, recapitalization, reorganization
      or
      other similar event or sale of assets (during which time the Holder shall be
      entitled to convert this Note) and (b) the resulting successor or acquiring
      entity (if not the Borrower) assumes by written instrument the obligations
      of
      this Section 1.6(b).  The above provisions shall similarly apply to
      successive consolidations, mergers, sales, transfers or share
      exchanges.

     

    (c)  Adjustment
      Due to
      Distribution.  If the
      Borrower
      shall declare or make any distribution of its assets (or rights to acquire
      its
      assets) to holders of Common Stock as a dividend, stock repurchase, by way
      of
      return of capital or otherwise (including any dividend or distribution to the
      Borrower’s shareholders in cash or shares (or rights to acquire shares) of
      capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the
      Holder of this Note shall be entitled, upon any conversion of this Note after
      the date of record for determining shareholders entitled to such Distribution,
      to receive the amount of such assets which would have been payable to the Holder
      with respect to the shares of Common Stock issuable upon such conversion had
      such Holder been the holder of such shares of Common Stock on the record date
      for the determination of shareholders entitled to such
      Distribution.

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

     

    (d)  Adjustment
      Due to Dilutive
      Issuance.  If,
      at any time
      when any Notes are issued and outstanding, the Borrower issues or sells, or
      in
      accordance with this Section 1.6(d) hereof is deemed to have issued or sold,
      any
      shares of Common Stock for no consideration or for a consideration per share
      (before deduction of reasonable expenses or commissions or underwriting
      discounts or allowances in connection therewith) less than the Fixed Conversion
      Price in effect on the date of such issuance (or deemed issuance) of such shares
      of Common Stock (a “Dilutive
      Issuance”), then immediately upon the Dilutive Issuance, the Fixed
      Conversion Price will be reduced to the amount of the consideration per share
      received by the Borrower in such Dilutive Issuance; provided that only
      one adjustment will be made for each Dilutive Issuance.

     

    The
      Borrower shall be deemed to have issued or sold shares of Common Stock if the
      Borrower in any manner issues or grants any warrants, rights or options, whether
      or not immediately exercisable, to subscribe for or to purchase Common Stock
      or
      other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such
      warrants, rights and options to purchase Common Stock or Convertible Securities
      are hereinafter referred to as “Options”) and the price per
      share for which Common Stock is issuable upon the exercise of such Options
      is
      less than the Fixed Conversion Price then in effect, then the Fixed Conversion
      Price shall be equal to such price per share.  For purposes of the
      preceding sentence, the “price per share for which Common Stock is issuable upon
      the exercise of such Options” is determined by dividing (i) the total amount, if
      any, received or receivable by the Borrower as consideration for the issuance
      or
      granting of all such Options, plus the minimum aggregate amount of additional
      consideration, if any, payable to the Borrower upon the exercise of all such
      Options, plus, in the case of Convertible Securities issuable upon the exercise
      of such Options, the minimum aggregate amount of additional consideration
      payable upon the conversion or exchange thereof at the time such Convertible
      Securities first become convertible or exchangeable, by (ii) the maximum total
      number of shares of Common Stock issuable upon the exercise of all such Options
      (assuming full conversion of Convertible Securities, if
      applicable).  No further adjustment to the Conversion Price will be
      made upon the actual issuance of such Common Stock upon the exercise of such
      Options or upon the conversion or exchange of Convertible Securities issuable
      upon exercise of such Options.

     

    Additionally,
      the Borrower shall be deemed to have issued or sold shares of Common Stock
      if
      the Borrower in any manner issues or sells any Convertible Securities, whether
      or not immediately convertible (other than where the same are issuable upon
      the
      exercise of Options), and the price per share for which Common Stock is issuable
      upon such conversion or exchange is less than the Fixed Conversion Price then
      in
      effect, then the Fixed Conversion Price shall be equal to such price per
      share.  For the purposes of the preceding sentence, the “price per
      share for which Common Stock is issuable upon such conversion or exchange” is
      determined by dividing (i) the total amount, if any, received or receivable
      by
      the Borrower as consideration for the issuance or sale of all such Convertible
      Securities, plus the minimum aggregate amount of additional consideration,
      if
      any, payable to the Borrower upon the conversion or exchange thereof at the
      time
      such Convertible Securities first become convertible or exchangeable, by (ii)
      the maximum total number of shares of Common Stock issuable upon the conversion
      or exchange of all such Convertible Securities.  No further adjustment
      to the Fixed Conversion Price will be made upon the actual issuance of such
      Common Stock upon conversion or exchange of such Convertible
      Securities.

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

     

    (e)  Purchase
      Rights.  If,
      at any time
      when any Notes are issued and outstanding, the Borrower issues any convertible
      securities or rights to purchase stock, warrants, securities or other property
      (the “Purchase Rights”)
      pro rata to the record holders of any class of Common Stock, then the Holder
      of
      this Note will be entitled to acquire, upon the terms applicable to such
      Purchase Rights, the aggregate Purchase Rights which such Holder could have
      acquired if such Holder had held the number of shares of Common Stock acquirable
      upon complete conversion of this Note (without regard to any limitations on
      conversion contained herein) immediately before the date on which a record
      is
      taken for the grant, issuance or sale of such Purchase Rights or, if no such
      record is taken, the date as of which the record holders of Common Stock are
      to
      be determined for the grant, issue or sale of such Purchase Rights.

     

    (f)  Notice
      of
      Adjustments.  Upon
      the
      occurrence of each adjustment or readjustment of the Conversion Price as a
      result of the events described in this Section 1.6, the Borrower, at its
      expense, shall promptly compute such adjustment or readjustment and prepare
      and
      furnish to the Holder of a certificate setting forth such adjustment or
      readjustment and showing in detail the facts upon which such adjustment or
      readjustment is based.  The Borrower shall, upon the written request
      at any time of the Holder, furnish to such Holder a like certificate setting
      forth (i) such adjustment or readjustment, (ii) the Conversion Price at the
      time
      in effect and (iii) the number of shares of Common Stock and the amount, if
      any,
      of other securities or property which at the time would be received upon
      conversion of the Note.

     

    1.7  Trading
      Market
      Limitations.
Unless
      permitted by the applicable rules and regulations of the principal
      securities market on which the Common Stock is then listed or traded, in no
      event shall the Borrower issue upon conversion of or otherwise pursuant to
      this
      Note and the other Notes issued pursuant to the Purchase Agreement more than
      the
      maximum number of shares of Common Stock that the Borrower can issue pursuant
      to
      any rule of the principal United States securities market on which the Common
      Stock is then traded (the “Maximum Share Amount”), which
      shall be 19.99% of the total shares outstanding on the Closing Date (as defined
      in the Purchase Agreement), subject to equitable adjustment from time to time
      for stock splits, stock dividends, combinations, capital reorganizations and
      similar events relating to the Common Stock occurring after the date
      hereof.  Once the Maximum Share Amount has been issued (the date of
      which is hereinafter referred to as the “Maximum Conversion Date”), if
      the Borrower fails to eliminate any prohibitions under applicable law or the
      rules or regulations of any stock exchange, interdealer quotation system or
      other self-regulatory organization with jurisdiction over the Borrower or any
      of
      its securities on the Borrower’s ability to issue shares of Common Stock in
      excess of the Maximum Share Amount (a “Trading Market Prepayment
      Event”), in lieu of any further right to convert this Note, and in full
      satisfaction of the Borrower’s obligations under this Note, the Borrower shall
      pay to the Holder, within fifteen (15) business days of the Maximum Conversion
      Date (the “Trading Market
      Prepayment Date”), an amount equal to 130% times the
sum
      of (a) the then
      outstanding principal amount of this Note immediately following the Maximum
      Conversion Date, plus (b) accrued
      and
      unpaid interest on the unpaid principal amount of this Note to the Trading
      Market Prepayment Date, plus (c) Default
      Interest, if any, on the amounts referred to in clause (a) and/or (b) above,
      plus (d) any
      optional amounts that may be added thereto at the Maximum Conversion Date by
      the
      Holder in accordance with the terms hereof (the then outstanding principal
      amount of this Note immediately following the Maximum Conversion Date, plus the amounts
      referred to in clauses (b), (c) and (d) above shall collectively be referred
      to
      as the “Remaining Convertible
      Amount”).  

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

       

       

      With
        respect to each Holder of Notes, the Maximum Share Amount shall refer to
        such
        Holder’s prorata
        share thereof
        determined in accordance with Section 4.8 below.  In the event that
        the sum of (x) the aggregate number of shares of Common Stock issued upon
        conversion of this Note and the other Notes issued pursuant to the Purchase
        Agreement plus
        (y) the aggregate number of shares of Common Stock that remain issuable upon
        conversion of this Note and the other Notes issued pursuant to the Purchase
        Agreement, represents at least one hundred percent (100%) of the Maximum
        Share
        Amount (the “Triggering
        Event”), the Borrower will use its best efforts to seek and obtain
        Shareholder Approval (or obtain such other relief as will allow conversions
        hereunder in excess of the Maximum Share Amount) as soon as practicable
        following the Triggering Event and before the Maximum Conversion
        Date.  As used herein, “Shareholder Approval” means
        approval by the shareholders of the Borrower to authorize the issuance of
        the
        full number of shares of Common Stock which would be issuable upon full
        conversion of the then outstanding Notes but for the Maximum Share
        Amount.

    

     

    1.8  Status
      as
      Shareholder.  Upon
      submission
      of a Notice of Conversion by a Holder, (i) the shares covered thereby (other
      than the shares, if any, which cannot be issued because their issuance would
      exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share
      Amount) shall be deemed converted into shares of Common Stock and (ii) the
      Holder’s rights as a Holder of such converted portion of this Note shall cease
      and terminate, excepting only the right to receive certificates for such shares
      of Common Stock and to any remedies provided herein or otherwise available
      at
      law or in equity to such Holder because of a failure by the Borrower to comply
      with the terms  of this Note.  Notwithstanding the
      foregoing, if a Holder has not received certificates for all shares of Common
      Stock prior to the tenth (10th) business day after the expiration of the
      Deadline with respect to a conversion of any portion of this Note for any
      reason, then (unless the Holder otherwise elects to retain its status as a
      holder of Common Stock by so notifying the Borrower) the Holder shall regain
      the
      rights of a Holder of this Note with respect to such unconverted portions of
      this Note and the Borrower shall, as soon as practicable, return such
      unconverted Note to the Holder or, if the Note has not been surrendered, adjust
      its records to reflect that such portion of this Note has not been
      converted.  In all cases, the Holder shall retain all of its rights
      and remedies (including, without limitation, (i) the right to receive Conversion
      Default Payments pursuant to Section 1.3 to the extent required thereby for
      such
      Conversion Default and any subsequent Conversion Default and (ii) the right
      to
      have the Conversion Price with respect to subsequent conversions determined
      in
      accordance with Section 1.3) for the Borrower’s failure to convert this
      Note.

     

     

    ARTICLE
      II.   CERTAIN COVENANTS

     

    2.1  Distributions
      on Capital
      Stock.  So long
      as the
      Borrower shall have any obligation under this Note, the Borrower shall not
      without the Holder’s written consent (a) pay, declare or set apart for such
      payment, any dividend or other distribution (whether in cash, property or other
      securities) on shares of capital stock other than dividends on shares of Common
      Stock solely in the form of additional shares of Common Stock or (b) directly
      or
      indirectly or through any subsidiary make any other payment or distribution
      in
      respect of its capital stock except for distributions pursuant to any
      shareholders’ rights plan which is approved by a majority of the Borrower’s
      disinterested directors.

     

     

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    2.2  Restriction
      on Stock
      Repurchases.  So long
      as the
      Borrower shall have any obligation under this Note, the Borrower shall not
      without the Holder’s written consent redeem, repurchase or otherwise acquire
      (whether for cash or in exchange for property or other securities or otherwise)
      in any one transaction or series of related transactions any shares of capital
      stock of the Borrower or any warrants, rights or options to purchase or acquire
      any such shares.

     

    2.3  Borrowings.  So
      long as the
      Borrower shall have any obligation under this Note, the Borrower shall not,
      without the Holder’s written consent, create, incur, assume or suffer to exist
      any liability for borrowed money in excess of $50,000, except (a) borrowings
      in
      existence or committed on the date hereof and of which the Borrower has informed
      Holder in writing prior to the date hereof, (b) indebtedness to trade creditors
      or financial institutions incurred in the ordinary course of business or (c)
      borrowings, the proceeds of which shall be used to repay this Note.

     

    2.4  Sale
      of
      Assets.  So long
      as the
      Borrower shall have any obligation under this Note, the Borrower shall not,
      without the Holder’s written consent, sell, lease or otherwise dispose of any
      significant portion of its assets outside the ordinary course of
      business.  Any consent to the disposition of any assets may be
      conditioned on a specified use of the proceeds of disposition.

     

    2.5  Advances
      and
      Loans.  So long
      as the
      Borrower shall have any obligation under this Note, the Borrower shall not,
      without the Holder’s written consent, lend money, give credit or make advances
      to any person, firm, joint venture or corporation, including, without
      limitation, officers, directors, employees, subsidiaries and affiliates of
      the
      Borrower, except loans, credits or advances (a) in existence or committed on
      the
      date hereof and which the Borrower has informed Holder in writing prior to
      the
      date hereof, (b) made in the ordinary course of business or (c) not in excess
      of
      $50,000.

     

    2.6  Contingent
      Liabilities.  So long
      as the
      Borrower shall have any obligation under this Note, the Borrower shall not,
      without the Holder’s written consent, assume, guarantee, endorse, contingently
      agree to purchase or otherwise become liable upon the obligation of any person,
      firm, partnership, joint venture or corporation, except by the endorsement
      of
      negotiable instruments for deposit or collection and except assumptions,
      guarantees, endorsements and contingencies (a) in existence or committed on
      the
      date hereof and which the Borrower has informed Holder in writing prior to
      the
      date hereof, and (b) similar transactions in the ordinary course of
      business.

     

     

    ARTICLE
      III.   EVENTS OF DEFAULT

     

    If
      any of
      the following events of default (each, an “Event of Default”) shall
      occur:

     

    3.1  Failure
      to Pay Principal or
Interest.  The
      Borrower
      fails to pay the principal hereof or interest thereon when due on this Note,
      whether at maturity, upon a Trading Market Prepayment Event pursuant to Section
      1.7, upon acceleration or otherwise;

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

     

    3.2  Conversion
      and the
      Shares.  The
      Borrower
      fails to issue shares of Common Stock to the Holder (or announces or threatens
      that it will not honor its obligation to do so) upon exercise by the Holder
      of
      the conversion rights of the Holder in accordance with the terms of this Note
      (for a period of at least sixty (60) days, if such failure is solely as a result
      of the circumstances governed by Section 1.3 and the Borrower is using its
      best
      efforts to authorize a sufficient number of shares of Common Stock as soon
      as
      practicable), fails to transfer or cause its transfer agent to transfer
      (electronically or in certificated form) any certificate for shares of Common
      Stock issued to the Holder upon conversion of or otherwise pursuant to this
      Note
      as and when required by this Note or the Registration Rights Agreement, or
      fails
      to remove any restrictive legend (or to withdraw any stop transfer instructions
      in respect thereof) on any certificate for any shares of Common Stock issued
      to
      the Holder upon conversion of or otherwise pursuant to this Note as and when
      required by this Note or the Registration Rights Agreement (or makes any
      announcement, statement or threat that it does not intend to honor the
      obligations described in this paragraph) and any such failure shall continue
      uncured (or any announcement, statement or threat not to honor its obligations
      shall not be rescinded in writing) for ten (10) days after the Borrower shall
      have been notified thereof in writing by the Holder;

     

    3.3  Failure
      to Timely File
      Registration or Effect Registration.  The
      Borrower
      fails to file the Registration Statement within sixty (60) days following the
      Closing Date (as defined in the Purchase Agreement) or obtain effectiveness
      with
      the Securities and Exchange Commission of the Registration Statement within
      two
      hundred fifty (250) days following the Closing Date (as defined in the Purchase
      Agreement) or such Registration Statement lapses in effect (or sales cannot
      otherwise be made thereunder effective, whether by reason of the Borrower’s
      failure to amend or supplement the prospectus included therein in accordance
      with the Registration Rights Agreement or otherwise) for more than twenty (20)
      consecutive days or forty (40) days in any twelve month period after the
      Registration Statement becomes effective;

     

    3.4  Breach
      of
      Covenants.  The
      Borrower
      breaches any material covenant or other material term or condition contained
      in
      Sections 1.3, 1.6 or 1.7 of this Note, or Sections 4(c), 4(e), 4(h), 4(i),
      4(j)
      or 5 of the Purchase Agreement and such breach continues for a period of ten
      (10) days after written notice thereof to the Borrower from the
      Holder;

     

    3.5  Breach
      of Representations
      and Warranties.  Any
      representation or warranty of the Borrower made herein or in any agreement,
      statement or certificate given in writing pursuant hereto or in connection
      herewith (including, without limitation, the Purchase Agreement and the
      Registration Rights Agreement), shall be false or misleading in any material
      respect when made and the breach of which has (or with the passage of time
      will
      have) a material adverse effect on the rights of the Holder with respect to
      this
      Note, the Purchase Agreement or the Registration Rights Agreement;

     

    3.6  Receiver
      or
      Trustee.  The
      Borrower or
      any subsidiary of the Borrower shall make an assignment for the benefit of
      creditors, or apply for or consent to the appointment of a receiver or trustee
      for it or for a substantial part of its property or business, or such a receiver
      or trustee shall otherwise be appointed;

     

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

     

    3.7  Judgments.  Any
      money
      judgment, writ or similar process shall be entered or filed against the Borrower
      or any subsidiary of the Borrower or any of its property or other assets for
      more than $50,000, and shall remain unvacated, unbonded or unstayed for a period
      of twenty (20) days unless otherwise consented to by the Holder, which consent
      will not be unreasonably withheld;

     

    3.8  Bankruptcy.  Bankruptcy,
      insolvency, reorganization or liquidation proceedings or other proceedings
      for
      relief under any bankruptcy law or any law for the relief of debtors shall
      be
      instituted by or against the Borrower or any subsidiary of the
      Borrower;

     

    3.9  Delisting
      of Common
      Stock.  The
      Borrower
      shall fail to maintain the listing of the Common Stock on at least one of the
      OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the
      Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock
      Exchange; or

     

    3.10  Default
      Under Other
      Notes.  An Event
      of
      Default has occurred and is continuing under any of the other Notes issued
      pursuant to the Purchase Agreement, then, upon the occurrence and during the
      continuation of any Event of Default specified in Section 3.1, 3.2, 3.3, 3.4,
      3.5, 3.7, 3.9, or 3.10, at the option of the Holders of a majority of the
      aggregate principal amount of the outstanding Notes issued pursuant to the
      Purchase Agreement exercisable through the delivery of written notice to the
      Borrower by such Holders (the “Default Notice”), and upon the
      occurrence of an Event of Default specified in Section 3.6 or 3.8, the Notes
      shall become immediately due and payable and the Borrower shall pay to the
      Holder, in full satisfaction of its obligations hereunder, an amount equal
      to
      the greater of (i) 130% times the sum
      of (w) the then
      outstanding principal amount of this Note plus (x) accrued
      and
      unpaid interest on the unpaid principal amount of this Note to the date of
      payment (the “Mandatory
      Prepayment Date”) plus (y)
      Default
      Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any
      amounts
      owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to
      Section 2(c) of the Registration Rights Agreement (the then outstanding
      principal amount of this Note to the date of payment plus the amounts
      referred to in clauses (x), (y) and (z) shall collectively be known as the
      “Default Sum”) or (ii)
      the “parity value” of the Default Sum to be prepaid, where parity value means
      (a) the highest number of shares of Common Stock issuable upon conversion of
      or
      otherwise pursuant to such Default Sum in accordance with Article I, treating
      the Trading Day immediately preceding the Mandatory Prepayment Date as the
      “Conversion Date” for purposes of determining the lowest applicable Conversion
      Price, unless the Default Event arises as a result of a breach in respect of
      a
      specific Conversion Date in which case such Conversion Date shall be the
      Conversion Date), multiplied by (b) the
      highest Closing Price for the Common Stock during the period beginning on the
      date of first occurrence of the Event of Default and ending one day prior to
      the
      Mandatory Prepayment Date (the “Default Amount”) and all other
      amounts payable hereunder shall immediately become due and payable, all without
      demand, presentment or notice, all of which hereby are expressly waived,
      together with all costs, including, without limitation, legal fees and expenses,
      of collection, and the Holder shall be entitled to exercise all other rights
      and
      remedies available at law or in equity.  If the Borrower fails to pay
      the Default Amount within five (5) business days of written notice that such
      amount is due and payable, then the Holder shall have the right at any time,
      so
      long as the Borrower remains in default (and so long and to the extent that
      there are sufficient authorized shares), to require the Borrower, upon written
      notice, to immediately issue, in lieu of the Default Amount, the number of
      shares of Common Stock of the Borrower equal to the Default Amount divided
      by
      the Conversion Price then in effect.

     

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      IV.   MISCELLANEOUS

     

    4.1  Failure
      or Indulgence Not
      Waiver.  No failure
      or
      delay on the part of the Holder in the exercise of any power, right or privilege
      hereunder shall operate as a waiver thereof, nor shall any single or partial
      exercise of any such power, right or privilege preclude other or further
      exercise thereof or of any other right, power or privileges.  All
      rights and remedies existing hereunder are cumulative to, and not exclusive
      of,
      any rights or remedies otherwise available.

     

    4.2  Notices.  Any
      notice herein
      required or permitted to be given shall be in writing and may be personally
      served or delivered by courier or sent by United States mail and shall be deemed
      to have been given upon receipt if personally served (which shall include
      telephone line facsimile transmission) or sent by courier or three (3) days
      after being deposited in the United States mail, certified, with postage
      pre-paid and properly addressed, if sent by mail.  For the purposes
      hereof, the address of the Holder shall be as shown on the records of the
      Borrower; and the address of the Borrower shall be 22600 Hall Road, Suite 205
      Clinton Township, MI 48036, facsimile number: 586-468-8768.  Both the
      Holder and the Borrower may change the address for service by service of written
      notice to the other as herein provided.

     

    4.3  Amendments.  This
      Note and any
      provision hereof may only be amended by an instrument in writing signed by
      the
      Borrower and the Holder.  The term “Note” and all reference thereto,
      as used throughout this instrument, shall mean this instrument (and the other
      Notes issued pursuant to the Purchase Agreement) as originally executed, or
      if
      later amended or supplemented, then as so amended or supplemented.

     

    4.4  Assignability.  This
      Note shall
      be binding upon the Borrower and its successors and assigns, and shall inure
      to
      be the benefit of the Holder and its successors and assigns.  Each
      transferee of this Note must be an “accredited investor” (as defined in Rule
      501(a) of the 1933 Act).  Notwithstanding anything in this Note to the
      contrary, this Note may be pledged as collateral in connection with a bonafide
      margin account
      or other lending arrangement.

     

    4.5  Cost
      of
      Collection.  If default
      is
      made in the payment of this Note, the Borrower shall pay the Holder hereof
      costs
      of collection, including reasonable attorneys’ fees.

     

    4.6  Governing
      Law.  THIS
      NOTE SHALL
      BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
      OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN
      SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.  THE
      BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES
      FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING
      UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE
      TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 

     

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

       

       

      BOTH
        PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE
        MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE
        THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE
        DEEMED
        IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH
        SUIT OR
        PROCEEDING.  NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE
        PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.  BOTH PARTIES AGREE THAT
        A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE
        CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT
        OR IN ANY OTHER LAWFUL MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN
        ANY DISPUTE ARISING UNDER THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND
        EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN
        CONNECTION WITH SUCH DISPUTE.

    

     

    4.7  Certain
      Amounts.  Whenever
      pursuant
      to this Note the Borrower is required to pay an amount in excess of the
      outstanding principal amount (or the portion thereof required to be paid at
      that
      time) plus accrued and unpaid interest plus Default Interest on such interest,
      the Borrower and the Holder agree that the actual damages to the Holder from
      the
      receipt of cash payment on this Note may be difficult to determine and the
      amount to be so paid by the Borrower represents stipulated damages and not
      a
      penalty and is intended to compensate the Holder in part for loss of the
      opportunity to convert this Note and to earn a return from the sale of shares
      of
      Common Stock acquired upon conversion of this Note at a price in excess of
      the
      price paid for such shares pursuant to this Note.  The Borrower and
      the Holder hereby agree that such amount of stipulated damages is not plainly
      disproportionate to the possible loss to the Holder from the receipt of a cash
      payment without the opportunity to convert this Note into shares of Common
      Stock.

     

    4.8  Allocations
      of Maximum Share
      Amount and Reserved Amount.  The
      Maximum Share
      Amount and Reserved Amount shall be allocated pro rata among the Holders of
      Notes based on the principal amount of such Notes issued to each
      Holder.  Each increase to the Maximum Share Amount and Reserved Amount
      shall be allocated pro rata among the Holders of Notes based on the principal
      amount of such Notes held by each Holder at the time of the increase in the
      Maximum Share Amount or Reserved Amount.  In the event a Holder shall
      sell or otherwise transfer any of such Holder’s Notes, each transferee shall be
      allocated a pro rata portion of such transferor’s Maximum Share Amount and
      Reserved Amount.  Any portion of the Maximum Share Amount or Reserved
      Amount which remains allocated to any person or entity which does not hold
      any
      Notes shall be allocated to the remaining Holders of Notes, pro rata based
      on
      the principal amount of such Notes then held by such Holders.

     

    4.9  Damages
      Shares.  The
      shares of
      Common Stock that may be issuable to the Holder pursuant to Sections 1.3 and
      1.4(g) hereof and pursuant to Section 2(c) of the Registration Rights Agreement
      (“Damages Shares”) shall
      be treated as Common Stock issuable upon conversion of this Note for all
      purposes hereof and shall be subject to all of the limitations and afforded
      all
      of the rights of the other shares of Common Stock issuable hereunder, including
      without limitation, the right to be included in the Registration Statement
      filed
      pursuant to the Registration Rights Agreement.  For purposes of
      calculating interest payable on the outstanding principal amount hereof, except
      as otherwise provided herein, amounts convertible into Damages Shares (“Damages Amounts”) shall not
      bear interest but must be converted prior to the conversion of any outstanding
      principal amount hereof, until the outstanding Damages Amounts is
      zero.

     

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    4.10  Denominations.  At
      the request of
      the Holder, upon surrender of this Note, the Borrower shall promptly issue
      new
      Notes in the aggregate outstanding principal amount hereof, in the form hereof,
      in such denominations of at least $50,000 as the Holder shall
      request.

     

    4.11  Purchase
      Agreement.  By its
      acceptance
      of this Note, each Holder agrees to be bound by the applicable terms of the
      Purchase Agreement.

     

    4.12  Notice
      of Corporate
      Events.  Except
      as
      otherwise provided below, the Holder of this Note shall have no rights as a
      Holder of Common Stock unless and only to the extent that it converts this
      Note
      into Common Stock.  The Borrower shall provide the Holder with prior
      notification of any meeting of the Borrower’s shareholders (and copies of proxy
      materials and other information sent to shareholders).  In the event
      of any taking by the Borrower of a record of its shareholders for the purpose
      of
      determining shareholders who are entitled to receive payment of any dividend
      or
      other distribution, any right to subscribe for, purchase or otherwise acquire
      (including by way of merger, consolidation, reclassification or
      recapitalization) any share of any class or any other securities or property,
      or
      to receive any other right, or for the purpose of determining shareholders
      who
      are entitled to vote in connection with any proposed sale, lease or conveyance
      of all or substantially all of the assets of the Borrower or any proposed
      liquidation, dissolution or winding up of the Borrower, the Borrower shall
      mail
      a notice to the Holder, at least twenty (20) days prior to the record date
      specified therein (or thirty (30) days prior to the consummation of the
      transaction or event, whichever is earlier), of the date on which any such
      record is to be taken for the purpose of such dividend, distribution, right
      or
      other event, and a brief statement regarding the amount and character of such
      dividend, distribution, right or other event to the extent known at such
      time.  The Borrower shall make a public announcement of any event
      requiring notification to the Holder hereunder substantially simultaneously
      with
      the notification to the Holder in accordance with the terms of this Section
      4.12.

     

    4.13  Remedies.  The
      Borrower
      acknowledges that a breach by it of its obligations hereunder will cause
      irreparable harm to the Holder, by vitiating the intent and purpose of the
      transaction contemplated hereby.  Accordingly, the Borrower
      acknowledges that the remedy at law for a breach of its obligations under this
      Note will be inadequate and agrees, in the event of a breach or threatened
      breach by the Borrower of the provisions of this Note, that the Holder shall
      be
      entitled, in addition to all other available remedies at law or in equity,
      and
      in addition to the penalties assessable herein, to an injunction or injunctions
      restraining, preventing or curing any breach of this Note and to enforce
      specifically the terms and provisions thereof, without the necessity of showing
      economic loss and without any bond or other security being
      required.

     

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      V.  CALL OPTION

     

    5.1  Call
      Option.  Notwithstanding
      anything to the contrary contained in this Article V, so long as (i) no
      Event of Default or Trading Market Prepayment Event shall have occurred and
      be
      continuing, (ii) the Borrower has a sufficient number of authorized shares
      of Common Stock reserved for issuance upon full conversion of the Notes, then
      at
      any time after the Issue Date, and (iii) the Common Stock is trading at or
      below $.04 per share, the Borrower shall have the right, exercisable on not
      less
      than ten (10) Trading Days prior written notice to the Holders of the Notes
      (which notice may not be sent to the Holders of the Notes until the Borrower
      is
      permitted to prepay the Notes pursuant to this Section 5.1), to prepay all
      of
      the outstanding Notes in accordance with this Section 5.1.  Any notice
      of prepayment hereunder (an “Optional Prepayment”) shall be
      delivered to the Holders of the Notes at their registered addresses appearing
      on
      the books and records of the Borrower and shall state (1) that the Borrower
      is
      exercising its right to prepay all of the Notes issued on the Issue Date and
      (2)
      the date of prepayment (the “Optional Prepayment
      Notice”).  On the date fixed for prepayment (the “Optional Prepayment
      Date”),
      the Borrower shall make payment of the Optional Prepayment Amount (as defined
      below) to or upon the order of the Holders as specified by the Holders in
      writing to the Borrower at least one (1) business day prior to the Optional
      Prepayment Date.  If the Borrower exercises its right to prepay the
      Notes, the Borrower shall make payment to the holders of an amount in cash
      (the
“Optional Prepayment
      Amount”) equal to either (i) 135% (for prepayments occurring within
      thirty (30) days of the Issue Date), (ii) 145% for prepayments occurring
      between thirty-one (31) and ninety (90) days of the Issue Date, or (iii) 150%
      (for prepayments occurring after the ninetieth (90th)
      day following
      the Issue Date), multiplied by the sum of (w) the then outstanding principal
      amount of this Note plus (x) accrued
      and unpaid interest on the unpaid principal amount of this Note to the Optional
      Prepayment Date plus (y) Default
      Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any
      amounts
      owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to
      Section 2(c) of the Registration Rights Agreement (the then outstanding
      principal amount of this Note to the date of payment plus the amounts
      referred to in clauses (x), (y) and (z) shall collectively be known as the
      “Optional Prepayment
      Sum”). Notwithstanding notice of an Optional Prepayment, the Holders
      shall at all times prior to the Optional Prepayment Date maintain the right
      to
      convert all or any portion of the Notes in accordance with Article I and any
      portion of Notes so converted after receipt of an Optional Prepayment Notice
      and
      prior to the Optional Prepayment Date set forth in such notice and payment
      of
      the aggregate Optional Prepayment Amount shall be deducted from the principal
      amount of Notes which are otherwise subject to prepayment pursuant to such
      notice.  If the Borrower delivers an Optional Prepayment Notice and
      fails to pay the Optional Prepayment Amount due to the Holders of the Notes
      within two (2) business days following the Optional Prepayment Date, the
      Borrower shall forever forfeit its right to redeem the Notes pursuant to this
      Section 5.1.

     

    

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

     

     

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

     

    

    MIDNIGHT
      HOLDINGS GROUP,
      INC.

    

    

    

    By:
/s/
      Nicholas Cocco            

    Nicholas
      Cocco

    Chief
      Executive Officer

     

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

     

     

    EXHIBIT
      A

     

    NOTICE
      OF
      CONVERSION

     

    (To
      be
      Executed by the Registered Holder

    in
      order
      to Convert the Notes)

     

    The
      undersigned hereby irrevocably elects to convert $__________ principal amount
      of
      the Note (defined below) into shares of common stock, par value $.00005 per
      share (“Common Stock”),
      of Midnight Holdings Group, Inc., a Delaware corporation (the “Borrower”) according to the
      conditions of the convertible Notes of the Borrower dated as of October 19,
      2007
      (the “Notes”), as of the date written below.  If securities are to be
      issued in the name of a person other than the undersigned, the undersigned
      will
      pay all transfer taxes payable with respect thereto and is delivering herewith
      such certificates.  No fee will be charged to the Holder for any
      conversion, except for transfer taxes, if any.  A copy of each Note is
      attached hereto (or evidence of loss, theft or destruction
      thereof).

     

    The
      Borrower shall electronically transmit the Common Stock issuable pursuant to
      this Notice of Conversion to the account of the undersigned or its nominee
      with
      DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

     

    Name
      of
      DTC Prime
      Broker:    _________________________                                                                                                                 

    Account
      Number:    ________________________________                                                                                                                 

     

    In
      lieu
      of receiving shares of Common Stock issuable pursuant to this Notice of
      Conversion by way of a DWAC Transfer, the undersigned hereby requests that
      the
      Borrower issue a certificate or certificates for the number of shares of Common
      Stock set forth below (which numbers are based on the Holder’s calculation
      attached hereto) in the name(s) specified immediately below or, if additional
      space is necessary, on an attachment hereto:

     

    Name:     ________________________________________                                                                                                                

    Address:    ______________________________________                                                                                                                 

     

    The
      undersigned represents and warrants that all offers and sales by the undersigned
      of the securities issuable to the undersigned upon conversion of the Notes
      shall
      be made pursuant to registration of the securities under the Securities Act
      of
      1933, as amended (the “Act”), or pursuant to
      an
      exemption from registration under the Act.

     

    Date
      of
      Conversion:___________________________

    Applicable
      Conversion Price:____________________

    Number
      of
      Shares of Common Stock to be Issued Pursuant to

    Conversion
      of the Notes:______________

    Signature:___________________________________

    Name:______________________________________

    Address:____________________________________

     

     

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

     

    The
      Borrower shall issue and deliver shares of Common Stock to an overnight courier
      not later than three business days following receipt of the original Note(s)
      to
      be converted, and shall make payments pursuant to the Notes for the number
      of
      business days such issuance and delivery is late.

     

     

     

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

     

    
      
        

        

      

      
        THE
          SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
          THE
          SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THE SECURITIES MAY
          NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
          STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN
          FORM,
          SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS
          THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT
          TO RULE
          144 OR REGULATION S UNDER SAID ACT.

      

      

       

      CALLABLE
        SECURED CONVERTIBLE
        NOTE

       

      
        
          	
                  Clinton
                    Township, Michigan

                	 
	
                  October
                    19, 2007

                	
                  $34,190

                

        

      

       

      FOR
        VALUE RECEIVED, MIDNIGHT HOLDINGS
        GROUP, INC.,
a Delaware corporation (hereinafter called the “Borrower”), hereby
        promises to pay to the order of AJW Partners, LLC or registered assigns (the
        “Holder”) the sum of
        $34,190 on October 19, 2010 (the “Maturity Date”), and to pay
        interest on the unpaid principal balance hereof at the rate of ten percent
        (10%)
        per annum from October 19, 2007 (the “Issue Date”) until the same
        becomes due and payable, whether at maturity or upon acceleration or by
        prepayment or otherwise.  Any amount of principal or interest on this
        Note which is not paid when due shall bear interest at the rate of fifteen
        percent (15%) per annum from the due date thereof until the same is paid
        (“Default
        Interest”).  Interest shall commence accruing on the issue
        date, shall be computed on the basis of a 365-day year and the actual number
        of
        days elapsed and shall be payable, quarterly on March 31, June 30,
        September 30 and December 31 of each year beginning on the last day of the
        first full quarter after Issue Date.  All payments due hereunder (to
        the extent not converted into common stock, $.00005 par value per share,
        of the
        Borrower (the “Common
        Stock”) in accordance with the terms hereof) shall be made in lawful
        money of the United States of America.  All payments shall be made at
        such address as the Holder shall hereafter give to the Borrower by written
        notice made in accordance with the provisions of this Note.  Whenever
        any amount expressed to be due by the terms of this Note is due on any day
        which
        is not a business day, the same shall instead be due on the next succeeding
        day
        which is a business day and, in the case of any interest payment date which
        is
        not the date on which this Note is paid in full, the extension of the due
        date
        thereof shall not be taken into account for purposes of determining the amount
        of interest due on such date.  As used in this Note, the term
“business day” shall mean any day other than a Saturday, Sunday or a day on
        which commercial banks in the city of New York, New York are authorized or
        required by law or executive order to remain
        closed.    

       

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

         

         

        Each
          capitalized term used herein, and not otherwise defined, shall have the
          meaning
          ascribed thereto in that certain Securities Purchase Agreement, dated October
          19, 2007, pursuant to which this Note was originally issued (the “Purchase
          Agreement”).

      

       

      This
        Note
        is free from all taxes, liens, claims and encumbrances with respect to the
        issue
        thereof and shall not be subject to preemptive rights or other similar rights
        of
        shareholders of the Borrower and will not impose personal liability upon
        the
        holder thereof.  The obligations of the Borrower under this Note shall
        be secured by that certain Security Agreement by and between the Borrower
        and
        the Holder of even date herewith.

       

      The
        following terms shall apply to this Note:

       

       

      ARTICLE
        I.  CONVERSION RIGHTS

       

      1.1  Conversion
        Right.  The
        Holder shall
        have the right from time to time, and at any time on or prior to the earlier
        of
        (i) the Maturity Date and (ii) the date of payment of the Default Amount
        (as
        defined in Article III) pursuant to Section 1.6(a) or Article III, the Optional
        Prepayment Amount (as defined in Section 5.1) or (iii) any payments pursuant
        to
        Section 1.7, each in respect of the remaining outstanding principal amount
        of
        this Note to convert all or any part of the outstanding and unpaid principal
        amount of this Note into fully paid and non-assessable shares of Common Stock,
        as such Common Stock exists on the Issue Date, or any shares of capital stock
        or
        other securities of the Borrower into which such Common Stock shall hereafter
        be
        changed or reclassified at the conversion price  (the “Conversion Price”) determined
        as provided herein (a “Conversion”); provided,
however,
        that in no
        event shall the Holder be entitled to convert any portion of this Note in
        excess
        of that portion of this Note upon conversion of which the sum of (1) the
        number
        of shares of Common Stock beneficially owned by the Holder and its affiliates
        (other than shares of Common Stock which may be deemed beneficially owned
        through the ownership of the unconverted portion of the Notes or the unexercised
        or unconverted portion of any other security of the Borrower (including,
        without
        limitation, the warrants issued by the Borrower pursuant to the Purchase
        Agreement) subject to a limitation on conversion or exercise analogous to
        the
        limitations contained herein) and (2) the number of shares of Common Stock
        issuable upon the conversion of the portion of this Note with respect to
        which
        the determination of this proviso is being made, would result in beneficial
        ownership by the Holder and its affiliates of more than 4.9% of the outstanding
        shares of Common Stock.  For purposes of the proviso to the
        immediately preceding sentence, beneficial ownership shall be determined
        in
        accordance with Section 13(d) of the Securities Exchange Act of 1934, as
        amended, and Regulations 13D-G thereunder, except as otherwise provided in
        clause (1) of such proviso.  The number of shares of Common Stock to
        be issued upon each conversion of this Note shall be determined by dividing
        the
        Conversion Amount (as defined below) by the applicable Conversion Price then
        in
        effect on the date specified in the notice of conversion, in the form attached
        hereto as Exhibit A (the “Notice of Conversion”),
        delivered to the Borrower by the Holder in accordance with Section 1.4 below;
        provided that the Notice of Conversion is submitted by facsimile (or by other
        means resulting in, or reasonably expected to result in, notice) to the Borrower
        before 6:00 p.m., New York, New York time on such conversion date (the “Conversion
        Date”).  

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

         

         

        The
          term
“Conversion Amount”
means, with respect
          to any conversion of this Note, the sum of (1) the principal
          amount of this Note to be converted in such conversion plus (2)
          accrued and
          unpaid interest, if any, on such principal amount at the interest rates
          provided
          in this Note to the Conversion Date plus (3)
          Default
          Interest, if any, on the amounts referred to in the immediately preceding
          clauses (1) and/or (2) plus (4)
          at the
          Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and
          1.4(g) hereof or pursuant to Section 2(c) of that certain Registration
          Rights
          Agreement, dated as of October 19, 2007, executed in connection with the
          initial
          issuance of this Note and the other Notes issued on the Issue Date (the
“Registration Rights
          Agreement”).

      

       

      1.2  Conversion
        Price.

       

      (a)  Calculation
        of Conversion
        Price.  The
        Conversion
        Price shall be the lesser of (i) the Variable Conversion Price (as defined
        herein) and (ii) the Fixed Conversion Price (as defined herein) (subject,
        in
        each case, to equitable adjustments for stock splits, stock dividends or
        rights
        offerings by the Borrower relating to the Borrower’s securities or the
        securities of any subsidiary of the Borrower, combinations, recapitalization,
        reclassifications, extraordinary distributions and similar
        events).  The “Variable Conversion Price”
shall mean the Applicable
        Percentage (as defined herein) multiplied by the
        Market Price (as defined herein).  “Market Price” means the
        average of the lowest three (3) Trading Prices (as defined below) for the
        Common
        Stock during the twenty (20) Trading Day period ending one Trading Day prior to
        the date the Conversion Notice is sent by the Holder to the Borrower via
        facsimile (the “Conversion
        Date”).  “Trading Price” means, for
        any
        security as of any date, the intraday trading price on the Over-the-Counter
        Bulletin Board (the “OTCBB”) as reported by
        a
        reliable reporting service mutually acceptable to and hereafter designated
        by
        Holders of a majority in interest of the Notes and the Borrower or, if the
        OTCBB
        is not the principal trading market for such security, the intraday trading
        price of such security on the principal securities exchange or trading market
        where such security is listed or traded or, if no intraday trading price
        of such
        security is available in any of the foregoing manners, the average of the
        intraday trading prices of any market makers for such security that are listed
        in the “pink sheets” by the National Quotation Bureau, Inc.  If the
        Trading Price cannot be calculated for such security on such date in the
        manner
        provided above, the Trading Price shall be the fair market value as mutually
        determined by the Borrower and the holders of a majority in interest of the
        Notes being converted for which the calculation of the Trading Price is required
        in order to determine the Conversion Price of such Notes.  “Trading Day” shall mean any
        day on which the Common Stock is traded for any period on the OTCBB, or on
        the
        principal securities exchange or other securities market on which the Common
        Stock is then being traded.  “Applicable Percentage” shall
        mean 25%; provided, however, that the Applicable Percentage shall be increased
        to (i) 30% in the event that the Registration Statement (as defined in the
        Registration Rights Agreement) is filed on or before the Filing Date (as
        defined
        in the Registration Rights Agreement) and (ii) 40% in the event that the
        Registration Statement (as defined in the Registration Rights Agreement)
        becomes
        effective on or before the Effectiveness Deadline) as defined in the
        Registration Rights Agreement).  The “Fixed Conversion Price” shall
        mean $.02.

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      (b)  Conversion
        Price During
        Major Announcements.  Notwithstanding
        anything contained in Section 1.2(a) to the contrary, in the event the Borrower
        (i) makes a public announcement that it intends to consolidate or merge with
        any
        other corporation (other than a merger in which the Borrower is the surviving
        or
        continuing corporation and its capital stock is unchanged) or sell or transfer
        all or substantially all of the assets of the Borrower or (ii) any person,
        group
        or entity (including the Borrower) publicly announces a tender offer to purchase
        50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the
        date of the announcement referred to in clause (i) or (ii) is hereinafter
        referred to as the  “Announcement Date”), then the
        Conversion Price shall, effective upon the Announcement Date and continuing
        through the Adjusted Conversion Price Termination Date (as defined below),
        be
        equal to the lower of (x) the Conversion Price which would have been applicable
        for a Conversion occurring on the Announcement Date and (y) the Conversion
        Price
        that would otherwise be in effect. From and after the Adjusted Conversion
        Price
        Termination Date, the Conversion Price shall be determined as set forth in
        this
        Section 1.2(a).  For purposes hereof,  “Adjusted Conversion Price
        Termination
        Date” shall mean, with respect to any proposed transaction or tender
        offer (or takeover scheme) for which a public announcement as contemplated
        by
        this Section 1.2(b) has been made, the date upon which the Borrower (in the
        case
        of clause (i) above) or the person, group or entity (in the case of clause
        (ii)
        above) consummates or publicly announces the termination or abandonment of
        the
        proposed transaction or tender offer (or takeover scheme) which caused this
        Section 1.2(b) to become operative.

       

      1.3  Authorized
        Shares.  Subject
        to the
        completion of the Charter Amendment Actions (as defined in the Purchase
        Agreement), the Borrower covenants that during the period the conversion
        right
        exists, the Borrower will reserve from its authorized and unissued Common
        Stock
        a sufficient number of shares, free from preemptive rights, to provide for
        the
        issuance of Common Stock upon the full conversion of this Note and the other
        Notes issued pursuant to the Purchase Agreement.  The Borrower is
        required at all times to have authorized and reserved two times the number
        of
        shares that is actually issuable upon full conversion of the Notes (based
        on the
        Conversion Price of the Notes or the Exercise Price of the Warrants in effect
        from time to time) (the “Reserved
        Amount”).  The Reserved Amount shall be increased from time to
        time in accordance with the Borrower’s obligations pursuant to Section 4(h) of
        the Purchase Agreement.  The Borrower represents that upon issuance,
        such shares will be duly and validly issued, fully paid and
        non-assessable.  In addition, if the Borrower shall issue any
        securities or make any change to its capital structure which would change
        the
        number of shares of Common Stock into which the Notes shall be convertible
        at
        the then current Conversion Price, the Borrower shall at the same time make
        proper provision so that thereafter there shall be a sufficient number of
        shares
        of Common Stock authorized and reserved, free from preemptive rights, for
        conversion of the outstanding Notes.  The Borrower (i) acknowledges
        that it has irrevocably instructed its transfer agent to issue certificates
        for
        the Common Stock issuable upon conversion of this Note, and (ii) agrees
        that its issuance of this Note shall constitute full authority to its officers
        and agents who are charged with the duty of executing stock certificates
        to
        execute and issue the necessary certificates for shares of Common Stock in
        accordance with the terms and conditions of this Note.

       

      If,
        at
        any time a Holder of this Note submits a Notice of Conversion, and the Borrower
        does not have sufficient authorized but unissued shares of Common Stock
        available to effect such conversion in accordance with the provisions of
        this
        Article I (a “Conversion
        Default”), subject to Section 4.8, the Borrower shall issue to the Holder
        all of the shares of Common Stock which are then available to effect such
        conversion. 

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

         

         

        The
          portion of this Note which the Holder included in its Conversion Notice
          and
          which exceeds the amount which is then convertible into available shares
          of
          Common Stock (the “Excess
          Amount”) shall, notwithstanding anything to the contrary contained
          herein, not be convertible into Common Stock in accordance with the terms
          hereof
          until (and at the Holder’s option at any time after) the date additional shares
          of Common Stock are authorized by the Borrower to permit such conversion,
          at
          which time the Conversion Price in respect thereof shall be the lesser
          of (i)
          the Conversion Price on the Conversion Default Date (as defined below)
          and (ii)
          the Conversion Price on the Conversion Date thereafter elected by the Holder
          in
          respect thereof.  In addition, the Borrower shall pay to the Holder
          payments (“Conversion Default
          Payments”) for a Conversion Default in the amount of (x) the sum of
          (1) the then
          outstanding principal amount of this Note plus (2)
          accrued and
          unpaid interest on the unpaid principal amount of this Note through the
          Authorization Date (as defined below) plus (3)
          Default
          Interest, if any, on the amounts referred to in clauses (1) and/or (2),
multiplied by (y)
          .24, multiplied
          by (z) (N/365), where N = the number of days from the day the holder
          submits a Notice of Conversion giving rise to a Conversion Default (the
“Conversion Default Date”) to
          the date (the “Authorization
          Date”) that the Borrower authorizes a sufficient number of shares of
          Common Stock to effect conversion of the full outstanding principal balance
          of
          this Note.  The Borrower shall use its best efforts to authorize a
          sufficient number of shares of Common Stock as soon as practicable following
          the
          earlier of (i) such time that the Holder notifies the Borrower or that
          the
          Borrower otherwise becomes aware that there are or likely will be insufficient
          authorized and unissued shares to allow full conversion thereof and (ii)
          a
          Conversion Default.  The Borrower shall send notice to the Holder of
          the authorization of additional shares of Common Stock, the Authorization
          Date
          and the amount of Holder’s accrued Conversion Default Payments.  The
          accrued Conversion Default Payments for each calendar month shall be paid
          in
          cash or shall be convertible into Common Stock (at such time as there are
          sufficient authorized shares of Common Stock) at the applicable Conversion
          Price, at the Borrower’s option, as follows:

      

       

      (a)  In
        the
        event the Borrower elects to make such payment in cash, cash payment shall
        be
        made to Holder by the fifth (5th)
        day of the month
        following the month in which it has accrued; and

       

      

      (b)   In
        the event the Borrower elects to make such payment in Common Stock, the Holder
        may convert such payment amount into Common Stock at the Conversion Price
        (as in
        effect at the time of conversion) at any time after the fifth day of the
        month
        following the month in which it has accrued in accordance with the terms
        of this
        Article I (so long as there is then a sufficient number of authorized shares
        of
        Common Stock).

       

      

      The
        Borrower’s election shall be made in writing to the Holder at any time prior to
        6:00 p.m., New York, New York time, on the third day of the month following
        the
        month in which Conversion Default payments have accrued.  If no
        election is made, the Borrower shall be deemed to have elected to remit Common
        Stock.  Nothing herein shall limit the Holder’s right to pursue actual
        damages (to the extent in excess of the Conversion Default Payments) for
        the
        Borrower’s failure to maintain a sufficient number of authorized shares of
        Common Stock, and each holder shall have the right to pursue all remedies
        available at law or in equity (including degree of specific performance and/or
        injunctive relief).

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      1.4  Method
        of
        Conversion.

       

      (a)  Mechanics
        of
        Conversion.  Subject
        to
        Section 1.1, this Note may be converted by the Holder in whole or in part
        at any
        time from time to time after the Issue Date, by (A) submitting to the
        Borrower a Notice of Conversion (by facsimile or other reasonable means of
        communication dispatched on the Conversion Date prior to 6:00 p.m., New York,
        New York time) and (B) subject to Section 1.4(b), surrendering this Note at
        the principal office of the Borrower.

       

      (b)  Surrender
        of Note Upon
        Conversion.  Notwithstanding
        anything to the contrary set forth herein, upon conversion of this Note in
        accordance with the terms hereof, the Holder shall not be required to physically
        surrender this Note to the Borrower unless the entire unpaid principal amount
        of
        this Note is so converted.  The Holder and the Borrower shall maintain
        records showing the principal amount so converted and the dates of such
        conversions or shall use such other method, reasonably satisfactory to the
        Holder and the Borrower, so as not to require physical surrender of this
        Note
        upon each such conversion.  In the event of any dispute or
        discrepancy, such records of the Borrower shall be controlling and determinative
        in the absence of manifest error.  Notwithstanding the foregoing, if
        any portion of this Note is converted as aforesaid, the Holder may not transfer
        this Note unless the Holder first physically surrenders this Note to the
        Borrower, whereupon the Borrower will forthwith issue and deliver upon the
        order
        of the Holder a new Note of like tenor, registered as the Holder (upon payment
        by the Holder of any applicable transfer taxes) may request, representing
        in the
        aggregate the remaining unpaid principal amount of this Note.  The
        Holder and any assignee, by acceptance of this Note, acknowledge and agree
        that,
        by reason of the provisions of this paragraph, following conversion of a
        portion
        of this Note, the unpaid and unconverted principal amount of this Note
        represented by this Note may be less than the amount stated on the face
        hereof.

       

      (c)  Payment
        of
        Taxes.  The
        Borrower
        shall not be required to pay any tax which may be payable in respect of any
        transfer involved in the issue and delivery of shares of Common Stock or
        other
        securities or property on conversion of this Note in a name other than that
        of
        the Holder (or in street name), and the Borrower shall not be required to
        issue
        or deliver any such shares or other securities or property unless and until
        the
        person or persons (other than the Holder or the custodian in whose street
        name
        such shares are to be held for the Holder’s account) requesting the issuance
        thereof shall have paid to the Borrower the amount of any such tax or shall
        have
        established to the satisfaction of the Borrower that such tax has been
        paid.

       

      (d)  Delivery
        of Common Stock
        Upon Conversion.  Upon
        receipt by
        the Borrower from the Holder of a facsimile transmission (or other reasonable
        means of communication) of a Notice of Conversion meeting the requirements
        for
        conversion as provided in this Section 1.4, the Borrower shall issue and
        deliver
        or cause to be issued and delivered to or upon the order of the Holder
        certificates for the Common Stock issuable upon such conversion within five
        (5)
        business days after such receipt (and, solely in the case of conversion of
        the
        entire unpaid principal amount hereof, surrender of this Note) (such second
        business day being hereinafter referred to as the “Deadline”) in accordance
        with
        the terms hereof and the Purchase Agreement (including, without limitation,
        in
        accordance with the requirements of Section 2(g) of the Purchase Agreement
        that
        certificates for shares of Common Stock issued on or after the effective
        date of
        the Registration Statement upon conversion of this Note shall not bear any
        restrictive legend).

       

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      (e)  Obligation
        of Borrower to
        Deliver Common Stock.  Upon
        receipt by
        the Borrower of a Notice of Conversion, the Holder shall be deemed to be
        the
        holder of record of the Common Stock issuable upon such conversion, the
        outstanding principal amount and the amount of accrued and unpaid interest
        on
        this Note shall be reduced to reflect such conversion, and, unless the Borrower
        defaults on its obligations under this Article I, all rights with respect
        to the
        portion of this Note being so converted shall forthwith terminate except
        the
        right to receive the Common Stock or other securities, cash or other assets,
        as
        herein provided, on such conversion.  If the Holder shall have given a
        Notice of Conversion as provided herein, the Borrower’s obligation to issue and
        deliver the certificates for Common Stock shall be absolute and unconditional,
        irrespective of the absence of any action by the Holder to enforce the same,
        any
        waiver or consent with respect to any provision thereof, the recovery of
        any
        judgment against any person or any action to enforce the same, any failure
        or
        delay in the enforcement of any other obligation of the Borrower to the holder
        of record, or any setoff, counterclaim, recoupment, limitation or termination,
        or any breach or alleged breach by the Holder of any obligation to the Borrower,
        and irrespective of any other circumstance which might otherwise limit such
        obligation of the Borrower to the Holder in connection with such
        conversion.  The Conversion Date specified in the Notice of Conversion
        shall be the Conversion Date so long as the Notice of Conversion is received
        by
        the Borrower before 6:00 p.m., New York, New York time, on such
        date.

       

      (f)  Delivery
        of Common Stock by
        Electronic Transfer.  In
        lieu of
        delivering physical certificates representing the Common Stock issuable upon
        conversion, provided the Borrower’s transfer agent is participating in the
        Depository Trust Company (“DTC”) Fast Automated
        Securities Transfer (“FAST”) program, upon
        request
        of the Holder and its compliance with the provisions contained in Section
        1.1
        and in this Section 1.4, the Borrower shall use its best efforts to cause
        its
        transfer agent to electronically transmit the Common Stock issuable upon
        conversion to the Holder by crediting the account of Holder’s Prime Broker with
        DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

       

      (g)  Failure
        to Deliver Common
        Stock Prior to Deadline.  Without
        in any
        way limiting the Holder’s right to pursue other remedies, including actual
        damages and/or equitable relief, the parties agree that if delivery of the
        Common Stock issuable upon conversion of this Note is more than two (2) days
        after the Deadline (other than a failure due to the circumstances described
        in
        Section 1.3 above, which failure shall be governed by such Section) the Borrower
        shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline
        that the Borrower fails to deliver such Common Stock.  Such cash
        amount shall be paid to Holder by the fifth day of the month following the
        month
        in which it has accrued or, at the option of the Holder (by written notice
        to
        the Borrower by the first day of the month following the month in which it
        has
        accrued), shall be added to the principal amount of this Note, in which event
        interest shall accrue thereon in accordance with the terms of this Note and
        such
        additional principal amount shall be convertible into Common Stock in accordance
        with the terms of this Note.

       

      1.5  Concerning
        the
        Shares.  The
        shares of
        Common Stock issuable upon conversion of this Note may not be sold or
        transferred unless  (i) such shares are sold pursuant to an effective
        registration statement under the Act or (ii) the Borrower or its transfer
        agent
        shall have been furnished with an opinion of  counsel (which opinion
        shall be in form, substance and scope customary for opinions of counsel in
        comparable transactions) to the effect that the shares to be sold or transferred
        may be sold or transferred pursuant to an exemption from such registration
        or
        (iii) such shares are sold or transferred pursuant to Rule 144 under the
        Act (or a successor rule) (“Rule 144”) or (iv) such shares
        are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who
        agrees to sell or otherwise transfer the shares only in accordance with this
        Section 1.5 and who is an Accredited Investor (as defined in the Purchase
        Agreement).  

       

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

         

         

        Except
          as
          otherwise provided in the Purchase Agreement (and subject to the removal
          provisions set forth below), until such time as the shares of Common Stock
          issuable upon conversion of this Note have been registered under the Act
          as
          contemplated by the Registration Rights Agreement or otherwise may be sold
          pursuant to Rule 144 without any restriction as to the number of securities
          as
          of a particular date that can then be immediately sold, each certificate
          for
          shares of Common Stock issuable upon conversion of this Note that has not
          been
          so included in an effective registration statement or that has not been
          sold
          pursuant to an effective registration statement or an exemption that permits
          removal of the legend, shall bear a legend substantially in the following
          form,
          as appropriate:

      

       

      
        “THE
          SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
          THE
          SECURITIES ACT OF 1933, AS AMENDED.  THE SECURITIES MAY NOT BE SOLD,
          TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
          FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
          AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS,
          THAT
          REGISTRATION IS NOT REQUIRED UNDER SAID ACT  UNLESS SOLD PURSUANT TO
          RULE 144 OR REGULATION S UNDER SAID ACT.”

      

       

      The
        legend set forth above shall be removed and the Borrower shall issue to the
        Holder a new certificate therefor free of any transfer legend if (i) the
        Borrower or its transfer agent shall have received an opinion of counsel,
        in
        form, substance and scope customary for opinions of counsel in comparable
        transactions, to the effect that a public sale or transfer of such Common
        Stock
        may be made without registration under the Act and the shares are so sold
        or
        transferred, (ii) such Holder provides the Borrower or its transfer agent
        with
        reasonable assurances that the Common Stock issuable upon conversion of this
        Note (to the extent such securities are deemed to have been acquired on the
        same
        date) can be sold pursuant to Rule 144 or (iii) in the case of the Common
        Stock
        issuable upon conversion of this Note, such security is registered for sale
        by
        the Holder under an effective registration statement filed under the Act
        or
        otherwise may be sold pursuant to Rule 144 without any restriction as to
        the
        number of securities as of a particular date that can then be immediately
        sold.  Nothing in this Note shall (i) limit the Borrower’s obligation
        under the Registration Rights Agreement or (ii) affect in any way the Holder’s
        obligations to comply with applicable prospectus delivery requirements upon
        the
        resale of the securities referred to herein.

       

      1.6  Effect
        of Certain
        Events.

       

      (a)  Effect
        of Merger,
        Consolidation, Etc.  At
        the option of
        the Holder, the sale, conveyance or disposition of all or substantially all
        of
        the assets of the Borrower, the effectuation by the Borrower of a transaction
        or
        series of related transactions in which more than 50% of the voting power
        of the
        Borrower is disposed of, or the consolidation, merger or other business
        combination of the Borrower with or into any other Person (as defined below)
        or
        Persons when the Borrower is not the survivor shall
        either:  

       

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

         

         

        (i)
          be
          deemed to be an Event of Default (as defined in Article III) pursuant to
          which
          the Borrower shall be required to pay to the Holder upon the consummation
          of and
          as a condition to such transaction an amount equal to the Default Amount
          (as
          defined in Article III) or (ii) be treated pursuant to Section 1.6(b)
          hereof.  “Person” shall mean any
          individual, corporation, limited liability company, partnership, association,
          trust or other entity or organization.

      

       

      (b)  Adjustment
        Due to Merger,
        Consolidation, Etc.  If,
        at any time
        when this Note is issued and outstanding and prior to conversion of all of
        the
        Notes, there shall be any merger, consolidation, exchange of shares,
        recapitalization, reorganization, or other similar event, as a result of
        which
        shares of Common Stock of the Borrower shall be changed into the same or
        a
        different number of shares of another class or classes of stock or securities
        of
        the Borrower or another entity, or in case of any sale or conveyance of all
        or
        substantially all of the assets of the Borrower other than in connection
        with a
        plan of complete liquidation of the Borrower, then the Holder of this Note
        shall
        thereafter have the right to receive upon conversion of this Note, upon the
        basis and upon the terms and conditions specified herein and in lieu of the
        shares of Common Stock immediately theretofore issuable upon conversion,
        such
        stock, securities or assets which the Holder would have been entitled to
        receive
        in such transaction had this Note been converted in full immediately prior
        to
        such transaction (without regard to any limitations on conversion set forth
        herein), and in any such case appropriate provisions shall be made with respect
        to the rights and interests of the Holder of this Note to the end that the
        provisions hereof (including, without limitation, provisions for adjustment
        of
        the Conversion Price and of the number of shares issuable upon conversion
        of the
        Note) shall thereafter be applicable, as nearly as may be practicable in
        relation to any securities or assets thereafter deliverable upon the conversion
        hereof.  The Borrower shall not effect any transaction described in
        this Section 1.6(b) unless (a) it first gives, to the extent practicable,
        thirty
        (30) days prior written notice (but in any event at least fifteen (15) days
        prior written notice) of the record date of the special meeting of shareholders
        to approve, or if there is no such record date, the consummation of, such
        merger, consolidation, exchange of shares, recapitalization, reorganization
        or
        other similar event or sale of assets (during which time the Holder shall
        be
        entitled to convert this Note) and (b) the resulting successor or acquiring
        entity (if not the Borrower) assumes by written instrument the obligations
        of
        this Section 1.6(b).  The above provisions shall similarly apply to
        successive consolidations, mergers, sales, transfers or share
        exchanges.

       

      (c)  Adjustment
        Due to
        Distribution.  If
        the Borrower
        shall declare or make any distribution of its assets (or rights to acquire
        its
        assets) to holders of Common Stock as a dividend, stock repurchase, by way
        of
        return of capital or otherwise (including any dividend or distribution to
        the
        Borrower’s shareholders in cash or shares (or rights to acquire shares) of
        capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the
        Holder of this Note shall be entitled, upon any conversion of this Note after
        the date of record for determining shareholders entitled to such Distribution,
        to receive the amount of such assets which would have been payable to the
        Holder
        with respect to the shares of Common Stock issuable upon such conversion
        had
        such Holder been the holder of such shares of Common Stock on the record
        date
        for the determination of shareholders entitled to such
        Distribution.

       

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

       

      (d)  Adjustment
        Due to Dilutive
        Issuance.  If,
        at any time
        when any Notes are issued and outstanding, the Borrower issues or sells,
        or in
        accordance with this Section 1.6(d) hereof is deemed to have issued or sold,
        any
        shares of Common Stock for no consideration or for a consideration per share
        (before deduction of reasonable expenses or commissions or underwriting
        discounts or allowances in connection therewith) less than the Fixed Conversion
        Price in effect on the date of such issuance (or deemed issuance) of such
        shares
        of Common Stock (a “Dilutive
        Issuance”), then immediately upon the Dilutive Issuance, the Fixed
        Conversion Price will be reduced to the amount of the consideration per share
        received by the Borrower in such Dilutive Issuance; provided that only
        one adjustment will be made for each Dilutive Issuance.

       

      The
        Borrower shall be deemed to have issued or sold shares of Common Stock if
        the
        Borrower in any manner issues or grants any warrants, rights or options,
        whether
        or not immediately exercisable, to subscribe for or to purchase Common Stock
        or
        other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such
        warrants, rights and options to purchase Common Stock or Convertible Securities
        are hereinafter referred to as “Options”) and the price
        per
        share for which Common Stock is issuable upon the exercise of such Options
        is
        less than the Fixed Conversion Price then in effect, then the Fixed Conversion
        Price shall be equal to such price per share.  For purposes of the
        preceding sentence, the “price per share for which Common Stock is issuable upon
        the exercise of such Options” is determined by dividing (i) the total amount, if
        any, received or receivable by the Borrower as consideration for the issuance
        or
        granting of all such Options, plus the minimum aggregate amount of additional
        consideration, if any, payable to the Borrower upon the exercise of all such
        Options, plus, in the case of Convertible Securities issuable upon the exercise
        of such Options, the minimum aggregate amount of additional consideration
        payable upon the conversion or exchange thereof at the time such Convertible
        Securities first become convertible or exchangeable, by (ii) the maximum
        total
        number of shares of Common Stock issuable upon the exercise of all such Options
        (assuming full conversion of Convertible Securities, if
        applicable).  No further adjustment to the Conversion Price will be
        made upon the actual issuance of such Common Stock upon the exercise of such
        Options or upon the conversion or exchange of Convertible Securities issuable
        upon exercise of such Options.

       

      Additionally,
        the Borrower shall be deemed to have issued or sold shares of Common Stock
        if
        the Borrower in any manner issues or sells any Convertible Securities, whether
        or not immediately convertible (other than where the same are issuable upon
        the
        exercise of Options), and the price per share for which Common Stock is issuable
        upon such conversion or exchange is less than the Fixed Conversion Price
        then in
        effect, then the Fixed Conversion Price shall be equal to such price per
        share.  For the purposes of the preceding sentence, the “price per
        share for which Common Stock is issuable upon such conversion or exchange” is
        determined by dividing (i) the total amount, if any, received or receivable
        by
        the Borrower as consideration for the issuance or sale of all such Convertible
        Securities, plus the minimum aggregate amount of additional consideration,
        if
        any, payable to the Borrower upon the conversion or exchange thereof at the
        time
        such Convertible Securities first become convertible or exchangeable, by
        (ii)
        the maximum total number of shares of Common Stock issuable upon the conversion
        or exchange of all such Convertible Securities.  No further adjustment
        to the Fixed Conversion Price will be made upon the actual issuance of such
        Common Stock upon conversion or exchange of such Convertible
        Securities.

       

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

       

      (e)  Purchase
        Rights.  If,
        at any time
        when any Notes are issued and outstanding, the Borrower issues any convertible
        securities or rights to purchase stock, warrants, securities or other property
        (the “Purchase Rights”)
        pro rata to the record holders of any class of Common Stock, then the Holder
        of
        this Note will be entitled to acquire, upon the terms applicable to such
        Purchase Rights, the aggregate Purchase Rights which such Holder could have
        acquired if such Holder had held the number of shares of Common Stock acquirable
        upon complete conversion of this Note (without regard to any limitations
        on
        conversion contained herein) immediately before the date on which a record
        is
        taken for the grant, issuance or sale of such Purchase Rights or, if no such
        record is taken, the date as of which the record holders of Common Stock
        are to
        be determined for the grant, issue or sale of such Purchase Rights.

       

      (f)  Notice
        of
        Adjustments.  Upon
        the
        occurrence of each adjustment or readjustment of the Conversion Price as
        a
        result of the events described in this Section 1.6, the Borrower, at its
        expense, shall promptly compute such adjustment or readjustment and prepare
        and
        furnish to the Holder of a certificate setting forth such adjustment or
        readjustment and showing in detail the facts upon which such adjustment or
        readjustment is based.  The Borrower shall, upon the written request
        at any time of the Holder, furnish to such Holder a like certificate setting
        forth (i) such adjustment or readjustment, (ii) the Conversion Price at the
        time
        in effect and (iii) the number of shares of Common Stock and the amount,
        if any,
        of other securities or property which at the time would be received upon
        conversion of the Note.

       

      1.7  Trading
        Market
        Limitations.
Unless
        permitted by the applicable rules and regulations of the principal
        securities market on which the Common Stock is then listed or traded, in
        no
        event shall the Borrower issue upon conversion of or otherwise pursuant to
        this
        Note and the other Notes issued pursuant to the Purchase Agreement more than
        the
        maximum number of shares of Common Stock that the Borrower can issue pursuant
        to
        any rule of the principal United States securities market on which the Common
        Stock is then traded (the “Maximum Share Amount”), which
        shall be 19.99% of the total shares outstanding on the Closing Date (as defined
        in the Purchase Agreement), subject to equitable adjustment from time to
        time
        for stock splits, stock dividends, combinations, capital reorganizations
        and
        similar events relating to the Common Stock occurring after the date
        hereof.  Once the Maximum Share Amount has been issued (the date of
        which is hereinafter referred to as the “Maximum Conversion Date”), if
        the Borrower fails to eliminate any prohibitions under applicable law or
        the
        rules or regulations of any stock exchange, interdealer quotation system
        or
        other self-regulatory organization with jurisdiction over the Borrower or
        any of
        its securities on the Borrower’s ability to issue shares of Common Stock in
        excess of the Maximum Share Amount (a “Trading Market Prepayment
        Event”), in lieu of any further right to convert this Note, and in full
        satisfaction of the Borrower’s obligations under this Note, the Borrower shall
        pay to the Holder, within fifteen (15) business days of the Maximum Conversion
        Date (the “Trading Market
        Prepayment Date”), an amount equal to 130% times
        the sum of (a)
        the then
        outstanding principal amount of this Note immediately following the Maximum
        Conversion Date, plus (b) accrued
        and
        unpaid interest on the unpaid principal amount of this Note to the Trading
        Market Prepayment Date, plus (c) Default
        Interest, if any, on the amounts referred to in clause (a) and/or (b) above,
        plus (d) any
        optional amounts that may be added thereto at the Maximum Conversion Date
        by the
        Holder in accordance with the terms hereof (the then outstanding principal
        amount of this Note immediately following the Maximum Conversion Date, plus the amounts
        referred to in clauses (b), (c) and (d) above shall collectively be referred
        to
        as the “Remaining Convertible
        Amount”).  

       

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

         

         

        With
          respect to each Holder of Notes, the Maximum Share Amount shall refer to
          such
          Holder’s prorata
          share thereof
          determined in accordance with Section 4.8 below.  In the event that
          the sum of (x) the aggregate number of shares of Common Stock issued upon
          conversion of this Note and the other Notes issued pursuant to the Purchase
          Agreement plus
          (y) the aggregate number of shares of Common Stock that remain issuable
          upon
          conversion of this Note and the other Notes issued pursuant to the Purchase
          Agreement, represents at least one hundred percent (100%) of the Maximum
          Share
          Amount (the “Triggering
          Event”), the Borrower will use its best efforts to seek and obtain
          Shareholder Approval (or obtain such other relief as will allow conversions
          hereunder in excess of the Maximum Share Amount) as soon as practicable
          following the Triggering Event and before the Maximum Conversion
          Date.  As used herein, “Shareholder Approval” means
          approval by the shareholders of the Borrower to authorize the issuance
          of the
          full number of shares of Common Stock which would be issuable upon full
          conversion of the then outstanding Notes but for the Maximum Share
          Amount.

      

       

      1.8  Status
        as
        Shareholder.  Upon
        submission
        of a Notice of Conversion by a Holder, (i) the shares covered thereby (other
        than the shares, if any, which cannot be issued because their issuance would
        exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share
        Amount) shall be deemed converted into shares of Common Stock and (ii) the
        Holder’s rights as a Holder of such converted portion of this Note shall cease
        and terminate, excepting only the right to receive certificates for such
        shares
        of Common Stock and to any remedies provided herein or otherwise available
        at
        law or in equity to such Holder because of a failure by the Borrower to comply
        with the terms  of this Note.  Notwithstanding the
        foregoing, if a Holder has not received certificates for all shares of Common
        Stock prior to the tenth (10th) business day after the expiration of the
        Deadline with respect to a conversion of any portion of this Note for any
        reason, then (unless the Holder otherwise elects to retain its status as
        a
        holder of Common Stock by so notifying the Borrower) the Holder shall regain
        the
        rights of a Holder of this Note with respect to such unconverted portions
        of
        this Note and the Borrower shall, as soon as practicable, return such
        unconverted Note to the Holder or, if the Note has not been surrendered,
        adjust
        its records to reflect that such portion of this Note has not been
        converted.  In all cases, the Holder shall retain all of its rights
        and remedies (including, without limitation, (i) the right to receive Conversion
        Default Payments pursuant to Section 1.3 to the extent required thereby for
        such
        Conversion Default and any subsequent Conversion Default and (ii) the right
        to
        have the Conversion Price with respect to subsequent conversions determined
        in
        accordance with Section 1.3) for the Borrower’s failure to convert this
        Note.

       

       

      ARTICLE
        II.   CERTAIN COVENANTS

       

      2.1  Distributions
        on Capital
        Stock.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not
        without the Holder’s written consent (a) pay, declare or set apart for such
        payment, any dividend or other distribution (whether in cash, property or
        other
        securities) on shares of capital stock other than dividends on shares of
        Common
        Stock solely in the form of additional shares of Common Stock or (b) directly
        or
        indirectly or through any subsidiary make any other payment or distribution
        in
        respect of its capital stock except for distributions pursuant to any
        shareholders’ rights plan which is approved by a majority of the Borrower’s
        disinterested directors.

       

       

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      2.2  Restriction
        on Stock
        Repurchases.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not
        without the Holder’s written consent redeem, repurchase or otherwise acquire
        (whether for cash or in exchange for property or other securities or otherwise)
        in any one transaction or series of related transactions any shares of capital
        stock of the Borrower or any warrants, rights or options to purchase or acquire
        any such shares.

       

      2.3  Borrowings.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, create, incur, assume or suffer to exist
        any liability for borrowed money in excess of $50,000, except (a) borrowings
        in
        existence or committed on the date hereof and of which the Borrower has informed
        Holder in writing prior to the date hereof, (b) indebtedness to trade creditors
        or financial institutions incurred in the ordinary course of business or
        (c)
        borrowings, the proceeds of which shall be used to repay this Note.

       

      2.4  Sale
        of
        Assets.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, sell, lease or otherwise dispose of any
        significant portion of its assets outside the ordinary course of
        business.  Any consent to the disposition of any assets may be
        conditioned on a specified use of the proceeds of disposition.

       

      2.5  Advances
        and
        Loans.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, lend money, give credit or make advances
        to any person, firm, joint venture or corporation, including, without
        limitation, officers, directors, employees, subsidiaries and affiliates of
        the
        Borrower, except loans, credits or advances (a) in existence or committed
        on the
        date hereof and which the Borrower has informed Holder in writing prior to
        the
        date hereof, (b) made in the ordinary course of business or (c) not in excess
        of
        $50,000.

       

      2.6  Contingent
        Liabilities.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, assume, guarantee, endorse, contingently
        agree to purchase or otherwise become liable upon the obligation of any person,
        firm, partnership, joint venture or corporation, except by the endorsement
        of
        negotiable instruments for deposit or collection and except assumptions,
        guarantees, endorsements and contingencies (a) in existence or committed
        on the
        date hereof and which the Borrower has informed Holder in writing prior to
        the
        date hereof, and (b) similar transactions in the ordinary course of
        business.

       

       

      ARTICLE
        III.   EVENTS OF DEFAULT

       

      If
        any of
        the following events of default (each, an “Event of Default”) shall
        occur:

       

      3.1  Failure
        to Pay Principal or
        Interest.  The
        Borrower
        fails to pay the principal hereof or interest thereon when due on this Note,
        whether at maturity, upon a Trading Market Prepayment Event pursuant to Section
        1.7, upon acceleration or otherwise;

       

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

       

      3.2  Conversion
        and the
        Shares.  The
        Borrower
        fails to issue shares of Common Stock to the Holder (or announces or threatens
        that it will not honor its obligation to do so) upon exercise by the Holder
        of
        the conversion rights of the Holder in accordance with the terms of this
        Note
        (for a period of at least sixty (60) days, if such failure is solely as a
        result
        of the circumstances governed by Section 1.3 and the Borrower is using its
        best
        efforts to authorize a sufficient number of shares of Common Stock as soon
        as
        practicable), fails to transfer or cause its transfer agent to transfer
        (electronically or in certificated form) any certificate for shares of Common
        Stock issued to the Holder upon conversion of or otherwise pursuant to this
        Note
        as and when required by this Note or the Registration Rights Agreement, or
        fails
        to remove any restrictive legend (or to withdraw any stop transfer instructions
        in respect thereof) on any certificate for any shares of Common Stock issued
        to
        the Holder upon conversion of or otherwise pursuant to this Note as and when
        required by this Note or the Registration Rights Agreement (or makes any
        announcement, statement or threat that it does not intend to honor the
        obligations described in this paragraph) and any such failure shall continue
        uncured (or any announcement, statement or threat not to honor its obligations
        shall not be rescinded in writing) for ten (10) days after the Borrower shall
        have been notified thereof in writing by the Holder;

       

      3.3  Failure
        to Timely File
        Registration or Effect Registration.  The
        Borrower
        fails to file the Registration Statement within sixty (60) days following
        the
        Closing Date (as defined in the Purchase Agreement) or obtain effectiveness
        with
        the Securities and Exchange Commission of the Registration Statement within
        two
        hundred fifty (250) days following the Closing Date (as defined in the Purchase
        Agreement) or such Registration Statement lapses in effect (or sales cannot
        otherwise be made thereunder effective, whether by reason of the Borrower’s
        failure to amend or supplement the prospectus included therein in accordance
        with the Registration Rights Agreement or otherwise) for more than twenty
        (20)
        consecutive days or forty (40) days in any twelve month period after the
        Registration Statement becomes effective;

       

      3.4  Breach
        of
        Covenants.  The
        Borrower
        breaches any material covenant or other material term or condition contained
        in
        Sections 1.3, 1.6 or 1.7 of this Note, or Sections 4(c), 4(e), 4(h), 4(i),
        4(j)
        or 5 of the Purchase Agreement and such breach continues for a period of
        ten
        (10) days after written notice thereof to the Borrower from the
        Holder;

       

      3.5  Breach
        of Representations
        and Warranties.  Any
        representation or warranty of the Borrower made herein or in any agreement,
        statement or certificate given in writing pursuant hereto or in connection
        herewith (including, without limitation, the Purchase Agreement and the
        Registration Rights Agreement), shall be false or misleading in any material
        respect when made and the breach of which has (or with the passage of time
        will
        have) a material adverse effect on the rights of the Holder with respect
        to this
        Note, the Purchase Agreement or the Registration Rights Agreement;

       

      3.6  Receiver
        or
        Trustee.  The
        Borrower or
        any subsidiary of the Borrower shall make an assignment for the benefit of
        creditors, or apply for or consent to the appointment of a receiver or trustee
        for it or for a substantial part of its property or business, or such a receiver
        or trustee shall otherwise be appointed;

       

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

       

      3.7  Judgments.  Any
        money
        judgment, writ or similar process shall be entered or filed against the Borrower
        or any subsidiary of the Borrower or any of its property or other assets
        for
        more than $50,000, and shall remain unvacated, unbonded or unstayed for a
        period
        of twenty (20) days unless otherwise consented to by the Holder, which consent
        will not be unreasonably withheld;

       

      3.8  Bankruptcy.  Bankruptcy,
        insolvency, reorganization or liquidation proceedings or other proceedings
        for
        relief under any bankruptcy law or any law for the relief of debtors shall
        be
        instituted by or against the Borrower or any subsidiary of the
        Borrower;

       

      3.9  Delisting
        of Common
        Stock.  The
        Borrower
        shall fail to maintain the listing of the Common Stock on at least one of
        the
        OTCBB or an equivalent replacement exchange, the Nasdaq National Market,
        the
        Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock
        Exchange; or

       

      3.10  Default
        Under Other
        Notes.  An
        Event of
        Default has occurred and is continuing under any of the other Notes issued
        pursuant to the Purchase Agreement, then, upon the occurrence and during
        the
        continuation of any Event of Default specified in Section 3.1, 3.2, 3.3,
        3.4,
        3.5, 3.7, 3.9, or 3.10, at the option of the Holders of a majority of the
        aggregate principal amount of the outstanding Notes issued pursuant to the
        Purchase Agreement exercisable through the delivery of written notice to
        the
        Borrower by such Holders (the “Default Notice”), and upon the
        occurrence of an Event of Default specified in Section 3.6 or 3.8, the Notes
        shall become immediately due and payable and the Borrower shall pay to the
        Holder, in full satisfaction of its obligations hereunder, an amount equal
        to
        the greater of (i) 130% times the sum
        of (w) the then
        outstanding principal amount of this Note plus (x) accrued
        and
        unpaid interest on the unpaid principal amount of this Note to the date of
        payment (the “Mandatory
        Prepayment Date”) plus
        (y) Default
        Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any
        amounts
        owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant
        to
        Section 2(c) of the Registration Rights Agreement (the then outstanding
        principal amount of this Note to the date of payment plus the amounts
        referred to in clauses (x), (y) and (z) shall collectively be known as the
        “Default Sum”) or (ii)
        the “parity value” of the Default Sum to be prepaid, where parity value means
        (a) the highest number of shares of Common Stock issuable upon conversion
        of or
        otherwise pursuant to such Default Sum in accordance with Article I, treating
        the Trading Day immediately preceding the Mandatory Prepayment Date as the
        “Conversion Date” for purposes of determining the lowest applicable Conversion
        Price, unless the Default Event arises as a result of a breach in respect
        of a
        specific Conversion Date in which case such Conversion Date shall be the
        Conversion Date), multiplied by (b) the
        highest Closing Price for the Common Stock during the period beginning on
        the
        date of first occurrence of the Event of Default and ending one day prior
        to the
        Mandatory Prepayment Date (the “Default Amount”) and all other
        amounts payable hereunder shall immediately become due and payable, all without
        demand, presentment or notice, all of which hereby are expressly waived,
        together with all costs, including, without limitation, legal fees and expenses,
        of collection, and the Holder shall be entitled to exercise all other rights
        and
        remedies available at law or in equity.  If the Borrower fails to pay
        the Default Amount within five (5) business days of written notice that such
        amount is due and payable, then the Holder shall have the right at any time,
        so
        long as the Borrower remains in default (and so long and to the extent that
        there are sufficient authorized shares), to require the Borrower, upon written
        notice, to immediately issue, in lieu of the Default Amount, the number of
        shares of Common Stock of the Borrower equal to the Default Amount divided
        by
        the Conversion Price then in effect.

       

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        IV.   MISCELLANEOUS

       

      4.1  Failure
        or Indulgence Not
        Waiver.  No
        failure or
        delay on the part of the Holder in the exercise of any power, right or privilege
        hereunder shall operate as a waiver thereof, nor shall any single or partial
        exercise of any such power, right or privilege preclude other or further
        exercise thereof or of any other right, power or privileges.  All
        rights and remedies existing hereunder are cumulative to, and not exclusive
        of,
        any rights or remedies otherwise available.

       

      4.2  Notices.  Any
        notice herein
        required or permitted to be given shall be in writing and may be personally
        served or delivered by courier or sent by United States mail and shall be
        deemed
        to have been given upon receipt if personally served (which shall include
        telephone line facsimile transmission) or sent by courier or three (3) days
        after being deposited in the United States mail, certified, with postage
        pre-paid and properly addressed, if sent by mail.  For the purposes
        hereof, the address of the Holder shall be as shown on the records of the
        Borrower; and the address of the Borrower shall be 22600 Hall Road, Suite
        205
        Clinton Township, MI 48036, facsimile number: 586-468-8768.  Both the
        Holder and the Borrower may change the address for service by service of
        written
        notice to the other as herein provided.

       

      4.3  Amendments.  This
        Note and any
        provision hereof may only be amended by an instrument in writing signed by
        the
        Borrower and the Holder.  The term “Note” and all reference thereto,
        as used throughout this instrument, shall mean this instrument (and the other
        Notes issued pursuant to the Purchase Agreement) as originally executed,
        or if
        later amended or supplemented, then as so amended or supplemented.

       

      4.4  Assignability.  This
        Note shall
        be binding upon the Borrower and its successors and assigns, and shall inure
        to
        be the benefit of the Holder and its successors and assigns.  Each
        transferee of this Note must be an “accredited investor” (as defined in Rule
        501(a) of the 1933 Act).  Notwithstanding anything in this Note to the
        contrary, this Note may be pledged as collateral in connection with a bonafide
        margin account
        or other lending arrangement.

       

      4.5  Cost
        of
        Collection.  If
        default is
        made in the payment of this Note, the Borrower shall pay the Holder hereof
        costs
        of collection, including reasonable attorneys’ fees.

       

      4.6  Governing
        Law.  THIS
        NOTE SHALL
        BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
        STATE
        OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN
        SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.  THE
        BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES
        FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE
        ARISING
        UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE
        TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 

       

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

         

         

        BOTH
          PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE
          MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE
          THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE
          DEEMED
          IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH
          SUIT OR
          PROCEEDING.  NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE
          PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.  BOTH PARTIES AGREE THAT
          A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE
          CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT
          OR IN ANY OTHER LAWFUL MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN
          ANY DISPUTE ARISING UNDER THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND
          EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN
          CONNECTION WITH SUCH DISPUTE.

      

       

      4.7  Certain
        Amounts.  Whenever
        pursuant
        to this Note the Borrower is required to pay an amount in excess of the
        outstanding principal amount (or the portion thereof required to be paid
        at that
        time) plus accrued and unpaid interest plus Default Interest on such interest,
        the Borrower and the Holder agree that the actual damages to the Holder from
        the
        receipt of cash payment on this Note may be difficult to determine and the
        amount to be so paid by the Borrower represents stipulated damages and not
        a
        penalty and is intended to compensate the Holder in part for loss of the
        opportunity to convert this Note and to earn a return from the sale of shares
        of
        Common Stock acquired upon conversion of this Note at a price in excess of
        the
        price paid for such shares pursuant to this Note.  The Borrower and
        the Holder hereby agree that such amount of stipulated damages is not plainly
        disproportionate to the possible loss to the Holder from the receipt of a
        cash
        payment without the opportunity to convert this Note into shares of Common
        Stock.

       

      4.8  Allocations
        of Maximum Share
        Amount and Reserved Amount.  The
        Maximum Share
        Amount and Reserved Amount shall be allocated pro rata among the Holders
        of
        Notes based on the principal amount of such Notes issued to each
        Holder.  Each increase to the Maximum Share Amount and Reserved Amount
        shall be allocated pro rata among the Holders of Notes based on the principal
        amount of such Notes held by each Holder at the time of the increase in the
        Maximum Share Amount or Reserved Amount.  In the event a Holder shall
        sell or otherwise transfer any of such Holder’s Notes, each transferee shall be
        allocated a pro rata portion of such transferor’s Maximum Share Amount and
        Reserved Amount.  Any portion of the Maximum Share Amount or Reserved
        Amount which remains allocated to any person or entity which does not hold
        any
        Notes shall be allocated to the remaining Holders of Notes, pro rata based
        on
        the principal amount of such Notes then held by such Holders.

       

      4.9  Damages
        Shares.  The
        shares of
        Common Stock that may be issuable to the Holder pursuant to Sections 1.3
        and
        1.4(g) hereof and pursuant to Section 2(c) of the Registration Rights Agreement
        (“Damages Shares”) shall
        be treated as Common Stock issuable upon conversion of this Note for all
        purposes hereof and shall be subject to all of the limitations and afforded
        all
        of the rights of the other shares of Common Stock issuable hereunder, including
        without limitation, the right to be included in the Registration Statement
        filed
        pursuant to the Registration Rights Agreement.  For purposes of
        calculating interest payable on the outstanding principal amount hereof,
        except
        as otherwise provided herein, amounts convertible into Damages Shares (“Damages Amounts”) shall not
        bear interest but must be converted prior to the conversion of any outstanding
        principal amount hereof, until the outstanding Damages Amounts is
        zero.

       

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      4.10  Denominations.  At
        the request of
        the Holder, upon surrender of this Note, the Borrower shall promptly issue
        new
        Notes in the aggregate outstanding principal amount hereof, in the form hereof,
        in such denominations of at least $50,000 as the Holder shall
        request.

       

      4.11  Purchase
        Agreement.  By
        its acceptance
        of this Note, each Holder agrees to be bound by the applicable terms of the
        Purchase Agreement.

       

      4.12  Notice
        of Corporate
        Events.  Except
        as
        otherwise provided below, the Holder of this Note shall have no rights as
        a
        Holder of Common Stock unless and only to the extent that it converts this
        Note
        into Common Stock.  The Borrower shall provide the Holder with prior
        notification of any meeting of the Borrower’s shareholders (and copies of proxy
        materials and other information sent to shareholders).  In the event
        of any taking by the Borrower of a record of its shareholders for the purpose
        of
        determining shareholders who are entitled to receive payment of any dividend
        or
        other distribution, any right to subscribe for, purchase or otherwise acquire
        (including by way of merger, consolidation, reclassification or
        recapitalization) any share of any class or any other securities or property,
        or
        to receive any other right, or for the purpose of determining shareholders
        who
        are entitled to vote in connection with any proposed sale, lease or conveyance
        of all or substantially all of the assets of the Borrower or any proposed
        liquidation, dissolution or winding up of the Borrower, the Borrower shall
        mail
        a notice to the Holder, at least twenty (20) days prior to the record date
        specified therein (or thirty (30) days prior to the consummation of the
        transaction or event, whichever is earlier), of the date on which any such
        record is to be taken for the purpose of such dividend, distribution, right
        or
        other event, and a brief statement regarding the amount and character of
        such
        dividend, distribution, right or other event to the extent known at such
        time.  The Borrower shall make a public announcement of any event
        requiring notification to the Holder hereunder substantially simultaneously
        with
        the notification to the Holder in accordance with the terms of this Section
        4.12.

       

      4.13  Remedies.  The
        Borrower
        acknowledges that a breach by it of its obligations hereunder will cause
        irreparable harm to the Holder, by vitiating the intent and purpose of the
        transaction contemplated hereby.  Accordingly, the Borrower
        acknowledges that the remedy at law for a breach of its obligations under
        this
        Note will be inadequate and agrees, in the event of a breach or threatened
        breach by the Borrower of the provisions of this Note, that the Holder shall
        be
        entitled, in addition to all other available remedies at law or in equity,
        and
        in addition to the penalties assessable herein, to an injunction or injunctions
        restraining, preventing or curing any breach of this Note and to enforce
        specifically the terms and provisions thereof, without the necessity of showing
        economic loss and without any bond or other security being
        required.

       

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        V.  CALL OPTION

       

      5.1  Call
        Option.  Notwithstanding
        anything to the contrary contained in this Article V, so long as (i) no
        Event of Default or Trading Market Prepayment Event shall have occurred and
        be
        continuing, (ii) the Borrower has a sufficient number of authorized shares
        of Common Stock reserved for issuance upon full conversion of the Notes,
        then at
        any time after the Issue Date, and (iii) the Common Stock is trading at or
        below $.04 per share, the Borrower shall have the right, exercisable on not
        less
        than ten (10) Trading Days prior written notice to the Holders of the Notes
        (which notice may not be sent to the Holders of the Notes until the Borrower
        is
        permitted to prepay the Notes pursuant to this Section 5.1), to prepay all
        of
        the outstanding Notes in accordance with this Section 5.1.  Any notice
        of prepayment hereunder (an “Optional Prepayment”) shall be
        delivered to the Holders of the Notes at their registered addresses appearing
        on
        the books and records of the Borrower and shall state (1) that the Borrower
        is
        exercising its right to prepay all of the Notes issued on the Issue Date
        and (2)
        the date of prepayment (the “Optional Prepayment
        Notice”).  On the date fixed for prepayment (the “Optional Prepayment
        Date”),
        the Borrower shall make payment of the Optional Prepayment Amount (as defined
        below) to or upon the order of the Holders as specified by the Holders in
        writing to the Borrower at least one (1) business day prior to the Optional
        Prepayment Date.  If the Borrower exercises its right to prepay the
        Notes, the Borrower shall make payment to the holders of an amount in cash
        (the
“Optional Prepayment
        Amount”) equal to either (i) 135% (for prepayments occurring within
        thirty (30) days of the Issue Date), (ii) 145% for prepayments occurring
        between thirty-one (31) and ninety (90) days of the Issue Date, or (iii)
        150%
        (for prepayments occurring after the ninetieth (90th)
        day following
        the Issue Date), multiplied by the sum of (w) the then outstanding principal
        amount of this Note plus (x) accrued
        and unpaid interest on the unpaid principal amount of this Note to the Optional
        Prepayment Date plus (y) Default
        Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any
        amounts
        owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant
        to
        Section 2(c) of the Registration Rights Agreement (the then outstanding
        principal amount of this Note to the date of payment plus the amounts
        referred to in clauses (x), (y) and (z) shall collectively be known as the
        “Optional Prepayment
        Sum”). Notwithstanding notice of an Optional Prepayment, the Holders
        shall at all times prior to the Optional Prepayment Date maintain the right
        to
        convert all or any portion of the Notes in accordance with Article I and
        any
        portion of Notes so converted after receipt of an Optional Prepayment Notice
        and
        prior to the Optional Prepayment Date set forth in such notice and payment
        of
        the aggregate Optional Prepayment Amount shall be deducted from the principal
        amount of Notes which are otherwise subject to prepayment pursuant to such
        notice.  If the Borrower delivers an Optional Prepayment Notice and
        fails to pay the Optional Prepayment Amount due to the Holders of the Notes
        within two (2) business days following the Optional Prepayment Date, the
        Borrower shall forever forfeit its right to redeem the Notes pursuant to
        this
        Section 5.1.

       

      

       

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK]

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

       

       

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

       

      

      MIDNIGHT
        HOLDINGS GROUP,
        INC.

      

      

      

      By:
/s/
        Nicholas Cocco            

      Nicholas
        Cocco

      Chief
        Executive Officer

       

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

       

       

      EXHIBIT
        A

       

      NOTICE
        OF
        CONVERSION

       

      (To
        be
        Executed by the Registered Holder

      in
        order
        to Convert the Notes)

       

      The
        undersigned hereby irrevocably elects to convert $__________ principal amount
        of
        the Note (defined below) into shares of common stock, par value $.00005 per
        share (“Common Stock”),
        of Midnight Holdings Group, Inc., a Delaware corporation (the “Borrower”) according to the
        conditions of the convertible Notes of the Borrower dated as of October 19,
        2007
        (the “Notes”), as of the date written below.  If securities are to be
        issued in the name of a person other than the undersigned, the undersigned
        will
        pay all transfer taxes payable with respect thereto and is delivering herewith
        such certificates.  No fee will be charged to the Holder for any
        conversion, except for transfer taxes, if any.  A copy of each Note is
        attached hereto (or evidence of loss, theft or destruction
        thereof).

       

      The
        Borrower shall electronically transmit the Common Stock issuable pursuant
        to
        this Notice of Conversion to the account of the undersigned or its nominee
        with
        DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

       

      Name
        of
        DTC Prime
        Broker:    _________________________                                                                                                                 

      Account
        Number:    ________________________________                                                                                                                 

       

      In
        lieu
        of receiving shares of Common Stock issuable pursuant to this Notice of
        Conversion by way of a DWAC Transfer, the undersigned hereby requests that
        the
        Borrower issue a certificate or certificates for the number of shares of
        Common
        Stock set forth below (which numbers are based on the Holder’s calculation
        attached hereto) in the name(s) specified immediately below or, if additional
        space is necessary, on an attachment hereto:

       

      Name:     ________________________________________                                                                                                                

      Address:    ______________________________________                                                                                                                 

       

      The
        undersigned represents and warrants that all offers and sales by the undersigned
        of the securities issuable to the undersigned upon conversion of the Notes
        shall
        be made pursuant to registration of the securities under the Securities Act
        of
        1933, as amended (the “Act”), or pursuant to
        an
        exemption from registration under the Act.

       

      Date
        of
        Conversion:___________________________

      Applicable
        Conversion Price:____________________

      Number
        of
        Shares of Common Stock to be Issued Pursuant to

      Conversion
        of the Notes:______________

      Signature:___________________________________

      Name:______________________________________

      Address:____________________________________

       

       

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

       

      The
        Borrower shall issue and deliver shares of Common Stock to an overnight courier
        not later than three business days following receipt of the original Note(s)
        to
        be converted, and shall make payments pursuant to the Notes for the number
        of
        business days such issuance and delivery is late.

    

     

     

     

     

     

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    
      

      

    

     

    
      
        THE
          SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
          THE
          SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THE SECURITIES MAY
          NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
          STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN
          FORM,
          SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS
          THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT
          TO RULE
          144 OR REGULATION S UNDER SAID ACT.

         

      

       

      CALLABLE
        SECURED CONVERTIBLE
        NOTE

       

      
        
          	
                  Clinton
                    Township, Michigan

                	 
	
                  October
                    19, 2007

                	
                  
                    $106,250

                  

                

        

      

       

      FOR
        VALUE RECEIVED, MIDNIGHT HOLDINGS
        GROUP, INC.,
a Delaware corporation (hereinafter called the “Borrower”), hereby
        promises to pay to the order of AJW Qualified Partners, LLC or registered
        assigns (the “Holder”)
        the sum of $106,250 on October 19, 2010 (the “Maturity Date”), and to pay
        interest on the unpaid principal balance hereof at the rate of ten percent
        (10%)
        per annum from October 19, 2007 (the “Issue Date”) until the same
        becomes due and payable, whether at maturity or upon acceleration or by
        prepayment or otherwise.  Any amount of principal or interest on this
        Note which is not paid when due shall bear interest at the rate of fifteen
        percent (15%) per annum from the due date thereof until the same is paid
        (“Default
        Interest”).  Interest shall commence accruing on the issue
        date, shall be computed on the basis of a 365-day year and the actual number
        of
        days elapsed and shall be payable, quarterly on March 31, June 30,
        September 30 and December 31 of each year beginning on the last day of the
        first full quarter after Issue Date.  All payments due hereunder (to
        the extent not converted into common stock, $.00005 par value per share, of the
        Borrower (the “Common
        Stock”) in accordance with the terms hereof) shall be made in lawful
        money of the United States of America.  All payments shall be made at
        such address as the Holder shall hereafter give to the Borrower by written
        notice made in accordance with the provisions of this Note.  Whenever
        any amount expressed to be due by the terms of this Note is due on any day
        which
        is not a business day, the same shall instead be due on the next succeeding
        day
        which is a business day and, in the case of any interest payment date which
        is
        not the date on which this Note is paid in full, the extension of the due
        date
        thereof shall not be taken into account for purposes of determining the amount
        of interest due on such date.  As used in this Note, the term
“business day” shall mean any day other than a Saturday, Sunday or a day on
        which commercial banks in the city of New York, New York are authorized or
        required by law or executive order to remain
        closed.    

       

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

         

         

        Each
          capitalized term used herein, and not otherwise defined, shall have the
          meaning
          ascribed thereto in that certain Securities Purchase Agreement, dated October
          19, 2007, pursuant to which this Note was originally issued (the “Purchase
          Agreement”).

      

       

      This
        Note
        is free from all taxes, liens, claims and encumbrances with respect to the
        issue
        thereof and shall not be subject to preemptive rights or other similar rights
        of
        shareholders of the Borrower and will not impose personal liability upon
        the
        holder thereof.  The obligations of the Borrower under this Note shall
        be secured by that certain Security Agreement by and between the Borrower
        and
        the Holder of even date herewith.

       

      The
        following terms shall apply to this Note:

       

       

      ARTICLE
        I.  CONVERSION RIGHTS

       

      1.1  Conversion
        Right.  The
        Holder shall
        have the right from time to time, and at any time on or prior to the earlier
        of
        (i) the Maturity Date and (ii) the date of payment of the Default Amount
        (as
        defined in Article III) pursuant to Section 1.6(a) or Article III, the Optional
        Prepayment Amount (as defined in Section 5.1) or (iii) any payments pursuant
        to
        Section 1.7, each in respect of the remaining outstanding principal amount
        of
        this Note to convert all or any part of the outstanding and unpaid principal
        amount of this Note into fully paid and non-assessable shares of Common Stock,
        as such Common Stock exists on the Issue Date, or any shares of capital stock
        or
        other securities of the Borrower into which such Common Stock shall hereafter
        be
        changed or reclassified at the conversion price  (the “Conversion Price”) determined
        as provided herein (a “Conversion”); provided,
however,
        that in no
        event shall the Holder be entitled to convert any portion of this Note in
        excess
        of that portion of this Note upon conversion of which the sum of (1) the
        number
        of shares of Common Stock beneficially owned by the Holder and its affiliates
        (other than shares of Common Stock which may be deemed beneficially owned
        through the ownership of the unconverted portion of the Notes or the unexercised
        or unconverted portion of any other security of the Borrower (including,
        without
        limitation, the warrants issued by the Borrower pursuant to the Purchase
        Agreement) subject to a limitation on conversion or exercise analogous to
        the
        limitations contained herein) and (2) the number of shares of Common Stock
        issuable upon the conversion of the portion of this Note with respect to
        which
        the determination of this proviso is being made, would result in beneficial
        ownership by the Holder and its affiliates of more than 4.9% of the outstanding
        shares of Common Stock.  For purposes of the proviso to the
        immediately preceding sentence, beneficial ownership shall be determined
        in
        accordance with Section 13(d) of the Securities Exchange Act of 1934, as
        amended, and Regulations 13D-G thereunder, except as otherwise provided in
        clause (1) of such proviso.  The number of shares of Common Stock to
        be issued upon each conversion of this Note shall be determined by dividing
        the
        Conversion Amount (as defined below) by the applicable Conversion Price then
        in
        effect on the date specified in the notice of conversion, in the form attached
        hereto as Exhibit A (the “Notice of Conversion”),
        delivered to the Borrower by the Holder in accordance with Section 1.4 below;
        provided that the Notice of Conversion is submitted by facsimile (or by other
        means resulting in, or reasonably expected to result in, notice) to the Borrower
        before 6:00 p.m., New York, New York time on such conversion date (the “Conversion
        Date”).  

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

         

         

        The
          term
“Conversion Amount”
means, with respect
          to any conversion of this Note, the sum of (1) the principal
          amount of this Note to be converted in such conversion plus (2)
          accrued and
          unpaid interest, if any, on such principal amount at the interest rates
          provided
          in this Note to the Conversion Date plus (3)
          Default
          Interest, if any, on the amounts referred to in the immediately preceding
          clauses (1) and/or (2) plus (4)
          at the
          Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and
          1.4(g) hereof or pursuant to Section 2(c) of that certain Registration
          Rights
          Agreement, dated as of October 19, 2007, executed in connection with the
          initial
          issuance of this Note and the other Notes issued on the Issue Date (the
“Registration Rights
          Agreement”).

      

       

      1.2  Conversion
        Price.

       

      (a)  Calculation
        of Conversion
        Price.  The
        Conversion
        Price shall be the lesser of (i) the Variable Conversion Price (as defined
        herein) and (ii) the Fixed Conversion Price (as defined herein) (subject,
        in
        each case, to equitable adjustments for stock splits, stock dividends or
        rights
        offerings by the Borrower relating to the Borrower’s securities or the
        securities of any subsidiary of the Borrower, combinations, recapitalization,
        reclassifications, extraordinary distributions and similar
        events).  The “Variable Conversion Price”
shall mean the Applicable
        Percentage (as defined herein) multiplied by the
        Market Price (as defined herein).  “Market Price” means the
        average of the lowest three (3) Trading Prices (as defined below) for the
        Common
        Stock during the twenty (20) Trading Day period ending one Trading Day prior
        to
        the date the Conversion Notice is sent by the Holder to the Borrower via
        facsimile (the “Conversion
        Date”).  “Trading Price” means, for
        any
        security as of any date, the intraday trading price on the Over-the-Counter
        Bulletin Board (the “OTCBB”) as reported by
        a
        reliable reporting service mutually acceptable to and hereafter designated
        by
        Holders of a majority in interest of the Notes and the Borrower or, if the
        OTCBB
        is not the principal trading market for such security, the intraday trading
        price of such security on the principal securities exchange or trading market
        where such security is listed or traded or, if no intraday trading price
        of such
        security is available in any of the foregoing manners, the average of the
        intraday trading prices of any market makers for such security that are listed
        in the “pink sheets” by the National Quotation Bureau, Inc.  If the
        Trading Price cannot be calculated for such security on such date in the
        manner
        provided above, the Trading Price shall be the fair market value as mutually
        determined by the Borrower and the holders of a majority in interest of the
        Notes being converted for which the calculation of the Trading Price is required
        in order to determine the Conversion Price of such Notes.  “Trading Day” shall mean any
        day on which the Common Stock is traded for any period on the OTCBB, or on
        the
        principal securities exchange or other securities market on which the Common
        Stock is then being traded.  “Applicable Percentage” shall
        mean 25%; provided, however, that the Applicable Percentage shall be increased
        to (i) 30% in the event that the Registration Statement (as defined in the
        Registration Rights Agreement) is filed on or before the Filing Date (as
        defined
        in the Registration Rights Agreement) and (ii) 40% in the event that the
        Registration Statement (as defined in the Registration Rights Agreement)
        becomes
        effective on or before the Effectiveness Deadline) as defined in the
        Registration Rights Agreement).  The “Fixed Conversion Price” shall
        mean $.02.

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      (b)  Conversion
        Price During
        Major Announcements.  Notwithstanding
        anything contained in Section 1.2(a) to the contrary, in the event the Borrower
        (i) makes a public announcement that it intends to consolidate or merge with
        any
        other corporation (other than a merger in which the Borrower is the surviving
        or
        continuing corporation and its capital stock is unchanged) or sell or transfer
        all or substantially all of the assets of the Borrower or (ii) any person,
        group
        or entity (including the Borrower) publicly announces a tender offer to purchase
        50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the
        date of the announcement referred to in clause (i) or (ii) is hereinafter
        referred to as the  “Announcement Date”), then the
        Conversion Price shall, effective upon the Announcement Date and continuing
        through the Adjusted Conversion Price Termination Date (as defined below),
        be
        equal to the lower of (x) the Conversion Price which would have been applicable
        for a Conversion occurring on the Announcement Date and (y) the Conversion
        Price
        that would otherwise be in effect. From and after the Adjusted Conversion
        Price
        Termination Date, the Conversion Price shall be determined as set forth in
        this
        Section 1.2(a).  For purposes hereof,  “Adjusted Conversion Price
        Termination
        Date” shall mean, with respect to any proposed transaction or tender
        offer (or takeover scheme) for which a public announcement as contemplated
        by
        this Section 1.2(b) has been made, the date upon which the Borrower (in the
        case
        of clause (i) above) or the person, group or entity (in the case of clause
        (ii)
        above) consummates or publicly announces the termination or abandonment of
        the
        proposed transaction or tender offer (or takeover scheme) which caused this
        Section 1.2(b) to become operative.

       

      1.3  Authorized
        Shares.  Subject
        to the
        completion of the Charter Amendment Actions (as defined in the Purchase
        Agreement), the Borrower covenants that during the period the conversion
        right
        exists, the Borrower will reserve from its authorized and unissued Common
        Stock
        a sufficient number of shares, free from preemptive rights, to provide for
        the
        issuance of Common Stock upon the full conversion of this Note and the other
        Notes issued pursuant to the Purchase Agreement.  The Borrower is
        required at all times to have authorized and reserved two times the number
        of
        shares that is actually issuable upon full conversion of the Notes (based
        on the
        Conversion Price of the Notes or the Exercise Price of the Warrants in effect
        from time to time) (the “Reserved
        Amount”).  The Reserved Amount shall be increased from time to
        time in accordance with the Borrower’s obligations pursuant to Section 4(h) of
        the Purchase Agreement.  The Borrower represents that upon issuance,
        such shares will be duly and validly issued, fully paid and
        non-assessable.  In addition, if the Borrower shall issue any
        securities or make any change to its capital structure which would change
        the
        number of shares of Common Stock into which the Notes shall be convertible
        at
        the then current Conversion Price, the Borrower shall at the same time make
        proper provision so that thereafter there shall be a sufficient number of
        shares
        of Common Stock authorized and reserved, free from preemptive rights, for
        conversion of the outstanding Notes.  The Borrower (i) acknowledges
        that it has irrevocably instructed its transfer agent to issue certificates
        for
        the Common Stock issuable upon conversion of this Note, and (ii) agrees
        that its issuance of this Note shall constitute full authority to its officers
        and agents who are charged with the duty of executing stock certificates
        to
        execute and issue the necessary certificates for shares of Common Stock in
        accordance with the terms and conditions of this Note.

       

      If,
        at
        any time a Holder of this Note submits a Notice of Conversion, and the Borrower
        does not have sufficient authorized but unissued shares of Common Stock
        available to effect such conversion in accordance with the provisions of
        this
        Article I (a “Conversion
        Default”), subject to Section 4.8, the Borrower shall issue to the Holder
        all of the shares of Common Stock which are then available to effect such
        conversion. 

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

         

         

        The
          portion of this Note which the Holder included in its Conversion Notice
          and
          which exceeds the amount which is then convertible into available shares
          of
          Common Stock (the “Excess
          Amount”) shall, notwithstanding anything to the contrary contained
          herein, not be convertible into Common Stock in accordance with the terms
          hereof
          until (and at the Holder’s option at any time after) the date additional shares
          of Common Stock are authorized by the Borrower to permit such conversion,
          at
          which time the Conversion Price in respect thereof shall be the lesser
          of (i)
          the Conversion Price on the Conversion Default Date (as defined below)
          and (ii)
          the Conversion Price on the Conversion Date thereafter elected by the Holder
          in
          respect thereof.  In addition, the Borrower shall pay to the Holder
          payments (“Conversion Default
          Payments”) for a Conversion Default in the amount of (x) the sum of
          (1) the then
          outstanding principal amount of this Note plus (2)
          accrued and
          unpaid interest on the unpaid principal amount of this Note through the
          Authorization Date (as defined below) plus (3)
          Default
          Interest, if any, on the amounts referred to in clauses (1) and/or (2),
multiplied by (y)
          .24, multiplied
          by (z) (N/365), where N = the number of days from the day the holder
          submits a Notice of Conversion giving rise to a Conversion Default (the
“Conversion Default Date”) to
          the date (the “Authorization
          Date”) that the Borrower authorizes a sufficient number of shares of
          Common Stock to effect conversion of the full outstanding principal balance
          of
          this Note.  The Borrower shall use its best efforts to authorize a
          sufficient number of shares of Common Stock as soon as practicable following
          the
          earlier of (i) such time that the Holder notifies the Borrower or that
          the
          Borrower otherwise becomes aware that there are or likely will be insufficient
          authorized and unissued shares to allow full conversion thereof and (ii)
          a
          Conversion Default.  The Borrower shall send notice to the Holder of
          the authorization of additional shares of Common Stock, the Authorization
          Date
          and the amount of Holder’s accrued Conversion Default Payments.  The
          accrued Conversion Default Payments for each calendar month shall be paid
          in
          cash or shall be convertible into Common Stock (at such time as there are
          sufficient authorized shares of Common Stock) at the applicable Conversion
          Price, at the Borrower’s option, as follows:

      

       

      (a)  In
        the
        event the Borrower elects to make such payment in cash, cash payment shall
        be
        made to Holder by the fifth (5th)
        day of the month
        following the month in which it has accrued; and

       

      

      (b)   In
        the event the Borrower elects to make such payment in Common Stock, the Holder
        may convert such payment amount into Common Stock at the Conversion Price
        (as in
        effect at the time of conversion) at any time after the fifth day of the
        month
        following the month in which it has accrued in accordance with the terms
        of this
        Article I (so long as there is then a sufficient number of authorized shares
        of
        Common Stock).

       

      

      The
        Borrower’s election shall be made in writing to the Holder at any time prior to
        6:00 p.m., New York, New York time, on the third day of the month following
        the
        month in which Conversion Default payments have accrued.  If no
        election is made, the Borrower shall be deemed to have elected to remit Common
        Stock.  Nothing herein shall limit the Holder’s right to pursue actual
        damages (to the extent in excess of the Conversion Default Payments) for
        the
        Borrower’s failure to maintain a sufficient number of authorized shares of
        Common Stock, and each holder shall have the right to pursue all remedies
        available at law or in equity (including degree of specific performance and/or
        injunctive relief).

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      1.4  Method
        of
        Conversion.

       

      (a)  Mechanics
        of
        Conversion.  Subject
        to
        Section 1.1, this Note may be converted by the Holder in whole or in part
        at any
        time from time to time after the Issue Date, by (A) submitting to the
        Borrower a Notice of Conversion (by facsimile or other reasonable means of
        communication dispatched on the Conversion Date prior to 6:00 p.m., New York,
        New York time) and (B) subject to Section 1.4(b), surrendering this Note at
        the principal office of the Borrower.

       

      (b)  Surrender
        of Note Upon
        Conversion.  Notwithstanding
        anything to the contrary set forth herein, upon conversion of this Note in
        accordance with the terms hereof, the Holder shall not be required to physically
        surrender this Note to the Borrower unless the entire unpaid principal amount
        of
        this Note is so converted.  The Holder and the Borrower shall maintain
        records showing the principal amount so converted and the dates of such
        conversions or shall use such other method, reasonably satisfactory to the
        Holder and the Borrower, so as not to require physical surrender of this
        Note
        upon each such conversion.  In the event of any dispute or
        discrepancy, such records of the Borrower shall be controlling and determinative
        in the absence of manifest error.  Notwithstanding the foregoing, if
        any portion of this Note is converted as aforesaid, the Holder may not transfer
        this Note unless the Holder first physically surrenders this Note to the
        Borrower, whereupon the Borrower will forthwith issue and deliver upon the
        order
        of the Holder a new Note of like tenor, registered as the Holder (upon payment
        by the Holder of any applicable transfer taxes) may request, representing
        in the
        aggregate the remaining unpaid principal amount of this Note.  The
        Holder and any assignee, by acceptance of this Note, acknowledge and agree
        that,
        by reason of the provisions of this paragraph, following conversion of a
        portion
        of this Note, the unpaid and unconverted principal amount of this Note
        represented by this Note may be less than the amount stated on the face
        hereof.

       

      (c)  Payment
        of
        Taxes.  The
        Borrower
        shall not be required to pay any tax which may be payable in respect of any
        transfer involved in the issue and delivery of shares of Common Stock or
        other
        securities or property on conversion of this Note in a name other than that
        of
        the Holder (or in street name), and the Borrower shall not be required to
        issue
        or deliver any such shares or other securities or property unless and until
        the
        person or persons (other than the Holder or the custodian in whose street
        name
        such shares are to be held for the Holder’s account) requesting the issuance
        thereof shall have paid to the Borrower the amount of any such tax or shall
        have
        established to the satisfaction of the Borrower that such tax has been
        paid.

       

      (d)  Delivery
        of Common Stock
        Upon Conversion.  Upon
        receipt by
        the Borrower from the Holder of a facsimile transmission (or other reasonable
        means of communication) of a Notice of Conversion meeting the requirements
        for
        conversion as provided in this Section 1.4, the Borrower shall issue and
        deliver
        or cause to be issued and delivered to or upon the order of the Holder
        certificates for the Common Stock issuable upon such conversion within five
        (5)
        business days after such receipt (and, solely in the case of conversion of
        the
        entire unpaid principal amount hereof, surrender of this Note) (such second
        business day being hereinafter referred to as the “Deadline”) in accordance
        with
        the terms hereof and the Purchase Agreement (including, without limitation,
        in
        accordance with the requirements of Section 2(g) of the Purchase Agreement
        that
        certificates for shares of Common Stock issued on or after the effective
        date of
        the Registration Statement upon conversion of this Note shall not bear any
        restrictive legend).

       

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      (e)  Obligation
        of Borrower to
        Deliver Common Stock.  Upon
        receipt by
        the Borrower of a Notice of Conversion, the Holder shall be deemed to be
        the
        holder of record of the Common Stock issuable upon such conversion, the
        outstanding principal amount and the amount of accrued and unpaid interest
        on
        this Note shall be reduced to reflect such conversion, and, unless the Borrower
        defaults on its obligations under this Article I, all rights with respect
        to the
        portion of this Note being so converted shall forthwith terminate except
        the
        right to receive the Common Stock or other securities, cash or other assets,
        as
        herein provided, on such conversion.  If the Holder shall have given a
        Notice of Conversion as provided herein, the Borrower’s obligation to issue and
        deliver the certificates for Common Stock shall be absolute and unconditional,
        irrespective of the absence of any action by the Holder to enforce the same,
        any
        waiver or consent with respect to any provision thereof, the recovery of
        any
        judgment against any person or any action to enforce the same, any failure
        or
        delay in the enforcement of any other obligation of the Borrower to the holder
        of record, or any setoff, counterclaim, recoupment, limitation or termination,
        or any breach or alleged breach by the Holder of any obligation to the Borrower,
        and irrespective of any other circumstance which might otherwise limit such
        obligation of the Borrower to the Holder in connection with such
        conversion.  The Conversion Date specified in the Notice of Conversion
        shall be the Conversion Date so long as the Notice of Conversion is received
        by
        the Borrower before 6:00 p.m., New York, New York time, on such
        date.

       

      (f)  Delivery
        of Common Stock by
        Electronic Transfer.  In
        lieu of
        delivering physical certificates representing the Common Stock issuable upon
        conversion, provided the Borrower’s transfer agent is participating in the
        Depository Trust Company (“DTC”) Fast Automated
        Securities Transfer (“FAST”) program, upon
        request
        of the Holder and its compliance with the provisions contained in Section
        1.1
        and in this Section 1.4, the Borrower shall use its best efforts to cause
        its
        transfer agent to electronically transmit the Common Stock issuable upon
        conversion to the Holder by crediting the account of Holder’s Prime Broker with
        DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

       

      (g)  Failure
        to Deliver Common
        Stock Prior to Deadline.  Without
        in any
        way limiting the Holder’s right to pursue other remedies, including actual
        damages and/or equitable relief, the parties agree that if delivery of the
        Common Stock issuable upon conversion of this Note is more than two (2) days
        after the Deadline (other than a failure due to the circumstances described
        in
        Section 1.3 above, which failure shall be governed by such Section) the Borrower
        shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline
        that the Borrower fails to deliver such Common Stock.  Such cash
        amount shall be paid to Holder by the fifth day of the month following the
        month
        in which it has accrued or, at the option of the Holder (by written notice
        to
        the Borrower by the first day of the month following the month in which it
        has
        accrued), shall be added to the principal amount of this Note, in which event
        interest shall accrue thereon in accordance with the terms of this Note and
        such
        additional principal amount shall be convertible into Common Stock in accordance
        with the terms of this Note.

       

      1.5  Concerning
        the
        Shares.  The
        shares of
        Common Stock issuable upon conversion of this Note may not be sold or
        transferred unless  (i) such shares are sold pursuant to an effective
        registration statement under the Act or (ii) the Borrower or its transfer
        agent
        shall have been furnished with an opinion of  counsel (which opinion
        shall be in form, substance and scope customary for opinions of counsel in
        comparable transactions) to the effect that the shares to be sold or transferred
        may be sold or transferred pursuant to an exemption from such registration
        or
        (iii) such shares are sold or transferred pursuant to Rule 144 under the
        Act (or a successor rule) (“Rule 144”) or (iv) such shares
        are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who
        agrees to sell or otherwise transfer the shares only in accordance with this
        Section 1.5 and who is an Accredited Investor (as defined in the Purchase
        Agreement).  

       

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

         

         

        Except
          as
          otherwise provided in the Purchase Agreement (and subject to the removal
          provisions set forth below), until such time as the shares of Common Stock
          issuable upon conversion of this Note have been registered under the Act
          as
          contemplated by the Registration Rights Agreement or otherwise may be sold
          pursuant to Rule 144 without any restriction as to the number of securities
          as
          of a particular date that can then be immediately sold, each certificate
          for
          shares of Common Stock issuable upon conversion of this Note that has not
          been
          so included in an effective registration statement or that has not been
          sold
          pursuant to an effective registration statement or an exemption that permits
          removal of the legend, shall bear a legend substantially in the following
          form,
          as appropriate:

      

       

      
        “THE
          SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
          THE
          SECURITIES ACT OF 1933, AS AMENDED.  THE SECURITIES MAY NOT BE SOLD,
          TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
          FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
          AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS,
          THAT
          REGISTRATION IS NOT REQUIRED UNDER SAID ACT  UNLESS SOLD PURSUANT TO
          RULE 144 OR REGULATION S UNDER SAID ACT.”

      

       

      The
        legend set forth above shall be removed and the Borrower shall issue to the
        Holder a new certificate therefor free of any transfer legend if (i) the
        Borrower or its transfer agent shall have received an opinion of counsel,
        in
        form, substance and scope customary for opinions of counsel in comparable
        transactions, to the effect that a public sale or transfer of such Common
        Stock
        may be made without registration under the Act and the shares are so sold
        or
        transferred, (ii) such Holder provides the Borrower or its transfer agent
        with
        reasonable assurances that the Common Stock issuable upon conversion of this
        Note (to the extent such securities are deemed to have been acquired on the
        same
        date) can be sold pursuant to Rule 144 or (iii) in the case of the Common
        Stock
        issuable upon conversion of this Note, such security is registered for sale
        by
        the Holder under an effective registration statement filed under the Act
        or
        otherwise may be sold pursuant to Rule 144 without any restriction as to
        the
        number of securities as of a particular date that can then be immediately
        sold.  Nothing in this Note shall (i) limit the Borrower’s obligation
        under the Registration Rights Agreement or (ii) affect in any way the Holder’s
        obligations to comply with applicable prospectus delivery requirements upon
        the
        resale of the securities referred to herein.

       

      1.6  Effect
        of Certain
        Events.

       

      (a)  Effect
        of Merger,
        Consolidation, Etc.  At
        the option of
        the Holder, the sale, conveyance or disposition of all or substantially all
        of
        the assets of the Borrower, the effectuation by the Borrower of a transaction
        or
        series of related transactions in which more than 50% of the voting power
        of the
        Borrower is disposed of, or the consolidation, merger or other business
        combination of the Borrower with or into any other Person (as defined below)
        or
        Persons when the Borrower is not the survivor shall
        either:  

       

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

         

         

        (i)
          be
          deemed to be an Event of Default (as defined in Article III) pursuant to
          which
          the Borrower shall be required to pay to the Holder upon the consummation
          of and
          as a condition to such transaction an amount equal to the Default Amount
          (as
          defined in Article III) or (ii) be treated pursuant to Section 1.6(b)
          hereof.  “Person” shall mean any
          individual, corporation, limited liability company, partnership, association,
          trust or other entity or organization.

      

       

      (b)  Adjustment
        Due to Merger,
        Consolidation, Etc.  If,
        at any time
        when this Note is issued and outstanding and prior to conversion of all of
        the
        Notes, there shall be any merger, consolidation, exchange of shares,
        recapitalization, reorganization, or other similar event, as a result of
        which
        shares of Common Stock of the Borrower shall be changed into the same or
        a
        different number of shares of another class or classes of stock or securities
        of
        the Borrower or another entity, or in case of any sale or conveyance of all
        or
        substantially all of the assets of the Borrower other than in connection
        with a
        plan of complete liquidation of the Borrower, then the Holder of this Note
        shall
        thereafter have the right to receive upon conversion of this Note, upon the
        basis and upon the terms and conditions specified herein and in lieu of the
        shares of Common Stock immediately theretofore issuable upon conversion,
        such
        stock, securities or assets which the Holder would have been entitled to
        receive
        in such transaction had this Note been converted in full immediately prior
        to
        such transaction (without regard to any limitations on conversion set forth
        herein), and in any such case appropriate provisions shall be made with respect
        to the rights and interests of the Holder of this Note to the end that the
        provisions hereof (including, without limitation, provisions for adjustment
        of
        the Conversion Price and of the number of shares issuable upon conversion
        of the
        Note) shall thereafter be applicable, as nearly as may be practicable in
        relation to any securities or assets thereafter deliverable upon the conversion
        hereof.  The Borrower shall not effect any transaction described in
        this Section 1.6(b) unless (a) it first gives, to the extent practicable,
        thirty
        (30) days prior written notice (but in any event at least fifteen (15) days
        prior written notice) of the record date of the special meeting of shareholders
        to approve, or if there is no such record date, the consummation of, such
        merger, consolidation, exchange of shares, recapitalization, reorganization
        or
        other similar event or sale of assets (during which time the Holder shall
        be
        entitled to convert this Note) and (b) the resulting successor or acquiring
        entity (if not the Borrower) assumes by written instrument the obligations
        of
        this Section 1.6(b).  The above provisions shall similarly apply to
        successive consolidations, mergers, sales, transfers or share
        exchanges.

       

      (c)  Adjustment
        Due to
        Distribution.  If
        the Borrower
        shall declare or make any distribution of its assets (or rights to acquire
        its
        assets) to holders of Common Stock as a dividend, stock repurchase, by way
        of
        return of capital or otherwise (including any dividend or distribution to
        the
        Borrower’s shareholders in cash or shares (or rights to acquire shares) of
        capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the
        Holder of this Note shall be entitled, upon any conversion of this Note after
        the date of record for determining shareholders entitled to such Distribution,
        to receive the amount of such assets which would have been payable to the
        Holder
        with respect to the shares of Common Stock issuable upon such conversion
        had
        such Holder been the holder of such shares of Common Stock on the record
        date
        for the determination of shareholders entitled to such
        Distribution.

       

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

       

      (d)  Adjustment
        Due to Dilutive
        Issuance.  If,
        at any time
        when any Notes are issued and outstanding, the Borrower issues or sells,
        or in
        accordance with this Section 1.6(d) hereof is deemed to have issued or sold,
        any
        shares of Common Stock for no consideration or for a consideration per share
        (before deduction of reasonable expenses or commissions or underwriting
        discounts or allowances in connection therewith) less than the Fixed Conversion
        Price in effect on the date of such issuance (or deemed issuance) of such
        shares
        of Common Stock (a “Dilutive
        Issuance”), then immediately upon the Dilutive Issuance, the Fixed
        Conversion Price will be reduced to the amount of the consideration per share
        received by the Borrower in such Dilutive Issuance; provided that only
        one adjustment will be made for each Dilutive Issuance.

       

      The
        Borrower shall be deemed to have issued or sold shares of Common Stock if
        the
        Borrower in any manner issues or grants any warrants, rights or options,
        whether
        or not immediately exercisable, to subscribe for or to purchase Common Stock
        or
        other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such
        warrants, rights and options to purchase Common Stock or Convertible Securities
        are hereinafter referred to as “Options”) and the price
        per
        share for which Common Stock is issuable upon the exercise of such Options
        is
        less than the Fixed Conversion Price then in effect, then the Fixed Conversion
        Price shall be equal to such price per share.  For purposes of the
        preceding sentence, the “price per share for which Common Stock is issuable upon
        the exercise of such Options” is determined by dividing (i) the total amount, if
        any, received or receivable by the Borrower as consideration for the issuance
        or
        granting of all such Options, plus the minimum aggregate amount of additional
        consideration, if any, payable to the Borrower upon the exercise of all such
        Options, plus, in the case of Convertible Securities issuable upon the exercise
        of such Options, the minimum aggregate amount of additional consideration
        payable upon the conversion or exchange thereof at the time such Convertible
        Securities first become convertible or exchangeable, by (ii) the maximum
        total
        number of shares of Common Stock issuable upon the exercise of all such Options
        (assuming full conversion of Convertible Securities, if
        applicable).  No further adjustment to the Conversion Price will be
        made upon the actual issuance of such Common Stock upon the exercise of such
        Options or upon the conversion or exchange of Convertible Securities issuable
        upon exercise of such Options.

       

      Additionally,
        the Borrower shall be deemed to have issued or sold shares of Common Stock
        if
        the Borrower in any manner issues or sells any Convertible Securities, whether
        or not immediately convertible (other than where the same are issuable upon
        the
        exercise of Options), and the price per share for which Common Stock is issuable
        upon such conversion or exchange is less than the Fixed Conversion Price
        then in
        effect, then the Fixed Conversion Price shall be equal to such price per
        share.  For the purposes of the preceding sentence, the “price per
        share for which Common Stock is issuable upon such conversion or exchange” is
        determined by dividing (i) the total amount, if any, received or receivable by
        the Borrower as consideration for the issuance or sale of all such Convertible
        Securities, plus the minimum aggregate amount of additional consideration,
        if
        any, payable to the Borrower upon the conversion or exchange thereof at the
        time
        such Convertible Securities first become convertible or exchangeable, by
        (ii)
        the maximum total number of shares of Common Stock issuable upon the conversion
        or exchange of all such Convertible Securities.  No further adjustment
        to the Fixed Conversion Price will be made upon the actual issuance of such
        Common Stock upon conversion or exchange of such Convertible
        Securities.

       

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

       

      (e)  Purchase
        Rights.  If,
        at any time
        when any Notes are issued and outstanding, the Borrower issues any convertible
        securities or rights to purchase stock, warrants, securities or other property
        (the “Purchase Rights”)
        pro rata to the record holders of any class of Common Stock, then the Holder
        of
        this Note will be entitled to acquire, upon the terms applicable to such
        Purchase Rights, the aggregate Purchase Rights which such Holder could have
        acquired if such Holder had held the number of shares of Common Stock acquirable
        upon complete conversion of this Note (without regard to any limitations
        on
        conversion contained herein) immediately before the date on which a record
        is
        taken for the grant, issuance or sale of such Purchase Rights or, if no such
        record is taken, the date as of which the record holders of Common Stock
        are to
        be determined for the grant, issue or sale of such Purchase Rights.

       

      (f)  Notice
        of
        Adjustments.  Upon
        the
        occurrence of each adjustment or readjustment of the Conversion Price as
        a
        result of the events described in this Section 1.6, the Borrower, at its
        expense, shall promptly compute such adjustment or readjustment and prepare
        and
        furnish to the Holder of a certificate setting forth such adjustment or
        readjustment and showing in detail the facts upon which such adjustment or
        readjustment is based.  The Borrower shall, upon the written request
        at any time of the Holder, furnish to such Holder a like certificate setting
        forth (i) such adjustment or readjustment, (ii) the Conversion Price at the
        time
        in effect and (iii) the number of shares of Common Stock and the amount,
        if any,
        of other securities or property which at the time would be received upon
        conversion of the Note.

       

      1.7  Trading
        Market
        Limitations.
Unless
        permitted by the applicable rules and regulations of the principal
        securities market on which the Common Stock is then listed or traded, in
        no
        event shall the Borrower issue upon conversion of or otherwise pursuant to
        this
        Note and the other Notes issued pursuant to the Purchase Agreement more than
        the
        maximum number of shares of Common Stock that the Borrower can issue pursuant
        to
        any rule of the principal United States securities market on which the Common
        Stock is then traded (the “Maximum Share Amount”), which
        shall be 19.99% of the total shares outstanding on the Closing Date (as defined
        in the Purchase Agreement), subject to equitable adjustment from time to
        time
        for stock splits, stock dividends, combinations, capital reorganizations
        and
        similar events relating to the Common Stock occurring after the date
        hereof.  Once the Maximum Share Amount has been issued (the date of
        which is hereinafter referred to as the “Maximum Conversion Date”), if
        the Borrower fails to eliminate any prohibitions under applicable law or
        the
        rules or regulations of any stock exchange, interdealer quotation system
        or
        other self-regulatory organization with jurisdiction over the Borrower or
        any of
        its securities on the Borrower’s ability to issue shares of Common Stock in
        excess of the Maximum Share Amount (a “Trading Market Prepayment
        Event”), in lieu of any further right to convert this Note, and in full
        satisfaction of the Borrower’s obligations under this Note, the Borrower shall
        pay to the Holder, within fifteen (15) business days of the Maximum Conversion
        Date (the “Trading Market
        Prepayment Date”), an amount equal to 130% times
        the sum of (a)
        the then
        outstanding principal amount of this Note immediately following the Maximum
        Conversion Date, plus (b) accrued
        and
        unpaid interest on the unpaid principal amount of this Note to the Trading
        Market Prepayment Date, plus (c) Default
        Interest, if any, on the amounts referred to in clause (a) and/or (b) above,
        plus (d) any
        optional amounts that may be added thereto at the Maximum Conversion Date
        by the
        Holder in accordance with the terms hereof (the then outstanding principal
        amount of this Note immediately following the Maximum Conversion Date, plus the amounts
        referred to in clauses (b), (c) and (d) above shall collectively be referred
        to
        as the “Remaining Convertible
        Amount”).  

       

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

         

         

        With
          respect to each Holder of Notes, the Maximum Share Amount shall refer to
          such
          Holder’s prorata
          share thereof
          determined in accordance with Section 4.8 below.  In the event that
          the sum of (x) the aggregate number of shares of Common Stock issued upon
          conversion of this Note and the other Notes issued pursuant to the Purchase
          Agreement plus
          (y) the aggregate number of shares of Common Stock that remain issuable
          upon
          conversion of this Note and the other Notes issued pursuant to the Purchase
          Agreement, represents at least one hundred percent (100%) of the Maximum
          Share
          Amount (the “Triggering
          Event”), the Borrower will use its best efforts to seek and obtain
          Shareholder Approval (or obtain such other relief as will allow conversions
          hereunder in excess of the Maximum Share Amount) as soon as practicable
          following the Triggering Event and before the Maximum Conversion
          Date.  As used herein, “Shareholder Approval” means
          approval by the shareholders of the Borrower to authorize the issuance
          of the
          full number of shares of Common Stock which would be issuable upon full
          conversion of the then outstanding Notes but for the Maximum Share
          Amount.

      

       

      1.8  Status
        as
        Shareholder.  Upon
        submission
        of a Notice of Conversion by a Holder, (i) the shares covered thereby (other
        than the shares, if any, which cannot be issued because their issuance would
        exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share
        Amount) shall be deemed converted into shares of Common Stock and (ii) the
        Holder’s rights as a Holder of such converted portion of this Note shall cease
        and terminate, excepting only the right to receive certificates for such
        shares
        of Common Stock and to any remedies provided herein or otherwise available
        at
        law or in equity to such Holder because of a failure by the Borrower to comply
        with the terms  of this Note.  Notwithstanding the
        foregoing, if a Holder has not received certificates for all shares of Common
        Stock prior to the tenth (10th) business day after the expiration of the
        Deadline with respect to a conversion of any portion of this Note for any
        reason, then (unless the Holder otherwise elects to retain its status as
        a
        holder of Common Stock by so notifying the Borrower) the Holder shall regain
        the
        rights of a Holder of this Note with respect to such unconverted portions
        of
        this Note and the Borrower shall, as soon as practicable, return such
        unconverted Note to the Holder or, if the Note has not been surrendered,
        adjust
        its records to reflect that such portion of this Note has not been
        converted.  In all cases, the Holder shall retain all of its rights
        and remedies (including, without limitation, (i) the right to receive Conversion
        Default Payments pursuant to Section 1.3 to the extent required thereby for
        such
        Conversion Default and any subsequent Conversion Default and (ii) the right
        to
        have the Conversion Price with respect to subsequent conversions determined
        in
        accordance with Section 1.3) for the Borrower’s failure to convert this
        Note.

       

       

      ARTICLE
        II.   CERTAIN COVENANTS

       

      2.1  Distributions
        on Capital
        Stock.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not
        without the Holder’s written consent (a) pay, declare or set apart for such
        payment, any dividend or other distribution (whether in cash, property or
        other
        securities) on shares of capital stock other than dividends on shares of
        Common
        Stock solely in the form of additional shares of Common Stock or (b) directly
        or
        indirectly or through any subsidiary make any other payment or distribution
        in
        respect of its capital stock except for distributions pursuant to any
        shareholders’ rights plan which is approved by a majority of the Borrower’s
        disinterested directors.

       

       

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      2.2  Restriction
        on Stock
        Repurchases.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not
        without the Holder’s written consent redeem, repurchase or otherwise acquire
        (whether for cash or in exchange for property or other securities or otherwise)
        in any one transaction or series of related transactions any shares of capital
        stock of the Borrower or any warrants, rights or options to purchase or acquire
        any such shares.

       

      2.3  Borrowings.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, create, incur, assume or suffer to exist
        any liability for borrowed money in excess of $50,000, except (a) borrowings
        in
        existence or committed on the date hereof and of which the Borrower has informed
        Holder in writing prior to the date hereof, (b) indebtedness to trade creditors
        or financial institutions incurred in the ordinary course of business or
        (c)
        borrowings, the proceeds of which shall be used to repay this Note.

       

      2.4  Sale
        of
        Assets.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, sell, lease or otherwise dispose of any
        significant portion of its assets outside the ordinary course of
        business.  Any consent to the disposition of any assets may be
        conditioned on a specified use of the proceeds of disposition.

       

      2.5  Advances
        and
        Loans.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, lend money, give credit or make advances
        to any person, firm, joint venture or corporation, including, without
        limitation, officers, directors, employees, subsidiaries and affiliates of
        the
        Borrower, except loans, credits or advances (a) in existence or committed
        on the
        date hereof and which the Borrower has informed Holder in writing prior to
        the
        date hereof, (b) made in the ordinary course of business or (c) not in excess
        of
        $50,000.

       

      2.6  Contingent
        Liabilities.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, assume, guarantee, endorse, contingently
        agree to purchase or otherwise become liable upon the obligation of any person,
        firm, partnership, joint venture or corporation, except by the endorsement
        of
        negotiable instruments for deposit or collection and except assumptions,
        guarantees, endorsements and contingencies (a) in existence or committed
        on the
        date hereof and which the Borrower has informed Holder in writing prior to
        the
        date hereof, and (b) similar transactions in the ordinary course of
        business.

       

       

      ARTICLE
        III.   EVENTS OF DEFAULT

       

      If
        any of
        the following events of default (each, an “Event of Default”) shall
        occur:

       

      3.1  Failure
        to Pay Principal or
        Interest.  The
        Borrower
        fails to pay the principal hereof or interest thereon when due on this Note,
        whether at maturity, upon a Trading Market Prepayment Event pursuant to Section
        1.7, upon acceleration or otherwise;

       

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

       

      3.2  Conversion
        and the
        Shares.  The
        Borrower
        fails to issue shares of Common Stock to the Holder (or announces or threatens
        that it will not honor its obligation to do so) upon exercise by the Holder
        of
        the conversion rights of the Holder in accordance with the terms of this
        Note
        (for a period of at least sixty (60) days, if such failure is solely as a
        result
        of the circumstances governed by Section 1.3 and the Borrower is using its
        best
        efforts to authorize a sufficient number of shares of Common Stock as soon
        as
        practicable), fails to transfer or cause its transfer agent to transfer
        (electronically or in certificated form) any certificate for shares of Common
        Stock issued to the Holder upon conversion of or otherwise pursuant to this
        Note
        as and when required by this Note or the Registration Rights Agreement, or
        fails
        to remove any restrictive legend (or to withdraw any stop transfer instructions
        in respect thereof) on any certificate for any shares of Common Stock issued
        to
        the Holder upon conversion of or otherwise pursuant to this Note as and when
        required by this Note or the Registration Rights Agreement (or makes any
        announcement, statement or threat that it does not intend to honor the
        obligations described in this paragraph) and any such failure shall continue
        uncured (or any announcement, statement or threat not to honor its obligations
        shall not be rescinded in writing) for ten (10) days after the Borrower shall
        have been notified thereof in writing by the Holder;

       

      3.3  Failure
        to Timely File
        Registration or Effect Registration.  The
        Borrower
        fails to file the Registration Statement within sixty (60) days following
        the
        Closing Date (as defined in the Purchase Agreement) or obtain effectiveness
        with
        the Securities and Exchange Commission of the Registration Statement within
        two
        hundred fifty (250) days following the Closing Date (as defined in the Purchase
        Agreement) or such Registration Statement lapses in effect (or sales cannot
        otherwise be made thereunder effective, whether by reason of the Borrower’s
        failure to amend or supplement the prospectus included therein in accordance
        with the Registration Rights Agreement or otherwise) for more than twenty
        (20)
        consecutive days or forty (40) days in any twelve month period after the
        Registration Statement becomes effective;

       

      3.4  Breach
        of
        Covenants.  The
        Borrower
        breaches any material covenant or other material term or condition contained
        in
        Sections 1.3, 1.6 or 1.7 of this Note, or Sections 4(c), 4(e), 4(h), 4(i),
        4(j)
        or 5 of the Purchase Agreement and such breach continues for a period of
        ten
        (10) days after written notice thereof to the Borrower from the
        Holder;

       

      3.5  Breach
        of Representations
        and Warranties.  Any
        representation or warranty of the Borrower made herein or in any agreement,
        statement or certificate given in writing pursuant hereto or in connection
        herewith (including, without limitation, the Purchase Agreement and the
        Registration Rights Agreement), shall be false or misleading in any material
        respect when made and the breach of which has (or with the passage of time
        will
        have) a material adverse effect on the rights of the Holder with respect
        to this
        Note, the Purchase Agreement or the Registration Rights Agreement;

       

      3.6  Receiver
        or
        Trustee.  The
        Borrower or
        any subsidiary of the Borrower shall make an assignment for the benefit of
        creditors, or apply for or consent to the appointment of a receiver or trustee
        for it or for a substantial part of its property or business, or such a receiver
        or trustee shall otherwise be appointed;

       

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

       

      3.7  Judgments.  Any
        money
        judgment, writ or similar process shall be entered or filed against the Borrower
        or any subsidiary of the Borrower or any of its property or other assets
        for
        more than $50,000, and shall remain unvacated, unbonded or unstayed for a
        period
        of twenty (20) days unless otherwise consented to by the Holder, which consent
        will not be unreasonably withheld;

       

      3.8  Bankruptcy.  Bankruptcy,
        insolvency, reorganization or liquidation proceedings or other proceedings
        for
        relief under any bankruptcy law or any law for the relief of debtors shall
        be
        instituted by or against the Borrower or any subsidiary of the
        Borrower;

       

      3.9  Delisting
        of Common
        Stock.  The
        Borrower
        shall fail to maintain the listing of the Common Stock on at least one of
        the
        OTCBB or an equivalent replacement exchange, the Nasdaq National Market,
        the
        Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock
        Exchange; or

       

      3.10  Default
        Under Other
        Notes.  An
        Event of
        Default has occurred and is continuing under any of the other Notes issued
        pursuant to the Purchase Agreement, then, upon the occurrence and during
        the
        continuation of any Event of Default specified in Section 3.1, 3.2, 3.3,
        3.4,
        3.5, 3.7, 3.9, or 3.10, at the option of the Holders of a majority of the
        aggregate principal amount of the outstanding Notes issued pursuant to the
        Purchase Agreement exercisable through the delivery of written notice to
        the
        Borrower by such Holders (the “Default Notice”), and upon the
        occurrence of an Event of Default specified in Section 3.6 or 3.8, the Notes
        shall become immediately due and payable and the Borrower shall pay to the
        Holder, in full satisfaction of its obligations hereunder, an amount equal
        to
        the greater of (i) 130% times the sum
        of (w) the then
        outstanding principal amount of this Note plus (x) accrued
        and
        unpaid interest on the unpaid principal amount of this Note to the date of
        payment (the “Mandatory
        Prepayment Date”) plus
        (y) Default
        Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any
        amounts
        owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant
        to
        Section 2(c) of the Registration Rights Agreement (the then outstanding
        principal amount of this Note to the date of payment plus the amounts
        referred to in clauses (x), (y) and (z) shall collectively be known as the
        “Default Sum”) or (ii)
        the “parity value” of the Default Sum to be prepaid, where parity value means
        (a) the highest number of shares of Common Stock issuable upon conversion
        of or
        otherwise pursuant to such Default Sum in accordance with Article I, treating
        the Trading Day immediately preceding the Mandatory Prepayment Date as the
        “Conversion Date” for purposes of determining the lowest applicable Conversion
        Price, unless the Default Event arises as a result of a breach in respect
        of a
        specific Conversion Date in which case such Conversion Date shall be the
        Conversion Date), multiplied by (b) the
        highest Closing Price for the Common Stock during the period beginning on
        the
        date of first occurrence of the Event of Default and ending one day prior
        to the
        Mandatory Prepayment Date (the “Default Amount”) and all other
        amounts payable hereunder shall immediately become due and payable, all without
        demand, presentment or notice, all of which hereby are expressly waived,
        together with all costs, including, without limitation, legal fees and expenses,
        of collection, and the Holder shall be entitled to exercise all other rights
        and
        remedies available at law or in equity.  If the Borrower fails to pay
        the Default Amount within five (5) business days of written notice that such
        amount is due and payable, then the Holder shall have the right at any time,
        so
        long as the Borrower remains in default (and so long and to the extent that
        there are sufficient authorized shares), to require the Borrower, upon written
        notice, to immediately issue, in lieu of the Default Amount, the number of
        shares of Common Stock of the Borrower equal to the Default Amount divided
        by
        the Conversion Price then in effect.

       

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        IV.   MISCELLANEOUS

       

      4.1  Failure
        or Indulgence Not
        Waiver.  No
        failure or
        delay on the part of the Holder in the exercise of any power, right or privilege
        hereunder shall operate as a waiver thereof, nor shall any single or partial
        exercise of any such power, right or privilege preclude other or further
        exercise thereof or of any other right, power or privileges.  All
        rights and remedies existing hereunder are cumulative to, and not exclusive
        of,
        any rights or remedies otherwise available.

       

      4.2  Notices.  Any
        notice herein
        required or permitted to be given shall be in writing and may be personally
        served or delivered by courier or sent by United States mail and shall be
        deemed
        to have been given upon receipt if personally served (which shall include
        telephone line facsimile transmission) or sent by courier or three (3) days
        after being deposited in the United States mail, certified, with postage
        pre-paid and properly addressed, if sent by mail.  For the purposes
        hereof, the address of the Holder shall be as shown on the records of the
        Borrower; and the address of the Borrower shall be 22600 Hall Road, Suite
        205
        Clinton Township, MI 48036, facsimile number: 586-468-8768.  Both the
        Holder and the Borrower may change the address for service by service of
        written
        notice to the other as herein provided.

       

      4.3  Amendments.  This
        Note and any
        provision hereof may only be amended by an instrument in writing signed by
        the
        Borrower and the Holder.  The term “Note” and all reference thereto,
        as used throughout this instrument, shall mean this instrument (and the other
        Notes issued pursuant to the Purchase Agreement) as originally executed,
        or if
        later amended or supplemented, then as so amended or supplemented.

       

      4.4  Assignability.  This
        Note shall
        be binding upon the Borrower and its successors and assigns, and shall inure
        to
        be the benefit of the Holder and its successors and assigns.  Each
        transferee of this Note must be an “accredited investor” (as defined in Rule
        501(a) of the 1933 Act).  Notwithstanding anything in this Note to the
        contrary, this Note may be pledged as collateral in connection with a bonafide
        margin account
        or other lending arrangement.

       

      4.5  Cost
        of
        Collection.  If
        default is
        made in the payment of this Note, the Borrower shall pay the Holder hereof
        costs
        of collection, including reasonable attorneys’ fees.

       

      4.6  Governing
        Law.  THIS
        NOTE SHALL
        BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
        STATE
        OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN
        SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.  THE
        BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES
        FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE
        ARISING
        UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE
        TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 

       

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

         

         

        BOTH
          PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE
          MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE
          THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE
          DEEMED
          IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH
          SUIT OR
          PROCEEDING.  NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE
          PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.  BOTH PARTIES AGREE THAT
          A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE
          CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT
          OR IN ANY OTHER LAWFUL MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN
          ANY DISPUTE ARISING UNDER THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND
          EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN
          CONNECTION WITH SUCH DISPUTE.

      

       

      4.7  Certain
        Amounts.  Whenever
        pursuant
        to this Note the Borrower is required to pay an amount in excess of the
        outstanding principal amount (or the portion thereof required to be paid
        at that
        time) plus accrued and unpaid interest plus Default Interest on such interest,
        the Borrower and the Holder agree that the actual damages to the Holder from
        the
        receipt of cash payment on this Note may be difficult to determine and the
        amount to be so paid by the Borrower represents stipulated damages and not
        a
        penalty and is intended to compensate the Holder in part for loss of the
        opportunity to convert this Note and to earn a return from the sale of shares
        of
        Common Stock acquired upon conversion of this Note at a price in excess of
        the
        price paid for such shares pursuant to this Note.  The Borrower and
        the Holder hereby agree that such amount of stipulated damages is not plainly
        disproportionate to the possible loss to the Holder from the receipt of a
        cash
        payment without the opportunity to convert this Note into shares of Common
        Stock.

       

      4.8  Allocations
        of Maximum Share
        Amount and Reserved Amount.  The
        Maximum Share
        Amount and Reserved Amount shall be allocated pro rata among the Holders
        of
        Notes based on the principal amount of such Notes issued to each
        Holder.  Each increase to the Maximum Share Amount and Reserved Amount
        shall be allocated pro rata among the Holders of Notes based on the principal
        amount of such Notes held by each Holder at the time of the increase in the
        Maximum Share Amount or Reserved Amount.  In the event a Holder shall
        sell or otherwise transfer any of such Holder’s Notes, each transferee shall be
        allocated a pro rata portion of such transferor’s Maximum Share Amount and
        Reserved Amount.  Any portion of the Maximum Share Amount or Reserved
        Amount which remains allocated to any person or entity which does not hold
        any
        Notes shall be allocated to the remaining Holders of Notes, pro rata based
        on
        the principal amount of such Notes then held by such Holders.

       

      4.9  Damages
        Shares.  The
        shares of
        Common Stock that may be issuable to the Holder pursuant to Sections 1.3
        and
        1.4(g) hereof and pursuant to Section 2(c) of the Registration Rights Agreement
        (“Damages Shares”) shall
        be treated as Common Stock issuable upon conversion of this Note for all
        purposes hereof and shall be subject to all of the limitations and afforded
        all
        of the rights of the other shares of Common Stock issuable hereunder, including
        without limitation, the right to be included in the Registration Statement
        filed
        pursuant to the Registration Rights Agreement.  For purposes of
        calculating interest payable on the outstanding principal amount hereof,
        except
        as otherwise provided herein, amounts convertible into Damages Shares (“Damages Amounts”) shall not
        bear interest but must be converted prior to the conversion of any outstanding
        principal amount hereof, until the outstanding Damages Amounts is
        zero.

       

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      4.10  Denominations.  At
        the request of
        the Holder, upon surrender of this Note, the Borrower shall promptly issue
        new
        Notes in the aggregate outstanding principal amount hereof, in the form hereof,
        in such denominations of at least $50,000 as the Holder shall
        request.

       

      4.11  Purchase
        Agreement.  By
        its acceptance
        of this Note, each Holder agrees to be bound by the applicable terms of the
        Purchase Agreement.

       

      4.12  Notice
        of Corporate
        Events.  Except
        as
        otherwise provided below, the Holder of this Note shall have no rights as
        a
        Holder of Common Stock unless and only to the extent that it converts this
        Note
        into Common Stock.  The Borrower shall provide the Holder with prior
        notification of any meeting of the Borrower’s shareholders (and copies of proxy
        materials and other information sent to shareholders).  In the event
        of any taking by the Borrower of a record of its shareholders for the purpose
        of
        determining shareholders who are entitled to receive payment of any dividend
        or
        other distribution, any right to subscribe for, purchase or otherwise acquire
        (including by way of merger, consolidation, reclassification or
        recapitalization) any share of any class or any other securities or property,
        or
        to receive any other right, or for the purpose of determining shareholders
        who
        are entitled to vote in connection with any proposed sale, lease or conveyance
        of all or substantially all of the assets of the Borrower or any proposed
        liquidation, dissolution or winding up of the Borrower, the Borrower shall
        mail
        a notice to the Holder, at least twenty (20) days prior to the record date
        specified therein (or thirty (30) days prior to the consummation of the
        transaction or event, whichever is earlier), of the date on which any such
        record is to be taken for the purpose of such dividend, distribution, right
        or
        other event, and a brief statement regarding the amount and character of
        such
        dividend, distribution, right or other event to the extent known at such
        time.  The Borrower shall make a public announcement of any event
        requiring notification to the Holder hereunder substantially simultaneously
        with
        the notification to the Holder in accordance with the terms of this Section
        4.12.

       

      4.13  Remedies.  The
        Borrower
        acknowledges that a breach by it of its obligations hereunder will cause
        irreparable harm to the Holder, by vitiating the intent and purpose of the
        transaction contemplated hereby.  Accordingly, the Borrower
        acknowledges that the remedy at law for a breach of its obligations under
        this
        Note will be inadequate and agrees, in the event of a breach or threatened
        breach by the Borrower of the provisions of this Note, that the Holder shall
        be
        entitled, in addition to all other available remedies at law or in equity,
        and
        in addition to the penalties assessable herein, to an injunction or injunctions
        restraining, preventing or curing any breach of this Note and to enforce
        specifically the terms and provisions thereof, without the necessity of showing
        economic loss and without any bond or other security being
        required.

       

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        V.  CALL OPTION

       

      5.1  Call
        Option.  Notwithstanding
        anything to the contrary contained in this Article V, so long as (i) no
        Event of Default or Trading Market Prepayment Event shall have occurred and
        be
        continuing, (ii) the Borrower has a sufficient number of authorized shares
        of Common Stock reserved for issuance upon full conversion of the Notes,
        then at
        any time after the Issue Date, and (iii) the Common Stock is trading at or
        below $.04 per share, the Borrower shall have the right, exercisable on not
        less
        than ten (10) Trading Days prior written notice to the Holders of the Notes
        (which notice may not be sent to the Holders of the Notes until the Borrower
        is
        permitted to prepay the Notes pursuant to this Section 5.1), to prepay all
        of
        the outstanding Notes in accordance with this Section 5.1.  Any notice
        of prepayment hereunder (an “Optional Prepayment”) shall be
        delivered to the Holders of the Notes at their registered addresses appearing
        on
        the books and records of the Borrower and shall state (1) that the Borrower
        is
        exercising its right to prepay all of the Notes issued on the Issue Date
        and (2)
        the date of prepayment (the “Optional Prepayment
        Notice”).  On the date fixed for prepayment (the “Optional Prepayment
        Date”),
        the Borrower shall make payment of the Optional Prepayment Amount (as defined
        below) to or upon the order of the Holders as specified by the Holders in
        writing to the Borrower at least one (1) business day prior to the Optional
        Prepayment Date.  If the Borrower exercises its right to prepay the
        Notes, the Borrower shall make payment to the holders of an amount in cash
        (the
“Optional Prepayment
        Amount”) equal to either (i) 135% (for prepayments occurring within
        thirty (30) days of the Issue Date), (ii) 145% for prepayments occurring
        between thirty-one (31) and ninety (90) days of the Issue Date, or (iii)
        150%
        (for prepayments occurring after the ninetieth (90th)
        day following
        the Issue Date), multiplied by the sum of (w) the then outstanding principal
        amount of this Note plus (x) accrued
        and unpaid interest on the unpaid principal amount of this Note to the Optional
        Prepayment Date plus (y) Default
        Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any
        amounts
        owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant
        to
        Section 2(c) of the Registration Rights Agreement (the then outstanding
        principal amount of this Note to the date of payment plus the amounts
        referred to in clauses (x), (y) and (z) shall collectively be known as the
        “Optional Prepayment
        Sum”). Notwithstanding notice of an Optional Prepayment, the Holders
        shall at all times prior to the Optional Prepayment Date maintain the right
        to
        convert all or any portion of the Notes in accordance with Article I and
        any
        portion of Notes so converted after receipt of an Optional Prepayment Notice
        and
        prior to the Optional Prepayment Date set forth in such notice and payment
        of
        the aggregate Optional Prepayment Amount shall be deducted from the principal
        amount of Notes which are otherwise subject to prepayment pursuant to such
        notice.  If the Borrower delivers an Optional Prepayment Notice and
        fails to pay the Optional Prepayment Amount due to the Holders of the Notes
        within two (2) business days following the Optional Prepayment Date, the
        Borrower shall forever forfeit its right to redeem the Notes pursuant to
        this
        Section 5.1.

       

      

       

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK]

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

       

       

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

       

      

      MIDNIGHT
        HOLDINGS GROUP,
        INC.

      

      

      

      By:
/s/
        Nicholas Cocco            

      Nicholas
        Cocco

      Chief
        Executive Officer

       

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

       

       

      EXHIBIT
        A

       

      NOTICE
        OF
        CONVERSION

       

      (To
        be
        Executed by the Registered Holder

      in
        order
        to Convert the Notes)

       

      The
        undersigned hereby irrevocably elects to convert $__________ principal amount
        of
        the Note (defined below) into shares of common stock, par value $.00005 per
        share (“Common Stock”),
        of Midnight Holdings Group, Inc., a Delaware corporation (the “Borrower”) according to the
        conditions of the convertible Notes of the Borrower dated as of October 19,
        2007
        (the “Notes”), as of the date written below.  If securities are to be
        issued in the name of a person other than the undersigned, the undersigned
        will
        pay all transfer taxes payable with respect thereto and is delivering herewith
        such certificates.  No fee will be charged to the Holder for any
        conversion, except for transfer taxes, if any.  A copy of each Note is
        attached hereto (or evidence of loss, theft or destruction
        thereof).

       

      The
        Borrower shall electronically transmit the Common Stock issuable pursuant
        to
        this Notice of Conversion to the account of the undersigned or its nominee
        with
        DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

       

      Name
        of
        DTC Prime
        Broker:    _________________________                                                                                                                 

      Account
        Number:    ________________________________                                                                                                                 

       

      In
        lieu
        of receiving shares of Common Stock issuable pursuant to this Notice of
        Conversion by way of a DWAC Transfer, the undersigned hereby requests that
        the
        Borrower issue a certificate or certificates for the number of shares of
        Common
        Stock set forth below (which numbers are based on the Holder’s calculation
        attached hereto) in the name(s) specified immediately below or, if additional
        space is necessary, on an attachment hereto:

       

      Name:     ________________________________________                                                                                                                

      Address:    ______________________________________                                                                                                                 

       

      The
        undersigned represents and warrants that all offers and sales by the undersigned
        of the securities issuable to the undersigned upon conversion of the Notes
        shall
        be made pursuant to registration of the securities under the Securities Act
        of
        1933, as amended (the “Act”), or pursuant to
        an
        exemption from registration under the Act.

       

      Date
        of
        Conversion:___________________________

      Applicable
        Conversion Price:____________________

      Number
        of
        Shares of Common Stock to be Issued Pursuant to

      Conversion
        of the Notes:______________

      Signature:___________________________________

      Name:______________________________________

      Address:____________________________________

       

       

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

       

      The
        Borrower shall issue and deliver shares of Common Stock to an overnight courier
        not later than three business days following receipt of the original Note(s)
        to
        be converted, and shall make payments pursuant to the Notes for the number
        of
        business days such issuance and delivery is late.

       

       

       

       

       

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

    

     

    
      

      

    

     

     

    
      
        THE
          SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
          THE
          SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THE SECURITIES MAY
          NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
          STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN
          FORM,
          SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS
          THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT
          TO RULE
          144 OR REGULATION S UNDER SAID ACT.

         

      

       

      CALLABLE
        SECURED CONVERTIBLE
        NOTE

       

      
        
          	
                  Clinton
                    Township, Michigan

                	 
	
                  October
                    19, 2007

                	
                  
                    $4,410

                  

                

        

      

       

      FOR
        VALUE RECEIVED, MIDNIGHT HOLDINGS
        GROUP, INC.,
a Delaware corporation (hereinafter called the “Borrower”), hereby
        promises to pay to the order of New Millennium Capital Partners II, LLC or
        registered assigns (the “Holder”) the sum of $4,410
        on
        October 19, 2010 (the “Maturity
        Date”), and to pay interest on the unpaid principal balance hereof at the
        rate of ten percent (10%) per annum from October 19, 2007 (the “Issue Date”) until the same
        becomes due and payable, whether at maturity or upon acceleration or by
        prepayment or otherwise.  Any amount of principal or interest on this
        Note which is not paid when due shall bear interest at the rate of fifteen
        percent (15%) per annum from the due date thereof until the same is paid
        (“Default
        Interest”).  Interest shall commence accruing on the issue
        date, shall be computed on the basis of a 365-day year and the actual number
        of
        days elapsed and shall be payable, quarterly on March 31, June 30,
        September 30 and December 31 of each year beginning on the last day of the
        first full quarter after Issue Date.  All payments due hereunder (to
        the extent not converted into common stock, $.00005 par value per share,
        of the
        Borrower (the “Common
        Stock”) in accordance with the terms hereof) shall be made in lawful
        money of the United States of America.  All payments shall be made at
        such address as the Holder shall hereafter give to the Borrower by written
        notice made in accordance with the provisions of this Note.  Whenever
        any amount expressed to be due by the terms of this Note is due on any day
        which
        is not a business day, the same shall instead be due on the next succeeding
        day
        which is a business day and, in the case of any interest payment date which
        is
        not the date on which this Note is paid in full, the extension of the due
        date
        thereof shall not be taken into account for purposes of determining the amount
        of interest due on such date.  As used in this Note, the term
“business day” shall mean any day other than a Saturday, Sunday or a day on
        which commercial banks in the city of New York, New York are authorized or
        required by law or executive order to remain
        closed.  

       

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

         

         

        Each
          capitalized term used herein, and not otherwise defined, shall have the
          meaning
          ascribed thereto in that certain Securities Purchase Agreement, dated October
          19, 2007, pursuant to which this Note was originally issued (the “Purchase
          Agreement”).

      

       

      This
        Note
        is free from all taxes, liens, claims and encumbrances with respect to the
        issue
        thereof and shall not be subject to preemptive rights or other similar rights
        of
        shareholders of the Borrower and will not impose personal liability upon
        the
        holder thereof.  The obligations of the Borrower under this Note shall
        be secured by that certain Security Agreement by and between the Borrower
        and
        the Holder of even date herewith.

       

      The
        following terms shall apply to this Note:

       

       

      ARTICLE
        I.  CONVERSION RIGHTS

       

      1.1  Conversion
        Right.  The
        Holder shall
        have the right from time to time, and at any time on or prior to the earlier
        of
        (i) the Maturity Date and (ii) the date of payment of the Default Amount
        (as
        defined in Article III) pursuant to Section 1.6(a) or Article III, the Optional
        Prepayment Amount (as defined in Section 5.1) or (iii) any payments pursuant
        to
        Section 1.7, each in respect of the remaining outstanding principal amount
        of
        this Note to convert all or any part of the outstanding and unpaid principal
        amount of this Note into fully paid and non-assessable shares of Common Stock,
        as such Common Stock exists on the Issue Date, or any shares of capital stock
        or
        other securities of the Borrower into which such Common Stock shall hereafter
        be
        changed or reclassified at the conversion price  (the “Conversion Price”) determined
        as provided herein (a “Conversion”); provided,
however,
        that in no
        event shall the Holder be entitled to convert any portion of this Note in
        excess
        of that portion of this Note upon conversion of which the sum of (1) the
        number
        of shares of Common Stock beneficially owned by the Holder and its affiliates
        (other than shares of Common Stock which may be deemed beneficially owned
        through the ownership of the unconverted portion of the Notes or the unexercised
        or unconverted portion of any other security of the Borrower (including,
        without
        limitation, the warrants issued by the Borrower pursuant to the Purchase
        Agreement) subject to a limitation on conversion or exercise analogous to
        the
        limitations contained herein) and (2) the number of shares of Common Stock
        issuable upon the conversion of the portion of this Note with respect to
        which
        the determination of this proviso is being made, would result in beneficial
        ownership by the Holder and its affiliates of more than 4.9% of the outstanding
        shares of Common Stock.  For purposes of the proviso to the
        immediately preceding sentence, beneficial ownership shall be determined
        in
        accordance with Section 13(d) of the Securities Exchange Act of 1934, as
        amended, and Regulations 13D-G thereunder, except as otherwise provided in
        clause (1) of such proviso.  The number of shares of Common Stock to
        be issued upon each conversion of this Note shall be determined by dividing
        the
        Conversion Amount (as defined below) by the applicable Conversion Price then
        in
        effect on the date specified in the notice of conversion, in the form attached
        hereto as Exhibit A (the “Notice of Conversion”),
        delivered to the Borrower by the Holder in accordance with Section 1.4 below;
        provided that the Notice of Conversion is submitted by facsimile (or by other
        means resulting in, or reasonably expected to result in, notice) to the Borrower
        before 6:00 p.m., New York, New York time on such conversion date (the “Conversion
        Date”).  

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

         

         

        The
          term
“Conversion Amount”
means, with respect
          to any conversion of this Note, the sum of (1) the principal
          amount of this Note to be converted in such conversion plus (2)
          accrued and
          unpaid interest, if any, on such principal amount at the interest rates
          provided
          in this Note to the Conversion Date plus (3)
          Default
          Interest, if any, on the amounts referred to in the immediately preceding
          clauses (1) and/or (2) plus (4)
          at the
          Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and
          1.4(g) hereof or pursuant to Section 2(c) of that certain Registration
          Rights
          Agreement, dated as of October 19, 2007, executed in connection with the
          initial
          issuance of this Note and the other Notes issued on the Issue Date (the
“Registration Rights
          Agreement”).

      

       

      1.2  Conversion
        Price.

       

      (a)  Calculation
        of Conversion
        Price.  The
        Conversion
        Price shall be the lesser of (i) the Variable Conversion Price (as defined
        herein) and (ii) the Fixed Conversion Price (as defined herein) (subject,
        in
        each case, to equitable adjustments for stock splits, stock dividends or
        rights
        offerings by the Borrower relating to the Borrower’s securities or the
        securities of any subsidiary of the Borrower, combinations, recapitalization,
        reclassifications, extraordinary distributions and similar
        events).  The “Variable Conversion Price”
shall mean the Applicable
        Percentage (as defined herein) multiplied by the
        Market Price (as defined herein).  “Market Price” means the
        average of the lowest three (3) Trading Prices (as defined below) for the
        Common
        Stock during the twenty (20) Trading Day period ending one Trading Day prior
        to
        the date the Conversion Notice is sent by the Holder to the Borrower via
        facsimile (the “Conversion
        Date”).  “Trading Price” means, for
        any
        security as of any date, the intraday trading price on the Over-the-Counter
        Bulletin Board (the “OTCBB”) as reported by
        a
        reliable reporting service mutually acceptable to and hereafter designated
        by
        Holders of a majority in interest of the Notes and the Borrower or, if the
        OTCBB
        is not the principal trading market for such security, the intraday trading
        price of such security on the principal securities exchange or trading market
        where such security is listed or traded or, if no intraday trading price
        of such
        security is available in any of the foregoing manners, the average of the
        intraday trading prices of any market makers for such security that are listed
        in the “pink sheets” by the National Quotation Bureau, Inc.  If the
        Trading Price cannot be calculated for such security on such date in the
        manner
        provided above, the Trading Price shall be the fair market value as mutually
        determined by the Borrower and the holders of a majority in interest of the
        Notes being converted for which the calculation of the Trading Price is required
        in order to determine the Conversion Price of such Notes.  “Trading Day” shall mean any
        day on which the Common Stock is traded for any period on the OTCBB, or on
        the
        principal securities exchange or other securities market on which the Common
        Stock is then being traded.  “Applicable Percentage” shall
        mean 25%; provided, however, that the Applicable Percentage shall be increased
        to (i) 30% in the event that the Registration Statement (as defined in the
        Registration Rights Agreement) is filed on or before the Filing Date (as
        defined
        in the Registration Rights Agreement) and (ii) 40% in the event that the
        Registration Statement (as defined in the Registration Rights Agreement)
        becomes
        effective on or before the Effectiveness Deadline) as defined in the
        Registration Rights Agreement).  The “Fixed Conversion Price” shall
        mean $.02.

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      (b)  Conversion
        Price During
        Major Announcements.  Notwithstanding
        anything contained in Section 1.2(a) to the contrary, in the event the Borrower
        (i) makes a public announcement that it intends to consolidate or merge with
        any
        other corporation (other than a merger in which the Borrower is the surviving
        or
        continuing corporation and its capital stock is unchanged) or sell or transfer
        all or substantially all of the assets of the Borrower or (ii) any person,
        group
        or entity (including the Borrower) publicly announces a tender offer to purchase
        50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the
        date of the announcement referred to in clause (i) or (ii) is hereinafter
        referred to as the  “Announcement Date”), then the
        Conversion Price shall, effective upon the Announcement Date and continuing
        through the Adjusted Conversion Price Termination Date (as defined below),
        be
        equal to the lower of (x) the Conversion Price which would have been applicable
        for a Conversion occurring on the Announcement Date and (y) the Conversion
        Price
        that would otherwise be in effect. From and after the Adjusted Conversion
        Price
        Termination Date, the Conversion Price shall be determined as set forth in
        this
        Section 1.2(a).  For purposes hereof,  “Adjusted Conversion Price
        Termination
        Date” shall mean, with respect to any proposed transaction or tender
        offer (or takeover scheme) for which a public announcement as contemplated
        by
        this Section 1.2(b) has been made, the date upon which the Borrower (in the
        case
        of clause (i) above) or the person, group or entity (in the case of clause
        (ii)
        above) consummates or publicly announces the termination or abandonment of
        the
        proposed transaction or tender offer (or takeover scheme) which caused this
        Section 1.2(b) to become operative.

       

      1.3  Authorized
        Shares.  Subject
        to the
        completion of the Charter Amendment Actions (as defined in the Purchase
        Agreement), the Borrower covenants that during the period the conversion
        right
        exists, the Borrower will reserve from its authorized and unissued Common
        Stock
        a sufficient number of shares, free from preemptive rights, to provide for
        the
        issuance of Common Stock upon the full conversion of this Note and the other
        Notes issued pursuant to the Purchase Agreement.  The Borrower is
        required at all times to have authorized and reserved two times the number
        of
        shares that is actually issuable upon full conversion of the Notes (based
        on the
        Conversion Price of the Notes or the Exercise Price of the Warrants in effect
        from time to time) (the “Reserved
        Amount”).  The Reserved Amount shall be increased from time to
        time in accordance with the Borrower’s obligations pursuant to Section 4(h) of
        the Purchase Agreement.  The Borrower represents that upon issuance,
        such shares will be duly and validly issued, fully paid and
        non-assessable.  In addition, if the Borrower shall issue any
        securities or make any change to its capital structure which would change
        the
        number of shares of Common Stock into which the Notes shall be convertible
        at
        the then current Conversion Price, the Borrower shall at the same time make
        proper provision so that thereafter there shall be a sufficient number of
        shares
        of Common Stock authorized and reserved, free from preemptive rights, for
        conversion of the outstanding Notes.  The Borrower (i) acknowledges
        that it has irrevocably instructed its transfer agent to issue certificates
        for
        the Common Stock issuable upon conversion of this Note, and (ii) agrees
        that its issuance of this Note shall constitute full authority to its officers
        and agents who are charged with the duty of executing stock certificates
        to
        execute and issue the necessary certificates for shares of Common Stock in
        accordance with the terms and conditions of this Note.

       

      If,
        at
        any time a Holder of this Note submits a Notice of Conversion, and the Borrower
        does not have sufficient authorized but unissued shares of Common Stock
        available to effect such conversion in accordance with the provisions of
        this
        Article I (a “Conversion
        Default”), subject to Section 4.8, the Borrower shall issue to the Holder
        all of the shares of Common Stock which are then available to effect such
        conversion. 

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

         

         

        The
          portion of this Note which the Holder included in its Conversion Notice
          and
          which exceeds the amount which is then convertible into available shares
          of
          Common Stock (the “Excess
          Amount”) shall, notwithstanding anything to the contrary contained
          herein, not be convertible into Common Stock in accordance with the terms
          hereof
          until (and at the Holder’s option at any time after) the date additional shares
          of Common Stock are authorized by the Borrower to permit such conversion,
          at
          which time the Conversion Price in respect thereof shall be the lesser
          of (i)
          the Conversion Price on the Conversion Default Date (as defined below)
          and (ii)
          the Conversion Price on the Conversion Date thereafter elected by the Holder
          in
          respect thereof.  In addition, the Borrower shall pay to the Holder
          payments (“Conversion Default
          Payments”) for a Conversion Default in the amount of (x) the sum of
          (1) the then
          outstanding principal amount of this Note plus (2)
          accrued and
          unpaid interest on the unpaid principal amount of this Note through the
          Authorization Date (as defined below) plus (3)
          Default
          Interest, if any, on the amounts referred to in clauses (1) and/or (2),
multiplied by (y)
          .24, multiplied
          by (z) (N/365), where N = the number of days from the day the holder
          submits a Notice of Conversion giving rise to a Conversion Default (the
“Conversion Default Date”) to
          the date (the “Authorization
          Date”) that the Borrower authorizes a sufficient number of shares of
          Common Stock to effect conversion of the full outstanding principal balance
          of
          this Note.  The Borrower shall use its best efforts to authorize a
          sufficient number of shares of Common Stock as soon as practicable following
          the
          earlier of (i) such time that the Holder notifies the Borrower or that
          the
          Borrower otherwise becomes aware that there are or likely will be insufficient
          authorized and unissued shares to allow full conversion thereof and (ii)
          a
          Conversion Default.  The Borrower shall send notice to the Holder of
          the authorization of additional shares of Common Stock, the Authorization
          Date
          and the amount of Holder’s accrued Conversion Default Payments.  The
          accrued Conversion Default Payments for each calendar month shall be paid
          in
          cash or shall be convertible into Common Stock (at such time as there are
          sufficient authorized shares of Common Stock) at the applicable Conversion
          Price, at the Borrower’s option, as follows:

      

       

      (a)  In
        the
        event the Borrower elects to make such payment in cash, cash payment shall
        be
        made to Holder by the fifth (5th)
        day of the month
        following the month in which it has accrued; and

       

      

      (b)   In
        the event the Borrower elects to make such payment in Common Stock, the Holder
        may convert such payment amount into Common Stock at the Conversion Price
        (as in
        effect at the time of conversion) at any time after the fifth day of the
        month
        following the month in which it has accrued in accordance with the terms
        of this
        Article I (so long as there is then a sufficient number of authorized shares
        of
        Common Stock).

       

      

      The
        Borrower’s election shall be made in writing to the Holder at any time prior to
        6:00 p.m., New York, New York time, on the third day of the month following
        the
        month in which Conversion Default payments have accrued.  If no
        election is made, the Borrower shall be deemed to have elected to remit Common
        Stock.  Nothing herein shall limit the Holder’s right to pursue actual
        damages (to the extent in excess of the Conversion Default Payments) for
        the
        Borrower’s failure to maintain a sufficient number of authorized shares of
        Common Stock, and each holder shall have the right to pursue all remedies
        available at law or in equity (including degree of specific performance and/or
        injunctive relief).

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      1.4  Method
        of
        Conversion.

       

      (a)  Mechanics
        of
        Conversion.  Subject
        to
        Section 1.1, this Note may be converted by the Holder in whole or in part
        at any
        time from time to time after the Issue Date, by (A) submitting to the
        Borrower a Notice of Conversion (by facsimile or other reasonable means of
        communication dispatched on the Conversion Date prior to 6:00 p.m., New York,
        New York time) and (B) subject to Section 1.4(b), surrendering this Note at
        the principal office of the Borrower.

       

      (b)  Surrender
        of Note Upon
        Conversion.  Notwithstanding
        anything to the contrary set forth herein, upon conversion of this Note in
        accordance with the terms hereof, the Holder shall not be required to physically
        surrender this Note to the Borrower unless the entire unpaid principal amount
        of
        this Note is so converted.  The Holder and the Borrower shall maintain
        records showing the principal amount so converted and the dates of such
        conversions or shall use such other method, reasonably satisfactory to the
        Holder and the Borrower, so as not to require physical surrender of this
        Note
        upon each such conversion.  In the event of any dispute or
        discrepancy, such records of the Borrower shall be controlling and determinative
        in the absence of manifest error.  Notwithstanding the foregoing, if
        any portion of this Note is converted as aforesaid, the Holder may not transfer
        this Note unless the Holder first physically surrenders this Note to the
        Borrower, whereupon the Borrower will forthwith issue and deliver upon the
        order
        of the Holder a new Note of like tenor, registered as the Holder (upon payment
        by the Holder of any applicable transfer taxes) may request, representing
        in the
        aggregate the remaining unpaid principal amount of this Note.  The
        Holder and any assignee, by acceptance of this Note, acknowledge and agree
        that,
        by reason of the provisions of this paragraph, following conversion of a
        portion
        of this Note, the unpaid and unconverted principal amount of this Note
        represented by this Note may be less than the amount stated on the face
        hereof.

       

      (c)  Payment
        of
        Taxes.  The
        Borrower
        shall not be required to pay any tax which may be payable in respect of any
        transfer involved in the issue and delivery of shares of Common Stock or
        other
        securities or property on conversion of this Note in a name other than that
        of
        the Holder (or in street name), and the Borrower shall not be required to
        issue
        or deliver any such shares or other securities or property unless and until
        the
        person or persons (other than the Holder or the custodian in whose street
        name
        such shares are to be held for the Holder’s account) requesting the issuance
        thereof shall have paid to the Borrower the amount of any such tax or shall
        have
        established to the satisfaction of the Borrower that such tax has been
        paid.

       

      (d)  Delivery
        of Common Stock
        Upon Conversion.  Upon
        receipt by
        the Borrower from the Holder of a facsimile transmission (or other reasonable
        means of communication) of a Notice of Conversion meeting the requirements
        for
        conversion as provided in this Section 1.4, the Borrower shall issue and
        deliver
        or cause to be issued and delivered to or upon the order of the Holder
        certificates for the Common Stock issuable upon such conversion within five
        (5)
        business days after such receipt (and, solely in the case of conversion of
        the
        entire unpaid principal amount hereof, surrender of this Note) (such second
        business day being hereinafter referred to as the “Deadline”) in accordance
        with
        the terms hereof and the Purchase Agreement (including, without limitation,
        in
        accordance with the requirements of Section 2(g) of the Purchase Agreement
        that
        certificates for shares of Common Stock issued on or after the effective
        date of
        the Registration Statement upon conversion of this Note shall not bear any
        restrictive legend).

       

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      (e)  Obligation
        of Borrower to
        Deliver Common Stock.  Upon
        receipt by
        the Borrower of a Notice of Conversion, the Holder shall be deemed to be
        the
        holder of record of the Common Stock issuable upon such conversion, the
        outstanding principal amount and the amount of accrued and unpaid interest
        on
        this Note shall be reduced to reflect such conversion, and, unless the Borrower
        defaults on its obligations under this Article I, all rights with respect
        to the
        portion of this Note being so converted shall forthwith terminate except
        the
        right to receive the Common Stock or other securities, cash or other assets,
        as
        herein provided, on such conversion.  If the Holder shall have given a
        Notice of Conversion as provided herein, the Borrower’s obligation to issue and
        deliver the certificates for Common Stock shall be absolute and unconditional,
        irrespective of the absence of any action by the Holder to enforce the same,
        any
        waiver or consent with respect to any provision thereof, the recovery of
        any
        judgment against any person or any action to enforce the same, any failure
        or
        delay in the enforcement of any other obligation of the Borrower to the holder
        of record, or any setoff, counterclaim, recoupment, limitation or termination,
        or any breach or alleged breach by the Holder of any obligation to the Borrower,
        and irrespective of any other circumstance which might otherwise limit such
        obligation of the Borrower to the Holder in connection with such
        conversion.  The Conversion Date specified in the Notice of Conversion
        shall be the Conversion Date so long as the Notice of Conversion is received
        by
        the Borrower before 6:00 p.m., New York, New York time, on such
        date.

       

      (f)  Delivery
        of Common Stock by
        Electronic Transfer.  In
        lieu of
        delivering physical certificates representing the Common Stock issuable upon
        conversion, provided the Borrower’s transfer agent is participating in the
        Depository Trust Company (“DTC”) Fast Automated
        Securities Transfer (“FAST”) program, upon
        request
        of the Holder and its compliance with the provisions contained in Section
        1.1
        and in this Section 1.4, the Borrower shall use its best efforts to cause
        its
        transfer agent to electronically transmit the Common Stock issuable upon
        conversion to the Holder by crediting the account of Holder’s Prime Broker with
        DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

       

      (g)  Failure
        to Deliver Common
        Stock Prior to Deadline.  Without
        in any
        way limiting the Holder’s right to pursue other remedies, including actual
        damages and/or equitable relief, the parties agree that if delivery of the
        Common Stock issuable upon conversion of this Note is more than two (2) days
        after the Deadline (other than a failure due to the circumstances described
        in
        Section 1.3 above, which failure shall be governed by such Section) the Borrower
        shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline
        that the Borrower fails to deliver such Common Stock.  Such cash
        amount shall be paid to Holder by the fifth day of the month following the
        month
        in which it has accrued or, at the option of the Holder (by written notice
        to
        the Borrower by the first day of the month following the month in which it
        has
        accrued), shall be added to the principal amount of this Note, in which event
        interest shall accrue thereon in accordance with the terms of this Note and
        such
        additional principal amount shall be convertible into Common Stock in accordance
        with the terms of this Note.

       

      1.5  Concerning
        the
        Shares.  The
        shares of
        Common Stock issuable upon conversion of this Note may not be sold or
        transferred unless  (i) such shares are sold pursuant to an effective
        registration statement under the Act or (ii) the Borrower or its transfer
        agent
        shall have been furnished with an opinion of  counsel (which opinion
        shall be in form, substance and scope customary for opinions of counsel in
        comparable transactions) to the effect that the shares to be sold or transferred
        may be sold or transferred pursuant to an exemption from such registration
        or
        (iii) such shares are sold or transferred pursuant to Rule 144 under the
        Act (or a successor rule) (“Rule 144”) or (iv) such shares
        are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who
        agrees to sell or otherwise transfer the shares only in accordance with this
        Section 1.5 and who is an Accredited Investor (as defined in the Purchase
        Agreement).  

       

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

         

         

        Except
          as
          otherwise provided in the Purchase Agreement (and subject to the removal
          provisions set forth below), until such time as the shares of Common Stock
          issuable upon conversion of this Note have been registered under the Act
          as
          contemplated by the Registration Rights Agreement or otherwise may be sold
          pursuant to Rule 144 without any restriction as to the number of securities
          as
          of a particular date that can then be immediately sold, each certificate
          for
          shares of Common Stock issuable upon conversion of this Note that has not
          been
          so included in an effective registration statement or that has not been
          sold
          pursuant to an effective registration statement or an exemption that permits
          removal of the legend, shall bear a legend substantially in the following
          form,
          as appropriate:

      

       

      
        “THE
          SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
          THE
          SECURITIES ACT OF 1933, AS AMENDED.  THE SECURITIES MAY NOT BE SOLD,
          TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
          FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
          AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS,
          THAT
          REGISTRATION IS NOT REQUIRED UNDER SAID ACT  UNLESS SOLD PURSUANT TO
          RULE 144 OR REGULATION S UNDER SAID ACT.”

         

      

      The
        legend set forth above shall be removed and the Borrower shall issue to the
        Holder a new certificate therefor free of any transfer legend if (i) the
        Borrower or its transfer agent shall have received an opinion of counsel,
        in
        form, substance and scope customary for opinions of counsel in comparable
        transactions, to the effect that a public sale or transfer of such Common
        Stock
        may be made without registration under the Act and the shares are so sold
        or
        transferred, (ii) such Holder provides the Borrower or its transfer agent
        with
        reasonable assurances that the Common Stock issuable upon conversion of this
        Note (to the extent such securities are deemed to have been acquired on the
        same
        date) can be sold pursuant to Rule 144 or (iii) in the case of the Common
        Stock
        issuable upon conversion of this Note, such security is registered for sale
        by
        the Holder under an effective registration statement filed under the Act
        or
        otherwise may be sold pursuant to Rule 144 without any restriction as to
        the
        number of securities as of a particular date that can then be immediately
        sold.  Nothing in this Note shall (i) limit the Borrower’s obligation
        under the Registration Rights Agreement or (ii) affect in any way the Holder’s
        obligations to comply with applicable prospectus delivery requirements upon
        the
        resale of the securities referred to herein.

       

      1.6  Effect
        of Certain
        Events.

       

      (a)  Effect
        of Merger,
        Consolidation, Etc.  At
        the option of
        the Holder, the sale, conveyance or disposition of all or substantially all
        of
        the assets of the Borrower, the effectuation by the Borrower of a transaction
        or
        series of related transactions in which more than 50% of the voting power
        of the
        Borrower is disposed of, or the consolidation, merger or other business
        combination of the Borrower with or into any other Person (as defined below)
        or
        Persons when the Borrower is not the survivor shall
        either:  

       

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

         

         

        (i)
          be
          deemed to be an Event of Default (as defined in Article III) pursuant to
          which
          the Borrower shall be required to pay to the Holder upon the consummation
          of and
          as a condition to such transaction an amount equal to the Default Amount
          (as
          defined in Article III) or (ii) be treated pursuant to Section 1.6(b)
          hereof.  “Person” shall mean any
          individual, corporation, limited liability company, partnership, association,
          trust or other entity or organization.

      

       

      (b)  Adjustment
        Due to Merger,
        Consolidation, Etc.  If,
        at any time
        when this Note is issued and outstanding and prior to conversion of all of
        the
        Notes, there shall be any merger, consolidation, exchange of shares,
        recapitalization, reorganization, or other similar event, as a result of
        which
        shares of Common Stock of the Borrower shall be changed into the same or
        a
        different number of shares of another class or classes of stock or securities
        of
        the Borrower or another entity, or in case of any sale or conveyance of all
        or
        substantially all of the assets of the Borrower other than in connection
        with a
        plan of complete liquidation of the Borrower, then the Holder of this Note
        shall
        thereafter have the right to receive upon conversion of this Note, upon the
        basis and upon the terms and conditions specified herein and in lieu of the
        shares of Common Stock immediately theretofore issuable upon conversion,
        such
        stock, securities or assets which the Holder would have been entitled to
        receive
        in such transaction had this Note been converted in full immediately prior
        to
        such transaction (without regard to any limitations on conversion set forth
        herein), and in any such case appropriate provisions shall be made with respect
        to the rights and interests of the Holder of this Note to the end that the
        provisions hereof (including, without limitation, provisions for adjustment
        of
        the Conversion Price and of the number of shares issuable upon conversion
        of the
        Note) shall thereafter be applicable, as nearly as may be practicable in
        relation to any securities or assets thereafter deliverable upon the conversion
        hereof.  The Borrower shall not effect any transaction described in
        this Section 1.6(b) unless (a) it first gives, to the extent practicable,
        thirty
        (30) days prior written notice (but in any event at least fifteen (15) days
        prior written notice) of the record date of the special meeting of shareholders
        to approve, or if there is no such record date, the consummation of, such
        merger, consolidation, exchange of shares, recapitalization, reorganization
        or
        other similar event or sale of assets (during which time the Holder shall
        be
        entitled to convert this Note) and (b) the resulting successor or acquiring
        entity (if not the Borrower) assumes by written instrument the obligations
        of
        this Section 1.6(b).  The above provisions shall similarly apply to
        successive consolidations, mergers, sales, transfers or share
        exchanges.

       

      (c)  Adjustment
        Due to
        Distribution.  If
        the Borrower
        shall declare or make any distribution of its assets (or rights to acquire
        its
        assets) to holders of Common Stock as a dividend, stock repurchase, by way
        of
        return of capital or otherwise (including any dividend or distribution to
        the
        Borrower’s shareholders in cash or shares (or rights to acquire shares) of
        capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the
        Holder of this Note shall be entitled, upon any conversion of this Note after
        the date of record for determining shareholders entitled to such Distribution,
        to receive the amount of such assets which would have been payable to the
        Holder
        with respect to the shares of Common Stock issuable upon such conversion
        had
        such Holder been the holder of such shares of Common Stock on the record
        date
        for the determination of shareholders entitled to such
        Distribution.

       

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

       

      (d)  Adjustment
        Due to Dilutive
        Issuance.  If,
        at any time
        when any Notes are issued and outstanding, the Borrower issues or sells,
        or in
        accordance with this Section 1.6(d) hereof is deemed to have issued or sold,
        any
        shares of Common Stock for no consideration or for a consideration per share
        (before deduction of reasonable expenses or commissions or underwriting
        discounts or allowances in connection therewith) less than the Fixed Conversion
        Price in effect on the date of such issuance (or deemed issuance) of such
        shares
        of Common Stock (a “Dilutive
        Issuance”), then immediately upon the Dilutive Issuance, the Fixed
        Conversion Price will be reduced to the amount of the consideration per share
        received by the Borrower in such Dilutive Issuance; provided that only
        one adjustment will be made for each Dilutive Issuance.

       

      The
        Borrower shall be deemed to have issued or sold shares of Common Stock if
        the
        Borrower in any manner issues or grants any warrants, rights or options,
        whether
        or not immediately exercisable, to subscribe for or to purchase Common Stock
        or
        other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such
        warrants, rights and options to purchase Common Stock or Convertible Securities
        are hereinafter referred to as “Options”) and the price
        per
        share for which Common Stock is issuable upon the exercise of such Options
        is
        less than the Fixed Conversion Price then in effect, then the Fixed Conversion
        Price shall be equal to such price per share.  For purposes of the
        preceding sentence, the “price per share for which Common Stock is issuable upon
        the exercise of such Options” is determined by dividing (i) the total amount, if
        any, received or receivable by the Borrower as consideration for the issuance
        or
        granting of all such Options, plus the minimum aggregate amount of additional
        consideration, if any, payable to the Borrower upon the exercise of all such
        Options, plus, in the case of Convertible Securities issuable upon the exercise
        of such Options, the minimum aggregate amount of additional consideration
        payable upon the conversion or exchange thereof at the time such Convertible
        Securities first become convertible or exchangeable, by (ii) the maximum
        total
        number of shares of Common Stock issuable upon the exercise of all such Options
        (assuming full conversion of Convertible Securities, if
        applicable).  No further adjustment to the Conversion Price will be
        made upon the actual issuance of such Common Stock upon the exercise of such
        Options or upon the conversion or exchange of Convertible Securities issuable
        upon exercise of such Options.

       

      Additionally,
        the Borrower shall be deemed to have issued or sold shares of Common Stock
        if
        the Borrower in any manner issues or sells any Convertible Securities, whether
        or not immediately convertible (other than where the same are issuable upon
        the
        exercise of Options), and the price per share for which Common Stock is issuable
        upon such conversion or exchange is less than the Fixed Conversion Price
        then in
        effect, then the Fixed Conversion Price shall be equal to such price per
        share.  For the purposes of the preceding sentence, the “price per
        share for which Common Stock is issuable upon such conversion or exchange” is
        determined by dividing (i) the total amount, if any, received or receivable
        by
        the Borrower as consideration for the issuance or sale of all such Convertible
        Securities, plus the minimum aggregate amount of additional consideration,
        if
        any, payable to the Borrower upon the conversion or exchange thereof at the
        time
        such Convertible Securities first become convertible or exchangeable, by
        (ii)
        the maximum total number of shares of Common Stock issuable upon the conversion
        or exchange of all such Convertible Securities.  No further adjustment
        to the Fixed Conversion Price will be made upon the actual issuance of such
        Common Stock upon conversion or exchange of such Convertible
        Securities.

       

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

       

      (e)  Purchase
        Rights.  If,
        at any time
        when any Notes are issued and outstanding, the Borrower issues any convertible
        securities or rights to purchase stock, warrants, securities or other property
        (the “Purchase Rights”)
        pro rata to the record holders of any class of Common Stock, then the Holder
        of
        this Note will be entitled to acquire, upon the terms applicable to such
        Purchase Rights, the aggregate Purchase Rights which such Holder could have
        acquired if such Holder had held the number of shares of Common Stock acquirable
        upon complete conversion of this Note (without regard to any limitations
        on
        conversion contained herein) immediately before the date on which a record
        is
        taken for the grant, issuance or sale of such Purchase Rights or, if no such
        record is taken, the date as of which the record holders of Common Stock
        are to
        be determined for the grant, issue or sale of such Purchase Rights.

       

      (f)  Notice
        of
        Adjustments.  Upon
        the
        occurrence of each adjustment or readjustment of the Conversion Price as
        a
        result of the events described in this Section 1.6, the Borrower, at its
        expense, shall promptly compute such adjustment or readjustment and prepare
        and
        furnish to the Holder of a certificate setting forth such adjustment or
        readjustment and showing in detail the facts upon which such adjustment or
        readjustment is based.  The Borrower shall, upon the written request
        at any time of the Holder, furnish to such Holder a like certificate setting
        forth (i) such adjustment or readjustment, (ii) the Conversion Price at the
        time
        in effect and (iii) the number of shares of Common Stock and the amount,
        if any,
        of other securities or property which at the time would be received upon
        conversion of the Note.

       

      1.7  Trading
        Market
        Limitations.
Unless
        permitted by the applicable rules and regulations of the principal
        securities market on which the Common Stock is then listed or traded, in
        no
        event shall the Borrower issue upon conversion of or otherwise pursuant to
        this
        Note and the other Notes issued pursuant to the Purchase Agreement more than
        the
        maximum number of shares of Common Stock that the Borrower can issue pursuant
        to
        any rule of the principal United States securities market on which the Common
        Stock is then traded (the “Maximum Share Amount”), which
        shall be 19.99% of the total shares outstanding on the Closing Date (as defined
        in the Purchase Agreement), subject to equitable adjustment from time to
        time
        for stock splits, stock dividends, combinations, capital reorganizations
        and
        similar events relating to the Common Stock occurring after the date
        hereof.  Once the Maximum Share Amount has been issued (the date of
        which is hereinafter referred to as the “Maximum Conversion Date”), if
        the Borrower fails to eliminate any prohibitions under applicable law or
        the
        rules or regulations of any stock exchange, interdealer quotation system
        or
        other self-regulatory organization with jurisdiction over the Borrower or
        any of
        its securities on the Borrower’s ability to issue shares of Common Stock in
        excess of the Maximum Share Amount (a “Trading Market Prepayment
        Event”), in lieu of any further right to convert this Note, and in full
        satisfaction of the Borrower’s obligations under this Note, the Borrower shall
        pay to the Holder, within fifteen (15) business days of the Maximum Conversion
        Date (the “Trading Market
        Prepayment Date”), an amount equal to 130% times
        the sum of (a)
        the then
        outstanding principal amount of this Note immediately following the Maximum
        Conversion Date, plus (b) accrued
        and
        unpaid interest on the unpaid principal amount of this Note to the Trading
        Market Prepayment Date, plus (c) Default
        Interest, if any, on the amounts referred to in clause (a) and/or (b) above,
        plus (d) any
        optional amounts that may be added thereto at the Maximum Conversion Date
        by the
        Holder in accordance with the terms hereof (the then outstanding principal
        amount of this Note immediately following the Maximum Conversion Date, plus the amounts
        referred to in clauses (b), (c) and (d) above shall collectively be referred
        to
        as the “Remaining Convertible
        Amount”).  

       

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

         

         

        With
          respect to each Holder of Notes, the Maximum Share Amount shall refer to
          such
          Holder’s prorata
          share thereof
          determined in accordance with Section 4.8 below.  In the event that
          the sum of (x) the aggregate number of shares of Common Stock issued upon
          conversion of this Note and the other Notes issued pursuant to the Purchase
          Agreement plus
          (y) the aggregate number of shares of Common Stock that remain issuable
          upon
          conversion of this Note and the other Notes issued pursuant to the Purchase
          Agreement, represents at least one hundred percent (100%) of the Maximum
          Share
          Amount (the “Triggering
          Event”), the Borrower will use its best efforts to seek and obtain
          Shareholder Approval (or obtain such other relief as will allow conversions
          hereunder in excess of the Maximum Share Amount) as soon as practicable
          following the Triggering Event and before the Maximum Conversion
          Date.  As used herein, “Shareholder Approval” means
          approval by the shareholders of the Borrower to authorize the issuance
          of the
          full number of shares of Common Stock which would be issuable upon full
          conversion of the then outstanding Notes but for the Maximum Share
          Amount.

      

       

      1.8  Status
        as
        Shareholder.  Upon
        submission
        of a Notice of Conversion by a Holder, (i) the shares covered thereby (other
        than the shares, if any, which cannot be issued because their issuance would
        exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share
        Amount) shall be deemed converted into shares of Common Stock and (ii) the
        Holder’s rights as a Holder of such converted portion of this Note shall cease
        and terminate, excepting only the right to receive certificates for such
        shares
        of Common Stock and to any remedies provided herein or otherwise available
        at
        law or in equity to such Holder because of a failure by the Borrower to comply
        with the terms  of this Note.  Notwithstanding the
        foregoing, if a Holder has not received certificates for all shares of Common
        Stock prior to the tenth (10th) business day after the expiration of the
        Deadline with respect to a conversion of any portion of this Note for any
        reason, then (unless the Holder otherwise elects to retain its status as
        a
        holder of Common Stock by so notifying the Borrower) the Holder shall regain
        the
        rights of a Holder of this Note with respect to such unconverted portions
        of
        this Note and the Borrower shall, as soon as practicable, return such
        unconverted Note to the Holder or, if the Note has not been surrendered,
        adjust
        its records to reflect that such portion of this Note has not been
        converted.  In all cases, the Holder shall retain all of its rights
        and remedies (including, without limitation, (i) the right to receive Conversion
        Default Payments pursuant to Section 1.3 to the extent required thereby for
        such
        Conversion Default and any subsequent Conversion Default and (ii) the right
        to
        have the Conversion Price with respect to subsequent conversions determined
        in
        accordance with Section 1.3) for the Borrower’s failure to convert this
        Note.

       

       

      ARTICLE
        II.   CERTAIN COVENANTS

       

      2.1  Distributions
        on Capital
        Stock.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not
        without the Holder’s written consent (a) pay, declare or set apart for such
        payment, any dividend or other distribution (whether in cash, property or
        other
        securities) on shares of capital stock other than dividends on shares of
        Common
        Stock solely in the form of additional shares of Common Stock or (b) directly
        or
        indirectly or through any subsidiary make any other payment or distribution
        in
        respect of its capital stock except for distributions pursuant to any
        shareholders’ rights plan which is approved by a majority of the Borrower’s
        disinterested directors.

       

       

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      2.2  Restriction
        on Stock
        Repurchases.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not
        without the Holder’s written consent redeem, repurchase or otherwise acquire
        (whether for cash or in exchange for property or other securities or otherwise)
        in any one transaction or series of related transactions any shares of capital
        stock of the Borrower or any warrants, rights or options to purchase or acquire
        any such shares.

       

      2.3  Borrowings.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, create, incur, assume or suffer to exist
        any liability for borrowed money in excess of $50,000, except (a) borrowings
        in
        existence or committed on the date hereof and of which the Borrower has informed
        Holder in writing prior to the date hereof, (b) indebtedness to trade creditors
        or financial institutions incurred in the ordinary course of business or
        (c)
        borrowings, the proceeds of which shall be used to repay this Note.

       

      2.4  Sale
        of
        Assets.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, sell, lease or otherwise dispose of any
        significant portion of its assets outside the ordinary course of
        business.  Any consent to the disposition of any assets may be
        conditioned on a specified use of the proceeds of disposition.

       

      2.5  Advances
        and
        Loans.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, lend money, give credit or make advances
        to any person, firm, joint venture or corporation, including, without
        limitation, officers, directors, employees, subsidiaries and affiliates of
        the
        Borrower, except loans, credits or advances (a) in existence or committed
        on the
        date hereof and which the Borrower has informed Holder in writing prior to
        the
        date hereof, (b) made in the ordinary course of business or (c) not in excess
        of
        $50,000.

       

      2.6  Contingent
        Liabilities.  So
        long as the
        Borrower shall have any obligation under this Note, the Borrower shall not,
        without the Holder’s written consent, assume, guarantee, endorse, contingently
        agree to purchase or otherwise become liable upon the obligation of any person,
        firm, partnership, joint venture or corporation, except by the endorsement
        of
        negotiable instruments for deposit or collection and except assumptions,
        guarantees, endorsements and contingencies (a) in existence or committed
        on the
        date hereof and which the Borrower has informed Holder in writing prior to
        the
        date hereof, and (b) similar transactions in the ordinary course of
        business.

       

       

      ARTICLE
        III.   EVENTS OF DEFAULT

       

      If
        any of
        the following events of default (each, an “Event of Default”) shall
        occur:

       

      3.1  Failure
        to Pay Principal or
        Interest.  The
        Borrower
        fails to pay the principal hereof or interest thereon when due on this Note,
        whether at maturity, upon a Trading Market Prepayment Event pursuant to Section
        1.7, upon acceleration or otherwise;

       

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

       

      3.2  Conversion
        and the
        Shares.  The
        Borrower
        fails to issue shares of Common Stock to the Holder (or announces or threatens
        that it will not honor its obligation to do so) upon exercise by the Holder
        of
        the conversion rights of the Holder in accordance with the terms of this
        Note
        (for a period of at least sixty (60) days, if such failure is solely as a
        result
        of the circumstances governed by Section 1.3 and the Borrower is using its
        best
        efforts to authorize a sufficient number of shares of Common Stock as soon
        as
        practicable), fails to transfer or cause its transfer agent to transfer
        (electronically or in certificated form) any certificate for shares of Common
        Stock issued to the Holder upon conversion of or otherwise pursuant to this
        Note
        as and when required by this Note or the Registration Rights Agreement, or
        fails
        to remove any restrictive legend (or to withdraw any stop transfer instructions
        in respect thereof) on any certificate for any shares of Common Stock issued
        to
        the Holder upon conversion of or otherwise pursuant to this Note as and when
        required by this Note or the Registration Rights Agreement (or makes any
        announcement, statement or threat that it does not intend to honor the
        obligations described in this paragraph) and any such failure shall continue
        uncured (or any announcement, statement or threat not to honor its obligations
        shall not be rescinded in writing) for ten (10) days after the Borrower shall
        have been notified thereof in writing by the Holder;

       

      3.3  Failure
        to Timely File
        Registration or Effect Registration.  The
        Borrower
        fails to file the Registration Statement within sixty (60) days following
        the
        Closing Date (as defined in the Purchase Agreement) or obtain effectiveness
        with
        the Securities and Exchange Commission of the Registration Statement within
        two
        hundred fifty (250) days following the Closing Date (as defined in the Purchase
        Agreement) or such Registration Statement lapses in effect (or sales cannot
        otherwise be made thereunder effective, whether by reason of the Borrower’s
        failure to amend or supplement the prospectus included therein in accordance
        with the Registration Rights Agreement or otherwise) for more than twenty
        (20)
        consecutive days or forty (40) days in any twelve month period after the
        Registration Statement becomes effective;

       

      3.4  Breach
        of
        Covenants.  The
        Borrower
        breaches any material covenant or other material term or condition contained
        in
        Sections 1.3, 1.6 or 1.7 of this Note, or Sections 4(c), 4(e), 4(h), 4(i),
        4(j)
        or 5 of the Purchase Agreement and such breach continues for a period of
        ten
        (10) days after written notice thereof to the Borrower from the
        Holder;

       

      3.5  Breach
        of Representations
        and Warranties.  Any
        representation or warranty of the Borrower made herein or in any agreement,
        statement or certificate given in writing pursuant hereto or in connection
        herewith (including, without limitation, the Purchase Agreement and the
        Registration Rights Agreement), shall be false or misleading in any material
        respect when made and the breach of which has (or with the passage of time
        will
        have) a material adverse effect on the rights of the Holder with respect
        to this
        Note, the Purchase Agreement or the Registration Rights Agreement;

       

      3.6  Receiver
        or
        Trustee.  The
        Borrower or
        any subsidiary of the Borrower shall make an assignment for the benefit of
        creditors, or apply for or consent to the appointment of a receiver or trustee
        for it or for a substantial part of its property or business, or such a receiver
        or trustee shall otherwise be appointed;

       

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

       

      3.7  Judgments.  Any
        money
        judgment, writ or similar process shall be entered or filed against the Borrower
        or any subsidiary of the Borrower or any of its property or other assets
        for
        more than $50,000, and shall remain unvacated, unbonded or unstayed for a
        period
        of twenty (20) days unless otherwise consented to by the Holder, which consent
        will not be unreasonably withheld;

       

      3.8  Bankruptcy.  Bankruptcy,
        insolvency, reorganization or liquidation proceedings or other proceedings
        for
        relief under any bankruptcy law or any law for the relief of debtors shall
        be
        instituted by or against the Borrower or any subsidiary of the
        Borrower;

       

      3.9  Delisting
        of Common
        Stock.  The
        Borrower
        shall fail to maintain the listing of the Common Stock on at least one of
        the
        OTCBB or an equivalent replacement exchange, the Nasdaq National Market,
        the
        Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock
        Exchange; or

       

      3.10  Default
        Under Other
        Notes.  An
        Event of
        Default has occurred and is continuing under any of the other Notes issued
        pursuant to the Purchase Agreement, then, upon the occurrence and during
        the
        continuation of any Event of Default specified in Section 3.1, 3.2, 3.3,
        3.4,
        3.5, 3.7, 3.9, or 3.10, at the option of the Holders of a majority of the
        aggregate principal amount of the outstanding Notes issued pursuant to the
        Purchase Agreement exercisable through the delivery of written notice to
        the
        Borrower by such Holders (the “Default Notice”), and upon the
        occurrence of an Event of Default specified in Section 3.6 or 3.8, the Notes
        shall become immediately due and payable and the Borrower shall pay to the
        Holder, in full satisfaction of its obligations hereunder, an amount equal
        to
        the greater of (i) 130% times the sum
        of (w) the then
        outstanding principal amount of this Note plus (x) accrued
        and
        unpaid interest on the unpaid principal amount of this Note to the date of
        payment (the “Mandatory
        Prepayment Date”) plus
        (y) Default
        Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any
        amounts
        owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant
        to
        Section 2(c) of the Registration Rights Agreement (the then outstanding
        principal amount of this Note to the date of payment plus the amounts
        referred to in clauses (x), (y) and (z) shall collectively be known as the
        “Default Sum”) or (ii)
        the “parity value” of the Default Sum to be prepaid, where parity value means
        (a) the highest number of shares of Common Stock issuable upon conversion
        of or
        otherwise pursuant to such Default Sum in accordance with Article I, treating
        the Trading Day immediately preceding the Mandatory Prepayment Date as the
        “Conversion Date” for purposes of determining the lowest applicable Conversion
        Price, unless the Default Event arises as a result of a breach in respect
        of a
        specific Conversion Date in which case such Conversion Date shall be the
        Conversion Date), multiplied by (b) the
        highest Closing Price for the Common Stock during the period beginning on
        the
        date of first occurrence of the Event of Default and ending one day prior
        to the
        Mandatory Prepayment Date (the “Default Amount”) and all other
        amounts payable hereunder shall immediately become due and payable, all without
        demand, presentment or notice, all of which hereby are expressly waived,
        together with all costs, including, without limitation, legal fees and expenses,
        of collection, and the Holder shall be entitled to exercise all other rights
        and
        remedies available at law or in equity.  If the Borrower fails to pay
        the Default Amount within five (5) business days of written notice that such
        amount is due and payable, then the Holder shall have the right at any time,
        so
        long as the Borrower remains in default (and so long and to the extent that
        there are sufficient authorized shares), to require the Borrower, upon written
        notice, to immediately issue, in lieu of the Default Amount, the number of
        shares of Common Stock of the Borrower equal to the Default Amount divided
        by
        the Conversion Price then in effect.

       

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        IV.   MISCELLANEOUS

       

      4.1  Failure
        or Indulgence Not
        Waiver.  No
        failure or
        delay on the part of the Holder in the exercise of any power, right or privilege
        hereunder shall operate as a waiver thereof, nor shall any single or partial
        exercise of any such power, right or privilege preclude other or further
        exercise thereof or of any other right, power or privileges.  All
        rights and remedies existing hereunder are cumulative to, and not exclusive
        of,
        any rights or remedies otherwise available.

       

      4.2  Notices.  Any
        notice herein
        required or permitted to be given shall be in writing and may be personally
        served or delivered by courier or sent by United States mail and shall be
        deemed
        to have been given upon receipt if personally served (which shall include
        telephone line facsimile transmission) or sent by courier or three (3) days
        after being deposited in the United States mail, certified, with postage
        pre-paid and properly addressed, if sent by mail.  For the purposes
        hereof, the address of the Holder shall be as shown on the records of the
        Borrower; and the address of the Borrower shall be 22600 Hall Road, Suite
        205
        Clinton Township, MI 48036, facsimile number: 586-468-8768.  Both the
        Holder and the Borrower may change the address for service by service of
        written
        notice to the other as herein provided.

       

      4.3  Amendments.  This
        Note and any
        provision hereof may only be amended by an instrument in writing signed by
        the
        Borrower and the Holder.  The term “Note” and all reference thereto,
        as used throughout this instrument, shall mean this instrument (and the other
        Notes issued pursuant to the Purchase Agreement) as originally executed,
        or if
        later amended or supplemented, then as so amended or supplemented.

       

      4.4  Assignability.  This
        Note shall
        be binding upon the Borrower and its successors and assigns, and shall inure
        to
        be the benefit of the Holder and its successors and assigns.  Each
        transferee of this Note must be an “accredited investor” (as defined in Rule
        501(a) of the 1933 Act).  Notwithstanding anything in this Note to the
        contrary, this Note may be pledged as collateral in connection with a bonafide
        margin account
        or other lending arrangement.

       

      4.5  Cost
        of
        Collection.  If
        default is
        made in the payment of this Note, the Borrower shall pay the Holder hereof
        costs
        of collection, including reasonable attorneys’ fees.

       

      4.6  Governing
        Law.  THIS
        NOTE SHALL
        BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
        STATE
        OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN
        SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.  THE
        BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES
        FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE
        ARISING
        UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE
        TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 

       

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

         

         

        BOTH
          PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE
          MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE
          THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE
          DEEMED
          IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH
          SUIT OR
          PROCEEDING.  NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE
          PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.  BOTH PARTIES AGREE THAT
          A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE
          CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT
          OR IN ANY OTHER LAWFUL MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN
          ANY DISPUTE ARISING UNDER THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND
          EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN
          CONNECTION WITH SUCH DISPUTE.

      

       

      4.7  Certain
        Amounts.  Whenever
        pursuant
        to this Note the Borrower is required to pay an amount in excess of the
        outstanding principal amount (or the portion thereof required to be paid
        at that
        time) plus accrued and unpaid interest plus Default Interest on such interest,
        the Borrower and the Holder agree that the actual damages to the Holder from
        the
        receipt of cash payment on this Note may be difficult to determine and the
        amount to be so paid by the Borrower represents stipulated damages and not
        a
        penalty and is intended to compensate the Holder in part for loss of the
        opportunity to convert this Note and to earn a return from the sale of shares
        of
        Common Stock acquired upon conversion of this Note at a price in excess of
        the
        price paid for such shares pursuant to this Note.  The Borrower and
        the Holder hereby agree that such amount of stipulated damages is not plainly
        disproportionate to the possible loss to the Holder from the receipt of a
        cash
        payment without the opportunity to convert this Note into shares of Common
        Stock.

       

      4.8  Allocations
        of Maximum Share
        Amount and Reserved Amount.  The
        Maximum Share
        Amount and Reserved Amount shall be allocated pro rata among the Holders
        of
        Notes based on the principal amount of such Notes issued to each
        Holder.  Each increase to the Maximum Share Amount and Reserved Amount
        shall be allocated pro rata among the Holders of Notes based on the principal
        amount of such Notes held by each Holder at the time of the increase in the
        Maximum Share Amount or Reserved Amount.  In the event a Holder shall
        sell or otherwise transfer any of such Holder’s Notes, each transferee shall be
        allocated a pro rata portion of such transferor’s Maximum Share Amount and
        Reserved Amount.  Any portion of the Maximum Share Amount or Reserved
        Amount which remains allocated to any person or entity which does not hold
        any
        Notes shall be allocated to the remaining Holders of Notes, pro rata based
        on
        the principal amount of such Notes then held by such Holders.

       

      4.9  Damages
        Shares.  The
        shares of
        Common Stock that may be issuable to the Holder pursuant to Sections 1.3
        and
        1.4(g) hereof and pursuant to Section 2(c) of the Registration Rights Agreement
        (“Damages Shares”) shall
        be treated as Common Stock issuable upon conversion of this Note for all
        purposes hereof and shall be subject to all of the limitations and afforded
        all
        of the rights of the other shares of Common Stock issuable hereunder, including
        without limitation, the right to be included in the Registration Statement
        filed
        pursuant to the Registration Rights Agreement.  For purposes of
        calculating interest payable on the outstanding principal amount hereof,
        except
        as otherwise provided herein, amounts convertible into Damages Shares (“Damages Amounts”) shall not
        bear interest but must be converted prior to the conversion of any outstanding
        principal amount hereof, until the outstanding Damages Amounts is
        zero.

       

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      4.10  Denominations.  At
        the request of
        the Holder, upon surrender of this Note, the Borrower shall promptly issue
        new
        Notes in the aggregate outstanding principal amount hereof, in the form hereof,
        in such denominations of at least $50,000 as the Holder shall
        request.

       

      4.11  Purchase
        Agreement.  By
        its acceptance
        of this Note, each Holder agrees to be bound by the applicable terms of the
        Purchase Agreement.

       

      4.12  Notice
        of Corporate
        Events.  Except
        as
        otherwise provided below, the Holder of this Note shall have no rights as
        a
        Holder of Common Stock unless and only to the extent that it converts this
        Note
        into Common Stock.  The Borrower shall provide the Holder with prior
        notification of any meeting of the Borrower’s shareholders (and copies of proxy
        materials and other information sent to shareholders).  In the event
        of any taking by the Borrower of a record of its shareholders for the purpose
        of
        determining shareholders who are entitled to receive payment of any dividend
        or
        other distribution, any right to subscribe for, purchase or otherwise acquire
        (including by way of merger, consolidation, reclassification or
        recapitalization) any share of any class or any other securities or property,
        or
        to receive any other right, or for the purpose of determining shareholders
        who
        are entitled to vote in connection with any proposed sale, lease or conveyance
        of all or substantially all of the assets of the Borrower or any proposed
        liquidation, dissolution or winding up of the Borrower, the Borrower shall
        mail
        a notice to the Holder, at least twenty (20) days prior to the record date
        specified therein (or thirty (30) days prior to the consummation of the
        transaction or event, whichever is earlier), of the date on which any such
        record is to be taken for the purpose of such dividend, distribution, right
        or
        other event, and a brief statement regarding the amount and character of
        such
        dividend, distribution, right or other event to the extent known at such
        time.  The Borrower shall make a public announcement of any event
        requiring notification to the Holder hereunder substantially simultaneously
        with
        the notification to the Holder in accordance with the terms of this Section
        4.12.

       

      4.13  Remedies.  The
        Borrower
        acknowledges that a breach by it of its obligations hereunder will cause
        irreparable harm to the Holder, by vitiating the intent and purpose of the
        transaction contemplated hereby.  Accordingly, the Borrower
        acknowledges that the remedy at law for a breach of its obligations under
        this
        Note will be inadequate and agrees, in the event of a breach or threatened
        breach by the Borrower of the provisions of this Note, that the Holder shall
        be
        entitled, in addition to all other available remedies at law or in equity,
        and
        in addition to the penalties assessable herein, to an injunction or injunctions
        restraining, preventing or curing any breach of this Note and to enforce
        specifically the terms and provisions thereof, without the necessity of showing
        economic loss and without any bond or other security being
        required.

       

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        V.  CALL OPTION

       

      5.1  Call
        Option.  Notwithstanding
        anything to the contrary contained in this Article V, so long as (i) no
        Event of Default or Trading Market Prepayment Event shall have occurred and
        be
        continuing, (ii) the Borrower has a sufficient number of authorized shares
        of Common Stock reserved for issuance upon full conversion of the Notes,
        then at
        any time after the Issue Date, and (iii) the Common Stock is trading at or
        below $.04 per share, the Borrower shall have the right, exercisable on not
        less
        than ten (10) Trading Days prior written notice to the Holders of the Notes
        (which notice may not be sent to the Holders of the Notes until the Borrower
        is
        permitted to prepay the Notes pursuant to this Section 5.1), to prepay all
        of
        the outstanding Notes in accordance with this Section 5.1.  Any notice
        of prepayment hereunder (an “Optional Prepayment”) shall be
        delivered to the Holders of the Notes at their registered addresses appearing
        on
        the books and records of the Borrower and shall state (1) that the Borrower
        is
        exercising its right to prepay all of the Notes issued on the Issue Date
        and (2)
        the date of prepayment (the “Optional Prepayment
        Notice”).  On the date fixed for prepayment (the “Optional Prepayment
        Date”),
        the Borrower shall make payment of the Optional Prepayment Amount (as defined
        below) to or upon the order of the Holders as specified by the Holders in
        writing to the Borrower at least one (1) business day prior to the Optional
        Prepayment Date.  If the Borrower exercises its right to prepay the
        Notes, the Borrower shall make payment to the holders of an amount in cash
        (the
“Optional Prepayment
        Amount”) equal to either (i) 135% (for prepayments occurring within
        thirty (30) days of the Issue Date), (ii) 145% for prepayments occurring
        between thirty-one (31) and ninety (90) days of the Issue Date, or (iii)
        150%
        (for prepayments occurring after the ninetieth (90th)
        day following
        the Issue Date), multiplied by the sum of (w) the then outstanding principal
        amount of this Note plus (x) accrued
        and unpaid interest on the unpaid principal amount of this Note to the Optional
        Prepayment Date plus (y) Default
        Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any
        amounts
        owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant
        to
        Section 2(c) of the Registration Rights Agreement (the then outstanding
        principal amount of this Note to the date of payment plus the amounts
        referred to in clauses (x), (y) and (z) shall collectively be known as the
        “Optional Prepayment
        Sum”). Notwithstanding notice of an Optional Prepayment, the Holders
        shall at all times prior to the Optional Prepayment Date maintain the right
        to
        convert all or any portion of the Notes in accordance with Article I and
        any
        portion of Notes so converted after receipt of an Optional Prepayment Notice
        and
        prior to the Optional Prepayment Date set forth in such notice and payment
        of
        the aggregate Optional Prepayment Amount shall be deducted from the principal
        amount of Notes which are otherwise subject to prepayment pursuant to such
        notice.  If the Borrower delivers an Optional Prepayment Notice and
        fails to pay the Optional Prepayment Amount due to the Holders of the Notes
        within two (2) business days following the Optional Prepayment Date, the
        Borrower shall forever forfeit its right to redeem the Notes pursuant to
        this
        Section 5.1.

       

      

       

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK]

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

       

       

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

       

      

      MIDNIGHT
        HOLDINGS GROUP,
        INC.

      

      

      

      By:
/s/
        Nicholas Cocco            

      Nicholas
        Cocco

      Chief
        Executive Officer

       

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

       

       

      EXHIBIT
        A

       

      NOTICE
        OF
        CONVERSION

       

      (To
        be
        Executed by the Registered Holder

      in
        order
        to Convert the Notes)

       

      The
        undersigned hereby irrevocably elects to convert $__________ principal amount
        of
        the Note (defined below) into shares of common stock, par value $.00005 per
        share (“Common Stock”),
        of Midnight Holdings Group, Inc., a Delaware corporation (the “Borrower”) according to the
        conditions of the convertible Notes of the Borrower dated as of October 19,
        2007
        (the “Notes”), as of the date written below.  If securities are to be
        issued in the name of a person other than the undersigned, the undersigned
        will
        pay all transfer taxes payable with respect thereto and is delivering herewith
        such certificates.  No fee will be charged to the Holder for any
        conversion, except for transfer taxes, if any.  A copy of each Note is
        attached hereto (or evidence of loss, theft or destruction
        thereof).

       

      The
        Borrower shall electronically transmit the Common Stock issuable pursuant
        to
        this Notice of Conversion to the account of the undersigned or its nominee
        with
        DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

       

      Name
        of
        DTC Prime
        Broker:    _________________________                                                                                                                 

      Account
        Number:    ________________________________                                                                                                                 

       

      In
        lieu
        of receiving shares of Common Stock issuable pursuant to this Notice of
        Conversion by way of a DWAC Transfer, the undersigned hereby requests that
        the
        Borrower issue a certificate or certificates for the number of shares of
        Common
        Stock set forth below (which numbers are based on the Holder’s calculation
        attached hereto) in the name(s) specified immediately below or, if additional
        space is necessary, on an attachment hereto:

       

      Name:     ________________________________________                                                                                                                

      Address:    ______________________________________                                                                                                                 

       

      The
        undersigned represents and warrants that all offers and sales by the undersigned
        of the securities issuable to the undersigned upon conversion of the Notes
        shall
        be made pursuant to registration of the securities under the Securities Act
        of
        1933, as amended (the “Act”), or pursuant to
        an
        exemption from registration under the Act.

       

      Date
        of
        Conversion:___________________________

      Applicable
        Conversion Price:____________________

      Number
        of
        Shares of Common Stock to be Issued Pursuant to

      Conversion
        of the Notes:______________

      Signature:___________________________________

      Name:______________________________________

      Address:____________________________________

       

       

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

       

      The
        Borrower shall issue and deliver shares of Common Stock to an overnight courier
        not later than three business days following receipt of the original Note(s)
        to
        be converted, and shall make payments pursuant to the Notes for the number
        of
        business days such issuance and delivery is late.

       

       

       

       

      
        
          
          

        

        
          22

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00134-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00134-of-00352.parquet"}]]