Document:

f10k2009ex4xxix_conspiracy.htm

     

    Exhibit 4.25

     

    SUBSCRIPTION
AGREEMENT

     

     

    THIS SUBSCRIPTION AGREEMENT
(this “Agreement”),
dated as of December 11, 2009, by and among Conspiracy Entertainment Holdings,
Inc., a Utah corporation (the “Company”), and the subscribers
identified on the signature page hereto (each a “Subscriber” and collectively
“Subscribers”).

     

    WHEREAS, the Company and the
Subscribers are executing and delivering this Agreement in reliance upon an
exemption from securities registration afforded by the provisions of Section
4(2), Section 4(6) and/or Regulation D (“Regulation D”) as promulgated
by the United States Securities and Exchange Commission (the “Commission”) under the
Securities Act of 1933, as amended (the “1933 Act”).

     

    WHEREAS, the parties desire
that, upon the terms and subject to the conditions contained herein, the Company
shall issue and sell to the Subscribers, as provided herein, and such Subscriber
shall purchase (i) for up to $210,000 (the “Purchase Price”) of principal
amount (“Principal
Amount”) of promissory notes of the Company (“Note” or “Notes”), a form of which is
annexed hereto as Exhibit
A, convertible into shares of the Company’s Common Stock, $0.001 par
value (the “Common
Stock”) at a per share conversion price set forth in the Note (“Conversion Price”); and (ii)
share purchase warrants (the “Warrants”) in the form
attached hereto as Exhibit B,
to purchase shares of the Company’s Common Stock (the “Warrant Shares”) (the “Offering”).  The
Notes, shares of Common Stock issuable upon conversion of the Notes (the “Shares” or “Conversion Shares”), the
Warrants and the Warrant Shares are collectively referred to herein as the
“Securities.”);
and

     

    WHEREAS, the aggregate
proceeds of the Offering shall be held in escrow pursuant to the terms of a
Funds Escrow Agreement to be executed by the parties substantially in the form
attached hereto as Exhibit
C (the “Escrow
Agreement”).

     

    NOW, THEREFORE, in
consideration of the mutual covenants and other agreements contained in this
Agreement the Company and the Subscriber hereby agree as follows:

     

    1.           Closing
Date.   The “Closing Date” shall be the
date that the Purchase Price is transmitted by wire transfer or otherwise
credited to or for the benefit of the Company. The consummation of the
transactions contemplated herein shall take place at the offices of Grushko
& Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176,
upon the satisfaction or waiver of all conditions to closing set forth in this
Agreement.   Subject to the satisfaction or waiver of the terms
and conditions of this Agreement, on the Closing Date, Subscribers shall
purchase and the Company shall sell to Subscribers Notes in the aggregate
Principal Amount of up to $210,000 and Warrants as described in Section 2 of
this Agreement.

     

    2.           Notes and
Warrants.

     

    (a)           Notes.   Subject
to the satisfaction or waiver of the terms and conditions of this Agreement, on
the Closing Date, each Subscriber shall purchase and the Company shall sell to
each Subscriber a Note in the Principal Amount designated on the signature page
hereto for such Subscriber’s Purchase Price indicated thereon.

     

    (b)           Class A
Warrants.  On the Closing Date, the Company will issue and
deliver Class A Warrants to each Subscriber.  One and one half Class A
Warrants will be issued for each Share which would be issued on the Closing Date
assuming the complete conversion of the Note on the Closing Date at the
Conversion Price.  The exercise price to acquire a Warrant Share upon
exercise of a Class A Warrant shall be $0.03.  The Class A Warrants
shall be exercisable until five years after the issue date of the Class A
Warrants.

     

    (c)           Allocation of Purchase
Price.   The Purchase Price will be allocated among the
components of the Securities so that each component of the Securities will be
fully paid and non-assessable.

     

    
      
         

      

      
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    3.           Subscriber's Representations
and Warranties.  Such Subscriber hereby represents and warrants
to and agrees with the Company only as to such Subscriber that:

     

    (a)           Organization
and Standing of the Subscribers.  If the Subscriber is an entity, such
Subscriber is a corporation, partnership or other entity duly incorporated or
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has the requisite
corporate power to own its assets and to carry on its business.

     

    (b)           Authorization
and Power.  Each Subscriber has the requisite power and authority to
enter into and perform this Agreement and to purchase the Notes being sold to it
hereunder.  The execution, delivery and performance of this Agreement
by such Subscriber and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate or
partnership action, and no further consent or authorization of such Subscriber
or its Board of Directors, stockholders, partners, members, as the case may be,
is required.  This Agreement has been duly authorized, executed and
delivered by such Subscriber and constitutes, or shall constitute when executed
and delivered, a valid and binding obligation of the Subscriber enforceable
against the Subscriber in accordance with the term hereof.

     

    (c)           No
Conflicts.  The execution, delivery and performance of this Agreement
and the consummation by such Subscriber of the transactions contemplated hereby
or relating hereto do not and will not (i) result in a violation of such
Subscriber’s charter documents or bylaws or other organizational documents or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of any agreement,
indenture or instrument or obligation to which such Subscriber is a party or by
which its properties or assets are bound, or result in a violation of any law,
rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to such Subscriber or its properties (except for
such conflicts, defaults and violations as would not, individually or in the
aggregate, have a material adverse effect on such Subscriber).  Such
Subscriber is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement or to purchase the Notes in accordance with the terms hereof, provided
that for purposes of the representation made in this sentence, such Subscriber
is assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.

     

    (d)           Information on
Company.   Subscriber has been furnished with or has had
access at the EDGAR Website of the Commission to the Company's Form 10-K filed
on April 15, 2009 for the fiscal year ended December 31, 2008, and the financial
statements included therein for the year ended December 31, 2008, together with
all subsequent filings made with the Commission available at the EDGAR website
until five days before the Closing Date (hereinafter referred to collectively as
the "Reports").  In
addition, Subscriber may have received in writing from the Company such other
information concerning its operations, financial condition and other matters as
Subscriber has requested in writing, identified thereon as OTHER WRITTEN
INFORMATION (such other information is collectively, the "Other Written Information"),
and considered all factors Subscriber
deems material in deciding on the advisability of investing in the
Securities.

     

    (e)           Information on
Subscriber.  The Subscriber is, and will be at the time of the
conversion of the Notes, an "accredited investor", as such
term is defined in Regulation D promulgated by the Commission under the 1933
Act, is experienced in investments and business matters, has made investments of
a speculative nature and has purchased securities of United States
publicly-owned companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable the Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment.  The Subscriber has the authority
and is duly and legally qualified to purchase and own the
Securities.  The Subscriber is able to bear the risk of such
investment for an indefinite period and to afford a complete loss
thereof.  The information set forth on the signature page hereto
regarding the Subscriber is accurate.

     

    
      
         

      

      
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    (f)           Purchase of Notes and
Warrants.  On the Closing Date, the Subscriber will purchase
the Notes and Warrants as principal for its own account for investment only and
not with a view toward, or for resale in connection with, the public sale or any
distribution thereof, but Subscriber does not agree to hold the Notes for any
minimum amount of time.

     

    (g)           Compliance with Securities
Act.  The Subscriber understands and agrees that the Securities
have not been registered under the 1933 Act or any applicable state securities
laws, by reason of their issuance in a transaction that does not require
registration under the 1933 Act (based in part on the accuracy of the
representations and warranties of Subscriber contained herein), and that such
Securities must be held indefinitely unless a subsequent disposition is
registered under the 1933 Act or any applicable state securities laws or is
exempt from such registration.  Notwithstanding anything to the
contrary contained in this Agreement, such Subscriber may transfer (without
restriction and without the need for an opinion of counsel) the Securities to
its Affiliates (as defined below) provided that each such Affiliate is an
“accredited investor” under Regulation D and such Affiliate agrees to be bound
by the terms and conditions of this Agreement. For the purposes of this
Agreement, an “Affiliate” of any person or
entity means any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such person or
entity.  Affiliate when employed in connection with the Company
includes each Subsidiary [as defined in Section 4(a)] of the
Company.  For purposes of this definition, “control” means the power to
direct the management and policies of such person or firm, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.

     

    (h)           Conversion Shares and
Warrant Shares Legend.  The Conversion Shares and Warrant
Shares shall bear the following or similar legend:

     

    "THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, NOR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES."

     

    
      
         

      

      
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    (i)           Note and Warrant
Legend.  The Note and Warrant shall bear the following
legend:

     

    "NEITHER THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE –OR-EXERCISABLE] HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES."

     

    (j)           Communication of
Offer.  The offer to sell the Securities was directly
communicated to the Subscriber by the Company.  At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.

     

    (k)           Authority;
Enforceability.  This Agreement and other agreements delivered
together with this Agreement or in connection herewith have been duly
authorized, executed and delivered by such Subscriber and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors’ rights generally and
to general principles of equity; and Subscriber has full corporate power and
authority necessary to enter into this Agreement and such other agreements and
to perform its obligations hereunder and under all other agreements entered into
by the Subscriber relating hereto.

     

    (l)           No Governmental
Review.  Such Subscriber understands that no United States
federal or state agency or any other governmental or state agency has passed on
or made recommendations or endorsement of the Securities or the suitability of
the investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Securities.

     

    (m)           Correctness of
Representations.  Such Subscriber represents that the foregoing
representations and warranties are true and correct as of the date hereof and,
unless such Subscriber otherwise notifies the Company prior to the Closing Date
shall be true and correct as of the Closing Date.

     

    (n)           Survival.  The
foregoing representations and warranties shall survive the Closing Date until
three years after the Closing Date.

     

    4.           Company Representations and
Warranties.  The Company represents and warrants to and agrees
with each Subscriber that except as set forth in the Reports or the Other
Written Information and as otherwise qualified in the Transaction
Documents:

     

    (a)           Due
Incorporation.  The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power to own its properties and to
carry on its business is disclosed in the Reports.  The Company is
duly qualified as a foreign corporation to do business and is in good standing
in each jurisdiction where the nature of the business conducted or property
owned by it makes such qualification necessary, other than those jurisdictions
in which the failure to so qualify would not have a Material Adverse
Effect.  For purpose of this Agreement, a “Material Adverse Effect” shall
mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company taken individually, or in the
aggregate, as a whole.  For purposes of this Agreement, “Subsidiary” means, with
respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity) of which more than 30% of (i) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (ii) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership or limited
liability company or (iii) in the case of a trust, estate, association,
joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned or
controlled directly or indirectly through one or more intermediaries, by such
entity.  All the Company’s Subsidiaries as of the Closing Date are set
forth on Schedule 4(a)
hereto.

     

    
      
         

      

      
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    (b)           Outstanding
Stock.  All issued and outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully paid and
nonassessable.

     

    (c)           Authority;
Enforceability.  This Agreement, the Note, Warrants, the Escrow
Agreement, and any other agreements delivered together with this Agreement or in
connection herewith (collectively “Transaction Documents”) have
been duly authorized, executed and delivered by the Company and are valid and
binding agreements enforceable against the Company in accordance with their
respective terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of
equity.  Subject to the Company’s amending its Articles of
Incorporation to increase the number of shares that it authorized to issue from
100,000,000 shares, par value $0.001 to 1,000,000,000 shares, par value, $0.001,
(the “Amendment”), the
Company has full corporate power and authority necessary to enter into and
deliver the Transaction Documents and to perform its obligations
thereunder.

     

    (d)           Additional
Issuances.   There are no outstanding agreements or
preemptive or similar rights affecting the Company's or any of its Subsidiaries’
Common Stock or other equity and no outstanding rights, warrants or options to
acquire, or instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any Common Stock or
equity of the Company except as described on Schedule 4(d).  The
Common Stock and all other equity of the Company and its Subsidiaries on a fully
diluted basis outstanding as of the last trading day preceding the Closing Date
is set forth on Schedule
4(d).

     

    (e)           Consents.  No
consent, approval, authorization or order of any court, governmental agency or
body or arbitrator having jurisdiction over the Company, or any of its
Affiliates, any Principal Market (as defined in Section 9(b) of this Agreement),
nor the Company's shareholders is required for the execution by the Company of
the Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation, the
issuance and sale of the Securities, provided however, in order to have enough
shares of its common stock available for issuance pursuant to the Transaction
Documents, the Company needs to amend its Articles of Incorporation to increase
the number of shares that it is authorized to issue, the Company will file an
amendment to its Articles of Incorporation with the Secretary of State of Utah
on or before December 1, 2009 (“Amendment
Filing”).

     

    (f)           No Violation or
Conflict.  Assuming the representations and warranties of the
Subscribers in Section 3 are true and correct, neither the issuance and sale of
the Securities nor the performance of the Company’s obligations under this
Agreement and all other agreements entered into by the Company relating thereto
by the Company will:

     

    (i)           Subject
to the Amendment Filing, violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default in
any  material respect) under (A) the articles or certificate of
incorporation, charter or bylaws of the Company, (B) to the Company's knowledge,
any decree, judgment, order, law, treaty, rule, regulation or determination
applicable to the Company of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company or over the properties or assets
of the Company or any of its Affiliates, (C) the terms of any bond, debenture,
note or any other evidence of indebtedness, or any agreement, stock option or
other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect;
or

     

    
      
         

      

      
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    (ii)           result
in the creation or imposition of any Lien (as defined in Section
9(n  upon the Securities or any of the assets of the Company or any of
its Affiliates other then pursuant to Permitted Liens  (as defined in
Section 9(n)); or

     

    (iii)           result
in the activation of any anti-dilution rights or a reset or repricing of any
debt or security instrument of any other creditor or equity holder of the
Company, nor result in the acceleration of the due date of any obligation of the
Company; or

     

    (iv)           result
in the activation of any piggy-back registration rights of any person or entity
holding securities or debt of the Company or having the right to receive
securities of the Company except as set forth on Schedule 4(f)(iv).

     

    (g)           The
Securities.  The Securities upon issuance:

     

    (i)           are,
or will be, free and clear of any security interests, liens, claims or other
encumbrances, subject only to restrictions upon transfer under the 1933 Act and
any applicable state securities laws;

     

    (ii)           have
been, or will be, duly and validly authorized and on the dates of issuance of
the Shares upon conversion of the Note, such Shares will be duly and validly
issued, fully paid and non-assessable and if registered pursuant to the 1933 Act
and resold pursuant to an effective registration statement or exempt from
registration will be free trading, unrestricted and unlegended;

     

    (iii)           will
not have been issued or sold in violation of any preemptive or other similar
rights of the holders of any securities of the Company or rights to acquire
securities of the Company;

     

    (iv)           will
not subject the holders thereof to personal liability by reason of being such
holders; and

     

    (v)           assuming
the representations warranties of the Subscribers as set forth in Section 4
hereof are true and correct, will not result in a violation of Section 5 under
the 1933 Act.

     

    (h)           Litigation.  Other
than as set forth on Schedule
4(h), there is no pending or, to the best knowledge of the Company,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates that would affect the execution by the Company of any
of the Transaction Documents or the performance by the Company of its
obligations under the Transaction Documents.  There is no pending or,
to the best knowledge of the Company, basis for or threatened action, suit,
proceeding or investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its Affiliates which
litigation if adversely determined would have a Material Adverse
Effect.

     

    (i)           Reporting
Company.  The Company is a publicly-held company subject to
reporting obligations pursuant to Section 13 of the Securities Exchange Act of
1934 (the “1934 Act”)
and has a class of common shares registered pursuant to Section 12(g) of the
1934 Act.  Pursuant to the provisions of the 1934 Act, the Company has
filed all reports and other materials required to be filed thereunder with the
Commission during the preceding thirty-six months.

     

    
      
         

      

      
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    (j)           No Market
Manipulation.  The Company and its Affiliates have not taken,
and will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Securities
or affect the price at which the Securities may be issued or resold, provided,
however, that this provision shall not prevent the Company from engaging in
investor relations/public relations activities consistent with past
practices.

     

    (k)           Information Concerning
Company.  The Reports contain all material information relating
to the Company and its operations and financial condition as of their respective
dates and all the information required to be disclosed
therein.   Since the last day of the fiscal year of the most
recent audited financial statements included in the Reports (“Latest Financial Date”), and
except as modified in the Other Written Information or in the Schedules hereto,
there has been no Material Adverse Event relating to the Company's business,
financial condition or affairs not disclosed in the Reports. The Reports
including the financial statements therein do 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 in light of
the circumstances when made.

     

    (l)           Stop
Transfer.  The Company will not issue any stop transfer order
or other order impeding the sale, resale or delivery of any of the Securities,
except as may be required by any applicable federal or state securities laws and
unless contemporaneous notice of such instruction is given to the
Subscriber.

     

    (m)           Defaults.   The
Company is not in violation of its certificate of incorporation or
bylaws.  Except as set forth on Schedule 4(m), the Company is
(i) not in default under or in violation of any other material agreement or
instrument to which it is a party or by which it or any of its properties are
bound or affected, which default or violation would have a Material Adverse
Effect, (ii) not in default with respect to any order of any court, arbitrator
or governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under any
statute or other law respecting antitrust, monopoly, restraint of trade, unfair
competition or similar matters, or (iii) to the Company’s knowledge not in
violation of any statute, rule or regulation of any governmental authority which
violation would have a Material Adverse Effect.

     

    (n)           Not an Integrated
Offering.  Neither the Company, nor any of its Affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any
offers or sales of any security or solicited any offers to buy any security
under circumstances that would cause the offer of the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company for purposes
of the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of the OTC Bulletin Board
(“Bulletin Board”) which
would impair the exemptions relied upon in this Offering or the Company’s
ability to timely comply with its obligations hereunder.  Nor will the
Company or any of its Affiliates take any action or steps that would cause the
offer or issuance of the Securities to be integrated with other offerings which
would impair the exemptions relied upon in this Offering or the Company’s
ability to timely comply with its obligations hereunder.  The Company
will not conduct any offering other than the transactions contemplated hereby
that will be integrated with the offer or issuance of the Securities, which
would impair the exemptions relied upon in this Offering or the Company’s
ability to timely comply with its obligations hereunder.

     

    (o)           No General
Solicitation.  Neither the Company, nor any of its Affiliates,
nor to its knowledge, any person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.

     

    (p)           Listing.  The
Company's common stock is quoted on the Bulletin Board under the symbol
CPYE.OB.  The Company has not received any oral or written notice that
its common stock is not eligible nor will become ineligible for quotation on the
Bulletin Board nor that its common stock does not meet all requirements for the
continuation of such quotation.  The Company satisfies all the
requirements for the continued quotation of its common stock on the Bulletin
Board.

     

    
      
         

      

      
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    (q)           No Undisclosed
Liabilities.  The Company has no liabilities or obligations
which are material, individually or in the aggregate, which are not disclosed in
the Reports and Other Written Information, other than those incurred in the
ordinary course of the Company’s businesses since the Latest Financial Date and
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, except as disclosed on Schedule 4(q).

     

    (r)           No Undisclosed Events or
Circumstances.  Since the Latest Financial Date, no event or
circumstance has occurred or exists with respect to the Company or its
businesses, properties, operations or financial condition, that, under
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so publicly
announced or disclosed in the Reports.

     

    (s) Capitalization.  The
authorized and outstanding capital stock of the Company as of the date of this
Agreement and the Closing Date (not including the Securities) are set forth on
Schedule
4(d).  Except as set forth on Schedule 4(d), there are no
options, warrants, or rights to subscribe to, securities, rights or obligations
convertible into or exchangeable for or giving any right to subscribe for any
shares of capital stock of the Company or any of its
Subsidiaries.  All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
nonassessable.

     

    (t) Dilution.   The
Company's executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders of
the Company’s equity or rights to receive equity of the Company.  The
board of directors of the Company has concluded, in its good faith business
judgment that the issuance of the Securities is in the best interests of the
Company.  The Company specifically acknowledges that its obligation to
issue the Shares upon conversion of the Notes is binding upon the Company and
enforceable against the Company regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company or parties
entitled to receive equity of the Company.

     

    (u) No Disagreements with
Accountants and Lawyers.  There are no disagreements of any
kind presently existing, or reasonably anticipated by the Company to arise,
between the Company and the accountants and lawyers formerly or presently
employed by the Company, including but not limited to disputes or conflicts over
payment owed to such accountants and lawyers, nor have there been any such
disagreements during the two years prior to the Closing Date.

     

    (v)           DTC
Status.   The Company’s transfer agent is a participant
in, and the Common Stock is eligible for transfer pursuant to, the Depository
Trust Company Automated Securities Transfer Program. The name, address,
telephone number, fax number, contact person and email address of the Company
transfer agent is set forth on Schedule 4(v)
hereto.

     

    (w)           Investment
Company.   Neither the Company nor any Affiliate is an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.

     

    (x)           Subsidiary
Representations.   The Company makes each of the
representations contained in Sections 4(a), (b), (c), (d), (e), (f), (h), (k),
(m), (q), (r), (u) and (w) of this Agreement, as same relate to each Subsidiary
of the Company.

     

    (y)           Company
Predecessor.   All representations made by or relating to
the Company of a historical or prospective nature and all undertakings described
in Sections 9(g) through 9(l) shall relate, apply and refer to the Company and
its predecessors, if any.

     

    
      
         

      

      
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    (z)           Solvency.  Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the
Securities hereunder and subject to the Company’s working capital deficiency and
its being in default on certain notes which give rise to its ability to continue
as a going concern, (i) the Company’s fair saleable value of its assets exceeds
the amount that will be required to be paid on or in respect of the Company’s
existing debts and other liabilities (including known contingent liabilities) as
they mature; (ii) the Company’s assets do not constitute unreasonably small
capital to carry on its business for the current fiscal year as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof; and (iii)
the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on or
in respect of its debt when such amounts are required to be paid.  The
Company does not intend to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable on
or in respect of its debt).

     

    (AA)           Preservation of Corporate
Existence.  The Company shall preserve and maintain its
corporate existence, rights, privileges and franchises in the jurisdiction of
its incorporation, and qualify and remain qualified, as a foreign corporation in
each jurisdiction in which such qualification is necessary in view of its
business or operations and where the failure to qualify or remain qualified
might reasonably have a Material Adverse Effect upon the financial condition,
business or operations of the Company and its Subsidiaries taken as a
whole.

     

    (BB)           Correctness of
Representations.  The Company represents that the foregoing
representations and warranties are true and correct as of the date hereof in all
material respects, and, unless the Company otherwise notifies the Subscribers
prior to the Closing Date, shall be true and correct in all material respects as
of the Closing Date.

     

    (CC)           Survival.  The
foregoing representations and warranties shall survive the Closing
Date.

     

    5.           Regulation D
Offering.  The offer and issuance of the Securities to the
Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder.  On the
Closing Date, the Company will provide an opinion reasonably acceptable to
Subscriber from the Company's legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the offer and
issuance of the Securities and other matters reasonably requested by
Subscribers.  A form of the legal opinion is annexed hereto as Exhibit D.   At
the Company’s option, the Company will provide, at the Company's expense or
reimburse Subscribers, such other legal opinions in the future as are reasonably
necessary for the issuance and resale of the Common Stock issuable upon
conversion of the Notes pursuant to an effective registration statement, Rule
144 under the 1933 Act or an exemption from registration.

     

    6.1.           Conversion of
Note.

     

    (a)           Upon
the conversion of a Note or part thereof, the Company shall, at its own cost and
expense, take all necessary action, including obtaining and delivering, an
opinion of counsel to assure that the Company's transfer agent shall issue stock
certificates in the name of Subscriber (or its permitted nominee) or such other
persons as designated by Subscriber and in such denominations to be specified at
conversion representing the number of shares of Common Stock issuable upon such
conversion.  The Company warrants that no instructions other than
these instructions have been or will be given to the transfer agent of the
Company's Common Stock and that the certificates representing such shares shall
contain no legend other than the usual 1933 Act restriction from transfer
legend.  If and when the Subscriber sells the Shares, assuming (i) the
Registration Statement (as defined below) is effective and the prospectus, as
supplemented or amended, contained therein is current and (ii) the Subscriber
confirms in writing to the transfer agent that the Subscriber has complied with
the prospectus delivery requirements, the restrictive legend can be removed and
the Shares will be free trading, and freely transferable.  In the
event that the Shares are sold in a manner that complies with an exemption from
registration, the Company will promptly instruct its counsel to issue to the
transfer agent an opinion permitting removal of the legend, indefinitely, if
pursuant to Rule 144(b)(1) of the 1933 Act, or for ninety days if pursuant to
the other provisions of Rule 144 of the 1933 Act, provided that Subscriber
delivers all reasonably requested representations in support of such
opinion.

     

    
      
         

      

      
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    (b)           Subscriber
will give notice of its decision to exercise its right to convert the Note,
interest, any sum due to the Subscriber under the Transaction Documents or part
thereof by telecopying an executed and completed Notice of Conversion (a form
of which is annexed as Exhibit
A to the Note) to the Company via confirmed telecopier transmission or
otherwise pursuant to Section 13(a) of this Agreement.  The Subscriber
will not be required to surrender the Note until the Note has been fully
converted or satisfied.  Each date on which a Notice of Conversion is
telecopied to the Company in accordance with the provisions hereof shall be
deemed a Conversion
Date.  The Company will itself or cause the Company’s transfer
agent to transmit the Company's Common Stock certificates representing the
Shares issuable upon conversion of the Note to the Subscriber via express
courier for receipt by such Subscriber within three (3) business days after
receipt by the Company of the Notice of Conversion (such third day being the
"Delivery
Date").  In the event the Shares are electronically
transferable, then delivery of the Shares must be made by
electronic transfer provided request for such electronic transfer has been made
by the Subscriber and the Subscriber has complied with all applicable securities
laws in connection with the sale of the Common Stock, including, without
limitation, the prospectus delivery requirements.   A Note
representing the balance of the Note not so converted will be provided by the
Company to the Subscriber if requested by Subscriber, provided the Subscriber
delivers the original Note to the Company. In the event that a Subscriber elects
not to surrender a Note for reissuance upon partial payment or conversion, the
Subscriber hereby indemnifies the Company against any and all loss or damage
attributable to a third-party claim in an amount in excess of the actual amount
then due under the Note.  “Business day” and “trading day” as employed in
the Transaction Documents is a day that the New York Stock Exchange is open for
trading for three or more hours.

     

    (c)           The
Company understands that a delay in the delivery of the Shares in the form
required pursuant to Section 6.1 hereof, or the Mandatory Redemption Amount
described in Section 6.2 hereof, respectively after the Delivery Date or the
Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber.  As compensation to the Subscriber
for such loss, the Company agrees to pay (as liquidated damages and not as a
penalty) to the Subscriber for late issuance of Shares in the form required
pursuant to Section 6.1 hereof upon Conversion of the Note in the amount of $100
per business day after the Delivery Date for each $10,000 of Note principal
amount being converted of the corresponding Shares which are not timely
delivered.  The Company shall pay any payments incurred under this
Section in immediately available funds upon demand.  Furthermore, in
addition to any other remedies which may be available to the Subscriber, in the
event that the Company fails for any reason to effect delivery of the Shares by
the Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Subscriber may revoke all or part of the relevant Notice of Conversion or
rescind all or part of the notice of Mandatory Redemption by delivery of a
notice to such effect to the Company whereupon the Company and the Subscriber
shall each be restored to their respective positions immediately prior to the
delivery of such notice, except that the liquidated damages described above
shall be payable through the date notice of revocation or rescission is given to
the Company.

     

    (d)           Nothing
contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law.  In the event that the rate of interest or dividends
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Subscriber and thus refunded to the
Company.

     

    
      
         

      

      
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    6.2.           Mandatory Redemption at
Subscriber’s Election.  In the event (i)  (provided
the Company has filed the Amendment no later than Decemberr 1, 2009), the
Company is prohibited from issuing Shares, (ii) the Company fails to timely
deliver Shares on a Delivery Date, (iii) upon the occurrence of any other Event
of Default (as defined in the Note or in this Agreement), any of the foregoing
that continues for more than twenty (20) business days, (iv) a Change in Control
(as defined below), or (v) of the liquidation, dissolution or winding up of the
Company, then at the Subscriber's election, the Company must pay to the
Subscriber ten (10) business days after request by the Subscriber (“Calculation Period”), a sum of
money determined by multiplying up to the outstanding principal amount of the
Note designated by the Subscriber by 120%, together with accrued but unpaid
interest thereon ("Mandatory
Redemption Payment"). The Mandatory Redemption Payment must be received
by the Subscriber on the same date as the Shares otherwise deliverable or within
ten (10) business days after request, whichever is sooner ("Mandatory Redemption Payment
Date"). Upon receipt of the Mandatory Redemption Payment, the
corresponding Note principal and interest will be deemed paid and no longer
outstanding.  Liquidated damages calculated pursuant to Section 6.1(c)
hereof, that have been paid or accrued for the ten day period prior to the
actual receipt of the Mandatory Redemption Payment by the Subscriber shall be
credited against the Mandatory Redemption Payment.  For purposes of
this Section 6.2, “Change in
Control” shall mean (i) the Company no longer having a class of shares
publicly traded, included for quotation or listed on a Principal Market, (ii)
the Company  becoming a Subsidiary of another entity (other than a
corporation formed by the Company for purposes of reincorporation in another
U.S. jurisdiction), (iii) a majority of the board of directors of the Company as
of the Closing Date no longer serving as directors of the Company except due to
natural causes, (iv) the sale, lease or transfer of substantially all the assets
of the Company or Subsidiaries, (v) if the holders of the Company’s Common Stock
as of the Closing Date beneficially own at any time after the Closing Date less
than forty percent of the Common Stock owned by them on the Closing Date, or
(vi) if the Chief Executive Officer of the Company, as of the Closing Date, no
longer serves as Chief Executive Officer of the Company.

     

    6.3.           Maximum
Conversion.  The Subscriber shall not be entitled to convert on
a Conversion Date that amount of the Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of common stock beneficially owned by the Subscriber and its Affiliates
on a Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Note with respect to which the determination of this
provision is being made on a Conversion Date, which would result in beneficial
ownership by the Subscriber and its Affiliates of more than 4.99% of the
outstanding shares of common stock of the Company on such Conversion
Date.  Beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13d-3 thereunder.  Subject to the foregoing, the Subscriber shall not
be limited to aggregate exercises which would result in the issuance of more
than 4.99%.  The restriction described in this paragraph may be
waived, in whole or in part, upon sixty-one (61) days prior notice from the
Subscriber to the Company to increase such percentage to up to 9.99%, but not in
excess of 9.99%.  The Subscriber may decide whether to convert a
Convertible Note to achieve an actual 4.99% or up to 9.99% ownership position as
described above, but not in excess of 9.99%.

     

    6.4.           Injunction Posting of
Bond.  In the event a Subscriber shall elect to convert a Note
or part thereof, the Company may not refuse conversion based on any claim that
such Subscriber or any one associated or affiliated with such Subscriber has
been engaged in any violation of law, or for any other reason, unless, an
injunction from a court, on notice, restraining and or enjoining conversion of
all or part of such Note shall have been sought and obtained by the Company or
at the Company’s request or with the Company’s assistance, and the Company has
posted a surety bond for the benefit of such Subscriber in the amount of 120% of
the outstanding principal and interest of the Note, or aggregate purchase price
of the Shares which are sought to be subject to the injunction, which bond shall
remain in effect until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such Subscriber to the extent
Subscriber obtains judgment in Subscriber’s favor.

     

    
      
         

      

      
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    6.5.           Buy-In.  In
addition to any other rights available to the Subscriber, if the Company fails
to deliver to the Subscriber such shares issuable upon conversion of a Note by
the Delivery Date and if after seven (7) business days after the Delivery Date
the Subscriber or a broker on the Subscriber’s behalf, purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Subscriber of the Common Stock which the
Subscriber was entitled to receive upon such conversion (a "Buy-In"), then the Company
shall pay in cash to the Subscriber (in addition to any remedies available to or
elected by the Subscriber) the amount by which (A) the Subscriber's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (B) the aggregate principal and/or interest
amount of the Note for which such conversion was not timely honored, together
with interest thereon at a rate of 15% per annum, accruing until such amount and
any accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty).  For example, if the
Subscriber purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of
note principal and/or interest, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to the Subscriber in respect of
the Buy-In.

     

    6.6.           Adjustments.   The
Conversion Price, Warrant Exercise Price and amount of Shares issuable upon
conversion of the Notes and exercise of the Warrants shall be adjusted as
described in this Agreement, the Notes and the Warrants.

     

    7.           Redemption.    The
Note shall not be redeemable or mandatorily convertible except as described in
the Note.

     

    8.           Legal
Fees.   The Company shall pay to Grushko & Mittman,
P.C., a cash fee of $10,000 (“Legal Fees”) as reimbursement
for services rendered to the Subscribers in connection with this Agreement and
the purchase and sale of the Notes (the “Offering”).  The
Legal Fees and reimbursement for estimated UCC searches, if any (less any
amounts paid prior to a Closing Date), and estimated printing and shipping costs
for the closing statements to be delivered to Subscribers, will be payable on
the Closing Date out of funds held pursuant to the Escrow
Agreement.

     

    9.           Covenants of the
Company.  The Company covenants and agrees with the Subscribers
as follows:

     

    (a)           Stop
Orders.  The Company will advise the Subscribers, within two
hours after the Company receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.

     

    (b)           Listing.  The
Company shall promptly secure the listing or the inclusion for quotation of the
Conversion Shares and Warrant Shares upon each national securities exchange, or
electronic or automated quotation system upon which they are or become eligible
for listing or quotation and shall maintain such listing or quotation so long as
any Notes and Warrants are outstanding.  The Company will maintain the
listing or quotation of its Common Stock on the American Stock Exchange, Nasdaq
Capital Market, Nasdaq National Market System, Bulletin Board, Pink Sheets or
New York Stock Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock (the “Principal Market”)), and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting or exclusion from
quotation of the Common Stock from any Principal Market.  As of the
date of this Agreement, the Bulletin Board is and will be the Principal
Market.

     

    (c)           Market
Regulations.  The Company shall notify the Commission, the
Principal Market and applicable state authorities, in accordance with their
requirements, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Securities to the Subscribers and promptly provide copies thereof to
Subscriber.

     

    
      
         

      

      
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    (d)           Filing
Requirements.  From the date of this Agreement and until the
last to occur of (i) two (2) years after the Closing Date, or (ii) until all the
Shares have been resold or transferred by all the Subscribers pursuant to the
Registration Statement or pursuant to 144(b)(1)(i), or (iii) the Note and
Warrants are no longer outstanding (the date of such latest occurrence being the
“End Date”), the Company
will (A) cause its Common Stock to continue to be registered under Section 12(b)
or 12(g) of the 1934 Act, (B) comply in all respects with its reporting and
filing obligations under the 1934 Act, (C) voluntarily comply with all reporting
requirements that are applicable to an issuer with a class of shares registered
pursuant to Section 12(g) of the 1934 Act, if Company is not subject to such
reporting requirements, and (D) comply with all requirements related to any
registration statement filed pursuant to this Agreement.  The Company
will use its best efforts not to take any action or file any document (whether
or not permitted by the 1933 Act or the 1934 Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under said acts until the End Date.  Until the
End Date, the Company will use its best efforts to continue the listing or
quotation of the Common Stock on a Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market.  The Company agrees to timely
file a Form D with respect to the Securities if required under Regulation D and
to provide a copy thereof to each Subscriber promptly after such
filing.

     

    (e)           Use of
Proceeds.  The proceeds of the Offering will be employed by the
Company for working capital and general business purposes as further described
on Schedule
9(e).  The Purchase Price may not and will not be used for
accrued and unpaid officer and director salaries, payment of financing related
debt, redemption of outstanding notes or equity instruments of the Company,
litigation related expenses or settlements, brokerage fees, nor non-trade
obligations outstanding on a Closing Date.

     

    (f)           Reservation.   Following
the filing of the Amendment, the Company undertakes to reserve on behalf of
Subscribers from its authorized but unissued Common Stock, a number of shares of
Common Stock equal to 150% of the amount of Common Stock necessary to allow
Subscribers to be able to convert the entire Note and 100% of the amount of
Warrant Shares issuable upon exercise of the Warrants (“Required
Reservation”).   Failure to have sufficient shares
reserved pursuant to this Section 9(f) at any time shall be a material default
of the Company’s obligations under this Agreement and an Event of Default under
the Note.  If at any time Notes and Warrants are outstanding the
Company has insufficient Common Stock reserved on behalf of the Subscribers in
an amount less than 150% of the amount necessary for full conversion of the
outstanding Note principal and interest at the conversion price that would be in
effect on every such date and 100% of the Warrant Shares (“Minimum Required
Reservation”), the Company will promptly reserve the Minimum Required
Reservation, or if there are insufficient authorized and available shares of
Common Stock to do so, the Company will take all action necessary to increase
its authorized capital to be able to fully satisfy its reservation requirements
hereunder, including the filing of a preliminary proxy with the Commission not
later than fifteen days after the first day the Company has less than the
Minimum Required Reservation.  The Company agrees to provide notice to
the Subscribers not later than three days after the date the Company has less
than the Minimum Required Reservation reserved on behalf of the
Subscribers.

     

    (g)           Taxes.  From
the date of this Agreement and until the conversion or satisfaction of the Note,
in its entirety, the Company will promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore.

     

    
      
         

      

      
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    (h)           Insurance.  From
the date of this Agreement and until the End Date, the Company will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company’s line of business, in
amounts sufficient to prevent the Company from becoming a co-insurer and not in
any event less than one hundred percent (100%) of the insurable value of the
property insured less reasonable deductible amounts; and the Company will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner customary for companies in similar businesses similarly situated and to
the extent available on commercially reasonable terms.

     

    (i)           Books and
Records.  From the date of this Agreement and until the End
Date, the Company will keep true records and books of account in which full,
true and correct entries will be made of all dealings or transactions in
relation to its business and affairs in accordance with generally accepted
accounting principles applied on a consistent basis.

     

    (j)           Governmental
Authorities.   From the date of this Agreement and until
the End Date, the Company shall duly observe and conform in all material
respects to all valid requirements of governmental authorities relating to the
conduct of its business or to its properties or assets.

     

    (k)           Intellectual
Property.  From the date of this Agreement and until the End
Date, the Company shall maintain in full force and effect its corporate
existence, rights and franchises and all licenses and other rights to use
intellectual property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business, unless it is sold for
value.

     

    (l)           Properties.  From
the date of this Agreement and until the End Date, the Company will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably be
expected to have a Material Adverse Effect.

     

    (m)           Confidentiality/Public
Announcement.   From the date of this Agreement and until
the End Date, the Company agrees that except in connection with a Form 8-K and
the registration statement or statements regarding the Subscriber’s Securities
or in correspondence with the SEC regarding same, it will not disclose publicly
or privately the identity of the Subscriber unless expressly agreed to in
writing by a Subscriber or only to the extent required by law and then only upon
not less than three days prior notice to Subscriber.  In any event and
subject to the foregoing, the Company undertakes to file a Form 8-K describing
the Offering not later than the fourth (4th)
business day after the Closing Date.  Prior to the filing date of such
Form 8-K, a draft in the final form will be provided to Subscriber for
Subscriber’s review and approval.  In the Form 8-K, the Company will
specifically disclose the amount of Common Stock outstanding immediately after
the Closing.  Upon delivery by the Company to the Subscriber
after the Closing Date of any notice or information, in writing, electronically
or otherwise, and while a Note is held by Subscriber, unless the 
Company has in good faith determined that the matters relating to such
notice do not constitute material, nonpublic information relating to
the Company or Subsidiaries, the Company  shall within one
business day after any such delivery publicly disclose such 
material,  nonpublic  information on a
Report on Form 8-K.  In the event that
the Company believes that a notice or communication to
Subscriber contains material, nonpublic information relating to the Company or
Subsidiaries, the Company shall so indicate to Subscriber prior to delivery of
such notice or information.  Subscriber will be granted sufficient
time to notify the Company that Subscriber elects not to receive such
information.   In such case, the Company will not deliver such
information to Subscriber.  In the absence of any such
indication, Subscriber shall be allowed to presume that all matters
relating to such notice and information do not constitute material,
nonpublic information relating to the Company or
Subsidiaries.

     

    
      
         

      

      
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    (n)           Negative
Covenants.   So long as the Note is outstanding, without
the consent of the Subscriber, the Company will not and will not permit any of
its Subsidiaries to directly or indirectly

     

    (i)           create,
incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, security title, mortgage,
security deed or deed of trust, easement or encumbrance, or preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Uniform Commercial Code or comparable law of any
jurisdiction) (each, a “Lien”) upon any of its
property, whether now owned or hereafter acquired except for:  (A) the
Excepted Issuances (as defined in Section 12 hereof), and (B) (a) Liens imposed
by law for taxes that are not yet due or are being contested in good faith and
for which adequate reserves have been established in accordance with generally
accepted accounting principles; (b) carriers’, warehousemen’s, mechanics’,
material men’s, repairmen’s and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not overdue by
more than 30 days or that are being contested in good faith and by appropriate
proceedings; (c) pledges and deposits made in the ordinary course of business in
compliance with workers’ compensation, unemployment insurance and other social
security laws or regulations; (d) deposits to secure the performance of bids,
trade contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in the
ordinary course of business; (e) Liens created with respect to the financing of
the purchase of new property in the ordinary course of the Company’s business up
to the amount of the purchase price of such property; and (f) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property (each of (a) through (f), a “Permitted Lien”).

     

    (ii)           amend
its certificate of incorporation, bylaws or its charter documents so as to
materially and adversely affect any rights of the Subscriber (an increase in the
amount of authorized shares and an increase in the number of directors will not
be deemed adverse to the rights of the Subscriber);

     

    (iii)           repay,
repurchase or offer to repay, repurchase or otherwise acquire or make any
dividend or distribution in respect of any of its Common Stock, preferred stock,
or other equity securities other than to the extent permitted or required under
the Transaction Documents.

     

    (iv)           engage
in any transactions with any officer, director, employee or any Affiliate of the
Company, including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of $100,000
other than (i) for payment of salary, or fees for services rendered, (ii)
reimbursement for expenses incurred on behalf of the Company, and (iii) for
other employee benefits, including stock option agreements under any stock
option plan of the Company; or

     

    (v)           prepay
or redeem any financing related debt or past due obligations or securities
outstanding as of the Closing Date, or past due obligations (except with respect
to vendor obligations, any such obligations which in management’s good faith,
reasonable judgment must be repaid to avoid disruption of the Company’s
businesses.

     

    The
Company agrees to provide Subscribers not less than ten (10) days notice prior
to becoming obligated to or effectuating a Permitted Lien or Excepted
Issuance.

     

    (o)           Non-Public
Information.  The Company covenants
and agrees that except for the Reports, Other Written Information and schedules
and exhibits to this Agreement and the Transaction Documents, which information
the Company undertakes to publicly disclose on the Form 8-K described in Section
9(m) above, neither it nor any other person acting on its behalf will at any
time provide Subscriber or its agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto Subscriber shall have agreed in writing to accept such
information.  The Company understands and confirms that Subscriber
shall be relying on the foregoing representations in effecting transactions in
securities of the Company.

     

    
      
         

      

      
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    (p)           Seniority.   Except
for Permitted Liens, until the Note is fully satisfied or converted, the Company
shall not grant nor allow any security interest to be taken in the assets of the
Company or any Subsidiary or any Subsidiary’s assets; nor issue any debt, equity
or other instrument which would give the holder thereof directly or indirectly,
a right in any assets of the Company or any Subsidiary or any right to payment
equal to or superior to any right of the Subscriber as a holder of the Note in
or to such assets or payment, nor issue or incur any debt not in the ordinary
course of business.

     

    (q)           Notices.   For
so long as the Subscribers hold any Securities, the Company will maintain a
United States address and United States fax number for notice purposes under the
Transaction Documents.

     

    (r)           Transactions With
Insiders.  So long as the Note is outstanding, the Company
shall not, and shall cause each of its subsidiaries not to, enter into, amend,
modify or supplement, or permit any subsidiary to enter into, amend, modify or
supplement any agreement, transaction, commitment, or arrangement relating to
the sale, transfer or assignment of any of the Company’s tangible or intangible
assets with any of its Insiders (as defined below)(or any persons who were
Insiders at any time during the previous two (2) years), or any Affiliates (as
defined below) thereof, or with any individual related by blood, marriage, or
adoption to any such individual.  Affiliate for purposes of this
Section 9(r) means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
interest in that person or entity, (ii) has ten percent (10%) or more common
ownership with that person or entity, (iii) controls that person or entity, or
(iv) shares common control with that person or entity.  “Control” or
“Controls” for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.  For purposes hereof, “Insiders” shall mean any officer,
director or manager of the Company, including but not limited to the Company’s
president, chief executive officer, chief financial officer and chief operations
officer, and any of their affiliates or family members.

     

    10.           Covenants of the Company and
Subscriber Regarding Indemnification.

     

    (a)           The
Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers' officers, directors, agents, Affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Subscriber or any such person which
results, arises out of or is based upon (i) any material misrepresentation by
Company or material breach of any warranty by Company in this Agreement or in
any Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any material
breach or default in performance by the Company of any covenant or undertaking
to be performed by the Company hereunder, or any other agreement entered into by
the Company and Subscriber relating hereto.

     

    (b)           Each
Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company’s officers, directors, agents, Affiliates, control
persons against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Company or any such person which results, arises out of or is based upon (i) any
material misrepresentation by such Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any material
breach or default in performance by such Subscriber of any  covenant
or undertaking to be performed by such Subscriber hereunder, or any other
agreement entered into by the Company and Subscribers, relating
hereto.

     

    
      
         

      

      
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    (c)           In
no event shall the liability of any Subscriber or permitted successor hereunder
or under any Transaction Document or other agreement delivered in connection
herewith be greater in amount than the dollar amount of the net proceeds
actually received by such Subscriber upon the sale of Registrable Securities (as
defined herein).

     

    (d)           The
procedures set forth in Section 11.6 shall apply to the indemnification set
forth in Sections 10(a) and 10(b) above.

     

    11.1.           Registration
Rights.  The Company hereby grants the following registration
rights to holders of the Securities.  If the Company at any time
proposes to file a registration statement to register any of its securities
under the 1933 Act for sale to the public, whether for its own account or for
the account of other security holders or both, except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering other shares of Common Stock held by or purchasable by Subscriber as
set forth on Schedule
11.1 (“Registrable
Securities”), provided the Registrable Securities are not otherwise
registered for resale by the Subscribers or Holder pursuant to an effective
registration statement or may be sold pursuant to Rule 144 without respect to
volume limitations in which case they shall be deemed to no longer be
Registrable Securities, each such time it will give at least fifteen (15) days'
prior written notice to the record holder of the Registrable Securities of its
intention so to do. Upon the written request of the holder, received by the
Company within ten (10) days after the giving of any such notice by the Company,
to register any of the Registrable Securities not previously registered as
permitted by the SEC Guidance for an offering to be made on a continuous basis
pursuant to Rule 415, the Company will cause such Registrable Securities as to
which registration shall have been so requested to be included with the
securities to be covered by the registration statement proposed to be filed by
the Company, all to the extent required to permit the sale or other disposition
of the Registrable Securities so registered by the holder of such Registrable
Securities (the “Seller”
or “Sellers”).  Unless
instructed in writing to the contrary, the Subscribers hereby automatically
exercise the registration rights granted in this Section 11.1.  The
Seller is hereby given the same rights and benefits as any other party
identified in such registration.   In the event that any
registration pursuant to this Section 11.1 shall be, in whole or in part, an
underwritten public offering of common stock of the Company, the number of
shares of Registrable Securities to be included in such an underwriting may be
reduced by the managing underwriter if and to the extent that the Company and
the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 11.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1 without thereby incurring any
liability to the Seller due to such withdrawal or delay. Notwithstanding
anything to the contrary herein, in the event that the Commission, limits the
amount of Registrable Securities that may be sold by selling security holders in
a particular Registration Statement, the Company may scale back (i.e. remove)
from such registration statement such number of Registrable Securities on behalf
of all selling security holders on a pro-rata basis based on the total number of
Registrable Securities held by such selling security holder.

     

    11.2.           Registration
Procedures. If and whenever the Company is required by the provisions of
Section 11.1 to effect the registration of any Registrable Securities under the
1933 Act, the Company will, as expeditiously as possible:

     

    (a)           subject
to the timelines provided in this Agreement, prepare and file with the
Commission a registration statement required by Section 11, with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as herein provided), promptly provide to the holders of the
Registrable Securities copies of all filings and Commission letters of comment
and notify Subscribers (by telecopier and by e-mail addresses provided by
Subscribers) and Grushko & Mittman, P.C. (by telecopier and by email to
Counslers@aol.com) on
or before the first business day thereafter that the Company receives notice
that (i) the Commission has no comments or no further comments on the
Registration Statement, and (ii) the registration statement has been declared
effective (failure to timely provide notice as required by this Section 11.2(a)
shall be a material breach of the Company’s obligation and an Event of Default
as defined in the Notes and a Non-Registration Event as defined in Section 11.4
of this Agreement);

     

    
      
         

      

      
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    (b)           prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of two (2) years, and comply with the
provisions of the 1933 Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance with
the Sellers’ intended method of disposition set forth in such registration
statement for such period;

     

    (c)           furnish
to the Sellers, at the Company’s expense, such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement or make them electronically available;

     

    (d)           use
its commercially reasonable best efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or “blue
sky” laws of New York and such jurisdictions as the Sellers shall request in
writing, provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction;

     

    (e)           if
applicable, list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;

     

    (f)           notify
the Subscribers within two hours of the Company’s becoming aware that a
prospectus relating thereto is required to be delivered under the 1933 Act, of
the happening of any event of which the Company has knowledge as a result of
which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing or which
becomes subject to a Commission, state or other governmental order suspending
the effectiveness of the registration statement covering any of the Registrable
Securities;

     

    (g)           provided
same would not be in violation of the provision of Regulation FD under the 1934
Act, make available for inspection by the Sellers,  and any attorney,
accountant or other agent retained by the Seller or underwriter, all publicly
available, non-confidential financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all publicly available, non-confidential
information reasonably requested by the seller, attorney, accountant or agent in
connection with such registration statement; and

     

    (h)           provide
to the Sellers copies of the Registration Statement and amendments thereto five
business days prior to the filing thereof with the Commission.

     

    11.3.           Provision of
Documents.  In connection with each registration described in
this Section 11, each Seller will furnish to the Company in writing such
information and representation letters with respect to itself and the proposed
distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.

     

    11.4.           Non-Registration
Events.  The Company and the Subscribers agree that the Sellers
will suffer damages if the Company does not comply with its obligations set
forth in Section 11.1.

     

    
      
         

      

      
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    11.5.           Expenses.  All
expenses incurred by the Company in complying with Section 11, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel and independent public accountants for the Company,
fees and expenses (including reasonable counsel fees) incurred in connection
with complying with state securities or “blue sky” laws, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents
and registrars, costs of insurance and fee of one counsel for all Sellers are
called “Registration
Expenses.” All underwriting discounts and selling commissions applicable
to the sale of Registrable Securities, including any fees and disbursements of
any additional counsel to the Seller, are called "Selling
Expenses."  The Company will pay all Registration Expenses in
connection with the registration statement under Section 11.  Selling
Expenses in connection with each registration statement under Section 11 shall
be borne by the Seller and may be apportioned among the Sellers in proportion to
the number of shares sold by the Seller relative to the number of shares sold
under such registration statement or as all Sellers thereunder may
agree.

     

    11.6.           Indemnification and
Contribution.

     

    (a)           In
the event of a registration of any Registrable Securities under the 1933 Act
pursuant to Section 11, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.

     

    (b)           In
the event of a registration of any of the Registrable Securities under the 1933
Act pursuant to Section 11, each Seller severally but not jointly will, to the
extent permitted by law, indemnify and hold harmless the Company, and each
person, if any, who controls the Company within the meaning of the 1933 Act,
each officer of the Company who signs the registration statement, each director
of the Company, each underwriter and each person who controls any underwriter
within the meaning of the 1933 Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability of
the Seller hereunder shall be limited to the net proceeds actually received by
the Seller from the sale of Registrable Securities covered by such registration
statement.

     

    
      
         

      

      
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    (c)           Promptly
after receipt by an indemnified party hereunder of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party hereunder, notify the indemnifying party in
writing thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party other
than under this Section 11.6(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 11.6(c), except
and only if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 11.6(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.

     

    (d)           In
order to provide for just and equitable contribution in the event of joint
liability under the 1933 Act in any case in which either (i) a Seller, or any
controlling person of a Seller, makes a claim for indemnification pursuant to
this Section 11.6 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.

     

    11.7.           Delivery of Unlegended
Shares.

     

    (a)           Within
three (3) business days (such third business day being the “Unlegended Shares Delivery
Date”) after the business day on which the Company has received (i) a
representation that the prospectus delivery requirements, or the requirements of
Rule 144, as applicable and if required, have been satisfied, and (ii) the
original share certificates representing the shares of Common Stock that have
been sold, and (iii) in the case of sales under Rule 144, customary
representation letters of the Subscriber and/or Subscriber’s broker regarding
compliance with the requirements of Rule 144, the Company at its expense, (y)
shall deliver, and shall cause legal counsel selected by the Company to deliver
to its transfer agent (with copies to Subscriber) an appropriate instruction and
opinion of such counsel, directing the delivery of shares of Common Stock
without any legends including the legend set forth in Section 4 above,
reissuable pursuant to any effective and current Registration Statement
described in Section 11 of this Agreement or pursuant to Rule 144 under the 1933
Act (the “Unlegended
Shares”); and (z) cause the transmission of the certificates representing
the Unlegended Shares together with a legended certificate representing the
balance of the submitted Shares certificate, if any, to the Subscriber at the
address specified in the notice of sale, via express courier, by electronic
transfer or otherwise on or before the Unlegended Shares Delivery
Date.

     

    
      
         

      

      
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    (b)           In
lieu of delivering physical certificates representing the Unlegended Shares, if
the Company’s transfer agent is participating in the Depository Trust Company
(“DTC”) Fast Automated
Securities Transfer program, upon request of a Subscriber, so long as the
certificates therefor do not bear a legend and the Subscriber is not obligated
to return such certificate for the placement of a legend thereon, the Company
must cause its transfer agent to electronically transmit the Unlegended Shares
by crediting the account of Subscriber’s prime Broker with DTC through its
Deposit Withdrawal Agent Commission system.  Such delivery must be
made on or before the Unlegended Shares Delivery Date.

     

    (c)           The
Company understands that a delay in the delivery of the Unlegended Shares
pursuant to Section 11 hereof after the Unlegended Shares Delivery Date could
result in economic loss to Subscriber.  As compensation to Subscriber
for such loss, the Company agrees to pay late payment fees (as liquidated
damages and not as a penalty) to the Subscriber for late delivery of Unlegended
Shares in the amount of $100 per business day after the Delivery Date for each
$10,000 of Purchase Price of the Unlegended Shares subject to the delivery
default.  If during any 360 day period, the Company fails to deliver
Unlegended Shares as required by this Section 11.7 for an aggregate of thirty
(30) days, then each Subscriber or assignee holding Securities subject to such
default may, at its option, require the Company to redeem all or any portion of
the Shares subject to such default at a price per share equal to 120% of the
Purchase Price of such Shares (“Unlegended Redemption
Amount”).

     

    (d)           In
addition to any other rights available to a Subscriber, if the Company fails to
deliver to a Subscriber Unlegended Shares as required pursuant to this
Agreement, within seven (7) business days after the Unlegended Shares Delivery
Date and the Subscriber or a broker on the Subscriber’s behalf, purchases (in an
open market transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Subscriber of the shares of Common Stock which
the Subscriber was entitled to receive from the Company (a "Buy-In"), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of common stock so purchased exceeds (B) the aggregate purchase price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a
penalty).  For example, if a Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
$10,000 of purchase price of shares of Common Stock delivered to the Company for
reissuance as Unlegended Shares, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to the Subscriber in respect of
the Buy-In.

     

    (e)           In
the event a Subscriber shall request delivery of Unlegended Shares as described
in Section 11.7 and the Company is required to deliver such Unlegended Shares
pursuant to Section 11.7, the Company may not refuse to deliver Unlegended
Shares based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or for
any other reason, unless, an injunction or temporary restraining order from a
court, on notice, restraining and or enjoining delivery of such Unlegended
Shares shall have been sought and obtained by the Company or at the Company’s
request or with the Company’s assistance, and the Company has posted a surety
bond for the benefit of such Subscriber in the amount of 120% of the amount of
the aggregate purchase price of the Common Stock which are subject to the
injunction or temporary restraining order, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Subscriber to the extent Subscriber obtains
judgment in Subscriber’s favor.

     

    
      
         

      

      
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    12.           (a)           Favored
Nations Provision.   Other than in connection with (i) full or
partial consideration in connection with a strategic merger, acquisition,
consolidation or purchase of substantially all of the securities or assets of
corporation or other entity provided such issuances are not for the purpose of
raising capital which holders of such securities or debt are not at any time
granted registration rights, (ii) the Company’s issuance of securities in
connection with strategic license agreements and other partnering arrangements
so long as such issuances are not for the purpose of raising capital and which
holders of such securities or debt are not at any time granted registration
rights, (iii) the Company’s issuance of Common Stock or the issuances or grants
of options to purchase Common Stock pursuant to stock option plans and employee
stock purchase plans described on Schedule 12(a) hereto at prices equal to
or higher than the closing price of the Common Stock on the issue date of any of
the foregoing, (iv) as a result of the conversion of Notes which are granted or
issued pursuant to this Agreement or that have been issued prior to the Closing
Date, the issuance of which has been disclosed in a Report filed not less than
five (5) days prior to the Closing Date, and (v) the payment of any interest on
the Notes and Liquidated Damages pursuant to the Transaction Documents
(collectively the foregoing are “Excepted Issuances”), if at
any time the Subscriber owns any Common Stock from the conversion of the Notes
or exercise of the Warrants, the Company shall agree to or issue (the “Lower Price Issuance”) any
Common Stock or securities convertible into or exercisable for shares of Common
Stock (or modify any of the foregoing which may be outstanding) to any person or
entity at a price per share or conversion or exercise price per share which
shall be less than the Conversion Price in effect at such time, or if less than
the Warrant exercise price in effect at such time, without the consent of the
Subscriber, then the Company shall issue, for each such occasion, additional
shares of Common Stock to the Subscriber respecting those Conversion Shares and
Warrants Shares that are then still owned by the Subscriber at the time of the
Lower Price Issuance so that the average per share purchase price of the Shares
or Warrant Shares purchased and owned by the Subscriber on the date of the Lower
Price Issuance is equal to such other lower price per share.  Other
than in connection with Excepted Issuances, if at any time the Notes or Warrants
are outstanding, if the Company shall agree to a Lower Price Issuance, then the
Conversion Price and Warrant exercise price shall automatically be reduced to
such other lower price.  The average Purchase Price of the Conversion
Shares and average exercise price in relation to the Warrant Shares shall be
calculated separately for the Shares and Warrant Shares.  The delivery
to Subscriber of the additional shares of Common Stock shall be not later than
the closing date of the transaction giving rise to the requirement to issue
additional shares of Common Stock.  Subscriber is granted the
registration rights described in Section 11 hereof in connection with such
additional shares of Common Stock.  For purposes of the issuance and
adjustment described in this paragraph, the issuance of any security of the
Company carrying the right to convert such security into shares of Common Stock
or of any warrant, right or option to purchase Common Stock shall result in the
issuance of the additional shares of Common Stock upon the sooner of the
agreement to or actual issuance of such convertible security, warrant, right or
option and again at any time upon any subsequent issuances of shares of Common
Stock upon exercise of such conversion or purchase rights if such issuance is at
a price lower than the Conversion Price or Warrant exercise price in effect upon
such issuance.  Common Stock issued or issuable by the Company for no
consideration or for consideration that cannot be determined at the time of
issue will be deemed issuable or to have been issued for $0.001 per share of
Common Stock.  The rights of Subscriber set forth in this Section 12
are in addition to any other rights the Subscriber has pursuant to this
Agreement, the Note, any Transaction Document, and any other agreement referred
to or entered into in connection herewith or to which Subscriber and Company are
parties.

     

    (b)           Maximum Exercise of
Rights.   In the event the exercise of the rights
described in Section 12(a) would result in the issuance of an amount of common
stock of the Company that would exceed the maximum amount that may be issued to
a Subscriber calculated in the manner described in Section 7.3 of this
Agreement, then the issuance of such additional shares of common stock of the
Company to such Subscriber will be deferred in whole or in part until such time
as such Subscriber is able to beneficially own such common stock without
exceeding the maximum amount set forth calculated in the manner described in
Section 7.3 of this Agreement.  The determination of when such common
stock may be issued shall be made by each Subscriber as to only such
Subscriber.

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

     

    13.           Security
Interest.   On or about August 31, 2004 and January 31,
2005, the Subscribers were granted a security interest in assets of the Company,
as amended pursuant to the Amendment and Security Interest Agreements on August
5, 2005, August 11, 2006, March 30, 2007 and the Transaction Documents dated
July 9, 2007, and May 21, 2009, respectively (collectively the “Security
Agreements”).  The Company will execute such other agreements,
documents and financing statements reasonably requested by Subscribers to affirm
the Security Agreements, which will be filed at the Company’s expense with such
jurisdictions, states and counties designated by the Subscribers.  The
Company will also execute all such documents reasonably necessary in the opinion
of Subscribers to memorialize and further protect the security interest
described herein.  The Subscribers appointed a Collateral Agent to
represent them collectively in connection with the security
interest.  The appointment was pursuant to a Collateral Agent
Agreement.  The Notes and all sums due under the Notes and the
Transaction Documents are included in the term “Obligations” as defined in the
Security Agreements and are secured by the Collateral (as defined in the
Security Agreements) in the same manner and having the same priority as granted
to the Subscribers pursuant to the Security Agreements.

     

    14.           Miscellaneous.

     

    (a)           Notices.  All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice.  Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.  The
addresses for such communications shall be: (i) if to the Company, to:
Conspiracy Entertainment Holdings, Inc., 612 Santa Monica Boulevard, Santa
Monica, CA 90401, Attn: Keith Tanaka, CFO, telecopier: (310) 260-1450, with a
copy by telecopier only to: Sichenzia Ross Friedman Ference LLP, 61 Broadway,
32nd
Floor, New York, NY 10006, Attn: Marc J. Ross, Esq., telecopier: (212) 930-9725,
and (ii) if to the Subscriber, to: the one or more addresses and telecopier
numbers indicated on the signature pages hereto, with an additional copy by
telecopier only to: Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601,
New York, New York 10176, telecopier: (212) 697-3575.

     

    (b)           Entire Agreement;
Assignment.  This Agreement and other documents delivered in
connection herewith represent the entire agreement between the parties hereto
with respect to the subject matter hereof and may be amended only by a writing
executed by both parties.  Neither the Company nor the Subscribers
have relied on any representations not contained or referred to in this
Agreement and the documents delivered herewith.   No right or
obligation of the Company shall be assigned without prior notice to and the
written consent of the Subscribers.

     

    (c)           
Counterparts/Execution.  This Agreement may be executed in any
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same
instrument.  This Agreement may be executed by facsimile signature and
delivered by facsimile transmission.

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

     

    (d)           Law Governing this
Agreement.  This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to
principles of conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state and county of New York.  The parties to this Agreement
hereby irrevocably waive any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non
conveniens.  The parties executing this Agreement
and other agreements referred to herein or delivered in connection herewith on
behalf of the Company agree to submit to the in personam jurisdiction of such
courts and hereby irrevocably waive trial by jury.  The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs.  In the event that any provision
of this Agreement or any other agreement delivered in connection herewith 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 such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision of any agreement.  Each party hereby irrevocably waives
personal service of process and consents to process being served in any suit,
action or proceeding in connection with this Agreement or any other Transaction
Document by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by law.

     

    (e)           Specific Enforcement,
Consent to Jurisdiction.  To the extent permitted by law, the
Company and Subscriber acknowledge and agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached.  It
is accordingly agreed that the parties shall be entitled to one or more
preliminary and final injunctions to prevent or cure breaches of the provisions
of this Agreement and to enforce specifically the terms and provisions hereof,
this being in addition to any other remedy to which any of them may be entitled
by law or equity.  Subject to Section 14(d) hereof, each of the
Company, Subscriber and any signator hereto in his personal capacity hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction in New York of such
court, that the suit, action or proceeding is brought in an inconvenient forum
or that the venue of the suit, action or proceeding is
improper.  Nothing in this Section shall affect or limit any right to
serve process in any other manner permitted by law.

     

    (f)           Damages.   In
the event the Subscriber is entitled to receive any liquidated damages pursuant
to the Transactions, the Subscriber may elect to receive the greater of actual
damages or such liquidated damages.

     

    (g)           Independent Nature of
Subscribers.     The Company acknowledges that the
obligations of each Subscriber under the Transaction Documents are several and
not joint with the obligations of any other Subscriber, and no Subscriber shall
be responsible in any way for the performance of the obligations of any other
Subscriber under the Transaction Documents. The Company acknowledges that each
Subscriber has represented that the decision of each Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions.  The Company acknowledges
that nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto (including, but not limited to, the (i)
inclusion of a Subscriber in the Registration Statement and (ii) review by, and
consent to, 

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

     

    such
Registration Statement by a Subscriber) shall be deemed to constitute the
Subscribers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Subscribers are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents.  The Company acknowledges that
each Subscriber shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out
of the Transaction Documents, and it shall not be necessary for any
other Subscriber to be joined as an additional party in any proceeding for such
purpose.  The Company acknowledges that it has elected to provide all
Subscribers with the same terms and Transaction Documents for the convenience of
the Company and not because Company was required or requested to do so by the
Subscribers.  The Company acknowledges that such procedure with respect to
the Transaction Documents in no way creates a presumption that the Subscribers
are in any way acting in concert or as a group with respect to the Transaction
Documents or the transactions contemplated thereby.

     

    (h)           Consent.   As
used in the Agreement, “consent of the Subscribers” or similar language means
the consent of holders of not less than 75% of the total of the Shares issued
and issuable upon conversion of outstanding Notes owned by Subscribers on the
date consent is requested.

     

    (i)           Equal
Treatment.   No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
the Transaction Documents unless the same consideration is also offered and paid
to all the parties to the Transaction Documents.

     

    (j)           Maximum
Payments.   Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law.  In the event that
the rate of interest or dividends required to be paid or other charges hereunder
exceed the maximum permitted by such law, any payments in excess of such maximum
shall be credited against amounts owed by the Company to the Subscriber and thus
refunded to the Company.

     

    (k)           Calendar
Days.   All references to “days” in the Transaction
Documents shall mean calendar days unless otherwise stated.  The terms
“business days” and “trading days” shall mean days that the New York Stock
Exchange is open for trading for three or more hours.  Time periods
shall be determined as if the relevant action, calculation or time period were
occurring in New York City.  Any deadline that falls on a non-business
day in any of the Transaction Documents shall be automatically extended to the
next business day and interest, if any, shall be calculated and payable through
such extended period.

     

    (l)           Captions: Certain
Definitions.  The captions of the various sections and
paragraphs of this Agreement have been inserted only for the purposes of
convenience; such captions are not a part of this Agreement and shall not be
deemed in any manner to modify, explain, enlarge or restrict any of the
provisions of this Agreement.  As used in this Agreement the term
“person” shall
mean and include an individual, a partnership, a joint venture, a corporation, a
limited liability company, a trust, an unincorporated organization and a
government or any department or agency thereof.

     

    (m)           Severability.  In
the event that any term or provision of this Agreement shall be finally
determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by an authority having jurisdiction and venue, that
determination shall not impair or otherwise affect the validity, legality or
enforceability: (i) by or before that authority of the remaining terms and
provisions of this Agreement, which shall be enforced as if the unenforceable
term or provision were deleted, or (ii) by or before any other authority of any
of the terms and provisions of this Agreement.

     

    (n)           Successor
Laws.  References in the Transaction Documents to laws, rules,
regulations and forms shall also include successors to and functionally
equivalent replacements of such laws, rules, regulations and forms.  A
successor rule to Rule 144(b)(1)(i) shall include any rule that would be
available to a non-Affiliate of the Company for the sale of Common Stock not
subject to volume restrictions and after a six month holding
period.

     

    [THIS
SPACE INTENTIONALLY LEFT BLANK]

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

     

    SIGNATURE PAGE TO
SUBSCRIPTION AGREEMENT (A)

     

    

    Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.

    

    
      
        	 	
                CONSPIRACY
      ENTERTAINMENT HOLDINGS, INC.

                a
      Utah corporation

              	 
	 	 	 	 
	
                Dated:December
      ____, 2009

              	
                By:
      

              	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

      

    

     

    
      	
              SUBSCRIBER

            	
              NOTE
      PRINCIPAL AND PURCHASE PRICE

            	
              WARRANTS

            

    

    

      
        
           

        

        
          26

          
            

          

        

        
           

        

      

    

     

    SIGNATURE PAGE TO
SUBSCRIPTION AGREEMENT (B)

     

     

    

    Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.

    
 

    
      
        	 
      	
                CONSPIRACY
      ENTERTAINMENT HOLDINGS, INC.

                a
      Utah corporation

              	 
      
	 
      	 
      	 
      	 
      
	
                Dated:December
      ____, 2009

              	
                By:

              	
                /s/

              	 
      
	 
      	 
      	
                Name

              	 
      
	 
      	 
      	
                Title

              	 
      
	 
      	 
      	 
      	 
      

      

       

    

    
      	
              SUBSCRIBER

            	
              NOTE
      PRINCIPAL AND PURCHASE PRICE

            	
              WARRANTS

            

    

    

      
        
           

        

        
          27

          
            

          

        

        
           

        

      

    LIST OF EXHIBITS AND
SCHEDULES

     

     

    

     

    Exhibit
A                               Form
of Note

     

    Exhibit
B                                Escrow
Agreement

     

    Exhibit
C                                Escrow
Agreement

     

    Exhibit
D                               Form
of Legal Opinion

     

    Schedule
4(a)                       Subsidiaries

     

    Schedule
4(d)                       Additional
Issuances / Capitalization

     

    Schedule
4(f)(i)                    Required
Consents

     

    Schedule
4(f)(iv)                  Registration
Rights

     

    Schedule
4(h)                       Litigation

     

    Schedule
4(m)                      Defaults

     

    Schedule
4(q)                       Undisclosed
Liabilities

     

    Schedule
4(v)                       Transfer
Agent

     

    Schedule
9(e)                       Use
of Proceeds

     

    Schedule
11.1                       Other
Registrable Securities

     

    Schedule
12(a)                     Excepted
Issuances

    

      
        
           

        

        
          28f10k2009ex4xxx_conspiracy.htm

     

    Exhibit 4.26

    
 

    "NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE –OR-EXERCISABLE] HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES."

     

    
      	Principal Amount
      $______________  	Issue Date: December 11,
      2009

    

     

    SECURED CONVERTIBLE
NOTE

    

    FOR VALUE
RECEIVED, CONSPIRACY ENTERTAINMENT HOLDINGS, INC., a Utah corporation
(hereinafter called "Borrower"), hereby promises to
pay to _____________________________ (the "Holder") or order, without
demand, the sum of __________________ Dollars ($________), with interest
accruing thereon, on December 31, 2011, in cash or shares of Common Stock of
Borrower (the "Maturity
Date"), if not retired sooner.

     

    This Note
has been entered into pursuant to the terms of a subscription agreement between
the Borrower and the Holder, dated of even date herewith (the “Subscription Agreement”), and
shall be governed by the terms of such Subscription Agreement.  Unless
otherwise separately defined herein, all capitalized terms used in this Note
shall have the same meaning as is set forth in the Subscription
Agreement.  The following terms shall apply to this Note:

    

    ARTICLE
I

    

    GENERAL
PROVISIONS

    

    1.1           Interest
Rate.   Interest payable on this Note shall accrue at the
annual rate of fifteen percent (15%) and be payable on the Maturity Date,
accelerated or otherwise, when the principal and remaining accrued but unpaid
interest shall be due and payable, or sooner as described below.

     

    1.2           Payment
Grace Period.  The Borrower shall have a
five (5) day grace period to pay any monetary amounts due under this Note, after
which grace period a default interest rate of eighteen percent (18%) per
annum.

     

    1.3           Conversion
Privileges.  The Conversion Privileges set forth in Article II
shall remain in full force and effect immediately from the date hereof and until
the Note is paid in full regardless of the occurrence of an Event of
Default.  The Note shall be payable in full on the Maturity Date,
unless previously converted into Common Stock in accordance with Article II
hereof.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    ARTICLE
II

    

    CONVERSION
RIGHTS

    

    The
Holder shall have the right to convert the principal and any interest due under
this Note into Shares of the Borrower's Common Stock, $.001 par value per share
(“Common Stock”) as set
forth below.

     

    2.1.           Conversion into the
Borrower's Common Stock.

     

    (a)           The
Holder shall have the right from and after the date of the issuance of this Note
and then at any time until this Note is fully paid, to convert any outstanding
and unpaid principal portion of this Note, and accrued interest, at the election
of the Holder (the date of giving of such notice of conversion being a "Conversion Date") into fully
paid and nonassessable shares of Common Stock as such stock exists on the date
of issuance of this Note, or any shares of capital stock of Borrower into which
such Common Stock shall hereafter be changed or reclassified, at the conversion
price as defined in Section 2.1(b) hereof (the "Conversion Price"), determined
as provided herein.  Upon delivery to the Borrower of a completed
Notice of Conversion, a form of which is annexed hereto as Exhibit A, Borrower shall
issue and deliver to the Holder within three (3) business days after the
Conversion Date (such third day being the “Delivery Date”) that number of
shares of Common Stock for the portion of the Note converted in accordance with
the foregoing.  At the election of the Holder, the Borrower will
deliver accrued but unpaid interest on the Note, if any, through the Conversion
Date directly to the Holder on or before the Delivery Date (as defined in the
Second Amendment).  The number of shares of Common Stock to be issued
upon each conversion of this Note shall be determined by dividing that portion
of the principal of the Note and interest, if any, to be converted, by the
Conversion Price.

     

    (b)   Subject
to adjustment as provided in Section 2.1(c) hereof, the conversion price per
share shall be equal to $0.01 (“Conversion Price”), but in no
event greater than $0.01.

     

    (c)           
The Conversion Price and number and kind of shares or other securities to be
issued upon conversion determined pursuant to Section 2.1(a), shall be subject
to adjustment from time to time upon the happening of certain events while this
conversion right remains outstanding, as follows:

     

    A.           Merger, Sale of Assets,
etc.  If (A) the Borrower effects any merger
or  consolidation of the Borrower with or into another entity, (B) the
Borrower effects any sale of all or substantially all of its assets in one or a
series of related transactions,  (C) any tender offer or exchange
offer (whether by the Borrower or another entity) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, (D) the Borrower consummates a stock
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with one
or more persons or entities whereby such other persons or entities acquire more
than the 50% of the outstanding shares of Common Stock (not including any shares
of Common Stock held by such other persons or entities making or party to, or
associated or affiliated with the other persons or entities making or party to,
such stock purchase agreement or other business combination), (E) any "person"
or "group" (as these terms are used for purposes of Sections 13(d) and 14(d) of
the 1934 Act) is or shall become the "beneficial owner" (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
Common Stock of the Borrower, or (F) the Borrower effects any reclassification
of the Common Stock or any compulsory share exchange pursuant to which the
Common Stock is effectively converted into or exchanged for other securities,
cash or property (in any such case, a "Fundamental  Transaction"),
this Note, as to the unpaid principal portion thereof and accrued interest
thereon, shall thereafter be deemed to evidence the right to convert into such
number and kind of shares or other securities and property as would have been
issuable or distributable on account of such Fundamental Transaction, upon or
with respect to the securities subject to the conversion right immediately prior
to such Fundamental Transaction.  The foregoing provision shall
similarly apply to successive Fundamental Transactions of a similar nature by
any such successor or purchaser.  Without limiting the generality of
the foregoing, the anti-dilution provisions of this Section shall apply to such
securities of such successor or purchaser after any such Fundamental
Transaction.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    B.           Reclassification,
etc.  If the Borrower at any time shall, by reclassification or
otherwise, change the Common Stock into the same or a different number of
securities of any class or classes that may be issued or outstanding, this Note,
as to the unpaid principal portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase an adjusted number of
such securities and kind of securities as would have been issuable as the result
of such change with respect to the Common Stock immediately prior to such
reclassification or other change.

     

    C.           Stock Splits, Combinations
and Dividends.  If the shares of Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, or if a
dividend is paid on the Common Stock in shares of Common Stock, the Conversion
Price shall be proportionately reduced in case of subdivision of shares or stock
dividend or proportionately increased in the case of combination of shares, in
each such case by the ratio which the total number of shares of Common Stock
outstanding immediately after such event bears to the total number of shares of
Common Stock outstanding immediately prior to such event.

     

     D.           Share
Issuance.   So long as this Note is outstanding, if the
Borrower shall issue any Common Stock except for the Excepted Issuances (as
defined in the Subscription Agreement), prior to the complete conversion or
payment of this Note, for a consideration per share that is less than the
Conversion Price that would be in effect at the time of such issue, then, and
thereafter successively upon each such issuance, the Conversion Price shall be
reduced to such other lower issue price.  For purposes of this
adjustment, the issuance of any security or debt instrument of the Borrower
carrying the right to convert such security or debt instrument into Common Stock
or of any warrant, right or option to purchase Common Stock shall result in an
adjustment to the Conversion Price upon the issuance of the above-described
security, debt instrument, warrant, right, or option and again upon the issuance
of shares of Common Stock upon exercise of such conversion or purchase rights if
such issuance is at a price lower than the then applicable Conversion
Price.  The reduction of the Conversion Price described in this
paragraph is in addition to the other rights of the Holder described in the
Subscription Agreement.  Common Stock issued or issuable by the
Borrower for no consideration will be deemed issuable or to have been issued for
$0.001 per share of Common Stock.  The reduction of the Conversion
Price described in this paragraph is in addition to the other rights of the
Holder described in the Subscription Agreement.

     

    (d)           Whenever
the Conversion Price is adjusted pursuant to Section 2.1(c) above, the Borrower
shall promptly mail to the Holder a notice setting forth the Conversion Price
after such adjustment and setting forth a statement of the facts requiring such
adjustment.

     

    (e)           During
the period the conversion right exists, Borrower will reserve from its
authorized and unissued Common Stock not less than an amount of Common Stock
equal to 150% of the amount of shares of Common Stock issuable upon the full
conversion of this Note.  Borrower represents that upon issuance, such
shares will be duly and validly issued, fully paid and
non-assessable.  Borrower agrees that its issuance of this Note shall
constitute full authority to its officers, agents, and transfer agents who are
charged with the duty of executing and issuing stock certificates to execute and
issue the necessary certificates for shares of Common Stock upon the conversion
of this Note.

     

    2.2           Method of
Conversion.  This Note may be converted by the Holder in whole
or in part as described in Section 2.1(a) hereof.  Upon partial
conversion of this Note, a new Note containing the same date and provisions of
this Note shall, at the request of the Holder, be issued by the Borrower to the
Holder for the principal balance of this Note and interest which shall not have
been converted or paid.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    2.3           Maximum
Conversion.  The Holder shall not be entitled to convert on a
Conversion Date that amount of the Note in connection with that number of shares
of Common Stock which would be in excess of the sum of (i) the number of shares
of Common Stock beneficially owned by the Holder and its affiliates on a
Conversion Date, (ii) any Common Stock issuable in connection with the
unconverted portion of the Note, and (iii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Holder and its affiliates of more than 4.99% of the
outstanding shares of Common Stock of the Borrower on such Conversion
Date.  For the purposes of the provision 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 Regulation 13d-3
thereunder.  Subject to the foregoing, the Holder shall not be limited
to aggregate conversions of only 4.99% and aggregate conversion by the Holder
may exceed 4.99%.  The Holder shall have the authority and obligation
to determine whether the restriction contained in this Section 2.3 will limit
any conversion hereunder and to the extent that the Holder determines that the
limitation contained in this Section applies, the determination of which portion
of the Notes are convertible shall be the responsibility and obligation of the
Holder.  The Holder may waive the conversion limitation described in
this Section 2.3, in whole or in part, upon and effective after 61 days prior
written notice to the Borrower to increase such percentage to up to
9.99%.

    
 

    ARTICLE
III

    

    EVENT
OF DEFAULT

     

    The
occurrence of any of the following events of default ("Event of Default") shall, at
the option of the Holder hereof, make all sums of principal and interest then
remaining unpaid hereon and all other amountspayable hereunder immediately due
and payable, upon demand, without presentment, or grace period, all of which
hereby are expressly waived, except as set forth below:

     

    3.1           Failure to Pay Principal or
Interest.  The Borrower fails to pay any installment of
principal, interest or other sum due under this Note when due and such failure
continues for a period of five (5) days after the due date.  The five
(5) day period described in this Section 3.1 is the same five (5) day period
described in Section 1.2 hereof.

     

    3.2           Breach of
Covenant.  The Borrower breaches any material covenant or other
term or condition of this Note in any material respect and such breach, if
subject to cure, continues for a period of five (5) business days after written
notice to the Borrower from the Holder.

     

    3.3           Breach of Representations
and Warranties.  Any material representation or warranty of the
Borrower made herein, or in any agreement, statement or certificate given in
writing pursuant hereto or in connection therewith shall be false or misleading
in any material respect as of the date made and the Closing Date.

     

    3.4           Liquidation.   Any
dissolution, liquidation or winding up of Borrower or any substantial portion of
its business.

     

    
      
         

      

      
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    3.5           Cessation of
Operations.   Any cessation of operations by Borrower or
Borrower admits it is otherwise generally unable to pay its debts as such debts
become due, provided, however that any disclosure of the Borrower’s ability to
continue as a “going concern” shall not be an admission that the Borrower cannot
pay its debts as they come due.

     

    3.6           Maintenance of
Assets.   The failure by Borrower to maintain any material
intellectual property rights, personal, real property or other assets which are
necessary to conduct its business (whether now or in the future).

     

    3.7           Receiver or
Trustee.  The Borrower or any subsidiary of 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.

     

    3.8           Judgments.  Any
money judgment, writ or similar final process shall be entered or filed against
Borrower or any subsidiary of Borrower or any of their property or other assets
for more than $100,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.

     

    3.9           Bankruptcy.  Bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings or
relief under any bankruptcy law or any law, or the issuance of any notice in
relation to such event, for the relief of debtors shall be instituted by or
against the Borrower or any subsidiary of Borrower.

     

    3.10   Delisting.   Delisting
of the Common Stock from any Principal Market; failure to comply with the
requirements for continued listing on a Principal Market for a period of seven
consecutive trading days; or notification from a Principal Market that the
Borrower is not in compliance with the conditions for such continued listing on
such Principal Market.

     

    3.11           Non-Payment.   A
default by the Borrower under any one or more obligations, other than the
obligations set forth on Schedule 4(m) of the Subscription Agreement in an
aggregate monetary amount in excess of $100,000 for more than twenty days after
the due date, unless the Borrower is contesting the validity of such obligation
in good faith.

     

    3.12           Stop
Trade.  An SEC or judicial stop trade order or any trading
suspension that lasts for five or more consecutive trading days.

     

    3.13           Failure to Deliver Common
Stock or Replacement Note.  Borrower's failure to timely
deliver Common Stock to the Holder pursuant to and in the form required by this
Note or, if required, a replacement Note.

     

    3.14           Non-Registration
Event.  The Borrower’s failure to comply with the registration
obligations set forth in Section 11 of the Subscription Agreement.

     

    3.15           Reservation
Default.   Failure by the Borrower to have reserved for
issuance upon conversion of the Note the amount of Common stock as set forth in
this Note and the Subscription Agreement on or before December 1,
2009.

     

    3.16           Financial Statement
Restatement.  The restatement of any financial statements filed
by the Borrower with the Securities and Exchange Commission for any date or
period from two years prior to the Issue Date of this Note and until this Note
is no longer outstanding, if the result of such restatement would, by comparison
to the unrestated financial statements, have constituted a Material Adverse
Effect.

     

    
      
         

      

      
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    3.17           Other Note
Default.  The occurrence of any Event of Default under any
other Note between Borrower and Holder.

     

    3.18           Reverse
Splits.   The Borrower effectuates a reverse split of its
Common Stock without twenty days prior written notice to the
Holder.

     

    3.19           Event Described in
Subscription Agreement.  The occurrence of an Event of Default
as described in the Subscription Agreement that, if susceptible to cure, is not
cured during any designated cure period.

     

    3.20           Executive Officers Breach of
Duties.  Any of Borrower’s named executive officers or
directors is convicted of a violation of securities laws, or a settlement in
excess of $250,000 is reached by any such officer or director relating to a
violation of securities laws, breach of fiduciary duties or
self-dealing.

     

    3.21           Cross
Default.  Other than with respect to the obligations set forth
on Schedule 4(m) of the
Subscription Agreement, a default by the Borrower of a material term, covenant,
warranty or undertaking of any other agreement to which the Borrower and Holder
are parties, or the occurrence of a material event of default under any such
other agreement which is not cured after any required notice and/or cure
period..

    

    ARTICLE
IV

    

    SECURITY
INTEREST

     

    4.           Security Interest/Waiver of
Automatic Stay.   This Note is secured by a security
interest granted to the Holder.  The Borrower acknowledges and agrees
that should a proceeding under any bankruptcy or insolvency law be commenced by
or against the Borrower, or if any of the Collateral (as defined in the Security
Agreement) should become the subject of any bankruptcy or insolvency proceeding,
then the Holder should be entitled to, among other relief to which the Holder
may be entitled under the Transaction Documents and any other agreement to which
the Borrower and Holder are parties (collectively, "Loan Documents") and/or
applicable law, an order from the court granting immediate relief from the
automatic stay pursuant to 11 U.S.C. Section 362 to permit the Holder to
exercise all of its rights and remedies pursuant to the Loan Documents and/or
applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY
IMPOSED BY 11 U.S.C. SECTION 362.  FURTHERMORE, THE BORROWER EXPRESSLY
ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION
OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION,
11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN
ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES
UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW.  The Borrower hereby
consents to any motion for relief from stay that may be filed by the Holder in
any bankruptcy or insolvency proceeding initiated by or against the Borrower
and, further, agrees not to file any opposition to any motion for relief from
stay filed by the Holder.  The Borrower represents, acknowledges and
agrees that this provision is a specific and material aspect of the Loan
Documents, and that the Holder would not agree to the terms of the Loan
Documents if this waiver were not a part of this Note. The Borrower further
represents, acknowledges and agrees that this waiver is knowingly, intelligently
and voluntarily made, that neither the Holder nor any person acting on behalf of
the Holder has made any representations to induce this waiver, that the Borrower
has been represented (or has had the opportunity to he represented) in the
signing of this Note and the Loan Documents and in the making of this waiver by
independent legal counsel selected by the Borrower and that the Borrower has
discussed this waiver with counsel.

     

    
      
         

      

      
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    ARTICLE
V

    

    MISCELLANEOUS

     

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

     

    5.2           Notices.  All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice.  Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.  The
addresses for such communications shall be: (i) if to the Borrower to:
Conspiracy Entertainment Holdings, Inc., 612 Santa Monica Boulevard, Santa
Monica, CA 90401, Attn: Keith Tanaka, CFO, telecopier: (310) 260-1450, with a
copy by telecopier only to: Sichenzia Ross Friedman Ference LLP, 61 Broadway,
32nd
Floor, New York, NY 10006, Attn: Marc J. Ross, Esq., telecopier: (212) 930-9725,
and (ii) if to the Holder, to the name, address and telecopy number set forth on
the front page of this Note, with a copy by telecopier only to Grushko &
Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176,
telecopier number: (212) 697-3575.

     

    5.3           Amendment
Provision.  The term "Note" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or
supplemented.

     

    5.4           Assignability.  This
Note shall be binding upon the Borrower and its successors and assigns, and
shall inure to the benefit of the Holder and its successors and
assigns.

     

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

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    5.6           Governing
Law.  This Note shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflicts of
laws principles that would result in the application of the substantive laws of
another jurisdiction.  Any action brought by either party against the
other concerning the transactions contemplated by this Agreement must be brought
only in the civil or state courts of New York or in the federal courts located
in the State and county of New York.  Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts.  The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and
costs.  In the event that any provision of this Note 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 such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or unenforceability of any other provision of this Note.
Nothing contained herein shall be deemed or operate to preclude the Holder from
bringing suit or taking other legal action against the Borrower in any other
jurisdiction to collect on the Borrower's obligations to Holder, to realize on
any collateral or any other security for such obligations, or to enforce a
judgment or other decision in favor of the Holder.  This Note shall be deemed an
unconditional obligation of Borrower for the payment of money and, without
limitation to any other remedies of Holder, may be enforced against Borrower by
summary proceeding pursuant to New York Civil Procedure Law and Rules Section
3213 or any similar rule or statute in the jurisdiction where enforcement is
sought.  For purposes of such rule or statute, any other document or
agreement to which Holder and Borrower are parties or which Borrower delivered
to Holder, which may be convenient or necessary to determine Holder’s rights
hereunder or Borrower’s obligations to Holder are deemed a part of this Note,
whether or not such other document or agreement was delivered together herewith
or was executed apart from this Note.

     

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

     

    5.8           Shareholder
Status.  The Holder shall not have rights as a shareholder of
the Borrower with respect to unconverted portions of this
Note.  However, the Holder will have all the rights of a shareholder
of the Borrower with respect to the shares of Common Stock to be received by
Holder after delivery by the Holder of a Conversion Notice to the
Borrower.

     

    5.9           Non-Business
Days.   Whenever any payment or any action to be made
shall be due on a Saturday, Sunday or a public holiday under the laws of the
State of New York, such payment may be due or action shall be required on the
next succeeding business day and, for such payment, such next succeeding day
shall be included in the calculation of the amount of accrued interest payable
on such date.

     

    5.10           Redemption.  This
Note may not be redeemed or called without the consent of the Holder except as
described in this Note or the Subscription Agreement.

     

    [THIS
SPACE INTENTIONALLY LEFT BLANK]

     

    
      
         

      

      
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    IN WITNESS WHEREOF, Borrower
has caused this Note to be signed in its name by an authorized officer as of the
____ day of December, 2009.

    

     

    
      
        	 	CONSPIRACY ENTERTAINMENT HOLDINGS,
      INC.	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

      

    

     

    WITNESS:

     

    _____________________________________

     

     

    
      
         

      

      
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    NOTICE OF
CONVERSION

    

    (To be
executed by the Registered Holder in order to convert the Note)

    

    

    The
undersigned hereby elects to convert $_________ of the principal and $_________
of the interest due on the Note issued by Conspiracy Entertainment Holdings,
Inc. on November __, 2009 into Shares of Common Stock of Conspiracy
Entertainment Holdings, Inc. (the "Borrower") according to the conditions set
forth in such Note, as of the date written below.

    

    

    

    Date of
Conversion:____________________________________________________________________

    

    

    Conversion
Price:______________________________________________________________________

    

    

    Shares To
Be
Delivered:_________________________________________________________________

    

    

    Signature:____________________________________________________________________________

    

    

    Print
Name:__________________________________________________________________________

    

    

    Address:_____________________________________________________________________________

    

       ____________________________________________________________________________

     

     

    
      
         

      

      
        10

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