Document:

PURCHASE AGREEMENT, dated as
of December 31, 2008 (the “Agreement”), among
STI GROUP, INC., a
Delaware corporation (“STIG”), SYSTEMS EVOLUTION, INC., an
Idaho corporation (“SEI”).

    

    WHEREAS the SEI is the owner
of 100% of  the issued and outstanding shares (the “SEIT Shares”) of
common stock of Systems Evolution Incorporated, a Texas corporation (“SEIT”);
and

    

    WHEREAS, SEI conducts,
directly and indirectly through SEIT, a business which provides software
development services, managed network support services and other consulting
services (the “Business”);
and

    

    WHEREAS, STIG desires to
purchase the SEIT Shares and all of the other assets of the Business (including
the SEIT Shares) from SEI, and SEI desires to sell the SEIT Shares and all of
the other assets of the Business to STIG, upon the terms and subject to the
conditions hereinafter set forth;

    

    NOW, THEREFORE, in
consideration of the premises and mutual representations, warranties and
covenants herein contained, the parties hereby agree as follows:

    

    ARTICLE
I

    PURCHASE
AND SALE

    

    Section 1.01 Purchase
and Sale.  Upon the terms and subject to the conditions of this
Agreement, STIG agrees to purchase from SEI and SEI agree to sell, transfer,
assign and deliver, or cause to be sold, transferred, assigned and delivered, to
STIG at Closing (as defined below), free and clear of all mortgages, liens,
pledges, charges, security interests or encumbrances of any kind (“Liens”), all of the
assets, properties and business, other than the Excluded Assets (as defined
below), of every kind and description, wherever located, real, personal or
mixed, tangible or intangible, owned, held or used in the conduct of the
Business by any SEI as the same shall exist as of the date of the Closing (the
“Purchased
Assets”), and including, without limitation, all right, title and
interest of SEI in, to and under:

     

    (a)   All
personal property and interest therein, including equipment, furniture, office
equipment, communications equipment,

     

    (b)   All
rights under all contracts, agreements, leases, licenses, commitments, sales and
purchase orders and other instruments;

     

    (c)   All
accounts, notes and other receivables, including (without limitation) those set
forth in Schedule
A hereto;

     

    (d)   All
prepaid expenses to the extent relating to the operation of the
Business;

     

    (e)   All
of SEI’s rights, claims, credits, causes of action or rights of set-off against
third parties relating to the Purchased Assets, including (without limitation)
un-liquidated rights under manufacturers’ and vendors’ warranties;

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (f)   All
patents, copyrights, trademarks, trade names, service marks, service names,
technology know-how, processes, trade secrets, inventions, proprietary data,
formulae, research and development data, computer software programs and other
intangible property and any applications for the same used in the
Business;

     

    (g) 
All transferable licenses, permits or other governmental authorizations
affecting, or relating in any way to, the Business;

     

    (h)  All
books, records, files and papers, whether in hard copy or computer format, used
in the Business, including (without limitation) engineering information, sales
and promotional literature, manuals and data, sales and purchase correspondence,
lists of present and former suppliers, lists of present and former customers,
personnel and employment records, and any information relating to taxes imposed
on the Purchased Assets;

     

    (i)   All
computer software programs and data used in connection with the
Business;

     

    (j)   All
of the SEIT Shares;

     

    (k)  the
shares of common stock of DataLogic International, Inc. identified on Schedule A hereto;
and

     

    (l)   All
goodwill associated with the Business or the Purchased Assets, together with the
right to represent to third parties that STIG is the successor to the
Business.

     

    Section 1.02 Excluded
Assets.  STIG expressly understands and agrees that the
following assets and properties of SEI (the “Excluded Assets”)
will be excluded from the Purchased Assets:

     

    (a)  All
assets acquired by SEI pursuant to the Asset Purchase Agreement, of even date
herewith, between SEI and DealerAdvance, Inc.

     

    (b)  All
of SEI’s tax-loss carry forwards; and

     

    (c)  All
records to be delivered by SEI under the Asset Purchase Agreement pursuant to
the Asset Purchase Agreement of even date herewith.

     

    Section 1.03 Assumption
of Liabilities.  Upon the terms and subject to the conditions
of this Agreement, STIG agrees, effective at the time of the Closing to assume
the liabilities identified on Schedule B hereto
(the “Assumed
Liabilities”).

     

    Section 1.04 Excluded
Liabilities.  Notwithstanding any provision in this Agreement
or any other writing to the contrary, STIG is assuming only the Assumed
Liabilities and is not assuming any other liability or obligation of SEI (or any
predecessor owner of all or part of its business and assets) of whatever nature
whether presently in existence or arising hereafter.  All such other
liabilities and obligations shall be retained by and remain obligations and
liabilities of SEI.

     

    
      
         

      

      
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    Section 1.05 Assignment
of Contracts and Rights.  Anything in this Agreement to the
contrary notwithstanding, this Agreement shall not constitute an agreement to
assign any Purchased Asset or any claim or right or any benefit arising
thereunder or resulting therefrom if an attempted assignment thereof, without
the consent of a third party thereto, would constitute a breach or other
contravention thereof to in any way adversely affect the rights of STIG or SEI
thereunder.  Each of SEI and STIG will use their best efforts (but
without any payment of money by SEI or STIG) to obtain the consent of the other
parties to any such Purchased Asset or any claim or right or any benefit arising
thereunder for the assignment thereof to STIG as STIG may request.  If
such consent is not obtained, or if an attempted assignment thereof would be
ineffective or would adversely affect the rights of SEI thereunder so that STIG
would not in fact receive all such rights, each of SEI and STIG will cooperate
in a mutually agreeable arrangement under which STIG would obtain the benefits
and assume the obligations thereunder in accordance with this Agreement,
including subcontracting, sublicensing, or subleasing to STIG, or under which
SEI would enforce for the benefit of STIG, with STIG assuming SEI’s obligations,
any and all rights of each Seller against a third party thereto.  SEI
will promptly pay to STIG when received all monies received by SEI under any
Purchased Asset or any claim or right or any benefit arising
thereunder.

     

    Section 1.06 Closing.  The
closing (the “Closing”) of the
purchase and sale of the Purchased Assets and the assumption of the Assumed
Liabilities hereunder shall take place at the offices of STIG in San Juan
Capistrano, California on December 31, 2008, subject to the satisfaction of the
conditions set forth in Article V, or at such other time or place as SEI and
STIG may agree.  At the Closing,

     

    (a)  SEI
and STIG shall enter into an Assignment and Assumption Agreement substantially
in the form attached hereto as Exhibit A;
and

     

    (b) SEI
shall deliver to STIG such deeds, bills of sale, assignment, certificates or
title, documents and other instruments of transfer and conveyance as may
reasonably be requested by STIG, each in form and substance satisfactory to STIG
and its legal counsel and executed by SEI.

     

    ARTICLE
II

    REPRESENTATIONS
AND WARRANTIES OF SEI

    

    SEI
hereby represents and warrants to STIG that:

    

    Section 2.01 Organization.  Each
of SEI and SEIT is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted.

     

    
      
         

      

      
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    Section
2.02 Capitalization.

     

    (a)  The
authorized capital stock of the SEIT consists of 1500 shares of common stock, no
par value (“SEIT
Common Stock”).  All the issued and outstanding shares of SEIT
Common Stock are validly issued, fully paid and nonassessable and free of
preemptive rights.  Except as set forth above, there are not now, and
at the date of the Closing (the “Closing Date”) there
will not be, any shares of capital stock (or securities substantially equivalent
to capital stock) of SEIT issued or outstanding or any subscriptions, options,
warrants, calls, rights, convertible securities or other agreements or
commitments of any character obligating the SEIT to issue, transfer or sell any
of its securities.

     

    (b)  SEIT
does not own, directly or indirectly, any capital stock or other equity
securities of any corporation or have any direct or indirect equity or ownership
interest in any business.

     

    Section 2.03 Title to
Purchased Assets.  Upon consummation of the transaction
contemplated hereby, STIG will have acquired good and marketable title in and
to, or a valid leasehold interest in, each of the Purchased Assets, free and
clear of all Liens.   SEI owns beneficially all of the SEIT
Shares.   Such shares are not subject to any claims as to the
ownership thereof, or any rights, powers or interest therein, by any third party
and are not subject to any preemptive or similar rights of
stockholders.

    

    Section 2.04 Corporate
Authorization.  The execution, delivery and performance by SEI
of this Agreement and the consummation by SEI of the transactions contemplated
hereby are within SEI’s corporate powers and have been duly authorized by all
necessary corporate action of SEI.  This Agreement has been duly and
validly executed and delivered by SEI and constitutes a valid and binding
agreement of SEI, enforceable against SEI in accordance with its
terms.

     

    Section 2.05 Governmental
Authorization; Consents.

     

    (a)  The
execution, delivery and performance by SEI of this Agreement require no action
by or in respect of, or filing with, any governmental body, agency, official or
authority (a “Governmental
Entity”).

     

    (b)  No
consent, approval, waiver or other action by an person or entity (other than any
Governmental Entity referred to in (a) above) under any contract, agreement,
indenture, lease, instrument, or other document to which either SEI or SEIT is a
party or by which either of them is bound is required or necessary for the
execution, delivery and performance of this Agreement by SEI or the consummation
of the transactions contemplated hereby, other than the consent of the holders
of SEI’s secured noteholders.

     

    Section 2.06 Non-Contravention.  The
execution, delivery and performance by SEI of this Agreement do not and will not
(i) contravene or conflict with the certificate of incorporation or bylaws of
SEI, (ii) contravene or conflict with or constitute a violation of any provision
of any law, regulation, judgment, injunction, order or decree binding upon or
applicable to SEI or SEIT; (iii) constitute a default under or give rise to any
right of termination, cancellation or acceleration of any right or obligation of
SEI or SEIT or to a loss of any benefit to which SEI or SEIT is entitled under
any provision of any agreement, contract, or other instrument binding upon SEI
or SEIT or any license, franchise, permit or other similar authorization held by
SEI or SEIT or (iv) result in the creation or imposition of any Lien on any
asset of SEI or SEIT.

    
      
         

      

      
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    ARTICLE
III

    REPRESENTATIONS
AND WARRANTIES OF STIG

    

    STIG
hereby represents and warrants to SEI that:

    

    Section 3.01 Organization.  STIG
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted.

     

    Section 3.02 Corporate
Authorization.  The execution, delivery and performance by STIG
of this Agreement and the consummation by STIG of the transactions contemplated
hereby are within STIG’s corporate powers and have been duly authorized by all
necessary corporate action of STIG.  This Agreement has been duly and
validly executed and delivered by STIG and constitutes a valid and binding
agreement of STIG, enforceable against STIG in accordance with its
terms.

     

    Section 3.03 Governmental
Authorization; Consents.

     

    (a)  The
execution, delivery and performance by STIG of this Agreement require no action
by or in respect of, or filing with, any Governmental Entity.

     

    (b)  No
consent, approval, waiver or other action by an person or entity (other than any
Governmental Entity referred to in (a) above) under any contract, agreement,
indenture, lease, instrument, or other document to which STIG is a party or by
which either of them is bound is required or necessary for the execution,
delivery and performance of this Agreement by STIG or the consummation of the
transactions contemplated hereby.

     

    Section 3.04 Non-Contravention.  The
execution, delivery and performance by STIG of this Agreement do not and will
not (i) contravene or conflict with the certificate of incorporation or bylaws
of STIG, (ii) contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to STIG; (iii) constitute a default under or give rise to any
right of termination, cancellation or acceleration of any right or obligation of
STIG or to a loss of any benefit to which STIG is entitled under any provision
of any agreement, contract, or other instrument binding upon STIG or any
license, franchise, permit or other similar authorization held by STIG or (iv)
result in the creation or imposition of any Lien on any asset of
STIG.

     

    ARTICLE
IV

    COVENANTS

    

    Section
4.01   Covenants
of SEI.  SEI agrees that:

     

    
      
         

      

      
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    (a)   Conduct
of the Business.  During the period from the date of this
Agreement and continuing until the Closing Date, SEI shall conduct the Business
in the ordinary course consistent with past practices and to use its best
efforts to preserve intact its business organizations and relationships with
third parties and to keep available the services of its present officers and
employees.

     

     (b)  Stockholders’
Meeting.  SEI will take all necessary action, to the extent
permitted by applicable law, to obtain stockholder ratification of the
transactions contemplated by this Agreement at the Special Meeting of
Stockholders of SEI called (by action of SEI’s Board of Directors) for January
20, 2009 or any adjournment thereof (the “Special Meeting”).  Without
limiting the foregoing, SEI will (a) mail a notice of special meeting in
compliance with applicable law, (b) submit for ratification of its stockholder
the transactions contemplated by this Agreement and (c) not modify the record
date of December 30, 2008 established for the Special Meeting.

     

    Section 4.02 Additional
Covenants of the Parties.  Each party hereto agrees
that:

     

    (a)  Best
Efforts.  Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees (i) to use its best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
and (ii) to execute and deliver such other documents, certificates, agreements
and other writings and to take such other actions as may be necessary or
desirable in order to consummate or implement expeditiously the transactions
contemplated by this Agreement.

     

    (b)  Public
Announcements. The parties shall consult with each other before issuing
any press releases or otherwise making public statements with respect to the
transactions contemplated hereby and in making any filings with any federal or
state governmental or regulatory agency or with any national securities exchange
with respect there

    

     (c)  Tax
Matters.

     

     (i)  As
used herein, "Taxes" means any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, uses, ad valorem, franchise, capital,
paid-up capital, profits, greenmail, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, environmental or
windfall profit tax, custom, duty or other tax, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount imposed by any governmental
authority (domestic or foreign) responsible for the imposition of any such
tax.

    

     (ii)  SEI
and STIG agree to furnish or cause to be furnished to each other, upon request,
as promptly as practicable, such information and assistance relating to the
Purchased Assets and the Business as is reasonably necessary for the filing of
all Tax returns, and making of any election related to Taxes, the preparation
for any audit by any taxing authority, and the prosecution or defense of any
claim, suit or proceeding relating to any Tax return.  SEI and STIG
shall cooperate with each other in the conduct of any audit or other proceeding
related to Taxes involving the Business and each shall execute and deliver such
powers of attorney and other documents as are necessary to carry out the intent
of this Section
4.02(c).

    
      
         

      

      
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    (iii)  All
real property, personal property and similar ad valorem obligations levied with
respect to the Purchased Assets for a taxable period which includes (but does
not end on) the Closing Date shall be apportioned between SEI and STIG as of the
Closing Date based on the number of days of such taxable period included in the
any Tax period (or portion thereof) ending after the Closing Date (the “Pre-Closing Tax
Period”) and the number of days of such taxable period included in any
Tax period (or portion thereof) ending on or before the close of business on the
Closing Date (the “Post-Closing Tax
Period”).  SEI shall be liable for the proportionate amount of
such taxes that is attributable to the Pre-Closing Tax Period, and STIG shall be
liable for the proportionate amount of such taxes that is attributable to the
Post-Closing Tax Period.

    

    (iv)  Any
transfer, documentary, sales, use or other Taxes assessed upon or with respect
to the transfer of the Purchased Assets to STIG and any recording or filing fees
with respect thereto shall be the responsibility of SEI.

     

    ARTICLE
V

    CONDITIONS

    

    Section 5.01 Conditions
to Each Party's Obligation.  The obligation of each party to
consummate the Closing is subject to the satisfaction of the following
conditions:

     

    (a)  All
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations or terminations of waiting periods imposed by, any
Governmental Entity, and all required third party consents, shall have been
filed, occurred or been obtained.

     

    (b)  No
statute, rule, regulation, executive order, decree or injunction shall have been
enacted, entered, promulgated or enforced by any court or governmental authority
which prohibits the consummation of the Closing and shall be in
effect.

     

    Section 5.02 Conditions
to Obligation of STIG.  The obligation of STIG to consummate
the Closing is subject to the satisfaction of the following further
conditions:

     

    (a) The
representations and warranties of SEI set forth in this Agreement shall be true
and correct as of the date of this Agreement, and shall also be true in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date

     

    (b)  SEI
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing
Date.

     

     (d)   STIG
shall have received (i) resolutions duly adopted by the Board of Directors
of the SEI approving the execution and delivery of this Agreement and all other
necessary or proper corporate action to enable SEI to comply with the terms of
this Agreement, and (ii) all other documents it may reasonably request
relating to the existence of SEI and the authority of SEI for this Agreement,
all in form and substance reasonable satisfactory to STIG.

     

    
      
         

      

      
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    Section 5.03 Conditions
to Obligations of SEI.  The obligations of SEI to consummate
the Closing are subject to the following further conditions:

     

    (a)  The
representations and warranties of STIG set forth in this Agreement shall be true
and correct as of the date of this Agreement, and shall also be true in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date.

     

    (b)  STIG
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing
Date.

     

     (d)  SEI
shall have received (i) resolutions duly adopted by the Board of Directors
of STIG approving the execution and delivery of this Agreement and all other
necessary or proper corporate action to enable STIG to comply with the terms of
this Agreement, and (ii) all other documents it may reasonably request
relating to the existence of STIG and the authority of STIG for this Agreement,
all in form and substance reasonable satisfactory to SEI.

     

    ARTICLE
VI

    TERMINATION
AND AMENDMENT

     

    Section 6.01 Termination.  This
Agreement may be terminated at any time prior to the Closing Date:

     

    (a)  by
mutual consent of STIG and SEI; or

     

    (b)  by
either STIG or SEI if the Closing shall not have been consummated before
December 31, 2008 (unless the failure to consummate the Closing by such date
shall be due to the action or failure to act of the party seeking to terminate
this Agreement).

     

    Section 6.02 Effect of
Termination.  In the event of the termination and abandonment
of this Agreement pursuant to Section 6.01
hereof, this Agreement shall forthwith become void and have no effect, without
any liability on the part of any party hereto or its affiliates, directors,
officers or stockholders.  Nothing contained in this Section 6.02
shall relieve any party from liability for any breach of this
Agreement.

     

    Section 6.03 Amendment.  This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.

     

    
      
         

      

      
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    Section 6.04 Extension;
Waiver.  At any time prior to the Closing Date, the parties
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such
party.

     

    ARTICLE
VII

    SURVIVAL;
INDEMNIFICATION

    

    Section 7.01 Survival.  The
covenants, agreements, representations and warranties of the parties hereto
contained in this Agreement or in any certificate or other writing delivered
pursuant hereto or in connection herewith shall survive the Closing until the
second anniversary of the Closing Date.

     

    ARTICLE
VIII

    MISCELLANEOUS

    

    Section 8.01 Entire
Agreement; Assignment.  This Agreement
(a) constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof (other than any confidentiality agreement between the
parties; any provisions of such agreements which are inconsistent with the
transactions contemplated by this Agreement being waived hereby) and (b) shall
not be assigned by operation of law or otherwise.

    

    Section 8.02 Expenses.  Whether or not
the transactions contemplated in this Agreement are consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, will be paid by the party incurring such expense or as
otherwise agreed to herein.

    

    Section 8.03 Notices.  All notices and
other communications hereunder shall be in writing and shall be deemed given if
delivered by hand sent via a reputable nationwide courier service or mailed by
registered or certified mail (return receipt requested) to a party at the
address of such party set forth in the signature pages to this Agreement (or at
such other address for a party as shall be specified by like notice) and shall
be deemed given on the date on which so hand-delivered or on the third business
day following the date on which so mailed or sent.

    

    Section 8.04 Parties
in Interest.  This Agreement
will inure to the benefit of and be binding upon the parties hereto and the
respective successors and assigns.  Nothing in this Agreement is
intended to confer, expressly or by implication, upon any other person any
rights or remedies under or by reason of this Agreement.

    

    Section 8.05 Counterparts.  This
Agreement may be executed in two or more counterparts, each of which will be
deemed an original and all together will constitute one document.  The
delivery by facsimile of an executed counterpart of this Agreement will be
deemed to be an original and will have the full force and effect of an original
executed copy.

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

    Section 8.06 Severability.  Any provision of
this Agreement that is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

     

     Section 8.07 Specific
Performance.  The parties
hereto acknowledge that damages alone may not adequately compensate a party for
violation by another party of this Agreement. Accordingly, in addition to all
other remedies that may be available hereunder or under applicable law, any
party shall have the right to any equitable relief that may be appropriate to
remedy a breach or threatened breach by any other party hereunder, including the
right to enforce specifically the terms of this Agreement by obtaining
injunctive relief in respect of any violation or non-performance
hereof.

    

    Section 8.08 Governing
Law; Jurisdiction.  This Agreement
will be deemed to be made in and in all respects will be interpreted, construed
and governed by and in accordance with the law of the State of California
without regard to any applicable principles of conflicts of law. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.  The parties agree that venue
for any dispute arising under this Agreement will lie exclusively in the state
or federal courts located in Orange County, California, and the parties
irrevocably waive any right to raise forum non conveniens or any other argument
that Orange County, California is not the proper venue.  The parties
irrevocably consent to personal jurisdiction in the state and federal courts of
the state of California.  The parties consent to process being served
in any such suit, action or proceeding by mailing a copy thereof 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 in this Section 10.08 shall
affect or limit any right to serve process in any other manner permitted by
law.  The parties hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to this Agreement shall be
entitled to reimbursement for reasonable legal fees from the non-prevailing
party.  The parties hereby waive all rights to a trial by
jury.

    

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    IN WITNESS WHEREOF, the
parties hereto have executed and delivered this Agreement in a manner legally
binding upon them as of the date first above written.

     

    
      
        
          
            
              	
                      STI
      GROUP, INC.

                    
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                      By

                    	 
      
	 
      	
                      Name:

                    	
                      David
      Walters

                    
	 
      	
                      Title:

                    	
                      Chief
      Executive Officer

                    
	 
      	
                      Address:

                    	
                      30900
      Rancho Viejo Road

                    
	 
      	 
      	
                      San
      Juan Capistrano, CA 92675

                    
	 
      	 
      	 
      
	
                       SYSTEMS
      EVOLUTION, INC.

                    
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                      By

                    	 
      
	 
      	
                      Name:

                    	
                      David
      Walters

                    
	 
      	
                      Title:

                    	
                      Chief
      Executive Officer

                    
	 
      	
                      Address:

                    	
                      30900
      Rancho Viejo Road

                    
	 
      	 
      	
                      San
      Juan Capistrano, CA
92675

                    

            

          

        

      

    

    
      
         

      

      
        -11-THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THE SECURITIES MAY
NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM,
SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE
144 OR REGULATION S UNDER SAID ACT.

       

      CALLABLE
SECURED CONVERTIBLE NOTE

       

      
        	
                San
      Juan Capistrano, California

              	 
      
	
                January
      31, 2007

              	
                $400,000

              

      

       

      FOR VALUE RECEIVED, SYSTEMS EVOLUTION, INC., an
Idaho corporation (hereinafter called the “Borrower”), hereby promises to
pay to the order of AJW OFFSHORE, LTD. or registered assigns (the “Holder”) the sum of $400,000,
on January 31, 2010 (the “Maturity Date”), and to pay
interest on the unpaid principal balance hereof at the rate of six percent (6%)
(the “Interest Rate”)
per annum from January 31, 2007 (the “Issue Date”) until the same
becomes due and payable, whether at maturity or upon acceleration or by
prepayment or otherwise.  Any amount of principal or interest on this
Note which is not paid when due shall bear interest at the rate of fifteen
percent (15%) per annum from the due date thereof until the same is paid (“Default
Interest”).  Interest shall commence accruing on the Issue
Date, shall be computed on the basis of a 365-day year and the actual number of
days elapsed and shall be payable quarterly provided that no interest shall be
due and payable for any month in which the Trading Price (as such term is
defined below) is greater than $.0014 for each Trading Day (as such term is
defined below) of the month. All payments due hereunder (to the extent not
converted into common stock, no par value per share (the “Common Stock”) in accordance
with the terms hereof) shall be made in lawful money of the United States of
America.  All payments shall be made at such address as the Holder
shall hereafter give to the Borrower by written notice made in accordance with
the provisions of this Note.  Whenever any amount expressed to be due
by the terms of this Note is due on any day which is not a business day, the
same shall instead be due on the next succeeding day which is a business day
and, in the case of any interest payment date which is not the date on which
this Note is paid in full, the extension of the due date thereof shall not be
taken into account for purposes of determining the amount of interest due on
such date.  As used in this Note, the term “business day” shall mean
any day other than a Saturday, Sunday or a day on which commercial banks in the
city of New York, New York are authorized or required by law or executive order
to remain closed.  Each capitalized term used herein, and not
otherwise defined, shall have the meaning ascribed thereto in that certain
Securities Purchase Agreement, dated January 31, 2007, pursuant to which this
Note was originally issued (the “Purchase
Agreement”).

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      This Note
is free from all taxes, liens, claims and encumbrances with respect to the issue
thereof and shall not be subject to preemptive rights or other similar rights of
shareholders of the Borrower and will not impose personal liability upon the
holder thereof.  The obligations of the Borrower under this Note shall
be secured by that certain Security Agreement and Intellectual Property Security
Agreement, each dated January 31, 2007 by and between the Borrower and the
Holder.

       

      The
following terms shall apply to this Note:

       

      ARTICLE I.
CONVERSION RIGHTS

       

      1.1           Conversion
Right.  The Holder shall
have the right from time to time, and at any time on or prior to the earlier of
(i) the Maturity Date and (ii) the date of payment of the Default Amount (as
defined in Article III) pursuant to Section 1.6(a) or Article III, the Optional
Prepayment Amount (as defined in Section 5.1 or any payments pursuant to Section
1.7, each in respect of the remaining outstanding principal amount of this Note
to convert all or any part of the outstanding and unpaid principal amount of
this Note into fully paid and non-assessable shares of Common Stock, as such
Common Stock exists on the Issue Date, or any shares of capital stock or other
securities of the Borrower into which such Common Stock shall hereafter be
changed or reclassified at the conversion price  (the “Conversion Price”) determined
as provided herein (a “Conversion”); provided, however, that in no
event shall the Holder be entitled to convert any portion of this Note in excess
of that portion of this Note upon conversion of which the sum of (1) the number
of shares of Common Stock beneficially owned by the Holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the Notes or the unexercised
or unconverted portion of any other security of the Borrower (including, without
limitation, the warrants issued by the Borrower pursuant to the Purchase
Agreement) subject to a limitation on conversion or exercise analogous to the
limitations contained herein) and (2) the number of shares of Common Stock
issuable upon the conversion of the portion of this Note with respect to which
the determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock and provided further that the
Holder shall not be entitled to convert any portion of this Note during any
month immediately succeeding a Determination Date on which the Borrower
exercises its prepayment option pursuant to Section 5.2 of this
Note.  For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13D-G
thereunder, except as otherwise provided in clause (1) of such
proviso.  The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing the Conversion Amount
(as defined below) by the applicable Conversion Price then in effect on the date
specified in the notice of conversion, in the form attached hereto as Exhibit A
(the “Notice of
Conversion”), delivered to the Borrower by the Holder in accordance with
Section 1.4 below; provided that the Notice of Conversion is submitted by
facsimile (or by other means resulting in, or reasonably expected to result in,
notice) to the Borrower before 6:00 p.m., New York, New York time on such
conversion date (the “Conversion
Date”).  The term “Conversion Amount” means, with
respect to any conversion of this Note, the sum of (1) the principal amount of
this Note to be converted in such conversion plus (2) accrued and
unpaid interest, if any, on such principal amount at the interest rates provided
in this Note to the Conversion Date plus (3) Default
Interest, if any, on the amounts referred to in the immediately preceding
clauses (1) and/or (2) plus (4) at the
Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and
1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights
Agreement, dated as of January 31, 2007, executed in connection with the initial
issuance of this Note and the other Notes issued on the Issue Date (the “Registration Rights
Agreement”).  The term “Determination Date” means the
last business day of each month after the Issue Date.

       

      
        
           

        

        
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      1.2           Conversion
Price.

       

      (a)           Calculation
of Conversion Price.  The Conversion
Price shall be the lesser of (i) the Variable Conversion Price (as defined
herein) and (ii) the Fixed Conversion Price (as defined herein) subject, in each
case, to equitable adjustments for stock splits, stock dividends or rights
offerings by the Borrower relating to the Borrower’s securities or the
securities of any subsidiary of the Borrower, combinations, recapitalization,
reclassifications, extraordinary distributions and similar events (each of which
being hereinafter referred to as an “Adjustment”).  The “Variable Conversion Price”
shall mean the Applicable Percentage (as defined herein) multiplied by the
Market Price (as defined herein).  “Market Price” means the
average of the lowest three (3) Trading Prices (as defined below) for the Common
Stock during the twenty (20) Trading Day period ending one Trading Day prior to
the date the Conversion Notice is sent by the Holder to the Borrower via
facsimile (the “Conversion
Date”).  “Trading Price” means, for any
security as of any date, the intraday trading price on the Over-the-Counter
Bulletin Board (the “OTCBB”) as reported by a
reliable reporting service mutually acceptable to and hereafter designated by
Holders of a majority in interest of the Notes and the Borrower or, if the OTCBB
is not the principal trading market for such security, the intraday trading
price of such security on the principal securities exchange or trading market
where such security is listed or traded or, if no intraday trading price of such
security is available in any of the foregoing manners, the average of the
intraday trading prices of any market makers for such security that are listed
in the “pink sheets” by the National Quotation Bureau, Inc.  If the
Trading Price cannot be calculated for such security on such date in the manner
provided above, the Trading Price shall be the fair market value as mutually
determined by the Borrower and the holders of a majority in interest of the
Notes being converted for which the calculation of the Trading Price is required
in order to determine the Conversion Price of such Notes.  “Trading Day” shall mean any
day on which the Common Stock is traded for any period on the OTCBB, or on the
principal securities exchange or other securities market on which the Common
Stock is then being traded.  “Applicable Percentage” shall
mean 50%; provided, however, that the Applicable Percentage shall be increased
to (i) 55% in the event that the Registration Statement (as defined in the
Registration Rights Agreement) is filed on or before the Filing Date (as defined
in the in the Registration Rights Agreement) and (ii) 60% in the event that the
Registration Statement (as defined in the Registration Rights Agreement) becomes
effective on or before the Effectiveness Deadline (as defined in the
Registration Rights Agreement).  The “Fixed Conversion Price” shall
mean $.0014.

       

      
        
           

        

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

       

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

       

      
        
           

        

        
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      If, at
any time a Holder of this Note submits a Notice of Conversion, and the Borrower
does not have sufficient authorized but unissued shares of Common Stock
available to effect such conversion in accordance with the provisions of this
Article I (a “Conversion
Default”), subject to Section 4.8, the Borrower shall issue to the Holder
all of the shares of Common Stock which are then available to effect such
conversion.  The portion of this Note which the Holder included in its
Conversion Notice and which exceeds the amount which is then convertible into
available shares of Common Stock (the “Excess Amount”) shall,
notwithstanding anything to the contrary contained herein, not be convertible
into Common Stock in accordance with the terms hereof until (and at the Holder’s
option at any time after) the date additional shares of Common Stock are
authorized by the Borrower to permit such conversion, at which time the
Conversion Price in respect thereof shall be the lesser of (i) the Conversion
Price on the Conversion Default Date (as defined below) and (ii) the Conversion
Price on the Conversion Date thereafter elected by the Holder in respect
thereof.  In addition, the Borrower shall pay to the Holder payments
(“Conversion Default
Payments”) for a Conversion Default in the amount of (x) the sum of (1) the then
outstanding principal amount of this Note plus (2) accrued and
unpaid interest on the unpaid principal amount of this Note through the
Authorization Date (as defined below) plus (3) Default
Interest, if any, on the amounts referred to in clauses (1) and/or (2), multiplied by (y)
..24, multiplied
by (z) (N/365), where N = the number of days from the day the holder
submits a Notice of Conversion giving rise to a Conversion Default (the “Conversion Default Date”) to
the date (the “Authorization
Date”) that the Borrower authorizes a sufficient number of shares of
Common Stock to effect conversion of the full outstanding principal balance of
this Note.  The Borrower shall use its best efforts to authorize a
sufficient number of shares of Common Stock as soon as practicable following the
earlier of (i) such time that the Holder notifies the Borrower or that the
Borrower otherwise becomes aware that there are or likely will be insufficient
authorized and unissued shares to allow full conversion thereof and (ii) a
Conversion Default.  The Borrower shall send notice to the Holder of
the authorization of additional shares of Common Stock, the Authorization Date
and the amount of Holder’s accrued Conversion Default Payments.  The
accrued Conversion Default Payments for each calendar month shall be paid in
cash or shall be convertible into Common Stock (at such time as there are
sufficient authorized shares of Common Stock) at the applicable Conversion
Price, at the Borrower’s option, as follows:

       

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

       

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

       

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

       

      
        
           

        

        
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      1.4          Method of
Conversion.

       

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

       

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

       

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

       

      (d)           Delivery
of Common Stock Upon Conversion.  Upon receipt by
the Borrower from the Holder of a facsimile transmission (or other reasonable
means of communication) of a Notice of Conversion meeting the requirements for
conversion as provided in this Section 1.4, the Borrower shall issue and deliver
or cause to be issued and delivered to or upon the order of the Holder
certificates for the Common Stock issuable upon such conversion within three (3)
business days after such receipt (and, solely in the case of conversion of the
entire unpaid principal amount hereof, surrender of this Note) (such third
business day being hereinafter referred to as the “Deadline”) in accordance with
the terms hereof and the Purchase Agreement (including, without limitation, in
accordance with the requirements of Section 2(g) of the Purchase Agreement that
certificates for shares of Common Stock issued on or after the effective date of
the Registration Statement upon conversion of this Note shall not bear any
restrictive legend).

       

      
        
           

        

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

       

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

       

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

       

      
        
           

        

        
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      1.5           Concerning
the Shares.  The shares of
Common Stock issuable upon conversion of this Note may not be sold or
transferred unless  (i) such shares are sold pursuant to an effective
registration statement under the Act or (ii) the Borrower or its transfer agent
shall have been furnished with an opinion of  counsel (which opinion
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that the shares to be sold or transferred
may be sold or transferred pursuant to an exemption from such registration or
(iii) such shares are sold or transferred pursuant to Rule 144 under the
Act (or a successor rule) (“Rule 144”) or (iv) such shares
are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who
agrees to sell or otherwise transfer the shares only in accordance with this
Section 1.5 and who is an Accredited Investor (as defined in the Purchase
Agreement).  Except as otherwise provided in the Purchase Agreement
(and subject to the removal provisions set forth below), until such time as the
shares of Common Stock issuable upon conversion of this Note have been
registered under the Act as contemplated by the Registration Rights Agreement or
otherwise may be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold,
each certificate for shares of Common Stock issuable upon conversion of this
Note that has not been so included in an effective registration statement or
that has not been sold pursuant to an effective registration statement or an
exemption that permits removal of the legend, shall bear a legend substantially
in the following form, as appropriate:

       

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

       

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

       

      
        
           

        

        
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      1.6          Effect of Certain
Events.

       

      (a)           Effect of
Merger, Consolidation, Etc.  At the option of
the Holder, the sale, conveyance or disposition of all or substantially all of
the assets of the Borrower, the effectuation by the Borrower of a transaction or
series of related transactions in which more than 50% of the voting power of the
Borrower is disposed of, or the consolidation, merger or other business
combination of the Borrower with or into any other Person (as defined below) or
Persons when the Borrower is not the survivor shall either:  (i) be
deemed to be an Event of Default (as defined in Article III) pursuant to which
the Borrower shall be required to pay to the Holder upon the consummation of and
as a condition to such transaction an amount equal to the Default Amount (as
defined in Article III) or (ii) be treated pursuant to Section 1.6(b)
hereof.  “Person” shall mean any
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization.

       

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

       

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

       

      
        
           

        

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

       

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

       

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

       

      
        
           

        

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

       

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

       

      1.7          Trading
Market Limitations.
Unless permitted by the applicable rules and regulations of the principal
securities market on which the Common Stock is then listed or traded, in no
event shall the Borrower issue upon conversion of or otherwise pursuant to this
Note and the other Notes issued pursuant to the Purchase Agreement more than the
maximum number of shares of Common Stock that the Borrower can issue pursuant to
any rule of the principal United States securities market on which the Common
Stock is then traded (the “Maximum Share Amount”), which
shall be 19.99% of the total shares outstanding on the Closing Date (as defined
in the Purchase Agreement), subject to equitable adjustment from time to time
for stock splits, stock dividends, combinations, capital reorganizations and
similar events relating to the Common Stock occurring after the date
hereof.  Once the Maximum Share Amount has been issued (the date of
which is hereinafter referred to as the “Maximum Conversion Date”), if
the Borrower fails to eliminate any prohibitions under applicable law or the
rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Borrower or any of
its securities on the Borrower’s ability to issue shares of Common Stock in
excess of the Maximum Share Amount (a “Trading Market Prepayment
Event”), in lieu of any further right to convert this Note, and in full
satisfaction of the Borrower’s obligations under this Note, the Borrower shall
pay to the Holder, within fifteen (15) business days of the Maximum Conversion
Date (the “Trading Market
Prepayment Date”), an amount equal to 130% times the sum of (a) the then
outstanding principal amount of this Note immediately following the Maximum
Conversion Date, plus (b) accrued and
unpaid interest on the unpaid principal amount of this Note to the Trading
Market Prepayment Date, plus (c) Default
Interest, if any, on the amounts referred to in clause (a) and/or (b) above,
plus (d) any
optional amounts that may be added thereto at the Maximum Conversion Date by the
Holder in accordance with the terms hereof (the then outstanding principal
amount of this Note immediately following the Maximum Conversion Date, plus the amounts
referred to in clauses (b), (c) and (d) above shall collectively be referred to
as the “Remaining Convertible
Amount”).  With respect to each Holder of Notes, the Maximum
Share Amount shall refer to such Holder’s pro rata share thereof
determined in accordance with Section 4.8 below.  In the event that
the sum of (x) the aggregate number of shares of Common Stock issued upon
conversion of this Note and the other Notes issued pursuant to the Purchase
Agreement plus
(y) the aggregate number of shares of Common Stock that remain issuable upon
conversion of this Note and the other Notes issued pursuant to the Purchase
Agreement, represents at least one hundred percent (100%) of the Maximum Share
Amount (the “Triggering
Event”), the Borrower will use its best efforts to seek and obtain
Shareholder Approval (or obtain such other relief as will allow conversions
hereunder in excess of the Maximum Share Amount) as soon as practicable
following the Triggering Event and before the Maximum Conversion
Date.  As used herein, “Shareholder Approval” means
approval by the shareholders of the Borrower to authorize the issuance of the
full number of shares of Common Stock which would be issuable upon full
conversion of the then outstanding Notes but for the Maximum Share
Amount.

       

      
        
           

        

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

       

      ARTICLE II. CERTAIN
COVENANTS

       

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

       

      
        
           

        

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

       

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

       

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

       

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

       

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

       

      
        
           

        

        
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      ARTICLE III. EVENTS
OF DEFAULT

       

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

       

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

       

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

       

      3.3           Failure
to Timely File Registration or Effect Registration.  The Borrower
fails to file the Registration Statement on or before June 30, 2007 or obtain
effectiveness with the Securities and Exchange Commission of the Registration
Statement on or before November 30, 2007, or such Registration Statement lapses
in effect (or sales cannot otherwise be made thereunder effective, whether by
reason of the Borrower’s failure to amend or supplement the prospectus included
therein in accordance with the Registration Rights Agreement or otherwise) for
more than ten (10) consecutive days or twenty (20) days in any twelve month
period after the Registration Statement becomes effective;

       

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

       

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

       

      
        
           

        

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

       

      3.7           Judgments.  Any money
judgment, writ or similar process shall be entered or filed against the Borrower
or any subsidiary of the Borrower or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a period
of thirty (30) days unless otherwise consented to by the Holder, which consent
will not be unreasonably withheld;

       

      3.8           Bankruptcy.  Bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Borrower or any subsidiary of the Borrower, and the
same shall not have been stayed or withdrawn within sixty (60) days from the
date the Borrower receives notice thereof;

       

      3.9           Delisting
of Common Stock.  The Borrower
shall fail to maintain the quotation or listing of the Common Stock on at least
one of the Pink Sheets, the OTCBB or an equivalent replacement exchange, the
Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange,
or the American Stock Exchange, in each case, from and after the date that the
Common Stock is so listed or quoted; or

       

      3.10           Default
Under Other Notes.  An Event of
Default has occurred and is continuing under any of the other Notes issued
pursuant to the Purchase Agreement,

       

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

       

      
        
           

        

        
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      ARTICLE IV.
MISCELLANEOUS

       

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

       

      4.2           Notices.  Any notice herein
required or permitted to be given shall be in writing and may be personally
served or delivered by courier or sent by United States mail and shall be deemed
to have been given upon receipt if personally served (which shall include
telephone line facsimile transmission) or sent by courier or three (3) days
after being deposited in the United States mail, certified, with postage
pre-paid and properly addressed, if sent by mail.  For the purposes
hereof, the address of the Holder shall be as shown on the records of the
Borrower; and the address of the Borrower shall be 30950 Rancho Viejo Rd #120
San Juan
Capistrano, CA  92675, facsimile number:
[        ].  Both the Holder
and the Borrower may change the address for service by service of written notice
to the other as herein provided.

       

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

       

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

       

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

       

      
        
           

        

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

       

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

       

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

       

      
        
           

        

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

       

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

       

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

       

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

       

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

       

      
        
           

        

        
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      ARTICLE V. CALL
OPTION

       

      5.1           Call
Option.  Notwithstanding
anything to the contrary contained in this Article V, so long as (i) no
Event of Default or Trading Market Prepayment Event shall have occurred and be
continuing, (ii) the Borrower has a sufficient number of authorized shares
of Common Stock reserved for issuance upon full conversion of the Notes, then at
any time after the Issue Date, and (iii) the Common Stock is trading at or
below $.0014 per share (subject to Adjustment), the Borrower shall have the
right, exercisable on not less than ten (10) Trading Days prior written notice
to the Holders of the Notes (which notice may not be sent to the Holders of the
Notes until the Borrower is permitted to prepay the Notes pursuant to this
Section 5.1), to prepay all or a portion of the outstanding Notes in accordance
with this Section 5.1.    Any notice of prepayment hereunder
(an “Optional
Prepayment”) shall be delivered to the Holders of the Notes at their
registered addresses appearing on the books and records of the Borrower and
shall state (1) that the Borrower is exercising its right to prepay all or a
portion of the Notes issued on the Issue Date, (2) the date of prepayment and
(3) the amount of the prepayment and the amount of any Additional Payment as
applicable (the “Optional
Prepayment Notice”).  On the date fixed for prepayment (the
“Optional Prepayment
Date”), the Borrower shall make payment of the Optional Prepayment Amount
(as defined below) to or upon the order of the Holders as specified by the
Holders in writing to the Borrower at least one (1) business day prior to the
Optional Prepayment Date.  If the Borrower exercises its right to
prepay the Notes, the Borrower shall make payment to the holders of an amount in
cash (the “Optional Prepayment
Amount”) equal to either (i) 120% (for prepayments occurring within
one year of the Issue Date), or (iii) 130% (for prepayments occurring after one
year following the Issue Date), multiplied by the sum of (w) the then
outstanding principal amount of this Note plus (x) accrued
and unpaid interest on the unpaid principal amount of this Note to the Optional
Prepayment Date plus (y) Default
Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts
owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to
Section 2(c) of the Registration Rights Agreement (the then outstanding
principal amount of this Note to the date of payment plus the amounts
referred to in clauses (x), (y) and (z) shall collectively be known as the
“Optional Prepayment
Sum”). Notwithstanding notice of an Optional Prepayment, the Holders
shall at all times prior to the Optional Prepayment Date maintain the right to
convert all or any portion of the Notes in accordance with Article I and any
portion of Notes so converted after receipt of an Optional Prepayment Notice and
prior to the Optional Prepayment Date set forth in such notice and payment of
the aggregate Optional Prepayment Amount shall be deducted from the principal
amount of Notes which are otherwise subject to prepayment pursuant to such
notice.  If the Borrower delivers an Optional Prepayment Notice and
fails to pay the Optional Prepayment Amount due to the Holders of the Notes
within two (2) business days following the Optional Prepayment Date, the
Borrower shall forever forfeit its right to redeem the Notes pursuant to this
Section 5.1.

       

      
        
           

        

        
          19

          
            

          

        

        
           

        

         

      

      5.2           Partial
Call Option.  Notwithstanding anything to the contrary
contained in this Article V, in the event that the Average Daily Price of the
Common Stock, as reported by the Reporting Service, for each day of the month
ending on any Determination Date is below the Initial Market Price, the Borrower
may, at its option, prepay a portion of the outstanding principal amount of the
Note equal to 102% of (x) the principal amount hereof  divided by (y)
thirty-six (36) (or such lesser amount of principal as shall then be
outstanding),  plus the interest due on this Note for the month
following such Determination Date and, upon such prepayment the Holder’s right
to convert this Note into Common Stock shall be stayed for  the month
following such Determination Date.  The term “Initial Market Price” means
$.0014 (subject to Adjustment).  The term “Reporting Service” means a
reliable reporting service mutually acceptable to and hereinafter designated by
the Holder.

       

      [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

       

      
        
           

        

        
          20

          
            

          

        

        
           

        

      

      IN WITNESS WHEREOF, Borrower
has caused this Note to be signed in its name by its duly authorized officer
this 31st day
of January, 2007.

       

      
        
          
            	 
      	
                    SYSTEMS
      EVOLUTION, INC.

                  
	 
      	 
      
	 
      	
                    By:

                  	 
      
	 
      	 
      	
                    David
      Walters

                  
	 
      	 
      	
                    Chief
      Executive Officer

                  

          

        

      

       

      
        
           

        

        
          21

          
            

          

        

        
           

        

      

      EXHIBIT
A

       

      NOTICE
OF CONVERSION

      (To be
Executed by the Registered Holder

      in order
to Convert the Notes)

       

      The
undersigned hereby irrevocably elects to convert $__________ principal amount of
the Note (defined below) into shares of common stock, no par value (“Common Stock”), of Systems
Evolution, Inc., an Idaho corporation (the “Borrower”) according to the
conditions of the convertible Notes of the Borrower dated as of January 31, 2007
(the “Notes”), as of the
date written below.  If securities are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such
certificates.  No fee will be charged to the Holder for any
conversion, except for transfer taxes, if any.  A copy of each Note is
attached hereto (or evidence of loss, theft or destruction
thereof).

       

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

       

      Name of
DTC Prime
Broker:______________________________________________________________________

      Account Number:______________________________________________________________________________

       

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

       

      Name:______________________________________________________________________________________

      Address:____________________________________________________________________________________

       

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

       

      Date of
Conversion:___________________________

      Applicable
Conversion Price:____________________

      Number of
Shares of Common Stock to be Issued Pursuant to

      Conversion
of the Notes:______________

      Signature:___________________________________

      Name:______________________________________

      Address:____________________________________

       

      
        
           

        

        
          22

          
            

          

        

        
           

        

      

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

       

      
        
           

        

        
          23

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