Document:

Unassociated Document

    SECURITIES
      PURCHASE AGREEMENT

     

    SECURITIES
      PURCHASE AGREEMENT
      (the
      "Agreement"),
      dated
      as of November 29, 2007, by and among DigitalFX International, Inc., a Florida
      corporation, with headquarters located at 3035 East Patrick Lane, Suite 9,
      Las
      Vegas, NV 89120 (the "Company"),
      and
      the investors listed on the Schedule of Buyers attached hereto (individually,
      a
      "Buyer"
      and
      collectively, the "Buyers").

     

    WHEREAS:

     

    A. The
      Company and each Buyer is executing and delivering this Agreement in reliance
      upon the exemption from securities registration afforded by Section 4(2) of
      the
      Securities Act of 1933, as amended (the "1933
      Act"),
      and
      Rule 506 of Regulation D ("Regulation D")
      as
      promulgated by the United States Securities and Exchange Commission (the
      "SEC")
      under
      the 1933 Act.

     

    B. The
      Company has authorized a new series of senior secured convertible notes of
      the
      Company, in the form attached hereto as Exhibit
      A
      (the
      "Notes"),
      which
      Notes shall be convertible into the Company's common stock, par value $0.001
      per
      share (the "Common
      Stock")
      (as
      converted, the "Conversion
      Shares"),
      in
      accordance with the terms of the Notes.

     

    C. Each
      Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
      conditions stated in this Agreement, (i) that aggregate principal amount of
      the
      Notes set forth opposite such Buyer's name in column (3) on the Schedule of
      Buyers attached hereto (which aggregate amount for all Buyers shall be
      $7,000,000) and (ii) warrants, in substantially the form attached hereto as
      Exhibit
      B
      (the
      "Warrants"),
      to
      acquire up to that number of additional shares of Common Stock set forth
      opposite such Buyer's name in column (4) of the Schedule of Buyers (as
      exercised, collectively, the "Warrant
      Shares").

     

    D. Contemporaneously
      with the execution and delivery of this Agreement, the parties hereto are
      executing and delivering a Registration Rights Agreement, substantially in
      the
      form attached hereto as Exhibit
      C
      (the
      "Registration
      Rights Agreement"),
      pursuant to which the Company will agree to provide certain registration rights
      with respect to the Registrable Securities (as defined in the Registration
      Rights Agreement) under the 1933 Act and the rules and regulations promulgated
      thereunder, and applicable state securities laws.

     

    E. The
      Notes, the Conversion Shares, the Warrants and the Warrant Shares collectively
      are referred to herein as the "Securities".

     

    F. The
      Notes
      will rank senior to all outstanding and future indebtedness of the Company
      and
      its Subsidiaries (as hereinafter defined) and will be secured by a perfected
      security interest, in all of the assets of the Company, the stock of each
      Subsidiary and the assets of each U.S. Subsidiary, as evidenced by (i) a pledge
      agreement, in the form attached hereto as Exhibit
      H
      (as
      amended or modified from time to time in accordance with its terms, the
      "Pledge
      Agreement"),
      (ii)
      a security agreement, in the form attached hereto as Exhibit
      I
      (as
      amended or modified from time to time in accordance with its terms, the
      "Security
      Agreement"),
      and
      (iii) the guarantees of certain Subsidiaries of the Company in the form attached
      hereto as Exhibit
      J
      (as
      amended or modified from time to time in accordance with its terms, the
      "Guarantees"
      and,
      together with the Pledge Agreement, the Security Agreement, the Letter of Credit
      (as defined in Section 4(r) below) and any ancillary documents related thereto,
      collectively the "Security
      Documents").

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    NOW,
      THEREFORE,
      the
      Company and each Buyer hereby agree as follows:

     

    1.     PURCHASE
      AND SALE OF NOTES AND WARRANTS.

     

    (a)  Purchase
      of Notes and Warrants.

     

    (i)  Notes
      and Warrants. Subject
      to the satisfaction (or waiver) of the conditions set forth in Sections 6 and
      7
      below, the Company agrees to issue and sell to each Buyer, and each Buyer
      severally, but not jointly, shall purchase from the Company on the Closing
      Date
      (as defined below), (x) a principal amount of Notes as is set forth opposite
      such Buyer's name in column (3) on the Schedule of Buyers and (y) Warrants
      to
      acquire up to that number of Warrant Shares as is set forth opposite such
      Buyer's name in column (4) on the Schedule of Buyers, (the "Closing").

     

    (ii) Closing.
      The
      date and time of the Closing (the "Closing
      Date")
      shall
      be 10:00 a.m., New York City time, on the date hereof (or such later date as
      is
      mutually agreed to by the Company and each Buyer) after notification of
      satisfaction (or waiver) of the conditions to the Closing set forth in Sections
      6 and 7 below at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue,
      New York, New York 10022.

     

    (iii) Purchase
      Price.
      

     

    (1)
       The aggregate purchase price for the Notes and the Warrants to be
      purchased by each such Buyer at the Closing (the "Purchase
      Price")
      shall
      be the amount set forth opposite each Buyer's name in column (5) of the Schedule
      of Buyers. Each Buyer shall pay $1,000 for each $1,000 of principal amount
      of
      Notes and related Warrants to be purchased by such Buyer at the
      Closing.

     

    (2)
       The Buyers and the Company agree that the Notes and the Warrants
      constitute an "investment unit" for purposes of Section 1273(c)(2) of the
      Internal Revenue Code of 1986, as amended (the "Code").
      The
      Buyers and the Company mutually agree that the allocation of the issue price
      of
      such investment unit between the Notes and the Warrants in accordance with
      Section 1273(c)(2) of the Code and Treasury Regulation Section 1.1273-2(h)
      shall
      be an aggregate amount of $109,375 allocated to the Warrants and the balance
      of
      the Purchase Price allocated to the Notes, and neither the Buyers nor the
      Company shall take any position inconsistent with such allocation in any tax
      return or in any judicial or administrative proceeding in respect of
      taxes.

     

    (b)  Form
      of Payment.
      On the
      Closing Date, (i) each Buyer shall deliver its Purchase Price (less, in the
      case
      of Portside Growth and Opportunity Fund, the amounts withheld pursuant to
      Section 4(g)) to the Escrow Agent (as defined below) pursuant to Section 2
      of
      the Escrow Agreement (as defined below), dated as of November 28, 2007 by and
      among the Company, the Agent (as defined in Section 3(g) herein) and Continental
      Stock Transfer & Trust Company (the "Escrow
      Agent"),
      a
      financial institution chartered under the laws of the State of New York,
      attached hereto as Exhibit
      K
      (the
      "Escrow
      Agreement")
      for
      the Notes and the Warrants to be issued and sold to such Buyer at the Closing,
      by wire transfer of immediately available funds in accordance with the Company's
      written wire instructions and (ii) the Company shall deliver to each Buyer
      the Notes (allocated in the principal amounts as such Buyer shall request)
      which
      such Buyer is then purchasing hereunder along with the Warrants (allocated
      in
      the amounts as such Buyer shall request) which such Buyer is purchasing, in
      each
      case duly executed on behalf of the Company and registered in the name of such
      Buyer or its designee.

     

    
      
        
        

      

      
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    2. BUYER'S
      REPRESENTATIONS AND WARRANTIES.
      Each
      Buyer, severally and not jointly, represents and warrants with respect to only
      itself, as of the date hereof and as of the Closing Date, that:

     

    (a) No
      Sale or Distribution.
      Such
      Buyer is acquiring the Notes, and the Warrants, and upon conversion of the
      Notes
      and exercise of the Warrants will acquire the Conversion Shares issuable upon
      conversion of the Notes and the Warrant Shares issuable upon exercise of the
      Warrants, for its own account and not with a view towards, or for resale in
      connection with, the public sale or distribution thereof, except pursuant to
      sales registered or exempted under the 1933 Act; provided, however, that by
      making the representations herein, such Buyer does not agree to hold any of
      the
      Securities for any minimum or other specific term and reserves the right to
      dispose of the Securities at any time in accordance with or pursuant to a
      registration statement or an exemption under the 1933 Act and pursuant to the
      applicable terms of the Transaction Documents (as defined in Section 3(b)).
      Such
      Buyer is acquiring the Securities hereunder in the ordinary course of its
      business. Such Buyer does not presently have any agreement or understanding,
      directly or indirectly, with any Person to distribute any of the
      Securities.

     

    (b) Accredited
      Investor Status.
      Such
      Buyer is an "accredited investor" as that term is defined in Rule 501(a) of
      Regulation D.

     

    (c) Reliance
      on Exemptions.
      Such
      Buyer understands that the Securities are being offered and sold to it in
      reliance on specific exemptions from the registration requirements of United
      States federal and state securities laws and that the Company is relying in
      part
      upon the truth and accuracy of, and such Buyer's compliance with, the
      representations, warranties, agreements, acknowledgments and understandings
      of
      such Buyer set forth herein in order to determine the availability of such
      exemptions and the eligibility of such Buyer to acquire the
      Securities.

     

    (d) Information.
      Such
      Buyer and its advisors, if any, have been furnished with all materials relating
      to the business, finances and operations of the Company and materials relating
      to the offer and sale of the Securities that have been requested by such Buyer.
      Such Buyer and its advisors, if any, have been afforded the opportunity to
      ask
      questions of the Company. Neither such inquiries nor any other due diligence
      investigations conducted by such Buyer or its advisors, if any, or its
      representatives shall modify, amend or affect such Buyer's right to rely on
      the
      Company's representations and warranties contained herein. Such Buyer
      understands that its investment in the Securities involves a high degree of
      risk
      and is able to afford a complete loss of such investment. Such Buyer has sought
      such accounting, legal and tax advice as it has considered necessary to make
      an
      informed investment decision with respect to its acquisition of the
      Securities.

     

    
      
        
        

      

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

     

    (f) Transfer
      or Resale.
      Such
      Buyer understands that except as provided in the Registration Rights Agreement:
      (i) the Securities have not been and are not being registered under the 1933
      Act
      or any state securities laws, and may not be offered for sale, sold, assigned
      or
      transferred unless (A) subsequently registered thereunder, (B) such Buyer shall
      have delivered to the Company an opinion of counsel, in a generally acceptable
      form, to the effect that such Securities to be sold, assigned or transferred
      may
      be sold, assigned or transferred pursuant to an exemption from such
      registration, or (C) such Buyer provides the Company with reasonable assurance
      that such Securities can be sold, assigned or transferred pursuant to Rule
      144
      or Rule 144A promulgated under the 1933 Act, as amended (or a successor rule
      thereto) (collectively, "Rule
      144");
      (ii)
      any sale of the Securities made in reliance on Rule 144 may be made only in
      accordance with the terms of Rule 144 and further, if Rule 144 is not
      applicable, any resale of the Securities under circumstances in which the seller
      (or the Person (as defined in Section 3(s)) through whom the sale is made)
      may
      be deemed to be an underwriter (as that term is defined in the 1933 Act) may
      require compliance with some other exemption under the 1933 Act or the rules
      and
      regulations of the SEC thereunder; and (iii) neither the Company nor any other
      Person is under any obligation to register the Securities under the 1933 Act
      or
      any state securities laws or to comply with the terms and conditions of any
      exemption thereunder. The Securities may be pledged in connection with a bona
      fide margin account or other loan or financing arrangement secured by the
      Securities and such pledge of Securities shall not be deemed to be a transfer,
      sale or assignment of the Securities hereunder, and no Buyer effecting a pledge
      of Securities shall be required to provide the Company with any notice thereof
      or otherwise make any delivery to the Company pursuant to this Agreement or
      any
      other Transaction Document, including, without limitation, this Section
      2(f).

     

    (g) Legends.
      Such
      Buyer understands that the certificates or other instruments representing the
      Notes and the Warrants and, until such time as the resale of the Conversion
      Shares and the Warrant Shares have been registered under the 1933 Act as
      contemplated by the Registration Rights Agreement, the stock certificates
      representing the Conversion Shares and the Warrant Shares, except as set forth
      below, shall bear any legend as required by the "blue sky" laws of any state
      and
      a restrictive legend in substantially the following form (and a stop-transfer
      order may be placed against transfer of such stock certificates):

     

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

     

    
      
        
        

      

      
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    The
      legend set forth above shall be removed and the Company shall issue a
      certificate without such legend to the holder of the Securities upon which
      it is
      stamped, if, unless otherwise required by state securities laws, (i) such
      Securities are registered for resale under the 1933 Act, (ii) in connection
      with
      a sale, assignment or other transfer, such holder provides the Company with
      an
      opinion of a law firm reasonably acceptable to the Company (with Schulte Roth
      & Zabel LLP being deemed acceptable), in a reasonably acceptable form, to
      the effect that such sale, assignment or transfer of the Securities may be
      made
      without registration under the applicable requirements of the 1933 Act, or
      (iii)
      such holder provides the Company with reasonable assurance that the Securities
      can be sold, assigned or transferred pursuant to Rule 144 or Rule
      144A.

     

    (h) Validity;
      Enforcement.
      This
      Agreement, the Registration Rights Agreement and the Security Documents to
      which
      such Buyer is a party have been duly and validly authorized, executed and
      delivered on behalf of such Buyer and shall constitute the legal, valid and
      binding obligations of such Buyer enforceable against such Buyer in accordance
      with their respective terms, except as such enforceability may be limited by
      general principles of equity or to applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation and other similar laws relating to,
      or
      affecting generally, the enforcement of applicable creditors' rights and
      remedies.

     

    (i) No
      Conflicts.
      The
      execution, delivery and performance by such Buyer of this Agreement, the
      Registration Rights Agreement and the Security Documents to which such Buyer
      is
      a party and the consummation by such Buyer of the transactions contemplated
      hereby and thereby will not (i) result in a violation of the organizational
      documents of such Buyer or (ii) conflict with, or constitute a default (or
      an
      event which with notice or lapse of time or both would become a default) under,
      or give to others any rights of termination, amendment, acceleration or
      cancellation of, any agreement, indenture or instrument to which such Buyer
      is a
      party, or (iii) result in a violation of any law, rule, regulation, order,
      judgment or decree (including federal and state securities laws) applicable
      to
      such Buyer, except in the case of clauses (ii) and (iii) above, for such
      conflicts, defaults, rights or violations which would not, individually or
      in
      the aggregate, reasonably be expected to have a material adverse effect on
      the
      ability of such Buyer to perform its obligations hereunder.

     

    
      
        
        

      

      
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    (j) Residency.
      Such
      Buyer is a resident of that jurisdiction specified below its address on the
      Schedule of Buyers.

     

    (k) Certain
      Trading Activities.
      Other
      than with respect to the transactions contemplated herein, since the time that
      such Buyer was first contacted by the Company, the Agent (as defined below)
      or
      any other Person regarding this investment in the Company neither the Buyer
      nor
      any Affiliate of such Buyer which (x) had knowledge of the transactions
      contemplated hereby, (y) has or shares discretion relating to such Buyer's
      investments or trading or information concerning such Buyer's investments and
      (z) is subject to such Buyer's review or input concerning such Affiliate's
      investments or trading (collectively, "Trading
      Affiliates")
      has
      directly or indirectly, nor has any Person acting on behalf of or pursuant
      to
      any understanding with such Buyer or Trading Affiliate, effected or agreed
      to
      effect any transactions in the securities of the Company. Such Buyer hereby
      covenants and agrees not to, and shall cause its Trading Affiliates not to,
      engage, directly or indirectly, in any transactions in the securities of the
      Company or involving the Company's securities during the period from the date
      hereof until such time as (i) the transactions contemplated by this Agreement
      are first publicly announced as described in Section 4(i) hereof or (ii) this
      Agreement is terminated in full pursuant to Section 8 hereof. Notwithstanding
      the foregoing, for avoidance of doubt, nothing contained herein shall constitute
      a representation or warranty, or preclude any actions, with respect to the
      identification of the availability of, or securing of, available shares to
      borrow in order to effect short sales or similar transactions in the
      future.

     

    3. REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.
      The
      Company represents and warrants to each of the Buyers that, as of the date
      hereof and as of the Closing Date:

     

    (a) Organization
      and Qualification.
      The
      Company and its "Subsidiaries"
      (which
      for purposes of this Agreement means any "subsidiary" as defined in Rule 1-02(x)
      of Regulation S-X promulgated by the SEC under the 1934 Act (as defined below)
      and any other entity required to be disclosed in the SEC Reports pursuant to
      Item 601(b)(21) of Regulation S-K) are entities duly organized and validly
      existing and, to the extent legally applicable, in good standing under the
      laws
      of the jurisdiction in which they are formed, and have the requisite power
      and
      authorization to own their properties and to carry on their business as now
      being conducted. Each of the Company and its Subsidiaries is duly qualified
      as a
      foreign entity to do business and, to the extent legally applicable, is in
      good
      standing in every jurisdiction in which its ownership of property or the nature
      of the business conducted by it makes such qualification necessary, except
      to
      the extent that the failure to be so qualified or be in good standing would
      not
      reasonably be expected to have a Material Adverse Effect. As used in this
      Agreement, "Material
      Adverse Effect"
      means
      any material adverse effect on the business, properties, assets, operations,
      results of operations, condition (financial or otherwise) or prospects of the
      Company and its Subsidiaries, individually or taken as a whole, or on the
      transactions contemplated hereby or in the other Transaction Documents or by
      the
      agreements and instruments to be entered into in connection herewith or
      therewith, or on the authority or ability of the Company to perform its
      obligations under the Transaction Documents (as defined below). The Company
      has
      no Subsidiaries except as set forth on Schedule
      3(a).
      Other
      than the Subsidiaries, the Company has no joint venture or any entity in which
      the Company, directly or indirectly, owns any of the capital stock or holds
      an
      equity or similar interest which, individually or in the aggregate, would be
      classified as a "subsidiary" as defined in Rule 1-02(x) of Regulation S-X
      promulgated by the SEC under the 1934 Act (as defined below) or otherwise be
      required to be disclosed in the SEC Reports pursuant to Item 601(b)(21) of
      Regulation S-K.

     

    
      
        
        

      

      
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    (b) Authorization;
      Enforcement; Validity.
      The
      Company has the requisite corporate power and authority to enter into and
      perform its obligations under this Agreement, the Notes, the Registration Rights
      Agreement, the Security Documents, the Irrevocable Transfer Agent Instructions
      (as defined in Section 5(b)) in the form attached hereto as Exhibit
      D,
      the
      Warrants and each of the other agreements entered into by the parties hereto
      in
      connection with the transactions contemplated by this Agreement (collectively,
      the "Transaction
      Documents")
      and to
      issue the Securities in accordance with the terms hereof and thereof. The
      execution and delivery of the Transaction Documents by the Company and the
      consummation by the Company of the transactions contemplated hereby and thereby,
      including, without limitation, the issuance of the Notes and the Warrants,
      the
      reservation for issuance and the issuance of the Conversion Shares issuable
      upon conversion of the Notes, the reservation for issuance and issuance of
      Warrant Shares issuable upon exercise of the Warrants, and the granting of
      a
      security interest in the Collateral (as defined in the Security Documents)
      have
      been duly authorized by the Company's Board of Directors and no further filing,
      consent, or authorization is required by the Company, its Board of Directors
      or
      its stockholders. This Agreement and the other Transaction Documents of even
      date herewith have been duly executed and delivered by the Company, and
      constitute the legal, valid and binding obligations of the Company, enforceable
      against the Company in accordance with their respective terms, except as such
      enforceability may be limited by general principles of equity or applicable
      bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
      laws
      relating to, or affecting generally, the enforcement of applicable creditors'
      rights and remedies.

     

    (c) Issuance
      of Securities.
      The
      issuance of the Notes and the Warrants are duly authorized and upon issuance
      in
      accordance with the terms of the Transaction Documents shall be free from all
      taxes, liens and charges with respect to the issue thereof. As of the Closing,
      a
      number of shares of Common Stock shall have been duly authorized and reserved
      for issuance which equals or exceeds 130% of the aggregate of the maximum number
      of shares of Common Stock issuable (i) upon conversion of the Notes and (ii)
      upon exercise of the Warrants. Upon conversion or exercise in accordance with
      the Notes or the Warrants, as the case may be, the Conversion Shares and the
      Warrant Shares, respectively, will be validly issued, fully paid and
      nonassessable and free from all preemptive or similar rights, taxes, liens
      and
      charges with respect to the issue thereof, with the holders being entitled
      to
      all rights accorded to a holder of Common Stock. Assuming the accuracy of each
      of the representations and warranties set forth in Section 2 of this Agreement,
      the offer and issuance by the Company of the Securities is exempt from
      registration under the 1933 Act.

     

    (d) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company of the transactions contemplated hereby
      and
      thereby (including, without limitation, the issuance of the Notes and Warrants
      and reservation for issuance and issuance of the Conversion Shares, and the
      Warrant Shares) will not (i) result in a violation of any certificate of
      incorporation, certificate of formation, any certificate of designations or
      other constituent documents of the Company or any of its Subsidiaries, any
      capital stock of the Company or any of its Subsidiaries or bylaws of the Company
      or any of its Subsidiaries or (ii) conflict with, or constitute a default (or
      an
      event which with notice or lapse of time or both would become a default) in
      any
      respect under, or give to others any rights of termination, amendment,
      acceleration or cancellation of, any agreement, indenture or instrument to
      which
      the Company or any of its Subsidiaries is a party, or (iii) result in a
      violation of any law, rule, regulation, order, judgment or decree (including
      foreign, federal and state securities laws and regulations and the rules and
      regulations of The American Stock Exchange (the "Principal
      Market")
      applicable to the Company or any of its Subsidiaries or by which any property
      or
      asset of the Company or any of its Subsidiaries is bound or
      affected.

     

    
      
        
        

      

      
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    (e) Consents.
      Neither
      the Company nor any of its Subsidiaries is required to obtain any consent,
      authorization or order of, or make any filing or registration with, any court,
      governmental agency or any regulatory or self-regulatory agency or any other
      Person in order for it to execute, deliver or perform any of its obligations
      under or contemplated by the Transaction Documents, in each case in accordance
      with the terms hereof or thereof, except for the following consents,
      authorizations, orders, filings and registrations: (i) the filing with the
      SEC
      of one or more Registration Statements in accordance with the requirements
      of
      the Registration Rights Agreement (which is not required to be filed or obtained
      before the Closing) and (ii) the filing of a listing application for the
      Conversion Shares and Warrant Shares with the Principal Market, which shall
      be
      done pursuant to the rules of the Principal Market. The Company and its
      Subsidiaries are unaware of any facts or circumstances that might prevent the
      Company from obtaining or effecting any of the registration, application or
      filings pursuant to the preceding sentence. The Company is not in violation
      of
      the listing requirements of the Principal Market and has no knowledge of any
      facts that would reasonably lead to delisting or suspension of the Common Stock
      in the foreseeable future. The issuance by the Company of the Securities shall
      not have the effect of delisting or suspending the Common Stock from the
      Principal Market.

     

    (f) Acknowledgment
      Regarding Buyer's Purchase of Securities.
      The
      Company acknowledges and agrees that each Buyer is acting solely in the capacity
      of an arm's length purchaser with respect to the Transaction Documents and
      the
      transactions contemplated hereby and thereby and that no Buyer is (i) an officer
      or director of the Company, (ii) an "affiliate" of the Company or any of its
      Subsidiaries (as defined in Rule 144) or (iii) to the knowledge of the Company,
      a "beneficial owner" of more than 10% of the shares of Common Stock (as defined
      for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as amended
      (the "1934
      Act")).
      The
      Company further acknowledges that no Buyer is acting as a financial advisor
      or
      fiduciary of the Company or any of its Subsidiaries (or in any similar capacity)
      with respect to the Transaction Documents and the transactions contemplated
      hereby and thereby, and any advice given by a Buyer or any of its
      representatives or agents in connection with the Transaction Documents and
      the
      transactions contemplated hereby and thereby is merely incidental to such
      Buyer's purchase of the Securities. The Company further represents to each
      Buyer
      that the Company's decision to enter into the Transaction Documents has been
      based solely on the independent evaluation by the Company and its
      representatives.

     

    (g) No
      General Solicitation; Placement Agent's Fees.
      Neither
      the Company, nor any of its Subsidiaries or affiliates, nor any Person acting
      on
      its or their behalf, has engaged in any form of general solicitation or general
      advertising (within the meaning of Regulation D) in connection with the offer
      or
      sale of the Securities. The Company shall be responsible for the payment of
      any
      placement agent's fees, financial advisory fees, or brokers' commissions (other
      than for persons engaged by any Buyer or its investment advisor) relating to
      or
      arising out of the transactions contemplated hereby, including, without
      limitation, placement agent fees payable to Maxim Group LLC as placement agent
      (the "Agent")
      in
      connection with the sale of the Securities. The Company shall pay, and hold
      each
      Buyer harmless against, any liability, loss or expense (including, without
      limitation, attorney's fees and out-of-pocket expenses) arising in connection
      with any such claim. The Company acknowledges that it has engaged the Agent
      in
      connection with the sale of the Securities. Other than the Agent, neither the
      Company nor any of its Subsidiaries has engaged any placement agent or other
      agent in connection with the sale of the Securities.

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    (h) No
      Integrated Offering.
      None of
      the Company, its Subsidiaries, any of their affiliates, and any Person acting
      on
      their behalf has, directly or indirectly, made any offers or sales of any
      security or solicited any offers to buy any security, under circumstances that
      would require registration of the issuance of any of the Securities under the
      1933 Act, whether through integration with prior offerings or otherwise, or
      cause this offering of the Securities to require approval of stockholders of
      the
      Company for purposes of any applicable stockholder approval provisions,
      including, without limitation, under the rules and regulations of any exchange
      or automated quotation system on which any of the securities of the Company
      are
      listed or designated. None of the Company, its Subsidiaries, their affiliates
      and any Person acting on their behalf will take any action or steps referred
      to
      in the preceding sentence that would require registration of the issuance of
      any
      of the Securities under the 1933 Act or cause the offering of the Securities
      to
      be integrated with other offerings for purposes of any such applicable
      stockholder approval provisions.

     

    (i) Dilutive
      Effect.
      The
      Company understands and acknowledges that the number of Conversion Shares
      issuable upon conversion of the Notes and the Warrant Shares issuable upon
      exercise of the Warrants will increase in certain circumstances. The Company
      further acknowledges that its obligation to issue Conversion Shares upon
      conversion of the Notes in accordance with this Agreement and the
      Notes and
      its
      obligation to issue the Warrant Shares upon exercise of the Warrants in
      accordance with this Agreement and the Warrants is, in each case, absolute
      and
      unconditional regardless of the dilutive effect that such issuance may have
      on
      the ownership interests of other stockholders of the Company.

     

    (j) Application
      of Takeover Protections; Rights Agreement.
      The
      Company and its board of directors have taken all necessary action, if any,
      in
      order to render inapplicable any control share acquisition, business
      combination, poison pill (including any distribution under a rights agreement)
      or other similar anti-takeover provision under the Certificate of Incorporation
      (as defined in Section 3(r)) or the laws of the state of its incorporation
      which
      is or could become applicable to any Buyer as a result of the transactions
      contemplated by this Agreement, including, without limitation, the Company's
      issuance of the Securities and any Buyer's ownership of the Securities. The
      Company and its board of directors have taken all necessary action, if any,
      in
      order to render inapplicable any stockholder rights plan or similar arrangement
      relating to accumulations of beneficial ownership of Common Stock or a change
      in
      control of the Company.

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

    (k) SEC
      Documents; Financial Statements.
      During
      the two (2) years prior to the date hereof, the Company has filed all reports,
      schedules, forms, statements and other documents required to be filed by it
      with
      the SEC pursuant to the reporting requirements of the 1934 Act (all of the
      foregoing filed prior to the date hereof and all exhibits included therein
      and
      financial statements, notes and schedules thereto and documents incorporated
      by
      reference therein being hereinafter referred to as the "SEC
      Documents").
      The
      Company has delivered to the Buyers or their respective representatives true,
      correct and complete copies of the SEC Documents not available on the EDGAR
      system. As of their respective filing dates, the SEC Documents complied in
      all
      material respects with the requirements of the 1934 Act and the rules and
      regulations of the SEC promulgated thereunder applicable to the SEC Documents,
      and none of the SEC Documents, at the time they were filed with the SEC,
      contained any untrue statement of a material fact or omitted to state a material
      fact required to be stated therein or necessary in order to make the statements
      therein, in the light of the circumstances under which they were made, not
      misleading. As of their respective filing dates, the financial statements of
      the
      Company included in the SEC Documents complied as to form in all material
      respects with applicable accounting requirements and the published rules and
      regulations of the SEC with respect thereto. Such financial statements have
      been
      prepared in accordance with generally accepted accounting principles,
      consistently applied, during the periods involved (except (i) as may be
      otherwise indicated in such financial statements or the notes thereto, or (ii)
      in the case of unaudited interim statements, to the extent they may exclude
      footnotes or may be condensed or summary statements) and fairly present in
      all
      material respects the financial position of the Company as of the dates thereof
      and the results of its operations and cash flows for the periods then ended
      (subject, in the case of unaudited statements, to normal year-end audit
      adjustments). No other information provided by or on behalf of the Company
      to
      the Buyers which is not included in the SEC Documents, including, without
      limitation, information referred to in Section 2(d) of this Agreement or in
      any
      disclosure schedules, contains any untrue statement of a material fact or omits
      to state any material fact necessary in order to make the statements therein,
      in
      the light of the circumstance under which they are or were made, not
      misleading.

     

    (l) Absence
      of Certain Changes.
      Since
      December 31, 2006, there has been no material adverse change and no material
      adverse development in the business, properties, operations, condition
      (financial or otherwise), results of operations or prospects of the Company
      or
      its Subsidiaries. Except as disclosed in Schedule
      3(l),
      since
      December 31, 2006, the Company has not (i) declared or paid any dividends,
      (ii)
      sold any assets, individually or in the aggregate, in excess of $100,000 outside
      of the ordinary course of business or (iii) had capital expenditures,
      individually or in the aggregate, in excess of $100,000. Neither the Company
      nor
      any of its Subsidiaries has taken any steps to seek protection pursuant to
      any
      bankruptcy law nor does the Company have any knowledge or reason to believe
      that
      its creditors intend to initiate involuntary bankruptcy proceedings or any
      actual knowledge of any fact that would reasonably lead a creditor to do so.
      The
      Company and its Subsidiaries, individually and on a consolidated basis, are
      not
      as of the date hereof, and after giving effect to the transactions contemplated
      hereby to occur at the Closing, will not be Insolvent (as defined below). For
      purposes of this Section 3(l), "Insolvent"
      means,
      with respect to any Person (as defined in Section 3(s)), (i) the present fair
      saleable value of such Person's assets is less than the amount required to
      pay
      such Person's total Indebtedness (as defined in Section 3(s)), (ii) such Person
      is unable to pay its debts and liabilities, subordinated, contingent or
      otherwise, as such debts and liabilities become absolute and matured, (iii)
      such
      Person intends to incur or believes that it will incur debts that would be
      beyond its ability to pay as such debts mature or (iv) such Person has
      unreasonably small capital with which to conduct the business in which it is
      engaged as such business is now conducted and is proposed to be
      conducted.

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

    (m) No
      Undisclosed Events, Liabilities, Developments or Circumstances.
      No
      event, liability, development or circumstance has occurred or exists, or is
      contemplated to occur with respect to the Company, its Subsidiaries or their
      respective business, properties, prospects, operations or financial condition,
      that would be required to be disclosed by the Company under applicable
      securities laws on a registration statement on Form S-1 filed with the SEC
      relating to an issuance and sale by the Company of its Common Stock and which
      has not been publicly announced.

     

    (n) Conduct
      of Business; Regulatory Permits.
      Neither
      the Company nor any of its Subsidiaries is in violation of any term of or in
      default under its Certificate of Incorporation, any certificate of designations
      of any outstanding series of preferred stock of the Company or the Bylaws or
      their organizational charter or bylaws, respectively. Neither the Company nor
      any of its Subsidiaries is in violation of any judgment, decree or order or
      any
      statute, ordinance, rule or regulation applicable to the Company or its
      Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
      its business in violation of any of the foregoing, except for possible
      violations which could not, individually or in the aggregate, reasonably be
      expected to have a Material Adverse Effect. Without limiting the generality
      of
      the foregoing, the Company is not in violation of any of the rules, regulations
      or requirements of the Principal Market and has no knowledge of any facts or
      circumstances that would reasonably lead to delisting or suspension of the
      Common Stock by the Principal Market in the foreseeable future. During the
      two
      (2) years prior to the date hereof, (i) the Common Stock has been designated
      as
      of August 23, 2007 for quotation on the Principal Market, (ii) trading in the
      Common Stock has not been suspended by the SEC or the Principal Market and
      (iii)
      the Company has received no communication, written or oral, from the SEC or
      the
      Principal Market regarding the suspension or delisting of the Common Stock
      from
      the Principal Market. The Company and its Subsidiaries possess all certificates,
      authorizations and permits issued by the appropriate regulatory authorities
      necessary to conduct their respective businesses, except where the failure
      to
      possess such certificates, authorizations or permits would not have,
      individually or in the aggregate, a Material Adverse Effect, and neither the
      Company nor any such Subsidiary has received any notice of proceedings relating
      to the revocation or modification of any such certificate, authorization or
      permit.

     

    (o) Foreign
      Corrupt Practices.
      Neither
      the Company nor any of its Subsidiaries nor any director, officer, agent,
      employee or other Person acting on behalf of the Company or any of its
      Subsidiaries has, in the course of its actions for, or on behalf of, the Company
      or any of its Subsidiaries (i) used any corporate funds for any unlawful
      contribution, gift, entertainment or other unlawful expenses relating to
      political activity; (ii) made any direct or indirect unlawful payment to any
      foreign or domestic government official or employee from corporate funds; (iii)
      violated or is in violation of any provision of the U.S. Foreign Corrupt
      Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
      payoff, influence payment, kickback or other unlawful payment to any foreign
      or
      domestic government official or employee.

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

    (p) Sarbanes-Oxley
      Act.
      The
      Company is in compliance with any and all applicable requirements of the
      Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any
      and
      all applicable rules and regulations promulgated by the SEC thereunder that
      are
      effective as of the date hereof.

     

    (q) Transactions
      With Affiliates.
      Except
      as set forth in the SEC Documents filed at least ten (10) days prior to the
      date
      hereof and other than the grant of stock options disclosed on Schedule
      3(q),
      none of
      the officers, directors or employees of the Company or any of its Subsidiaries
      is presently a party to any transaction with the Company or any of its
      Subsidiaries (other than for ordinary course services as employees, officers
      or
      directors), including any contract, agreement or other arrangement providing
      for
      the furnishing of services to or by, providing for rental of real or personal
      property to or from, or otherwise requiring payments to or from any such
      officer, director or employee or, to the knowledge of the Company or any of
      its
      Subsidiaries, any corporation, partnership, trust or other entity in which
      any
      such officer, director, or employee has a substantial interest or is an officer,
      director, trustee or partner.

     

    (r) Equity
      Capitalization.
      As of
      the date hereof, the authorized capital stock of the Company consists of (i)
      100,000,000 shares of Common Stock, of which as of the date hereof, 24,173,281
      are issued and outstanding, 1,381,184 shares are reserved for issuance pursuant
      to the Company's stock option and purchase plans and 866,851 shares are reserved
      for issuance pursuant to securities (other than the aforementioned options,
      the
      Notes and the Warrants) exercisable or exchangeable for, or convertible into,
      shares of Common Stock and (ii) 5,000,000 shares of preferred stock, $0.01
      par
      value, of which as of the date hereof no shares are issued and outstanding.
      All
      of such outstanding shares have been, or upon issuance will be, validly issued
      and are fully paid and nonassessable. Except as disclosed in Schedule
      3(r):
      (i)
      none of the Company's capital stock is subject to preemptive rights or any
      other
      similar rights or any liens or encumbrances suffered or permitted by the
      Company; (ii) there are no outstanding options, warrants, scrip, rights to
      subscribe to, calls or commitments of any character whatsoever relating to,
      or
      securities or rights convertible into, or exercisable or exchangeable for,
      any
      capital stock of the Company or any of its Subsidiaries, or contracts,
      commitments, understandings or arrangements by which the Company or any of
      its
      Subsidiaries is or may become bound to issue additional capital stock of the
      Company or any of its Subsidiaries or options, warrants, scrip, rights to
      subscribe to, calls or commitments of any character whatsoever relating to,
      or
      securities or rights convertible into, or exercisable or exchangeable for,
      any
      capital stock of the Company or any of its Subsidiaries; (iii) there are no
      outstanding debt securities, notes, credit agreements, credit facilities or
      other agreements, documents or instruments evidencing Indebtedness of the
      Company or any of its Subsidiaries or by which the Company or any of its
      Subsidiaries is or may become bound; (iv) there are no financing statements
      securing obligations in any material amounts, either singly or in the aggregate,
      filed in connection with the Company or any of its Subsidiaries; (v) there
      are
      no agreements or arrangements under which the Company or any of its Subsidiaries
      is obligated to register the sale of any of their securities under the 1933
      Act
      (except pursuant to the Registration Rights Agreement); (vi) there are no
      outstanding securities or instruments of the Company or any of its Subsidiaries
      which contain any redemption or similar provisions, and there are no contracts,
      commitments, understandings or arrangements by which the Company or any of
      its
      Subsidiaries is or may become bound to redeem a security of the Company or
      any
      of its Subsidiaries; (vii) there are no securities or instruments containing
      anti-dilution or similar provisions that will be triggered by the issuance
      of
      the Securities; (viii) the Company does not have any stock appreciation rights
      or "phantom stock" plans or agreements or any similar plan or agreement; and
      (ix) the Company and its Subsidiaries have no liabilities or obligations
      required to be disclosed in the SEC Documents but not so disclosed in the SEC
      Documents, other than those incurred in the ordinary course of the Company's
      or
      its Subsidiaries' respective businesses and which, individually or in the
      aggregate, do not or would not have a Material Adverse Effect. The Company
      has
      furnished to the Buyers true, correct and complete copies of the Company's
      Certificate of Incorporation, as amended and as in effect on the date hereof
      (the "Certificate
      of Incorporation"),
      and
      the Company's Bylaws, as amended and as in effect on the date hereof (the
      "Bylaws"),
      and
      the terms of all securities convertible into, or exercisable or exchangeable
      for, shares of Common Stock and the material rights of the holders thereof
      in
      respect thereto.

     

    
      
        
        

      

      
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    (s) Indebtedness
      and Other Contracts.
      Except
      as disclosed in Schedule
      3(s),
      neither
      the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness
      (as
      defined below), (ii) is a party to any contract, agreement or instrument, the
      violation of which, or default under which, by the other party(ies) to such
      contract, agreement or instrument could reasonably be expected to result in
      a
      Material Adverse Effect, (iii) is in violation of any term of or in default
      under any contract, agreement or instrument relating to any Indebtedness, except
      where such violations and defaults would not result, individually or in the
      aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
      agreement or instrument relating to any Indebtedness, the performance of which,
      in the judgment of the Company's officers, has or is expected to have a Material
      Adverse Effect. Schedule
      3(s)
      provides
      a detailed description of the material terms of any such outstanding
      Indebtedness. For purposes of this Agreement: (x) "Indebtedness"
      of any
      Person means, without duplication (A) all indebtedness for borrowed money,
      (B)
      all obligations issued, undertaken or assumed as the deferred purchase price
      of
      property or services (including, without limitation, "capital leases" in
      accordance with generally accepted accounting principles) (other than trade
      payables entered into in the ordinary course of business), (C) all reimbursement
      or payment obligations with respect to letters of credit, surety bonds and
      other
      similar instruments, (D) all obligations evidenced by notes, bonds, debentures
      or similar instruments, including obligations so evidenced incurred in
      connection with the acquisition of property, assets or businesses, (E) all
      indebtedness created or arising under any conditional sale or other title
      retention agreement, or incurred as financing, in either case with respect
      to
      any property or assets acquired with the proceeds of such indebtedness (even
      though the rights and remedies of the seller or bank under such agreement in
      the
      event of default are limited to repossession or sale of such property), (F)
      all
      monetary obligations under any leasing or similar arrangement which, in
      connection with generally accepted accounting principles, consistently applied
      for the periods covered thereby, is classified as a capital lease, (G) all
      indebtedness referred to in clauses (A) through (F) above secured by (or for
      which the holder of such Indebtedness has an existing right, contingent or
      otherwise, to be secured by) any mortgage, lien, pledge, charge, security
      interest or other encumbrance upon or in any property or assets (including
      accounts and contract rights) owned by any Person, even though the Person which
      owns such assets or property has not assumed or become liable for the payment
      of
      such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
      or obligations of others of the kinds referred to in clauses (A) through (G)
      above; (y) "Contingent
      Obligation"
      means,
      as to any Person, any direct or indirect liability, contingent or otherwise,
      of
      that Person with respect to any indebtedness, lease, dividend or other
      obligation of another Person if the primary purpose or intent of the Person
      incurring such liability, or the primary effect thereof, is to provide assurance
      to the obligee of such liability that such liability will be paid or discharged,
      or that any agreements relating thereto will be complied with, or that the
      holders of such liability will be protected (in whole or in part) against loss
      with respect thereto; and (z) "Person"
      means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization and a government or any
      department or agency thereof.

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

    (t) Absence
      of Litigation.
      Except
      as set forth in Schedule
      3(t),
      there
      is no action, suit, proceeding, inquiry or investigation before or by the
      Principal Market, any court, public board, government agency, self-regulatory
      organization or body pending or, to the knowledge of the Company, threatened
      against or affecting the Company or any of its Subsidiaries, the Common Stock
      or
      any of the Company's Subsidiaries or any of the Company's or its Subsidiaries'
      officers or directors. 

     

    (u) Insurance.
      The
      Company and each of its Subsidiaries are insured by insurers of recognized
      financial responsibility against such losses and risks and in such amounts
      as
      management of the Company believes to be prudent and customary in the businesses
      in which the Company and its Subsidiaries are engaged. Neither the Company
      nor
      any such Subsidiary has been refused any insurance coverage sought or applied
      for and neither the Company nor any such Subsidiary has any reason to believe
      that it will not be able to renew its existing insurance coverage as and when
      such coverage expires or to obtain similar coverage from similar insurers as
      may
      be necessary to continue its business at a cost that would not have a Material
      Adverse Effect.

     

    (v) Employee
      Relations.

     

    (i) Neither
      the Company nor any of its Subsidiaries is a party to any collective bargaining
      agreement or employs any member of a union. The Company and its Subsidiaries
      believe that their relations with their employees are good. No executive officer
      of the Company or any of its Subsidiaries (as defined in Rule 501(f) of the
      1933
      Act) has notified the Company or any such Subsidiary that such officer intends
      to leave the Company or any such Subsidiary or otherwise terminate such
      officer's employment with the Company or any such Subsidiary. No executive
      officer of the Company or any of its Subsidiaries is, or is now expected to
      be,
      in violation of any material term of any employment contract, confidentiality,
      disclosure or proprietary information agreement, non-competition agreement,
      or
      any other contract or agreement or any restrictive covenant, and the continued
      employment of each such executive officer does not subject the Company or any
      of
      its Subsidiaries to any liability with respect to any of the foregoing
      matters.

     

    (ii) The
      Company and its Subsidiaries are in compliance with all federal, state, local
      and foreign laws and regulations respecting labor, employment and employment
      practices and benefits, terms and conditions of employment and wages and hours,
      except where failure to be in compliance would not, either individually or
      in
      the aggregate, reasonably be expected to result in a Material Adverse
      Effect.

     

    (w) Title.
      The
      Company and its Subsidiaries have good and marketable title in fee simple to
      all
      real property and good and marketable title to all personal property owned
      by
      them which is material to the business of the Company and its Subsidiaries,
      in
      each case free and clear of all liens, encumbrances and defects except such
      as
      do not materially affect the value of such property and do not interfere with
      the use made and proposed to be made of such property by the Company and any
      of
      its Subsidiaries. Any real property and facilities held under lease by the
      Company or any of its Subsidiaries are held by them under valid, subsisting
      and
      enforceable leases with such exceptions as are not material and do not interfere
      with the use made and proposed to be made of such property and buildings by
      the
      Company and its Subsidiaries.

     

    
      
        
        

      

      
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    (x) Intellectual
      Property Rights.
      

     

    (i) The
      Company and its Subsidiaries own or possess adequate rights or licenses to
      use
      all trademarks, trade names, service marks and all applications and
      registrations therefor, patents, patent rights, copyrights, original works
      of
      authorship (including computer software) and all applications and registrations
      therefor, inventions, trade secrets and other intellectual property rights
      ("Intellectual
      Property Rights")
      necessary to conduct their respective businesses as now conducted. None of
      the
      Company's registered, or applied for, Intellectual Property Rights have expired
      or terminated or have been abandoned, or are expected to expire or terminate
      or
      expected to be abandoned, within three years from the date of this Agreement.
      The Company does not have any knowledge of any infringement by the Company
      or
      its Subsidiaries of Intellectual Property Rights of others. There is no claim,
      action or proceeding being made or brought, or to the knowledge of the Company,
      being threatened, by or against the Company or its Subsidiaries regarding the
      infringement, misappropriation or other violation of any Intellectual Property
      Rights. Neither the Company nor any of its Subsidiaries is aware of any facts
      or
      circumstances which might give rise to any of the foregoing infringements or
      claims, actions or proceedings. The Company and its Subsidiaries have taken
      reasonable security measures to protect the secrecy, confidentiality and value
      of all of their Intellectual Property Rights. 

     

    (ii) All
      material computer hardware, software and systems that are used or held for
      use
      in the conduct of the Company's and its Subsidiaries' respective businesses
      is
      in good working condition (normal wear and tear excepted). There has not been
      any material malfunction with respect to such hardware, software and systems
      since January 1, 2005 that has not been remedied or replaced in all material
      respects. 

     

    (iii) All
      material computer software that is used or held for use the conduct of the
      Company's and its Subsidiaries' respective businesses (x) performs in accordance
      with the documentation or other written material used in connection with it,
      (y)
      is in machine readable form and contains all current revisions, and (z) does
      not
      contain any viruses, worms or other disabling devices. The source code for
      all
      computer software that is owned by the Company and its Subsidiaries (A) will
      compile into object code or otherwise be capable of performing the functions
      described in the documentation pertaining thereto, (B) is sufficiently
      documented to enable a computer software developer of reasonable skill to
      understand, modify, repair, maintain, compile and otherwise utilize all aspects
      of such computer software without reference to other sources of information;
      and
      (C) constitutes trade secrets that are valid and protectable and are not part
      of
      the public knowledge or literature.

     

    
      
        
        

      

      
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    (y) Environmental
      Laws.
      The
      Company and its Subsidiaries (i) are in compliance with any and all
      Environmental Laws (as hereinafter defined), (ii) have received all permits,
      licenses or other approvals required of them under applicable Environmental
      Laws
      to conduct their respective businesses and (iii) are in compliance with all
      terms and conditions of any such permit, license or approval where, in each
      of
      the foregoing clauses (i), (ii) and (iii), the failure to so comply could be
      reasonably expected to have, individually or in the aggregate, a Material
      Adverse Effect. The term "Environmental
      Laws"
      means
      all federal, state, local or foreign laws relating to pollution or protection
      of
      human health or the environment (including, without limitation, ambient air,
      surface water, groundwater, land surface or subsurface strata), including,
      without limitation, laws relating to emissions, discharges, releases or
      threatened releases of chemicals, pollutants, contaminants, or toxic or
      hazardous substances or wastes (collectively, "Hazardous
      Materials") into
      the
      environment, or otherwise relating to the manufacture, processing, distribution,
      use, treatment, storage, disposal, transport or handling of Hazardous Materials,
      as well as all authorizations, codes, decrees, demands or demand letters,
      injunctions, judgments, licenses, notices or notice letters, orders, permits,
      plans or regulations issued, entered, promulgated or approved
      thereunder.

     

    (z) Subsidiary
      Rights.
      The
      Company or one of its Subsidiaries has the unrestricted right to vote, and
      (subject to limitations imposed by applicable law) to receive dividends and
      distributions on, all capital securities of its Subsidiaries as owned by the
      Company or such Subsidiary.

     

    (aa) Tax
      Status.
      The
      Company and each of its Subsidiaries (i) has made or filed all foreign, federal
      and state income and all other tax returns, reports and declarations required
      by
      any jurisdiction to which it is subject, (ii) has paid all taxes and other
      governmental assessments and charges that are material in amount, shown or
      determined to be due on such returns, reports and declarations, except those
      being contested in good faith and (iii) has set aside on its books provision
      reasonably adequate for the payment of all taxes for periods subsequent to
      the
      periods to which such returns, reports or declarations apply. There are no
      unpaid taxes in any material amount claimed to be due by the taxing authority
      of
      any jurisdiction, and the officers of the Company know of no basis for any
      such
      claim.

     

    (bb)
      Internal
      Accounting and Disclosure Controls.
      The
      Company and each of its Subsidiaries maintain a system of internal accounting
      controls sufficient to provide reasonable assurance that (i) transactions are
      executed in accordance with management's general or specific authorizations,
      (ii) transactions are recorded as necessary to permit preparation of financial
      statements in conformity with generally accepted accounting principles and
      to
      maintain asset and liability accountability, (iii) access to assets or
      incurrence of liabilities is permitted only in accordance with management's
      general or specific authorization and (iv) the recorded accountability for
      assets and liabilities is compared with the existing assets and liabilities
      at
      reasonable intervals and appropriate action is taken with respect to any
      difference. The Company maintains disclosure controls and procedures (as such
      term is defined in Rule 13a-14 under the 1934 Act) that are effective in
      ensuring that information required to be disclosed by the Company in the reports
      that it files or submits under the 1934 Act is recorded, processed, summarized
      and reported, within the time periods specified in the rules and forms of the
      SEC, including, without limitation, controls and procedures designed to ensure
      that information required to be disclosed by the Company in the reports that
      it
      files or submits under the 1934 Act is accumulated and communicated to the
      Company's management, including its principal executive officer or officers
      and
      its principal financial officer or officers, as appropriate, to allow timely
      decisions regarding required disclosure. During the twelve months prior to
      the
      date hereof neither the Company nor any of its Subsidiaries have received any
      notice or correspondence from any accountant relating to any potential material
      weakness in any part of the system of internal accounting controls of the
      Company or any of its Subsidiaries.

     

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

    (cc) Ranking
      of Notes.
      Except
      as set forth on Schedule
      3(cc),
      no
      Indebtedness of the Company is senior to or ranks pari
      passu
      with the
      Notes in right of payment, whether with respect of payment of redemptions,
      interest, damages or upon liquidation or dissolution or otherwise.

     

    (dd) Off
      Balance Sheet Arrangements.
      There
      is no transaction, arrangement, or other relationship between the Company and
      an
      unconsolidated or other off balance sheet entity that is required to be
      disclosed by the Company in its 1934 Act filings and is not so disclosed or
      that
      otherwise would be reasonably likely to have a Material Adverse
      Effect.

     

    (ee) Investment
      Company Status.
      The
      Company is not, and upon consummation of the sale of the Securities will not
      be,
      an "investment company," a company controlled by an "investment company" or
      an
      "affiliated person" of, or "promoter" or "principal underwriter" for, an
      "investment company" as such terms are defined in the Investment Company Act
      of
      1940, as amended.

     

    (ff)  Form
      S-3 Eligibility.
      The
      Company is eligible to register the Conversion Shares and the Warrant Shares
      for
      resale by the Buyers using Form S-3 promulgated under the 1933 Act.

     

    (gg) Transfer
      Taxes.
      On the
      Closing Date, all stock transfer or other taxes (other than income or similar
      taxes) which are required to be paid in connection with the sale and transfer
      of
      the Securities to be sold to each Buyer hereunder will be, or will have been,
      fully paid or provided for by the Company, and all laws imposing such taxes
      will
      be or will have been complied with.

     

    (hh) Manipulation
      of Price.
      The
      Company has not, and to its knowledge no one acting on its behalf has, (i)
      taken, directly or indirectly, any action designed to cause or to result, or
      that could reasonably be expected to cause or result, in the stabilization
      or
      manipulation of the price of any security of the Company to facilitate the
      sale
      or resale of any of the Securities, (ii) other than the Agent, sold, bid for,
      purchased, or paid any compensation for soliciting purchases of, any of the
      Securities or (iii) paid or agreed to pay to any person any compensation for
      soliciting another to purchase any other securities of the Company.

     

    (ii)  U.S.
      Real Property Holding Corporation.
      The
      Company is not, nor has it ever been, a U.S. real property holding corporation
      within the meaning of Section 897 of the Internal Revenue Code of 1986, as
      amended, and the Company shall so certify upon any Buyer's request.

     

    (jj)  Bank
      Holding Company Act.
      Neither
      the Company nor any of its Subsidiaries is subject to the Bank Holding Company
      Act of 1956, as amended (the "BHCA")
      and to
      regulation by the Board of Governors of the Federal Reserve System (the
      "Federal
      Reserve").
      Neither the Company nor any of its Subsidiaries or affiliates owns or controls,
      directly or indirectly, five percent (5%) or more of the outstanding shares
      of
      any class of voting securities or twenty-five (25%) or more of the total equity
      of a bank or any equity that is subject to the BHCA and to regulation by the
      Federal Reserve. Neither the Company nor any of its Subsidiaries or affiliates
      exercises a controlling influence over the management or policies of a bank
      or
      any entity that is subject to the BHCA and to regulation by the Federal
      Reserve.

     

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

    (kk)  Disclosure.
      The
      Company confirms that neither it nor any other Person acting on its behalf
      has
      provided any of the Buyers or their agents or counsel with any information
      that
      constitutes or could reasonably be expected to constitute material, nonpublic
      information. The Company understands and confirms that each of the Buyers will
      rely on the foregoing representations in effecting transactions in securities
      of
      the Company. All disclosure provided to the Buyers regarding the Company or
      any
      of its Subsidiaries, their business and the transactions contemplated hereby,
      including the Schedules to this Agreement, furnished by or on behalf of the
      Company is true and correct and does not contain any untrue statement of a
      material fact or omit to state any material fact necessary in order to make
      the
      statements made therein, in the light of the circumstances under which they
      were
      made, not misleading. Each press release issued by the Company or any of its
      Subsidiaries during the twelve (12) months preceding the date of this Agreement
      did not at the time of release contain any untrue statement of a material fact
      or omit to state a material fact required to be stated therein or necessary
      in
      order to make the statements therein, in the light of the circumstances under
      which they were made, not misleading. No event or circumstance has occurred
      or
      information exists with respect to the Company or any of its Subsidiaries or
      its
      or their business, properties, prospects, operations or financial conditions,
      which, under applicable law, rule or regulation, requires public disclosure
      or
      announcement by the Company but which has not been so publicly announced or
      disclosed. 

     

    (ll) Acknowledgement
      Regarding Buyers' Trading Activity.
      Anything in this Agreement or elsewhere herein to the contrary notwithstanding,
      but subject to compliance by the Buyers with applicable law and the provisions
      of Section 4(t) hereto, it is understood and acknowledged by the Company (i)
      that none of the Buyers have been asked by the Company or its Subsidiaries
      to
      agree, nor has any Buyer agreed with the Company or its Subsidiaries, to desist
      from purchasing or selling, long and/or short, securities of the Company, or
      "derivative" securities based on securities issued by the Company or to hold
      the
      Securities for any specified term; (ii) that past or future open market or
      other
      transactions by any Buyer, including, without limitation, short sales or
      "derivative" transactions, before or after the closing of this or future private
      placement transactions, may negatively impact the market price of the Company's
      publicly-traded securities; (iii) that any Buyer, and counter parties in
      "derivative" transactions to which any such Buyer is a party, directly or
      indirectly, presently may have a "short" position in the Common Stock, and
      (iv)
      that each Buyer shall not be deemed to have any affiliation with or control
      over
      any arm's length counter-party in any "derivative" transaction. The Company
      further understands and acknowledges that (a) one or more Buyers may engage
      in
      hedging and/or trading activities at various times during the period that the
      Securities are outstanding, including, without limitation, during the periods
      that the value of the Conversion Shares and the Warrant Shares deliverable
      with
      respect to Securities are being determined and (b) such hedging and/or trading
      activities, if any, can reduce the value of the existing stockholders' equity
      interest in the Company both at and after the time the hedging and/or trading
      activities are being conducted. The Company acknowledges that such
      aforementioned hedging and/or trading activities do not constitute a breach
      of
      this Agreement, the Notes, the Warrants or any of the documents executed in
      connection herewith.

     

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

    4.  COVENANTS.

     

    (a)  Best
      Efforts.
      Each
      party shall use its best efforts timely to satisfy each of the conditions to
      be
      satisfied by it as provided in Sections 6 and 7 of this Agreement.

     

    (b)  Form
      D
      and Blue Sky.
      The
      Company agrees to file a Form D with respect to the Securities as required
      under
      Regulation D and to provide a copy thereof to each Buyer promptly after such
      filing. The Company shall, on or before the Closing Date, take such action
      as
      the Company shall reasonably determine is necessary in order to obtain an
      exemption for or to qualify the Securities for sale to the Buyers at the Closing
      pursuant to this Agreement under applicable securities or "Blue Sky" laws of
      the
      states of the United States (or to obtain an exemption from such qualification),
      and shall provide evidence of any such action so taken to the Buyers and the
      Agent on or prior to the Closing Date. The Company shall make all filings and
      reports relating to the offer and sale of the Securities required under
      applicable securities or "Blue Sky" laws of the states of the United
      States.

     

    (c)  Reporting
      Status.
      Until
      the date on which the Investors (as defined in the Registration Rights
      Agreement) shall have sold all the Conversion Shares and Warrant
      Shares and
      none
      of the Notes or
      Warrants is outstanding (the "Reporting
      Period"),
      the
      Company shall timely file all reports required to be filed with the SEC pursuant
      to the 1934 Act, and the Company shall not terminate its status as an issuer
      required to file reports under the 1934 Act even if the 1934 Act or the rules
      and regulations thereunder would no longer require or otherwise permit such
      termination, and the Company shall take all actions necessary to maintain its
      eligibility to register the Conversion Shares and Warrant Shares for resale
      by
      the Buyers on Form S-3.

     

    (d)  Use
      of
      Proceeds.
      The
      Company will use the proceeds from the sale of the Securities for general
      corporate purposes, including general and administrative expenses and not for
      (i) the repayment of any outstanding Indebtedness of the Company or any of
      its
      Subsidiaries or (ii) the redemption or repurchase of any of its or its
      Subsidiaries' equity securities.

     

    (e)  Financial
      Information.
      As long
      as any Notes or Warrants are outstanding, the Company agrees to send the
      following to each Investor (as defined in the Registration Rights Agreement)
      during the Reporting Period unless the following are filed with the SEC through
      EDGAR and are available to the public through the EDGAR system: (i) within
      three
      (3) Business Days after the filing thereof with the SEC, a copy of its Annual
      Reports and Quarterly Reports on Forms 10-K, 10-KSB, 10-Q or 10-QSB, any interim
      reports or any consolidated balance sheets, income statements, stockholders'
      equity statements and/or cash flow statements for any period other than annual,
      any Current Reports on Form 8-K and any registration statements (other than
      on
      Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day
      as
      the release thereof, facsimile or e-mailed copies of all press releases issued
      by the Company or any of its Subsidiaries, and (iii) copies of any notices
      and
      other information made available or given to the stockholders of the Company
      generally, contemporaneously with the making available or giving thereof to
      the
      stockholders. As used herein, "Business
      Day"
      means
      any day other than Saturday, Sunday or other day on which commercial banks
      in
      The City of New York are authorized or required by law to remain
      closed.

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

    (f)  Listing.
      The
      Company shall promptly secure the listing of all of the Registrable Securities
      (as defined in the Registration Rights Agreement) upon each national securities
      exchange and automated quotation system, if any, upon which the Common Stock
      is
      then listed (subject to official notice of issuance) and shall maintain, in
      accordance with the Notes and Warrants, such listing of all Registrable
      Securities from time to time issuable under the terms of the Transaction
      Documents. The Company shall maintain the Common Stocks' authorization for
      quotation on the Principal Market. Neither the Company nor any of its
      Subsidiaries shall take any action which would be reasonably expected to result
      in the delisting or suspension of the Common Stock on the Principal Market.
      The
      Company shall pay all fees and expenses in connection with satisfying its
      obligations under this Section 4(f).

     

    (g)  Fees.
      Subject
      to Section 8 below, at Closing, the Company shall pay an expense allowance
      to
      Portside Growth and Opportunity Fund (a Buyer) or its designee(s) (in addition
      to any other expense amounts paid to any Buyer prior to the date of this
      Agreement) for all reasonable costs and expenses incurred in connection with
      the
      transactions contemplated by the Transaction Documents (including all reasonable
      legal fees and disbursements in connection therewith, documentation and
      implementation of the transactions contemplated by the Transaction Documents
      and
      due diligence in connection therewith), in an amount not to exceed $45,000
      (in
      addition to any other expense amounts paid to any Buyer prior to the date of
      this Agreement), which amount shall be withheld by such Buyer from its Purchase
      Price at the Closing. The Company shall be responsible for the payment of any
      placement agent's fees, financial advisory fees, or broker's commissions
      relating to or arising out of the transactions contemplated hereby, including,
      without limitation, any fees payable to the Agent. The Company shall pay, and
      hold each Buyer harmless against, any liability, loss or expense (including,
      without limitation, reasonable attorney's fees and out-of-pocket expenses)
      arising in connection with any claim relating to any such payment. 

     

    (h)  Pledge
      of Securities.
      The
      Company acknowledges and agrees that the Securities may be pledged by an
      Investor (as defined in the Registration Rights Agreement) in connection with
      a
      bona fide margin agreement or other loan or financing arrangement that is
      secured by the Securities. The pledge of Securities shall not be deemed to
      be a
      transfer, sale or assignment of the Securities hereunder, and no Investor
      effecting a pledge of Securities shall be required to provide the Company with
      any notice thereof or otherwise make any delivery to the Company pursuant to
      this Agreement or any other Transaction Document, including, without limitation,
      Section 2(f) hereof; provided that an Investor and its pledgee shall be required
      to comply with the provisions of Section 2(f) hereof in order to effect a sale,
      transfer or assignment of Securities to such pledgee. The Company hereby agrees
      to execute and deliver such documentation as a pledgee of the Securities may
      reasonably request in connection with a pledge of the Securities to such pledgee
      by an Investor.

     

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

    (i)  Disclosure
      of Transactions and Other Material Information.
      On or
      before 8:30 a.m., New York City time, on the first Business Day following the
      date of this Agreement, the Company shall issue a press release and file a
      Current Report on Form 8-K, which the Agent shall have approved prior to its
      release and filing, describing the terms of the transactions contemplated by
      the
      Transaction Documents in the form required by the 1934 Act and attaching the
      material Transaction Documents (including, without limitation, this Agreement
      (and all schedules to this Agreement), the form of the Notes, the form of
      Warrant, the form of Security Documents and the form of the Registration Rights
      Agreement) as exhibits to such filing (including all attachments, the
      "8-K
      Filing").
      From
      and after the filing of the 8-K Filing with the SEC, no Buyer shall be in
      possession of any material, nonpublic information received from the Company,
      any
      of its Subsidiaries or any of their respective officers, directors, employees
      or
      agents, that is not disclosed in the 8-K Filing. The Company shall not, and
      shall cause each of its Subsidiaries and its and each of their respective
      officers, directors, employees and agents, not to, provide any Buyer with any
      material, nonpublic information regarding the Company or any of its Subsidiaries
      from and after the filing of the 8-K Filing with the SEC without the express
      prior written consent of such Buyer. If a Buyer has, or believes it has,
      received any such material, nonpublic information regarding the Company or
      any
      of its Subsidiaries, it shall provide the Company with written notice thereof.
      The Company shall, within five (5) Trading Days (as defined in the Notes) of
      receipt of such notice, make public disclosure of such material, nonpublic
      information. In the event of a breach of the foregoing covenant by the Company,
      any of its Subsidiaries, or any of its or their respective officers, directors,
      employees and agents, in addition to any other remedy provided herein or in
      the
      Transaction Documents, a Buyer shall have the right to make a public disclosure,
      in the form of a press release, public advertisement or otherwise, of such
      material, nonpublic information without the prior approval by the Company,
      its
      Subsidiaries, or any of its or their respective officers, directors, employees
      or agents. No Buyer shall have any liability to the Company, its Subsidiaries,
      or any of its or their respective officers, directors, employees, stockholders
      or agents for any such disclosure. Subject to the foregoing, neither the
      Company, its Subsidiaries nor any Buyer shall issue any press releases or any
      other public statements with respect to the transactions contemplated hereby;
      provided, however, that the Company shall be entitled, without the prior
      approval of any Buyer, to make any press release or other public disclosure
      with
      respect to such transactions (i) in substantial conformity with the 8-K Filing
      and contemporaneously therewith and (ii) as is required by applicable law and
      regulations (provided that in the case of clause (i) each Buyer and the Agent
      shall be consulted by the Company in connection with any such press release
      or
      other public disclosure prior to its release). Without the prior written consent
      of any applicable Buyer, neither the Company nor any of its Subsidiaries or
      affiliates shall disclose the name of such Buyer in any filing (other than
      as is
      required by applicable law and regulations), announcement, release or
      otherwise.

     

    (j)  Restriction
      on Redemption and Cash Dividends.
      So long
      as any Notes are outstanding, the Company shall not, directly or indirectly,
      redeem, or declare or pay any cash dividend or distribution on, the Common
      Stock
      without the prior express written consent of the holders of Notes representing
      not less than a majority of the aggregate principal amount of the then
      outstanding Notes.

     

    (k)  Additional
      Notes; Variable Securities; Dilutive Issuances.
      So long
      as any Buyer beneficially owns any Securities, the Company will not issue any
      Notes (other than to the Buyers as contemplated hereby) and the Company shall
      not issue any other securities that would cause a breach or default under the
      Notes. For so long as any Notes or Warrants remain outstanding, the Company
      shall not, in any manner, issue or sell any rights, warrants or options to
      subscribe for or purchase Common Stock or directly or indirectly convertible
      into or exchangeable or exercisable for Common Stock at a price which varies
      or
      may vary with the market price of the Common Stock, including by way of one
      or
      more reset(s) to any fixed price unless the conversion, exchange or exercise
      price of any such security cannot be less than the then applicable Conversion
      Price (as defined in the Notes) with respect to the Common Stock into which
      any
      Note is convertible or the then applicable Exercise Price (as defined in the
      Warrants) with respect to the Common Stock into which any Warrant is
      exercisable. For so long as any Notes or Warrants remain outstanding, the
      Company shall not, in any manner, enter into or affect any Dilutive Issuances
      (as defined in the Notes) if the effect of such Dilutive Issuance is to cause
      the Company to be required to issue upon conversion of any Note or exercise
      of
      any Warrant any shares of Common Stock in excess of that number of shares of
      Common Stock which the Company may issue upon conversion of the Notes and
      exercise of the Warrants without breaching the Company's obligations under
      the
      rules or regulations of the Principal Market or any applicable Eligible Market
      (as defined in the Warrants).

     

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

    (l)  Corporate
      Existence.
      So long
      as any Buyer beneficially owns any Securities, the Company shall not be party
      to
      any Fundamental Transaction (as defined in the Notes) unless the Company is
      in
      compliance with the applicable provisions governing Fundamental Transactions
      set
      forth in the Notes and the Warrants.

     

    (m)  Reservation
      of Shares.
      The
      Company shall take all action necessary to at all times have authorized, and
      reserved for the purpose of issuance, no less than 130% of the sum of the number
      of shares of Common Stock issuable (i) upon conversion of the Notes issued
      at
      the Closing and (ii) upon exercise of the Warrants issued at the Closing
      (without taking into account any limitations on the Conversion of the Notes
      or
      exercise of the Warrants set forth in the Notes and Warrants,
      respectively).

     

    (n)  Conduct
      of Business.
      The
      business of the Company and its Subsidiaries shall not be conducted in violation
      of any law, ordinance or regulation of any governmental entity, except where
      such violations would not result, either individually or in the aggregate,
      in a
      Material Adverse Effect.

     

    (o)  Additional
      Issuances of Securities.

     

    (i)  For
      purposes of this Section 4(o), the following definitions shall
      apply.

     

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

     

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

     

    (3)  "Common
      Stock Equivalents"
      means,
      collectively, Options and Convertible Securities.

     

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

    (ii) From
      the
      date hereof until the date that is thirty (30) Trading Days (as defined in
      the
      Notes) following the Effective Date (as defined in the Registration Rights
      Agreement) (the "Trigger
      Date"),
      the
      Company will not, directly or indirectly, file any registration statement with
      the SEC other than the Registration Statement (as defined in the Registration
      Rights Agreement). From the date hereof until the Trigger Date, the Company
      will
      not, directly or indirectly, offer, sell, grant any option to purchase, or
      otherwise dispose of (or announce any offer, sale, grant or any option to
      purchase or other disposition of) any of its or its Subsidiaries' equity or
      equity equivalent securities, including without limitation any debt, preferred
      stock or other instrument or security that is, at any time during its life
      and
      under any circumstances, convertible into or exchangeable or exercisable for
      shares of Common Stock or Common Stock Equivalents (any such offer, sale, grant,
      disposition or announcement being referred to as a "Subsequent
      Placement").

     

    (iii) From
      the
      Trigger Date until the second anniversary of the Closing Date, the Company
      will
      not, directly or indirectly, effect any Subsequent Placement unless the Company
      shall have first complied with this Section 4(o)(iii).

     

    (1)  The
      Company shall deliver to each Buyer an irrevocable written notice
      (the "Offer
      Notice")
      of any
      proposed or intended issuance or sale or exchange (the "Offer")
      of the
      securities being offered (the "Offered
      Securities")
      in a
      Subsequent Placement, which Offer Notice shall (w) identify and describe the
      Offered Securities, (x) describe the price and other terms upon which they
      are to be issued, sold or exchanged, and the number or amount of the Offered
      Securities to be issued, sold or exchanged, (y) identify the persons or
      entities (if known) to which or with which the Offered Securities are to be
      offered, issued, sold or exchanged and (z) offer to issue and sell to or
      exchange with such Buyers at least thirty percent (30%) of the Offered
      Securities, allocated among such Buyers (a) based on such Buyer's pro rata
      portion of the aggregate principal amount of Notes purchased hereunder (the
      "Basic
      Amount"),
      and
      (b) with respect to each Buyer that elects to purchase its Basic Amount, any
      additional portion of the Offered Securities attributable to the Basic Amounts
      of other Buyers as such Buyer shall indicate it will purchase or acquire should
      the other Buyers subscribe for less than their Basic Amounts (the "Undersubscription
      Amount"),
      which
      process shall be repeated until the Buyers shall have an opportunity to
      subscribe for any remaining Undersubscription Amount.

     

    (2)  To
      accept
      an Offer, in whole or in part, such Buyer must deliver a written notice to
      the
      Company prior to the end of the tenth (10th)
      Business Day after such Buyer's receipt of the Offer Notice (the "Offer
      Period"),
      setting forth the portion of such Buyer's Basic Amount that such Buyer elects
      to
      purchase and, if such Buyer shall elect to purchase all of its Basic Amount,
      the
      Undersubscription Amount, if any, that such Buyer elects to purchase (in either
      case, the "Notice
      of Acceptance").
      If
      the Basic Amounts subscribed for by all Buyers are less than the total of all
      of
      the Basic Amounts, then each Buyer who has set forth an Undersubscription Amount
      in its Notice of Acceptance shall be entitled to purchase, in addition to the
      Basic Amounts subscribed for, the Undersubscription Amount it has subscribed
      for; provided,
      however,
      that if
      the Undersubscription Amounts subscribed for exceed the difference between
      the
      total of all the Basic Amounts and the Basic Amounts subscribed for (the
      "Available
      Undersubscription Amount"),
      each
      Buyer who has subscribed for any Undersubscription Amount shall be entitled
      to
      purchase only that portion of the Available Undersubscription Amount as the
      Basic Amount of such Buyer bears to the total Basic Amounts of all Buyers that
      have subscribed for Undersubscription Amounts, subject to rounding by the
      Company to the extent its deems reasonably necessary. Notwithstanding the
      foregoing, if the Company desires to modify or amend the terms and conditions
      of
      the Offer prior to the expiration of the Offer Period, the Company may deliver
      to the Buyers a new Offer Notice and the Offer Period shall expire on the third
      (3rd)
      Business Day after such Buyer's receipt of such new Offer Notice.

     

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

    (3)  The
      Company shall have fifteen (15) Business Days from the expiration of the Offer
      Period above (i) to offer, issue, sell or exchange all or any part of such
      Offered Securities as to which a Notice of Acceptance has not been given by
      the
      Buyers (the "Refused
      Securities")
      pursuant to a definitive agreement(s) (the "Subsequent
      Placement Agreement"),
      but
      only to the offerees described in the Offer Notice (if so described therein)
      and
      only upon terms and conditions (including, without limitation, unit prices
      and
      interest rates) that are not more favorable to the acquiring person or persons
      or less favorable to the Company than those set forth in the Offer Notice and
      (ii) to publicly announce (a) the execution of such Subsequent Placement
      Agreement, and (b) either (x) the consummation of the transactions contemplated
      by such Subsequent Placement Agreement or (y) the termination of such Subsequent
      Placement Agreement, which shall be filed with the SEC on a Current Report
      on
      Form 8-K with such Subsequent Placement Agreement and any documents contemplated
      therein filed as exhibits thereto.

     

    (4)  In
      the
      event the Company shall propose to sell less than all the Refused Securities
      (any such sale to be in the manner and on the terms specified in Section
      4(o)(iii)(3) above), then each Buyer may, at its sole option and in its sole
      discretion, reduce the number or amount of the Offered Securities specified
      in
      its Notice of Acceptance to an amount that shall be not less than the number
      or
      amount of the Offered Securities that such Buyer elected to purchase pursuant
      to
      Section 4(o)(iii)(2) above multiplied by a fraction, (i) the numerator of which
      shall be the number or amount of Offered Securities the Company actually
      proposes to issue, sell or exchange (including Offered Securities to be issued
      or sold to Buyers pursuant to Section 4(o)(iii)(3) above prior to such
      reduction) and (ii) the denominator of which shall be the original amount of
      the
      Offered Securities. In the event that any Buyer so elects to reduce the number
      or amount of Offered Securities specified in its Notice of Acceptance, the
      Company may not issue, sell or exchange more than the reduced number or amount
      of the Offered Securities unless and until such securities have again been
      offered to the Buyers in accordance with Section 4(o)(iii)(1)
      above.

     

    (5)  Upon
      the
      closing of the issuance, sale or exchange of all or less than all of the Refused
      Securities, the Buyers shall acquire from the Company, and the Company shall
      issue to the Buyers, the number or amount of Offered Securities specified in
      the
      Notices of Acceptance, as reduced pursuant to Section 4(o)(iii)(4) above if
      the
      Buyers have so elected, upon the terms and conditions specified in the Offer.
      Notwithstanding anything to the contrary contained in this Agreement, if the
      Company does not consummate the closing of the issuance, sale or exchange of
      all
      or less than all of the Refused Securities, within fifteen (15) Business Days
      of
      the expiration of the Offer Period, the Company shall issue to the Buyers,
      the
      number or amount of Offered Securities specified in the Notices of Acceptance,
      as reduced pursuant to Section 4(o)(iii)(4) above if the Buyers have so elected,
      upon the terms and conditions specified in the Offer. The purchase by the Buyers
      of any Offered Securities is subject in all cases to the preparation, execution
      and delivery by the Company and the Buyers of a purchase agreement relating
      to
      such Offered Securities reasonably satisfactory in form and substance to the
      Buyers and their respective counsel.

     

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

    (6)  Any
      Offered Securities not acquired by the Buyers or other persons in accordance
      with Section 4(o)(iii)(3) above may not be issued, sold or exchanged until
      they
      are again offered to the Buyers under the procedures specified in this
      Agreement.

     

    (7)  The
      Company and the Buyers agree that if any Buyer elects to participate in the
      Offer, (x) neither the Subsequent Placement Agreement with respect to such
      Offer
      nor any other transaction documents related thereto (collectively, the
      "Subsequent
      Placement Documents")
      shall
      include any term or provisions whereby any Buyer shall be required to agree
      to
      any restrictions in trading as to any securities of the Company owned by such
      Buyer prior to such Subsequent Placement, and (y) any registration rights set
      forth in such Subsequent Placement Documents shall be similar in all material
      respects to the registration rights contained in the Registration Rights
      Agreement.

     

    (8)  Notwithstanding
      anything to the contrary in this Section 4(o) and unless otherwise agreed to
      by
      the Buyers, the Company shall either confirm in writing to the Buyers that
      the
      transaction with respect to the Subsequent Placement has been abandoned or
      shall
      publicly disclose its intention to issue the Offered Securities, in either
      case
      in such a manner such that the Buyers will not be in possession of material
      non-public information, by the fifteen
      (15th)
      Business Day following delivery of the Offer Notice. If by the fifteen
      (15th)
      following delivery of the Offer Notice no public disclosure regarding a
      transaction with respect to the Offered Securities has been made, and no notice
      regarding the abandonment of such transaction has been received by the Buyers,
      such transaction shall be deemed to have been abandoned and the Buyers shall
      not
      be deemed to be in possession of any material, non-public information with
      respect to the Company. Should the Company decide to pursue such transaction
      with respect to the Offered Securities, the Company shall provide each Buyer
      with another Offer Notice and each Buyer will again have the right of
      participation set forth in this Section 4(o)(iii). The Company shall not be
      permitted to deliver more than one such Offer Notice to the Buyers in any sixty
      (60) day period.

     

    (9)  The
      restrictions contained in subsections (ii) and (iii) of this Section 4(o) shall
      not apply in connection with the issuance of any Excluded Securities (as defined
      in the Notes).

     

    
      
        
        

      

      
        -25-

        
          

        

      

      
        
        

      

    

    (p)  Collateral
      Agent.
      Each
      Buyer hereby (a) appoints Portside Growth & Opportunity Fund, as the
      collateral agent hereunder, under the Notes and under the other Security
      Documents (in such capacity, the "Collateral
      Agent"),
      and
      (b) authorizes the Collateral Agent (and its officers, directors, employees
      and
      agents) to take such action on such Buyer's behalf in accordance with the terms
      hereof and thereof. The Collateral Agent shall not have, by reason hereof or
      any
      of the other Transaction Documents, a fiduciary relationship in respect of
      any
      Buyer. Neither the Collateral Agent nor any of its officers, directors,
      employees and agents shall have any liability to any Buyer for any action taken
      or omitted to be taken in connection hereof or any other Transaction Document
      except to the extent caused by its own gross negligence or willful misconduct,
      and each Buyer agrees to defend, protect, indemnify and hold harmless the
      Collateral Agent and all of its officers, directors, employees and agents
      (collectively, the "Indemnitees")
      from
      and against any losses, damages, liabilities, obligations, penalties, actions,
      judgments, suits, fees, costs and expenses (including, without limitation,
      reasonable attorneys' fees, costs and expenses) incurred by such Indemnitee,
      whether direct, indirect or consequential, arising from or in connection with
      the performance by such Indemnitee of the duties and obligations of Collateral
      Agent pursuant hereto or any of the Transaction Documents. The Collateral Agent
      shall not be required to exercise any discretion or take any action, but shall
      be required to act or to refrain from acting (and shall be fully protected
      in so
      acting or refraining from acting) upon the instructions of the holders of a
      majority in principal amount of the Notes then outstanding, and such
      instructions shall be binding upon all holders of Notes; provided,
      however,
      that
      the Collateral Agent shall not be required to take any action which, in the
      reasonable opinion of the Agent, exposes the Agent to liability or which is
      contrary to this Agreement or any other Transaction Document or applicable
      law.
      The Collateral Agent shall be entitled to rely upon any written notices,
      statements, certificates, orders or other documents or any telephone message
      believed by it in good faith to be genuine and correct and to have been signed,
      sent or made by the proper Person, and with respect to all matters pertaining
      to
      this Agreement or any of the other Transaction Documents and its duties
      hereunder or thereunder, upon advice of counsel selected by it.

     

    (q)  Successor
      Collateral Agent .

     

    (i)  The
      Collateral Agent may resign from the performance of all its functions and duties
      hereunder and under the other Transaction Documents at any time by giving at
      least thirty (30) Business Days' prior written notice to the Company and each
      holder of Notes. Such resignation shall take effect upon the acceptance by
      a
      successor Collateral Agent of appointment pursuant to clauses (ii) and (iii)
      below or as otherwise provided below.

     

    (ii)  Upon
      any
      such notice of resignation, the holders of a majority in principal amount of
      the
      Notes then outstanding shall appoint a successor collateral agent. Upon the
      acceptance of any appointment as collateral agent hereunder by a successor
      agent, such successor collateral agent shall thereupon succeed to and become
      vested with all the rights, powers, privileges and duties of the collateral
      agent, and the Collateral Agent shall be discharged from its duties and
      obligations under this Agreement and the other Transaction Documents. After
      the
      Collateral Agent's resignation hereunder as the collateral agent, the provisions
      of this Section 4(s) shall inure to its benefit as to any actions taken or
      omitted to be taken by it while it was the Collateral Agent under this Agreement
      and the other Transaction Documents.

     

    
      
        
        

      

      
        -26-

        
          

        

      

      
        
        

      

    

    (iii)  If
      a
      successor collateral agent shall not have been so appointed within said thirty
      (30) Business Day period, the Collateral Agent shall then appoint a successor
      collateral agent who shall serve as the collateral agent until such time, if
      any, as the holders of a majority in principal amount of the Notes then
      outstanding appoint a successor collateral agent as provided above.

     

    (r)   Letter
      of Credit.

     

    (i)  On
      or
      prior to the Closing Date, the Company shall obtain an irrevocable letter of
      credit (the "Letter
      of Credit"),
      in
      the amount of $2,000,000 (the "Initial
      LC Amount")
      issued
      in favor of the Collateral Agent by a bank acceptable to such Collateral Agent
      (the "Letter
      of Credit Bank")
      and in
      form and substance acceptable to such Collateral Agent. The Letter of Credit,
      including any renewals, extensions or replacements referred to below, shall
      expire not earlier than the later of (x) the earlier to occur of (A) the date
      as
      of which the Investors may sell all of the Registrable Securities covered by
      the
      Registration Statement without restriction pursuant to Rule 144(k) (or any
      successor thereto) promulgated under the 1933 Act and (B) the Effective Date,
      (y) the Holder Optional Redemption Date (as defined in the Notes), (z) the
      date
      each holder of Notes (each, a "Holder")
      that
      has submitted Holder Optional Redemption Notices (as defined in the Notes)
      to
      the Company on or prior to the Holder Optional Redemption Notice Eligibility
      Date shall have received the payment of the Holder Optional Redemption Amount
      (as defined in the Notes) of each such Holder, whether by payment by the Company
      or withdrawal from the Letter of Credit in accordance herewith (the
      "LC
      Redemption Expiration Date"),
      unless the Letter of Credit shall have been reduced to zero in accordance with
      the terms contained in this Section 4(r) prior to such date. 

     

    (ii)  Upon
      any
      Holder Optional Redemption (as defined in the Notes), any Holder may draw under
      the Letter of Credit, including any renewals, extensions or replacements
      referred to below, such portion of the Letter of Credit not to exceed, in the
      aggregate, the Holder Optional Redemption Amount of such Holder. Upon the
      occurrence and during the continuance of an Event of Default under (and as
      defined in) any of the Notes, the Collateral Agent shall be entitled to draw
      under the Letter of Credit, including any renewals, extensions or replacements
      referred to below, for the full amount then available under the Letter of
      Credit, it being understood that the Collateral Agent shall act for the benefit
      of the Holders of the Notes on a pro rata basis based on the principal amount
      of
      the Notes held by each of the Holders and hold such amount as collateral
      security for the obligations under the Notes for the benefit of the Holders.
      The
      Company shall obtain such renewals, extensions or replacements of the Letter
      of
      Credit as necessary to ensure that the Letter of Credit shall not expire prior
      to the LC Redemption Expiration Date (unless the Letter of Credit shall have
      been reduced to zero in accordance with the terms contained in this Section
      4(p)
      prior to such date). If, at any time, the Company cannot obtain a renewal,
      extension or replacement of the Letter of Credit such that the Letter of Credit
      will expire prior to the LC Redemption Expiration Date (a "Withdrawal
      Event"),
      the
      Company and the Letter of Credit Bank shall each give the Collateral Agent
      written notice of the occurrence of a Withdrawal Event at least forty-five
      (45)
      days prior to the then current expiration date of the Letter of Credit.
      Following a Withdrawal Event, the Collateral Agent shall be entitled to draw
      down the Letter of Credit Amount in its entirety (whether or not an Event of
      Default shall have occurred or be continuing under any of the Notes) and hold
      such amount as collateral security for the obligations under the Notes for
      the
      benefit of the Holders.

     

    
      
        
        

      

      
        -27-

        
          

        

      

      
        
        

      

    

    (iii)  At
      such
      time that less than $2,000,000 aggregate amount of the Notes are outstanding
      (the "Reduction
      Threshold Event"),
      the
      Company may deliver a notice to the Collateral Agent (the "LC
      Reduction Notice"),
      certifying as to the occurrence of the Reduction Threshold Event, that no Event
      of Default (or event that with the passage of time or giving of notice would
      constitute an Event of Default) has occurred or is pending and the aggregate
      amount then outstanding under the Notes. Within seven (7) Business Days after
      the Collateral Agent's receipt of the LC Reduction Notice, unless the Collateral
      Agent reasonably objects to such LC Reduction Notice, the Collateral Agent
      shall
      issue a written instruction to the Letter of Credit Bank to request the
      reduction of the Letter of Credit Amount as set forth in the LC Reduction
      Notice, such reduction amount to equal to the difference between $2,000,000
      and
      the aggregate amount of the Notes outstanding at such time.

     

    (s)  Closing
      Documents.
      On or
      prior to fourteen (14) calendar days after the Closing Date, the Company agrees
      to deliver, or cause to be delivered, to each Buyer and Schulte Roth & Zabel
      LLP executed copies of the Transaction Documents, Securities and other document
      required to be delivered to any party pursuant to Section 7 hereof.

     

    (t) Lock-Up.
      The
      Company shall not amend or waive any provision of any of the Lock-Up Agreements
      (as defined below) except to extend the term of the lock-up period.

     

    5.  REGISTER;
      TRANSFER AGENT INSTRUCTIONS.

     

    (a) Register.
      The
      Company shall maintain at its principal executive offices (or such other office
      or agency of the Company as it may designate by notice to each holder of
      Securities), a register for the Notes and the Warrants in which the Company
      shall record the name and address of the Person in whose name the Notes
      and the
      Warrants have been issued (including the name and address of each transferee),
      the principal amount of Notes held by such Person, the number of Conversion
      Shares issuable upon conversion of the Notes and the number of Warrant Shares
      issuable upon exercise of the Warrants held by such Person. The Company shall
      keep the register open and available at all times during business hours for
      inspection of any Buyer or its legal representatives.

     

    (b) Transfer
      Agent Instructions.
      The
      Company shall issue irrevocable instructions to its transfer agent, and any
      subsequent transfer agent, to issue certificates or credit shares to the
      applicable balance accounts at The Depository Trust Company ("DTC"),
      registered in the name of each Buyer or its respective nominee(s), for the
      Conversion Shares and the Warrant Shares issued at the Closing or upon
      conversion of the Notes or exercise of the Warrants in such amounts as specified
      from time to time by each Buyer to the Company upon conversion of the Notes
      or
      exercise of the Warrants in the form of Exhibit
      D
      attached
      hereto (the "Irrevocable
      Transfer Agent Instructions").
      The
      Company warrants that no instruction other than the Irrevocable Transfer Agent
      Instructions referred to in this Section 5(b), and stop transfer instructions
      to
      give effect to Section 2(g) hereof, will be given by the Company to its transfer
      agent, and that the Securities shall otherwise be freely transferable on the
      books and records of the Company as and to the extent provided in this Agreement
      and the other Transaction Documents. If a Buyer effects a sale, assignment
      or
      transfer of the Securities in accordance with Section 2(f), the Company shall
      permit the transfer and shall promptly instruct its transfer agent to issue
      one
      or more certificates or credit shares to the applicable balance accounts at
      DTC
      in such name and in such denominations as specified by such Buyer to effect
      such
      sale, transfer or assignment. In the event that such sale, assignment or
      transfer involves Conversion Shares or Warrant Shares sold, assigned or
      transferred pursuant to an effective registration statement or pursuant to
      Rule
      144, the transfer agent shall issue such Securities to the Buyer, assignee
      or
      transferee, as the case may be, without any restrictive legend. The Company
      acknowledges that a breach by it of its obligations hereunder will cause
      irreparable harm to a Buyer. Accordingly, the Company acknowledges that the
      remedy at law for a breach of its obligations under this Section 5(b) will
      be
      inadequate and agrees, in the event of a breach or threatened breach by the
      Company of the provisions of this Section 5(b), that a Buyer shall be entitled,
      in addition to all other available remedies, to an order and/or injunction
      restraining any breach and requiring immediate issuance and transfer, without
      the necessity of showing economic loss and without any bond or other security
      being required.

     

    
      
        
        

      

      
        -28-

        
          

        

      

      
        
        

      

    

    6. CONDITIONS
      TO THE COMPANY'S OBLIGATION TO SELL.

     

    The
      obligation of the Company hereunder to issue and sell the Notes and the related
      Warrants to each Buyer at the Closing is subject to the satisfaction, at or
      before the Closing Date, of each of the following conditions, provided that
      these conditions are for the Company's sole benefit and may be waived by the
      Company at any time in its sole discretion by providing each Buyer with prior
      written notice thereof:

     

    (a) Such
      Buyer shall have executed each of the Transaction Documents to which it is
      a
      party and delivered the same to the Company.

     

    (b) Such
      Buyer and each other Buyer shall have delivered to the Company the Purchase
      Price (less, in the case of Portside Growth and Opportunity Fund, the amounts
      withheld pursuant to Section 4(g)) for the Notes and the related Warrants being
      purchased by such Buyer at the Closing by wire transfer of immediately available
      funds pursuant to the wire instructions provided by the Company.

     

    (c) The
      representations and warranties of such Buyer shall be true and correct in all
      material respects (except for those representations and warranties that are
      qualified by materiality or Material Adverse Effect, which shall be true and
      correct in all respects) as of the date when made and as of the Closing Date
      as
      though made at that time (except for representations and warranties that speak
      as of a specific date, which shall be true and correct as of such specified
      date), and such Buyer shall have performed, satisfied and complied in all
      material respects with the covenants, agreements and conditions required by
      this
      Agreement to be performed, satisfied or complied with by such Buyer at or prior
      to the Closing Date.

     

    7. CONDITIONS
      TO EACH BUYER'S OBLIGATION TO PURCHASE.

     

    The
      obligation of each Buyer hereunder to purchase the Notes and
      the
      related Warrants at the Closing is subject to the satisfaction, at or before
      the
      Closing Date, of each of the following conditions, provided that these
      conditions are for each Buyer's sole benefit and may be waived by such Buyer
      at
      any time in its sole discretion by providing the Company with prior written
      notice thereof:

     

    
      
        
        

      

      
        -29-

        
          

        

      

      
        
        

      

    

    (a)  The
      Company shall have duly executed and delivered to such Buyer (i) each of the
      Transaction Documents and (ii) the Notes (allocated in such principal amounts
      as
      such Buyer shall request), being purchased by such Buyer at the Closing pursuant
      to this Agreement, and (iii) the related Warrants (allocated in such amounts
      as
      such Buyer shall request) being purchased by such Buyer at the Closing pursuant
      to this Agreement.

     

    (b)  Such
      Buyer shall have received the opinion of Stubbs Alderton & Markiles, LLP,
      the Company's outside counsel, dated as of the Closing Date, in substantially
      the form of Exhibit E
      attached
      hereto.

     

    (c)  The
      Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
      Agent Instructions, in the form of Exhibit D
      attached
      hereto, which instructions shall have been delivered to and acknowledged in
      writing by the Company's transfer agent.

     

    (d)  The
      Company shall have delivered to such Buyer a certificate evidencing the
      formation and good standing of the Company and each of its Subsidiaries in
      such
      entity's jurisdiction of formation issued by the Secretary of State (or
      comparable office) of such jurisdiction, as of a date within ten (10) days
      of
      the Closing Date.

     

    (e)  The
      Company shall have delivered to such Buyer a certificate evidencing the
      Company's qualification as a foreign corporation and good standing issued by
      the
      Secretary of State (or comparable office) of each jurisdiction in which the
      Company conducts business, as of a date within ten (10) days of the Closing
      Date.

     

    (f)  The
      Company shall have delivered to such Buyer a certified copy of the Certificate
      of Incorporation as certified by the Secretary of State of the State of Florida
      within ten (10) days of the Closing Date.

     

    (g)  The
      Company shall have delivered to such Buyer a certificate, executed by the
      Secretary of the Company and dated as of the Closing Date, as to (i) the
      resolutions consistent with Section 3(b) as adopted by the Company's Board
      of
      Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate
      of
      Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the
      form attached hereto as Exhibit F.

     

    (h)  The
      representations and warranties of the Company shall be true and correct in
      all
      material respects (except for those representations and warranties that are
      qualified by materiality or Material Adverse Effect, which shall be true and
      correct in all respects) as of the date when made and as of the Closing Date
      as
      though made at that time (except for representations and warranties that speak
      as of a specific date, which shall be true and correct as of such specified
      date) and the Company shall have performed, satisfied and complied in all
      material respects with the covenants, agreements and conditions required by
      the
      Transaction Documents to be performed, satisfied or complied with by the Company
      at or prior to the Closing Date. Such Buyer shall have received a certificate,
      executed by the Chief Executive Officer of the Company, dated as of the Closing
      Date, to the foregoing effect and as to such other matters as may be reasonably
      requested by such Buyer in the form attached hereto as Exhibit
      G.

     

    
      
        
        

      

      
        -30-

        
          

        

      

      
        
        

      

    

    (i)  The
      Company shall have delivered to such Buyer a letter from the Company's transfer
      agent certifying the number of shares of Common Stock outstanding as of a date
      within five days of the Closing Date.

     

    (j)  The
      Common Stock (I) shall be designated for quotation or listed on the Principal
      Market and (II) shall not have been suspended, as of the Closing Date, by the
      SEC or the Principal Market from trading on the Principal Market nor shall
      suspension by the SEC or the Principal Market have been threatened, as of the
      Closing Date, either (A) in writing by the SEC or the Principal Market or (B)
      by
      falling below the minimum listing maintenance requirements of the Principal
      Market.

     

    (k)  The
      Company shall have obtained all governmental, regulatory or third party consents
      and approvals, if any, necessary for the sale of the Securities.

     

    (l)  In
      accordance with the terms of the Security Documents, the Company shall have
      delivered to the Collateral Agent (i) certificates representing the
      Subsidiaries' shares of capital stock to the extent such subsidiary is a
      corporation or otherwise has certificated capital stock, along with duly
      executed blank stock powers and (ii) appropriate financing statements on Form
      UCC-1 to be duly filed in such office or offices as may be necessary or, in
      the
      opinion of the Collateral Agent, desirable to perfect the security interests
      purported to be created by each Security Document.

     

    (m)  Within
      two (2) Business Days prior to the Closing, the Company shall have delivered
      or
      caused to be delivered to each Buyer (i) true copies of UCC search results,
      listing all effective financing statements which name as debtor the Company
      or
      any of its Subsidiaries filed in the prior five years to perfect an interest
      in
      any assets thereof, together with copies of such financing statements, none
      of
      which, except as otherwise agreed in writing by the Buyers, shall cover any
      of
      the Collateral (as defined in the Security Documents) and the results of
      searches for any tax lien and judgment lien filed against such Person or its
      property, which results, except as otherwise agreed to in writing by the Buyers
      shall not show any such Liens (as defined in the Security Documents); and (ii)
      a
      perfection certificate, duly completed and executed by the Company and each
      of
      its Subsidiaries, in form and substance satisfactory to the Buyers.

     

    (n)  The
      Company shall have delivered to such Buyer such other documents relating to
      the
      transactions contemplated by this Agreement as such Buyer or its counsel may
      reasonably request.

     

    (o)  VM
      Investors LLC shall have entered into a Lock-Up Agreement in the form attached
      hereto as Exhibit
      L
      (the
      "Lock-Up
      Agreement").

     

    8. TERMINATION.
      In the
      event that the Closing shall not have occurred with respect to a Buyer on or
      before five (5) Business Days from the date hereof due to the Company's or
      such
      Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above
      (and the nonbreaching party's failure to waive such unsatisfied condition(s)),
      the nonbreaching party shall have the option to terminate this Agreement with
      respect to such breaching party at the close of business on such date without
      liability of any party to any other party; provided,
      however,
      that if
      this Agreement is terminated pursuant to this Section 8, the Company shall
      remain obligated to reimburse the non-breaching Buyers for the expenses
      described in Section 4(g) above.

     

    
      
        
        

      

      
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    9. MISCELLANEOUS.

     

    (a) Governing
      Law; Jurisdiction; Jury Trial.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by the internal laws of the State of New
      York, without giving effect to any choice of law or conflict of law provision
      or
      rule (whether of the State of New York or any other jurisdictions) that would
      cause the application of the laws of any jurisdictions other than the State
      of
      New York. Each party hereby irrevocably submits to the exclusive jurisdiction
      of
      the state and federal courts sitting in The City of New York, Borough of
      Manhattan, for the adjudication of any dispute hereunder or in connection
      herewith or with any transaction contemplated hereby or discussed herein, and
      hereby irrevocably waives, and agrees not to assert in any suit, action or
      proceeding, any claim that it is not personally subject to the jurisdiction
      of
      any such court, that such suit, action or proceeding is brought in an
      inconvenient forum or that the venue of such suit, action or proceeding is
      improper. Each party hereby irrevocably waives personal service of process
      and
      consents to process being served in any such suit, action or proceeding by
      mailing a copy thereof to such party at the address for such notices to it
      under
      this Agreement and agrees that such service shall constitute good and sufficient
      service of process and notice thereof. Nothing contained herein shall be deemed
      to limit in any way any right to serve process in any manner permitted by law.
      EACH
      PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
      REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
      CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
      HEREBY. 

     

    (b) Counterparts.
      This
      Agreement may be executed in two or more identical counterparts, all of which
      shall be considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to the other party;
      provided that a facsimile signature shall be considered due execution and shall
      be binding upon the signatory thereto with the same force and effect as if
      the
      signature were an original, not a facsimile signature.

     

    (c) Headings.
      The
      headings of this Agreement are for convenience of reference and shall not form
      part of, or affect the interpretation of, this Agreement.

     

    (d) Severability.
      If any
      provision of this Agreement is prohibited by law or otherwise determined to
      be
      invalid or unenforceable by a court of competent jurisdiction, the provision
      that would otherwise be prohibited, invalid or unenforceable shall be deemed
      amended to apply to the broadest extent that it would be valid and enforceable,
      and the invalidity or unenforceability of such provision shall not affect the
      validity of the remaining provisions of this Agreement so long as this Agreement
      as so modified continues to express, without material change, the original
      intentions of the parties as to the subject matter hereof and the prohibited
      nature, invalidity or unenforceability of the provision(s) in question does
      not
      substantially impair the respective expectations or reciprocal obligations
      of
      the parties or the practical realization of the benefits that would otherwise
      be
      conferred upon the parties. The parties will endeavor in good faith negotiations
      to replace the prohibited, invalid or unenforceable provision(s) with a valid
      provision(s), the effect of which comes as close as possible to that of the
      prohibited, invalid or unenforceable provision(s).

     

    
      
        
        

      

      
        -32-

        
          

        

      

      
        
        

      

    

    (e) Entire
      Agreement; Amendments.
      This
      Agreement and the other Transaction Documents supersede all other prior oral
      or
      written agreements between the Buyers, the Company, their affiliates and Persons
      acting on their behalf with respect to the matters discussed herein, and this
      Agreement, the other Transaction Documents and the instruments referenced herein
      and therein contain the entire understanding of the parties with respect to
      the
      matters covered herein and therein and, except as specifically set forth herein
      or therein, neither the Company nor any Buyer makes any representation,
      warranty, covenant or undertaking with respect to such matters. No provision
      of
      this Agreement may be amended other than by an instrument in writing signed
      by
      the Company and the holders of at least a majority of the aggregate number
      of
      Registrable Securities issued and issuable hereunder and under the Notes, and
      any amendment to this Agreement made in conformity with the provisions of this
      Section 9(e) shall be binding on all Buyers and holders of Securities as
      applicable. No provision hereof may be waived other than by an instrument in
      writing signed by the party against whom enforcement is sought. No such
      amendment shall be effective to the extent that it applies to less than all
      of
      the holders of the applicable Securities then outstanding. No consideration
      shall be offered or paid to any Person to amend or consent to a waiver or
      modification of any provision of any of the Transaction Documents unless the
      same consideration also is offered to all of the parties to the Transaction
      Documents, holders of Notes or holders of the Warrants, as the case may be.
      The
      Company has not, directly or indirectly, made any agreements with any Buyers
      relating to the terms or conditions of the transactions contemplated by the
      Transaction Documents except as set forth in the Transaction Documents. Without
      limiting the foregoing, the Company confirms that, except as set forth in this
      Agreement, no Buyer has made any commitment or promise or has any other
      obligation to provide any financing to the Company or otherwise. 

     

    (f) Notices.
      Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Agreement must be in writing and will be deemed
      to
      have been delivered: (i) upon receipt, when delivered personally; (ii) upon
      receipt, when sent by facsimile (provided confirmation of transmission is
      mechanically or electronically generated and kept on file by the sending party);
      or (iii) one Business Day after deposit with an overnight courier service,
      in
      each case properly addressed to the party to receive the same. The addresses
      and
      facsimile numbers for such communications shall be:

     

    If
      to the
      Company:

     

    DigitalFX
      International, Inc.

    3035
      East
      Patrick Lane, Suite 9

    Las
      Vegas, Nevada 89120

    Telephone: (702)
      478-3475

    Facsimile:  
      (702)
      939-1115

    Attention: 
       Mickey
      Elfenbein

     

    
      
        
        

      

      
        -33-

        
          

        

      

      
        
        

      

    

    Copy
      (for
      informational purposes only) to:

     

    Stubbs
      Alderton & Markiles, LLP

    15260
      Ventura Boulevard

    20th
      Floor

    Sherman
      Oaks, California 91403

    Telephone:
       (818) 444-4500

    Facsimile:   
      (818) 444-6303

    Attention:   
      Gregory Akselrud

     

    If
      to the
      Transfer Agent:

     

    Continental
      Stock Transfer & Trust Company

    17
      Battery Place

    New
      York,
      NY 10004

    Telephone: 
      (212) 509-4000

    Facsimile:   
      (212) 509-5150

    Attention:  
       Gregory P. Denman

     

    If
      to a
      Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
      with copies to such Buyer's representatives as set forth on the Schedule of
      Buyers, 

     

    with
      a
      copy (for informational purposes only) to:

     

    Schulte
      Roth & Zabel LLP 

    919
      Third
      Avenue

    New
      York,
      New York 10022

    Telephone: 
      (212)
      756-2000

    Facsimile:   
      (212)
      593-5955

    Attention:   
      Eleazer
      N. Klein, Esq.

     

    or
      to
      such other address and/or facsimile number and/or to the attention of such
      other
      Person as the recipient party has specified by written notice given to each
      other party five (5) days prior to the effectiveness of such change. Written
      confirmation of receipt (A) given by the recipient of such notice, consent,
      waiver or other communication, (B) mechanically or electronically generated
      by
      the sender's facsimile machine containing the time, date, recipient facsimile
      number and an image of the first page of such transmission or (C) provided
      by an
      overnight courier service shall be rebuttable evidence of personal service,
      receipt by facsimile or receipt from an overnight courier service in accordance
      with clause (i), (ii) or (iii) above, respectively.

     

    (g) Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective successors and assigns, including any purchasers of the Notes
      or the Warrants. The Company shall not assign this Agreement or any rights
      or
      obligations hereunder without the prior written consent of the holders of at
      least a majority of the aggregate number of Registrable Securities issued and
      issuable hereunder and under the Notes, including by way of a Fundamental
      Transaction (unless the Company is in compliance with the applicable provisions
      governing Fundamental Transactions set forth in the Notes and the Warrants).
      A
      Buyer may assign some or all of its rights hereunder without the consent of
      the
      Company, in which event such assignee shall be deemed to be a Buyer hereunder
      with respect to such assigned rights.

     

    
      
        
        

      

      
        -34-

        
          

        

      

      
        
        

      

    

    (h) No
      Third Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person.

     

    (i) Survival.
      Unless
      this Agreement is terminated under Section 8, the representations and warranties
      of the Company and the Buyers contained in Sections 2 and 3 and the agreements
      and covenants set forth in Sections 4, 5 and 9 shall survive the Closing and
      the
      delivery and exercise of Securities, as applicable. Each Buyer shall be
      responsible only for its own representations, warranties, agreements and
      covenants hereunder.

     

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

     

    (k) Indemnification.
      In
      consideration of each Buyer's execution and delivery of the Transaction
      Documents and acquiring the Securities thereunder and in addition to all of
      the
      Company's other obligations under the Transaction Documents, the Company shall
      defend, protect, indemnify and hold harmless each Buyer and each other holder
      of
      the Securities and all of their stockholders, partners, members, officers,
      directors, employees and direct or indirect investors and any of the foregoing
      Persons' agents or other representatives (including, without limitation, those
      retained in connection with the transactions contemplated by this Agreement)
      (collectively, the "Indemnitees")
      from
      and against any and all actions, causes of action, suits, claims, losses, costs,
      penalties, fees, liabilities and damages, and expenses in connection therewith
      (irrespective of whether any such Indemnitee is a party to the action for which
      indemnification hereunder is sought), and including reasonable attorneys' fees
      and disbursements (the "Indemnified
      Liabilities"),
      incurred by any Indemnitee as a result of, or arising out of, or relating to
      (a)
      any misrepresentation or breach of any representation or warranty made by the
      Company in the Transaction Documents or any other certificate, instrument or
      document contemplated hereby or thereby, (b) any breach of any covenant,
      agreement or obligation of the Company contained in the Transaction Documents
      or
      any other certificate, instrument or document contemplated hereby or thereby
      or
      (c) any cause of action, suit or claim brought or made against such Indemnitee
      by a third party (including for these purposes a derivative action brought
      on
      behalf of the Company) and arising out of or resulting from (i) the execution,
      delivery, performance or enforcement of the Transaction Documents or any other
      certificate, instrument or document contemplated hereby or thereby, (ii) any
      transaction financed or to be financed in whole or in part, directly or
      indirectly, with the proceeds of the issuance of the Securities, (iii) any
      disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status
      of
      such Buyer or holder of the Securities as an investor in the Company pursuant
      to
      the transactions contemplated by the Transaction Documents. To the extent that
      the foregoing undertaking by the Company may be unenforceable for any reason,
      the Company shall make the maximum contribution to the payment and satisfaction
      of each of the Indemnified Liabilities that is permissible under applicable
      law.
      Except as otherwise set forth herein, the mechanics and procedures with respect
      to the rights and obligations under this Section 9(k) shall be the same as
      those
      set forth in Section 6 of the Registration Rights Agreement.

     

    
      
        
        

      

      
        -35-

        
          

        

      

      
        
        

      

    

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

     

    (m) Remedies.
      Each
      Buyer and each holder of the Securities shall have all rights and remedies
      set
      forth in the Transaction Documents and all rights and remedies which such
      holders have been granted at any time under any other agreement or contract
      and
      all of the rights which such holders have under any law. Any Person having
      any
      rights under any provision of this Agreement shall be entitled to enforce such
      rights specifically (without posting a bond or other security), to recover
      damages by reason of any breach of any provision of this Agreement and to
      exercise all other rights granted by law. Furthermore, the Company recognizes
      that in the event that it fails to perform, observe, or discharge any or all
      of
      its obligations under the Transaction Documents, any remedy at law may prove
      to
      be inadequate relief to the Buyers. The Company therefore agrees that the Buyers
      shall be entitled to seek temporary and permanent injunctive relief in any
      such
      case without the necessity of proving actual damages and without posting a
      bond
      or other security.

     

    (n) Rescission
      and
      Withdrawal Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) the Transaction Documents, whenever any Buyer exercises
      a
      right, election, demand or option under a Transaction Document and the Company
      does not timely perform its related obligations within the periods therein
      provided, then such Buyer may rescind or withdraw, in its sole discretion from
      time to time upon written notice to the Company, any relevant notice, demand
      or
      election in whole or in part without prejudice to its future actions and
      rights.

     

    (o) Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to the Buyers hereunder
      or
      pursuant to any of the other Transaction Documents or the Buyers enforce or
      exercise their rights hereunder or thereunder, and such payment or payments
      or
      the proceeds of such enforcement or exercise or any part thereof are
      subsequently invalidated, declared to be fraudulent or preferential, set aside,
      recovered from, disgorged by or are required to be refunded, repaid or otherwise
      restored to the Company, a trustee, receiver or any other Person under any
      law
      (including, without limitation, any bankruptcy law, foreign, state or federal
      law, common law or equitable cause of action), then to the extent of any such
      restoration the obligation or part thereof originally intended to be satisfied
      shall be revived and continued in full force and effect as if such payment
      had
      not been made or such enforcement or setoff had not occurred.

     

    
      
        
        

      

      
        -36-

        
          

        

      

      
        
        

      

    

    (p) Independent
      Nature of Buyers' Obligations and Rights.
      The
      obligations of each Buyer under any Transaction Document are several and not
      joint with the obligations of any other Buyer, and no Buyer shall be responsible
      in any way for the performance of the obligations of any other Buyer under
      any
      Transaction Document. Nothing contained herein or in any other Transaction
      Document, and no action taken by any Buyer pursuant hereto or thereto, shall
      be
      deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
      do not so constitute, a partnership, an association, a joint venture or any
      other kind of entity, or create a presumption that the Buyers are in any way
      acting in concert or as a group, and the Company will not assert any such claim
      with respect to such obligations or the transactions contemplated by the
      Transaction Documents and the Company acknowledges that the Buyers are not
      acting in concert or as a group with respect to such obligations or the
      transactions contemplated by the Transaction Documents. The Company acknowledges
      and each Buyer confirms that it has independently participated in the
      negotiation of the transaction contemplated hereby with the advice of its own
      counsel and advisors. Each Buyer shall be entitled to independently protect
      and
      enforce its rights, including, without limitation, the rights arising out of
      this Agreement or out of any other Transaction Documents, and it shall not
      be
      necessary for any other Buyer to be joined as an additional party in any
      proceeding for such purpose.

     

    [Signature
      Page Follows]

     

    
      
        
        

      

      
        -37-

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Securities Purchase Agreement to be duly executed as of the date first written
      above.

     

    
      	 	 	
              COMPANY:

            
	 	 	 
	 	 	DIGITALFX
              INTERNATIONAL, INC.
	 	 
	 
 	 
 	 
 
	 	By:  	/s/ Craig
              Ellins 
	 	
              
Name:
              Craig Ellins
	 	Title:
              Chief Executive Officer

    

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Securities Purchase Agreement to be duly executed as of the date first written
      above.

     

    
       

      
        	 	 	
                BUYERS:

              
	 	 	 
	 	 	PORTSIDE
                GROWTH AND OPPORTUNITY FUND
	 	 
	 
 	 
 	 
 
	 	By:  	/s/ Jeffrey C. Smith 
	 	
                
Name:
                Jeffrey C. Smith
	 	Title:
                Authorized Signatory

      

      

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Securities Purchase Agreement to be duly executed as of the date first written
      above.

     

    
      	 	 	 
	 	 	 
	 	 	HIGHBRIDGE
              INTERNATIONAL LLC
	 	 
	 
 	 
 	 
 
	 	By:  	/s/ Adam
              J.
              Chill 
	 	
              
Name:
              Adam J. Chill
	 	Title:
              

    

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Securities Purchase Agreement to be duly executed as of the date first written
      above.

     

    
       

      
        	 	 	 
	 	 	 
	 	 	IROQUOIS
                MASTER FUND, LTD.
	 	 
	 
 	 
 	 
 
	 	By:  	/s/
                Richard Abbe
	 	
                
Name:
                Richard Abbe
	 	Title:
                Authorized Signator

      

      
 

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    SCHEDULE
      OF BUYERS

     

    

    
      	
              (1)

            	
              (2)

            	
              (3)

            	
              (4)

            	
              (5)

            	
              (6)

            
	
              Buyer

            	
              Address
                and

              Facsimile
                Number

            	
              Aggregate

              Principal

              Amount
                of

              Notes

            	
              Number
                of

              Warrant
                Shares

            	
              Purchase
                Price

            	
              Legal
                Representative's Address and Facsimile Number

            
	
               

              Portside
                Growth & Opportunity Fund

            	
               

              c/o
                Ramius Capital Group, L.L.C.

              666
                Third Avenue, 26th Floor

              New
                York, New York 10017

              Attention:  
                Jeffrey Smith

                          
                Owen Littman 

              Facsimile:   
                (212) 201-4802

                     
                      (212) 845-7995

              Telephone: 
                (212) 845-7955

                        
                   (212) 201-4841

              Residence: Cayman
                Islands

            	
               

              $5,000,000

            	
               

              625,000

            	
               

              $5,000,000

            	
               

              Schulte
                Roth & Zabel LLP

              919
                Third Avenue

              New
                York, New York 10022

              Attention:
                Eleazer Klein, Esq.

              Facsimile:
                (212) 593-5955

              Telephone:
                (212) 756-2376

            
	
               

              Highbridge
                International LLC

            	
               

              c/o
                Highbridge Capital Management, LLC

              9
                West 57th St, 27th Floor

              New
                York, NY 10019

              Attn:
                Ari J. Storch / Adam J. Chill

              Tel: 
                212-287-4720

              Fax: 
                212-751-0755

              Residence:
                Cayman Islands

            	
               

              $1,500,000

            	
               

              187,500

            	
               

              $1,500,000

            	
               

              N/A

            
	
               

              Iroquois
                Master Fund, Ltd.

            	
               

              641
                Lexington Avenue

              26th
                Floor 

              New
                York, New York 10022

              Attention:  
                Joshua Silverman

              Facsimile:    (212)
                207-3452

              Telephone:
                 (212) 974-3070

              Residence:  Cayman
                Islands

            	
               

              $500,000

            	
               

              62,500

            	
               

              $500,000

            	
               

              N/A

            
	
              TOTAL  

            	
               

            	
              $7,000,000

            	
              875,000

            	
              $7,000,000

            	
               

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    

      EXHIBITS

       

      
        	
                Exhibit
                  A

              	
                Form
                  of Notes

              
	
                Exhibit
                  B

              	
                Form
                  of Warrants

              
	
                Exhibit
                  C

              	
                Registration
                  Rights Agreement

              
	
                Exhibit
                  D

              	
                Irrevocable
                  Transfer Agent Instructions

              
	
                Exhibit
                  E

              	
                Form
                  of Outside Company Counsel Opinion

              
	
                Exhibit
                  F

              	
                Form
                  of Secretary's Certificate

              
	
                Exhibit
                  G

              	
                Form
                  of Officer's Certificate

              
	
                Exhibit
                  H

              	
                Form
                  of Pledge Agreement

              
	
                Exhibit
                  I

              	
                Form
                  of Security Agreement

              
	
                Exhibit
                  J

              	
                Form
                  of Guarantee 

              
	
                Exhibit
                  K

              	
                Form
                  of Escrow Agreement between the Company, Maxim Group LLC and American
                  Stock Transfer & Trust Company

              
	
                Exhibit
                  L

              	
                Form
                  of Lock-Up Agreement

              

      

      SCHEDULES

       

      
        	
                Schedule
                  3(a)

              	
                Subsidiaries

              
	
                Schedule
                  3(l)

              	
                Absence
                  of Certain Changes

              
	
                Schedule
                  3(q)

              	
                Transactions
                  with Affiliates

              
	
                Schedule
                  3(r)

              	
                Capitalization

              
	
                Schedule
                  3(s)

              	
                Indebtedness
                  and Other Contracts

              
	
                Schedule
                  3(t)

              	
                Litigation

              
	
                Schedule
                  3(cc)

              	
                Ranking
                  of NotesUnassociated Document

    [FORM
      OF SENIOR SECURED CONVERTIBLE NOTE]

     

    NEITHER
      THE ISSUANCE AND SALE OF THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE
      IS
      CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
      OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED FOR
      SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
      REGISTRATION STATEMENT FOR THESE SECURITIES UNDER THE SECURITIES ACT OF 1933,
      AS
      AMENDED, OR (B) AN OPINION OF COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT
      REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO
      RULE
      144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES
      MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
      OR
      FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE
      SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii)
      AND
      18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY,
      THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS
      SET
      FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
      NOTE.

     

    

      DIGITALFX
        INTERNATIONAL, INC.

       

      SENIOR
        SECURED CONVERTIBLE NOTE

       

    

    
    

    
      	
              Issuance
                Date: November 30, 2007

            	
              Original
                Principal Amount: U.S.
                $_____________

            

    

    

    FOR
      VALUE RECEIVED,
      DigitalFX International, Inc., a Florida corporation (the "Company"),
      hereby promises to pay to [PORTSIDE GROWTH AND OPPORTUNITY FUND][HIGHBRIDGE
      INTERNATIONAL LLC][IROQUOIS MASTER FUND, LTD.]
      or
      registered assigns ("Holder")
      the
      amount set out above as the Original Principal Amount (as reduced pursuant
      to
      the terms hereof pursuant to redemption, conversion or otherwise, the
      "Principal")
      when
      due, whether upon the Maturity Date (as defined below), acceleration, redemption
      or otherwise (in each case in accordance with the terms hereof) and to pay
      interest ("Interest")
      on any
      outstanding Principal at the applicable Interest Rate, from the date set out
      above as the Issuance Date (the "Issuance Date")
      until
      the same becomes due and payable, whether upon an Interest Date (as defined
      below), the Maturity Date, acceleration, conversion, redemption or otherwise
      (in
      each case in accordance with the terms hereof). This Senior Secured Convertible
      Note (including all Senior Secured Convertible Notes issued in exchange,
      transfer or replacement hereof, this "Note")
      is one
      of an issue of Senior Secured Convertible Notes issued pursuant to the
      Securities Purchase Agreement (as defined below) on the Closing Date
      (collectively, the "Notes"
      and
      such other Senior Secured Convertible Notes, the "Other Notes").
      Certain capitalized terms used herein are defined in Section 29.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (1)  PAYMENTS
      OF PRINCIPAL.
      On the
      Maturity Date, the Company shall pay to the Holder an amount in cash
      representing all outstanding Principal, accrued and unpaid Interest and accrued
      and unpaid Late Charges, if any, on such Principal and Interest. The
      "Maturity Date"
      shall
      be November 30, 2010, as may be extended at the option of the Holder (i) in
      the
      event that, and for so long as, an Event of Default (as defined in Section
      4(a))
      shall have occurred and be continuing on the Maturity Date (as may be extended
      pursuant to this Section 1) or any event that shall have occurred and be
      continuing that with the passage of time and the failure to cure would result
      in
      an Event of Default and (ii) through the date that is ten (10) Business Days
      after the consummation of a Change of Control in the event that a Change of
      Control is publicly announced or a Change of Control Notice (as defined in
      Section 5(b)) is delivered prior to the Maturity Date. Other than as
      specifically permitted by this Note, the Company may not prepay any portion
      of
      the outstanding Principal, accrued and unpaid Interest or accrued and unpaid
      Late Charges, if any, on such Principal and Interest.

     

    (2)  INTEREST;
      INTEREST RATE.
      Interest
      on this Note shall commence accruing on the Issuance Date and shall be computed
      on the basis of a 360-day year comprised of twelve (12) thirty (30) day months
      and shall be payable in arrears for each Calendar Quarter on the first day
      of
      the succeeding Calendar Quarter during the period beginning on the Issuance
      Date
      and ending on, and including, the Maturity Date (each, an "Interest Date")
      with
      the first Interest Date being January 1, 2008, in cash. Prior to the payment
      of
      Interest on an Interest Date, Interest on this Note shall accrue at the Interest
      Rate and be payable by way of inclusion of the Interest in the Conversion Amount
      in accordance with Section 3(b)(i). From and after the occurrence of an Event
      of
      Default, the Interest Rate shall be increased to twelve percent (12.0%). In
      the
      event that such Event of Default is subsequently cured, the adjustment referred
      to in the preceding sentence shall cease to be effective as of the date of
      such
      cure; provided that the Interest as calculated at such increased rate during
      the
      continuance of such Event of Default shall continue to apply to the extent
      relating to the days after the occurrence of such Event of Default through
      and
      including the date of cure of such Event of Default.

     

    (3)  CONVERSION
      OF NOTES.
      This
      Note shall be convertible into shares of the Company's common stock, par value
      $0.001 per share (the "Common
      Stock"),
      on
      the terms and conditions set forth in this Section 3.

     

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

     

    (b)  Conversion
      Rate.
      The
      number of shares of Common Stock issuable upon conversion of any Conversion
      Amount pursuant to Section 3(a) shall be determined by dividing (x) such
      Conversion Amount by (y) the Conversion Price (the "Conversion
      Rate").

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (i)  "Conversion
      Amount"
      means
      the sum of (A) the portion of the Principal to be converted, redeemed or
      otherwise with respect to which this determination is being made, (B) accrued
      and unpaid Interest with respect to such Principal and (C) accrued and unpaid
      Late Charges with respect to such Principal and Interest.

     

    (ii)  "Conversion
      Price"
      means,
      as of any Conversion Date (as defined below) or other date of determination,
      $2.80, subject to adjustment as provided herein.

     

    (c)  Mechanics
      of Conversion.

     

    (i)  Optional
      Conversion.
      To
      convert any Conversion Amount into shares of Common Stock on any date (a
      "Conversion
      Date"),
      the
      Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt
      on or
      prior to 11:59 p.m., New York Time, on such date, a copy of an executed notice
      of conversion in the form attached hereto as Exhibit
      I
      (the
      "Conversion
      Notice")
      to the
      Company and (B) if required by Section 3(c)(iii), surrender this Note to a
      common carrier for delivery to the Company as soon as practicable on or
      following such date (or an indemnification undertaking with respect to this
      Note
      in the case of its loss, theft or destruction). On or before the first
      (1st)
      Trading
      Day following the date of receipt of a Conversion Notice, the Company shall
      transmit by facsimile a confirmation of receipt of such Conversion Notice to
      the
      Holder and the Company's transfer agent (the "Transfer
      Agent").
      On or
      before the second (2nd)
      Trading
      Day following the date of receipt of a Conversion Notice (the "Share
      Delivery Date"),
      the
      Company shall (x) provided that the Transfer Agent is participating in the
      Depository Trust Company ("DTC")
      Fast
      Automated Securities Transfer Program, credit such aggregate number of shares
      of
      Common Stock to which the Holder shall be entitled to the Holder's or its
      designee's balance account with DTC through its Deposit Withdrawal Agent
      Commission system or (y) if the Transfer Agent is not participating in the
      DTC
      Fast Automated Securities Transfer Program, issue and deliver to the address
      as
      specified in the Conversion Notice, a certificate, registered in the name of
      the
      Holder or its designee, for the number of shares of Common Stock to which the
      Holder shall be entitled. If this Note is physically surrendered for conversion
      as required by Section 3(c)(iii) and the outstanding Principal of this Note
      is
      greater than the Principal portion of the Conversion Amount being converted,
      then the Company shall as soon as practicable and in no event later than three
      (3) Business Days after receipt of this Note and at its own expense, issue
      and
      deliver to the holder a new Note (in accordance with Section 18(d)) representing
      the outstanding Principal not converted. The Person or Persons entitled to
      receive the shares of Common Stock issuable upon a conversion of this Note
      shall
      be treated for all purposes as the record holder or holders of such shares
      of
      Common Stock on the Conversion Date. 

     

    (ii)  Company's
      Failure to Timely Convert.
      If
      within three (3) Trading Days after the Company's receipt of the facsimile
      copy
      of a Conversion Notice the Company shall fail to issue and deliver a certificate
      to the Holder or credit the Holder's balance account with DTC for the number
      of
      shares of Common Stock to which the Holder is entitled upon conversion of any
      Conversion Amount (a "Conversion
      Failure"),
      then
      (A) the Company shall pay damages to the Holder for each day of such Conversion
      Failure in an amount equal to 1.5% of the product of (I) the sum of the number
      of shares of Common Stock not issued to the Holder on or prior to the Share
      Delivery Date and to which the Holder is entitled, and (II) the Closing Sale
      Price of the Common Stock on the Share Delivery Date and (B) the Holder, upon
      written notice to the Company, may void its Conversion Notice with respect
      to,
      and retain or have returned, as the case may be, any portion of this Note that
      has not been converted pursuant to such Conversion Notice; provided
      that the
      voiding of a Conversion Notice shall not affect the Company's obligations to
      make any payments which have accrued prior to the date of such notice pursuant
      to this Section 3(c)(ii) or otherwise. In addition to the foregoing, if within
      three (3) Trading Days after the Company's receipt of the facsimile copy of
      a
      Conversion Notice the Company shall fail to issue and deliver a certificate
      to
      the Holder or credit the Holder's balance account with DTC for the number of
      shares of Common Stock to which the Holder is entitled upon such holder's
      conversion of any Conversion Amount, and if on or after such Trading Day the
      Holder purchases (in an open market transaction or otherwise) Common Stock
      to
      deliver in satisfaction of a sale by the Holder of Common Stock issuable upon
      such conversion that the Holder anticipated receiving from the Company (a
      "Buy-In"),
      then
      the Company shall, within three (3) Trading Days after the Holder's request
      and
      in the Holder's discretion, either (i) pay cash to the Holder in an amount
      equal
      to the Holder's total purchase price (including brokerage commissions and other
      out-of-pocket expenses, if any) for the shares of Common Stock so purchased
      (the
"Buy-In
      Price"),
      at
      which point the Company's obligation to issue and deliver such certificate
      or to
      credit the Holder's balance account with DTC for the number of shares of Common
      Stock to which the Holder is entitled upon such Holder's conversion of any
      Conversion Amount shall terminate, or (ii) promptly honor its obligation to
      deliver to the Holder a certificate or certificates representing such Common
      Stock and pay cash to the Holder in an amount equal to the excess (if any)
      of
      the Buy-In Price over the product of (A) such number of shares of Common Stock,
      times (B) the Closing Bid Price on the Conversion Date.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (iii)  Registration;
      Book-Entry.
      The
      Company shall maintain a register (the "Register")
      for
      the recordation of the names and addresses of the holders of each Note and
      the
      principal amount of the Notes held by such holders (the "Registered
      Notes").
      The
      entries in the Register shall be conclusive and binding for all purposes absent
      manifest error. The Company and the holders of the Notes shall treat each Person
      whose name is recorded in the Register as the owner of a Note for all purposes,
      including, without limitation, the right to receive payments of principal and
      interest hereunder, notwithstanding notice to the contrary. A Registered Note
      may be assigned or sold in whole or in part only by registration of such
      assignment or sale on the Register. Upon its receipt of a request to assign
      or
      sell all or part of any Registered Note by a Holder, the Company shall record
      the information contained therein in the Register and issue one or more new
      Registered Notes in the same aggregate principal amount as the principal amount
      of the surrendered Registered Note to the designated assignee or transferee
      pursuant to Section 18. Notwithstanding anything to the contrary set forth
      herein, upon conversion of any portion of this Note in accordance with the
      terms
      hereof, the Holder shall not be required to physically surrender this Note
      to
      the Company unless (A) the full Conversion Amount represented by this Note
      is
      being converted or (B) the Holder has provided the Company with prior written
      notice (which notice may be included in a Conversion Notice) requesting
      reissuance of this Note upon physical surrender of this Note. The Holder and
      the
      Company shall maintain records showing the Principal, Interest and Late Charges,
      if any, converted and the dates of such conversions or shall use such other
      method, reasonably satisfactory to the Holder and the Company, so as not to
      require physical surrender of this Note upon conversion.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (iv)  Pro
      Rata Conversion; Disputes.
      In the
      event that the Company receives a Conversion Notice from more than one holder
      of
      Notes for the same Conversion Date and the Company can convert some, but not
      all, of such portions of the Notes submitted for conversion, the Company,
      subject to Section 3(d), shall convert from each holder of Notes electing to
      have Notes converted on such date a pro rata amount of such holder's portion
      of
      its Notes submitted for conversion based on the principal amount of Notes
      submitted for conversion on such date by such holder relative to the aggregate
      principal amount of all Notes submitted for conversion on such date. In the
      event of a dispute as to the number of shares of Common Stock issuable to the
      Holder in connection with a conversion of this Note, the Company shall issue
      to
      the Holder the number of shares of Common Stock not in dispute and resolve
      such
      dispute in accordance with Section 23.

     

    (v)  Company's
      Right of Mandatory Conversion.
      

     

    (A)  Mandatory
      Conversion.
      If at
      any time from and after the one (1) year anniversary of the Issuance Date (the
      "Mandatory
      Conversion Eligibility Date"),
      (i)
      the Closing Sale Price of the Common Stock exceeds for each of any twenty (20)
      consecutive Trading Days following the Mandatory Conversion Eligibility Date
      (the "Mandatory
      Conversion Measuring Period")
      175%
      of the Conversion Price on the Issuance Date (as adjusted for any stock splits,
      stock dividends, recapitalizations, combinations, reverse stock splits or other
      similar events during such period) and (ii) there shall not have been any Equity
      Conditions Failure, the Company shall have the right to require the Holder
      to
      convert all, or any portion, of the Conversion Amount then remaining under
      this
      Note into fully paid, validly issued and nonassessable shares of Common Stock
      in
      accordance with Section 3(c) hereof at the Conversion Rate as of the
      Mandatory Conversion Date (as defined below) with respect to the Conversion
      Amount (a "Mandatory
      Conversion").
      The
      Company may exercise its right to require conversion under this Section
      3(c)(v)(A) by delivering within not more than two (2) Trading Days following
      the end of any such Mandatory Conversion Measuring Period a
      written
      notice thereof by facsimile and overnight courier to all, but not less than
      all,
      of the holders of Notes and the Transfer Agent (the "Mandatory
      Conversion Notice"
      and the
      date all of the holders received such notice is referred to as the "Mandatory
      Conversion Notice Date").
      The
      Company may deliver one (1) Mandatory Conversion Notice hereunder and the
      Mandatory Conversion Notice shall be irrevocable. The Mandatory Conversion
      Notice shall state (1) the Trading Day selected for the Mandatory Conversion
      in
      accordance herewith, which Trading Day shall be at least twenty (20) Trading
      Days but not more than sixty (60) Trading Days following the Mandatory
      Conversion Notice Date (the "Mandatory
      Conversion Date"),
      (2)
      the aggregate Conversion Amount of the Notes subject to mandatory conversion
      from all of the holders of the Notes pursuant hereto (and analogous provisions
      under the Other Notes) and (3) the number of shares of Common Stock to be issued
      to the Holder on the Mandatory Conversion Date. All Conversion Amounts converted
      by the Holder after the Mandatory Conversion Notice Date shall reduce the
      Conversion Amount of this Note required to be converted on the Mandatory
      Conversion Date. The mechanics of conversion set forth in Section 3(c) shall
      apply to any Mandatory Conversion as if the Company and the Transfer Agent
      had
      received from the Holder on the Mandatory Conversion Date a Conversion Notice
      with respect to the Conversion Amount being converted pursuant to the Mandatory
      Conversion. Notwithstanding the foregoing, if the Company cannot effect a
      Mandatory Conversion, in whole or in part, of the Conversion Amount of this
      Note
      (such portion, the "Unconverted
      Amount")
      as
      contemplated in any Mandatory Conversion Notice due to the limitation on
      conversions set forth in Section 3(d)(i), then, as of the applicable Mandatory
      Conversion Date, Interest on such Unconverted Amount shall cease to accrue
      and
      such Unconverted Amount shall be converted in accordance with Section 3(c)(i)
      on
      such date such conversion is permitted under Section 3(d)(i). 

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    (B)  Pro
      Rata Conversion Requirement.
      If the
      Company elects to cause a conversion of any Conversion Amount of this Note
      pursuant to Section 3(c)(v)(A), then it must simultaneously take the same action
      in the same proportion with respect to the Other Notes. If the Company elects
      a
      Mandatory Conversion of this Note pursuant to Section 3(c)(v)(A) (or similar
      provisions under the Other Notes) with respect to less than all of the
      Conversion Amounts of the Notes then outstanding, then the Company shall require
      conversion of a Conversion Amount from each of the holders of the Notes equal
      to
      the product of (I) the aggregate Conversion Amount of Notes which the Company
      has elected to cause to be converted pursuant to Section 3(c)(v)(A), multiplied
      by (II) the fraction, the numerator of which is the sum of the aggregate
      Original Principal Amount of the Notes purchased by such holder of outstanding
      Notes and the denominator of which is the sum of the aggregate Original
      Principal Amount of the Notes purchased by all holders holding outstanding
      Notes
      (such fraction with respect to each holder is referred to as its "Conversion Allocation
      Percentage,"
      and
      such amount with respect to each holder is referred to as its "Pro
      Rata Conversion Amount");
      provided, however, that in the event that any holder's Pro Rata Conversion
      Amount exceeds the outstanding Principal amount of such holder's Note, then
      such
      excess Pro Rata Conversion Amount shall be allocated amongst the remaining
      holders of Notes in accordance with the foregoing formula. In the event that
      the
      initial holder of any Notes shall sell or otherwise transfer any of such
      holder's Notes, the transferee shall be allocated a pro rata portion of such
      holder's Conversion Allocation Percentage and the Pro Rata Conversion
      Amount.

     

    (d)  Limitations
      on Conversions.
      

     

    (i)  Beneficial
      Ownership.
      The
      Company shall not effect any conversion of this Note, and the Holder of this
      Note shall not have the right to convert any portion of this Note pursuant
      to
      Section 3(a), to the extent that after giving effect to such conversion, the
      Holder (together with the Holder's affiliates) would beneficially own in excess
      of 4.99% (the "Maximum
      Percentage")
      of the
      number of shares of Common Stock outstanding immediately after giving effect
      to
      such conversion. For purposes of the foregoing sentence, the number of shares
      of
      Common Stock beneficially owned by the Holder and its affiliates shall include
      the number of shares of Common Stock issuable upon conversion of this Note
      with
      respect to which the determination of such sentence is being made, but shall
      exclude the number of shares of Common Stock which would be issuable upon (A)
      conversion of the remaining, nonconverted portion of this Note beneficially
      owned by the Holder or any of its affiliates and (B) exercise or conversion
      of the unexercised or nonconverted portion of any other securities of the
      Company (including, without limitation, any Other Notes or Warrants) subject
      to
      a limitation on conversion or exercise analogous to the limitation contained
      herein beneficially owned by the Holder or any of its affiliates. Except as
      set
      forth in the preceding sentence, for purposes of this Section 3(d)(i),
      beneficial ownership shall be calculated in accordance with Section 13(d) of
      the
      Securities Exchange Act of 1934, as amended (the "Exchange
      Act").
      For
      purposes of this Section 3(d)(i), in determining the number of outstanding
      shares of Common Stock, the Holder may rely on the number of outstanding shares
      of Common Stock as reflected in (x) the Company's most recent Form 10-K, Form
      10-KSB Form 10-Q, Form 10-QSB or Form 8-K, as the case may be, (y) a more recent
      public announcement by the Company or (z) any other notice by the Company or
      the
      Transfer Agent setting forth the number of shares of Common Stock outstanding.
      For any reason at any time, upon the written request of the Holder, the Company
      shall within one (1) Business Day confirm in writing to the Holder the number
      of
      shares of Common Stock then outstanding. In any case, the number of outstanding
      shares of Common Stock shall be determined after giving effect to the conversion
      or exercise of securities of the Company, including this Note, by the Holder
      or
      its affiliates since the date as of which such number of outstanding shares
      of
      Common Stock was reported. By written notice to the Company, the Holder may
      from
      time to time increase or decrease the Maximum Percentage to any other percentage
      not in excess of 9.99% specified in such notice; provided that (i) any such
      increase will not be effective until the sixty-first (61st)
      day
      after such notice is delivered to the Company, and (ii) any such increase or
      decrease will apply only to the Holder and not to any other holder of
      Notes.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (ii)  Principal
      Market Regulation.
      The
      Company shall not be obligated to issue any shares of Common Stock upon
      conversion of this Note, and the Holder of this Note shall not have the right
      to
      receive upon conversion of this Note any shares of Common Stock, if the issuance
      of such shares of Common Stock would exceed the aggregate number of shares
      of
      Common Stock which the Company may issue upon conversion or exercise, as
      applicable, of the Notes and Warrants without breaching the Company's
      obligations under the rules or regulations of the Principal Market (the
      "Exchange
      Cap"),
      except that such limitation shall not apply in the event that the Company (A)
      obtains the approval of its stockholders as required by the applicable rules
      of
      the Principal Market for issuances of Common Stock in excess of such amount
      or
      (B) obtains a written opinion from outside counsel to the Company that such
      approval is not required, which opinion shall be reasonably satisfactory to
      the
      Required Holders. Until such approval or written opinion is obtained, no
      purchaser of the Notes pursuant to the Securities Purchase Agreement (each
      a
      "Purchaser"
      and,
      collectively, the "Purchasers")
      shall
      be issued in the aggregate, upon conversion or exercise, as applicable, of
      Notes
      or Warrants, shares of Common Stock in an amount greater than the product of
      the
      Exchange Cap multiplied by a fraction, the numerator of which is the principal
      amount of Notes issued to each Purchaser pursuant to the Securities Purchase
      Agreement on the Closing Date and the denominator of which is the aggregate
      principal amount of all Notes issued to the Purchasers pursuant to the
      Securities Purchase Agreement on the Closing Date (with respect to each
      Purchaser, the "Exchange
      Cap Allocation").
      In
      the event that any Purchaser shall sell or otherwise transfer any of such
      Purchaser's Notes, the transferee shall be allocated a pro rata portion of
      such
      Purchaser's Exchange Cap Allocation, and the restrictions of the prior sentence
      shall apply to such transferee with respect to the portion of the Exchange
      Cap
      Allocation allocated to such transferee. In the event that any holder of Notes
      shall convert all of such holder's Notes into a number of shares of Common
      Stock
      which, in the aggregate, is less than such holder's Exchange Cap Allocation,
      then the difference between such holder's Exchange Cap Allocation and the number
      of shares of Common Stock actually issued to such holder shall be allocated
      to
      the respective Exchange Cap Allocations of the remaining holders of Notes on
      a
      pro rata basis in proportion to the aggregate principal amount of the Notes
      then
      held by each such holder.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (4)  RIGHTS
      UPON EVENT OF DEFAULT.

     

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

     

    (i)  the
      failure of the applicable Registration Statement (as defined in the Registration
      Rights Agreement) required to be filed pursuant to the Registration Rights
      Agreement to be declared effective by the SEC on or prior to the date that
      is
      sixty (60) days after the Effectiveness Deadline (as defined in the Registration
      Rights Agreement), or, while the applicable Registration Statement is required
      to be maintained effective pursuant to the terms of the Registration Rights
      Agreement, the effectiveness of the applicable Registration Statement lapses
      for
      any reason (including, without limitation, the issuance of a stop order) or
      is
      unavailable to any holder of the Notes for sale of all of such holder's
      Registrable Securities (as defined in the Registration Rights Agreement)
      required to be registered in accordance with the terms of the Registration
      Rights Agreement, and such lapse or unavailability continues for a period of
      ten
      (10) consecutive days or for more than an aggregate of thirty (30) days in
      any
      365-day period (other than days during an Allowable Grace Period (as defined
      in
      the Registration Rights Agreement));

     

    (ii)  the
      suspension from trading or failure of the Common Stock to be listed on an
      Eligible Market for a period of five (5) consecutive Trading Days or for more
      than an aggregate of ten (10) Trading Days in any 365-day period;

     

    (iii)  the
      Company's (A) failure to cure a Conversion Failure by delivery of the required
      number of shares of Common Stock within ten (10) Business Days after the
      applicable Conversion Date or (B) notice, written or oral, to any holder of
      the
      Notes, including by way of public announcement or through any of its agents,
      at
      any time, of its intention not to comply with a request for conversion of any
      Notes into shares of Common Stock that is tendered in accordance with the
      provisions of the Notes;

     

    (iv)  at
      any
      time following the tenth (10th)
      consecutive Business Day that the Holder's Authorized Share Allocation is less
      than the number of shares of Common Stock that the Holder would be entitled
      to
      receive upon a conversion of the full Conversion Amount of this Note (without
      regard to any limitations on conversion set forth in Section 3(d) or
      otherwise);

     

    (v)  the
      Company's failure to pay to the Holder any amount of Principal, Redemption
      Price, Interest, Late Charges or other amounts when and as due under this Note
      or any other Transaction Document (as defined in the Securities Purchase
      Agreement) or any other agreement, document, certificate or other instrument
      delivered in connection with the transactions contemplated hereby and thereby
      to
      which the Holder is a party, except, in the case of a failure to pay Interest
      and Late Charges when and as due, in which case only if such failure continues
      for a period of at least three (3) Business Days;

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (vi)  any
      default under, redemption of or acceleration prior to maturity of any
      Indebtedness of the Company or any of its Subsidiaries (as defined in Section
      3(a) of the Securities Purchase Agreement), other than with respect to any
      Other
      Notes;

     

    (vii)  the
      Company or any of its Subsidiaries pursuant to or within the meaning of Title
      11, U.S. Code, or any similar Federal, foreign or state law for the relief
      of
      debtors (collectively, "Bankruptcy
      Law"),
      (A)
      commences a voluntary case, (B) consents to the entry of an order for relief
      against it in an involuntary case, (C) consents to the appointment of a
      receiver, trustee, assignee, liquidator or similar official (a "Custodian"),
      (D)
      makes a general assignment for the benefit of its creditors or (E) admits in
      writing that it is generally unable to pay its debts as they become
      due;

     

    (viii)  a
      court
      of competent jurisdiction enters an order or decree under any Bankruptcy Law
      that (A) is for relief against the Company or any of its Subsidiaries in an
      involuntary case, (B) appoints a Custodian of the Company or any of its
      Subsidiaries or (C) orders the liquidation of the Company or any of its
      Subsidiaries;

     

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

     

    (x)  the
      Company breaches any representation, warranty, covenant or other term or
      condition of any Transaction Document, except, in the case of a breach of a
      covenant which is curable, only if such breach continues for a period of at
      least ten (10) consecutive Business Days;

     

    (xi)  any
      breach or failure in any respect to comply with Section 14 of this Note or
      any
      Financial Covenant Failure (as defined below), except, in the case of a breach
      of a covenant which is curable, only if such breach continues for a period
      of at
      least ten (10) consecutive Business Days; or

     

    (xii)  any
      Event
      of Default (as defined in the Other Notes) occurs with respect to any Other
      Notes.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (b)  Redemption
      Right.
      Upon
      the occurrence of an Event of Default with respect to this Note or any Other
      Note, the Company shall within one (1) Business Day deliver written notice
      thereof via facsimile and overnight courier (an "Event
      of Default Notice")
      to the
      Holder. At any time after the earlier of the Holder's receipt of an Event of
      Default Notice and the Holder becoming aware of an Event of Default, the Holder
      may require the Company to redeem all or any portion of this Note by delivering
      written notice thereof (the "Event
      of Default Redemption Notice")
      to the
      Company, which Event of Default Redemption Notice shall indicate the portion
      of
      this Note the Holder is electing to redeem; provided, that notwithstanding
      the
      foregoing, solely with respect to any Event of Default set forth in Sections
      4(a)(ii) and (iv), the Holder may not submit an Event of Default Redemption
      Notice after the thirtieth (30th) Business Day after the later of (x) the date
      such Event of Default is cured or otherwise resolved and (y) the date the
      Company delivers the Event of Default Notice with respect to such Event of
      Default to the Holder. Each portion of this Note subject to redemption by the
      Company pursuant to this Section 4(b) shall be redeemed by the Company at a
      price equal to the greater of (i) the product of (A) the Conversion Amount
      to be
      redeemed and (B) the Redemption Premium and (ii) the product of (A) the
      Conversion Rate with respect to such Conversion Amount in effect at such time
      as
      the Holder delivers an Event of Default Redemption Notice and (B) the greater
      of
      (I) the Closing Sale Price of the Common Stock on the date immediately preceding
      such Event of Default, (II) the Closing Sale Price of the Common Stock on the
      date immediately after such Event of Default and (III) the Closing Sale Price
      of
      the Common Stock on the date the Holder delivers the Event of Default Redemption
      Notice (the "Event
      of Default Redemption
      Price").
      Redemptions required by this Section 4(b) shall be made in accordance with
      the
      provisions of Section 12. To the extent redemptions required by this Section
      4(b) are deemed or determined by a court of competent jurisdiction to be
      prepayments of the Note by the Company, such redemptions shall be deemed to
      be
      voluntary prepayments. The parties hereto agree that in the event of the
      Company's redemption of any portion of the Note under this Section 4(b), the
      Holder's damages would be uncertain and difficult to estimate because of the
      parties' inability to predict future interest rates and the uncertainty of
      the
      availability of a suitable substitute investment opportunity for the Holder.
      Accordingly, any Redemption Premium due under this Section 4(b) is intended
      by
      the parties to be, and shall be deemed, a reasonable estimate of the Holder's
      actual loss of its investment opportunity and not as a penalty.

     

    (5)  RIGHTS
      UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

     

    (a)  Assumption.
      The
      Company shall not enter into or be party to a Fundamental Transaction unless
      (i)  the Successor Entity assumes in writing all of the obligations of the
      Company under this Note and the other Transaction Documents in accordance with
      the provisions of this Section 5(a) pursuant to written agreements in form
      and
      substance satisfactory to the Required Holders and approved by the Required
      Holders prior to such Fundamental Transaction, including agreements to deliver
      to each holder of Notes in exchange for such Notes a security of the Successor
      Entity evidenced by a written instrument substantially similar in form and
      substance to the Notes, including, without limitation, having a principal amount
      and interest rate equal to the principal amounts then outstanding and the
      interest rates of the Notes held by such holder, having similar conversion
      rights as the Notes and having similar ranking to the Notes, and satisfactory
      to
      the Required Holders and (ii) the Successor Entity (including its Parent
      Entity) is a publicly traded corporation whose common stock is quoted on or
      listed for trading on an Eligible Market. Upon the occurrence of any Fundamental
      Transaction, the Successor Entity shall succeed to, and be substituted for
      (so
      that from and after the date of such Fundamental Transaction, the provisions
      of
      this Note referring to the "Company" shall refer instead to the Successor
      Entity), and may exercise every right and power of the Company and shall assume
      all of the obligations of the Company under this Note with the same effect
      as if
      such Successor Entity had been named as the Company herein. Upon consummation
      of
      the Fundamental Transaction, the Successor Entity shall deliver to the Holder
      confirmation that there shall be issued upon conversion or redemption of this
      Note at
      any
      time after the consummation of the Fundamental Transaction, in lieu of the
      shares of Common Stock (or
      other
      securities, cash, assets or other property) issuable
      upon the conversion or redemption of the Notes prior to such Fundamental
      Transaction,
      such
      shares of the publicly traded common stock (or their equivalent) of the
      Successor Entity, as adjusted in accordance with the provisions of this Note.
      The
      provisions of this Section shall apply similarly and equally to successive
      Fundamental Transactions and shall be applied without regard to any limitations
      on the conversion or redemption of this Note.

     

    
      
        
        

      

      
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    (b)  Redemption
      Right.
      No
      sooner than fifteen (15) days nor later than ten (10) days prior to the
      consummation of a Change of Control, but not prior to the public announcement
      of
      such Change of Control, the Company shall deliver written notice thereof via
      facsimile and overnight courier to the Holder (a "Change
      of Control Notice").
      At
      any time during the period beginning on the date of the Holder's receipt of
      a
      Change of Control Notice and ending twenty (20) Trading Days after the
      consummation of such Change of Control, the Holder may require the Company
      to
      redeem all or any portion of this Note by delivering written notice thereof
      ("Change
      of Control Redemption Notice")
      to the
      Company, which Change of Control Redemption Notice shall indicate the Conversion
      Amount the Holder is electing to redeem. The portion of this Note subject to
      redemption pursuant to this Section 5 shall be redeemed by the Company in cash
      at a price equal to the greater of (i) the product of (x) the Conversion Amount
      being redeemed and (y) the quotient determined by dividing (A) the greater
      of
      the Closing Sale Price of the Common Stock immediately prior to the consummation
      of the Change of Control, the Closing Sale Price immediately following the
      public announcement of such proposed Change of Control and the Closing Sale
      Price of the Common Stock immediately prior to the public announcement of such
      proposed Change of Control by (B) the Conversion Price and (ii) 125% of the
      Conversion Amount being redeemed (the "Change
      of Control Redemption Price").
      Redemptions required by this Section 5 shall be made in accordance with the
      provisions of Section 12 and shall have priority to payments to stockholders
      in
      connection with a Change of Control. To the extent redemptions required by
      this
      Section 5(b) are deemed or determined by a court of competent jurisdiction
      to be
      prepayments of the Note by the Company, such redemptions shall be deemed to
      be
      voluntary prepayments. Notwithstanding anything to the contrary in this Section
      5, but subject to Section 3(d), until the Change of Control Redemption Price
      (together with any interest thereon) is paid in full, the Conversion Amount
      submitted for redemption under this Section 5(c) may be converted, in whole
      or
      in part, by the Holder into shares of Common Stock, or in the event the
      Conversion Date is after the consummation of the Change of Control, shares
      of
      publicly traded common stock (or their equivalent) of the Successor Entity
      pursuant to Section 3. The parties hereto agree that in the event of the
      Company's redemption of any portion of the Note under this Section 5(b), the
      Holder's damages would be uncertain and difficult to estimate because of the
      parties' inability to predict future interest rates and the uncertainty of
      the
      availability of a suitable substitute investment opportunity for the Holder.
      Accordingly, any redemption premium due under this Section 5(b) is intended
      by
      the parties to be, and shall be deemed, a reasonable estimate of the Holder's
      actual loss of its investment opportunity and not as a penalty.

     

    
      
        
        

      

      
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    (6)  RIGHTS
      UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

     

    (a)  Purchase
      Rights.
      If at
      any time the Company grants, issues or sells any Options, Convertible Securities
      or rights to purchase stock, warrants, securities or other property pro rata
      to
      the record holders of any class of Common Stock (the "Purchase
      Rights"),
      then
      the Holder will be entitled to acquire, upon the terms applicable to such
      Purchase Rights, the aggregate Purchase Rights which the Holder could have
      acquired if the Holder had held the number of shares of Common Stock acquirable
      upon complete conversion of this Note (without taking into account any
      limitations or restrictions on the convertibility of this Note) immediately
      before the date on which a record is taken for the grant, issuance or sale
      of
      such Purchase Rights, or, if no such record is taken, the date as of which
      the
      record holders of Common Stock are to be determined for the grant, issue or
      sale
      of such Purchase Rights.

     

    (b)  Other
      Corporate Events.
      In
      addition to and not in substitution for any other rights hereunder, prior to
      the
      consummation of any Fundamental Transaction pursuant to which holders of shares
      of Common Stock are entitled to receive securities or other assets with respect
      to or in exchange for shares of Common Stock (a "Corporate
      Event"),
      the
      Company shall make appropriate provision to insure that the Holder will
      thereafter have the right to receive upon a conversion of this Note, at the
      Holder's option, (i) in addition to the shares of Common Stock receivable upon
      such conversion, such securities or other assets to which the Holder would
      have
      been entitled with respect to such shares of Common Stock had such shares of
      Common Stock been held by the Holder upon the consummation of such Corporate
      Event (without taking into account any limitations or restrictions on the
      convertibility of this Note) or (ii) in lieu of the shares of Common Stock
      otherwise receivable upon such conversion, such securities or other assets
      received by the holders of shares of Common Stock in connection with the
      consummation of such Corporate Event in such amounts as the Holder would have
      been entitled to receive had this Note initially been issued with conversion
      rights for the form of such consideration (as opposed to shares of Common Stock)
      at a conversion rate for such consideration commensurate with the Conversion
      Rate. Provision made pursuant to the preceding sentence shall be in a form
      and
      substance satisfactory to the Required Holders. The provisions of this Section
      shall apply similarly and equally to successive Corporate Events and shall
      be
      applied without regard to any limitations on the conversion or redemption of
      this Note.

     

    (7)  RIGHTS
      UPON ISSUANCE OF OTHER SECURITIES.

     

    (a)  Adjustment
      of Conversion Price upon Issuance of Common Stock.
      If and
      whenever on or after the Subscription Date through the eighteen (18) month
      anniversary of the Issuance Date, the Company issues or sells, or in accordance
      with this Section 7(a) is deemed to have issued or sold, any shares
      of Common
      Stock (including the issuance or sale of shares
      of Common
      Stock owned or held by or for the account of the Company, but excluding
shares
      of Common
      Stock deemed to have been issued or sold by the Company in connection with
      any
      Excluded Security) for a consideration per share (the "New
      Issuance Price")
      less
      than a price (the "Applicable
      Price")
      equal
      to the Conversion Price in effect immediately prior to such issue or sale (the
      foregoing a "Dilutive
      Issuance"),
      then
      immediately after such Dilutive Issuance, the Conversion Price then in effect
      shall be reduced to an amount equal to the
      New Issuance Price. If
      and
      whenever after the eighteen (18) month anniversary of the Issuance Date, the
      Company issues or sells, or in accordance with this Section 7(a) is deemed
      to
      have issued or sold, any shares
      of Common
      Stock (including the issuance or sale of shares
      of Common
      Stock owned or held by or for the account of the Company, but excluding
shares
      of Common
      Stock deemed to have been issued or sold by the Company in connection with
      any
      Excluded Security) in a Dilutive Issuance, then immediately after such Dilutive
      Issuance, the Conversion Price then in effect shall be reduced to an amount
      equal the
      product of (A) the Conversion Price in effect immediately prior to such
      Dilutive Issuance and (B) the quotient determined by dividing (1) the
      sum of (I) the product derived by multiplying the Conversion Price in effect
      immediately prior to such Dilutive Issuance and the number of shares of Common
      Stock Deemed Outstanding immediately prior to such Dilutive Issuance plus
      (II) the consideration, if any, received by the Company upon such Dilutive
      Issuance, by (2) the product derived by multiplying (I) the Conversion
      Price in effect immediately prior to such Dilutive Issuance by (II) the
      number of shares of Common Stock Deemed Outstanding immediately after such
      Dilutive Issuance. For
      purposes of determining the adjusted Conversion Price under this Section 7(a),
      the following shall be applicable:

     

    
      
        
        

      

      
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    (i)  Issuance
      of Options.
      If the
      Company in any manner grants or sells any Options and the lowest price per
      share
      for which one share
      of Common
      Stock is issuable upon the exercise of any such Option or upon conversion or
      exchange or exercise of any Convertible Securities issuable upon exercise of
      such Option is less than the Applicable Price, then each such share
      of Common
      Stock underlying such Option shall be deemed to be outstanding and to have
      been
      issued and sold by the Company at the time of the granting or sale of such
      Option for such price per share. For purposes of this Section 7(a)(i), the
      "lowest price per share for which one share
      of Common
      Stock is issuable upon the exercise of any such Option or upon conversion or
      exchange or exercise of any Convertible Securities issuable upon exercise of
      such Option" shall be equal to the sum of the lowest amounts of consideration
      (if any) received or receivable by the Company with respect to any one
share
      of Common
      Stock upon granting or sale of the Option, upon exercise of the Option and
      upon
      conversion or exchange or exercise of any Convertible Security issuable upon
      exercise of such Option. No further adjustment of the Conversion Price shall
      be
      made upon the actual issuance of such share of Common Stock or of such
      Convertible Securities upon the exercise of such Options or upon the actual
      issuance of such Common Stock upon conversion or exchange or exercise of such
      Convertible Securities.

     

    (ii)  Issuance
      of Convertible Securities.
      If the
      Company in any manner issues or sells any Convertible Securities and the lowest
      price per share for which one share of Common Stock is issuable upon such
      conversion or exchange or exercise thereof is less than the Applicable Price,
      then each such share of Common Stock underlying such Convertible Securities
      shall be deemed to be outstanding and to have been issued and sold by the
      Company at the time of the issuance or sale of such Convertible Securities
      for
      such price per share. For the purposes of this Section 7(a)(ii), the "lowest
      price per share for which one share of Common Stock is issuable upon such
      conversion or exchange or exercise" shall be equal to the sum of the lowest
      amounts of consideration (if any) received or receivable by the Company with
      respect to any one share of Common Stock upon the issuance or sale of the
      Convertible Security and upon the conversion or exchange or exercise of such
      Convertible Security. No further adjustment of the Conversion Price shall be
      made upon the actual issuance of such share of Common Stock upon conversion
      or
      exchange or exercise of such Convertible Securities, and if any such issue
      or
      sale of such Convertible Securities is made upon exercise of any Options for
      which adjustment of the Conversion Price had been or are to be made pursuant
      to
      other provisions of this Section 7(a), no further adjustment of the Conversion
      Price shall be made by reason of such issue or sale.

     

    
      
        
        

      

      
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    (iii)  Change
      in Option Price or Rate of Conversion.
      If the
      purchase price provided for in any Options, the additional consideration, if
      any, payable upon the issue, conversion, exchange or exercise of any Convertible
      Securities, or the rate at which any Convertible Securities are convertible
      into
      or exchangeable or exercisable for Common Stock changes at any time, the
      Conversion Price in effect at the time of such change shall be adjusted to
      the
      Conversion Price which would have been in effect at such time had such Options
      or Convertible Securities provided for such changed purchase price, additional
      consideration or changed conversion rate, as the case may be, at the time
      initially granted, issued or sold. For purposes of this Section 7(a)(iii),
      if
      the terms of any Option or Convertible Security that was outstanding as of
      the
      Subscription Date are changed in the manner described in the immediately
      preceding sentence, then such Option or Convertible Security and the Common
      Stock deemed issuable upon exercise, conversion or exchange thereof shall be
      deemed to have been issued as of the date of such change. No adjustment shall
      be
      made if such adjustment would result in an increase of the Conversion Price
      then
      in effect.

     

    (iv)  Calculation
      of Consideration Received.
      In case
      any Option is issued in connection with the issue or sale of other securities
      of
      the Company, together comprising one integrated transaction, (x) the Options
      will be deemed to have been issued for a value determined by use of the Black
      Scholes Option Pricing Model (the "Option
      Value")
      and
      (y) the other securities issued or sold in such integrated transaction shall
      be
      deemed to have been issued for the difference of (I) the aggregate consideration
      received by the Company, less (II) the Option Value. If any Common Stock,
      Options or Convertible Securities are issued or sold or deemed to have been
      issued or sold for cash, the consideration received therefor will be deemed
      to
      be the net amount received by the Company therefor. If any Common Stock, Options
      or Convertible Securities are issued or sold for a consideration other than
      cash, the amount of the consideration other than cash received by the Company
      will be the fair value of such consideration, except where such consideration
      consists of securities, in which case the amount of consideration received
      by
      the Company will be the Closing Sale Price of such securities on the date of
      receipt. If any Common Stock, Options or Convertible Securities are issued
      to
      the stockholders of the non-surviving entity in connection with any merger
      in
      which the Company is the surviving entity, the amount of consideration therefor
      will be deemed to be the fair value of such portion of the net assets and
      business of the non-surviving entity as is attributable to such Common Stock,
      Options or Convertible Securities, as the case may be. The fair value of any
      consideration other than cash or securities will be determined jointly by the
      Company and the Required Holders. If such parties are unable to reach agreement
      within ten (10) days after the occurrence of an event requiring valuation (the
      "Valuation
      Event"),
      the
      fair value of such consideration will be determined, at the Company's expense,
      within five (5) Business Days after the tenth (10th)
      day
      following the Valuation Event by an independent, reputable appraiser jointly
      selected by the Company and the Required Holders. The determination of such
      appraiser shall be deemed binding upon all parties absent manifest error.

     

    
      
        
        

      

      
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    (v)  Record
      Date.
      If the
      Company takes a record of the holders of Common Stock for the purpose of
      entitling them (A) to receive a dividend or other distribution payable in Common
      Stock, Options or in Convertible Securities or (B) to subscribe for or purchase
      Common Stock, Options or Convertible Securities, then such record date will
      be
      deemed to be the date of the issue or sale of the Common Stock deemed to have
      been issued or sold upon the declaration of such dividend or the making of
      such
      other distribution or the date of the granting of such right of subscription
      or
      purchase, as the case may be.

     

    (b)  Adjustment
      of Conversion Price upon Subdivision or Combination of Common
      Stock.
      If the
      Company at any time on or after the Subscription Date subdivides (by any stock
      split, stock dividend, recapitalization or otherwise) one or more classes of
      its
      outstanding shares of Common Stock into a greater number of shares, the
      Conversion Price in effect immediately prior to such subdivision will be
      proportionately reduced. If the Company at any time on or after the Subscription
      Date combines (by combination, reverse stock split or otherwise) one or more
      classes of its outstanding shares of Common Stock into a smaller number of
      shares, the Conversion Price in effect immediately prior to such combination
      will be proportionately increased.

     

    (c)  Other
      Events.
      If any
      event occurs of the type contemplated by the provisions of this Section 7 but
      not expressly provided for by such provisions (including, without limitation,
      the granting of stock appreciation rights, phantom stock rights or other rights
      with equity features), then the Company's Board of Directors will make an
      appropriate adjustment in the Conversion Price so as to protect the rights
      of
      the Holder under this Note; provided that no such adjustment will increase
      the
      Conversion Price as otherwise determined pursuant to this Section
      7.

     

    (d)  De
      Minimis Adjustments.
      No
      adjustment in the Conversion Price shall be required unless such adjustment
      would require an increase or decrease of at least $0.01 in such price; provided,
      however, that any adjustment which by reason of this Section 7(d) is not
      required to be made shall be carried forward and taken into account in any
      subsequent adjustments under this Section 7. All calculations under this Section
      7 shall be made by the Company in good faith and shall be made to the nearest
      cent or to the nearest one hundredth of a share, as applicable. No adjustment
      need be made for a change in the par value or no par value of the Company's
      Common Stock.

     

    (e)  Voluntary
      Adjustment By Company.
      The
      Company may at any time during the term of this Note reduce the then current
      Conversion Price to any amount and for any period of time deemed appropriate
      by
      the Board of Directors of the Company.

     

    
      
        
        

      

      
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    (8)  HOLDER'S
      RIGHT OF OPTIONAL REDEMPTION.
      On May 30, 2008 (the "Holder
      Optional Redemption Eligibility Date"),
      if an Equity Conditions Failure exists, the Holder shall have the right, in
      its
      sole discretion, to require that the Company redeem an amount equal to up to
      the
      Holder Pro Rata Amount of the lesser of (x) the aggregate Principal amount
      of
      the Notes outstanding as of the Holder Optional Redemption Eligibility Date
      and
      (y) the Holder Optional Redemption Eligibility Amount (a "Holder
      Optional Redemption")
      by delivering written notice thereof (a "Holder Optional
      Redemption Notice")
      to the Company on or prior to November 30, 2008 (the "Holder Optional
      Redemption Notice Eligibility Date").
      The Holder Optional Redemption Notice shall indicate the Conversion Amount
      the
      Holder is electing to have redeemed (the "Holder
      Optional Redemption Amount")
      on the Holder Optional Redemption Date. The
      Holder may deliver one (1) Holder Optional Redemption Notice hereunder.
The
      portion of this Note subject to redemption pursuant to this Section 8 shall
      be
      redeemed by the Company in cash at a price equal to the Conversion Amount being
      redeemed (the "Holder
      Optional Redemption Price")
      or, at such Holder's sole option, by such Holder drawing such Holder Optional
      Redemption Amount from the Letter of Credit (as defined in the Securities
      Purchase Agreement). Redemptions required by this Section 8 shall be made in
      accordance with the provisions of Section 12. Notwithstanding anything to the
      contrary in this Section 8, but subject to Section 3(d), until the Holder
      receives the Holder Optional Redemption Price, the Holder Optional Redemption
      Amount may be converted, in whole or in part, by the Holder into Common Stock
      pursuant to Section 3, and any such conversion shall reduce the Holder Optional
      Redemption Amount.

     

    (9)  SECURITY.
      This
      Note and the Other Notes are secured to the extent and in the manner set forth
      in the Security Documents (as defined in the Securities Purchase
      Agreement).

     

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

     

    (11)  RESERVATION
      OF AUTHORIZED SHARES.

     

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

     

    
      
        
        

      

      
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    (b)  Insufficient
      Authorized Shares.
      If at
      any time while any of the Notes remain outstanding the Company does not have
      a
      sufficient number of authorized and unreserved shares of Common Stock to satisfy
      its obligation to reserve for issuance upon conversion of the Notes at least
      a
      number of shares of Common Stock equal to the Required Reserve Amount (an
      "Authorized
      Share Failure"),
      then
      the Company shall immediately take all action necessary to increase the
      Company's authorized shares of Common Stock to an amount sufficient to allow
      the
      Company to reserve the Required Reserve Amount for the Notes then outstanding.
      Without limiting the generality of the foregoing sentence, as soon as
      practicable after the date of the occurrence of an Authorized Share Failure,
      but
      in no event later than sixty (60) days after the occurrence of such Authorized
      Share Failure, the Company shall hold a meeting of its stockholders for the
      approval of an increase in the number of authorized shares of Common Stock.
      In
      connection with such meeting, the Company shall provide each stockholder with
      a
      proxy statement and shall use its best efforts to solicit its stockholders'
      approval of such increase in authorized shares of Common Stock and to cause
      its
      board of directors to recommend to the stockholders that they approve such
      proposal.

     

    (12)  HOLDER'S
      REDEMPTIONS.

     

    (a)  Mechanics.
      The
      Company shall deliver the applicable Event of Default Redemption Price to the
      Holder within five (5) Business Days after the Company's receipt of the Holder's
      Event of Default Redemption Notice. If the Holder has submitted a Change of
      Control Redemption Notice in accordance with Section 5(b), the Company shall
      deliver the applicable Change of Control Redemption Price to the Holder
      concurrently with the consummation of such Change of Control if such notice
      is
      received prior to the consummation of such Change of Control and within five
      (5)
      Business Days after the Company's receipt of such notice otherwise. The Company
      shall deliver the Holder Optional Redemption Price to the Holder within five
      (5)
      Business Days after the Company's receipt of the Holder Optional Redemption
      Notice (the "Holder
      Optional Redemption Date").
      In
      the event of a redemption of less than all of such Conversion Amount of this
      Note, the Company shall promptly cause to be issued and delivered to the Holder
      a new Note (in accordance with Section 18(d)) representing the outstanding
      Principal which has not been redeemed. In the event that the Company does not
      pay the applicable Redemption Price to the Holder within the time period
      required, at any time thereafter and until the Company pays such unpaid
      Redemption Price in full, the Holder shall have the option, in lieu of
      redemption, to require the Company to promptly return to the Holder all or
      any
      portion of this Note representing such Conversion Amount that was submitted
      for
      redemption and for which the applicable Redemption Price (together with any
      Late
      Charges thereon) has not been paid. Upon the Company's receipt of such notice,
      (x) the Redemption Notice shall be null and void with respect to such Conversion
      Amount, (y) the Company shall immediately return this Note, or issue a new
      Note
      (in accordance with Section 18(d)) to the Holder representing such Conversion
      Amount and (z) the Conversion Price of this Note or such new Notes shall be
      adjusted to the lesser of (A) the Conversion Price as in effect on the date
      on
      which the applicable Redemption Notice is voided and (B) the lowest Closing
      Bid
      Price of the Common Stock during the period beginning on and including the
      date
      on which the applicable Redemption Notice is delivered to the Company and ending
      on and including the date on which the applicable Redemption Notice is voided.
      The Holder's delivery of a notice voiding a Redemption Notice and exercise
      of
      its rights following such notice shall not affect the Company's obligations
      to
      make any payments of Late Charges which have accrued prior to the date of such
      notice with respect to the Conversion Amount subject to such
      notice.

     

    
      
        
        

      

      
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    (b)  Redemption
      by Other Holders.
      Upon
      the Company's receipt of notice from any of the holders of the Other Notes
      for
      redemption or repayment as a result of an event or occurrence substantially
      similar to the events or occurrences described in Section 4(b), Section 5(b)
      or
      Section 8 (each, an "Other
      Redemption Notice"),
      the
      Company shall immediately, but no later than two (2) Business Days of its
      receipt thereof, forward to the Holder by facsimile a copy of such notice.
      If
      the Company receives a Redemption Notice and one or more Other Redemption
      Notices, during the seven (7) Business Day period beginning on and including
      the
      date which is three (3) Business Days prior to the Company's receipt of the
      Holder's Redemption Notice and ending on and including the date which is three
      (3) Business Days after the Company's receipt of the Holder's Redemption Notice
      and the Company is unable to redeem all principal, interest and other amounts
      designated in such Redemption Notice and such Other Redemption Notices received
      during such seven (7) Business Day period, then the Company shall redeem a
      pro
      rata amount from each holder of the Notes (including the Holder) based on the
      principal amount of the Notes submitted for redemption pursuant to such
      Redemption Notice and such Other Redemption Notices received by the Company
      during such seven (7) Business Day period.

     

    (13)  VOTING
      RIGHTS.
      The
      Holder shall have no voting rights as the holder of this Note, except as
      required by law, including, but not limited to, the Florida Business Corporation
      Act of the State of Florida and as expressly provided in this Note.

     

    (14)  COVENANTS.

     

    (a)  Rank.All
      payments due under this Note (i) shall rank pari
      passu
      with all
      Other Notes and (ii) shall be senior to all other Indebtedness of the Company
      and its Subsidiaries, other than Permitted Indebtedness secured by Permitted
      Liens.

     

    (b)  Incurrence
      of Indebtedness.
      So long
      as this Note is outstanding, the Company shall not, and the Company shall not
      permit any of its Subsidiaries to, directly or indirectly, incur or guarantee,
      assume or suffer to exist any Indebtedness, other than (i) the Indebtedness
      evidenced by this Note and the Other Notes and (ii) Permitted
      Indebtedness.

     

    (c)  Existence
      of Liens.
      So long
      as this Note is outstanding, the Company shall not, and the Company shall not
      permit any of its Subsidiaries to, directly or indirectly, allow or suffer
      to
      exist any mortgage, lien, pledge, charge, security interest or other encumbrance
      upon or in any property or assets (including accounts and contract rights)
      owned
      by the Company or any of its Subsidiaries (collectively, "Liens")
      other
      than Permitted Liens.

     

    
      
        
        

      

      
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    (d)  Restricted
      Payments.
      The
      Company shall not, and the Company shall not permit any of its Subsidiaries
      to,
      directly or indirectly, redeem, defease, repurchase, repay or make any payments
      in respect of, by the payment of cash or cash equivalents (in whole or in part,
      whether by way of open market purchases, tender offers, private transactions
      or
      otherwise), all or any portion of any Indebtedness (other than this Note and
      the
      Other Notes), whether by way of payment in respect of principal of (or premium,
      if any) or interest on such Indebtedness, if at the time such payment is due
      or
      is otherwise made or, after giving effect to such payment, an event
      constituting, or that with the passage of time and without being cured would
      constitute, an Event of Default has occurred and is continuing; provided that
      notwithstanding the foregoing, no principal (or any portion thereof) of any
      Subordinated Indebtedness may be paid (whether upon maturity, redemption,
      acceleration or otherwise) so long as this Note is outstanding.

     

    (e)  Restriction
      on Redemption and Cash Dividends.
      Until
      all of the Notes have been converted, redeemed or otherwise satisfied in
      accordance with their terms, the Company shall not, directly or indirectly,
      redeem, repurchase or declare or pay any cash dividend or distribution on its
      capital stock without the prior express written consent of the Required
      Holders.

     

    (f)  Financial
      Covenants; Announcement of Operating Results.

     

    (i)  Available
      Cash Test.
      So long
      as this Note is outstanding, the Company's Available Cash as of the end of
      each
      Fiscal Quarter following the Issuance Date shall equal or exceed the amount
      equal to (x) the Cash Burn for such Fiscal Quarter multiplied by (y) four (4)
      (the "Available
      Cash Test").

     

    (ii)  Consolidated
      Revenue Test.
      So long
      as this Note is outstanding, the Company's Consolidated Revenues as of the
      end
      of each Fiscal Quarter following the Issuance Date shall equal or exceed the
      amount equal to the applicable Consolidated Revenue threshold set forth in
      the
      first row of the Table of Financial Thresholds attached hereto as Schedule
      I
      with
      respect to such Fiscal Quarter (the "Consolidated
      Revenue Test").

     

    (iii)  Consolidated
      EBITDA Test.
      So long
      as this Note is outstanding, the Company's Consolidated EBITDA as of the end
      of
      each Fiscal Quarter following the Issuance Date shall equal or exceed the amount
      equal to the applicable Consolidated EBITDA threshold set forth in the second
      row of the Table of Financial Thresholds attached hereto as Schedule
      I
      with
      respect to such Fiscal Quarter (the "Consolidated
      EBITDA Test",
      and
      together with the Available Cash Test and the Consolidated Revenue Test, the
      "Financial
      Tests").

     

    (iv)  Operating
      Results Announcement.
      Commencing with the Fiscal Quarter ending March 31, 2008, the Company shall
      publicly disclose and disseminate (such date, the "Announcement
      Date")
      its
      operating results (the "Operating
      Results")
      (x)
      for each of the first three Fiscal Quarters of each fiscal year no later than
      the forty-fifth (45th)
      day
      after the end of such Fiscal Quarter and (y) for the fourth Fiscal Quarter
      of each Fiscal Year, no later than the ninetieth (90th)
      day
      after the end of such Fiscal Year, and in the event the Company shall have
      satisfied the Financial Tests such announcement shall include a statement to
      the
      effect that the Company is not in breach of the Financial Tests for such Fiscal
      Quarter. On the Announcement Date, the Company shall also provide to the Holders
      a certification, executed on behalf of the Company by the Chief Financial
      Officer of the Company, certifying that the Company satisfied the Financial
      Tests for such Fiscal Quarter. If the Company has failed to meet any Financial
      Test for such Fiscal Quarter (a "Financial
      Covenant Failure"),
      the
      foregoing written certification that the Company provides to the Holders shall
      also state each Financial Test that has not been met (a "Financial
      Covenant Failure Notice").
      Concurrently with the delivery of each Financial Covenant Failure Notice to
      the
      Holders, the Company shall also make publicly available (as part of a Quarterly
      Report on Form 10-Q, Annual Report on Form 10-K or on a Current Report on Form
      8-K, or otherwise) the Operating Results, the Financial Covenant Failure Notice
      and the fact that an Event of Default has occurred under the Notes.

     

    
      
        
        

      

      
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    (g)  Intellectual
      Property.
      So
      long
      as any Note is outstanding, the Company shall not, and shall not permit any
      Subsidiary to, directly or indirectly, (i) assign, transfer or otherwise
      encumber or allow any other Person to have any rights or license to any of
      the
      Intellectual Property Rights (as defined in the Securities Purchase Agreement)
      of the Company or its Subsidiaries other than Permitted Indebtedness and
      Permitted Liens, (ii) grant any royalties and other Indebtedness with respect
      to
      any of the Intellectual Property Rights other than Permitted
      Indebtedness or
      (ii)
      take any action or inaction to impair the value of their Intellectual Property
      Rights.

     

    (h)  Creation
      of New Subsidiaries.
      So long
      as the obligations of the Company under this Note are outstanding, if the
      Company shall create or acquire any Subsidiary, simultaneous with the creation
      or acquisition of such Subsidiary, the
      Company shall (i) promptly cause such Subsidiary to become a guarantor by
      executing a guaranty in favor of the Holder in form and substance reasonably
      acceptable to the Company, the Subsidiary and the Holder, (ii) promptly cause
      such Subsidiary to become a grantor under the Security Agreement by executing
      a
      joinder to the Security Agreement in form and substance reasonably acceptable
      to
      the Company, the Subsidiary and the Holder, (iii) promptly cause such Subsidiary
      to become a pledgor by the Company and such Subsidiary executing a pledge
      agreement in form and substance reasonably acceptable to the Company, the
      Subsidiary and the Holder, and (iv) promptly cause such Subsidiary to duly
      execute and/or deliver such opinions of counsel and other documents, in form
      and
      substance reasonable acceptable to the Holder, as the Holder shall reasonably
      request with respect thereto.

     

    (i)  Collateral
      Accounts.

     

    (i)  If
      at any
      time after the Closing Date, the average daily balance of any account of the
      Company that is not subject to an account control agreement in favor of the
      Collateral Agent exceeds $50,000 during any calendar month (including the
      calendar month in which the Closing Date occurs), the Company shall, within
      twenty (20) Business Days following the last day of such calendar month, deliver
      to the Collateral Agent an account control agreement, in form and substance
      reasonably satisfactory to the Collateral Agent, duly executed by the Company
      and the depositary bank in which such account is maintained.

     

    
      
        
        

      

      
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    (ii)  Notwithstanding
      anything to the contrary contained in clause (a) above, and without limiting
      any
      of the foregoing, if at any time on or after the date that is twenty (20)
      Business Days following the Closing Date, the total aggregate amount of the
      Company's cash that is not subject to a control agreement in favor of the
      Collateral Agent exceeds $100,000 (the "Maximum
      Free Cash Amount"),
      the
      Company shall within two (2) Business Days following such date, transfer to
      an
      account subject to an account agreement in favor of the Collateral Agent an
      amount sufficient to reduce the total aggregate amount of the Company's cash
      that is not subject to an account control agreement in favor of the Collateral
      Agent to an amount not in excess of the Maximum Free Cash Amount.

     

    (j)  Change
      in Collateral; Collateral Records.
      The
      Company shall (i) give the Collateral Agent (as defined in the Securities
      Purchase Agreement) not less than thirty (30) days' prior written notice of
      any change in the location of any Collateral (as defined in the Security
      Documents (as defined in the Securities Purchase Agreement)), other than to
      locations set forth on Schedule 13(g) hereto and with respect to which the
      Collateral Agent has filed financing statements and otherwise fully perfected
      its Liens thereon, (ii) advise the Collateral Agent promptly, in sufficient
      detail, of any material adverse change relating to the type, quantity or quality
      of the Collateral or the Lien granted thereon and (iii) execute and
      deliver, and cause each of its Subsidiaries to execute and deliver, to the
      Collateral Agent for the benefit of the Holder and holders of the Other Notes
      from time to time, solely for the Collateral Agent's convenience in maintaining
      a record of Collateral, such written statements and schedules as the Collateral
      Agent may reasonably require, designating, identifying or describing the
      Collateral.

     

    (k)  Transactions
      with Affiliates.
      The
      Company shall not, nor shall it permit any of its Subsidiaries to, enter into,
      renew, extend or be a party to, any transaction or series of related
      transactions (including, without limitation, the purchase, sale, lease, transfer
      or exchange of property or assets of any kind or the rendering of services
      of
      any kind) with any Affiliate, except (i) in the ordinary course of business
      in a manner and to an extent consistent with past practice and necessary or
      desirable for the prudent operation of its business, for fair consideration
      and
      on terms no less favorable to it or its Subsidiaries than would be obtainable
      in
      a comparable arm's length transaction with a Person that is not an Affiliate
      thereof.

     

    (l)  Change
      in Nature of Business.
      The
      Company shall not make, or permit any of its Subsidiaries to make, any change
      in
      the nature of its business as described in the Company's most recent annual
      report filed on Form 10-K with the SEC. The
      Company shall not modify its corporate structure or purpose.

     

    (m)  Preservation
      of Existence, Etc.
      The
      Company shall maintain and preserve, and cause each of its Subsidiaries to
      maintain and preserve, its existence, rights and privileges, and become or
      remain, and cause each of its Subsidiaries to become or remain, duly qualified
      and in good standing in each jurisdiction in which the character of the
      properties owned or leased by it or in which the transaction of its business
      makes such qualification necessary.

     

    (n)  Maintenance
      of Properties, Etc.
      The
      Company shall maintain and preserve, and cause each of its Subsidiaries to
      maintain and preserve, all of its properties which are necessary or useful
      in
      the proper conduct of its business in good working order and condition, ordinary
      wear and tear excepted, and comply, and cause each of its Subsidiaries to
      comply, at all times with the provisions of all leases to which it is a party
      as
      lessee or under which it occupies property, so as to prevent any loss or
      forfeiture thereof or thereunder.

     

    
      
        
        

      

      
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    (o)  Maintenance
      of Insurance.
      The
      Company shall maintain, and cause each of its Subsidiaries to maintain,
      insurance with responsible and reputable insurance companies or associations
      (including, without limitation, comprehensive general liability insurance)
      with
      respect to its properties (including all real properties leased or owned by
      it)
      and business, in such amounts and covering such risks as is required by any
      governmental authority having jurisdiction with respect thereto or as is carried
      generally in accordance with sound business practice by companies in similar
      businesses similarly situated and in any event in amount, adequacy and scope
      reasonably satisfactory to the Collateral Agent. All policies covering the
      Collateral are to be made payable to the Collateral Agent for the benefit of
      the
      Holder and the holder of the Other Notes, as its interests may appear, in case
      of loss, under a standard non-contributory "lender" or "secured party" clause
      and are to contain such other provisions as the Collateral Agent may require
      to
      fully protect the interest of the Holder and the holder of the Other Notes
      in
      the Collateral and to any payments to be made under such policies. All
      certificates of insurance are to be delivered to the Collateral Agent and the
      policies are to be premium prepaid, with the loss payable and additional insured
      endorsement in favor of the Collateral Agent and such other Persons as the
      Collateral Agent may designate from time to time, and shall provide for not
      less
      than thirty (30) days' prior written notice to the Collateral Agent of the
      exercise of any right of cancellation. If the Company or any of its Subsidiaries
      fails to maintain such insurance, the Collateral Agent may arrange for such
      insurance, but at the Company's expense and without any responsibility on the
      Collateral Agent's part for obtaining the insurance, the solvency of the
      insurance companies, the adequacy of the coverage, or the collection of claims.
      Upon the occurrence and during the continuance of an Event of Default, the
      Collateral Agent shall have the sole right, in the name of the Holder and the
      holders of the Other Notes, the Company and its Subsidiaries, to file claims
      under any insurance policies, to receive, receipt and give acquittance for
      any
      payments that may be payable thereunder, and to execute any and all
      endorsements, receipts, releases, assignments, reassignments or other documents
      that may be necessary to effect the collection, compromise or settlement of
      any
      claims under any such insurance policies.

     

    (15)  PARTICIPATION.
      The
      Holder, as the holder of this Note, shall be entitled to receive such dividends
      paid and distributions made to the holders of Common Stock to the same extent
      as
      if the Holder had converted this Note into Common Stock (without regard to
      any
      limitations on conversion herein or elsewhere) and had held such shares of
      Common Stock on the record date for such dividends and distributions. Payments
      under the preceding sentence shall be made concurrently with the dividend or
      distribution to the holders of Common Stock. 

     

    (16)  VOTE
      TO ISSUE, OR CHANGE THE TERMS OF, NOTES.
      The
      affirmative vote at a meeting duly called for such purpose or the written
      consent without a meeting of the Required Holders shall be required for any
      change or amendment to this Note or the Other Notes. No
      consideration shall be offered or paid to any holder of Notes to amend or
      consent to a waiver or modification of the Notes unless the same consideration
      also is offered to all of the holders of Notes.

     

    
      
        
        

      

      
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    (17)  TRANSFER.
      This
      Note may be offered, sold, assigned or transferred by the Holder without the
      consent of the Company, subject only to the provisions of Section 2(f) of the
      Securities Purchase Agreement.

     

    (18)  REISSUANCE
      OF THIS NOTE.

     

    (a)  Transfer.
      If this
      Note is to be transferred, the Holder shall surrender this Note to the Company,
      whereupon the Company will forthwith issue and deliver upon the order of the
      Holder a new Note (in accordance with Section 18(d)), registered as the Holder
      may request, representing the outstanding Principal being transferred by the
      Holder and, if less then the entire outstanding Principal is being transferred,
      a new Note (in accordance with Section 18(d)) to the Holder representing the
      outstanding Principal not being transferred. The Holder and any assignee, by
      acceptance of this Note, acknowledge and agree that, by reason of the provisions
      of Section 3(c)(iii) and this Section 18(a) following conversion or redemption
      of any portion of this Note, the outstanding Principal represented by this
      Note
      may be less than the Principal stated on the face of this Note.

     

    (b)  Lost,
      Stolen or Mutilated Note.
      Upon
      receipt by the Company of evidence reasonably satisfactory to the Company of
      the
      loss, theft, destruction or mutilation of this Note, and, in the case of loss,
      theft or destruction, of any indemnification undertaking by the Holder to the
      Company in customary form and, in the case of mutilation, upon surrender and
      cancellation of this Note, the Company shall execute and deliver to the Holder
      a
      new Note (in accordance with Section 18(d)) representing the outstanding
      Principal.

     

    (c)  Note
      Exchangeable for Different Denominations.
      This
      Note is exchangeable, upon the surrender hereof by the Holder at the principal
      office of the Company, for a new Note or Notes (in accordance with Section
      18(d)
      and in principal amounts of at least $100,000) representing in the aggregate
      the
      outstanding Principal of this Note, and each such new Note will represent such
      portion of such outstanding Principal as is designated by the Holder at the
      time
      of such surrender.

     

    (d)  Issuance
      of New Notes.
      Whenever the Company is required to issue a new Note pursuant to the terms
      of
      this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall
      represent, as indicated on the face of such new Note, the Principal remaining
      outstanding (or in the case of a new Note being issued pursuant to Section
      18(a)
      or Section 18(c), the Principal designated by the Holder which, when added
      to
      the principal represented by the other new Notes issued in connection with
      such
      issuance, does not exceed the Principal remaining outstanding under this Note
      immediately prior to such issuance of new Notes), (iii) shall have an issuance
      date, as indicated on the face of such new Note, which is the same as the
      Issuance Date of this Note, (iv) shall have the same rights and conditions
      as
      this Note, and (v) shall represent accrued and unpaid Interest and Late Charges
      on the Principal and Interest of this Note, if any, from the Issuance
      Date.

     

    (19)  REMEDIES,
      CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
      RELIEF.
      The
      remedies provided in this Note shall be cumulative and in addition to all other
      remedies available under this Note and any of the other Transaction Documents
      at
      law or in equity (including a decree of specific performance and/or other
      injunctive relief), and nothing herein shall limit the Holder's right to pursue
      actual and consequential damages for any failure by the Company to comply with
      the terms of this Note. Amounts set forth or provided for herein with respect
      to
      payments, conversion and the like (and the computation thereof) shall be the
      amounts to be received by the Holder and shall not, except as expressly provided
      herein, be subject to any other obligation of the Company (or the performance
      thereof). The Company acknowledges that a breach by it of its obligations
      hereunder will cause irreparable harm to the Holder and that the remedy at
      law
      for any such breach may be inadequate. The Company therefore agrees that, in
      the
      event of any such breach or threatened breach, the Holder shall be entitled,
      in
      addition to all other available remedies, to an injunction restraining any
      breach, without the necessity of showing economic loss and without any bond
      or
      other security being required.

     

    
      
        
        

      

      
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    (20)  PAYMENT
      OF COLLECTION, ENFORCEMENT AND OTHER COSTS.
      If (a)
      this Note is placed in the hands of an attorney for collection or enforcement
      or
      is collected or enforced through any legal proceeding or the Holder otherwise
      takes action to collect amounts due under this Note or to enforce the provisions
      of this Note or (b) there occurs any bankruptcy, reorganization, receivership
      of
      the Company or other proceedings affecting Company creditors' rights and
      involving a claim under this Note, then the Company shall pay the costs incurred
      by the Holder for such collection, enforcement or action or in connection with
      such bankruptcy, reorganization, receivership or other proceeding, including,
      but not limited to, financial advisory fees and attorneys' fees and
      disbursements.

     

    (21)  CONSTRUCTION;
      HEADINGS.
      This
      Note shall be deemed to be jointly drafted by the Company and all the Purchasers
      and shall not be construed against any person as the drafter hereof. The
      headings of this Note are for convenience of reference and shall not form part
      of, or affect the interpretation of, this Note.

     

    (22)  FAILURE
      OR INDULGENCE NOT WAIVER.
      No
      failure or delay on the part of the Holder in the exercise of any power, right
      or privilege hereunder shall operate as a waiver thereof, nor shall any single
      or partial exercise of any such power, right or privilege preclude other or
      further exercise thereof or of any other right, power or privilege.

     

    (23)  DISPUTE
      RESOLUTION.
      In the
      case of a dispute as to the determination of the Closing Bid Price, the Closing
      Sale Price or the Weighted Average Price or the arithmetic calculation of the
      Conversion Rate or any Redemption Price, the Company shall submit the disputed
      determinations or arithmetic calculations via facsimile within two (2) Business
      Days of receipt, or deemed receipt, of the Conversion Notice or Redemption
      Notice or other event giving rise to such dispute, as the case may be, to the
      Holder. If the Holder and the Company are unable to agree upon such
      determination or calculation within three (3) Business Days of such disputed
      determination or arithmetic calculation being submitted to the Holder, then
      the
      Company shall, within two (2) Business Days submit via facsimile (a) the
      disputed determination of the Closing Bid Price, the Closing Sale Price or
      the
      Weighted Average Price to an independent, reputable investment bank selected
      by
      the Company and approved by the Holder or (b) the disputed arithmetic
      calculation of the Conversion Rate or any Redemption Price to the Company's
      independent, outside accountant. The Company, at the Company's expense, shall
      cause the investment bank or the accountant, as the case may be, to perform
      the
      determinations or calculations and notify the Company and the Holder of the
      results no later than ten (10) Business Days from the time it receives the
      disputed determinations or calculations. Such investment bank's or accountant's
      determination or calculation, as the case may be, shall be binding upon all
      parties absent demonstrable error.

     

    
      
        
        

      

      
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    (24)  NOTICES;
      PAYMENTS.

     

    (a)  Notices.
      Whenever notice is required to be given under this Note, unless otherwise
      provided herein, such notice shall be given in accordance with Section 9(f)
      of
      the Securities Purchase Agreement. The Company shall provide the Holder with
      prompt written notice of all actions taken pursuant to this Note, including
      in
      reasonable detail a description of such action and the reason therefor. Without
      limiting the generality of the foregoing, the Company will give written notice
      to the Holder (i) immediately upon any adjustment of the Conversion Price,
      setting forth in reasonable detail, and certifying, the calculation of such
      adjustment and (ii) at least twenty (20) days prior to the date on which the
      Company closes its books or takes a record (A) with respect to any dividend
      or
      distribution upon the Common Stock, (B) with respect to any pro rata
      subscription offer to holders of Common Stock or (C) for determining rights
      to
      vote with respect to any Fundamental Transaction, dissolution or liquidation,
      provided in each case that such information shall be made known to the public
      prior to or in conjunction with such notice being provided to the
      Holder.

     

    (b)  Payments.
      Whenever any payment of cash is to be made by the Company to any Person pursuant
      to this Note, such payment shall be made in lawful money of the United States
      of
      America by a check drawn on the account of the Company and sent via overnight
      courier service to such Person at such address as previously provided to the
      Company in writing (which address, in the case of each of the Purchasers, shall
      initially be as set forth on the Schedule of Buyers attached to the Securities
      Purchase Agreement); provided that the Holder may elect to receive a payment
      of
      cash via wire transfer of immediately available funds by providing the Company
      with prior written notice setting out such request and the Holder's wire
      transfer instructions. Whenever any amount expressed to be due by the terms
      of
      this Note is due on any day which is not a Business Day, the same shall instead
      be due on the next succeeding day which is a Business Day and, in the case
      of
      any Interest Date which is not the date on which this Note is paid in full,
      the
      extension of the due date thereof shall not be taken into account for purposes
      of determining the amount of Interest due on such date. Any amount of Principal
      or other amounts due under the Transaction Documents which is not paid when
      due
      shall result in a late charge being incurred and payable by the Company in
      an
      amount equal to interest on such amount at the rate of eighteen percent (18%)
      per annum from the date such amount was due until the same is paid in full
      ("Late
      Charge").

     

    (25)  CANCELLATION.
      After
      all Principal, accrued Interest and other amounts at any time owed on this
      Note
      have been paid in full, including pursuant to a redemption or conversion of
      this
      Note, this Note shall automatically be deemed canceled, shall be surrendered
      to
      the Company for cancellation and shall not be reissued.

     

    (26)  WAIVER
      OF NOTICE.
      To the
      extent permitted by law, the Company hereby waives demand, notice, protest
      and
      all other demands and notices in connection with the delivery, acceptance,
      performance, default or enforcement of this Note and the Securities Purchase
      Agreement.

     

    
      
        
        

      

      
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    (27)  GOVERNING
      LAW; JURISDICTION;
      JURY TRIAL.
      This
      Note shall be construed and enforced in accor-dance with, and all questions
      concerning the construction, validity, interpretation and performance of this
      Note shall be governed by, the internal laws of the State of New York, without
      giving effect to any choice of law or conflict of law provision or rule (whether
      of the State of New York or any other jurisdictions) that would cause the
      application of the laws of any jurisdictions other than the State of New York.
      The Company hereby irrevocably submits to the exclusive jurisdiction of the
      state and federal courts sitting in The City of New York, Borough of Manhattan,
      for the adjudication of any dispute hereunder or in connection herewith or
      with
      any transaction contemplated hereby or discussed herein, and hereby irrevocably
      waives, and agrees not to assert in any suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is brought in an inconvenient forum or that
      the
      venue of such suit, action or proceeding is improper. The Company hereby
      irrevocably waives personal service of process and consents to process being
      served in any such suit, action or proceeding by mailing a copy thereof to
      such
      party at the address it set forth on the signature page hereto and agrees that
      such service shall constitute good and sufficient service of process and notice
      thereof. Nothing contained herein shall be deemed to limit in any way any right
      to serve process in any manner permitted by law. Nothing contained herein shall
      be deemed or operate to preclude the Holder from bringing suit or taking other
      legal action against the Company in any other jurisdiction to collect on the
      Company's obligations to the Holder, to realize on any collateral or any other
      security for such obligations, or to enforce a judgment or other court ruling
      in
      favor of the Holder. THE
      COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
      REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
      CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED
      HEREBY.

     

    (28)  SEVERABILITY.
      If any
      provision of this Note is prohibited by law or otherwise determined to be
      invalid or unenforceable by a court of competent jurisdiction, the provision
      that would otherwise be prohibited, invalid or unenforceable shall be deemed
      amended to apply to the broadest extent that it would be valid and enforceable,
      and the invalidity or unenforceability of such provision shall not affect the
      validity of the remaining provisions of this Note so long as this Note as so
      modified continues to express, without material change, the original intentions
      of the parties as to the subject matter hereof and the prohibited nature,
      invalidity or unenforceability of the provision(s) in question does not
      substantially impair the respective expectations or reciprocal obligations
      of
      the parties or the practical realization of the benefits that would otherwise
      be
      conferred upon the parties. The parties will endeavor in good faith negotiations
      to replace the prohibited, invalid or unenforceable provision(s) with a valid
      provision(s), the effect of which comes as close as possible to that of the
      prohibited, invalid or unenforceable provision(s).

     

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

     

    (a)  "Approved
      Stock Plan"
      means
      any employee benefit plan which has been approved by the Board of Directors
      of
      the Company, pursuant to which the Company's securities may be issued to any
      employee, officer or director for services provided to the Company.

     

    
      
        
        

      

      
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    (b)  "Available
      Cash"
      means
      an amount equal to (i) the aggregate amount of the Company's Cash, Cash
      Equivalent and Eligible Investment Balances, minus (b) the Increase in Debt
      Balance, in each case as of the relevant date of determination.

     

    (c)  "Bloomberg"
      means
      Bloomberg Financial Markets.

     

    (d)  "Business
      Day"
      means
      any day other than Saturday, Sunday or other day on which commercial banks
      in
      The City of New York are authorized or required by law to remain
      closed.

     

    (e)  "Cash
      Burn"
      means
      (i) Consolidated Net Income plus (ii) Depreciation plus (iii) Amortization
      plus
      (iv) Stock Based Compensation minus (iv) Capital Expenditures. For purposes
      of
      the foregoing, each of Depreciation, Amortization, Stock Based Compensation
      and
      Capital Expenditures shall each be calculated in accordance with GAAP.

     

    (f)  "Cash,
      Cash Equivalent and Eligible Investment Balances"
      of the
      Company and its Subsidiaries on any date shall be determined from such Persons'
      books maintained in accordance with GAAP, and means, without duplication, the
      cash, cash equivalents and Eligible Marketable Securities accrued by the Company
      and its wholly owned Subsidiaries on a consolidated basis on such date and
      available for use by the Company and its Subsidiaries on such date.

     

    (g)  "Calendar
      Quarter"
      means
      each of: the period beginning on and including January 1 and ending on and
      including March 31; the period beginning on and including April 1 and ending
      on
      and including June 30; the period beginning on and including July 1 and ending
      on and including September 30; and the period beginning on and including October
      1 and ending on and including December 31.

     

    (h)  "Change
      of Control"
      means
      any Fundamental Transaction other than (i) any reorganization, recapitalization
      or reclassification of the Common Stock in which holders of the Company's voting
      power immediately prior to such reorganization, recapitalization or
      reclassification continue after such reorganization, recapitalization or
      reclassification to hold publicly traded securities and, directly or indirectly,
      the voting power of the surviving entity or entities necessary to elect a
      majority of the members of the board of directors (or their equivalent if other
      than a corporation) of such entity or entities, or (ii) pursuant to a migratory
      merger effected solely for the purpose of changing the jurisdiction of
      incorporation of the Company. 

     

    (i)  "Closing
      Bid Price"
      and
      "Closing
      Sale Price"
      means,
      for any security as of any date, the last closing bid price and last closing
      trade price, respectively, for such security on the Principal Market, as
      reported by Bloomberg, or, if the Principal Market begins to operate on an
      extended hours basis and does not designate the closing bid price or the closing
      trade price, as the case may be, then the last bid price or last trade price,
      respectively, of such security prior to 4:00:00 p.m., New York Time, as reported
      by Bloomberg, or, if the Principal Market is not the principal securities
      exchange or trading market for such security, the last closing bid price or
      last
      trade price, respectively, of such security on the principal securities exchange
      or trading market where such security is listed or traded as reported by
      Bloomberg, or if the foregoing do not apply, the last closing bid price or
      last
      trade price, respectively, of such security in the over-the-counter market
      on
      the electronic bulletin board for such security as reported by Bloomberg, or,
      if
      no closing bid price or last trade price, respectively, is reported for such
      security by Bloomberg, the average of the bid prices, or the ask prices,
      respectively, of any market makers for such security as reported in the "pink
      sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).
      If
      the Closing Bid Price or the Closing Sale Price cannot be calculated for a
      security on a particular date on any of the foregoing bases, the Closing Bid
      Price or the Closing Sale Price, as the case may be, of such security on such
      date shall be the fair market value as mutually determined by the Company and
      the Holder. If the Company and the Holder are unable to agree upon the fair
      market value of such security, then such dispute shall be resolved pursuant
      to
      Section 23. All such determinations to be appropriately adjusted for any stock
      dividend, stock split, stock combination or other similar transaction during
      the
      applicable calculation period.

     

    
      
        
        

      

      
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    (j)  "Closing
      Date"
      shall
      have the meaning set forth in the Securities Purchase Agreement, which date
      is
      the date the Company initially issued Notes pursuant to the terms of the
      Securities Purchase Agreement.

     

    (k)  "Common
      Stock Deemed Outstanding"
      means,
      at any given time, the number of shares of Common Stock outstanding at such
      time, plus the number of shares of Common Stock deemed to be outstanding
      pursuant to Sections 7(a)(i) and 7(a)(ii) hereof regardless of whether the
      Options or Convertible Securities are actually exercisable at such time, but
      excluding any Common Stock owned or held by or for the account of the Company
      or
      issuable upon conversion or exercise, as applicable, of the Notes and the
      Warrants.

     

    (l)  "Consolidated
      EBITDA"
      means,
      for any period, Consolidated Net Income for such period (without giving effect
      to any extraordinary gains or losses) adjusted by adding thereto (in each case
      to the extent deducted in determining Consolidated Net Income for such period),
      without duplication, the amount of (i) total interest expense (subtracting
      therefrom any interest income) (inclusive of amortization of deferred financing
      fees and other original issue discount and banking fees and charges
      (e.g.,
      letter of credit fees and commitment fees) including those arising from any
      beneficial conversion feature of the Notes)
      of the
      Company and its Subsidiaries determined on a consolidated basis for such period,
      (ii) provision for taxes based on income and foreign withholding taxes for
      the
      Company and its Subsidiaries determined on a consolidated basis for such period,
      (iii) all depreciation and amortization expense of the Company and its
      Subsidiaries determined on a consolidated basis for such period, and (iv) all
      non-cash stock compensation expenses of the Company (i.e., expenses paid through
      the issuance of equity interests of Company, or options therefor, rather than
      in
      cash) incurred during such period (except to the extent any such expense will
      require a cash payment in a future period).

     

    (m)  "Consolidated
      Net Income"
      means,
      for any period, the net income (or loss) of the Company and its Subsidiaries
      for
      such period, determined on a consolidated basis (after any deduction for
      minority interests). 

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    (n)  "Consolidated
      Revenues"
      means,
for
      any period, the total consolidated revenues of the Company and its Subsidiaries
      for such period, as determined in accordance with GAAP. 

     

    (o)  "Contingent
      Obligation"
      means,
      as to any Person, any direct or indirect liability, contingent or otherwise,
      of
      that Person with respect to any indebtedness, lease, dividend or other
      obligation of another Person if the primary purpose or intent of the Person
      incurring such liability, or the primary effect thereof, is to provide assurance
      to the obligee of such liability that such liability will be paid or discharged,
      or that any agreements relating thereto will be complied with, or that the
      holders of such liability will be protected (in whole or in part) against loss
      with respect thereto.

     

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

     

    (q)  "Eligible
      Market"
      means
      the Principal Market, The New York Stock Exchange, Inc., The NASDAQ
      Global
      Market, The NASDAQ
      Global
      Select Market or The Nasdaq Capital Market.

     

    (r)  "Eligible
      Marketable Securities"
      as of
      any date means marketable securities which would be reflected on a consolidated
      balance sheet of the Company and its Subsidiaries prepared as of such date
      in
      accordance with GAAP,
      and
      which are permitted under the Company's investment policies as in effect on
      the
      Issuance Date or approved thereafter by the Company's Board of
      Directors.

     

    (s)  "Equity
      Conditions"
      means
      each of the following conditions: (i) on each day during the period beginning
      six (6) months prior to the applicable date of determination and ending on
      and
      including the applicable date of determination (provided, however, that solely
      for purposes of this clause (i), to the extent the applicable date of
      determination falls less than six (6) months after the earlier of (A) the
      Effectiveness Deadline and (B) the Effective Date (as defined in the
      Registration Rights Agreement) (the "Registration
      Measuring Date"),
      such
      period shall begin at such Registration Measuring Date) (the "Equity
      Conditions Measuring Period"),
      either
      (x) the Registration Statement filed pursuant to the Registration Rights
      Agreement shall be effective and available for the resale of all remaining
      Registrable Securities required
      to be registered in
      accordance with the terms of the Registration Rights Agreement or
      (y)
      all shares of Common Stock issuable upon conversion of the Notes and exercise
      of
      the Warrants shall be eligible for sale without restriction and without the
      need
      for registration under any applicable federal or state securities
      laws;
      (ii) on
      each day during the Equity Conditions Measuring Period the Common
      Stock
      is
      designated for quotation on the Principal Market or any other Eligible Market
      and shall not have been suspended from trading on such exchange or market (other
      than suspensions of not more than two (2) days and occurring prior to the
      applicable date of determination due to business announcements by the Company)
      nor shall delisting or suspension by such exchange or market be or have been
      threatened or pending either (A) in writing by such exchange or market or (B)
      by
      falling below the then effective minimum listing maintenance requirements of
      such exchange or market; (iii) during the six (6) month period ending on and
      including the date immediately preceding the applicable date of determination,
      the Company shall have delivered Conversion Shares upon conversion of the Notes
      shares of Common Stock upon exercise of the Warrants to the holders on a timely
      basis as set forth in Section 3(c)(i) hereof (and analogous provisions under
      the
      Other Notes) and Section 1(a) of the Warrants; (iv) any applicable shares of
      Common
      Stock to
      be
      issued in connection with the event requiring determination may be issued in
      full without violating Section 3(d) hereof and the rules or regulations of
      the
      Principal Market or any other applicable Eligible Market; (v) solely with
      respect to a Holder Optional Redemption, (x) the
      Registration Statement filed pursuant to the Registration Rights Agreement
      shall
      be effective and available for the resale of all Registrable
      Securities
      and (y)
      on the Holder Optional Redemption Eligibility Date the arithmetic average of
      the
      Weighted Average Price of the Common Stock during the five (5) Trading Day
      Period ending on the Trading Day immediately preceding the Holder Optional
      Redemption Eligibility Date is not less than $2.6412 (as adjusted for any stock
      splits, stock dividends, recapitalizations, combinations, reverse stock splits
      or other similar events) (the "Holder
      Optional Redemption Stock Price Condition");
      (vi)
      during the Equity Conditions Measuring Period, the Company shall not have failed
      to timely make any payments within five (5) Business Days of when such payment
      is due pursuant to any Transaction Document; (vii) during the Equity Conditions
      Measuring Period, there shall not have occurred either (A) the public
      announcement of a pending, proposed or intended Fundamental Transaction which
      has not been abandoned, terminated or consummated, or (B) an
      Event of Default or (C) an event that with the passage of time or giving of
      notice would constitute an Event of Default; (viii) the Company shall have
      no
      knowledge of any fact that would cause (x) the Registration Statements required
      pursuant to the Registration Rights Agreement not to be effective and available
      for the resale of all remaining Registrable Securities in accordance with the
      terms of the Registration Rights Agreement or (y) any shares of Common Stock
      issuable upon conversion of the Notes and shares of Common Stock issuable upon
      exercise of the Warrants not to be eligible for sale without restriction
      pursuant to Rule 144(k) and any applicable state securities laws; and (ix)
      the
      Company otherwise shall have been in compliance with and shall not have breached
      any provision, covenant, representation or warranty of any Transaction
      Document.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    (t)  "Equity
      Conditions Failure"
      means
      that on (i) any day during the period commencing ten (10) Trading Days prior
      to
      the Mandatory Conversion Notice Date through the Mandatory Conversion Date
      or
      (ii) the Holder Optional Redemption Eligibility Date, the Equity Conditions
      have
      not been satisfied (or waived in writing by the Holder).

     

    (u)  "Excluded
      Securities"
      means
      any Common Stock issued or issuable: (i) in connection with any Approved Stock
      Plan, provided, however, that to the extent such Common Stock would result
      in a
      Dilutive Issuance such number of shares of Common Stock does not exceed 500,000
      shares of Common Stock in any twelve month period nor 1,500,000 shares of Common
      Stock, in the aggregate; (ii) upon conversion of the Notes or the exercise
      of
      the Warrants; (iii) pursuant to a bona fide firm commitment underwritten public
      offering with Maxim Group LLC or another nationally recognized underwriter
      which
      generates gross proceeds to the Company of at least $15,000,000 (other than
      an
      "at-the-market offering" as defined in Rule 415(a)(4) under the 1933 Act and
      "equity lines"); (iv) upon conversion, exercise or exchange of any Options
      or
      Convertible Securities which are outstanding on the day immediately preceding
      the Subscription Date, provided that the terms of such Options or Convertible
      Securities are not amended, modified or changed on or after the Subscription
      Date; and (v) in connection with mergers, acquisitions, strategic business
      partnerships or joint ventures, in each case with non-affiliated third parties
      and otherwise on an arm's-length basis, the primary purpose of which, in the
      reasonable judgment of the Company's Board of Directors, is not to raise
      additional capital.

     

    
      
        
        

      

      
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    (v)  "Fiscal
      Quarter" means
      each of the fiscal quarters adopted by the Company for financial reporting
      purposes that correspond to the Company's fiscal year as of the date hereof
      that
      ends on December 31.

     

    (w)  "Fiscal
      Year" means
      the fiscal year adopted by the Company for financial reporting purposes that
      ends on December 31.

     

    (x)  "Fundamental
      Transaction"
      means
      that the Company shall, directly or indirectly, in one or more related
      transactions, (i) consolidate or merge with or into (whether or not the Company
      is the surviving corporation) another Person or Persons, if the holders of
      the
      Voting Stock (not including any shares of Voting Stock held by the Person or
      Persons making or party to, or associated or affiliated with the Persons making
      or party to, such consolidation or merger) immediately prior to such
      consolidation or merger shall hold or have the right to direct the voting of
      less than 50% of the Voting Stock or such voting securities of such other
      surviving Person immediately following such transaction, (ii) sell, assign,
      transfer, convey or otherwise dispose of all or substantially all of the
      properties or assets of the Company to another Person, (iii) allow another
      Person to make a purchase, tender or exchange offer that is accepted by the
      holders of more than the 50% of the outstanding shares of Voting Stock (not
      including any shares of Voting Stock held by the Person or Persons making or
      party to, or associated or affiliated with the Persons making or party to,
      such
      purchase, tender or exchange offer), (iv) consummate a stock purchase agreement
      or other business combination (including, without limitation, a reorganization,
      recapitalization, spin-off or scheme of arrangement) with another Person whereby
      such other Person acquires more than the 50% of the outstanding shares of Voting
      Stock (not including any shares of Voting Stock held by the other Person or
      other Persons making or party to, or associated or affiliated with the other
      Persons making or party to, such stock purchase agreement or other business
      combination), (v) reorganize, recapitalize or reclassify its Common Stock or
      (vi) any "person" or "group" (as these terms are used for purposes of Sections
      13(d) and 14(d) of the Exchange Act) is or shall become the "beneficial owner"
      (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
      of
      50% of the aggregate ordinary voting power represented by issued and outstanding
      Common Stock.

     

    (y)  "GAAP"
      means
      United States generally accepted accounting principles, consistently applied
      in
      accordance with past practices.

     

    (z)  "Holder
      Optional Redemption Eligibility Amount"
      means
      the Holder Pro Rata Amount of (i) if the Holder Optional Redemption Stock Price
      Condition has not been satisfied on the Holder Optional Redemption Eligibility
      Date, $2,000,000 or (ii) if the Holder Optional Redemption Stock Price Condition
      has been satisfied on the Holder Optional Redemption Eligibility Date, the
      lesser of (x) $2,000,000 and (y) Cutback Note Amount (as defined in the
      Registration Rights Agreement).

     

    (aa)  "Holder
      Pro Rata Amount"
      means a
      fraction (i) the numerator of which is the Principal amount of this Note on
      the
      Closing Date and (ii) the denominator of which is the aggregate principal amount
      of all Notes issued to the initial purchasers pursuant to the Securities
      Purchase Agreement on the Closing Date.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    (bb)  "Increase
      in Debt Balance"
      means
      the Indebtedness of the Company as of the relevant date of determination
      (excluding the Indebtedness payable in connection with the Notes).

     

    (cc)  "Indebtedness"
      of any
      Person means, without duplication (i) all indebtedness for borrowed money,
      (ii)
      all obligations issued, undertaken or assumed as the deferred purchase price
      of
      property or services, including (without limitation) "capital leases" in
      accordance with generally accepted accounting principles (other than trade
      payables entered into in the ordinary course of business), (iii) all
      reimbursement or payment obligations with respect to letters of credit, surety
      bonds and other similar instruments, (iv) all obligations evidenced by notes,
      bonds, debentures or similar instruments, including obligations so evidenced
      incurred in connection with the acquisition of property, assets or businesses,
      (v) all indebtedness created or arising under any conditional sale or other
      title retention agreement, or incurred as financing, in either case with respect
      to any property or assets acquired with the proceeds of such indebtedness (even
      though the rights and remedies of the seller or bank under such agreement in
      the
      event of default are limited to repossession or sale of such property), (vi)
      all
      monetary obligations under any leasing or similar arrangement which, in
      connection with generally accepted accounting principles, consistently applied
      for the periods covered thereby, is classified as a capital lease, (vii) all
      indebtedness referred to in clauses (i) through (vi) above secured by (or for
      which the holder of such Indebtedness has an existing right, contingent or
      otherwise, to be secured by) any mortgage, lien, pledge, charge, security
      interest or other encumbrance upon or in any property or assets (including
      accounts and contract rights and intellectual property rights) owned by any
      Person, even though the Person which owns such assets or property has not
      assumed or become liable for the payment of such indebtedness, (viii) all
      royalties and related payment or prepayment or other obligations of
      the
      Company or any of its Subsidiaries relating
      to any Intellectual Property Rights of the Company or any of its Subsidiaries
      and
      (ix)
      all Contingent Obligations in respect of indebtedness or obligations of others
      of the kinds referred to in clauses (i) through (viii) above.

     

    (dd)  "Interest
      Rate"
      means seven
      and
      one-half percent (7.50%) per annum, subject to periodic adjustment pursuant
      to
      Section 2.

     

    (ee)  "Judgment
      Default Amount"
      means,
      as of any given date, the lesser of (i) $1,000,000 and (ii) 1% of the sum of
      the
      Consolidated Revenue for the four completed Fiscal Quarters immediately
      preceding such date.

     

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

     

    (gg)  "Parent
      Entity"
      of a
      Person means an entity that, directly or indirectly, controls the applicable
      Person and whose common stock or equivalent equity security is quoted or listed
      on an Eligible Market, or, if there is more than one such Person or Parent
      Entity, the Person or Parent Entity with the largest public market
      capitalization as of the date of consummation of the Fundamental
      Transaction.

     

    
      
        
        

      

      
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    (hh)  "Permitted
      Indebtedness"
      means
      (i) Permitted Line of Credit, (ii) Indebtedness incurred by the Company that
      is
      made expressly subordinate in right of payment to the Indebtedness evidenced
      by
      this Note, as reflected in a written agreement acceptable to the Holder and
      approved by the Holder in writing, and which Indebtedness does not provide
      at
      any time for (1) the payment, prepayment, repayment, repurchase or defeasance,
      directly or indirectly, of any principal or premium, if any, thereon until
      ninety-one (91) days after the Maturity Date or later and (2) total interest
      and
      fees at a rate in excess of seven and one-half percent (7.50%) per annum
      (collectively, the "Subordinated
      Indebtedness"),
      (iii)
      Indebtedness secured by Permitted Liens (other than the Existing Liens), (iv)
      Indebtedness evidenced by this Note and the Other Notes, and (v) extensions,
      refinancings and renewals of any items in clauses (i) through (iv) above,
      provided that the principal amount is not increased or the terms modified to
      impose more burdensome terms upon the Company or its Subsidiaries, as the case
      may be.

     

    (ii)  "Permitted
      Liens"
      means
      (i) any Lien for taxes not yet due or delinquent or being contested in good
      faith by appropriate proceedings for which adequate reserves have been
      established in accordance with GAAP, (ii) any statutory Lien arising in the
      ordinary course of business by operation of law with respect to a liability
      that
      is not yet due or delinquent, (iii) any Lien created by operation of law, such
      as materialmen's liens, mechanics' liens and other similar liens, arising in
      the
      ordinary course of business with respect to a liability that is not yet due
      or
      delinquent or that are being contested in good faith by appropriate proceedings,
      (iv) Liens (A) upon or in any equipment (as defined in the Security Agreement)
      acquired or held by the Company or any of its Subsidiaries to secure the
      purchase price of such equipment or indebtedness incurred solely for the purpose
      of financing the acquisition or lease of such equipment, or (B) existing on
      such
      equipment at the time of its acquisition, provided that the Lien is confined
      solely to the property so acquired and improvements thereon, and the proceeds
      of
      such equipment, (v) Liens incurred in connection with the extension, renewal
      or
      refinancing of the indebtedness secured by Liens of the type described in
      clauses (i) and (iv) above, provided that any extension, renewal or replacement
      Lien shall be limited to the property encumbered by the existing Lien and the
      principal amount of the Indebtedness being extended, renewed or refinanced
      does
      not increase, (vi) Liens securing the Company's obligations under the Notes;
      (vii) leases or subleases and licenses and sublicenses granted to others in
      the
      ordinary course of the Company's business, not interfering in any material
      respect with the business of the Company and its Subsidiaries taken as a whole,
      (viii) Liens in favor of customs and revenue authorities arising as a
      matter of law to secure payments of custom duties in connection with the
      importation of goods, (ix)
      Liens
      arising from judgments, decrees or attachments in circumstances not constituting
      an Event of Default under Section 4(a)(ix), (x) Liens created in favor of
      certain financial institutions to secure the Company's obligations under its
      automated teller machine cash agreements, and (xi) Liens securing the
      obligations under the Permitted Line of Credit.

     

    (jj)  "Permitted
      Line of Credit"
      means a
      line of credit, to be entered into by the Company after the date hereof with
      a
      lender determined by the Company in its reasonable discretion, in the maximum
      amount of $2,000,000 to be used by the Company solely in connection with the
      purchase for resale of products related to the Company’s set-top box business;
      provided that (i) such line of credit will be secured solely by the products
      purchased for resale, and (ii) the Holder shall have a second lien on such
      assets.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    (kk)  "Person"
      means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization, any other entity and
      a
      government or any department or agency thereof. 

     

    (ll)  "Principal
      Market"
      means
      the American Stock Exchange.

     

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

     

    (nn)  "Redemption
      Premium"
      means
      (i) in the case of the Events of Default described in Section 4(a)(i) - (vi)
      and
      (ix) - (xii), 125% or (ii) in the case of the Events of Default described in
      Section 4(a)(vii) - (viii), 100%.

     

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

     

    (pp)  "Registration
      Rights Agreement"
      means
      that certain Registration Rights Agreement dated as of the Subscription Date
      by
      and among the Company and the initial holders of the Notes relating to, among
      other things, the registration of the resale of the Common Stock issuable upon
      conversion of the Notes and exercise of the Warrants.

     

    (qq)  "Required
      Holders"
      means
      the holders of Notes representing at least a majority of the aggregate principal
      amount of the Notes then outstanding.

     

    (rr)  "SEC"
      means
      the United States Securities and Exchange Commission. 

     

    (ss)  "Securities
      Purchase Agreement"
      means
      that certain securities purchase agreement dated as of the Subscription Date
      by
      and among the Company and the initial holders of the Notes pursuant to which
      the
      Company issued the Notes and the Warrants. 

     

    (tt)  "Subscription
      Date"
      means
      November 29, 2007.

     

    (uu)  "Successor
      Entity"
      means
      the Person, which may be the Company, formed by, resulting from or surviving
      any
      Fundamental Transaction or the Person with which such Fundamental Transaction
      shall have been made, provided that if such Person is not a publicly traded
      entity whose common stock or equivalent equity security is quoted or listed
      for
      trading on an Eligible Market, Successor Entity shall mean such Person's Parent
      Entity.

     

    (vv)  "Trading
      Day"
      means
      any day on which the shares of Common Stock are traded on the Principal Market,
      or, if the Principal Market is not the principal trading market for the shares
      of Common Stock, then on the principal securities exchange or securities market
      on which the shares of Common Stock are then traded; provided that "Trading
      Day"
      shall not include any day on which the shares of Common Stock are scheduled
      to
      trade on any such exchange or market for less than 4.5 hours or any day that
      the
      shares of Common Stock are suspended from trading during the final hour of
      trading on such exchange or market (or if such exchange or market does not
      designate in advance the closing time of trading on any such exchange or market,
      then during the hour ending at 4:00:00 p.m., New York Time).

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

    (ww)  "Voting
      Stock"
      of a
      Person means capital stock of such Person of the class or classes pursuant
      to
      which the holders thereof have the general voting power to elect, or the general
      power to appoint, at least a majority of the board of directors, managers or
      trustees of such Person (irrespective of whether or not at the time capital
      stock of any other class or classes shall have or might have voting power by
      reason of the happening of any contingency).

     

    (xx)  "Warrants"
      has the
      meaning ascribed to such term in the Securities Purchase Agreement, and shall
      include all warrants issued in exchange therefor or replacement
      thereof.

     

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

     

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

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

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

     

    [Signature
      Page Follows]

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

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

     

    
      	 	 	 
	 	
              DIGITALFX
                INTERNATIONAL, INC.

            
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
              
Name:
	 	Title:

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