Document:

EX10-2

[FORM OF SENIOR SECURED CONVERTIBLE

NOTE]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR

THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR

APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF

(A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN

A FORM REASONABLY ACCEPTABLE TO THE COMPANY, 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.  ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF

THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 20(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.

MFC DEVELOPMENT CORP.

SENIOR SECURED CONVERTIBLE NOTE

		
	 

	 

	Issuance Date:  July 31, 2006

	Original Principal Amount: U.S. $2,887,700

FOR VALUE RECEIVED, MFC Development Corp., a Delaware corporation (the

"Company"), hereby promises to pay to Gottbetter Capital Finance, LLC 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), on any Installment Date with

respect to the Installment Amount due on such Installment Date, acceleration, redemption or otherwise (in each case in accordance with the

terms hereof) and to pay interest ("Interest") on any outstanding Principal at a rate per annum equal to the Interest

Rate (as defined below), 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), any Installment Date, or 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") issued pursuant to the

Securities Purchase Agreement (as defined below).  Certain capitalized terms are defined in Section 28.

1.

PAYMENTS OF PRINCIPAL; MATURITY.  On each Installment

Date commencing May 1, 2007, the Company shall pay to the Holder an amount equal to the Installment Amount due on such Installment Date in

cash by wire transfer of immediately available funds.  The "Maturity Date" shall be July 30, 2009, 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 and (ii) through the date that is ten (10) 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.

2.

INTEREST; INTEREST RATE.

(a)

Interest on this Note shall commence accruing on the Issuance

Date and shall be computed on the basis of a 360-day year and actual days elapsed and shall be payable in arrears for each Calendar Month

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 September 1, 2006.  Interest shall be payable on each Interest Date, to the record

holder of this Note on the applicable Interest Date, in cash ("Cash Interest").

(b)

From and after the occurrence of an Event of Default, the

Interest Rate shall be increased to fifteen percent (15%).  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 common stock of the Company, 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 (except for income taxes, capital gains or the like).

(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").

(i)

"Conversion Amount" means the

portion of the Principal to be converted, redeemed or otherwise with respect to which this determination is being made.

(ii)

"Conversion Price" means, as

of any Conversion Date (as defined below) or other date of determination, eighty (80%) of the arithmetic average of the two lowest

Weighted Average Prices for the twenty five (25) Trading Days immediately preceding the Conversion Date, but in no event lower that a

floor price of $.69 (the “Floor Price”) (appropriately adjusted for any stock split, stock dividend, stock combination or

other similar transaction that proportionately decreases or increases the Common Stock).

(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)(iv), surrender this Note to a nationally recognized overnight delivery service for delivery to the Company (or an indemnification

undertaking with respect to this Note in the case of its loss, theft or destruction).  On or before the next 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 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 (1) (X) provided that the Transfer Agent is

participating in the Fast Automated Securities Transfer Program of DTC 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, and (2) pay to the Holder in cash an amount equal to the accrued and unpaid Interest

on the Conversion Amount up to and 

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including the Conversion Date.

 If this Note is physically surrendered for conversion as required by Section 3(c)(iv) 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 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.  In the event of a partial conversion of this Note pursuant

hereto, the principal amount converted shall be deducted from the Installment Amounts relating to the Installment Dates as set forth in

the Conversion Notice.

(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 or (y) the receipt of the investment bank

or accountants determination completed by Section 23 with respect to the shares effected by a dispute, 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 (a "Conversion Failure"), 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) Business Days after the Holder's request and provision of trade

confirmations 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 deliver such certificate (and to issue such Common Stock)

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.

(iii)

Book-Entry.  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, (B) the Company has provided the Holder with prior written notice not to exceed once per year (C) the Holder has transferred or

assigned this Note or (D) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion

Notice) requesting physical surrender and reissue of this Note.  In the case of (B) above, the Company may only request physical

surrender for administrative purposes.  The Holder and the Company shall maintain records showing the Principal, Interest and Late

Charges 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.  The Holder may utilize its conversion rights to the extent

permitted hereunder while the Company is in possession of the Note.

(iv)

Disputes.  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.

(d)

Limitations on Conversions. 

(i)

Beneficial Ownership.  The Company

shall not effect any conversion of this Note, and the Holder of this Note (including any successor, transferee or assignee) shall not have

the right to convert any portion of this Note pursuant to Section 3(a), to the extent that after giving 

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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 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.  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-KSB, Form 10-K, Form 10-QSB, Form 10-Q 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, during regular business hours of the Company and upon the written request of the Holder, the Company shall within two (2)

Business Days 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 increase or decrease the Maximum Percentage to any other percentage

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, (ii) any such increase or decrease will apply only to the Holder and not to any other holder of

Notes and (iii) and in no case shall Holder or its Affiliates acquire in excess of 19.999% of the outstanding shares of Common Stock or

the voting power of the Company.

(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 (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 the Purchasers 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.  

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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 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 thirty (30)

days after the applicable 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) 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)) or the happening of any event of the kind described in Section

3(s) of the Registration Rights Agreement);

(ii)

the suspension from trading or failure of the Common Stock to

be listed on the Principal Market or 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)

written notice to any holder of the Notes, including by way of public announcement or through any of its authorized 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)

after the Company files an amendment to its Articles of

Incorporation to increase its authorized capital to 100,000,000 shares of Common Stock, at any time following the tenth (10th) consecutive

Business Day that the authorized number of shares is less than the number of shares of Common Stock that the Holder would be entitled to

receive upon a conversion of four hundred percent (400%) 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 (including, without limitation or any redemption payments), 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 and such

failure continues for a period of at least ten (10) Business Days;

(vi)

any default under, redemption of or acceleration prior to

maturity of any Indebtedness in excess of $100,000, individually, of the Company or any of its Subsidiaries (as defined in Section 3(a) of

the Securities Purchase Agreement) which is not disputed in writing by the Company;

(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 

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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 $250,000 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 credit worthy party

shall not be included in calculating the $250,000 amount set forth above 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 materially breaches any material 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 (x) Section

15 of this Note not cured within ten (10) Business Days or (y) any of the Potential Partner Conditions;

(xii)

commencing December 31, 2006, the Company fails to achieve

EBIDTA of (A) $600,000 for the period beginning on the date of Closing and ending December 31, 2006, (B) $1,400,000 for the fiscal quarter

ending March 31, 2007, (C) $1,300,000 for the fiscal quarter ending June 30, 2007, (D) or such amount as the Company and Holder shall

mutually agree upon for the fiscal quarters ending September 30 and December 31, 2007, and the fiscal quarters ending March 31 and June

30, 2008 (the “EBITDA Targets,” the Company’s failure to achieve which shall be referred to as an “EBITDA

Failure”); provided, however, for purposes of determining whether any particular EBITDA Target has been achieved, (X) the effect of

expenses associated with (1) equity compensation issued pursuant to the Company’s 2006 Equity Incentive Plan, (2) business or asset

acquisitions or capital expenditures approved by Holder, (3) the Company’s compliance with the Sarbanes-Oxley Act of 2002, as

amended, (4) compensation issued to public or investor relations firms (including equity), and (5) such other extraordinary or

non-recurring events or transactions as Company and Holder shall mutually agree, shall be excluded from EBITDA (“Adjusted

EBITDA”), (Y) Adjusted EBITDA achieved by the Company in any period in excess of the EBITDA Target for such period shall apply to the

next subsequent period provided the Company’s Adjusted EBITDA for the period beginning on the Closing Date and ending June 30, 2007,

is at least $3.3 million in the aggregate, and (Z) if (1) by shifting the relevant time period one month forward or backward, or (2) if by

including in the calculation of Adjusted EBITDA the revenue expected to be realized within thirty (30) days from the end of the applicable

period from expenditures on advertising media made during such period, the Company would have achieved the applicable EBIDTA Target, then

an EBITDA Failure will not be deemed to have occurred;  provided further that, notwithstanding any of the foregoing, if the average

dollar trading volume (as reported by Bloomberg) of the Common Stock for the period to which an EBITDA Target relates is greater than

$300,000 and there are no Trading Days with less than $100,000 of dollar trading volume (as reported by Bloomberg) and a Weighted Average

Price below Two Dollars ($2) (appropriately adjusted for any stock split, stock dividend, stock combination or other similar transaction

that proportionately decreases or increases the common stock) then no EBITDA Failure shall be deemed to have occurred with respect to such

period;

(xiii)

Nancy Duitch or Alan Gerson cease to remain a full time

executive of the Company except by reason of Death or Disability, as defined in their respective employment agreements; or 

(xiv)

Nancy Duitch or Jeffrey Edell sell or otherwise transfer their

shares of Common Stock 

6

prior to the Maturity Date; or

(xv)

the inability of the Common Stock to be transferred with DTC

through the Deposit Withdrawal at Custodian system for as long as Continental Stock Transfer has such system available. 

(b)

Redemption Right.  Upon the occurrence of an Event of

Default with respect to this Note, the Company shall within two (2) Business Days after the day on which the Company is aware of the Event

of Default 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.  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 (x) the Conversion Amount to be redeemed and

(y) the Redemption Premium and (ii) the product of (A) the Conversion Rate with respect to such Conversion Amount in effect either on the

date immediately proceeding such Event of Default or at such time as the Holder delivers an Event of Default Redemption Notice,

whichever is lesser and (B) the Closing Sale Price of the Common Stock on the date immediately preceding such Event of Default (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.  

(c)

Reduction of Floor Price.  Notwithstanding anything

to the contrary contained herein, upon the occurrence of an Event of Default (ninety (90) days after an Event of Default described in

Section 4(a)(xii)), the Floor Price shall be reduced to $.345 (appropriately adjusted for any stock split, stock dividend, stock

combination or other similar transaction that proportionately decreases or increases the common stock) for so long as an Event of Default

is continuing.  If an Event of Default continues for ninety (90) days then the Floor Price shall be reduced by an additional $.05

(appropriately adjusted for any stock split, stock dividend, stock combination or other similar transaction that proportionately decreases

or increases the common stock) for so long as an Event of Default is continuing and an additional $.05 (appropriately adjusted for any

stock split, stock dividend, stock combination or other similar transaction that proportionately decreases or increases the common stock)

for every thirty (30) days thereafter.  After an Event of Default is cured, the Floor Price shall be reset to $0.69 (as adjusted for

any stock splits, stock dividends or recapitalization).

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 reasonably 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 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 

7

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 of

the Notes prior to such Fundamental Transaction, such shares of 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 of this Note.

(b)

Redemption Right.  No sooner than fifteen (15) days

nor later than ten (10) days prior to the consummation of a Change of Control, and providing the Company has not exercised its Redemption

Right under Section 8(a) herein, 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 after the Holder's receipt of a Change of Control Notice and ending ten (10) 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) One Hundred and Twenty Five

percent (125%) of the face amount redeemed plus accrued interest and (ii) eighty percent (80%) of the (x) product of the remaining

Conversion Amount divided by the Conversion Price (not less than $1 (as adjusted for any stock dividend, stock combination, stock split or

other similar transactions that proportionately increases or decreases the Common Stock)) in effect on the Trading Day before the Company

Redemption Notice is sent and (y) the Closing Sale Price on the Trading Day before the Company Redemption Notice is sent, plus accrued

interest (the "Change of Control Redemption Price").  Redemptions required by this Section 5 shall be made in

accordance with the provisions of Section 15 and shall have priority to payments to shareholders 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, 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.

6.

RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE

EVENTS .

(a)

Purchase Rights.  Other than Excluded Securities, 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 

8

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 at any time after the Subscription Date, the Company issues or sells, other than Excluded Securities, 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 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 the New Issuance Price.  For purposes of determining the adjusted Conversion Price under this Section 7(a), the following

shall be applicable:

(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 such share of Common Stock 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 

9

Price, then such share of Common

Stock 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.

(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

in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for

such consideration as determined in good faith by the Board of Directors of the Company.  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 as determined in good faith by the Board of Directors of the Company, 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 owners 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 within five (5) Business Days after the tenth 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 and the fees and expenses of such appraiser shall be borne by the Company.

(v)

Record Date.  If the Company takes a record of the

holders of Common Stock for 

10

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.

8.

COMPANY RIGHT OF REDEMPTION.  

(a)

General. The Company at its option shall have the right to

redeem, with three (3) Business Days advance written notice (the “Company Redemption Notice”), a portion or all of the

outstanding principal of the Note.  The Holder may convert after the Company Redemption Notice is received and until the Company

Redemption Price is received by the Holder.  The redemption price shall be the greater of (i) One Hundred and Twenty Five percent

(125%) of the face amount redeemed plus accrued interest and (ii) eighty percent (80%) of the (x) product of the remaining Conversion

Amount divided by the Conversion Price (not less than $1 (as adjusted for any stock dividend, stock combination, stock split or other

similar transactions that proportionately increases or decreases the Common Stock)) in effect on the Trading Day before the Company

Redemption Notice is sent and (y) the Closing Sale Price on the Trading Day before the Company Redemption Notice is sent (the

“Company Redemption Price”).  

(b)

Mechanics of Company Redemption.  If the Company

elects to redeem the Note in accordance with Section 8(a), then the Company Redemption Price, if any, which is to be paid to the Holder,

shall be paid, by wire transfer of immediately available funds, an amount in cash equal to 100% of the Company Redemption Price.  If

the Company fails to redeem the Company Redemption Price on such date (the “Redemption Due Date”), then at the option of

the Holder designated in writing to the Company (any such designation, "Conversion Notice" for purposes of this Note), the

Holder may require the Company to convert all or any part of the Company Redemption Amount at the Conversion Price.  Conversions

required by this Section 8(b) shall be made in accordance with the provisions of Section 3(c).  Notwithstanding anything to the

contrary in this Section 8(b), but subject to Section 3(d), until the Company Redemption Price (together with any interest thereon) is

paid in full after the Redemption Due Date, the Company Redemption Price (together with any interest thereon) may be converted, in whole

or in part, by the Holder into Common Stock pursuant to Section 3. 

9.

SECURITY.  This Note is 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 Articles of Incorporation, Bylaws or through any reorganization, transfer of assets,

consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other 

11

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 reasonable action as may be required to protect the rights of the Holder of this Note.

11.

RESERVATION OF AUTHORIZED SHARES.

(a)

Reservation.  The Company initially shall reserve

Seventeen Million (17,000,000) shares of Common Stock out of its authorized and unissued Common Stock.  After October 31, 2006, 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, 400% 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 of the previous sentence (without

regard to any limitations on conversions) (the "Required Reserve Amount"). 

(b)

Insufficient Authorized Shares.  After October 31,

2006, 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 ninety (90) days after the

occurrence of such Authorized Share Failure, the Company shall hold a meeting of its shareholders 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 shareholder with a

proxy or information statement and shall use its reasonable best efforts to solicit its shareholders' approval of such increase in

authorized shares of Common Stock and to cause its board of directors to recommend to the shareholders that they approve such

proposal.

12.

HOLDER'S REDEMPTIONS.  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.  In the event of a redemption of less than all of the 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 the 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 applicable 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 the sum of such Conversion Amount to be redeemed together with accrued and unpaid Interest

with respect to such Conversion Amount and accrued and unpaid Late Charges with respect to such Conversion Amount and Interest 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 Price 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 

12

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.

13.

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.

14.

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 Chapter 78 of the Delaware Revised Statutes,

and as expressly provided in this Note.

15.

COVENANTS.  

(a)

Rank.  All payments due under this Note shall be

senior to all other Indebtedness of the Company and its Subsidiaries and shall be subordinate to the Permitted Senior Indebtedness solely

with respect to assets of the Company securing the Permitted Senior Indebtedness.

(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 (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.

(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 Permitted Indebtedness, 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.

(e)

Sales of Equity Securities.  For as long as any

interest or principal remains due under this Note, except for any issuance of Securities in accordance with the Transaction Documents or

as set forth on Schedule 15(e) attached hereto, 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 equity

or Common Stock Equivalents (as defined in the Securities Purchase Agreement), 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 equity of the Company, without the prior written consent of the Required Holders, which shall not be

unreasonably withheld.

(f)

Subsidiary Internal Accounting Controls.  So long as

this Note is outstanding, the Company and each of its Subsidiaries shall maintain, in all material respects, a system of internal accounting controls consistent with the Internal Accounting Controls (as defined in the

Securities Purchase Agreement).  

(g)

No Short Position. Each of the Buyers and any of its

Affiliates do not have an open short position in the Common Stock and at no time prior to the Maturity Date, open or maintain Short Sales

position or engage Prohibitive Transaction (as defined in the Securities Purchase Agreement entered into 

13

in connection herewith).

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, as well as

written consent of the Company shall be required for any change or amendment to this Note.

17.

TRANSFER.  The Holder acknowledges and agrees that

this Note may only be offered, sold, assigned or transferred by the Holder without the consent of the Company, provided that the

provisions of Section 2(f) of the Securities Purchase Agreement are complied with in all respects.

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 issue, promptly following the satisfaction of the provisions

of Section 2(f) of the Securities Purchase Agreement, and deliver upon the order of the Holder a new Note (in accordance with Section

18(d)), in the name of the validly registered assigns or transferee, 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 (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 Interest and

Late Charges on the Principal and Interest of this Note, from the Issuance Date if not paid at the time of issuance of the new Note.

(e)

Registered Instrument.  This Note is a registered

instrument and is not a bearer instrument.  The Note is registered as to both Principal and Interest with the Company and its

Transfer Agent and all payments hereunder shall be made to the named Holder or, in the event of a transfer, to the transferee identified

in the record of ownership of the Note maintained by the Holder on behalf of the Company and the Transfer Agent. Transfer of this Note may

not be effected except in accordance with the provisions of the Note and the Securities Purchase Agreement.

19.

REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND

INJUNCTIVE RELIEF.  The remedies provided in this Note shall be cumulative, except in the case of (i) a Buy-In, (ii) an 

14

Event of Default Redemption Price or (iii) a conversion

where the Company doesn’t pay the Company Redemption Price which shall be exclusive remedies, 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.

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 prevailing party shall pay the costs incurred by the Holder or the Company for such

collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, but

not limited to, 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 or the Company 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, the Average Market 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 one (1) Business Day of 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 one (1) Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the

Company shall, within one (1) Business Day submit via facsimile (a) the disputed determination of the Closing Bid Price, the Closing Sale

Price, the Average Market Price or the Weighted Average Price to an independent, reputable investment bank selected by the Company and

approved by the Holder  (such approval not to be unreasonably withheld or delayed) 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 five (5) 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.

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 

15

pursuant to this Note, including in reasonable detail a

description of such action and the reason therefore.  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  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, other than Interest, 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 fifteen (15%) 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 has been paid in full, 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 other than such notices agreed to in this Note and

the Securities Purchase Agreement.

27.

GOVERNING LAW; JURISDICTION; JURY TRIAL.  This Note

shall be construed and enforced in accordance 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.  In the event that any provision of this Note is invalid or unenforceable

under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith

and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or

unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note.  Nothing contained

herein shall 

16

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.

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, consultant, officer or director for services provided to the Company including the Company 2006 Equity Incentive Plan.

(b)

"Average Market Price" means, for any given

date, the lesser of (i) the arithmetic average of the Weighted Average Price of the Common Stock during the twenty (20) consecutive

Trading Day period ending on the third (3rd) Trading Day immediately prior to such given date, (ii) the arithmetic average of

the Weighted Average Price of the Common Stock during the five (5) consecutive Trading Day period commencing during the (20) consecutive

Trading Days period ending on the third (3rd) Trading Day immediately prior to such given date and (iii) the arithmetic average

of the Weighted Average Price of the Common Stock during the five (5) consecutive Trading Day period ending on the third (3rd)

Trading Day immediately prior to such given date; provided, that all such determinations shall be appropriately adjusted for any stock

split, stock dividend, stock combination or other similar transaction that proportionately decreases or increases the Common Stock during

such periods.

(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)

"Calendar Month" means the period beginning on

and including the first of each calendar month and ending on and including the last day of such calendar month.

(f)

"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.

(g)

"Change of Control Premium" means (i) 125% or

(ii) 115% in the event of a Change of Control involving consideration paid to holders of the Company's Common Stock where the

consideration per share of the Company's Common Stock to be received by the holders thereof is greater (as to amounts other than cash, as

determined reasonably and in good faith by the Board of Directors of the Company) than 200% of the Conversion

Price as of the Initial Issuance Date (as adjusted for stock splits, stock dividends, reverse stock splits, recapitalizations,

reclassifications and similar events).

(h)

"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 

17

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.

(i)

"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.

(j)

"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.

(k)

"Convertible Securities" means any stock or

securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for Common Stock.

(l)

"Eligible Market" means, the Principal Market,

The New York Stock Exchange, Inc., the Nasdaq Capital Market, the Nasdaq National Market or the American Stock Exchange.

(m)

"Excluded Securities" means any Common Stock

issued or issuable: (i) in connection with any Approved Stock Plan up to five million shares of Common Stock however the Company agrees

not to issue equity securities under such plan convertible into more than a maximum of five percent (5%) of the outstanding Common Stock;

(ii) upon conversion of, or in exchange for, the Notes or the exercise of the Warrants; (iii) pursuant to a bona fide firm commitment

underwritten public offering with a nationally recognized underwriter which generates gross proceeds to the Company in excess of

$35,000,000 (other than an "at-the-market offering" as defined in Rule 415(a)(4) under the 1933 Act and "equity

lines"); (iv) in connection with any acquisition by the Company, whether through an acquisition of stock or a merger of any business,

assets or technologies the primary purpose of which is not to raise equity capital; (v) securities issued in connection with corporate

partnering transactions on terms approved by the Board of Directors of the Company and the primary purpose of which is not to raise equity

capital; (vi) upon conversion 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; (vii) shares issued to Richardson Patel LLP and Delmar Consulting and (viii) the Series A Preferred Warrant

Holders.

(n)

"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

not the surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of

the properties or assets of the Company to another Person, or (iii) allow another Person or Persons 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 Person or Persons making 

18

or party to, such purchase, tender or exchange offer), or

(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 either

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 Voting Stock of the

Company.

(o)

"GAAP" means United States generally accepted

accounting principles, consistently applied.

(p)

"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) 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 obligations issued, undertaken or assumed as part of any financing facility with respect to accounts

receivables of the Company and its Subsidiaries, including, without limitation, any factoring arrangement of such accounts receivables and

(ix) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (i) through (viii)

above.

(q)

"Initial Issuance Date" means July 31, 2006.

(r)

"Installment Amount" means with respect to any

Installment Date, the lesser of (A) $103,132.14 and (B) the outstanding Conversion Amount (plus the sum of any accrued and unpaid Interest

with respect to such Principal amount and accrued and unpaid Late Charges with respect to such Principal amount and Interest any accrued

and unpaid interest thereon) under this Note as of such Installment Date, as any such Installment Amount may be

reduced pursuant to the terms of this Note, whether upon conversion, redemption or otherwise.  For the avoidance of doubt, any

accrued and unpaid interest which may be paid pursuant to this definition shall be deducted from the total interest to be paid on any

subsequent Interest Payment Date.  In the event the Holder shall sell or otherwise transfer any portion of this Note, the transferee

shall be allocated a pro rata portion of the each unpaid Installment Amount hereunder.

(s)

"Installment Date" means the first day of each

calendar month.

(t)

"Interest Rate" means ten percent (10%) per

annum, subject to periodic adjustment pursuant to Section 2.

(u)

"Options" means any rights, warrants or options

to subscribe for or purchase Common 

19

Stock or Convertible Securities.

(v)

"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.

(w)

"Permitted Indebtedness" means (A) 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 (which approval shall not be unreasonably delayed or

withheld), 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 the Interest Rate hereunder, (B) Permitted Senior Indebtedness, (C) Indebtedness secured by

Permitted Liens, (D) Indebtedness to trade creditors incurred in the ordinary course of business, (E) current

Indebtedness and (F) extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is

not increased or the terms modified to impose more burdensome terms upon the Company or its Subsidiary, as the case may be.

(x)

"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 securing the Company's obligations under the Notes, (v) 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, (vi) Liens incurred in connection with the extension, renewal or refinancing of

the indebtedness secured by Liens of the type described in clauses (i) and (v) 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, (vii) Liens on accounts receivables of the Company and its Subsidiaries securing the Company's

obligations under the Permitted Senior Indebtedness; (viii) 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, (ix) 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; (x) Liens arising from judgments, decrees or attachments in circumstances not constituting an

Event of Default under Section 4(a)(ix); (xi) Liens with respect to Indebtedness not individually in excess of $25,000 or in the aggregate

in excess of $100,000, which individually and in aggregate are not material to the Company;(xii) and liens associated with Permitted

Senior Indebtedness and (xiii) liens associated the security interests of the Senior Lenders (as defined in the Security Agreement). 

(y)

"Permitted Senior Indebtedness" means any

financing facility to be obtained by the Company after the Initial Issuance Date secured solely by the assets of the Company and its

Subsidiaries, with an aggregate Indebtedness at any one time outstanding not to exceed $3,000,000 for assets subject to adjustment and any

indebtedness owned by the Senior Lenders (as defined in the Security Agreement).

(z)

"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.

20

(aa)

"Potential Partner Conditions" means at any time

during the period commencing on the date of the consummation of any material transaction between the Company and a Person and ending on

the first anniversary of the Effective Date, there shall be no disclosure that any executive officer of such Person has (i) exhibited

dishonesty in the performance of his or her duties, which is materially and demonstrably injurious to the Company; or (ii) been convicted of (x) a felony under the laws of the United States or any state thereof or (y) a

misdemeanor involving moral turpitude, in each case, which is materially and demonstrably injurious to the Company.

(bb)

"Principal Market" means Over-the-Counter

Bulletin Board.

(cc)

"Redemption Notices" means, collectively, the

Event of Default Redemption Notices, Change of Control Redemption Notices, the Company Redemption Notice, and, each of the foregoing,

individually, a Redemption Notice.

(dd)

"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), 120%.

(ee)

"Redemption Prices" means, collectively, the

Event of Default Redemption Price, Change of Control Redemption Price, and the Company Redemption Amount, the Holder Optional Redemption

Price and the Holder Partial Redemption Price and, each of the foregoing, individually, a Redemption Price.

(ff)

"Registration Rights Agreement" means that

certain registration rights agreement between 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.

(gg)

"Required Holders" means the holders of Notes

representing at least a majority of the aggregate principal amount of the Notes then outstanding.

(hh)

"SEC" means the United States Securities and

Exchange Commission.

(ii)

"Securities Purchase Agreement" means that

certain securities purchase agreement dated the Subscription Date by and among the Company and the initial holders of the Notes pursuant

to which the Company issued the Notes.

(jj)

"Subscription Date" means July 31, 2006

(kk)

"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.

(ll)

"Trading Day" means any day on which the Common

Stock are traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on

the principal securities exchange or securities market on which the Common Stock are then traded; provided that "Trading Day"

shall not include any day on which the Common Stock are scheduled to trade on such exchange or market for less than 4.5 hours or any day

that the 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 such exchange or market, then during the hour ending at 4:00:00 p.m.,

New York Time).

(mm)

"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 

21

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).

(nn)

"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.

(oo)

"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 a security on a

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 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.

29.

DISCLOSURE. After the Registration Statement is declared

effective by the SEC and 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 two (2) Business Days 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

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]

22

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the

Issuance Date set out above.

	
	 

	MFC DEVELOPMENT CORP.

	By:

	Name:

	Title:

23EX10-3

SECURITY AGREEMENT

SECURITY AGREEMENT, dated as of July 31, 2006 (this "Agreement") made by MFC Development Corp., a Delaware corporation (the "Company"), and the undersigned subsidiaries of the Company (each a "Grantor" and collectively and together with the Company the "Grantors"), in favor of Gottbetter Capital Finance, LLC, a Delaware limited liability company (the "Buyer").

W I T N E S S E T H:

WHEREAS, the Company and the Buyer are parties to the Securities Purchase Agreement, pursuant to which the Company shall be required to sell, and the Buyer shall purchase or have the right to purchase, the "Notes" (as defined therein); and

WHEREAS, it is a condition precedent to the Buyer entering into the Securities Purchase Agreement that the Grantors shall have executed and delivered to the Buyer this Agreement providing for the grant to the Buyer of a security interest in all personal property of each Grantor to secure all of the Company's obligations under the Securities Purchase Agreement, junior to the security interests of the Senior Lenders (as defined below), the "Notes" (as defined therein) issued pursuant thereto (as such Notes may be amended, restated, replaced or otherwise modified from time to time in accordance with the terms thereof, collectively, the "Notes"), the “Transaction Documents” (as defined in the Securities Purchase Agreement) (the “Transaction Documents”);

NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce the Buyers to perform under the Securities Purchase Agreement, each Grantor agrees with the Buyer, as follows:

SECTION 1.

DEFINITIONS.

(a)

Reference is hereby made to the Securities Purchase Agreement and the Notes for a statement of the terms thereof.  All terms used in this Agreement and the recitals hereto which are defined in the Securities Purchase Agreement, the Notes or in Articles 8 or 9 of the Uniform Commercial Code as in effect from time to time in the State of New York (the "Code"),  and which are not otherwise defined herein shall have the same meanings herein as set forth therein;  provided  that terms used herein which are defined in the Code as in effect in the State of New York on the date hereof shall continue to have the same meaning notwithstanding any replacement or amendment of such statute except as the Buyer may otherwise determine.  

(b)

The following terms shall have the respective meanings provided for in the Code:  "Accounts", "Cash Proceeds", "Chattel Paper", "Commercial Tort Claim", "Commodity Account", "Commodity Contracts", "Deposit Account", "Documents", "Equipment", "Fixtures", "General Intangibles", "Goods", "Instruments", "Inventory", "Investment Property", "Letter-of-Credit Rights", "Noncash Proceeds", "Payment Intangibles", "Proceeds", "Promissory Notes", "Security", "Record", "Security Account", "Software", and "Supporting Obligations".

(c)

As used in this Agreement, the following terms shall have the respective meanings indicated below, such meanings to be applicable equally to both the singular and plural forms of such terms:

"Copyright Licenses" means all licenses, contracts or other agreements, whether written or oral, naming any Grantor as licensee or licensor and providing for the grant of any right to use or sell any works covered by any copyright (including, without limitation, all Copyright Licenses set forth in Schedule II hereto).

"Copyrights" means all domestic and foreign copyrights, whether registered or not, including, without limitation, all copyright rights throughout the universe (whether now or hereafter arising) in any and all media (whether now or hereafter developed), in and to all original works of authorship fixed in any tangible medium of expression, acquired or used by any Grantor (including, without limitation, all copyrights described in Schedule II hereto), all applications, registrations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Copyright Office or in any similar office or agency of the United States or any other country or any political subdivision thereof), and all reissues, divisions, continuations, continuations in part and extensions or renewals thereof.

"Event of Default" shall have the meaning set forth in the Notes.

"Insolvency Proceeding" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code (Chapter 11 of Title 11 of the United States Code) or under any other bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, or extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

"Intellectual Property" means the Copyrights, Trademarks and Patents.

"Licenses" means the Copyright Licenses, the Trademark Licenses and the Patent Licenses.

"Lien" means any mortgage, deed of trust, pledge, lien (statutory or otherwise), security interest, charge or other encumbrance or security or preferential arrangement of any nature, including, without limitation, any conditional sale or title retention arrangement, any capitalized lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security.

"Patent Licenses" means all licenses, contracts or other agreements, whether written or oral, naming any Grantor as licensee or licensor and providing for the grant of any right to manufacture, use or sell any invention covered by any Patent (including, without limitation, all Patent Licenses set forth in  Schedule II  hereto).

"Patents" means all domestic and foreign letters patent, design patents, utility patents, industrial designs, inventions, trade secrets, ideas, concepts, methods, techniques, processes, proprietary information, technology, know-how, formulae, rights of publicity and other general intangibles of like nature, now existing or hereafter acquired (including, without limitation, all domestic and foreign letters patent, design patents, utility patents, industrial designs, inventions, trade secrets, ideas, concepts, methods, techniques, processes, proprietary information, technology, know-how and formulae described in  Schedule II hereto), all applications, registrations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office, or in any similar office or agency of the United States or any other country or any political subdivision thereof), and all reissues, divisions, continuations, continuations in part and extensions or renewals thereof.

“Senior Lenders” means collectively, (i) Marquette Commercial Finance, Inc. and its security interests under the Account Transfer and Purchase Agreement with Adsouth Marketing, LLC, (ii) Lestar Partners, LLC and its security interests in the Company’s membership interests in Gateway Granby, LLC, (iii) CMR Mortgage Fund II and its security interests represented by the Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement dated July 6, 2006 with Gateway Granby, LLC, (iv) TD Bank North and its security interest in property owned by Gateway Granby, LLC and (v) the holders of security interests in the medical receivables of Medical Financial Corp listed on Schedule 4(3).

"Trademark Licenses" means all licenses, contracts or other agreements, whether written or oral, naming any Grantor as licensor or licensee and providing for the grant of any right concerning any Trademark, together with any goodwill connected with and symbolized by any such trademark licenses, contracts or agreements and the right to prepare for sale or lease and sell or lease any and all Inventory now or hereafter owned by any Grantor and now or hereafter covered by such licenses (including, without limitation, all Trademark Licenses described in  Schedule II  hereto).

"Trademarks" means all domestic and foreign trademarks, service marks, collective marks, certification marks, trade names, business names, d/b/a's, Internet domain names, trade styles, designs, logos and other source or business identifiers and all general intangibles of like nature, now or hereafter owned, adopted, acquired or used by any Grantor (including, without limitation, all domestic and foreign trademarks, service marks, collective marks, certification marks, trade names, business names, d/b/a's, Internet domain names, trade styles, designs, logos and other source or business identifiers described in Schedule II  hereto), all applications, registrations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state thereof or any other country or any political subdivision thereof), and all reissues, extensions or renewals thereof, together with all goodwill of the business symbolized by such marks and all customer lists, formulae and other Records of any Grantor relating to the distribution of products and services in connection with which any of such marks are used.

SECTION 2.

GRANT OF SECURITY INTEREST.  As Encumbered Collateral security for all of the "Obligations" (as defined in Section 3 hereof), each Grantor hereby pledges and assigns to the Buyer and grants to the Buyer a continuing security interest in, junior to the security interests of the Senior Lenders, all personal property of each Grantor, wherever located and whether now or hereafter existing and whether now owned or hereafter acquired, of every kind and description, tangible or intangible (collectively, the "Encumbered Collateral"), including, without limitation, the following:

(a)

all Accounts;

(b)

all Chattel Paper (whether tangible or electronic);

(c)

the Commercial Tort Claims;

(d)

all Deposit Accounts, all cash, and all other property from time to time deposited therein and the monies and property in the possession or under the control of the Buyer or any affiliate, representative, agent or correspondent of the Buyer;

(e)

all Documents;

(f)

all Equipment;

(g)

all Fixtures;

(h)

all General Intangibles (including, without limitation, all Payment Intangibles);

(i)

all Goods;

(j)

all Instruments (including, without limitation, Promissory Notes and each certificated Security);

(k)

all Inventory;

(l)

all Investment Property;

(m)

all Copyrights, Patents and Trademarks, and all Licenses;

(n)

all Letter-of-Credit Rights;

(o)

all Supporting Obligations;

(p)

all other tangible and intangible personal property of each Grantor (whether or not subject to the Code), including, without limitation, all bank and other accounts and all cash and all investments therein, all proceeds, products, offspring, accessions, rents, profits, income, benefits, substitutions and replacements of and to any of the property of any Grantor described in the preceding clauses of this Section 2 (including, without limitation, any proceeds of insurance thereon and all causes of action, claims and warranties now or hereafter held by each Grantor in respect of any of the items listed above), and all books, correspondence, files and other Records, including, without limitation, all tapes, desks, cards, Software, data and computer programs in the possession or under the control of any Grantor or any other Person from time to time acting for any Grantor that at any time evidence or contain information relating to any of the property described in the preceding clauses of this Section 2  or are otherwise necessary or helpful in the collection or realization thereof; and

(q)

all Proceeds, including all Cash Proceeds and Noncash Proceeds, and products of any and all of the foregoing Encumbered Collateral;

in each case howsoever any Grantor's interest therein may arise or appear (whether by ownership, security interest, claim or otherwise).

SECTION 3.

SECURITY FOR OBLIGATIONS.  The security interest created hereby, junior to the security interests of the Senior Lenders, in the Encumbered Collateral constitutes continuing collateral security for all of the following obligations, whether now existing or hereafter incurred (collectively, the "Obligations"):

(a)

the payment by the Company, as and when due and payable (by scheduled maturity, required prepayment, acceleration, demand or otherwise), of all amounts from time to time owing by it in respect of the Securities Purchase Agreement, the Notes and the other "Transaction Documents" (as defined in the Securities Purchase Agreement), including, without limitation, (A) all principal of and interest on the Notes (including, without limitation, all interest that accrues after the commencement of any Insolvency Proceeding of any Grantor, whether or not the payment of such interest is unenforceable or is not allowable due to the existence of such Insolvency Proceeding), and (B) all fees, commissions, expense reimbursements, indemnifications and all other amounts due or to become due under any of the Transaction Documents; and

(b)

the due performance and observance by each Grantor of all of its other obligations from time to time existing in respect of any of the Transaction Documents, including without limitation, with respect to any conversion or redemption rights of the Buyer under the Notes, for so long as the Notes are outstanding.

SECTION 4.

REPRESENTATIONS AND WARRANTIES.  Each Grantor represents and warrants as follows:

(a)

Schedule I hereto sets forth (i) the exact legal name of the Grantors, and (ii) the organizational identification number of each Grantor or states that no such organizational identification number exists.

(b)

There is no pending or written notice threatening any action, suit, proceeding or claim affecting any Grantor before any governmental authority or any arbitrator, or any order, judgment or award by any governmental authority or arbitrator, that may adversely affect the grant by any Grantor, or the perfection, of the security interest purported to be created hereby in the Encumbered Collateral, or the exercise by the Buyer of any of its rights or remedies hereunder, junior to the security interests of the Senior Lenders.

(c)

All Federal, state and local tax returns and other reports required by applicable law to be filed by any Grantor have been filed, or extensions have been obtained, and all taxes, assessments and other governmental charges imposed upon any Grantor or any property of any Grantor (including, without limitation, all federal income and social security taxes on employees' wages) and which have become due and payable on or prior to the date hereof have been paid, except to the extent contested in good faith by proper proceedings which stay the imposition of any penalty, fine or Lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside for the payment thereof in accordance with generally accepted accounting principles consistently applied ("GAAP").

(d)

All Equipment, Fixtures, Goods and Inventory of each Grantor now existing are, and all Equipment, Fixtures, Goods and Inventory of each Grantor hereafter existing will be, located and/or based at the addresses specified therefor in Schedule III hereto, except that each Grantor will give the Buyer not less than 30 days' prior written notice of any change of the location of any such Encumbered Collateral, other than to locations set forth on Schedule III and with respect to which the Buyer has filed financing statements and otherwise fully perfected its Liens thereon.  Each Grantor's chief place of business and chief executive office, the place where each Grantor keeps its Records concerning Accounts and all originals of all Chattel Paper are located at the addresses specified therefor in Schedule III hereto.  None of the Accounts is evidenced by Promissory Notes or other Instruments.  Set forth in Schedule IV hereto is a complete and accurate list, as of the date of this Agreement, of (i) each Promissory Note, Security and other Instrument owned by each Grantor and (ii) each Deposit Account, Securities Account and Commodities Account of each Grantor, together with the name and address of each institution at which each such Account is maintained, the account number for each such Account and a description of the purpose of each such Account.  Set forth in Schedule II hereto is a complete and correct list of each trade name used by each Grantor and the name of, and each trade name used by, each person from which each Grantor has acquired any substantial part of the Encumbered Collateral.

(e)

Each Grantor has delivered to the Buyer complete and correct copies of each License described in Schedule II hereto, including all schedules and exhibits thereto, which represents all of the Licenses existing on the date of this Agreement.  Each such License sets forth the entire agreement and understanding of the parties thereto relating to the subject matter thereof, and there are no other agreements, arrangements or understandings, written or oral, relating to the matters covered thereby or the rights of each Grantor or any of its affiliates in respect thereof.  Each material License now existing is, and any material License entered into in the future will be, the legal, valid and binding obligation of the parties thereto, enforceable against such parties in accordance with its terms.  No default under any material License by any such party has occurred, nor does any defense, offset, deduction or counterclaim exist thereunder in favor of any such party.

(f)

Each Grantor owns and controls, or otherwise possesses adequate rights to use, all Trademarks, Patents and Copyrights, which are the only trademarks, patents, copyrights, inventions, trade secrets, proprietary information and technology, know-how, formulae, rights of publicity necessary to conduct its business in substantially the same manner as conducted as of the date hereof.  Schedule II hereto sets forth a true and complete list of all registered copyrights, issued Patents, Trademarks, and Licenses annually owned or used by each Grantor as of the date hereof.  To the best knowledge of the Grantors, all such Intellectual Property of each Grantor is subsisting and in full force and effect, has not been adjudged invalid or unenforceable, is valid and enforceable and has not been abandoned in whole or in part.  Except as set forth in Schedule II, no such Intellectual Property is the subject of any licensing or franchising agreement.  Each Grantor has no knowledge of any conflict with the rights of others to any Intellectual Property and, to the best knowledge of the Grantors, each Grantor is not now infringing or in conflict with any such rights of others in any material respect, and to the best knowledge of the Grantors, no other Person is now infringing or in conflict in any material respect with any such properties, assets and rights owned or used by each Grantor.  No Grantor has received any notice that it is violating or has violated the trademarks, patents, copyrights, inventions, trade secrets, proprietary information and technology, know-how, formulae, rights of publicity or other intellectual property rights of any third party.

(g)

Each Grantor is and will be at all times the sole and exclusive owner of, or otherwise has and will have adequate rights in, the Encumbered Collateral free and clear of any Liens, except for Permitted Liens (as defined in the Note) and subject to the security interests of the Senior Lenders, on any Encumbered Collateral.  No effective financing statement or other instrument similar in effect covering all or any part of the Encumbered Collateral is on file in any recording or filing office except such as may have been filed in favor of the Buyer relating to this Agreement or as related to a Permitted Lien except as described in Schedule 4(3) attached hereto.

(h)

The exercise by the Buyer of any of its rights and remedies hereunder will not contravene any law or any contractual restriction binding on or otherwise affecting each Grantor or any of its properties and will not result in or require the creation of any Lien, upon or with respect to any of its properties.

(i)

No authorization or approval or other action by, and no notice to or filing with, any governmental authority or other regulatory body, or any other Person, is required for (i) the grant by each Grantor, or the perfection, of the security interest purported to be created hereby in the Encumbered Collateral, junior to the security interests of the Senior Lenders, or (ii) the exercise by the Buyer any of its rights and remedies hereunder, except (A) for the filing under the Uniform Commercial Code as in effect in the applicable jurisdiction of the financing statements, all of which financing statements, have been duly filed and are in full force and effect and(B) with respect to the perfection of the security interest created hereby in foreign Intellectual Property and Licenses, for registrations and filings in jurisdictions located outside of the United States and covering rights in such jurisdictions relating to the Intellectual Property and Licenses.

(j)

This Agreement creates in favor of the Buyer a legal, valid and enforceable security interest, junior to the security interests of the Senior Lenders, in the Encumbered Collateral, as security for the Obligations.  Buyer's having possession of all Instruments and cash constituting Encumbered Collateral from time to time (or with respect to deposit accounts, entering into appropriate control agreements), the recording of the appropriate Assignment for Security executed pursuant hereto in the United States Patent and Trademark Office and the United States Copyright Office, the execution of appropriate assignments of Letter of Credit Rights, as applicable, and the filing of the financing statements and the other filings and recordings, as applicable, described in Schedule V hereto and, with respect to the Intellectual Property hereafter existing and not covered by an appropriate Assignment for Security, the recording in the United States Patent and Trademark Office or the United States Copyright Office, as applicable, of appropriate instruments of assignment, result in the perfection of such security interests.  Such security interests are, or in the case of Encumbered Collateral in which each Grantor obtains rights after the date hereof, will be, junior to the security interests of the Senior Lenders, perfected, first priority security interests, subject only to Permitted Liens, the recording of such instruments of assignment.  Such recordings and filings and all other action necessary or desirable to perfect and protect such security interest will be duly taken, except for the Buyer's having possession of Instruments and cash constituting Encumbered Collateral after the date hereof and the other filings and recordations described in Section 4(j) hereof.

(k)

As of the date hereof, no Grantor holds any Commercial Tort Claims nor is aware of any such pending claims.

SECTION 5.

COVENANTS AS TO THE ENCUMBERED COLLATERAL.  So long as any of the Obligations shall remain outstanding, unless the Buyer shall otherwise consent in writing:

(a)

Further Assurances.  Each Grantor will at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that the Buyer may reasonably request in order to:  (i) perfect and protect the security interest, junior to the security interests of the Senior Lenders, purported to be created hereby; (ii) enable the Buyer to exercise and enforce its rights and remedies hereunder in respect of the Encumbered Collateral; or (iii) otherwise effect the purposes of this Agreement, including, without limitation:  (A) marking conspicuously all Chattel Paper and each License and, at the request of the Buyer, each of its Records pertaining to the Encumbered Collateral with a legend, in form and substance satisfactory to the Buyer, indicating that such Chattel Paper, License or Encumbered Collateral is subject to the security interest, junior to the security interests of the Senior Lenders, created hereby, (B)  delivering and pledging to the Buyer hereunder each Promissory Note, Security, Chattel Paper or other Instrument, now or hereafter owned by any Grantor, duly endorsed and accompanied by executed instruments of transfer or assignment, all in form and substance satisfactory to the Buyer, subject to the rights of the Senior Lenders,, (C) executing and filing (to the extent, if any, that any Grantor's signature is required thereon) or authenticating the filing of, such financing or continuation statements, or amendments thereto, as may be necessary or desirable or that the Buyer may request in order to perfect and preserve the security interest purported to be created hereby, junior to the security interests of the Senior Lenders, (D) furnishing to the Buyer from time to time statements and schedules further identifying and describing the Encumbered Collateral and such other reports in connection with the Encumbered Collateral in each case as the Buyer may reasonably request, all in reasonable detail, (E) if any Encumbered Collateral shall be in the possession of a third party, notifying such Person of the Buyer's security interest created hereby and obtaining a written acknowledgment from such Person that such Person holds possession of the Encumbered Collateral for the benefit of the Buyer, junior to the security interests of the Senior Lenders,  which such written acknowledgement shall be in form and substance satisfactory to the Buyer, (F) if at any time after the date hereof, any Grantor acquires or holds any Commercial Tort Claim, promptly notifying the Buyer in a writing signed by such Grantor setting forth a brief description of such Commercial Tort Claim and granting to the Buyer a security interest therein and in the proceeds thereof, junior to the security interests of the Senior Lenders,, which writing shall incorporate the provisions hereof and shall be in form and substance satisfactory to the Buyer, (G) upon the acquisition after the date hereof by any Grantor of any motor vehicle or other Equipment subject to a certificate of title or ownership (other than a Motor Vehicle or Equipment that is subject to a purchase money security interest), causing the Buyer to be listed as the lienholder on such certificate of title or ownership and delivering evidence of the same to the Buyer in accordance with the Securities Purchase Agreement; and (H) taking all actions required by any earlier versions of the Uniform Commercial Code or by other law, as applicable, in any relevant Uniform Commercial Code jurisdiction, or by other law as applicable in any foreign jurisdiction.

(b)

Location of Equipment and Inventory.  Each Grantor will keep the Equipment and Inventory at the locations specified therefor on Schedule II hereto, or, at such other locations in the United States, provided that within 10 days following the relocation of Equipment or Inventory to such other location, Grantor shall deliver to the Buyer a new Schedule II indicating such new location.

(c)

Condition of Equipment.  Each Grantor will maintain or cause the Equipment (necessary or useful to its business) to be maintained and preserved in good condition, repair and working order, ordinary wear and tear excepted, and will forthwith, or in the case of any loss or damage to any Equipment of any Grantor within a commercially reasonable time after the occurrence thereof, make or cause to be made all repairs, replacements and other improvements in connection therewith which are necessary or desirable, consistent with past practice, or which the Buyer may request to such end.  Any Grantor will promptly furnish to the Buyer a statement describing in reasonable detail any such loss or damage in excess of $250,000 per occurrence to any Equipment.

(d)

Taxes, Etc.  Each Grantor agrees to pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Equipment and Inventory, except to the extent the validity thereof is being contested in good faith by proper proceedings which stay the imposition of any penalty, fine or Lien resulting from the non-payment thereof and with respect to which adequate reserves in accordance with GAAP have been set aside for the payment thereof.

(e)

Insurance.

(i)

Each Grantor will, at its own expense, maintain insurance (including, without limitation, commercial general liability and property insurance) with respect to the Equipment and Inventory in such amounts, against such risks, in such form and with responsible and reputable insurance companies or associations 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 Buyer.  To the extent requested by the Buyer at any time and from time to time, each such policy for liability insurance shall provide for all losses to be paid on behalf of the Buyer and any Grantor as their respective interests may appear, and each policy for property damage insurance shall provide for all losses to be adjusted with, and paid directly to, the Buyer.  To the extent requested by the Buyer at any time and from time to time, each such policy shall in addition (A) name the Buyer as an additional insured party thereunder (without any representation or warranty by or obligation upon the Buyer) as their interests may appear, (B) contain an agreement by the insurer that any loss thereunder shall be payable to the Buyer on its own account notwithstanding any action, inaction or breach of representation or warranty by any Grantor, (C) provide that there shall be no recourse against the Buyer for payment of premiums or other amounts with respect thereto, and (D) provide that at least 30 days' prior written notice of cancellation, lapse, expiration or other adverse change shall be given to the Buyer by the insurer.  Any Grantor will, if so requested by the Buyer, deliver to the Buyer original or duplicate policies of such insurance and, as often as the Buyer may reasonably request, a report of a reputable insurance broker with respect to such insurance.  Any Grantor will also, at the request of the Buyer, execute and deliver instruments of assignment of such insurance policies and cause the respective insurers to acknowledge notice of such assignment.

(ii)

Reimbursement under any liability insurance maintained by any Grantor pursuant to this Section 5(e) may be paid directly to the Person who shall have incurred liability covered by such insurance.  In the case of any loss involving damage to Equipment or Inventory, any proceeds of insurance maintained by any Grantor pursuant to this Section 5(e)  shall be paid to the Buyer (except as to which paragraph (iii) of this  Section 5(e) is not applicable), any Grantor will make or cause to be made the necessary repairs to or replacements of such Equipment or Inventory, and any proceeds of insurance maintained by any Buyer pursuant to this Section 5(e)  shall be paid by the Buyer to any Grantor as reimbursement for the costs of such repairs or replacements.

(iii)

All insurance payments in respect of such Equipment or Inventory shall be paid to the Buyer and applied as specified in Section 7(b)  hereof.

(f)

Provisions Concerning the Accounts and the Licenses.

(i)

Any Grantor will (A) give the Buyer at least 30 days' prior written notice of any change in such Grantor's name, identity or organizational structure, (B) maintain its jurisdiction of incorporation as set forth in Section 4(b)  hereto, (C) immediately notify the Buyer upon obtaining an organizational identification number, if on the date hereof such Grantor did not have such identification number, and (D) keep adequate records concerning the Accounts and Chattel Paper and permit representatives of the Buyer during normal business hours on reasonable notice to such Grantor, to inspect and make abstracts from such Records and Chattel Paper.

(ii)

Each Grantor will, except as otherwise provided in this subsection (f), continue to collect, at its own expense, all amounts due or to become due under the Accounts.  In connection with such collections, any Grantor may (and, at the Buyer's direction, will) take such action as any Grantor or the Buyer may deem necessary or advisable to enforce collection or performance of the Accounts; provided, however , that the Buyer shall have the right at any time, upon the occurrence and during the continuance of an Event of Default and subject to the Rights of the Senior Lenders, to notify the account debtors or obligors under any Accounts of the assignment of such Accounts to the Buyer and to direct such account debtors or obligors to make payment of all amounts due or to become due to any Grantor thereunder directly to the Buyer or its designated agent and, upon such notification and at the expense of any Grantor and to the extent permitted by law, to enforce collection of any such Accounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as may Grantor might have done.  After receipt by any Grantor of a notice from the Buyer that the Buyer has notified, intends to notify, or has enforced or intends to enforce any Grantor's rights against the account debtors or obligors under any Accounts as referred to in the proviso to the immediately preceding sentence, (A) all amounts and proceeds (including Instruments) received by any Grantor in respect of the Accounts shall be received in trust for the benefit of the Buyer hereunder, shall be segregated from other funds of any Grantor and shall be forthwith paid over to the Buyer in the same form as so received (with any necessary endorsement) to be held as cash Encumbered Collateral and either (i) credited to the outstanding obligations so long as no Event of Default shall have occurred and be continuing or (ii) if an Event of Default shall have occurred and be continuing, applied as specified in Section 7(b) hereof, and (B) no Grantor will adjust, settle or compromise the amount or payment of any Account or release wholly or partly any account debtor or obligor thereof or allow any credit or discount thereon.  In addition, upon the occurrence and during the continuance of an Event of Default, the Buyer may (in its sole and absolute discretion and subject to the rights of the Senior Lenders) direct any or all of the banks and financial institutions with which any Grantor either maintains a Deposit Account or a lockbox or deposits the proceeds of any Accounts to send immediately to the Buyer by wire transfer (to such account as the Buyer shall specify, or in such other manner as the Buyer shall direct) all or a portion of such securities, cash, investments and other items held by such institution.  Any such securities, cash, investments and other items so received by the Buyer shall be held as additional Encumbered Collateral for the Obligations and shall be returned to the Company once the Event of Default has been cured and there are no disputes between the parties.

(iii)

Upon the occurrence and during the continuance of any breach or default under any material License referred to in Schedule II  hereto by any party thereto other than any Grantor, each Grantor party thereto will, promptly after obtaining knowledge thereof, give the Buyer written notice of the nature and duration thereof, specifying what action, if any, it has taken and proposes to take with respect thereto and thereafter will take reasonable steps to protect and preserve its rights and remedies in respect of such breach or default, or will obtain or acquire an appropriate substitute License.

(iv)

Each Grantor will, at its expense, promptly deliver to the Buyer a copy of each notice or other communication received by it by which any other party to any material License referred to in Schedule II hereto purports to exercise any of its rights or affect any of its obligations thereunder, together with a copy of any reply by such Grantor thereto.

(v)

Each Grantor will exercise promptly and diligently each and every right which it may have under each material License (other than any right of termination) and will duly perform and observe in all respects all of its obligations under each material License and will take all action reasonably necessary to maintain such Licenses in full force and effect.  No Grantor will, without the prior written consent of the Buyer which shall not be unreasonably withheld, cancel, terminate, amend or otherwise modify in any respect, or waive any provision of, any material License referred to in Schedule II hereto unless in the Company’s ordinary course of business.

(g)

Transfers and Other Liens.

(i)

No Grantor will sell, assign (by operation of law or otherwise), lease, license, exchange or otherwise transfer or dispose of any of the Encumbered Collateral, except (A) Inventory in the ordinary course of business, and (B) worn-out or obsolete assets not necessary to the business.

(ii)

No Grantor will create, suffer to exist or grant any Lien upon or with respect to any Encumbered Collateral other than a Permitted Lien.

(h)

Intellectual Property.

(i)

If applicable and upon a continuing Event of Default, any Grantor shall, upon the Buyer's reasonable written request, duly execute and deliver the applicable Assignment for Security in the form attached hereto as Exhibit A. Each Grantor (either itself or through licensees) will, and will cause each licensee thereof to, take all action necessary to maintain all of the Intellectual Property in full force and effect, including, without limitation, using the proper statutory notices and markings and using the Trademarks on each applicable trademark class of goods in order to so maintain the Trademarks in full force and free from any claim of abandonment for non-use, and each Grantor will not (nor permit any licensee thereof to) do any act or knowingly omit to do any act whereby any Intellectual Property may become invalidated;  provided, however , that so long as no Event of Default has occurred and is continuing, no Grantor shall have an obligation to use or to maintain any Intellectual Property (A) that relates solely to any product or work, that has been, or is in the process of being, discontinued, abandoned or terminated, (B) that is being replaced with Intellectual Property substantially similar to the Intellectual Property that may be abandoned or otherwise become invalid, so long as the failure to use or maintain such Intellectual Property does not materially adversely affect the validity of such replacement Intellectual Property and so long as such replacement Intellectual Property is subject to the Lien created by this Agreement or (C) that is substantially the same as another Intellectual Property that is in full force, so long the failure to use or maintain such Intellectual Property does not materially adversely affect the validity of such replacement Intellectual Property and so long as such other Intellectual Property is subject to the Lien and security interest created by this Agreement.  Each Grantor will cause to be taken all necessary steps in any proceeding before the United States Patent and Trademark Office and the United States Copyright Office or any similar office or agency in any other country or political subdivision thereof to maintain each registration of the Intellectual Property (other than the Intellectual Property described in the proviso to the immediately preceding sentence), including, without limitation, filing of renewals, affidavits of use, affidavits of incontestability and opposition, interference and cancellation proceedings and payment of maintenance fees, filing fees, taxes or other governmental fees.  If any Intellectual Property (other than Intellectual Property described in the proviso to the first sentence of subsection (i) of this clause (h)) is infringed, misappropriated, diluted or otherwise violated in any material respect by a third party, each Grantor shall (x) upon learning of such infringement, misappropriation, dilution or other violation, promptly notify the Buyer and (y) to the extent any Grantor shall deem appropriate under the circumstances, promptly sue for infringement, misappropriation, dilution or other violation, seek injunctive relief where appropriate and recover any and all damages for such infringement, misappropriation, dilution or other violation, or take such other actions as such Grantor shall deem appropriate under the circumstances to protect such Intellectual Property.  Each Grantor shall furnish to the Buyer from time to time upon its request statements and schedules further identifying and describing the Intellectual Property and Licenses and such other reports in connection with the Intellectual Property and Licenses as the Buyer may reasonably request, all in reasonable detail and promptly upon request of the Buyer, following receipt by the Buyer of any such statements, schedules or reports, each Grantor shall modify this Agreement by amending Schedule II  hereto, as the case may be, to include any Intellectual Property and License, as the case may be, which becomes part of the Encumbered Collateral under this Agreement and shall execute and authenticate such documents and do such acts as shall be necessary or, in the judgment of the Buyer, desirable to subject such Intellectual Property and Licenses to the Lien and security interest, junior to the security interests of the Senior Lenders,  created by this Agreement.  Notwithstanding anything herein to the contrary, upon the occurrence and during the continuance of an Event of Default, no Grantor may abandon or otherwise permit any Intellectual Property to become invalid, unless by operation of law, without the prior written notice to the Buyer, and if any Intellectual Property is infringed, misappropriated, diluted or otherwise violated in any material respect by a third party, each Grantor will take such action as the Buyer shall deem appropriate under the circumstances to protect such Intellectual Property.

(ii)

In no event shall any Grantor, either itself or through any agent, employee, licensee or designee, file an application for the registration of any Trademark or Copyright or the issuance of any Patent with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, or in any similar office or agency of the United States or any country or any political subdivision thereof unless it gives the Buyer prior written notice thereof.  Upon request of the Buyer, any Grantor shall execute, authenticate and deliver any and all assignments, agreements, instruments, documents and papers as the Buyer may reasonably request to evidence the Buyer's security interest, junior to the security interests of the Senior Lenders, hereunder in such Intellectual Property and the General Intangibles of any Grantor relating thereto or represented thereby, and each Grantor hereby appoints the Buyer, upon a continuing Event of Default, its attorney-in-fact to execute and/or authenticate and file all such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed, and such power (being coupled with an interest) shall be irrevocable until the indefeasible payment in full in cash of all of the Obligations in full and the termination of each of the Transaction Documents.

(i)

Deposit, Commodities and Securities Accounts.  Upon the Buyer's written request and subject to the rights of the Senior Lenders, each Grantor shall cause each bank and other financial institution with an account referred to in Schedule IV hereto to execute and deliver to the Buyer a control agreement, in form and substance reasonably satisfactory to the Buyer, duly executed by each Grantor and such bank or financial institution, or enter into other arrangements in form and substance satisfactory to the Buyer, pursuant to which such institution shall irrevocably agree, inter alia, that (i) it will comply at any time with the instructions originated by the Buyer to such bank or financial institution directing the disposition of cash, Commodity Contracts, securities, Investment Property and other items from time to time credited to such account, without further consent of each Grantor, which instructions the Buyer will not give to such bank or other financial institution in the absence of a continuing Event of Default, (ii) all cash, Commodity Contracts, securities, Investment Property and other items of each Grantor deposited with such institution shall be subject to a perfected, first priority security interest in favor of the Buyer, (iii) any right of set off (other than recoupment of standard fees), banker's Lien or other similar Lien, security interest or encumbrance shall be fully waived as against the Buyer, and (iv) upon receipt of written notice from the Buyer during the continuance of an Event of Default, such bank or financial institution shall immediately send to the Buyer by wire transfer (to such account as the Buyer shall specify, or in such other manner as the Buyer shall direct) all such cash, the value of any Commodity Contracts, securities, Investment Property and other items held by it.  Without the prior written consent of the Buyer, each Grantor shall not make or maintain any Deposit Account, Commodity Account or Securities Account except for the accounts set forth in Schedule IV hereto.  The provisions of this paragraph 5(i) shall not apply to (i) Deposit Accounts for which the Buyer is the depositary and (ii) Deposit Accounts specially and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of each Grantor's salaried employees.

(j)

Motor Vehicles.

(i)

Upon the Buyer's written request, each Grantor shall deliver to the Buyer originals of the certificates of title or ownership for all motor vehicles with a value in excess of $50,000, owned by Grantor with the Buyer listed as lienholder, for the benefit of the Buyers.

(ii)

Each Grantor hereby appoints the Buyer as its attorney-in-fact, upon continuing Event of Default, effective the date hereof and terminating upon the termination of this Agreement, for the purpose of (A) executing on behalf of each Grantor title or ownership applications for filing with appropriate state agencies to enable motor vehicles now owned or hereafter acquired by each Grantor to be retitled and the Buyer listed as lienholder thereof, (B) filing such applications with such state agencies, and (C) executing such other documents and instruments on behalf of, and taking such other action in the name of, each Grantor as the Buyer may deem necessary or advisable to accomplish the purposes hereof (including, without limitation, for the purpose of creating in favor of the Buyer a perfected Lien on the motor vehicles and exercising the rights and remedies of the Buyer hereunder).  This appointment as attorney-in-fact is coupled with an interest and is irrevocable until all of the Obligations are indefeasibly paid in full in cash.

(iii)

Any certificates of title or ownership delivered pursuant to the terms hereof shall be accompanied by odometer statements for each motor vehicle covered thereby.

(iv)

So long as no Event of Default shall have occurred and be continuing, upon the request of any Grantor, the Buyer shall execute and deliver to any Grantor such instruments as any Grantor shall reasonably request to remove the notation of the Buyer as lienholder on any certificate of title for any motor vehicle; provided, however, that any such instruments shall be delivered, and the release effective, only upon receipt by the Buyer of a certificate from any Grantor stating that such motor vehicle is to be sold or has suffered a casualty loss (with title thereto passing to the casualty insurance company therefor in settlement of the claim for such loss) and the amount that any Grantor will receive as sale proceeds or insurance proceeds.  Any proceeds of such sale or casualty loss shall be paid to the Buyer hereunder immediately upon receipt, to be applied to the Obligations then outstanding.

(k)

Control.  Each Grantor hereby agrees to take any or all action that may be necessary or desirable or that the Buyer may reasonably request in order for the Buyer to obtain control, subject to the rights of the Senior Lenders, in accordance with Sections 9-105 – 9-107 of the Code with respect to the following Encumbered Collateral:  (i) Electronic Chattel Paper, (ii) Investment Property, and (iii) Letter-of-Credit Rights.

(l)

Inspection and Reporting.  Each Grantor shall permit the Buyer, or any agent or representatives thereof or such professionals or other Persons as the Buyer may designate, not more than once a year in the absence of an Event of Default, (i) to examine and make copies of and abstracts from any Grantor's records and books of account, (ii) to visit and inspect its properties, (iii) to verify materials, leases, Instruments, Accounts, Inventory and other assets of any Grantor from time to time, (iii) to conduct audits, physical counts, appraisals and/or valuations, examinations at the locations of any Grantor.  Each Grantor shall also permit the Buyer, or any agent or representatives thereof or such professionals or other Persons as the Buyer may designate to discuss any Grantor's affairs, finances and accounts with any of its directors, officers, managerial employees, independent accountants or any of its other representatives.

(m)

Future Subsidiaries.  If any Grantor shall hereafter create or acquire any Subsidiary, simultaneously with the creation of acquisition of such Subsidiary, such Grantor shall cause such Subsidiary to become a party to this Agreement as an additional "Grantor" hereunder, and to duly execute and deliver a guaranty of the Obligations in favor of the Buyer in form and substance reasonably acceptable to the Buyer, and to duly execute and/or deliver such opinions of counsel and other documents, in form and substance reasonably acceptable to the Buyer, as the Buyer shall reasonably request with respect thereto.

SECTION 6.

ADDITIONAL PROVISIONS CONCERNING THE ENCUMBERED COLLATERAL.

(a)

Each Grantor hereby authorizes the Buyer to file one or more Uniform Commercial Code financing or continuation statements, and amendments thereto, relating to the Encumbered Collateral provided Buyer notifies the Grantor in writing and provides a copy of such filing.  A photocopy or other reproduction of this Agreement or any financing statement covering the Encumbered Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

(b)

Each Grantor hereby irrevocably appoints the Buyer as its attorney-in-fact and proxy, with full authority in the place and stead of each Grantor and in the name of each Grantor or otherwise, from time to time in the Buyer's discretion, so long as an Event of Default shall have occurred and is continuing and subject to the rights of the Senior Lenders, to take any action and to execute any instrument which the Buyer may deem necessary or advisable to accomplish the purposes of this Agreement (subject to the rights of each Grantor under Section 5 hereof), including, without limitation, (i) to obtain and adjust insurance required to be paid to the Buyer pursuant to Section 5(e) hereof, (ii) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any Encumbered Collateral, (iii) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper in connection with clause (i) or (ii) above, (iv) to file any claims or take any action or institute any proceedings which the Buyer may deem necessary or desirable for the collection of any Encumbered Collateral or otherwise to enforce the rights of the Buyer and the Buyers with respect to any Encumbered Collateral, and (v) to execute assignments, licenses and other documents to enforce the rights of the Buyer and the Buyers with respect to any Encumbered Collateral.  This power is coupled with an interest and is irrevocable until all of the Obligations are indefeasibly paid in full in cash.  

(c)

For the purpose of enabling the Buyer to exercise rights and remedies hereunder and subject to the rights of the Senior Lenders, at such time as the Buyer shall be lawfully entitled to exercise such rights and remedies, and upon a continuing Event of Default, and for no other purpose, each Grantor hereby grants to the Buyer, to the extent assignable, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to any Grantor) to use, assign, license or sublicense any Intellectual Property now owned or hereafter acquired by any Grantor, wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof.  Notwithstanding anything contained herein to the contrary, but subject to the provisions of the Securities Purchase Agreement that limit the right of any Grantor to dispose of its property and Section 5(h) hereof, so long as no Event of Default shall have occurred and be continuing, any Grantor may exploit, use, enjoy, protect, license, sublicense, assign, sell, dispose of or take other actions with respect to the Intellectual Property in the ordinary course of its business.  In furtherance of the foregoing, unless an Event of Default shall have occurred and be continuing, the Buyer shall from time to time, upon the request of any Grantor, execute and deliver any instruments, certificates or other documents, in the form so requested, which such Grantor shall have certified are appropriate (in any Grantor's judgment) to allow it to take any action permitted above (including relinquishment of the license provided pursuant to this clause (c) as to any Intellectual Property).  Further, upon the indefeasible payment in full in cash of all of the Obligations, the Buyer (subject to Section 10(e)  hereof) shall release and reassign to any Grantor all of the Buyer's right, title and interest in and to the Intellectual Property, and the Licenses, all without recourse, representation or warranty whatsoever.  The exercise of rights and remedies hereunder by the Buyer shall not terminate the rights of the holders of any licenses or sublicenses theretofore granted by each Grantor in accordance with the second sentence of this clause (c).  Each Grantor hereby releases the Buyer from any claims, causes of action and demands at any time arising out of or with respect to any actions taken or omitted to be taken by the Buyer under the powers of attorney granted herein other than actions taken or omitted to be taken through the Buyer's gross negligence or willful misconduct, as determined by a final determination of a court of competent jurisdiction.  

(d)

If any Grantor fails to perform any agreement contained herein that would constitute a continuing Event of Default, the Buyer may itself perform, or cause performance of, such agreement or obligation, in the name of any Grantor or the Buyer, and the expenses of the Buyer incurred in connection therewith shall be payable by any Grantor pursuant to Section 8 hereof and shall be secured by the Encumbered Collateral.

(e)

The powers conferred on the Buyer hereunder are solely to protect its interest in the Encumbered Collateral and shall not impose any duty upon it to exercise any such powers.  

Except for the safe custody of any Encumbered Collateral in its possession and the accounting for moneys actually received by it hereunder, the Buyer shall have no duty as to any Encumbered Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Encumbered Collateral.

(f)

Anything herein to the contrary notwithstanding (i) each Grantor shall remain liable under the Licenses and otherwise with respect to any of the Encumbered Collateral to the extent set forth therein to perform all of its obligations thereunder to the same extent as if this Agreement had not been executed, (ii) the exercise by the Buyer of any of its rights hereunder shall not release any Grantor from any of its obligations under the Licenses or otherwise in respect of the Encumbered Collateral, and (iii) the Buyer shall not have any obligation or liability by reason of this Agreement under the Licenses or with respect to any of the other Encumbered Collateral, nor shall the Buyer be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

SECTION 7.

REMEDIES UPON EVENT OF DEFAULT.  If any Event of Default shall have occurred and be continuing:

(a)

The Buyer may exercise in respect of the Encumbered Collateral, in addition to any other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party upon default under the Code, subject to the rights of the Senior Lenders (whether or not the Code applies to the affected Encumbered Collateral), and also may subject to the rights of the Senior Lenders (i) take absolute control of the Encumbered Collateral, including, without limitation, transfer into the Buyer's name or into the name of its nominee or nominees (to the extent the Buyer has not theretofore done so) and thereafter receive, for the benefit of the Buyer, all payments made thereon, give all consents, waivers and ratifications in respect thereof and otherwise act with respect thereto as though it were the outright owner thereof, (ii) require each Grantor to, and each Grantor hereby agrees that it will at its expense and upon request of the Buyer forthwith, assemble all or part of its respective Encumbered Collateral as directed by the Buyer and make it available to the Buyer at a place or places to be designated by the Buyer that is reasonably convenient to both parties, and the Buyer may enter into and occupy any premises owned or leased by any Grantor where the Encumbered Collateral or any part thereof is located or assembled for a reasonable period in order to effectuate the Buyer's rights and remedies hereunder or under law, without obligation to any Grantor in respect of such occupation, and (iii) with  notice to the Company and without any obligation to prepare or process the Encumbered Collateral for sale, (A) sell the Encumbered Collateral or any part thereof in one or more parcels at public or private sale, at any of the Buyer's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Buyer may deem commercially reasonable and/or (B) lease, license or dispose of the Encumbered Collateral or any part thereof upon such terms as the Buyer may deem commercially reasonable.  Each Grantor agrees that, to the extent notice of sale or any other disposition of its respective Encumbered Collateral shall be required by law, at least ten (10) days' notice to any Grantor of the time and place of any public sale or the time after which any private sale or other disposition of its respective Encumbered Collateral is to be made shall constitute reasonable notification.  The Buyer shall not be obligated to make any sale or other disposition of any Encumbered Collateral regardless of notice of sale having been given.  The Buyer may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.  Each Grantor hereby waives any claims against the Buyer and the Buyers arising by reason of the fact that the price at which its respective Encumbered Collateral may have been sold at a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Buyer accepts the first offer received and does not offer such Encumbered Collateral to more than one offeree, and waives all rights that any Grantor may have to require that all or any part of such Encumbered Collateral be marshalled upon any sale (public or private) thereof.  Each Grantor hereby acknowledges that (i) any such sale of its respective Encumbered Collateral by the Buyer shall be made without warranty, (ii) the Buyer may specifically disclaim any warranties of title, possession, quiet enjoyment or the like, and (iii) such actions set forth in clauses (i) and (ii) above shall not adversely effect the commercial reasonableness of any such sale of Encumbered Collateral.  In addition to the foregoing and subject to the rights of the Senior Lenders, (1) upon written notice to any Grantor from the Buyer, such Grantor shall cease any use of the Intellectual Property or any trademark, patent or copyright similar thereto for any purpose described in such notice; (2) the Buyer may, at any time and from time to time, upon 10 days' prior notice to such Grantor, license, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any of the Intellectual Property, throughout the universe for such term or terms, on such conditions, and in such manner, as the Buyer shall in its sole discretion determine; and (3) the Buyer may, at any time, pursuant to the authority granted in Section 6 hereof (such authority being effective upon the occurrence and during the continuance of an Event of Default), execute and deliver on behalf of such Grantor, one or more instruments of assignment of the Intellectual Property (or any application or registration thereof), in form suitable for filing, recording or registration in any country.

(b)

Any cash held by the Buyer as Encumbered Collateral and all Cash Proceeds received by the Buyer in respect of any sale of or collection from, or other realization upon, all or any part of the Encumbered Collateral may, in the discretion of the Buyer, be held by the Buyer as Encumbered Collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Buyer pursuant to Section 8 hereof) in whole or in part by the Buyer against, all or any part of the Obligations in such order as the Buyer shall elect, consistent with the provisions of the Securities Purchase Agreement.  Any surplus of such cash or Cash Proceeds held by the Buyer and remaining after the indefeasible payment in full in cash of all of the Obligations shall be paid over to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct.

(c)

In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Buyer is legally entitled, such each shall be liable for the deficiency, together with interest thereon at the highest rate specified in any of the applicable Transaction Documents for interest on overdue principal thereof or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees, costs, expenses and other client charges of any attorneys employed by the Buyer to collect such deficiency.

(d)

Each Grantor hereby acknowledges that if the Buyer complies with any applicable state, provincial, or federal law requirements in connection with a disposition of the Encumbered Collateral, such compliance will not adversely affect the commercial reasonableness of any sale or other disposition of the Encumbered Collateral.

(e)

The Buyer shall not be required to marshal any present or future Encumbered Collateral security (including, but not limited to, this Agreement and the Encumbered Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such Encumbered Collateral security or other assurances of payment in any particular order, and all of the Buyer's rights hereunder and in respect of such Encumbered Collateral security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising.  To the extent that any Grantor lawfully may, each Grantor hereby agrees that it will not invoke any law relating to the marshalling of Encumbered Collateral which might cause delay in or impede the enforcement of the Buyer's rights under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, each Grantor hereby irrevocably waives the benefits of all such laws.

SECTION 8.

INDEMNITY AND EXPENSES.

(a)

Each Grantor agrees, jointly and severally, to defend, protect, indemnify and hold the Buyer, jointly and severally, harmless from and against any and all claims, damages, losses, liabilities, obligations, penalties, fees, costs and expenses (including, without limitation, reasonable legal fees, costs, expenses, and disbursements of such Person's counsel) to the extent that they arise out of or otherwise result from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting solely and directly from such Person's gross negligence or willful misconduct, as determined by a final judgment of a court of competent jurisdiction.

(b)

Each Grantor agrees, jointly and severally, to upon demand pay to the Buyer the amount of any and all costs and expenses, including the reasonable fees, costs, expenses and disbursements of counsel for the Buyer and of any experts and agents (including, without limitation, any Encumbered Collateral trustee which may act as agent of the Buyer), which the Buyer may incur in connection with (i) the preparation, negotiation, execution, delivery, recordation, administration, amendment, waiver or other modification or termination of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Encumbered Collateral, (iii) the exercise or enforcement of any of the rights of the Buyer hereunder, or (iv) the failure by any Grantor to perform or observe any of the provisions hereof.

SECTION 9.

NOTICES, ETC.  All notices and other communications provided for hereunder shall be in writing and shall be mailed (by certified mail, postage prepaid and return receipt requested), telecopied, e-mailed or delivered, if to any Grantor at its address specified below and if to the Buyer to it, at its address specified below; or as to any such Person, at such other address as shall be designated by such Person in a written notice to such other Person complying as to delivery with the terms of this Section 9.  All such notices and other communications shall be effective (a) if sent by certified mail, return receipt requested, when received or three days after deposited in the mails, whichever occurs first, (b) if telecopied or e-mailed, when transmitted (during normal business hours) and confirmation is received, otherwise, the day after the notice was transmitted if confirmation is received, or (c) if delivered, upon delivery.

SECTION 10.

MISCELLANEOUS.

(a)

No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by each Grantor and the Buyer, and no waiver of any provision of this Agreement, and no consent to any departure by each Grantor therefrom, shall be effective unless it is in writing and signed by the Buyer, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

(b)

No failure on the part of the Buyer to exercise, and no delay in exercising, any right hereunder or under any of the other Transaction Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right.  The rights and remedies of the Buyer or any Buyer provided herein and in the other Transaction Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law.  The rights of the Buyer under any of the other Transaction Documents against any party thereto are not conditional or contingent on any attempt by such Person to exercise any of its rights under any of the other Transaction Documents against such party or against any other Person, including but not limited to, any Grantor.

(c)

Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction.

(d)

This Agreement shall create a continuing security interest in the Encumbered Collateral, junior to the security interests of the Senior Lenders, and shall (i) remain in full force and effect until the indefeasible payment in full in cash of the Obligations, and (ii) be binding on each Grantor and all other Persons who become bound as debtor to this Agreement in accordance with Section 9-203(d) of the Code and shall inure, together with all rights and remedies of the Buyer hereunder, to the benefit of the Buyer and their respective permitted successors, transferees and assigns.  Without limiting the generality of clause (ii) of the immediately preceding sentence, with notice to any Grantor, the Buyer may assign or otherwise transfer their rights and obligations under this Agreement and any of the other Transaction Documents, to any other Person and such other Person shall thereupon become vested with all of the benefits in respect thereof granted to the Buyer herein or otherwise. Upon any such assignment or transfer, all references in this Agreement to the Buyer shall mean the assignee of the Buyer.  Subject to the rights of the Senior Lenders, none of the rights or obligations of any Grantor hereunder may be assigned or otherwise transferred without the prior written consent of the Buyer, and any such assignment or transfer without the consent of the Encumbered Collateral Agent shall be null and void.

(e)

Upon the indefeasible payment in full in cash of the Obligations, (i) this Agreement and the security interests created hereby shall terminate and all rights to the Encumbered Collateral shall revert to the respective Grantor that granted such security interests hereunder, and (ii) the Buyer will, upon any Grantor's request and at such Grantor's expense, (A) return to such Grantor such of the Encumbered Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof, and (B) execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination, all without any representation, warranty or recourse whatsoever.

(f)

THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR ENCUMBERED COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.

(g)

ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY DOCUMENT RELATED THERETO MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS THEREOF, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH GRANTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS.  EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF  FORUM NON CONVENIENS , WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION, SUIT OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.

(h)

EACH GRANTOR AND (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS AGREEMENT) THE BUYER WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES HERETO.

(i)

Each Grantor irrevocably consents to the service of process of any of the aforesaid courts in any such action, suit or proceeding by the mailing of copies thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to any Grantor at its address provided herein, such service to become effective 10 days after such mailing .

(j)

Nothing contained herein shall affect the right of the Buyer to serve process in any other manner permitted by law or commence legal proceedings or otherwise proceed against any Grantor or any property of any Grantor in any other jurisdiction.

(k)

Each Grantor irrevocably and unconditionally waives any right it may have to claim or recover in any legal action, suit or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

(l)

Section headings herein are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

(m)

This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together constitute one in the same Agreement.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

1

IN WITNESS WHEREOF, each Grantor has caused this Agreement to be executed and delivered by its officer thereunto duly authorized, as of the date first above written.

MFC DEVELOPMENT CORP.

By:

Name:

Title:

Address:

271 North Avenue, Suite 520

New Rochelle, NY 10801

ACCEPTED BY:

GOTTBETTER CAPITAL FINANCE, LLC

By:

Name:  

Title:

Address:

488 Madison Avenue, 12th Floor

New York, NY 10022

2

SCHEDULE I

LEGAL NAMES; ORGANIZATIONAL IDENTIFICATION NUMBERS; STATES OR JURISDICTION OF ORGANIZATION

				
	Grantor’s Name

	State of Organization

	Federal Employer I.D.

	Organizational I.D.

	 
	 
	 
	 

	 
	 
	 
	 

			
	{00085329.4 / 0991-001}10189222.3

	341217.1Sched. I-1

	 

SCHEDULE II

INTELLECTUAL PROPERTY

			
	{00085329.4 / 0991-001}10189222.3

	 
	 

SCHEDULE III

LOCATIONS

				
	Grantor

	Chief Place of Business and Chief Executive Office

	Books and Records

	Equipment, Fixtures, Goods and Inventory

	 
	 
	 
	 

	 
	 
	 
	 

			
	{00085329.4 / 0991-001}10189222.3

	 
	 

SCHEDULE IV

PROMISSORY NOTES, SECURITIES, DEPOSIT ACCOUNTS, SECURITIES ACCOUNTS AND COMMODITIES ACCOUNTS

Securities

					
	Grantor

	Name of Issuer

	Number of Shares

	Class

	Certificate

No.(s)

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

Deposit Accounts

				
	Grantor

	Name and Address of Institution

	Purpose of the Account

	Account No.

	 
	 
	 
	 

	 
	 
	 
	 

	 
	 
	 
	 

	 
	 
	 
	 

	 
	 
	 
	 

	 
	 
	 
	 

	 
	 
	 
	 

	 
	 
	 
	 

			
	{00085329.4 / 0991-001}10189222.3

	 
	 

SCHEDULE V

FINANCING STATEMENTS

			
	Grantors

	Jurisdictions For Filing Financing Statements

	 
	 

	 
	 

			
	{00085329.4 / 0991-001}10189222.3

	 
	 

SCHEDULE VI

COMMERCIAL TORT CLAIMS

			
	{00085329.4 / 0991-001}10189222.3

	 
	 

EXHIBIT A

ASSIGNMENT FOR SECURITY

[TRADEMARKS] [PATENTS] [COPYRIGHTS]

WHEREAS, ______________________________ (the "Assignor") [has adopted, used and is using, and holds all right, title and interest in and to, the trademarks and service marks listed on the annexed Schedule 1A, which trademarks and service marks are registered or applied for in the United States Patent and Trademark Office (the "Trademarks")] [holds all right, title and interest in the letter patents, design patents and utility patents listed on the annexed Schedule 1A, which patents are issued or applied for in the United States Patent and Trademark Office (the "Patents")] [holds all right, title and interest in the copyrights listed on the annexed Schedule 1A, which copyrights are registered in the United States Copyright Office (the "Copyrights")];

WHEREAS, the Assignor has entered into a Security Agreement, dated as of July 31, 2006 (as amended, restated or otherwise modified from time to time the "Security Agreement"), in favor Gottbetter Capital Finance, LLC., as collateral agent for certain purchasers (the "Assignee");

WHEREAS, pursuant to the Security Agreement, the Assignor has assigned to the Assignee and granted to the Assignee for the benefit of the Buyers (as defined in the Security Agreement) a continuing security interest in all right, title and interest of the Assignor in, to and under the [Trademarks, together with, among other things, the good-will of the business symbolized by the Trademarks] [Patents] [Copyrights] and the applications and registrations thereof, and all proceeds thereof, including, without limitation, any and all causes of action which may exist by reason of infringement thereof and any and all damages arising from past, present and future violations thereof (the "Collateral"), to secure the payment, performance and observance of the "Obligations" (as defined in the Security Agreement);

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Assignor does hereby pledge, convey, sell, assign, transfer and set over unto the Assignee and grants to the Assignee for the benefit of the Buyers a continuing security interest in the Collateral to secure the prompt payment, performance and for the benefit of the Buyers observance of the Obligations.

The Assignor does hereby further acknowledge and affirm that the rights and remedies of the Assignee with respect to the Collateral are more fully set forth in the Security Agreement, the terms and provisions of which are hereby incorporated herein by reference as if fully set forth herein.

			
	{00085329.4 / 0991-001}10189222.3

	 
	 

IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly executed by its officer thereunto duly authorized as of _____________, 20__

[GRANTORS]

By:____________________________

Name:

Title: 

			
	{00085329.4 / 0991-001}10189222.3

	 
	 

341217.1

STATE OF ____________

ss.:

COUNTY OF __________

On this ____ day of _______________, 20__, before me personally came ________________, to me known to be the person who executed the foregoing instrument, and who, being duly sworn by me, did depose and say that s/he is the ________________ of _______________________________________, a ____________________, and that s/he executed the foregoing instrument in the firm name of _______________________________________, and that s/he had authority to sign the same, and s/he acknowledged to me that he executed the same as the act and deed of said firm for the uses and purposes therein mentioned.

			
	{00085329.4 / 0991-001}10189222.3

	341217.1Exh. A-3

	 

SCHEDULE 1A TO ASSIGNMENT FOR SECURITY

[Trademarks and Trademark Applications]

[Patent and Patent Applications]

[Copyright and Copyright Applications] 

Owned by ______________________________

{00085329.4 / 0991-001}

Exhibit B

Excluded Assets

{00085329.4 / 0991-001}

5

Schedule 4(g)

Effective Financing Statements

{00085329.4 / 0991-001}

6

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