Document:

Unassociated Document

    
      Exhibit
        4.1 FORM OF SECURITIES PURCHASE AGREEMENT

      

      SECURITIES
        PURCHASE AGREEMENT

       

      This
        Securities Purchase Agreement (this “Agreement”)
        is
        dated as of July __, 2006, by and among Sub-Urban Brands, Inc., a Nevada
        corporation (the “Company”),
        and
        the purchasers identified on the signature pages hereto (each, including
        its
        successors and assigns, a “Purchaser”
and
        collectively the “Purchasers”).

       

      WHEREAS,
        subject to the terms and conditions set forth in this Agreement and pursuant
        to
        Section 4(2) of the Securities Act (as defined below), and Rule 506 promulgated
        thereunder, the Company desires to issue and sell to each Purchaser, and
        each
        Purchaser, severally and not jointly, desires to purchase on the Closing
        Date
        from the Company in the aggregate, up to $200,000 of Units, each of which
        consists of (i) convertible promissory notes (the “Notes”) and (ii) warrants
        (the “Warrants”) to purchase shares of common stock (the “Common
        Stock”).

       

      NOW,
        THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
        and for other good and valuable consideration the receipt and adequacy of
        which
        are hereby acknowledged, the Company and each Purchaser agree as
        follows:

       

      ARTICLE
        I

      DEFINITIONS

       

      1.1 Definitions.
        In
        addition to the terms defined elsewhere in this Agreement, the following
        terms
        have the meanings indicated in this Section 1.1:

       

      “Action”
shall
        have the meaning ascribed to such term in Section 3.1(j).

       

      “Actual
        Minimum”
means,
        as of any date, the maximum aggregate number of shares of Common Stock then
        issued or potentially issuable in the future pursuant to the Transaction
        Documents, including any Underlying Shares issuable upon conversion or exercise
        in full of all Notes and Warrants.

       

      “Affiliate”
means
        any Person that, directly or indirectly through one or more intermediaries,
        controls or is controlled by or is under common control with a Person, as
        such
        terms are used in and construed under Rule 144 under the Securities Act.
        With
        respect to a Purchaser, any investment fund or managed account that is managed
        on a discretionary basis by the same investment manager as such Purchaser
        will
        be deemed to be an Affiliate of such Purchaser.

       

      “Closing”
means
        the closing of the purchase and sale of the Securities pursuant to Section
        2.1.

       

      “Closing
        Date”
means
        the Trading Day when all of the Transaction Documents have been executed
        and
        delivered by the applicable parties thereto, and all conditions precedent
        to (i)
        each Purchaser’s obligations to pay the Subscription Amount have been satisfied
        or waived (ii) and the Company’s obligations to deliver the Securities have been
        satisfied or waived.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      “Commission”
means
        the Securities and Exchange Commission.

       

      “Common
        Stock”
means
        the common stock of the Company, par value $0.001 per share, and any securities
        into which such common stock shall hereinafter been reclassified into, including
        without limitation securities issued by the Public Entity.

       

      “Common
        Stock Equivalents”
means
        any securities of the Company or the Subsidiaries which would entitle the
        holder
        thereof to acquire at any time Common Stock, including without limitation,
        any
        debt, preferred stock, rights, options, warrants or other instrument that
        is at
        any time convertible into or exchangeable for, or otherwise entitles the
        holder
        thereof to receive, Common Stock.

       

      “Conversion
        Price”
shall
        have the meaning ascribed to such term in the Note.

       

      “Disclosure
        Schedules”
means
        the Disclosure Schedules of the Company delivered concurrently
        herewith.

       

      “Effective
        Date”
means
        the date that the Registration Statement is first declared effective by the
        Commission.

       

      “Escrow
        Agreement”
means
        the Escrow Agreement, dated the date hereof, among the Company, each Purchaser
        and Sichenzia Ross Friedman Ference LLP, as escrow agent.

       

      “Exchange
        Act”
means
        the Securities Exchange Act of 1934, as amended.

       

      “Exempt
        Issuance”
the
        issuance of (a) shares of Common Stock or options to employees, officers
        or
        directors of the Corporation pursuant to any stock or option plan duly adopted
        by a majority of the non-employee members of the Board of Directors of the
        Corporation or a majority of the members of a committee of non-employee
        directors established for such purpose, and (b) securities upon the exercise
        of
        or conversion of any securities issued hereunder, convertible securities,
        options or warrants issued and outstanding on the date of the Purchase
        Agreement, provided that such securities have not been amended since the
        date of
        the Purchase Agreement to increase the number of such securities or to decrease
        the exercise or conversion price of any such securities. 

       

      “GAAP”
shall
        have the meaning ascribed to such term in Section 3.1(h).

       

      “Liens”
means
        a
        lien, charge, security interest, encumbrance, right of first refusal, preemptive
        right or other restriction.

       

      
        
          
          

        

        
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      “Losses”
means
        any and all losses, claims, damages, liabilities, settlement costs and expenses,
        including without limitation costs of preparation and reasonable attorneys'
        fees.

       

      “Material
        Adverse Effect”
shall
        have the meaning assigned to such term in Section 3.1(b).

       

      “Material
        Permits”
shall
        have the meaning ascribed to such term in Section 3.1(m).

       

      “Person”
means
        an individual or corporation, partnership, trust, incorporated or unincorporated
        association, joint venture, limited liability company, joint stock company,
        government (or an agency or subdivision thereof) or other entity of any
        kind.

       

      “Proceeding”
means
        an action, claim, suit, investigation or proceeding (including, without
        limitation, an investigation or partial proceeding, such as a deposition),
        whether commenced or threatened.

       

      “Registration
        Rights Agreement”
means
        the Registration Rights Agreement, dated the date hereof, among the Company
        and
        each Purchaser, in the form of Exhibit
        A.

       

      “Registration
        Statement”
means
        a
        registration statement meeting the requirements set forth in the Registration
        Rights Agreement and covering the resale by the Purchasers of the Underlying
        Shares.

       

      “Required
        Approvals”
shall
        have the meaning ascribed to such term in Section 3.1(c).

       

      “Rule
        144”
means
        Rule 144 promulgated by the Commission pursuant to the Securities Act, as
        such
        Rule may be amended from time to time, or any similar rule or regulation
        hereafter adopted by the Commission having substantially the same effect
        as such
        Rule.

       

      “SEC
        Reports”
shall
        have the meaning ascribed to such term in Section 3.1(h).

       

      “Securities”
means
        the Units, the Notes, the Warrants and the Underlying Shares.

       

      “Securities
        Act”
means
        the Securities Act of 1933, as amended.

       

      “Shareholder
        Approval”
means
        such approval as may be required by the applicable rules and regulations
        of the
        Trading Market (or any successor entity) from the shareholders of the Company
        with respect to the transactions contemplated by the Transaction Documents,
        including the issuance of all of the Underlying Shares and shares of Common
        Stock issuable upon exercise of the Warrants in excess of 19.9% of the Company’s
        issued and outstanding Common Stock on the Closing Date.

       

      “Short
        Sales” shall include, without
        limitation, all “short sales” as defined in Rule 3b-3
        of
        the Exchange Act.

       

      
        
          
          

        

        
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      “Subscription
        Amount”
shall
        mean, as to each Purchaser, the amount to be paid for the Notes and the Warrants
        purchased hereunder as specified below such Purchaser's name on the signature
        page of this Agreement, in United States Dollars.

       

      “Subsidiary”
means
        any subsidiary of the Company that is required to be listed in Schedule
        3.1(a).

       

      “Trading
        Day”
means
        any day during which the Trading Market shall be open for business.

       

      “Trading
        Market”
means
        the following markets or exchanges on which the Common Stock is listed or
        quoted
        for trading on the date in question: OTC Bulletin Board, the American Stock
        Exchange, the New York Stock Exchange, the Nasdaq National Market or the
        Nasdaq
        SmallCap Market.

       

      “Transaction
        Documents”
means
        this Agreement, the Notes, the Warrants, Warrant, the Registration Rights
        Agreement and any other documents or agreements executed in connection with
        the
        transactions contemplated hereunder.

       

      “Underlying
        Shares”
means
        the shares of Common Stock issuable upon conversion of the Notes and upon
        exercise of the Warrants.

       

      “Units”
means
        the Units offered hereby, each of which consists of a Note and
        Warrants.

       

      “VWAP”
means,
        for any date, the price determined by the first of the following clauses
        that
        applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
        the daily volume weighted average price of the Common Stock for such date
        (or
        the nearest preceding date) on the Trading Market on which the Common Stock
        is
        then listed or quoted as reported by Bloomberg Financial L.P. (based on a
        Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b)  if
        the Common Stock is not then listed or quoted on a Trading Market and if
        prices
        for the Common Stock are then quoted on the OTC Bulletin Board, the volume
        weighted average price of the Common Stock for such date (or the nearest
        preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not
        then
        listed or quoted on the OTC Bulletin Board and if prices for the Common Stock
        are then reported in the “Pink Sheets” published by the National Quotation
        Bureau Incorporated (or a similar organization or agency succeeding to its
        functions of reporting prices), the most recent bid price per share of the
        Common Stock so reported; or (c) in all other cases, the fair market value
        of a share of Common Stock as determined by an independent appraiser selected
        in
        good faith by the Purchasers and reasonably acceptable to the
        Company.

       

      “Warrants”
means
        the Warrants in the form of Exhibit
        B,
        delivered to the Purchasers at the Closing in accordance with Section 2.2
        hereof, which warrants shall be exercisable immediately upon issuance for
        a term
        of three years at $0.25. 

       

      
        
          
          

        

        
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        “Warrant
        Shares”
means
        the shares of Common Stock issuable upon exercise of the Warrants.

       

      ARTICLE
        II

      PURCHASE
        AND SALE

       

      2.1 Closing.
        On the
        Closing Date, each Purchaser shall purchase from the Company, severally and
        not
        jointly with the other Purchasers, and the Company shall issue and sell to
        each
        Purchaser Units consisting of (a) Notes in the principal amount equal to
        such
        Purchaser’s Subscription Amount and (b) Warrants to purchase four shares for
        each dollar in principal amount under the Notes. The aggregate principal
        amount
        of the Notes sold hereunder shall be $650,000, of which $150,000 has been
        delivered to the Company to date. Upon satisfaction of the conditions set
        forth
        in Section 2.2, the Closing shall occur at the offices of Sichenzia Ross
        Friedman Ference LLP, 1065 Avenue of the Americas, New York, New York 10018
        or
        such other location as the parties shall mutually agree.

       

      2.2 Conditions
        to Closing.
        The
        Closing is subject to the satisfaction or waiver by the party to be benefited
        thereby of the following conditions:

       

      (a) The
        Company shall have delivered or caused to be delivered to each Purchaser
        the
        following:

       

      (i) this
        Agreement duly executed by the Company;

       

      (ii)  the
        Notes
        evidencing the principal amount equal to such Purchaser’s Subscription Amount,
        registered in the name of such Purchaser; 

       

      (iii)  Warrants
        registered in the name of such Purchaser to purchase up to four shares of
        Common
        Stock for each dollar in principal amount under the Note purchased
        hereby;

       

      (iv)  the
        Registration Rights Agreement duly executed by the Company; 

       

      (v)  the
        Escrow Agreement duly executed by the Company;

       

      (viii) a
        certificate, signed by the Secretary of the Company, attaching (i) the charter
        and By-Laws of the Company, and (ii) resolutions passed by its Board of
        Directors to authorize the transactions contemplated hereby and by the other
        Transaction Documents, and certifying that such documents are true and complete
        copies of the originals and that such resolutions have not been amended or
        superseded, it being understood that such Purchaser may rely on such certificate
        as a representation and warranty of the Company made herein;
        and

       

      (ix)  a
        certificate, signed by the Chief Executive Officer of the Company, certifying
        that the conditions specified in this Section have been fulfilled as of the
        Closing, it being understood that such Purchaser may rely on such certificate
        as
        though it were a representation and warranty of the Company made
        herein.

       

      
        
          
          

        

        
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      (b) At
        the
        Closing, each Purchaser shall have delivered or caused to be delivered to
        the
        Company the following:

       

      (i) 
        this
        Agreement duly executed by such Purchaser;

       

      (ii) the
        Escrow Agreement duly executed by such Purchaser; 

       

      (iii) such
        Purchaser’s Subscription Amount by wire transfer to the account as specified in
        writing by the Company; and

       

      (iv) the
        Registration Rights Agreement duly executed by such Purchaser, including
        questionnaire.

       

      (c)  All
        representations and warranties of the other party contained herein shall
        remain
        true and correct as of the Closing Date and all covenants of the other party
        shall have been performed if due prior to such date.

       

      ARTICLE
        III

      REPRESENTATIONS
        AND WARRANTIES

       

      3.1 Representations
        and Warranties of the Company.
        Except
        as set forth under the corresponding section of the Disclosure Schedules
        which
        Disclosure Schedules shall be deemed a part hereof, the Company hereby makes
        the
        representations and warranties set forth below to each Purchaser:

       

      (a)  Subsidiaries.
        All of
        the direct and indirect subsidiaries of the Company are set forth in the
        SEC
        Documents (as hereinafter defined). The Company owns, directly or indirectly,
        all of the capital stock or other equity interests of each Subsidiary free
        and
        clear of any Liens, and all the issued and outstanding shares of capital
        stock
        of each Subsidiary are validly issued and are fully paid, non-assessable
        and
        free of preemptive and similar rights to subscribe for or purchase
        securities.

       

      (b)  Organization
        and Qualification.
        Each of
        the Company and the Subsidiaries is an entity duly incorporated or otherwise
        organized, validly existing and in good standing under the laws of the
        jurisdiction of its incorporation or organization (as applicable), with the
        requisite power and authority to own and use its properties and assets and
        to
        carry on its business as currently conducted. Neither the Company nor any
        Subsidiary is in violation or default of any of the provisions of its respective
        certificate or articles of incorporation, bylaws or other organizational
        or
        charter documents. Each of the Company and the Subsidiaries is duly qualified
        to
        conduct business and is in good standing as a foreign corporation or other
        entity in each jurisdiction in which the nature of the business conducted
        or
        property owned by it makes such qualification necessary, except where the
        failure to be so qualified or in good standing, as the case may be, could
        not
        have or reasonably be expected to result in (i) a material adverse effect
        on the
        legality, validity or enforceability of any Transaction Document, (ii) a
        material adverse effect on the results of operations, assets, business, or
        financial condition of the Company and the Subsidiaries, taken as a whole,
        or
        (iii) a material adverse effect on the Company’s ability to perform in any
        material respect on a timely basis its obligations under any Transaction
        Document (any of (i), (ii) or (iii), a “Material
        Adverse Effect”)
        and no
        Proceeding has been instituted in any such jurisdiction revoking, limiting
        or
        curtailing or seeking to revoke, limit or curtail such power and authority
        or
        qualification.

       

      
        
          
          

        

        
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      (c)  Authorization;
        Enforcement.
        The
        Company has the requisite corporate power and authority to enter into and
        to
        consummate the transactions contemplated by each of the Transaction Documents
        and otherwise to carry out its obligations hereunder or thereunder. The
        execution and delivery of each of the Transaction Documents by the Company
        and
        the consummation by it of the transactions contemplated hereby or thereby
        have
        been duly authorized by all necessary action on the part of the Company and
        no
        further consent or action is required by the Company other than (i) the filing
        with the Commission of the Registration Statement, (ii) the application(s)
        to
        each applicable Trading Market for the listing of the Underlying Shares for
        trading thereon in the time and manner required thereby, (iii) the filing
        with
        the Commission of a Form D pursuant to Commission Regulation D, and (iv)
        applicable Blue Sky filings (collectively, the “Required
        Approvals”).

       

      (d)   Required
        Approvals.
        Each of
        the Transaction Documents has been (or upon delivery will be) duly executed
        by
        the Company and, when delivered in accordance with the terms hereof, will
        constitute the valid and binding obligation of the Company enforceable against
        the Company in accordance with its terms, subject to applicable bankruptcy,
        insolvency, fraudulent conveyance, reorganization, moratorium and similar
        laws
        affecting creditors’ rights and remedies generally and general principles of
        equity. Neither the Company nor any Subsidiary is in violation of any of
        the
        provisions of its respective certificate or articles of incorporation, by-laws
        or other organizational or charter documents except where such violation
        could
        not, individually or in the aggregate, constitute a Material Adverse
        Effect.

       

      (e)  No
        Conflicts.
        The
        execution, delivery and performance of the Transaction Documents by the Company,
        the issuance and sale of the Securities and the consummation by the Company
        of
        the other transactions contemplated thereby do not and will not (i) conflict
        with or violate any provision of the Company’s or any Subsidiary’s certificate
        or articles of incorporation, bylaws or other organizational or charter
        documents, or (ii) conflict with, or constitute a default (or an event that
        with
        notice or lapse of time or both would become a default) under, result in
        the
        creation of any Lien upon any of the properties or assets of the Company
        or any
        Subsidiary, or give to others any rights of termination, amendment, acceleration
        or cancellation (with or without notice, lapse of time or both) of, any
        agreement, credit facility, debt or other instrument (evidencing a Company
        or
        Subsidiary debt or otherwise) or other understanding to which the Company
        or any
        Subsidiary is a party or by which any property or asset of the Company or
        any
        Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
        conflict with or result in a violation of any law, rule, regulation, order,
        judgment, injunction, decree or other restriction of any court or governmental
        authority to which the Company or a Subsidiary is subject (including federal
        and
        state securities laws and regulations), or by which any property or asset
        of the
        Company or a Subsidiary is bound or affected, or (iv) conflict with or violate
        the terms of any agreement by which the Company or any Subsidiary is bound
        or to
        which any property or asset of the Company or any Subsidiary is bound or
        affected; except in the case of each of clauses (ii) and (iii), such as could
        not have or reasonably be expected to result in a Material Adverse
        Effect.

       

      
        
          
          

        

        
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      (f)  Filings,
        Consents and Approvals.
        Neither
        the Company nor any Subsidiary is required to obtain any consent, waiver,
        authorization or order of, give any notice to, or make any filing or
        registration with, any court or other federal, state, local or other
        governmental authority or other Person in connection with the execution,
        delivery and performance by the Company of the Transaction Documents, other
        than
        the Required Approvals.

       

      (g)  Issuance
        of the Securities.
        The
        Securities are duly authorized and, when issued and paid for in accordance
        with
        the applicable Transaction Documents, will be duly and validly issued, fully
        paid and nonassessable, free and clear of all Liens. The Company has reserved
        from its duly authorized capital stock a number of shares of Common Stock
        for
        issuance of the Underlying Shares at least equal to the Actual Minimum on
        the
        date hereof.

       

      (h)  Capitalization.
        Except
        as set forth on Schedule 3.1(h), the capitalization of the Company is as
        set
        forth in its Current Report on Form 8-K dated May 15, 2006. No Person has
        any
        right of first refusal, preemptive right, right of participation, or any
        similar
        right to participate in the transactions contemplated by the Transaction
        Documents. Except as a result of the purchase and sale of the Securities
        and as
        set forth on Schedule 3.1(h), there are no outstanding options, warrants,
        script
        rights to subscribe to, calls or commitments of any character whatsoever
        relating to, or securities, rights or obligations convertible into or
        exchangeable for, or giving any Person any right to subscribe for or acquire,
        any shares of Common Stock, or contracts, commitments, understandings or
        arrangements by which the Company or any Subsidiary is or may become bound
        to
        issue additional shares of Common Stock, of Common Stock Equivalents. Except
        as
        set forth on Schedule 3.1(h) (in each case an “Exempt
        Adjustment”),
        the
        issuance and sale of the Securities will not obligate the Company to issue
        shares of Common Stock or other securities to any Person (other than the
        Purchasers) and will not result in a right of any holder of Company securities
        to adjust the exercise, conversion, exchange or reset price under such
        securities. All of the outstanding shares of capital stock of the Company
        are
        validly issued, fully paid and nonassessable, have been issued in compliance
        with all federal and state securities laws, and none of such outstanding
        shares
        was issued in violation of any preemptive rights or similar rights to subscribe
        for or purchase securities. No further approval or authorization of any
        stockholder, the Board of Directors of the Company or others is required
        for the
        issuance and sale of the shares of the Notes. There are no stockholders
        agreements, voting agreements or other similar agreements with respect to
        the
        Company’s capital stock to which the Company is a party or, to the knowledge of
        the Company, between or among any of the Company’s stockholders.

       

      
        
          
          

        

        
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      (i)  Financial
        Statements.
        Since
        March 31, 2006, the Company has filed all reports, schedules, forms, statements
        and other documents required to be filed by it with the SEC under the Securities
        Exchange Act of 1934, as amended (the “Exchange
        Act”)
        (all
        of the foregoing filed prior to the date hereof or amended after the date
        hereof
        and all exhibits included therein and financial statements and schedules
        thereto
        and documents incorporated by reference therein, being hereinafter referred
        to
        as the “SEC
        Documents”).
        The
        Company has delivered to the Purchasers or their representatives, or made
        available through the SEC’s website at http://www.sec.gov., true and complete
        copies of the SEC Documents. As of their respective dates, the financial
        statements of the Company disclosed in the SEC Documents (the “Financial
        Statements”)
        complied as to form in all material respects with applicable accounting
        requirements and the published rules and regulations of the SEC with respect
        thereto. Such financial statements have been prepared in accordance with
        generally accepted accounting principles, consistently applied, during the
        periods involved (except (i) as may be otherwise indicated in such Financial
        Statements or the notes thereto, or (ii) in the case of unaudited interim
        statements, to the extent they may exclude footnotes or may be condensed
        or
        summary statements) and, fairly present in all material respects the financial
        position of the Company as of the dates thereof and the results of its
        operations and cash flows for the periods then ended (subject, in the case
        of
        unaudited statements, to normal year-end audit adjustments). No other
        information provided by or on behalf of the Company to the Purchasers which
        is
        not included in the SEC Documents, including, without limitation, information
        referred to in this Agreement, contains any untrue statement of a material
        fact
        or omits to state any material fact necessary in order to make the statements
        therein, in the light of the circumstances under which they were made, not
        misleading.

       

      (j)  Material
        Changes.
        Since
        the date of the Company’s post-merger 8k filing on May 15, 2006, and any
        subsequent form 8-K filings, (i) there has been no event, occurrence or
        development that has had or that could reasonably be expected to result in
        a
        Material Adverse Effect, (ii) the Company has not incurred any liabilities
        (contingent or otherwise) other than (A) trade payables and accrued expenses
        incurred in the ordinary course of business consistent with past practice
        and
        (B) liabilities not required to be reflected in the Company's financial
        statements pursuant to GAAP, (iii) the Company has not altered its method
        of
        accounting, (iv) the Company has not declared or made any dividend or
        distribution of cash or other property to its stockholders or purchased,
        redeemed or made any agreements to purchase or redeem any shares of its capital
        stock and (v) the Company has not issued any equity securities to any officer,
        director or Affiliate, except pursuant to existing Company stock option plans.
        

       

      (k)  Litigation.
        There
        is no action, suit, inquiry, notice of violation, proceeding or investigation
        pending or, to the knowledge of the Company, threatened against or affecting
        the
        Company, any Subsidiary or any of their respective properties before or by
        any
        court, arbitrator, governmental or administrative agency or regulatory authority
        (federal, state, county, local or foreign) (collectively, an “Action”)
        which
        (i) adversely affects or challenges the legality, validity or enforceability
        of
        any of the Transaction Documents or the Securities or (ii) could, if there
        were
        an unfavorable decision, have or reasonably be expected to result in a Material
        Adverse Effect. Neither the Company nor any Subsidiary, nor any director
        or
        officer thereof, is or has been the subject of any Action involving a claim
        of
        violation of or liability under federal or state securities laws or a claim
        of
        breach of fiduciary duty. There has not been, and to the knowledge of the
        Company, there is not pending or contemplated, any investigation by the
        Commission involving the Company or any current or former director or officer
        of
        the Company. .

       

      
        
          
          

        

        
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      (l)  Labor
        Relations.
        No
        material labor dispute exists or, to the knowledge of the Company, is imminent
        with respect to any of the employees of the Company, which could reasonably
        be
        expected to result in a Material Adverse Effect.

       

      (m)  Compliance.
        Neither
        the Company nor any Subsidiary (i) is in default under or in violation of
        (and
        no event has occurred that has not been waived that, with notice or lapse
        of
        time or both, would result in a default by the Company or any Subsidiary
        under),
        nor has the Company or any Subsidiary received notice of a claim that it
        is in
        default under or that it is in violation of, any indenture, loan or credit
        agreement or any other agreement or instrument to which it is a party or
        by
        which it or any of its properties is bound (whether or not such default or
        violation has been waived), (ii) is in violation of any order of any court,
        arbitrator or governmental body, or (iii) is or has been in violation of
        any
        statute, rule or regulation of any governmental authority, including without
        limitation all foreign, federal, state and local laws applicable to its business
        except in each case as could not have a Material Adverse Effect. 

       

      (n)  Regulatory
        Permits.
        The
        Company and the Subsidiaries possess all certificates, authorizations and
        permits issued by the appropriate federal, state, local or foreign regulatory
        authorities necessary to conduct their respective businesses, except where
        the
        failure to possess such permits could not, individually or in the aggregate,
        have or reasonably be expected to result in a Material Adverse Effect
        (“Material
        Permits”),
        and
        neither the Company nor any Subsidiary has received any notice of proceedings
        relating to the revocation or modification of any Material Permit.

       

      (o)  Title
        to Assets.
        Except
        as set forth on Schedule 3(o), The Company and the Subsidiaries have good
        and
        marketable title in fee simple to all real property owned by them that is
        material to the business of the Company and the Subsidiaries and good and
        marketable title in all personal property owned by them that is material
        to the
        business of the Company and the Subsidiaries, in each case free and clear
        of all
        Liens, except for Liens as do not materially affect the value of such property
        and do not materially interfere with the use made and proposed to be made
        of
        such property by the Company and the Subsidiaries, Liens for the payment
        of
        federal, state or other taxes, the payment of which is neither delinquent
        nor
        subject to penalties and Liens imposed to secure loans extended by American
        Business Finance LLC (the “ABF
        Loan”).
        Any
        real property and facilities held under lease by the Company and the
        Subsidiaries are held by them under valid, subsisting and enforceable leases
        of
        which the Company and the Subsidiaries are in compliance.

       

      
        
          
          

        

        
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      (p)  Patents
        and Trademarks.
        The
        Company and the Subsidiaries have, or have rights to use, all patents, patent
        applications, trademarks, trademark applications, service marks, trade names,
        copyrights, licenses and other similar rights that are necessary or material
        for
        use in connection with their respective businesses and which the failure
        to so
        have could have a Material Adverse Effect (collectively, the “Intellectual
        Property Rights”).
        Neither the Company nor any Subsidiary has received a written notice that the
        Intellectual Property Rights used by the Company or any Subsidiary violates
        or
        infringes upon the rights of any Person. To the knowledge of the Company,
        all
        such Intellectual Property Rights are enforceable and there is no existing
        infringement by another Person of any of the Intellectual Property Rights
        of
        others.

       

      (q)  Insurance.
        The
        Company and the Subsidiaries are insured by insurers of recognized financial
        responsibility against such losses and risks and in such amounts as are prudent
        and customary in the businesses in which the Company and the Subsidiaries
        are
        engaged, including but not limited to directors and officers insurance coverage
        at least equal to the aggregate Subscription Amount. To the best of Company’s
        knowledge, such insurance contracts and policies are accurate and complete.
        Neither the Company nor any Subsidiary has any reason to believe that it
        will
        not be able to renew its existing insurance coverage as and when such coverage
        expires or to obtain similar coverage from similar insurers as may be necessary
        to continue its business without a significant increase in cost.

       

      (r)  Transactions
        With Affiliates and Employees.
        None of
        the officers or directors of the Company and, to the knowledge of the Company,
        none of the employees of the Company is presently a party to any transaction
        with the Company or any Subsidiary (other than for services as employees,
        officers and directors), including any contract, agreement or other arrangement
        providing for the furnishing of services to or by, providing for rental of
        real
        or personal property to or from, or otherwise requiring payments to or from
        any
        officer, director or such employee or, to the knowledge of the Company, any
        entity in which any officer, director, or any such employee has a substantial
        interest or is an officer, director, trustee or partner, in each case in
        excess
        of $60,000 other than (i) for payment of salary or consulting fees for services
        rendered, (ii) reimbursement for expenses incurred on behalf of the Company
        and
        (iii) for other employee benefits, including stock option agreements under
        any
        stock option plan of the Company.

       

      (s)  Internal
        Accounting Controls.
        The
        Company and the Subsidiaries maintain a system of internal accounting controls
        sufficient to provide reasonable assurance that (i) transactions are executed
        in
        accordance with management's general or specific authorizations, (ii)
        transactions are recorded as necessary to permit preparation of financial
        statements in conformity with GAAP and to maintain asset accountability,
        (iii)
        access to assets is permitted only in accordance with management's general
        or
        specific authorization, and (iv) the recorded accountability for assets is
        compared with the existing assets at reasonable intervals and appropriate
        action
        is taken with respect to any differences.

       

      
        
          
          

        

        
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      (t)  Certain
        Fees.
        Except
        as set forth on Schedule 3.1(t), no brokerage or finder’s fees or commissions
        are or will be payable by the Company to any broker, financial advisor or
        consultant, finder, placement agent, investment banker, bank or other Person
        with respect to the transactions contemplated by this Agreement. Except as
        set
        forth on Schedule 3.1(t), the Purchasers shall have no obligation with respect
        to any fees or with respect to any claims made by or on behalf of other Persons
        for fees of a type contemplated in this Section that may be due in connection
        with the transactions contemplated by this Agreement.

       

      (u)  Private
        Placement.
        Assuming the accuracy of the Purchasers representations and warranties set
        forth
        in Section 3.2, no registration under the Securities Act is required for
        the
        offer and sale of the Securities by the Company to the Purchasers as
        contemplated hereby.

       

      (v)  Registration
        Rights.
        No
        Person has any right to cause the Company to effect the registration under
        the
        Securities Act of any securities of the Company. 

       

      (w)  No
        Integrated Offering.
        Neither
        the Company, nor any of its Affiliates, nor any Person acting on its or their
        behalf has, directly or indirectly, made any offers or sales of any security
        or
        solicited any offers to buy any security, under circumstances that would
        cause
        this offering of the Securities to be integrated with prior offerings by
        the
        Company thereby requiring registration under the Securities Act of the
        Securities sold to the Purchasers or which could violate any applicable
        shareholder approval provisions, including, without limitation, under the
        rules
        and regulations of the Trading Market. 

       

      (x)  Indebtedness.
        The
        Company has no knowledge of any facts or circumstances which lead it to believe
        that it will file for reorganization or liquidation under the bankruptcy
        or
        reorganization laws of any jurisdiction within one year from the Closing
        Date.
        For the purposes of this Agreement, “Indebtedness”
shall
        mean (a) any liabilities for borrowed money or amounts owed in excess of
        $50,000
        (other than trade accounts payable incurred in the ordinary course of business),
        (b) all guaranties, endorsements and other contingent obligations in respect
        of
        Indebtedness of others, whether or not the same are or should be reflected
        in
        the Company's balance sheet (or the notes thereto), except guaranties by
        endorsement of negotiable instruments for deposit or collection or similar
        transactions in the ordinary course of business; and (c) the present value
        of
        any lease payments
        in excess of $50,000 due under leases required to be capitalized in accordance
        with GAAP. Neither
        the Company nor any Subsidiary is in default with respect to any
        Indebtedness.

       

      (y)  Tax
        Status.
        Except
        as set forth on Schedule 3(w), the Company and each of its Subsidiaries has
        made
        or filed all federal, state and foreign income and all other tax returns,
        reports and declarations required by any jurisdiction to which it is subject
        (unless and only to the extent that the Company and each of its Subsidiaries
        has
        set aside on its books provisions reasonably adequate for the payment of
        all
        unpaid and unreported taxes) and has paid all taxes and other governmental
        assessments and charges that are material in amount, shown or determined
        to be
        due on such returns, reports and declarations, except those being contested
        in
        good faith and has set aside on its books provisions reasonably adequate
        for the
        payment of all taxes for periods subsequent to the periods to which such
        returns, reports or declarations apply. There are no unpaid taxes in any
        material amount claimed to be due by the taxing authority of any jurisdiction,
        and the officers of the Company know of no basis for any such claim. The
        Company
        has not executed a waiver with respect to the statute of limitations relating
        to
        the assessment or collection of any foreign, federal, statue or local tax.
        None
        of the Company’s tax returns is presently being audited by any taxing authority.

       

      
        
          
          

        

        
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      (z)  No
        General Solicitation or Advertising in Regard to this
        Transaction.
        Neither
        the Company nor, to the knowledge of the Company, any of its directors or
        officers (i) has conducted or will conduct any general solicitation (as that
        term is used in Rule 502(c) of Regulation D) or general advertising with
        respect
        to the sale of the Notes or the Warrants.

       

      (aa)  Foreign
        Corrupt Practices.
        Neither
        the Company, nor to the knowledge of the Company, any agent or other person
        acting on behalf of the Company, has (i) directly or indirectly, used any
        corrupt funds for unlawful contributions, gifts, entertainment or other unlawful
        expenses related to foreign or domestic political activity, (ii) made any
        unlawful payment to foreign or domestic government officials or employees
        or to
        any foreign or domestic political parties or campaigns from corporate funds,
        (iii) failed to disclose fully any contribution made by the Company (or made
        by
        any person acting on its behalf of which the Company is aware) which is in
        violation of law, or (iv) violated in any material respect any provision
        of the
        Foreign Corrupt Practices Act of 1977, as amended

       

      (bb)  .Acknowledgment
        Regarding Purchasers’ Purchase of Securities.
        The
        Company acknowledges and agrees that the Purchasers are acting solely in
        the
        capacity of arm’s length purchasers with respect to this Agreement and the
        transactions contemplated hereby. The Company further acknowledges that no
        Purchaser is acting as a financial advisor or fiduciary of the Company (or
        in
        any similar capacity) with respect to this Agreement and the transactions
        contemplated hereby and any statement made by any Purchaser or any of their
        respective representatives or agents in connection with this Agreement and
        the
        transactions contemplated hereby is not advice or a recommendation and is
        merely
        incidental to the Purchasers’ purchase of the Securities. The Company further
        represents to each Purchaser that the Company’s decision to enter into this
        Agreement has been based solely on the independent evaluation of the Company
        and
        its representatives

       

      (cc)  No
        Disagreements with Accountants and Lawyers.
        There
        are no disagreements of any kind presently existing, or reasonably anticipated
        by the Company to arise, between the accountants and lawyers formerly or
        presently engaged by the Company and the Company is current with respect
        to any
        fees owed to its accountants and lawyers.

       

      
        
          
          

        

        
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      3.2 Representations
        and Warranties of the Purchasers.
        Each
        Purchaser hereby, for itself and for no other Purchaser, represents and warrants
        as of the date hereof and as of the Closing Date to the Company as
        follows:

       

      (a) Organization;
        Authority.
        Such
        Purchaser is an entity duly organized, validly existing and in good standing
        under the laws of the jurisdiction of its organization with full right,
        corporate or partnership power and authority to enter into and to consummate
        the
        transactions contemplated by the Transaction Documents and otherwise to carry
        out its obligations thereunder. The execution, delivery and performance by
        such
        Purchaser of the transactions contemplated by this Agreement have been duly
        authorized by all necessary corporate or similar action on the part of such
        Purchaser. Each Transaction Document to which it is a party has been duly
        executed by such Purchaser, and when delivered by such Purchaser in accordance
        with the terms hereof, will constitute the valid and legally binding obligation
        of such Purchaser, enforceable against it in accordance with its terms, except
        (i) as limited by general equitable principles and applicable bankruptcy,
        insolvency, reorganization, moratorium and other laws of general application
        affecting enforcement of creditors’ rights generally, (ii) as limited by laws
        relating to the availability of specific performance, injunctive relief or
        other
        equitable remedies and (iii) insofar as indemnification and contribution
        provisions may be limited by applicable law.

       

      (b) No
        View to Distribute.
        Such
        Purchaser understands that the Securities are “restricted securities” and have
        not been registered under the Securities Act or any applicable state securities
        law and is acquiring the Securities as principal for its own account and
        not
        with a view to or for distributing or reselling such Securities or any part
        thereof, has no present intention of distributing any of such Securities
        and has
        no arrangement or understanding with any other persons regarding the
        distribution of such Securities (this representation and warranty not limiting
        such Purchaser’s right to sell the Securities pursuant to the Registration
        Statement or otherwise in compliance with applicable federal and state
        securities laws). Such Purchaser is acquiring the Securities hereunder in
        the
        ordinary course of its business. Such Purchaser does not have any agreement
        or
        understanding, directly or indirectly, with any Person to distribute any
        of the
        Securities.

       

      (c) Purchaser
        Status.
        At the
        time such Purchaser was offered the Securities, it was, and at the date hereof
        it is, and on each date on which it exercises any Warrants, it will be either:
        (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
        (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional
        buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is
        not required to be registered as a broker-dealer under Section 15 of the
        Exchange Act.

       

      (d) Experience
        of Such Purchaser.
        Such
        Purchaser, either alone or together with its representatives, has such
        knowledge, sophistication and experience in business and financial matters
        so as
        to be capable of evaluating the merits and risks of the prospective investment
        in the Securities, and has so evaluated the merits and risks of such investment.
        Such Purchaser is able to bear the economic risk of an investment in the
        Securities and, at the present time, is able to afford a complete loss of
        such
        investment.

       

      
        
          
          

        

        
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      (e)  General
        Solicitation.
        Such
        Purchaser is not purchasing the Securities as a result of any advertisement,
        article, notice or other communication regarding the Securities published
        in any
        newspaper, magazine or similar media or broadcast over television or radio
        or
        presented at any seminar or any other general solicitation or general
        advertisement.

       

      The
        Company acknowledges and agrees that each Purchaser does not make or has
        not
        made any representations or warranties with respect to the transactions
        contemplated hereby other than those specifically set forth in this Section
        3.2.

       

      ARTICLE
        IV

      OTHER
        AGREEMENTS OF THE PARTIES

       

      4.1 Transfer
        Restrictions.

       

      (a) The
        Securities may only be disposed of in compliance with state and federal
        securities laws. In connection with any transfer of Securities other than
        pursuant to an effective registration statement or Rule 144, to the Company
        or
        to an Affiliate of a Purchaser or in connection with a pledge as contemplated
        in
        Section 4.1(b), the Company may require the transferor thereof to provide
        to the
        Company an opinion of counsel selected by the transferor and reasonably
        acceptable to the Company, the form and substance of which opinion and shall
        be
        reasonably satisfactory to the Company, to the effect that such transfer
        does
        not require registration of such transferred Securities under the Securities
        Act. As a condition of transfer, any such transferee shall agree in writing
        to
        be bound by the terms of this Agreement and shall have the rights of a Purchaser
        under this Agreement and the Registration Rights Agreement.

       

      (b) Each
        Purchaser agrees to the imprinting, so long as is required by this Section
        4.1(b), of the following legend on any certificate evidencing Securities:
        

       

      [NEITHER]
        THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
        [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES AND
        EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
        UPON
        AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
        (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
        TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
        TO
        AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
        REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
        APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
        TO
        THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
        ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
        EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
        MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

       

      
        
          
          

        

        
          -15-

          
            

          

        

        
          
          

        

      

       

      The
        Company acknowledges and agrees that a Purchaser may from time to time pledge
        pursuant to a bona fide margin agreement with a registered broker-dealer
        or
        grant a security interest in some or all of the Securities to a financial
        institution that is an “accredited investor” as defined in Rule 501(a) under the
        Securities Act and who agrees to be bound by the provisions of this Agreement
        and the Registration Rights Agreement and, if required under the terms of
        such
        arrangement, such Purchaser may transfer pledged or secured Securities to
        the
        pledgees or secured parties. Such a pledge or transfer would not be subject
        to
        approval of the Company and no legal opinion of legal counsel of the pledgee,
        secured party or pledgor shall be required in connection therewith. Further,
        no
        notice shall be required of such pledge. At the appropriate Purchaser’s expense,
        the Company will execute and deliver such reasonable documentation as a pledgee
        or secured party of Securities may reasonably request in connection with
        a
        pledge or transfer of the Securities, including, if the Securities are subject
        to registration pursuant to the Registration Rights Agreement, the preparation
        and filing of any required prospectus supplement under Rule 424(b)(3) under
        the
        Securities Act or other applicable provision of the Securities Act to
        appropriately amend the list of Selling Stockholders thereunder.

       

      (c) The
        Company shall cause its counsel to issue a legal opinion to the Company’s
        transfer agent promptly after the Effective Date if required by the Company’s
        transfer agent to effect the removal of the legend hereunder, provided that
        the
        removal of such legend is consistent with applicable securities laws. If
        all or
        any portion of a Note or Warrant is converted or exercised (as applicable)
        at a
        time when there is an effective registration statement to cover the resale
        of
        the Underlying Shares, or if such Underlying Shares may be sold under Rule
        144
        or if such legend is not otherwise required under applicable requirements
        of the
        Securities Act (including judicial interpretations thereof) then such Underlying
        Shares shall be issued free of all legends upon delivery, in the case of
        a sale
        under Rule 144, of the customary Rule 144 documentation. The Company agrees
        that
        following the Effective Date or at such time as such legend is no longer
        required under this Section 4.1(c), it will, no later than five Trading Days
        following the delivery by a Purchaser to the Company or the Company's transfer
        agent of a certificate representing Securities issued with a restrictive
        legend
        (such date, the “Legend
        Removal Date”),
        deliver or cause to be delivered to such Purchaser a certificate representing
        such Underlying Shares that is free from all restrictive and other legends.
        The
        Company may not make any notation on its records or give instructions to
        any
        transfer agent of the Company that enlarge the restrictions on transfer set
        forth in this Section. Certificates for Securities subject to legend removal
        hereunder shall be transmitted by the transfer agent of the Company to the
        Purchasers by crediting the account of the Purchaser’s prime broker with the
        Depository Trust Company System. 

       

      
        
          
          

        

        
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      (d) In
        addition to such Purchaser’s other available remedies, the Company shall pay to
        a Purchaser, in cash or, at the option of the Company, in shares of Common
        Stock, as partial liquidated damages and not as a penalty, for each $1,000
        of
        Underlying Shares (based on the VWAP on the date such Securities are submitted
        to the Company’s transfer agent) delivered for removal of the restrictive legend
        and subject to this Section 4.1(c), $10 per Trading Day (increasing to $20
        per
        Trading Day five (5) Trading Days after such damages have begun to accrue)
        for
        each Trading Day after the Legend Removal Date until such certificate is
        delivered. Nothing herein shall limit such Purchaser’s right to pursue actual
        damages for the Company’s failure to deliver certificates representing any
        Securities as required by the Transaction Documents, and such Purchaser shall
        have the right to pursue all remedies available to it at law or in equity
        including, without limitation, a decree of specific performance and/or
        injunctive relief.

      

      (e) 
        Each
        Purchaser, severally and not jointly with the other Purchasers, agrees that
        the
        removal of the restrictive legend from certificates representing Securities
        as
        set forth in this Section 4.1 is predicated upon the Company’s reliance that the
        Purchaser will sell any Securities pursuant to either the registration
        requirements of the Securities Act, including any applicable prospectus delivery
        requirements, or an exemption therefrom.

      

      4.2 Furnishing
        of Information.
        As long
        as any Purchaser owns Securities, the Company covenants to timely file (or
        obtain extensions in respect thereof and file within the applicable grace
        period) all reports required to be filed by the Company after the date hereof
        pursuant to the Exchange Act. Upon the request of any Purchaser, the Company
        shall deliver to such Purchaser a written certification of a duly authorized
        officer as to whether it has complied with the preceding sentence. As long
        as
        any Purchaser owns Securities, if the Company is not required to file reports
        pursuant to such laws, it will prepare and furnish to each Purchaser and
        make
        publicly available in accordance with Rule 144(c) such information as is
        required for each Purchaser to sell the Securities under Rule 144. The Company
        further covenants that it will take such further action as any holder of
        Securities may reasonably request, all to the extent required from time to
        time
        to enable such Person to sell such Securities without registration under
        the
        Securities Act within the limitation of the exemptions provided by Rule
        144.

       

      4.3 Integration.
        The
        Company shall not sell, offer for sale or solicit offers to buy or otherwise
        negotiate in respect of any security (as defined in Section 2 of the Securities
        Act) that would be integrated with the offer or sale of the Securities in
        a
        manner that would require the registration under the Securities Act of the
        sale
        of the Securities to the Purchasers or that would be integrated with the
        offer
        or sale of the Securities for purposes of the rules and regulations of any
        Trading Market such that it would require shareholder approval prior to the
        closing of such other transaction unless shareholder approval is obtained
        before
        the closing of such subsequent transaction.

       

      
        
          
          

        

        
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      4.4 Indemnification
        of Purchasers.
        Subject
        to the provisions of this Section 4.4, the Company will indemnify and hold
        the
        Purchasers and their directors, officers, shareholders, partners, employees
        and
        agents (each, a “Purchaser
        Party”)
        harmless from any and all losses, liabilities, obligations, claims,
        contingencies, damages, costs and expenses, including all judgments, amounts
        paid in settlements, court costs and reasonable attorneys’ fees and costs of
        investigation that any such Purchaser Party may suffer or incur as a result
        of
        or relating to (a) any breach of any of the representations, warranties,
        covenants or agreements made by the Company in this Agreement or in the other
        Transaction Documents or (b) any action instituted against a Purchaser, or
        any
        of them or their respective Affiliates, by any stockholder of the Company
        who is
        not an Affiliate of such Purchaser, with respect to any of the transactions
        contemplated by the Transaction Documents (unless such action is based upon
        a
        breach of such Purchaser’s representation, warranties or covenants under the
        Transaction Documents or any agreements or understandings such Purchaser
        may
        have with any such stockholder or any violations by the Purchaser of state
        or
        federal securities laws or any conduct by such Purchaser which constitutes
        fraud, gross negligence, willful misconduct or malfeasance). If any action
        shall
        be brought against any Purchaser Party in respect of which indemnity may
        be
        sought pursuant to this Agreement, such Purchaser Party shall promptly notify
        the Company in writing, and the Company shall have the right to assume the
        defense thereof with counsel of its own choosing. Any Purchaser Party shall
        have
        the right to employ separate counsel in any such action and participate in
        the
        defense thereof, but the fees and expenses of such counsel shall be at the
        expense of such Purchaser Party except to the extent that (i) the employment
        thereof has been specifically authorized by the Company in writing, (ii)
        the
        Company has failed after a reasonable period of time to assume such defense
        and
        to employ counsel or (iii) in such action there is, in the reasonable opinion
        of
        such separate counsel, a material conflict on any material issue between
        the
        position of the Company and the position of such Purchaser Party. The Company
        will not be liable to any Purchaser Party under this Agreement (i) for any
        settlement by an Purchaser Party effected without the Company’s prior written
        consent, which shall not be unreasonably withheld or delayed; or (ii) to
        the
        extent, but only to the extent that a loss, claim, damage or liability is
        attributable to any Purchaser Party’s breach of any of the representations,
        warranties, covenants or agreements made by the Purchasers in this Agreement
        or
        in the other Transaction Documents.

       

      4.5 Reservation
        and Listing of Securities.

       

      (a) The
        Company shall maintain a reserve from its duly authorized shares of Common
        Stock
        for issuance pursuant to the Transaction Documents in such amount as may
        be
        required to fulfill its obligations in full under the Transaction Documents.
        

       

      (b) If,
        on
        any date, the number of authorized but unissued (and otherwise unreserved)
        shares of Common Stock is less than 130% of (i) the Actual Minimum on such
        date, minus (ii) the number of shares of Common Stock previously issued pursuant
        to the Transaction Documents, then the Board of Directors of the Company
        shall
        use commercially reasonable efforts to amend the Company's certificate or
        articles of incorporation to increase the number of authorized but unissued
        shares of Common Stock to at least the Actual Minimum at such time (minus
        the
        number of shares of Common Stock previously issued pursuant to the Transaction
        Documents), as soon as possible and in any event not later than the 75th
        day
        after such date; provided that the Company will not be required at any time
        to
        authorize a number of shares of Common Stock greater than the maximum remaining
        number of shares of Common Stock that could possibly be issued after such
        time
        pursuant to the Transaction Documents.

       

      
        
          
          

        

        
          -18-

          
            

          

        

        
          
          

        

      

       

      (c) The
        Company shall: (i) in the time and manner required by the Trading Market,
        prepare and file with such Trading Market an additional shares listing
        application covering a number of shares of Common Stock at least equal to
        the
        Actual Minimum on the date of such application, (ii) take all steps necessary
        to
        cause such shares of Common Stock to be approved for listing on the Trading
        Market as soon as possible thereafter, (iii) provide to each Purchaser evidence
        of such listing, and (iv) use reasonable efforts to maintain the listing
        of such
        Common Stock on such Trading Market or another Trading Market. In addition,
        the
        Company shall hold a special meeting of shareholders (which may also be at
        the
        annual meeting of shareholders) at the earliest practical date, for the purpose
        of obtaining Shareholder Approval, with the recommendation of the Company’s
        Board of Directors that such proposal be approved, and the Company shall
        solicit
        proxies from its shareholders in connection therewith in the same manner
        as all
        other management proposals in such proxy statement and all management-appointed
        proxyholders shall vote their proxies in favor of such proposal.

       

      4.6 Conversion
        and Exercise Procedures.
        The
        form of Election to Purchase included in the Warrants and the forms of
        Conversion Notice included in the Notes set forth the totality of the procedures
        required in order to exercise the Warrants or convert the Notes. No additional
        legal opinion or other information or instructions shall be necessary to
        enable
        each Purchaser to exercise their Warrants or convert their Notes. The Company
        shall honor exercises of the Warrants and conversions of the Notes and shall
        deliver Underlying Shares in accordance with the terms, conditions and time
        periods set forth in the Transaction Documents. The Company acknowledges
        that
        the issuance of the Securities may result in dilution of the outstanding
        shares
        of Common Stock, which dilution may be substantial under certain market
        conditions. The Company further acknowledges that its obligations under the
        Transaction Documents, including its obligation to issue the Underlying Shares
        pursuant to the Transaction Documents, are unconditional and absolute and
        not
        subject to any right of set off, counterclaim, delay or reduction, regardless
        of
        the effect of any such dilution or any claim the Company may have against
        any
        Purchaser and regardless of the dilutive effect that such issuance may have
        on
        the ownership of the other stockholders of the Company.

       

      4.7 Equal
        Treatment of Purchasers.
        No
        consideration shall be offered or paid to any person to amend or consent
        to a
        waiver or modification of any provision of any of the Transaction Documents
        unless the same consideration is also offered to all of the parties to the
        Transaction Documents. For clarification purposes, this provision constitutes
        a
        separate right granted to each Purchaser by the Company and negotiated
        separately by each Purchaser, and is intended to treat for the Company the
        Purchasers as a class and shall not in any way be construed as the Purchasers
        acting in concert or as a group with respect to the purchase, disposition
        or
        voting of Securities or otherwise.

       

      
        
          
          

        

        
          -19-

          
            

          

        

        
          
          

        

      

       

      4.8 Participation
        in Future Financing.
        From
        the date hereof until 12 months after such date, upon any financing by the
        Company of its Common Stock or Common Stock Equivalents (a “Subsequent
        Financing”),
        each
        Purchaser shall have the right to participate in of such Subsequent Financing
        up
        to the amount purchased herewith. At least 5 Trading Days prior to the closing
        of the Subsequent Financing, the Company shall deliver to each Purchaser
        a
        written notice of its intention to effect a Subsequent Financing (“Pre-Notice”),
        which
        Pre-Notice shall ask such Purchaser if it wants to review the details of
        such
        financing (such additional notice, a “Subsequent
        Financing Notice”).
        Upon
        the request of a Purchaser, and only upon a request by such Purchaser, for
        a
        Subsequent Financing Notice, the Company shall promptly, but no later than
        1
        Trading Day after such request, deliver a Subsequent Financing Notice to
        such
        Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
        the proposed terms of such Subsequent Financing, the amount of proceeds intended
        to be raised thereunder, the Person with whom such Subsequent Financing is
        proposed to be effected, and attached to which shall be a term sheet or similar
        document relating thereto. If by 6:30 p.m. (New York City time) on the
        5th
        Trading
        Day after all of the Purchasers have received the Pre-Notice, notifications
        of
        the Purchasers of their willingness to participate in the Subsequent Financing
        (or to cause their designees to provide) is, in the aggregate, less than
        the
        total amount of the Subsequent Financing, then the Company may effect the
        remaining portion of such Subsequent Financing on the terms and to the Persons
        set forth in the Subsequent Financing Notice. If the Company receives no
        notice
        from a Purchaser as of such 5th
        Trading
        Day, such Purchaser shall be deemed to have notified the Company that it
        does
        not elect to participate. The Company must provide the Purchasers with a
        second
        Subsequent Financing Notice, and the Purchasers will again have the right
        of
        participation set forth above in this Section 4.8, if the Subsequent Financing
        subject to the initial Subsequent Financing Notice is not consummated for
        any
        reason on the terms set forth in such Subsequent Financing Notice within
        60
        Trading Days after the date of the initial Subsequent Financing Notice. In
        the
        event the Company receives responses to Subsequent Financing Notices from
        Purchasers seeking to purchase more than the aggregate amount of the Subsequent
        Financing, each such Purchaser shall have the right to purchase their Pro
        Rata
        Portion (as defined below) of the Subsequent Financing. “Pro
        Rata Portion”
is
        the
        ratio of (x) the Subscription Amount of a participating Purchaser and (y)
        the
        sum of the aggregate Subscription Amount of all participating Purchasers.
        Notwithstanding the foregoing, this Section 4.8 shall not apply in respect
        of an
        Exempt Issuance. The Purchasers is granted the registration rights under
        the
        Registration Rights Agreement in relation to securities issued in a Subsequent
        Financing. 

       

      4.9 Favored
        Nations Provision.
        Other
        than in connection with an Exempt Issuance, until the first anniversary of
        the
        date hereof, if the Company shall offer, issue or agree to issue any common
        stock or securities convertible into or exercisable for shares of common
        stock
        (or modify any of the foregoing which may be outstanding) to any person or
        entity at terms that more favorable than the terms agreed herein or in any
        of
        the Transaction Documents (including without limitation terms respecting
        registration rights and anti-dilution protection), without the consent of
        each
        Purchaser holding Notes, Shares, Warrants, or Warrant Shares, then the Company
        shall grant such more favorable terms to each Purchaser. The Company hereby
        agrees to take any and all action necessary to ensure that the Purchasers
        will
        be offered such more favorable rights. Purchasers’ rights set forth in this
        Section 4.9 are in addition to any other rights the Purchasers have pursuant
        to
        the Transaction Document. 

      

      
        
          
          

        

        
          -20-

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        V

      MISCELLANEOUS

       

      5.1 Fees
        and Expenses.
        Except
        as otherwise set forth in this Agreement, each party shall pay the fees and
        expenses of its advisers, counsel, accountants and other experts, if any,
        and
        all other expenses incurred by such party incident to the negotiation,
        preparation, execution, delivery and performance of this Agreement. The Company
        shall pay all stamp and other taxes and duties levied in connection with
        the
        sale of the Securities as well as any expenses in connection with UCC searches
        and filings.

       

      5.2 Entire
        Agreement.
        The
        Transaction Documents, together with the exhibits and schedules thereto,
        contain
        the entire understanding of the parties with respect to the subject matter
        hereof and supersede all prior agreements and understandings, oral or written,
        with respect to such matters, which the parties acknowledge have been merged
        into such documents, exhibits and schedules.

       

      5.3 Notices.
        Any and
        all notices or other communications or deliveries required or permitted to
        be
        provided hereunder shall be in writing and shall be deemed given and effective
        on the earliest of (a) the date of transmission, if such notice or communication
        is delivered via facsimile at the facsimile number specified on the signature
        page prior to 5:30 p.m. (New York City time) on a Trading Day and an electronic
        confirmation of delivery is received by the sender, (b) the next Trading
        Day
        after the date of transmission, if such notice or communication is delivered
        via
        facsimile at the facsimile number specified in this Section on a day that
        is not
        a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
        Day,
        (c) three Trading Days following the date of mailing, if sent by U.S. nationally
        recognized overnight courier service, or (d) upon actual receipt by the party
        to
        whom such notice is required to be given. The addresses for such notices
        and
        communications are those set forth on the signature pages hereof, or such
        other
        address as may be designated in writing hereafter, in the same manner, by
        such
        Person.

       

      5.4 Amendments;
        Waivers.
        No
        provision of this Agreement may be waived or amended except in a written
        instrument signed, in the case of an amendment, by the Company and each
        Purchaser or, in the case of a waiver, by the party against whom enforcement
        of
        any such waiver is sought. No waiver of any default with respect to any
        provision, condition or requirement of this Agreement shall be deemed to
        be a
        continuing waiver in the future or a waiver of any subsequent default or
        a
        waiver of any other provision, condition or requirement hereof, nor shall
        any
        delay or omission of either party to exercise any right hereunder in any
        manner
        impair the exercise of any such right.

       

      5.5 Construction.
        The
        headings herein are for convenience only, do not constitute a part of this
        Agreement and shall not be deemed to limit or affect any of the provisions
        hereof. The language used in this Agreement will be deemed to be the language
        chosen by the parties to express their mutual intent, and no rules of strict
        construction will be applied against any party.

       

      5.6 Successors
        and Assigns.
        This
        Agreement shall be binding upon and inure to the benefit of the parties and
        their successors and permitted assigns. The Company may not assign this
        Agreement or any rights or obligations hereunder without the prior written
        consent of each Purchaser. Any Purchaser may assign any or all of its rights
        under this Agreement to any Person to whom such Purchaser assigns or transfers
        any Securities, provided such transferee agrees in writing to be bound, with
        respect to the transferred Securities, by the provisions hereof that apply
        to
        the “Purchasers”.

       

      
        
          
          

        

        
          -21-

          
            

          

        

        
          
          

        

      

       

      5.7 No
        Third-Party Beneficiaries.
        This
        Agreement is intended for the benefit of the parties hereto and their respective
        successors and permitted assigns and is not for the benefit of, nor may any
        provision hereof be enforced by, any other Person, except as otherwise set
        forth
        in Section 4.9.

       

      5.8 Governing
        Law.
        All
        questions concerning the construction, validity, enforcement and interpretation
        of the Transaction Documents shall be governed by and construed and enforced
        in
        accordance with the internal laws of the State of New York, without regard
        to
        the principles of conflicts of law thereof. Each party agrees that all legal
        proceedings concerning the interpretations, enforcement and defense of the
        transactions contemplated by this Agreement and any other Transaction Documents
        (whether brought against a party hereto or its respective affiliates, directors,
        officers, shareholders, employees or agents) shall be commenced exclusively
        in
        the state and federal courts sitting in the City of New York. Each party
        hereby
        irrevocably submits to the exclusive jurisdiction of the state and federal
        courts sitting in the City of New York, borough of Manhattan for the
        adjudication of any dispute hereunder or in connection herewith or with any
        transaction contemplated hereby or discussed herein (including with respect
        to
        the enforcement of any of the Transaction Documents), 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 improper or inconvenient venue for such
        proceeding. Each party hereby irrevocably waives personal service of process
        and
        consents to process being served in any such suit, action or proceeding by
        mailing a copy thereof via registered or certified mail or overnight delivery
        (with evidence of delivery) to such party at the address in effect for notices
        to it under this Agreement and agrees that such service shall constitute
        good
        and sufficient service of process and notice thereof. Nothing contained herein
        shall be deemed to limit in any way any right to serve process in any manner
        permitted by law. The parties hereby waive all rights to a trial by jury.
        If
        either party shall commence an action or proceeding to enforce any provisions
        of
        the Transaction Documents, then the prevailing party in such action or
        proceeding shall be reimbursed by the other party for its attorneys’ fees and
        other costs and expenses incurred with the investigation, preparation and
        prosecution of such action or proceeding.

       

      5.9 Survival.
        The
        representations and warranties contained herein shall survive the Closing
        and
        the delivery, exercise and/or conversion of the Securities, as
        applicable.

       

      5.10 Execution.
        This
        Agreement may be executed in two or more counterparts, all of which when
        taken
        together shall be considered one and the same agreement and shall become
        effective when counterparts have been signed by each party and delivered
        to the
        other party, it being understood that both parties need not sign the same
        counterpart. In the event that any signature is delivered by facsimile
        transmission, such signature shall create a valid and binding obligation
        of the
        party executing (or on whose behalf such signature is executed) with the
        same
        force and effect as if such facsimile signature page were an original
        thereof.

       

      
        
          
          

        

        
          -22-

          
            

          

        

        
          
          

        

      

       

      5.11 Severability.
        If any
        provision of this Agreement is held to be invalid or unenforceable in any
        respect, the validity and enforceability of the remaining terms and provisions
        of this Agreement shall not in any way be affected or impaired thereby and
        the
        parties will attempt to agree upon a valid and enforceable provision that
        is a
        reasonable substitute therefor, and upon so agreeing, shall incorporate such
        substitute provision in this Agreement.

       

      5.12 Rescission
        and Withdrawal Right.
        Notwithstanding anything to the contrary contained in (and without limiting
        any
        similar provisions of) the Transaction Documents, whenever any Purchaser
        exercises a right, election, demand or option under a Transaction Document
        and
        the Company does not timely perform its related obligations within the periods
        therein provided, then such Purchaser may rescind or withdraw, in its sole
        discretion from time to time upon written notice to the Company, any relevant
        notice, demand or election in whole or in part without prejudice to its future
        actions and rights; provided,
        however,
        in the
        case of a rescission of a conversion of the Notes or exercise of the Warrant,
        the Purchaser shall be required to return any shares of Common Stock subject
        to
        such conversion or exercise notice.

       

      5.13 Replacement
        of Securities.
        If any
        certificate or instrument evidencing any Securities is mutilated, lost, stolen
        or destroyed, the Company shall issue or cause to be issued in exchange and
        substitution for and upon cancellation thereof, or in lieu of and substitution
        therefor, a new certificate or instrument, but only upon receipt of evidence
        reasonably satisfactory to the Company of such loss, theft or destruction
        and
        customary and reasonable indemnity, if requested. The applicants for a new
        certificate or instrument under such circumstances shall also pay any reasonable
        third-party costs associated with the issuance of such replacement
        Securities.

       

      5.14 Remedies.
        In
        addition to being entitled to exercise all rights provided herein or granted
        by
        law, including recovery of damages, each of each Purchaser and the Company
        will
        be entitled to specific performance under the Transaction Documents. The
        parties
        agree that monetary damages may not be adequate compensation for any loss
        incurred by reason of any breach of obligations described in the foregoing
        sentence and hereby agrees to waive in any action for specific performance
        of
        any such obligation the defense that a remedy at law would be
        adequate.

       

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

       

      
        
          
          

        

        
          -23-

          
            

          

        

        
          
          

        

      

       

      5.16 Independent
        Nature of Purchasers’ Obligations and Rights.
        The
        obligations of each Purchaser under any Transaction Document are several
        and not
        joint with the obligations of any other Purchaser, and no Purchaser shall
        be
        responsible in any way for the performance of the obligations of any other
        Purchaser under any Transaction Document. Nothing contained herein or in
        any
        Transaction Document, and no action taken by any Purchaser pursuant thereto,
        shall be deemed to constitute the Purchasers as a partnership, an association,
        a
        joint venture or any other kind of entity, or create a presumption that the
        Purchasers are in any way acting in concert or as a group with respect to
        such
        obligations or the transactions contemplated by the Transaction Document.
        Each
        Purchaser shall be entitled to independently protect and enforce its rights,
        including without limitation, the rights arising out of this Agreement or
        out of
        the other Transaction Documents, and it shall not be necessary for any other
        Purchaser to be joined as an additional party in any proceeding for such
        purpose. Each Purchaser has been represented by its own separate legal counsel
        in their review and negotiation of the Transaction Documents. The Company
        has
        elected to provide all Purchasers with the same terms and Transaction Documents
        for the convenience of the Company and not because it was required or requested
        to do so by the Purchasers.

       

      5.17 Liquidated
        Damages.
        The
        Company’s obligations to pay any partial liquidated damages or other amounts
        owing under the Transaction Documents is a continuing obligation of the Company
        and shall not terminate until all unpaid partial liquidated damages and other
        amounts have been paid notwithstanding the fact that the instrument or security
        pursuant to which such partial liquidated damages or other amounts are due
        and
        payable shall have been canceled.

       

      5.18 Construction.
        The
        parties agree that each of them and/or their respective counsel has reviewed
        and
        had an opportunity to revise the Transaction Documents and, therefore, the
        normal rule of construction to the effect that any ambiguities are to be
        resolved against the drafting party shall not be employed in the interpretation
        of the Transaction Documents or any amendments hereto.

      

       

      [SIGNATURE
        PAGE FOLLOWS]

       

      
        
          
          

        

        
          -24-

          
            

          

        

        
          
          

        

      

       

      IN
        WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
        Agreement to be duly executed by their respective authorized signatories
        as of
        the date first indicated above.

       

      
        	
                SUB-URBAN
                  BRANDS, INC.

                 

              	
                Address
                  for Notice:

              
	
                By:__________________________________________

                Name:
                  

                Title:
                  

              	
                 

                 

                 

                T

                F

              
	
                With
                  a copy to (which shall not constitute notice):

                 

                 

                 

                T
                  

                F
                  

              	 

      

      
 

      

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK

      SIGNATURE
        PAGE FOR PURCHASER FOLLOWS]

       

      
        
          
          

        

        
          -25-

          
            

          

        

        
          
          

        

      

       

      [PURCHASER
        SIGNATURE PAGES TO SUUB 

      SECURITIES
        PURCHASE AGREEMENT]

       

      

      IN
        WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
        to be duly executed by their respective authorized signatories as of the
        date
        first indicated above.

       

       

      Name
        of
        Purchaser: 

      

      Signature
        of Authorized Signatory of Purchaser:
        __________________________

      

      Name
        of
        Authorized Signatory: _________________________

      

      Title
        of
        Authorized Signatory: __________________________

      

      Email
        Address of Authorized Signatory: ________________________________

      

      Address
        for Notice of Investing Entity:

      

      

      

      

      Address
        for Delivery of Securities for Investing Entity (if not same as
        above):

       

      

      

      

      Subscription
        Amount: $_______

      

      Principal
        Note Amount: $________

      

      Warrant
        Shares: ________

      

      

      

      EIN
        Number: [PROVIDE
        THIS UNDER SEPARATE COVER]

      

      [SIGNATURE
        PAGES CONTINUE]

       

      
        
          
          

        

        
          -26-Unassociated Document

    Exhibit
      4.2 FORM OF SUBORDINATED 10% NOTE

     

    Dated:
      July ___, 2006

     

    NEITHER
      THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN
      REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
      COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
      THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”),
      AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
      REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
      EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
      SECURITIES LAWS.

     

    
      	No. VC-1	
              $50,000

            

    

     

    SUB-URBAN
      BRANDS, INC.

     

    Convertible
      Note 

     

    Due
      Date: as set forth herein 

     

    This
      Convertible Note (the “Note”)
      is
      issued by Sub-Urban Brands, Inc., a
      Nevada
      corporation (the “Obligor”),
      to
      ______________. (the “Holder”),
      pursuant to that certain Securities Purchase Agreement (the “Securities
      Purchase Agreement”)
      of
      even date herewith. Capitalized terms not otherwise defined herein shall have
      the meaning ascribed thereto in the Securities Purchase Agreement. 

     

    FOR
      VALUE RECEIVED,
      the
      Obligor hereby promises to pay to the Holder or its successors and assigns
      the
      principal sum of Fifty Thousand Dollars ($50,000) together with accrued but
      unpaid interest on the
      earliest of: (i) the consummation of a financing of not less than $4,000,000
      in
      gross proceeds, or (ii) one year from the date hereof (the
      “Maturity
      Date”),
      in
      accordance with the following terms:

     

    Interest.
      Interest shall accrue on the outstanding principal balance hereof at an annual
      rate equal to ten percent (10%). Interest shall be calculated on the basis
      of a
      360-day year and the actual number of days elapsed, to the extent permitted
      by
      applicable law. Interest hereunder will be paid quarterly in arrears to the
      Holder or its assignee (as defined in Section
      5)
      in
      whose name this Note is registered on the records of the Obligor regarding
      registration and transfers of Notes (the “Note
      Register”).

     

    Right
      of Redemption.
      The
      Obligor at its option shall have the right, with three (3) business days advance
      written notice (the “Redemption
      Notice”),
      to
      redeem a portion or all amounts outstanding under this Note prior to the
      Maturity Date. The Obligor shall deliver to the Holder the Redemption Amount
      on
      the third (3rd)
      business day after the Redemption Notice. 

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    Notwithstanding
      the foregoing in the event that the Obligor has elected to redeem a portion
      of
      the outstanding principal amount and accrued interest under this Note the Holder
      shall be permitted to convert all or any portion of this Note during such three
      business day period. 

     

    This
      Note
      is subject to the following additional provisions:

     

    Section
      1. This
      Note
      is exchangeable for an equal aggregate principal amount of Notes of different
      authorized denominations, as requested by the Holder surrendering the same.
      No
      service charge will be made for such registration of transfer or
      exchange.

     

    Section
      2. Events
      of Default.

     

    (a) An
      “Event
      of Default”,
      wherever used herein, means any one of the following events (whatever the reason
      and whether it shall be voluntary or involuntary or effected by operation of
      law
      or pursuant to any judgment, decree or order of any court, or any order, rule
      or
      regulation of any administrative or governmental body):

     

    (i) Any
      default in the payment of the principal of, interest on or other charges in
      respect of this Note, free of any claim of subordination, as and when the same
      shall become due and payable (whether on a Conversion Date or the Maturity
      Date
      or by acceleration or otherwise);

     

    (ii) The
      Obligor shall fail to observe or perform any other covenant, agreement or
      warranty contained in, or otherwise commit any breach or default of any
      provision of this Note (except as may be covered by Section
      2(a)(i)
      hereof)
      or any Transaction Document (as defined in Section
      5)
      which
      is not cured with in the time prescribed, including without limitation Obligor’s
      obligation to timely deliver shares of Common Stock upon conversion of this
      Note
      and exercise of the Warrant;

     

    (iii) The
      Obligor or any subsidiary of the Obligor shall commence, or there shall be
      commenced against the Obligor or any subsidiary of the Obligor under any
      applicable bankruptcy or insolvency laws as now or hereafter in effect or any
      successor thereto, or the Obligor or any subsidiary of the Obligor commences
      any
      other proceeding under any reorganization, arrangement, adjustment of debt,
      relief of debtors, dissolution, insolvency or liquidation or similar law of
      any
      jurisdiction whether now or hereafter in effect relating to the Obligor or
      any
      subsidiary of the Obligor or there is commenced against the Obligor or any
      subsidiary of the Obligor any such bankruptcy, insolvency or other proceeding
      which remains undismissed for a period of 61 days; or the Obligor or any
      subsidiary of the Obligor is adjudicated insolvent or bankrupt; or any order
      of
      relief or other order approving any such case or proceeding is entered; or
      the
      Obligor or any subsidiary of the Obligor suffers any appointment of any
      custodian, private or court appointed receiver or the like for it or any
      substantial part of its property which continues undischarged or unstayed for
      a
      period of sixty one (61) days; or the Obligor or any subsidiary of the Obligor
      makes a general assignment for the benefit of creditors; or the Obligor or
      any
      subsidiary of the Obligor shall fail to pay, or shall state that it is unable
      to
      pay, or shall be unable to pay, its debts generally as they become due; or
      the
      Obligor or any subsidiary of the Obligor shall call a meeting of its creditors
      with a view to arranging a composition, adjustment or restructuring of its
      debts; or the Obligor or any subsidiary of the Obligor shall by any act or
      failure to act expressly indicate its consent to, approval of or acquiescence
      in
      any of the foregoing; or any corporate or other action is taken by the Obligor
      or any subsidiary of the Obligor for the purpose of effecting any of the
      foregoing;

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (iv) The
      Obligor or any subsidiary of the Obligor shall default in any of its obligations
      under any other Note or any mortgage, credit agreement or other facility,
      indenture agreement, factoring agreement or other instrument under which there
      may be issued, or by which there may be secured or evidenced any indebtedness
      for borrowed money or money due under any long term leasing or factoring
      arrangement of the Obligor or any subsidiary of the Obligor in an amount
      exceeding $200,000, whether such indebtedness now exists or shall hereafter
      be
      created and such default shall result in such indebtedness becoming or being
      declared due and payable prior to the date on which it would otherwise become
      due and payable;

     

    (v) The
      Obligor or any subsidiary of the Obligor shall be a party to any Change of
      Control Transaction (as defined in Section
      5);
      

     

    (vi) The
      Obligor shall fail for any reason to deliver Common Stock certificates to a
      Holder prior to the fifth (5th)
      Trading
      Day after a Conversion Date or the Obligor shall provide notice to the Holder,
      including by way of public announcement, at any time, of its intention not
      to
      comply with requests for conversions of this Note in accordance with the terms
      hereof; and

     

    (b) During
      the time that any portion of this Note is outstanding, if any Event of Default
      has occurred and shall continue for a period of ten (10) days after a notice
      of
      such default has been delivered by the Holder to the Obligor (the “Notice
      Period”),
      the
      full principal amount of this Note, together with interest and other amounts
      owing in respect thereof, to the date of acceleration shall become at the
      Holder's election, immediately due and payable in cash, provided
      however,
      the
      Holder may request (but shall have no obligation to request) payment of such
      amounts in Common Stock of the Obligor. In addition to any other remedies,
      the
      Holder shall have the right (but not the obligation) to convert this Note at
      any
      time after (x) an Event of Default or (y) the Maturity Date at the Conversion
      Price then in-effect. The Holder need not provide and the Obligor hereby waives
      any presentment, demand, protest or other notice of any kind, and the Holder
      may
      immediately and without expiration of any grace period (other than the Notice
      Period) enforce any and all of its rights and remedies hereunder and all other
      remedies available to it under applicable law. Such declaration may be rescinded
      and annulled by Holder at any time prior to payment hereunder. No such
      rescission or annulment shall affect any subsequent Event of Default or impair
      any right consequent thereon 

     

    Section
      3. Conversion.

     

    (a) Conversion
      at Option of Holder.

     

    (i) This
      Note
      shall be convertible into shares of Common Stock at the option of the Holder,
      in
      whole or in part at any time and from time to time, after the Original Issue
      Date (as defined in Section
      5)
      (subject to the limitations on conversion set forth in Section
      3(b)
      hereof).
      The number of shares of Common Stock issuable upon a conversion hereunder equals
      the quotient obtained by dividing (x) the outstanding amount of this Note to
      be
      converted by (y) the Conversion Price (as defined in Section
      3(b)(i)).
      The
      Obligor shall deliver Common Stock certificates to the Holder prior to the
      Fifth
      (5th)
      Trading
      Day after a Conversion Date.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (ii) Notwithstanding
      anything to the contrary contained herein, if on any Conversion Date: (1) the
      number of shares of Common Stock at the time authorized, unissued and unreserved
      for all purposes, or held as treasury stock, is insufficient to pay principal
      and interest hereunder in shares of Common Stock; (2) the Common Stock is not
      listed or quoted for trading on the OTC or on a Subsequent Market; or (3) the
      Obligor has failed to timely satisfy its conversion, and the Obligor is unable
      to remedy any of the foregoing within 20 business days, then, at the option
      of
      the Holder, the Obligor, in lieu of delivering shares of Common Stock pursuant
      to Section
      3(a)(i),
      shall
      deliver, within three (3) Trading Days of each applicable Conversion Date,
      an
      amount in cash equal to the product of the outstanding principal amount to
      be
      converted plus any interest due therein divided by the Conversion Price, chosen
      by the Holder, and multiplied by the average closing price of the stock from
      date of the conversion notice till the date that such cash payment is
      made.

     

    Further,
      if the Obligor shall not have delivered any cash due in respect of conversion
      of
      this Note or as payment of interest thereon by the fifth (5th)
      Trading
      Day after the Conversion Date, the Holder may, by notice to the Obligor, require
      the Obligor to issue shares of Common Stock pursuant to Section
      3(c),
      except
      that for such purpose the Conversion Price applicable thereto shall be the
      lesser of the Conversion Price on the Conversion Date and the Conversion Price
      on the date of such Holder demand. Any such shares will be subject to the
      provisions of this Section.

     

    (iii) The
      Holder shall effect conversions by delivering to the Obligor a completed notice
      in the form attached hereto as Exhibit A (a “Conversion
      Notice”).
      The
      date on which a Conversion Notice is delivered is the “Conversion
      Date.”
Unless
      the Holder is converting the entire principal amount outstanding under this
      Note, the Holder is not required to physically surrender this Note to the
      Obligor in order to effect conversions. Conversions hereunder shall have the
      effect of lowering the outstanding principal amount of this Note plus all
      accrued and unpaid interest thereon in an amount equal to the applicable
      conversion. The Holder and the Obligor shall maintain records showing the
      principal amount converted and the date of such conversions. In the event of
      any
      dispute or discrepancy, the records of the Holder shall be controlling and
      determinative in the absence of manifest error.

     

    (b) Certain
      Conversion Restrictions.

     

    (i) The
      Holder may not convert this Note or receive shares of Common Stock as payment
      of
      interest hereunder to the extent such conversion or receipt of such interest
      payment would result in the Holder, together with any affiliate thereof,
      beneficially owning (as determined in accordance with Section 13(d) of the
      Exchange Act and the rules promulgated thereunder) in excess of 9.9% of the
      then
      issued and outstanding shares of Common Stock, including shares issuable upon
      conversion of, and payment of interest on, this Debenture held by such Holder
      after application of this Section. Since the Holder will not be obligated to
      report to the Obligor the number of shares of Common Stock it may hold at the
      time of a conversion hereunder, unless the conversion at issue would result
      in
      the issuance of shares of Common Stock in excess of 9.9% of the then outstanding
      shares of Common Stock without regard to any other shares which may be
      beneficially owned by the Holder or an affiliate thereof, the Holder shall
      have
      the authority and obligation to determine whether the restriction contained
      in
      this Section will limit any particular conversion hereunder and to the extent
      that the Holder determines that the limitation contained in this Section
      applies, the determination of which portion of the principal amount of this
      Debenture is convertible shall be the responsibility and obligation of the
      Holder. If the Holder has delivered a Conversion Notice for a principal amount
      of this Debenture that, without regard to any other shares that the Holder
      or
      its affiliates may beneficially own, would result in the issuance in excess
      of
      the permitted amount hereunder, the Obligor shall notify the Holder of this
      fact
      and shall honor the conversion for the maximum principal amount permitted to
      be
      converted on such Conversion Date in accordance with the periods described
      in
Section
      3(a)(i)
      and, at
      the option of the Holder, either retain any principal amount tendered for
      conversion in excess of the permitted amount hereunder for future conversions
      or
      return such excess principal amount to the Holder by issuing to the Holder
      a new
      debenture representing such excess principal amount. The provisions of this
      Section may be waived by a Holder (but only as to itself and not to any other
      Holder) upon not less than 65 days prior notice to the Obligor. Other Holders
      shall be unaffected by any such waiver.  

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (c) Conversion
      Price and Adjustments to Conversion Price.

     

    (i) The
      Holder shall be entitled to convert, at its sole option, at any time a portion
      or all amounts of principal and interest due and outstanding under this Note
      into shares of the Obligor’s Common Stock at a price equal to $0.25 (the
“Conversion
      Price”).
      The
      Conversion Price may be adjusted pursuant to the other terms of this
      Note.

     

    (ii) If
      the
      Obligor, at any time while this Note is outstanding, shall (a) pay a stock
      dividend or otherwise make a distribution or distributions on shares of its
      Common Stock or any other equity or equity equivalent securities payable in
      shares of Common Stock, (b) subdivide outstanding shares of Common Stock into
      a
      larger number of shares, (c) combine (including by way of reverse stock split)
      outstanding shares of Common Stock into a smaller number of shares, or (d)
      issue
      by reclassification of shares of the Common Stock any shares of capital stock
      of
      the Obligor, then the Conversion Price shall be multiplied by a fraction of
      which the numerator shall be the number of shares of Common Stock (excluding
      treasury shares, if any) outstanding before such event and of which the
      denominator shall be the number of shares of Common Stock outstanding after
      such
      event. Any adjustment made pursuant to this Section shall become effective
      immediately after the record date for the determination of stockholders entitled
      to receive such dividend or distribution and shall become effective immediately
      after the effective date in the case of a subdivision, combination or
      re-classification.

     

    (iii) If
      the
      Obligor, at any time while this Note is outstanding, shall issue rights, options
      or warrants to all holders of Common Stock (and not to the Holder) entitling
      them to subscribe for or purchase shares of Common Stock at a price per share
      less than the Conversion Price, then the Conversion Price shall be multiplied
      by
      a fraction, of which the denominator shall be the number of shares of the Common
      Stock (excluding treasury shares, if any) outstanding on the date of issuance
      of
      such rights or warrants (plus the number of additional shares of Common Stock
      offered for subscription or purchase), and of which the numerator shall be
      the
      number of shares of the Common Stock (excluding treasury shares, if any)
      outstanding on the date of issuance of such rights or warrants, plus the number
      of shares which the aggregate offering price of the total number of shares
      so
      offered would purchase at the Conversion Price. Such adjustment shall be made
      whenever such rights or warrants are issued, and shall become effective
      immediately after the record date for the determination of stockholders entitled
      to receive such rights, options or warrants. However, upon the expiration of
      any
      such right, option or warrant to purchase shares of the Common Stock the
      issuance of which resulted in an adjustment in the Conversion Price pursuant
      to
      this Section, if any such right, option or warrant shall expire and shall not
      have been exercised, the Conversion Price shall immediately upon such expiration
      be recomputed and effective immediately upon such expiration be increased to
      the
      price which it would have been (but reflecting any other adjustments in the
      Conversion Price made pursuant to the provisions of this Section after the
      issuance of such rights or warrants) had the adjustment of the Conversion Price
      made upon the issuance of such rights, options or warrants been made on the
      basis of offering for subscription or purchase only that number of shares of
      the
      Common Stock actually purchased upon the exercise of such rights, options or
      warrants actually exercised.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (iv) Except
      in
      the case of an Exempt Issuance (as such term is defined in the Securities
      Purchase Agreement), if the Obligor or any subsidiary thereof, as applicable,
      at
      any time while this Note is outstanding, shall issue shares of Common Stock
      or
      rights, warrants, options or other securities or debt that are convertible
      into
      or exchangeable for shares of Common Stock (“Common
      Stock Equivalents”)
      entitling any Person to acquire shares of Common Stock, at a price per share
      less than the Conversion Price (if the holder of the Common Stock or Common
      Stock Equivalent so issued shall at any time, whether by operation of purchase
      price adjustments, reset provisions, floating conversion, exercise or exchange
      prices or otherwise, or due to warrants, options or rights per share which
      is
      issued in connection with such issuance, be entitled to receive shares of Common
      Stock at a price per share which is less than the Conversion Price, such
      issuance shall be deemed to have occurred for less than the Conversion Price),
      then, at the sole option of the Holder, the Conversion Price shall be reduced
      to
      the price (calculated to the nearest one hundredth of a cent) determined by
      multiplying the Conversion Price in effect immediately prior thereto by a
      fraction, the numerator of which shall be the sum of (i) the number of shares
      of
      Common Stock outstanding immediately prior to such issuance, and (ii) the number
      of shares of Common Stock which the aggregate consideration received (or to
      be
      received, assuming exercise or conversion in full of such rights, warrants
      and
      convertible securities) for the issuance of such additional shares of Common
      Stock would purchase at the Conversion Price, and the denominator of which
      shall
      be the sum of the number of shares of Common Stock outstanding immediately
      after
      the issuance of such additional shares. Such adjustment shall be made
      successively whenever such an issuance is made. The Obligor shall notify the
      Holder in writing, no later than three (3) business days following the issuance
      of any Common Stock or Common Stock Equivalent subject to this Section,
      indicating therein the applicable issuance price, or of applicable reset price,
      exchange price, conversion price and other pricing terms. No adjustment under
      this Section shall be made as a result of issuances and exercises of options
      to
      purchase shares of Common Stock issued for compensatory purposes pursuant to
      any
      of the Obligor's stock option or stock purchase plans.

     

    (v) If
      the
      Obligor, at any time while this Note is outstanding, shall distribute to all
      holders of Common Stock (and not to the Holder) evidences of its indebtedness
      or
      assets or rights or warrants to subscribe for or purchase any security, then
      in
      each such case the Conversion Price at which this Note shall thereafter be
      convertible shall be determined by multiplying the Conversion Price in effect
      immediately prior to the record date fixed for determination of stockholders
      entitled to receive such distribution by a fraction of which the denominator
      shall be the Closing Bid Price determined as of the record date mentioned above,
      and of which the numerator shall be such Closing Bid Price on such record date
      less the then fair market value at such record date of the portion of such
      assets or evidence of indebtedness so distributed applicable to one outstanding
      share of the Common Stock as determined by the Board of Directors in good faith.
      In either case the adjustments shall be described in a statement provided to
      the
      Holder of the portion of assets or evidences of indebtedness so distributed
      or
      such subscription rights applicable to one share of Common Stock. Such
      adjustment shall be made whenever any such distribution is made and shall become
      effective immediately after the record date mentioned above.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (vi) In
      case
      of any reclassification of the Common Stock or any compulsory share exchange
      pursuant to which the Common Stock is converted into other securities of the
      Company, cash or property, the Holder shall have the right thereafter to, at
      its
      option, (A) convert the then outstanding principal amount, together with all
      accrued but unpaid interest and any other amounts then owing hereunder in
      respect of this Note into the shares of stock and other securities, cash and
      property receivable upon or deemed to be held by holders of the Common Stock
      following such reclassification or share exchange, and the Holder of this Note
      shall be entitled upon such event to receive such amount of securities, cash
      or
      property as the shares of the Common Stock of the Obligor into which the then
      outstanding principal amount, together with all accrued but unpaid interest
      and
      any other amounts then owing hereunder in respect of this Note could have been
      converted immediately prior to such reclassification or share exchange would
      have been entitled, or (B) require the Obligor to prepay the outstanding
      principal amount of this Note, plus all interest and other amounts due and
      payable thereon. The entire prepayment price shall be paid in cash. This
      provision shall similarly apply to successive reclassifications or share
      exchanges.

     

    (vii) The
      Obligor shall at all times reserve and keep available out of its authorized
      Common Stock the full number of shares of Common Stock issuable upon conversion
      of all outstanding amounts under this Note; and within three (3) Business Days
      following the receipt by the Obligor of a Holder's notice that such minimum
      number of Underlying Shares is not so reserved, the Obligor shall promptly
      reserve a sufficient number of shares of Common Stock to comply with such
      requirement.

     

    (viii) All
      calculations under this Section
      3
      shall be
      rounded up to the nearest $0.001 or whole share.

     

    (ix) Whenever
      the Conversion Price is adjusted pursuant to Section
      3
      hereof,
      the Obligor shall promptly mail to the Holder a notice setting forth the
      Conversion Price after such adjustment and setting forth a brief statement
      of
      the facts requiring such adjustment.

     

    (x) If
      (A)
      the Obligor shall declare a dividend (or any other distribution) on the Common
      Stock; (B) the Obligor shall declare a special nonrecurring cash dividend on
      or
      a redemption of the Common Stock; (C) the Obligor shall authorize the granting
      to all holders of the Common Stock rights or warrants to subscribe for or
      purchase any shares of capital stock of any class or of any rights; (D) the
      approval of any stockholders of the Obligor shall be required in connection
      with
      any reclassification of the Common Stock, any consolidation or merger to which
      the Obligor is a party, any sale or transfer of all or substantially all of
      the
      assets of the Obligor, of any compulsory share exchange whereby the Common
      Stock
      is converted into other securities, cash or property; or (E) the Obligor shall
      authorize the voluntary or involuntary dissolution, liquidation or winding
      up of
      the affairs of the Obligor; then, in each case, the Obligor shall cause to
      be
      filed at each office or agency maintained for the purpose of conversion of
      this
      Note, and shall cause to be mailed to the Holder at its last address as it
      shall
      appear upon the stock books of the Obligor, at least twenty (20) calendar days
      prior to the applicable record or effective date hereinafter specified, a notice
      stating (x) the date on which a record is to be taken for the purpose of such
      dividend, distribution, redemption, rights or warrants, or if a record is not
      to
      be taken, the date as of which the holders of the Common Stock of record to
      be
      entitled to such dividend, distributions, redemption, rights or warrants are
      to
      be determined or (y) the date on which such reclassification, consolidation,
      merger, sale, transfer or share exchange is expected to become effective or
      close, and the date as of which it is expected that holders of the Common Stock
      of record shall be entitled to exchange their shares of the Common Stock for
      securities, cash or other property deliverable upon such reclassification,
      consolidation, merger, sale, transfer or share exchange, provided, that the
      failure to mail such notice or any defect therein or in the mailing thereof
      shall not affect the validity of the corporate action required to be specified
      in such notice. The Holder is entitled to convert this Note during the 20-day
      calendar period commencing the date of such notice to the effective date of
      the
      event triggering such notice.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (xi) In
      case
      of any (1) merger or consolidation of the Obligor or any subsidiary of the
      Obligor with or into another Person, or (2) sale by the Obligor or any
      subsidiary of the Obligor of more than one-half of the assets of the Obligor
      in
      one or a series of related transactions, a Holder shall have the right to
      exercise any rights under Section
      2(b),
      if
      Obligor fails, at the option of the Holder, (A) to permit the Holder to convert
      the aggregate amount of this Note then outstanding into the shares of stock
      and
      other securities, cash and property receivable upon or deemed to be held by
      holders of Common Stock following such merger, consolidation or sale, and such
      Holder shall not be entitled upon such event or series of related events to
      receive such amount of securities, cash and property as the shares of Common
      Stock into which such aggregate principal amount of this Note could have been
      converted immediately prior to such merger, consolidation or sales would have
      been entitled, or (B) in the case of a merger or consolidation, to require
      the
      surviving entity to issue to the Holder a convertible Note with a principal
      amount equal to the aggregate principal amount of this Note then held by such
      Holder, plus all accrued and unpaid interest and other amounts owing thereon,
      which such newly issued convertible Note shall have terms identical (including
      with respect to conversion) to the terms of this Note, and shall be entitled
      to
      all of the rights and privileges of the Holder of this Note set forth herein
      and
      the agreements pursuant to which this Notes were issued. In the case of clause
      (C), the conversion price applicable for the newly issued shares of convertible
      preferred stock or convertible Notes shall be based upon the amount of
      securities, cash and property that each share of Common Stock would receive
      in
      such transaction and the Conversion Price in effect immediately prior to the
      effectiveness or closing date for such transaction. The terms of any such
      merger, sale or consolidation shall include such terms so as to continue to
      give
      the Holder the right to receive the securities, cash and property set forth
      in
      this Section upon any conversion or redemption following such event. This
      provision shall similarly apply to successive such events.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (xii) Notwithstanding
      anything to the contrary herein, no adjustment shall be made hereunder in
      connection with an Exempt Adjustment.

     

    (d) Other
      Provisions.

     

    (i) The
      Obligor covenants that it will at all times reserve and keep available out
      of
      its authorized and unissued shares of Common Stock solely for the purpose of
      issuance upon conversion of this Note and payment of interest on this Note,
      each
      as herein provided, free from preemptive rights or any other actual contingent
      purchase rights of persons other than the Holder, not less than such number
      of
      shares of the Common Stock as shall (subject to any additional requirements
      of
      the Obligor as to reservation of such shares set forth in this Note) be issuable
      (taking into account the adjustments and restrictions of Sections
      2(b) and 3(c))
      upon
      the conversion of the outstanding principal amount of this Note and payment
      of
      interest hereunder. The Obligor covenants that all shares of Common Stock that
      shall be so issuable shall, upon issue, be duly and validly authorized, issued
      and fully paid.

     

    (ii) The
      issuance of certificates for shares of the Common Stock on conversion of this
      Note shall be made without charge to the Holder thereof for any documentary
      stamp or similar taxes that may be payable in respect of the issue or delivery
      of such certificate, provided that the Obligor shall not be required to pay
      any
      tax that may be payable in respect of any transfer involved in the issuance
      and
      delivery of any such certificate upon conversion in a name other than that
      of
      the Holder of such Note so converted and the Obligor shall not be required
      to
      issue or deliver such certificates unless or until the person or persons
      requesting the issuance thereof shall have paid to the Obligor the amount of
      such tax or shall have established to the satisfaction of the Obligor that
      such
      tax has been paid.

     

    (iii) Nothing
      herein shall limit a Holder's right to pursue actual damages or declare an
      Event
      of Default pursuant to Section
      2
      herein
      for the Obligor 's failure to deliver certificates representing shares of Common
      Stock upon conversion within the period specified herein and such Holder shall
      have the right to pursue all remedies available to it at law or in equity
      including, without limitation, a decree of specific performance and/or
      injunctive relief, in each case without the need to post a bond or provide
      other
      security. The exercise of any such rights shall not prohibit the Holder from
      seeking to enforce damages pursuant to any other Section hereof or under
      applicable law. 

     

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

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    

    
      	
              If
                to the Company, to:

            	
              Sub-Urban
                Brands, Inc. 

            
	 	
              2222
                E.Washington Blvd Unit B

            
	 	
              Los
                Angeles, CA 90021

            
	 	
              Attention:
                Joe Shortal, CEO

            
	 	
              Telephone: 213-229-2885

            
	 	
              Facsimile: 213-229-8885

            
	 	 
	 	 
	
              If
                to the Holder:

            	 

    

     

     

     

    or
      at
      such other address and/or facsimile number and/or to the attention of such
      other
      person as the recipient party has specified by written notice given to each
      other party three (3) business days prior to the effectiveness of such change.
      Written confirmation of receipt (i) given by the recipient of such notice,
      consent, waiver or other communication, (ii) mechanically or electronically
      generated by the sender's facsimile machine containing the time, date, recipient
      facsimile number and an image of the first page of such transmission or (iii)
      provided by a nationally recognized overnight delivery service, shall be
      rebuttable evidence of personal service, receipt by facsimile or receipt from
      a
      nationally recognized overnight delivery service in accordance with clause
      (i),
      (ii) or (iii) above, respectively.

     

    Section
      5. Definitions.
      For the
      purposes hereof, the following terms shall have the following
      meanings:

     

    “Business
      Day”
means
      any day except Saturday, Sunday and any day which shall be a federal legal
      holiday in the United States or a day on which banking institutions are
      authorized or required by law or other government action to close.

     

    “Change
      of Control Transaction”
means
      the occurrence of (a) an acquisition after the date hereof by an individual
      or
      legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the
      Exchange Act) of effective control (whether through legal or beneficial
      ownership of capital stock of the Obligor, by contract or otherwise) of in
      excess of fifty percent (50%) of the voting securities of the Obligor (except
      that the acquisition of voting securities by the Holder shall not constitute
      a
      Change of Control Transaction for purposes hereof), (b) a replacement at one
      time or over time of more than one-half of the members of the board of directors
      of the Obligor which is not approved by a majority of those individuals who
      are
      members of the board of directors on the date hereof (or by those individuals
      who are serving as members of the board of directors on any date whose
      nomination to the board of directors was approved by a majority of the members
      of the board of directors who are members on the date hereof), (c) the merger,
      consolidation or sale of fifty percent (50%) or more of the assets of the
      Obligor or any subsidiary of the Obligor in one or a series of related
      transactions with or into another entity, or (d) the execution by the Obligor
      of
      an agreement to which the Obligor is a party or by which it is bound, providing
      for any of the events set forth above in (a), (b) or (c).

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    “Closing
      Bid Price”
means
      the price per share in the last reported trade of the Common Stock on the OTC
      or
      on the exchange which the Common Stock is then listed as quoted by Bloomberg,
      LP.

     

    “Common
      Stock”
means
      the common stock, par value $0.001, of the Obligor and stock of any other class
      into which such shares may hereafter be changed or reclassified.

     

    “Conversion
      Date”
shall
      mean the date upon which the Holder gives the Obligor notice of their intention
      to effectuate a conversion of this Note into shares of the Company’s Common
      Stock as outlined herein.

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    “Original
      Issue Date”
shall
      mean the date of the first issuance of this Note regardless of the number of
      transfers and regardless of the number of instruments, which may be issued
      to
      evidence such Note.

     

    “Person”
means
      a
      corporation, an association, a partnership, organization, a business, an
      individual, a government or political subdivision thereof or a governmental
      agency.

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder.

     

    “Trading
      Day”
means
      a
      day on which the shares of Common Stock are quoted on the OTC or quoted or
      traded on such Subsequent Market on which the shares of Common Stock are then
      quoted or listed; provided, that in the event that the shares of Common Stock
      are not listed or quoted, then Trading Day shall mean a Business
      Day.

     

    “Transaction
      Documents”
means
      the Securities Purchase Agreement or any other agreement delivered in connection
      with the Securities Purchase Agreement, including, without limitation, the
      Registration Rights Agreement and Warrants of even date herewith.

     

    “Underlying
      Shares”
means
      the shares of Common Stock issuable upon conversion of this Note or as payment
      of interest in accordance with the terms hereof.

     

    Section
      6. Except
      as
      expressly provided herein, no provision of this Note shall alter or impair
      the
      obligations of the Obligor, which are absolute and unconditional, to pay the
      principal of, interest and other charges (if any) on, this Note at the time,
      place, and rate, and in the coin or currency, herein prescribed. This Note
      is a
      direct obligation of the Obligor. This Note ranks pari passu with all other
      Notes (other than notes and other instruments issued in connection with the
      ABF
      Loan) now or hereafter issued under the terms set forth herein. As long as
      this
      Note is outstanding, the Obligor shall not and shall cause their subsidiaries
      not to, without the consent of the Holder (which shall not be unreasonably
      withheld), (i) amend its certificate of incorporation, bylaws or other charter
      documents so as to adversely affect any rights of the Holder; (ii) repay,
      repurchase or offer to repay, repurchase or otherwise acquire shares of its
      Common Stock or other equity securities other than as to the Underlying Shares
      to the extent permitted or required under the Transaction Documents; or (iii)
      enter into any agreement with respect to any of the foregoing. 

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    Section
      7. This
      Note
      shall not entitle the Holder to any of the rights of a stockholder of the
      Obligor, including without limitation, the right to vote, to receive dividends
      and other distributions, or to receive any notice of, or to attend, meetings
      of
      stockholders or any other proceedings of the Obligor, unless and to the extent
      converted into shares of Common Stock in accordance with the terms
      hereof.

     

    Section
      8. If
      this
      Note is mutilated, lost, stolen or destroyed, the Obligor shall execute and
      deliver, in exchange and substitution for and upon cancellation of the mutilated
      Note, or in lieu of or in substitution for a lost, stolen or destroyed Note,
      a
      new Note for the principal amount of this Note so mutilated, lost, stolen or
      destroyed but only upon receipt of evidence of such loss, theft or destruction
      of such Note, and of the ownership hereof, and indemnity, if requested, all
      reasonably satisfactory to the Obligor.

     

    Section
      9. Except
      for the ABF Loan and the Vision Opportunity Master Fund Ltd. Loan (in the
      principal amount of $750,000), no indebtedness of the Obligor is senior to
      this
      Note in right of payment, whether with respect to interest, damages or upon
      liquidation or dissolution or otherwise. Without the Holder’s consent, the
      Obligor will not and will not permit any of their subsidiaries to, directly
      or
      indirectly, enter into, create, incur, assume or suffer to exist any
      indebtedness of any kind, on or with respect to any of its property or assets
      now owned or hereafter acquired or any interest therein or any income or profits
      there from that is senior in any respect to the obligations of the Obligor
      under
      this Note.

     

    Section
      10. This
      Note
      shall be governed by and construed in accordance with the laws of the State
      of
      New York, without giving effect to conflicts of laws thereof. Each of the
      parties consents to the jurisdiction of the Courts of the State of New York
      sitting in New York County, New York and the U.S. District Court for the
      Southern District of New York in connection with any dispute arising under
      this
      Note and hereby waives, to the maximum extent permitted by law, any objection,
      including any objection based on forum non conveniens
      to the
      bringing of any such proceeding in such jurisdictions. 

     

    Section
      11. If
      the
      Obligor fails to comply with the terms of this Note, then the Obligor shall
      reimburse the Holder promptly for all fees, costs and expenses, including,
      without limitation, attorneys’ fees and expenses incurred by the Holder in any
      action in connection with this Note, including, without limitation, those
      incurred: (i) during any workout, attempted workout, and/or in connection with
      the rendering of legal advice as to the Holder’s rights, remedies and
      obligations, (ii) collecting any sums which become due to the Holder, (iii)
      defending or prosecuting any proceeding or any counterclaim to any proceeding
      or
      appeal; or (iv) the protection, preservation or enforcement of any rights or
      remedies of the Holder.

     

    Section
      12. Any
      waiver by the Holder of a breach of any provision of this Note shall not operate
      as or be construed to be a waiver of any other breach of such provision or
      of
      any breach of any other provision of this Note. The failure of the Holder to
      insist upon strict adherence to any term of this Note on one or more occasions
      shall not be considered a waiver or deprive that party of the right thereafter
      to insist upon strict adherence to that term or any other term of this Note.
      Any
      waiver must be in writing.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Section
      13. If
      any
      provision of this Note is invalid, illegal or unenforceable, the balance of
      this
      Note shall remain in effect, and if any provision is inapplicable to any person
      or circumstance, it shall nevertheless remain applicable to all other persons
      and circumstances. If it shall be found that any interest or other amount deemed
      interest due hereunder shall violate applicable laws governing usury, the
      applicable rate of interest due hereunder shall automatically be lowered to
      equal the maximum permitted rate of interest. The Obligor covenants (to the
      extent that it may lawfully do so) that it shall not at any time insist upon,
      plead, or in any manner whatsoever claim or take the benefit or advantage of,
      any stay, extension or usury law or other law which would prohibit or forgive
      the Obligor from paying all or any portion of the principal of or interest
      on
      this Note as contemplated herein, wherever enacted, now or at any time hereafter
      in force, or which may affect the covenants or the performance of this
      indenture, and the Obligor (to the extent it may lawfully do so) hereby
      expressly waives all benefits or advantage of any such law, and covenants that
      it will not, by resort to any such law, hinder, delay or impeded the execution
      of any power herein granted to the Holder, but will suffer and permit the
      execution of every such as though no such law has been enacted.

     

    Section
      14. Whenever
      any payment or other obligation hereunder shall be due on a day other than
      a
      Business Day, such payment shall be made on the next succeeding Business
      Day.

     

    Section
      15. THE
      PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY
      OF
      THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON
      OR
      ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
      DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL
      OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT
      FOR
      THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.

     

    [REMAINDER
      OF PAGE INTENTIONLLY LEFT BLANK]

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF,
      the
      Obligor has caused this Convertible Note to be duly executed by a duly
      authorized officer as of the date set forth above.

     

    
      	 	
              SUB-URBAN
                BRANDS, INC.

               

            
	 	 
	 	
              By:____________________________

            
	 	
              Name: 

            
	 	
              Title: 

            

    

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      “A”

     

    NOTICE
      OF CONVERSION

     

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

     

    

    
      	
              TO:

               

            	 

    

    

    The
      undersigned hereby irrevocably elects to convert $___________________
of
      the
      principal amount of the above Note into Shares of Common Stock of Sub-Urban
      Industries, Inc., according to the conditions stated therein, as of the
      Conversion Date written below.

     

    
      	
              Conversion
                Date:

            	 
	 	 
	
              Applicable
                Conversion Price:

            	 
	 	 
	
              Signature:

            	 
	 	 
	
              Name:

            	 
	 	 
	
              Address:

            	 
	 	 
	
              Amount
                to be converted:

            	$
	 	 
	
              Amount
                of Note unconverted:

            	$
	 	 
	
              Conversion
                Price per share: 

            	$
	 	 
	Number
              of shares of Common Stock to be issued:	 
	 	 
	Please
              issue the shares of Common Stock in the following name and
              to the following address:	 
	 	 
	
              Issue
                to:

            	 
	 	 
	
              Authorized
                Signature:

            	 
	 	 
	
              Name:

            	 
	 	 
	
              Title:

            	 
	 	 
	
              Phone
                Number:

            	 
	 	 
	
              Broker
                DTC Participant Code:

            	 
	 	 
	
              Account
                Number:

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