Document:

BOD - Middleton

Exhibit
    10.4

    

    RESOLUTION
      OF

    THE
      BOARD OF DIRECTORS

    OF

    TEXTECHNOLOGIES,
      INC.

    

    The
      following is a true copy of the resolution duly adopted by the Board of
      Directors of the Corporation at a special meeting, notice to this meeting having
      been waived, held at 78 Marylebone High Street, London, UK on December
      1st,
      2006

     

    The
      Board
      of Directors who were present for this meeting & took active part therein
      were: 

    

    Peter
      Maddocks

     

    WHEREAS
      there has been presented to and considered by this meeting a Motion to mark
      the
      acquisition of Middleton Settlement, Ltd, by Textechnologies, 

     

    NOW
      THEREFORE BE IT RESOLVED that the corporation having considered this matter,
      has
      opened the floor to all those who voice a preference in the issue, has decided
      unanimously and RESOLVED that: the company approves said acquisition of
      Middleton Settlement into Textechnologies, Inc. 

     

    Peter
      Maddocks, Director of the corporation, hereby signifies by affixing his
      signature hereto that these directors have duly considered & voted on this
      matter and have resolved to effectuate this Motion commensurate with their
      fiduciary duties towards the corporation and in guidance upon the current
      bylaws. 

    
 

    DATED:
      December 1st,
      2006

     

    

    _________________________

    David
      E.
      Price, Esq.; secretaryBOD - Middleton

    Exhibit
      10.5

     

    RESOLUTION
      OF
THE
      BOARD OF DIRECTORS

    OF

    TEXTECHNOLOGIES,
      INC

    

    The
      following is a true copy of the resolution duly adopted by the Board of
      Directors of this Corporation at a special meeting, notice to this meeting
      having been waived, held at 31-32 Ely Place, London, UK on August 7th,
      2006

     

    The
      Board
      of Directors who were present for this meeting & took active part therein
      were: 

    

    Peter
      Maddocks 

     

    WHEREAS
      there has been presented to and considered by this meeting a Motion to allocate
      certain shares of stock in recompense for capital contributions, 

    

    NOW
      THEREFORE BE IT RESOLVED that the corporation having considered this matter,
      has
      opened the floor to all those who voice a preference in the issue, has decided
      unanimously and RESOLVED that: 

    

    In
      light
      of accounting showing a total capital contribution by Charms Investments, Ltd.,
      of approximately $34,000- to date, Textechnologies hereby issues 25,400,000
      class A shares to Charms Investments, Ltd. in full consideration of said
      contributions. 

    

     

    DATED:
      August 7th,
      2006

     

    

    __________________________

    David
      E.
      Price, Esq.; secretaryCallabel Notes

    Exhibit
      10.6

     

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

     

    

     

    CALLABLE
      SECURED CONVERTIBLE NOTE

     

    Rockville,
      Maryland

    
      
        	September 28, 2006	
                $45,000

              

      

    

     

    FOR
      VALUE RECEIVED,
      TEXTECHNOLOGIES INC.,
      a
      Delaware corporation (hereinafter called the “Borrower”),
      hereby promises to pay to the order of AJW PARTNERS, LLC or registered assigns
      (the “Holder”)
      the
      sum of $45,000, on September 28, 2009 (the “Maturity
      Date”),
      and
      to pay interest on the unpaid principal balance hereof at the rate of six
      percent (6%) (the “Interest
      Rate”)
      per
      annum from September 28, 2006 (the “Issue
      Date”)
      until
      the same becomes due and payable, whether at maturity or upon acceleration
      or by
      prepayment or otherwise. Any amount of principal or interest on this Note which
      is not paid when due shall bear interest at the rate of fifteen percent (15%)
      per annum from the due date thereof until the same is paid (“Default
      Interest”).
      Interest shall commence accruing on the Issue Date, shall be computed on the
      basis of a 365-day year and the actual number of days elapsed and shall be
      payable quarterly provided that no interest shall be due and payable for any
      month in which the Trading Price (as such term is defined below) is greater
      than
      $1.5625 for each Trading Day (as such term is defined below) of the month.
      All
      payments due hereunder (to the extent not converted into common stock, $.001
      par
      value per share (the “Common
      Stock”)
      in
      accordance with the terms hereof) shall be made in lawful money of the United
      States of America. All payments shall be made at such address as the Holder
      shall hereafter give to the Borrower by written notice made in accordance with
      the provisions of this Note. Whenever any amount expressed to be due by the
      terms of this Note is due on any day which is not a business day, the same
      shall
      instead be due on the next succeeding day which is a business day and, in the
      case of any interest payment date which is not the date on which this Note
      is
      paid in full, the extension of the due date thereof shall not be taken into
      account for purposes of determining the amount of interest due on such date.
      As
      used in this Note, the term “business day” shall mean any day other than a
      Saturday, Sunday or a day on which commercial banks in the city of New York,
      New
      York are authorized or required by law or executive order to remain closed.
      Each
      capitalized term used herein, and not otherwise defined, shall have the meaning
      ascribed thereto in that certain Securities Purchase Agreement, dated September
      28, 2006, pursuant to which this Note was originally issued (the “Purchase
      Agreement”).

     

    This
      Note
      is free from all taxes, liens, claims and encumbrances with respect to the
      issue
      thereof and shall not be subject to preemptive rights or other similar rights
      of
      shareholders of the Borrower and will not impose personal liability upon the
      holder thereof. The obligations of the Borrower under this Note shall be secured
      by that certain Security Agreement and Intellectual Property Security Agreement,
      each dated September 28, 2006 by and between the Borrower and the
      Holder.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    The
      following terms shall apply to this Note:

     

    ARTICLE
      I. CONVERSION
      RIGHTS

     

    1.1    Conversion
      Right.
      The
      Holder shall have the right from time to time, and at any time on or prior
      to
      the earlier of (i) the Maturity Date and (ii) the date of payment of the Default
      Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III,
      the Optional Prepayment Amount (as defined in Section 5.1 or any payments
      pursuant to Section 1.7, each in respect of the remaining outstanding principal
      amount of this Note to convert all or any part of the outstanding and unpaid
      principal amount of this Note into fully paid and non-assessable shares of
      Common Stock, as such Common Stock exists on the Issue Date, or any shares
      of
      capital stock or other securities of the Borrower into which such Common Stock
      shall hereafter be changed or reclassified at the conversion price (the
“Conversion
      Price”)
      determined as provided herein (a “Conversion”);
      provided,
      however,
      that in
      no event shall the Holder be entitled to convert any portion of this Note in
      excess of that portion of this Note upon conversion of which the sum of (1)
      the
      number of shares of Common Stock beneficially owned by the Holder and its
      affiliates (other than shares of Common Stock which may be deemed beneficially
      owned through the ownership of the unconverted portion of the Notes or the
      unexercised or unconverted portion of any other security of the Borrower
      (including, without limitation, the warrants issued by the Borrower pursuant
      to
      the Purchase Agreement) subject to a limitation on conversion or exercise
      analogous to the limitations contained herein) and (2) the number of shares
      of
      Common Stock issuable upon the conversion of the portion of this Note with
      respect to which the determination of this proviso is being made, would result
      in beneficial ownership by the Holder and its affiliates of more than 4.99%
      of
      the outstanding shares of Common Stock and provided further
      that the
      Holder shall not be entitled to convert any portion of this Note during any
      month immediately succeeding a Determination Date on which the Borrower
      exercises its prepayment option pursuant to Section 5.2 of this Note. For
      purposes of the proviso to the immediately preceding sentence, beneficial
      ownership shall be determined in accordance with Section 13(d) of the Securities
      Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except
      as
      otherwise provided in clause (1) of such proviso. The number of shares of Common
      Stock to be issued upon each conversion of this Note shall be determined by
      dividing the Conversion Amount (as defined below) by the applicable Conversion
      Price then in effect on the date specified in the notice of conversion, in
      the
      form attached hereto as Exhibit A (the “Notice
      of Conversion”),
      delivered to the Borrower by the Holder in accordance with Section 1.4 below;
      provided that the Notice of Conversion is submitted by facsimile (or by other
      means resulting in, or reasonably expected to result in, notice) to the Borrower
      before 6:00 p.m., New York, New York time on such conversion date (the
“Conversion
      Date”).
      The
      term “Conversion
      Amount”
means,
      with respect to any conversion of this Note, the sum of (1) the principal amount
      of this Note to be converted in such conversion plus
      (2)
      accrued and unpaid interest, if any, on such principal amount at the interest
      rates provided in this Note to the Conversion Date, provided, however, that
      the
      Company shall have the right to pay any or all interest in cash plus
      (3)
      Default Interest, if any, on the amounts referred to in the immediately
      preceding clauses (1) and/or (2) plus
      (4) at
      the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and
      1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights
      Agreement, dated as of September 28, 2006, executed in connection with the
      initial issuance of this Note and the other Notes issued on the Issue Date
      (the
“Registration
      Rights Agreement”).
      The
      term “Determination
      Date” means
      the
      last business day of each month after the Issue Date.

     

    
      
        
        

      

      
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    1.2    Conversion
      Price.

     

    (a)    Calculation
      of Conversion Price.
      The
      Conversion Price shall be the lesser of (i) the Variable Conversion Price (as
      defined herein) and (ii) the Fixed Conversion Price (as defined herein)
      (subject, in each case, to equitable adjustments for stock splits, stock
      dividends or rights offerings by the Borrower relating to the Borrower’s
      securities or the securities of any subsidiary of the Borrower, combinations,
      recapitalization, reclassifications, extraordinary distributions and similar
      events). The “Variable
      Conversion Price”
shall
      mean the Applicable Percentage (as defined herein) multiplied by the Market
      Price (as defined herein). “Market
      Price”
means
      the average of the lowest three (3) Trading Prices (as defined below) for the
      Common Stock during the twenty (20) Trading Day period ending one Trading Day
      prior to the date the Conversion Notice is sent by the Holder to the Borrower
      via facsimile (the “Conversion
      Date”).
      “Trading
      Price”
means,
      for any security as of any date, the intraday trading price on the
      Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”)
      as
      reported by a reliable reporting service (“Reporting
      Service”)
      mutually acceptable to Borrower and Holder and hereafter designated by Holders
      of a majority in interest of the Notes and the Borrower or, if the OTCBB is
      not
      the principal trading market for such security, the intraday trading price
      of
      such security on the principal securities exchange or trading market where
      such
      security is listed or traded or, if no intraday trading price of such security
      is available in any of the foregoing manners, the average of the intraday
      trading prices of any market makers for such security that are listed in the
      “pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot
      be calculated for such security on such date in the manner provided above,
      the
      Trading Price shall be the fair market value as mutually determined by the
      Borrower and the holders of a majority in interest of the Notes being converted
      for which the calculation of the Trading Price is required in order to determine
      the Conversion Price of such Notes. “Trading
      Day”
shall
      mean any day on which the Common Stock is traded for any period on the OTCBB,
      or
      on the principal securities exchange or other securities market on which the
      Common Stock is then being traded. “Applicable
      Percentage”
shall
      mean 50%; provided, however, that the Applicable Percentage shall be increased
      to (i) 55% in the event that the Registration Statement (as defined in the
      Registration Rights Agreement) is filed on or before the Filing Date (as defined
      in the in the Registration Rights Agreement) and (ii) 60% in the event that
      the
      Registration Statement (as defined in the Registration Rights Agreement) becomes
      effective on or before the Effectiveness Deadline (as defined in the
      Registration Rights Agreement). In addition, the Holder agrees that it will
      limit all of its conversions to no more than the greater of (1) $80,000 per
      calendar month; or (2) the average daily dollar volume calculated during the
      ten
      (10) business days prior to a conversion, per conversion.

     

    
      
        
        

      

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

     

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

     

    If,
      at
      any time a Holder of this Note submits a Notice of Conversion, and the Borrower
      does not have sufficient authorized but unissued shares of Common Stock
      available to effect such conversion in accordance with the provisions of this
      Article I (a “Conversion
      Default”),
      subject to Section 4.8, the Borrower shall issue to the Holder all of the shares
      of Common Stock which are then available to effect such conversion. The portion
      of this Note which the Holder included in its Conversion Notice and which
      exceeds the amount

     

    
      
        
        

      

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

    

     

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

     

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

     

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

     

    
      
        
        

      

      
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    1.4    Method
      of Conversion.

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

    (g)    Failure
      to Deliver Common Stock Prior to Deadline.
      Without
      in any way limiting the Holder’s right to pursue other remedies, including
      actual damages and/or equitable relief, the parties agree that if delivery
      of
      the Common Stock issuable upon conversion of this Note is more than three (3)
      business days after the Deadline (other than a failure due to the circumstances
      described in Section 1.3 above, which failure shall be governed by such Section)
      the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond
      the Deadline that the Borrower fails to deliver such Common Stock. Such cash
      amount shall be paid to Holder by the fifth day of the month following the
      month
      in which it has accrued or, at the option of the Holder (by written notice
      to
      the Borrower by the first day of the month following the month in which it
      has
      accrued), shall be added to the principal amount of this Note, in which event
      interest shall accrue thereon in accordance with the terms of this Note and
      such
      additional principal amount shall be convertible into Common Stock in accordance
      with the terms of this Note.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    1.6    Effect
      of Certain Events.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    1.7    Trading
      Market Limitations.
      Unless
      permitted by the applicable rules and regulations of the principal securities
      market on which the Common Stock is then listed or traded, in no event shall
      the
      Borrower issue upon conversion of or otherwise pursuant to this Note and the
      other Notes issued pursuant to the Purchase Agreement more than the maximum
      number of shares of Common Stock that the Borrower can issue pursuant to any
      rule of the principal United States securities market on which the Common Stock
      is then traded (the “Maximum
      Share Amount”),
      which
      shall be 19.99% of the total shares outstanding on the Closing Date (as defined
      in the Purchase Agreement), subject to equitable adjustment from time to time
      for stock splits, stock dividends, combinations, capital reorganizations and
      similar events relating to the Common Stock occurring after the date hereof.
      Once the Maximum Share Amount has been issued (the date of which is hereinafter
      referred to as the “Maximum
      Conversion Date”),
      if
      the Borrower fails to eliminate any prohibitions under applicable law or the
      rules or regulations of any stock exchange, interdealer quotation system or
      other self-regulatory organization with jurisdiction over the Borrower or any
      of
      its securities on the Borrower’s ability to issue shares of Common Stock in
      excess of the Maximum Share Amount (a “Trading
      Market Prepayment Event”),
      in
      lieu of any further right to convert this Note, and in full satisfaction of
      the
      Borrower’s obligations under this Note, the Borrower shall pay to the Holder,
      within fifteen (15) business days of the Maximum Conversion Date (the
“Trading
      Market Prepayment Date”),
      an
      amount equal to 130% times
      the
sum
      of (a)
      the then outstanding principal amount of this Note immediately following the
      Maximum Conversion Date, plus
      (b)
      accrued and unpaid interest on the unpaid principal amount of this Note to
      the
      Trading Market Prepayment Date, plus
      (c)
      Default Interest, if any, on the amounts referred to in clause (a) and/or (b)
      above, plus
      (d) any
      optional amounts that may be added thereto at the Maximum Conversion Date by
      the
      Holder in accordance with the terms hereof (the then outstanding principal
      amount of this Note immediately following the Maximum Conversion Date,
plus
      the
      amounts referred to in clauses (b), (c) and (d) above

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

       

      shall
        collectively be referred to as the “Remaining
        Convertible Amount”).
        With
        respect to each Holder of Notes, the Maximum Share Amount shall refer to
        such
        Holder’s pro rata
        share
        thereof determined in accordance with Section 4.8 below. In the event that
        the
        sum of (x) the aggregate number of shares of Common Stock issued upon conversion
        of this Note and the other Notes issued pursuant to the Purchase Agreement
        plus
        (y) the
        aggregate number of shares of Common Stock that remain issuable upon conversion
        of this Note and the other Notes issued pursuant to the Purchase Agreement,
        represents at least one hundred percent (100%) of the Maximum Share Amount
        (the
“Triggering
        Event”),
        the
        Borrower will use its best efforts to seek and obtain Shareholder Approval
        (or
        obtain such other relief as will allow conversions hereunder in excess of
        the
        Maximum Share Amount) as soon as practicable following the Triggering Event
        and
        before the Maximum Conversion Date. As used herein, “Shareholder
        Approval”
means
        approval by the shareholders of the Borrower to authorize the issuance of
        the
        full number of shares of Common Stock which would be issuable upon full
        conversion of the then outstanding Notes but for the Maximum Share
        Amount.

    

     

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

     

    ARTICLE
      II. CERTAIN
      COVENANTS

     

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

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    ARTICLE
      III. EVENTS
      OF DEFAULT

     

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

     

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

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    3.2    Conversion
      and the Shares.
      The
      Borrower fails to issue shares of Common Stock to the Holder (or announces
      or
      threatens that it will not honor its obligation to do so) upon exercise by
      the
      Holder of the conversion rights of the Holder in accordance with the terms
      of
      this Note (for a period of at least sixty (60) days, if such failure is solely
      as a result of the circumstances governed by Section 1.3 and the Borrower is
      using its best efforts to authorize a sufficient number of shares of Common
      Stock as soon as practicable), fails to transfer or cause its transfer agent
      to
      transfer (electronically or in certificated form) any certificate for shares
      of
      Common Stock issued to the Holder upon conversion of or otherwise pursuant
      to
      this Note as and when required by this Note or the Registration Rights
      Agreement, or fails to remove any restrictive legend (or to withdraw any stop
      transfer instructions in respect thereof) on any certificate for any shares
      of
      Common Stock issued to the Holder upon conversion of or otherwise pursuant
      to
      this Note as and when required by this Note or the Registration Rights Agreement
      (or makes any announcement, statement or threat that it does not intend to
      honor
      the obligations described in this paragraph) and any such failure shall continue
      uncured (or any announcement, statement or threat not to honor its obligations
      shall not be rescinded in writing) for three (3) days after the Borrower shall
      have been notified thereof in writing by the
      Holder;

     

    3.3    Failure
      to Timely File Registration or Effect Registration.
      The
      Borrower fails to file the Registration Statement within forty-five (45) days
      following the Closing Date (as defined in the Purchase Agreement) or obtain
      effectiveness with the Securities and Exchange Commission of the Registration
      Statement within one hundred twenty (120) days following the Closing Date (as
      defined in the Purchase Agreement) or such Registration Statement lapses in
      effect (or sales cannot otherwise be made thereunder effective, whether by
      reason of the Borrower’s failure to amend or supplement the prospectus included
      therein
      in
      accordance with the Registration Rights Agreement or otherwise) for more than
      ten (10) consecutive days or twenty (20) days in any twelve month period after
      the Registration Statement becomes effective;

     

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

     

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

     

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

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    3.7  Judgments.
      Any
      money judgment, writ or similar process shall be entered or filed against the
      Borrower or any subsidiary of the Borrower or any of its property or other
      assets for more than $250,000, and shall remain unvacated, unbonded or unstayed
      for a period of twenty (20) days unless otherwise consented to by the Holder,
      which consent will not be unreasonably withheld;

     

    3.8    Bankruptcy.
      Bankruptcy, insolvency, reorganization or liquidation proceedings or other
      proceedings for relief under any bankruptcy law or any law for the relief of
      debtors shall be instituted by or against the Borrower or any subsidiary of
      the
      Borrower;

     

    3.9    Delisting
      of Common Stock.
      The
      Borrower shall fail to maintain the listing of the Common Stock on at least
      one
      of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market,
      the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock
      Exchange; or

     

    3.10   Default
      Under Other Notes.
      An Event
      of Default has occurred and is continuing under any of the other Notes issued
      pursuant to the Purchase Agreement, then, upon the occurrence and during the
      continuation of any Event of Default specified in Section 3.1, 3.2, 3.3, 3.4,
      3.5, 3.7, 3.9, or 3.10, at the option of the Holders of a majority of the
      aggregate principal amount of the outstanding Notes issued pursuant to the
      Purchase Agreement exercisable through the delivery of written notice to the
      Borrower by such Holders (the “Default
      Notice”),
      and
      upon the occurrence of an Event of Default specified in Section 3.6 or 3.8,
      the
      Notes shall become immediately due and payable and the Borrower shall pay to
      the
      Holder, in full satisfaction of its obligations hereunder, an amount equal
      to
      the greater of (i) 140% times
      the
sum
      of (w)
      the then outstanding principal amount of this Note plus
      (x)
      accrued and unpaid interest on the unpaid principal amount of this Note to
      the
      date of payment (the “Mandatory
      Prepayment Date”)
      plus
      (y)
      Default Interest, if any, on the amounts referred to in clauses (w) and/or
      (x)
plus
      (z) any
      amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
      pursuant to Section 2(c) of the Registration Rights Agreement (the then
      outstanding principal amount of this Note to the date of payment plus
      the
      amounts referred to in clauses (x), (y) and (z) shall collectively be known
      as
      the “Default
      Sum”)
      or
      (ii) the “parity value” of the Default Sum to be prepaid, where parity value
      means (a) the highest number of shares of Common Stock issuable upon conversion
      of or otherwise pursuant to such Default Sum in accordance with Article I,
      treating the Trading Day immediately preceding the Mandatory Prepayment Date
      as
      the “Conversion Date” for purposes of determining the lowest applicable
      Conversion Price, unless the Default Event arises as a result of a breach in
      respect of a specific Conversion Date in which case such Conversion Date shall
      be the Conversion Date), multiplied
      by
      (b) the
      highest Closing Price for the Common Stock during the period beginning on the
      date of first occurrence of the Event of Default and ending one day prior to
      the
      Mandatory Prepayment Date (the “Default
      Amount”)
      and
      all other amounts payable hereunder shall immediately become due and payable,
      all without demand, presentment or notice, all of which hereby are expressly
      waived, together with all costs, including, without limitation, legal fees
      and
      expenses, of collection, and the Holder shall be entitled to exercise all other
      rights and remedies available at law or in equity. If the Borrower fails to
      pay
      the Default Amount within five (5) business days of written notice that such
      amount is due and payable, then the Holder shall have the right at any time,
      so
      long as the Borrower remains in default (and so long and to the extent that
      there are sufficient authorized shares), to require the Borrower, upon written
      notice, to immediately issue, in lieu of the Default Amount, the number of
      shares of Common Stock of the Borrower equal to the Default Amount divided
      by
      the Conversion Price then in effect.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      IV. MISCELLANEOUS

     

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

     

    4.2    Notices.
      Any
      notice herein required or permitted to be given shall be in writing and may
      be
      personally served or delivered by courier or sent by United States mail and
      shall be deemed to have been given upon receipt if personally served (which
      shall include telephone line facsimile transmission) or sent by courier or
      three
      (3) days after being deposited in the United States mail, certified, with
      postage pre-paid and properly addressed, if sent by mail. For the purposes
      hereof, the address of the Holder shall be as shown on the records of the
      Borrower; and the address of the Borrower shall be 13520 Oriental Street,
      Rockville, MD 20853, facsimile number: (301)
      560-6665. Both the Holder and the Borrower may change the address for service
      by
      service of written notice to the other as herein provided.

     

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

     

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

     

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

     

    4.6    Governing
      Law.
      THIS
      NOTE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
      OF
      THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
      WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE
      BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND UNITED
      STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE
      ARISING UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH
      OR
      THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE
      THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT
      OR

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

       

      PROCEEDING.
        BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY
        FIRST
        CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS
        UPON
        THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER
        PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH
        PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR
        PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS
        BY
        SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES
        NOT
        PREVAIL IN ANY DISPUTE ARISING UNDER THIS NOTE SHALL BE RESPONSIBLE FOR ALL
        FEES
        AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN
        CONNECTION WITH SUCH DISPUTE.

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      V. CALL
      OPTION

     

    5.1    Call
      Option.
      Notwithstanding anything to the contrary contained in this Article V, so long
      as
(i) no
      Event of Default or Trading Market Prepayment Event shall have occurred and
      be
      continuing, (ii) the
      Borrower has a sufficient number of authorized shares of Common Stock reserved
      for issuance upon full conversion of the Notes, then at any time after the
      Issue
      Date, and (iii) the
      Common Stock is trading at or below $[ ] per share, the Borrower shall have
      the
      right, exercisable on not less than three (3) Trading Days prior written notice
      to the Holders of the Notes (which notice may not be sent to the Holders of
      the
      Notes until the Borrower is permitted to prepay the Notes pursuant to this
      Section 5.1), to prepay all of the outstanding Notes in accordance with this
      Section 5.1. Any notice of prepayment hereunder (an “Optional
      Prepayment”)
      shall
      be delivered to the Holders of the Notes at their registered addresses appearing
      on the books and records of the Borrower and shall state (1) that the Borrower
      is exercising its right to prepay all of the Notes issued on the Issue Date
      and
      (2) the date of prepayment (the “Optional
      Prepayment Notice”).
      On
      the date fixed for prepayment (the “Optional
      Prepayment Date”),
      the
      Borrower shall make payment of the Optional Prepayment Amount (as defined below)
      to or upon the order of the Holders as specified by the Holders in writing
      to
      the Borrower at least one (1) business day prior to the Optional Prepayment
      Date. If the Borrower exercises its right to prepay the Notes, the Borrower
      shall make payment to the holders of an amount in cash (the “Optional
      Prepayment Amount”)
      equal
      to either (i) 120% (for prepayments occurring within thirty (30) days of
      the Issue Date), (ii) 130% for prepayments occurring between thirty-one
      (31) and sixty (60) days of the Issue Date, or (iii) 140% (for prepayments
      occurring after the sixtieth (60th)
      day
      following the Issue Date), multiplied by the sum of (w) the then outstanding
      principal amount of this Note plus
      (x) accrued and unpaid interest on the unpaid principal amount of this Note
      to the Optional Prepayment Date plus
      (y)
      Default Interest, if any, on the amounts referred to in clauses (w) and (x)
      plus
      (z) any
      amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
      pursuant to Section 2(c) of the Registration Rights Agreement (the then
      outstanding principal amount of this Note to the date of payment plus
      the
      amounts referred to in clauses (x), (y) and (z) shall collectively be known
      as
      the “Optional
      Prepayment Sum”).
      Notwithstanding notice of an Optional Prepayment, the Holders shall at all
      times
      prior to the Optional Prepayment Date maintain the right to convert all or
      any
      portion of the Notes in accordance with Article I and any portion of Notes
      so
      converted after receipt of an Optional Prepayment Notice and prior to the
      Optional Prepayment Date set forth in such notice and payment of the aggregate
      Optional Prepayment Amount shall be deducted from the principal amount of Notes
      which are otherwise subject to prepayment pursuant to such notice. If the
      Borrower delivers an Optional Prepayment Notice and fails to pay the Optional
      Prepayment Amount due to the Holders of the Notes within two (2) business days
      following the Optional Prepayment Date, the Borrower shall forever forfeit
      its
      right to redeem the Notes pursuant to this Section 5.1.

     

    5.2    Partial
      Call Option.
      Notwithstanding anything to the contrary contained in this Article V, in the
      event that the Average Daily Price of the Common Stock, as reported by the
      Reporting Service, for each day of the month ending on any Determination Date
      is
      below the Initial Market Price, the Borrower may, at its option, prepay a
      portion of the outstanding principal amount of the Notes equal to 104% of the
      principal amount hereof divided by thirty-six (36) plus one month’s interest
      which will stay all conversions for that month. The term “Initial
      Market Price”
      means
      shall mean the volume weighted average price of the Common Stock for the five
      (5) Trading Days immediately preceding the Closing which is $1.25. 

     

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      Borrower has caused this Note to be signed in its name by its duly authorized
      officer this 28th
      day of
      September, 2006.

     

    
      	 	TEXTECHNOLOGIES
              INC.
	 	 
	 	 
	 	
              By:
                /s/ Peter
                Maddocks                                      

              Peter
                Maddocks

              Chief
                Executive Officer 

            

    

    

     

     

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
      A

     

    NOTICE
      OF CONVERSION

    (To
      be
      Executed by the Registered Holder

    in
      order
      to Convert the Notes)

     

    The
      undersigned hereby irrevocably elects to convert $__________ principal amount
      of
      the Note (defined below) into shares of common stock, par value [ ] per share
      (“Common
      Stock”),
      of
      Textechnologies Inc., a Delaware corporation (the “Borrower”)
      according to the conditions of the convertible Notes of the Borrower dated
      as of
      September 28, 2006 (the “Notes”),
      as of
      the date written below. If securities are to be issued in the name of a person
      other than the undersigned, the undersigned will pay all transfer taxes payable
      with respect thereto and is delivering herewith such certificates. No fee will
      be charged to the Holder for any conversion, except for transfer taxes, if
      any.
      A copy of each Note is attached hereto (or evidence of loss, theft or
      destruction thereof).

     

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

     

    Name
      of
      DTC Prime
      Broker:________________________________________________________________________________________

    Account
      Number:_______________________________________________________________________________________________

     

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

     

    Name:________________________________________________________________________________________________________

    Address:______________________________________________________________________________________________________

     

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

     

    
      
        Date
          of
          Conversion:__________________________________________________________________________________

        Applicable
          Conversion
          Price:___________________________________________________________________________

        Number
          of
          Shares of Common Stock to be Issued Pursuant to Conversion
          of the Notes:_______________________________

        Signature:_________________________________________________________________________________________

        Name:____________________________________________________________________________________________

        Address:__________________________________________________________________________________________

         

      

    

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

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

     

     

     

     

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

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

       

      

       

      CALLABLE
        SECURED CONVERTIBLE NOTE

       

      
        Rockville,
          Maryland

        
          
            	September 28, 2006	
                    $150,000

                  

          

        

      

       

      FOR
        VALUE RECEIVED,
        TEXTECHNOLOGIES INC.,
        a
        Delaware corporation (hereinafter called the “Borrower”),
        hereby promises to pay to the order of AJW QUALIFIED PARTNERS, LLC or registered
        assigns (the “Holder”)
        the
        sum of $150,000, on September 28, 2009 (the “Maturity
        Date”),
        and
        to pay interest on the unpaid principal balance hereof at the rate of six
        percent (6%) (the “Interest
        Rate”)
        per
        annum from September 28, 2006 (the “Issue
        Date”)
        until
        the same becomes due and payable, whether at maturity or upon acceleration
        or by
        prepayment or otherwise. Any amount of principal or interest on this Note
        which
        is not paid when due shall bear interest at the rate of fifteen percent (15%)
        per annum from the due date thereof until the same is paid (“Default
        Interest”).
        Interest shall commence accruing on the Issue Date, shall be computed on
        the
        basis of a 365-day year and the actual number of days elapsed and shall be
        payable quarterly provided that no interest shall be due and payable for
        any
        month in which the Trading Price (as such term is defined below) is greater
        than
        $1.5625 for each Trading Day (as such term is defined below) of the month.
        All
        payments due hereunder (to the extent not converted into common stock, $.001
        par
        value per share (the “Common
        Stock”)
        in
        accordance with the terms hereof) shall be made in lawful money of the United
        States of America. All payments shall be made at such address as the Holder
        shall hereafter give to the Borrower by written notice made in accordance
        with
        the provisions of this Note. Whenever any amount expressed to be due by the
        terms of this Note is due on any day which is not a business day, the same
        shall
        instead be due on the next succeeding day which is a business day and, in
        the
        case of any interest payment date which is not the date on which this Note
        is
        paid in full, the extension of the due date thereof shall not be taken into
        account for purposes of determining the amount of interest due on such date.
        As
        used in this Note, the term “business day” shall mean any day other than a
        Saturday, Sunday or a day on which commercial banks in the city of New York,
        New
        York are authorized or required by law or executive order to remain closed.
        Each
        capitalized term used herein, and not otherwise defined, shall have the meaning
        ascribed thereto in that certain Securities Purchase Agreement, dated September
        28, 2006, pursuant to which this Note was originally issued (the “Purchase
        Agreement”).

       

      This
        Note
        is free from all taxes, liens, claims and encumbrances with respect to the
        issue
        thereof and shall not be subject to preemptive rights or other similar rights
        of
        shareholders of the Borrower and will not impose personal liability upon
        the
        holder thereof. The obligations of the Borrower under this Note shall be
        secured
        by that certain Security Agreement and Intellectual Property Security Agreement,
        each dated September 28, 2006 by and between the Borrower and the
        Holder.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      The
        following terms shall apply to this Note:

       

      ARTICLE
        I. CONVERSION
        RIGHTS

       

      1.1    Conversion
        Right.
        The
        Holder shall have the right from time to time, and at any time on or prior
        to
        the earlier of (i) the Maturity Date and (ii) the date of payment of the
        Default
        Amount (as defined in Article III) pursuant to Section 1.6(a) or Article
        III,
        the Optional Prepayment Amount (as defined in Section 5.1 or any payments
        pursuant to Section 1.7, each in respect of the remaining outstanding principal
        amount of this Note to convert all or any part of the outstanding and unpaid
        principal amount of this Note into fully paid and non-assessable shares of
        Common Stock, as such Common Stock exists on the Issue Date, or any shares
        of
        capital stock or other securities of the Borrower into which such Common
        Stock
        shall hereafter be changed or reclassified at the conversion price (the
“Conversion
        Price”)
        determined as provided herein (a “Conversion”);
        provided,
        however,
        that in
        no event shall the Holder be entitled to convert any portion of this Note
        in
        excess of that portion of this Note upon conversion of which the sum of (1)
        the
        number of shares of Common Stock beneficially owned by the Holder and its
        affiliates (other than shares of Common Stock which may be deemed beneficially
        owned through the ownership of the unconverted portion of the Notes or the
        unexercised or unconverted portion of any other security of the Borrower
        (including, without limitation, the warrants issued by the Borrower pursuant
        to
        the Purchase Agreement) subject to a limitation on conversion or exercise
        analogous to the limitations contained herein) and (2) the number of shares
        of
        Common Stock issuable upon the conversion of the portion of this Note with
        respect to which the determination of this proviso is being made, would result
        in beneficial ownership by the Holder and its affiliates of more than 4.99%
        of
        the outstanding shares of Common Stock and provided further
        that the
        Holder shall not be entitled to convert any portion of this Note during any
        month immediately succeeding a Determination Date on which the Borrower
        exercises its prepayment option pursuant to Section 5.2 of this Note. For
        purposes of the proviso to the immediately preceding sentence, beneficial
        ownership shall be determined in accordance with Section 13(d) of the Securities
        Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except
        as
        otherwise provided in clause (1) of such proviso. The number of shares of
        Common
        Stock to be issued upon each conversion of this Note shall be determined
        by
        dividing the Conversion Amount (as defined below) by the applicable Conversion
        Price then in effect on the date specified in the notice of conversion, in
        the
        form attached hereto as Exhibit A (the “Notice
        of Conversion”),
        delivered to the Borrower by the Holder in accordance with Section 1.4 below;
        provided that the Notice of Conversion is submitted by facsimile (or by other
        means resulting in, or reasonably expected to result in, notice) to the Borrower
        before 6:00 p.m., New York, New York time on such conversion date (the
“Conversion
        Date”).
        The
        term “Conversion
        Amount”
means,
        with respect to any conversion of this Note, the sum of (1) the principal
        amount
        of this Note to be converted in such conversion plus
        (2)
        accrued and unpaid interest, if any, on such principal amount at the interest
        rates provided in this Note to the Conversion Date, provided, however, that
        the
        Company shall have the right to pay any or all interest in cash plus
        (3)
        Default Interest, if any, on the amounts referred to in the immediately
        preceding clauses (1) and/or (2) plus
        (4) at
        the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and
        1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights
        Agreement, dated as of September 28, 2006, executed in connection with the
        initial issuance of this Note and the other Notes issued on the Issue Date
        (the
“Registration
        Rights Agreement”).
        The
        term “Determination
        Date” means
        the
        last business day of each month after the Issue Date.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      1.2    Conversion
        Price.

       

      (a)    Calculation
        of Conversion Price.
        The
        Conversion Price shall be the lesser of (i) the Variable Conversion Price
        (as
        defined herein) and (ii) the Fixed Conversion Price (as defined herein)
        (subject, in each case, to equitable adjustments for stock splits, stock
        dividends or rights offerings by the Borrower relating to the Borrower’s
        securities or the securities of any subsidiary of the Borrower, combinations,
        recapitalization, reclassifications, extraordinary distributions and similar
        events). The “Variable
        Conversion Price”
shall
        mean the Applicable Percentage (as defined herein) multiplied by the Market
        Price (as defined herein). “Market
        Price”
means
        the average of the lowest three (3) Trading Prices (as defined below) for
        the
        Common Stock during the twenty (20) Trading Day period ending one Trading
        Day
        prior to the date the Conversion Notice is sent by the Holder to the Borrower
        via facsimile (the “Conversion
        Date”).
        “Trading
        Price”
means,
        for any security as of any date, the intraday trading price on the
        Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”)
        as
        reported by a reliable reporting service (“Reporting
        Service”)
        mutually acceptable to Borrower and Holder and hereafter designated by Holders
        of a majority in interest of the Notes and the Borrower or, if the OTCBB
        is not
        the principal trading market for such security, the intraday trading price
        of
        such security on the principal securities exchange or trading market where
        such
        security is listed or traded or, if no intraday trading price of such security
        is available in any of the foregoing manners, the average of the intraday
        trading prices of any market makers for such security that are listed in
        the
“pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot
        be calculated for such security on such date in the manner provided above,
        the
        Trading Price shall be the fair market value as mutually determined by the
        Borrower and the holders of a majority in interest of the Notes being converted
        for which the calculation of the Trading Price is required in order to determine
        the Conversion Price of such Notes. “Trading
        Day”
shall
        mean any day on which the Common Stock is traded for any period on the OTCBB,
        or
        on the principal securities exchange or other securities market on which
        the
        Common Stock is then being traded. “Applicable
        Percentage”
shall
        mean 50%; provided, however, that the Applicable Percentage shall be increased
        to (i) 55% in the event that the Registration Statement (as defined in the
        Registration Rights Agreement) is filed on or before the Filing Date (as
        defined
        in the in the Registration Rights Agreement) and (ii) 60% in the event that
        the
        Registration Statement (as defined in the Registration Rights Agreement)
        becomes
        effective on or before the Effectiveness Deadline (as defined in the
        Registration Rights Agreement). In addition, the Holder agrees that it will
        limit all of its conversions to no more than the greater of (1) $80,000 per
        calendar month; or (2) the average daily dollar volume calculated during
        the ten
        (10) business days prior to a conversion, per conversion.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

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

       

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

       

      If,
        at
        any time a Holder of this Note submits a Notice of Conversion, and the Borrower
        does not have sufficient authorized but unissued shares of Common Stock
        available to effect such conversion in accordance with the provisions of
        this
        Article I (a “Conversion
        Default”),
        subject to Section 4.8, the Borrower shall issue to the Holder all of the
        shares
        of Common Stock which are then available to effect such conversion. The portion
        of this Note which the Holder included in its Conversion Notice and which
        exceeds the amount

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

         

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

      

       

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

       

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

       

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

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      1.4    Method
        of Conversion.

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

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

       

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

       

      (g)    Failure
        to Deliver Common Stock Prior to Deadline.
        Without
        in any way limiting the Holder’s right to pursue other remedies, including
        actual damages and/or equitable relief, the parties agree that if delivery
        of
        the Common Stock issuable upon conversion of this Note is more than three
        (3)
        business days after the Deadline (other than a failure due to the circumstances
        described in Section 1.3 above, which failure shall be governed by such Section)
        the Borrower shall pay to the Holder $2,000 per day in cash, for each day
        beyond
        the Deadline that the Borrower fails to deliver such Common Stock. Such cash
        amount shall be paid to Holder by the fifth day of the month following the
        month
        in which it has accrued or, at the option of the Holder (by written notice
        to
        the Borrower by the first day of the month following the month in which it
        has
        accrued), shall be added to the principal amount of this Note, in which event
        interest shall accrue thereon in accordance with the terms of this Note and
        such
        additional principal amount shall be convertible into Common Stock in accordance
        with the terms of this Note.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      1.6    Effect
        of Certain Events.

       

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

       

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

       

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

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

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

       

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

       

      1.7    Trading
        Market Limitations.
        Unless
        permitted by the applicable rules and regulations of the principal securities
        market on which the Common Stock is then listed or traded, in no event shall
        the
        Borrower issue upon conversion of or otherwise pursuant to this Note and
        the
        other Notes issued pursuant to the Purchase Agreement more than the maximum
        number of shares of Common Stock that the Borrower can issue pursuant to
        any
        rule of the principal United States securities market on which the Common
        Stock
        is then traded (the “Maximum
        Share Amount”),
        which
        shall be 19.99% of the total shares outstanding on the Closing Date (as defined
        in the Purchase Agreement), subject to equitable adjustment from time to
        time
        for stock splits, stock dividends, combinations, capital reorganizations
        and
        similar events relating to the Common Stock occurring after the date hereof.
        Once the Maximum Share Amount has been issued (the date of which is hereinafter
        referred to as the “Maximum
        Conversion Date”),
        if
        the Borrower fails to eliminate any prohibitions under applicable law or
        the
        rules or regulations of any stock exchange, interdealer quotation system
        or
        other self-regulatory organization with jurisdiction over the Borrower or
        any of
        its securities on the Borrower’s ability to issue shares of Common Stock in
        excess of the Maximum Share Amount (a “Trading
        Market Prepayment Event”),
        in
        lieu of any further right to convert this Note, and in full satisfaction
        of the
        Borrower’s obligations under this Note, the Borrower shall pay to the Holder,
        within fifteen (15) business days of the Maximum Conversion Date (the
“Trading
        Market Prepayment Date”),
        an
        amount equal to 130% times
        the
sum
        of (a)
        the then outstanding principal amount of this Note immediately following
        the
        Maximum Conversion Date, plus
        (b)
        accrued and unpaid interest on the unpaid principal amount of this Note to
        the
        Trading Market Prepayment Date, plus
        (c)
        Default Interest, if any, on the amounts referred to in clause (a) and/or
        (b)
        above, plus
        (d) any
        optional amounts that may be added thereto at the Maximum Conversion Date
        by the
        Holder in accordance with the terms hereof (the then outstanding principal
        amount of this Note immediately following the Maximum Conversion Date,
plus
        the
        amounts referred to in clauses (b), (c) and (d) above 

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

         

        shall
          collectively be referred to as the “Remaining
          Convertible Amount”).
          With
          respect to each Holder of Notes, the Maximum Share Amount shall refer to
          such
          Holder’s pro rata
          share
          thereof determined in accordance with Section 4.8 below. In the event that
          the
          sum of (x) the aggregate number of shares of Common Stock issued upon conversion
          of this Note and the other Notes issued pursuant to the Purchase Agreement
          plus
          (y) the
          aggregate number of shares of Common Stock that remain issuable upon conversion
          of this Note and the other Notes issued pursuant to the Purchase Agreement,
          represents at least one hundred percent (100%) of the Maximum Share Amount
          (the
“Triggering
          Event”),
          the
          Borrower will use its best efforts to seek and obtain Shareholder Approval
          (or
          obtain such other relief as will allow conversions hereunder in excess
          of the
          Maximum Share Amount) as soon as practicable following the Triggering Event
          and
          before the Maximum Conversion Date. As used herein, “Shareholder
          Approval”
means
          approval by the shareholders of the Borrower to authorize the issuance
          of the
          full number of shares of Common Stock which would be issuable upon full
          conversion of the then outstanding Notes but for the Maximum Share
          Amount.

      

       

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

       

      ARTICLE
        II. CERTAIN
        COVENANTS

       

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

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

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

       

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

       

      ARTICLE
        III. EVENTS
        OF DEFAULT

       

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

       

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

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      3.2    Conversion
        and the Shares.
        The
        Borrower fails to issue shares of Common Stock to the Holder (or announces
        or
        threatens that it will not honor its obligation to do so) upon exercise by
        the
        Holder of the conversion rights of the Holder in accordance with the terms
        of
        this Note (for a period of at least sixty (60) days, if such failure is solely
        as a result of the circumstances governed by Section 1.3 and the Borrower
        is
        using its best efforts to authorize a sufficient number of shares of Common
        Stock as soon as practicable), fails to transfer or cause its transfer agent
        to
        transfer (electronically or in certificated form) any certificate for shares
        of
        Common Stock issued to the Holder upon conversion of or otherwise pursuant
        to
        this Note as and when required by this Note or the Registration Rights
        Agreement, or fails to remove any restrictive legend (or to withdraw any
        stop
        transfer instructions in respect thereof) on any certificate for any shares
        of
        Common Stock issued to the Holder upon conversion of or otherwise pursuant
        to
        this Note as and when required by this Note or the Registration Rights Agreement
        (or makes any announcement, statement or threat that it does not intend to
        honor
        the obligations described in this paragraph) and any such failure shall continue
        uncured (or any announcement, statement or threat not to honor its obligations
        shall not be rescinded in writing) for three (3) days after the Borrower
        shall
        have been notified thereof in writing by the
        Holder;

       

      3.3    Failure
        to Timely File Registration or Effect Registration.
        The
        Borrower fails to file the Registration Statement within forty-five (45)
        days
        following the Closing Date (as defined in the Purchase Agreement) or obtain
        effectiveness with the Securities and Exchange Commission of the Registration
        Statement within one hundred twenty (120) days following the Closing Date
        (as
        defined in the Purchase Agreement) or such Registration Statement lapses
        in
        effect (or sales cannot otherwise be made thereunder effective, whether by
        reason of the Borrower’s failure to amend or supplement the prospectus included
        therein
        in
        accordance with the Registration Rights Agreement or otherwise) for more
        than
        ten (10) consecutive days or twenty (20) days in any twelve month period
        after
        the Registration Statement becomes effective;

       

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

       

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

       

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

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      3.7    Judgments.
        Any
        money judgment, writ or similar process shall be entered or filed against
        the
        Borrower or any subsidiary of the Borrower or any of its property or other
        assets for more than $250,000, and shall remain unvacated, unbonded or unstayed
        for a period of twenty (20) days unless otherwise consented to by the Holder,
        which consent will not be unreasonably withheld;

       

      3.8    Bankruptcy.
        Bankruptcy, insolvency, reorganization or liquidation proceedings or other
        proceedings for relief under any bankruptcy law or any law for the relief
        of
        debtors shall be instituted by or against the Borrower or any subsidiary
        of the
        Borrower;

       

      3.9    Delisting
        of Common Stock.
        The
        Borrower shall fail to maintain the listing of the Common Stock on at least
        one
        of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market,
        the Nasdaq SmallCap Market, the New York Stock Exchange, or the American
        Stock
        Exchange; or

       

      3.10  
Default
        Under Other Notes.
        An Event
        of Default has occurred and is continuing under any of the other Notes issued
        pursuant to the Purchase Agreement, then, upon the occurrence and during
        the
        continuation of any Event of Default specified in Section 3.1, 3.2, 3.3,
        3.4,
        3.5, 3.7, 3.9, or 3.10, at the option of the Holders of a majority of the
        aggregate principal amount of the outstanding Notes issued pursuant to the
        Purchase Agreement exercisable through the delivery of written notice to
        the
        Borrower by such Holders (the “Default
        Notice”),
        and
        upon the occurrence of an Event of Default specified in Section 3.6 or 3.8,
        the
        Notes shall become immediately due and payable and the Borrower shall pay
        to the
        Holder, in full satisfaction of its obligations hereunder, an amount equal
        to
        the greater of (i) 140% times
        the
sum
        of (w)
        the then outstanding principal amount of this Note plus
        (x)
        accrued and unpaid interest on the unpaid principal amount of this Note to
        the
        date of payment (the “Mandatory
        Prepayment Date”)
        plus
        (y)
        Default Interest, if any, on the amounts referred to in clauses (w) and/or
        (x)
plus
        (z) any
        amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
        pursuant to Section 2(c) of the Registration Rights Agreement (the then
        outstanding principal amount of this Note to the date of payment plus
        the
        amounts referred to in clauses (x), (y) and (z) shall collectively be known
        as
        the “Default
        Sum”)
        or
        (ii) the “parity value” of the Default Sum to be prepaid, where parity value
        means (a) the highest number of shares of Common Stock issuable upon conversion
        of or otherwise pursuant to such Default Sum in accordance with Article I,
        treating the Trading Day immediately preceding the Mandatory Prepayment Date
        as
        the “Conversion Date” for purposes of determining the lowest applicable
        Conversion Price, unless the Default Event arises as a result of a breach
        in
        respect of a specific Conversion Date in which case such Conversion Date
        shall
        be the Conversion Date), multiplied
        by
        (b) the
        highest Closing Price for the Common Stock during the period beginning on
        the
        date of first occurrence of the Event of Default and ending one day prior
        to the
        Mandatory Prepayment Date (the “Default
        Amount”)
        and
        all other amounts payable hereunder shall immediately become due and payable,
        all without demand, presentment or notice, all of which hereby are expressly
        waived, together with all costs, including, without limitation, legal fees
        and
        expenses, of collection, and the Holder shall be entitled to exercise all
        other
        rights and remedies available at law or in equity. If the Borrower fails
        to pay
        the Default Amount within five (5) business days of written notice that such
        amount is due and payable, then the Holder shall have the right at any time,
        so
        long as the Borrower remains in default (and so long and to the extent that
        there are sufficient authorized shares), to require the Borrower, upon written
        notice, to immediately issue, in lieu of the Default Amount, the number of
        shares of Common Stock of the Borrower equal to the Default Amount divided
        by
        the Conversion Price then in effect.

       

      
        
          
          

        

        
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      ARTICLE
        IV. MISCELLANEOUS

       

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

       

      4.2    Notices.
        Any
        notice herein required or permitted to be given shall be in writing and may
        be
        personally served or delivered by courier or sent by United States mail and
        shall be deemed to have been given upon receipt if personally served (which
        shall include telephone line facsimile transmission) or sent by courier or
        three
        (3) days after being deposited in the United States mail, certified, with
        postage pre-paid and properly addressed, if sent by mail. For the purposes
        hereof, the address of the Holder shall be as shown on the records of the
        Borrower; and the address of the Borrower shall be 13520 Oriental Street,
        Rockville, MD 20853, facsimile number: (301)
        560-6665. Both the Holder and the Borrower may change the address for service
        by
        service of written notice to the other as herein provided.

       

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

       

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

       

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

       

      4.6    Governing
        Law.
        THIS
        NOTE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
        LAWS OF
        THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
        WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
        THE
        BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND UNITED
        STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE
        ARISING UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH
        OR
        THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY
        WAIVE
        THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT
        OR

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

         

        PROCEEDING.
          BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED
          BY FIRST
          CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
          SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING
          HEREIN
          SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
          BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY
          SUCH SUIT
          OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS
          BY
          SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES
          NOT
          PREVAIL IN ANY DISPUTE ARISING UNDER THIS NOTE SHALL BE RESPONSIBLE FOR
          ALL FEES
          AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN
          CONNECTION WITH SUCH DISPUTE.

      

       

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

       

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

       

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

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        V. CALL
        OPTION

       

      5.1    Call
        Option.
        Notwithstanding anything to the contrary contained in this Article V, so
        long as
(i) no
        Event of Default or Trading Market Prepayment Event shall have occurred and
        be
        continuing, (ii) the
        Borrower has a sufficient number of authorized shares of Common Stock reserved
        for issuance upon full conversion of the Notes, then at any time after the
        Issue
        Date, and (iii) the
        Common Stock is trading at or below $[ ] per share, the Borrower shall have
        the
        right, exercisable on not less than three (3) Trading Days prior written
        notice
        to the Holders of the Notes (which notice may not be sent to the Holders
        of the
        Notes until the Borrower is permitted to prepay the Notes pursuant to this
        Section 5.1), to prepay all of the outstanding Notes in accordance with this
        Section 5.1. Any notice of prepayment hereunder (an “Optional
        Prepayment”)
        shall
        be delivered to the Holders of the Notes at their registered addresses appearing
        on the books and records of the Borrower and shall state (1) that the Borrower
        is exercising its right to prepay all of the Notes issued on the Issue Date
        and
        (2) the date of prepayment (the “Optional
        Prepayment Notice”).
        On
        the date fixed for prepayment (the “Optional
        Prepayment Date”),
        the
        Borrower shall make payment of the Optional Prepayment Amount (as defined
        below)
        to or upon the order of the Holders as specified by the Holders in writing
        to
        the Borrower at least one (1) business day prior to the Optional Prepayment
        Date. If the Borrower exercises its right to prepay the Notes, the Borrower
        shall make payment to the holders of an amount in cash (the “Optional
        Prepayment Amount”)
        equal
        to either (i) 120% (for prepayments occurring within thirty (30) days of
        the Issue Date), (ii) 130% for prepayments occurring between thirty-one
        (31) and sixty (60) days of the Issue Date, or (iii) 140% (for prepayments
        occurring after the sixtieth (60th)
        day
        following the Issue Date), multiplied by the sum of (w) the then outstanding
        principal amount of this Note plus
        (x) accrued and unpaid interest on the unpaid principal amount of this Note
        to the Optional Prepayment Date plus
        (y)
        Default Interest, if any, on the amounts referred to in clauses (w) and (x)
        plus
        (z) any
        amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
        pursuant to Section 2(c) of the Registration Rights Agreement (the then
        outstanding principal amount of this Note to the date of payment plus
        the
        amounts referred to in clauses (x), (y) and (z) shall collectively be known
        as
        the “Optional
        Prepayment Sum”).
        Notwithstanding notice of an Optional Prepayment, the Holders shall at all
        times
        prior to the Optional Prepayment Date maintain the right to convert all or
        any
        portion of the Notes in accordance with Article I and any portion of Notes
        so
        converted after receipt of an Optional Prepayment Notice and prior to the
        Optional Prepayment Date set forth in such notice and payment of the aggregate
        Optional Prepayment Amount shall be deducted from the principal amount of
        Notes
        which are otherwise subject to prepayment pursuant to such notice. If the
        Borrower delivers an Optional Prepayment Notice and fails to pay the Optional
        Prepayment Amount due to the Holders of the Notes within two (2) business
        days
        following the Optional Prepayment Date, the Borrower shall forever forfeit
        its
        right to redeem the Notes pursuant to this Section 5.1.

       

      5.2    Partial
        Call Option.
        Notwithstanding anything to the contrary contained in this Article V, in
        the
        event that the Average Daily Price of the Common Stock, as reported by the
        Reporting Service, for each day of the month ending on any Determination
        Date is
        below the Initial Market Price, the Borrower may, at its option, prepay a
        portion of the outstanding principal amount of the Notes equal to 104% of
        the
        principal amount hereof divided by thirty-six (36) plus one month’s interest
        which will stay all conversions for that month. The term “Initial
        Market Price”
        means
        shall mean the volume weighted average price of the Common Stock for the
        five
        (5) Trading Days immediately preceding the Closing which is $1.25. 

       

       

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT
        BLANK]

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

      

      IN
        WITNESS WHEREOF,
        Borrower has caused this Note to be signed in its name by its duly authorized
        officer this 28th
        day of
        September, 2006.

       

      
        
          	 	TEXTECHNOLOGIES
                  INC.
	 	 
	 	 
	 	
                  By:
                    /s/ Peter
                    Maddocks                                      

                  Peter
                    Maddocks

                  Chief
                    Executive Officer 

                

        

        

        
          
            
            

          

          
            20

            
              

            

          

          
            
            

          

        

      

      EXHIBIT
        A

       

      NOTICE
        OF CONVERSION

      (To
        be
        Executed by the Registered Holder

      in
        order
        to Convert the Notes)

       

      The
        undersigned hereby irrevocably elects to convert $__________ principal amount
        of
        the Note (defined below) into shares of common stock, par value [ ] per share
        (“Common
        Stock”),
        of
        Textechnologies Inc., a Delaware corporation (the “Borrower”)
        according to the conditions of the convertible Notes of the Borrower dated
        as of
        September 28, 2006 (the “Notes”),
        as of
        the date written below. If securities are to be issued in the name of a person
        other than the undersigned, the undersigned will pay all transfer taxes payable
        with respect thereto and is delivering herewith such certificates. No fee
        will
        be charged to the Holder for any conversion, except for transfer taxes, if
        any.
        A copy of each Note is attached hereto (or evidence of loss, theft or
        destruction thereof).

       

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

       

      
        Name
          of
          DTC Prime
          Broker:________________________________________________________________________________________

        Account
          Number:_______________________________________________________________________________________________

      

      
        
        

      

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

       

      
        Name:________________________________________________________________________________________________________

        Address:______________________________________________________________________________________________________

         

      

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

       

      
        
          Date
            of
            Conversion:__________________________________________________________________________________

          Applicable
            Conversion
            Price:___________________________________________________________________________

          Number
            of
            Shares of Common Stock to be Issued Pursuant to Conversion
            of the Notes:_______________________________

          Signature:_________________________________________________________________________________________

          Name:____________________________________________________________________________________________

          Address:__________________________________________________________________________________________

        

      

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

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

      
 

       

       

       

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

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

           

           

          CALLABLE
            SECURED CONVERTIBLE NOTE

           

          
            
              	
                      Rockville,
                        Maryland

                      September
                        28, 2006 

                    	
                       $300,000

                    

            

          

           

          FOR
            VALUE RECEIVED,
            TEXTECHNOLOGIES INC.,
            a
            Delaware corporation (hereinafter called the “Borrower”),
            hereby promises to pay to the order of AJW OFFSHORE, LTD. or registered
            assigns
            (the “Holder”)
            the
            sum of $300,000, on September 28, 2009 (the “Maturity
            Date”),
            and
            to pay interest on the unpaid principal balance hereof at the rate of
            six
            percent (6%) (the “Interest
            Rate”)
            per
            annum from September 28, 2006 (the “Issue
            Date”)
            until
            the same becomes due and payable, whether at maturity or upon acceleration
            or by
            prepayment or otherwise. Any amount of principal or interest on this
            Note which
            is not paid when due shall bear interest at the rate of fifteen percent
            (15%)
            per annum from the due date thereof until the same is paid (“Default
            Interest”).
            Interest shall commence accruing on the Issue Date, shall be computed
            on the
            basis of a 365-day year and the actual number of days elapsed and shall
            be
            payable quarterly provided that no interest shall be due and payable
            for any
            month in which the Trading Price (as such term is defined below) is greater
            than
            $1.5625 for each Trading Day (as such term is defined below) of the month.
            All
            payments due hereunder (to the extent not converted into common stock,
            $.001 par
            value per share (the “Common
            Stock”)
            in
            accordance with the terms hereof) shall be made in lawful money of the
            United
            States of America. All payments shall be made at such address as the
            Holder
            shall hereafter give to the Borrower by written notice made in accordance
            with
            the provisions of this Note. Whenever any amount expressed to be due
            by the
            terms of this Note is due on any day which is not a business day, the
            same shall
            instead be due on the next succeeding day which is a business day and,
            in the
            case of any interest payment date which is not the date on which this
            Note is
            paid in full, the extension of the due date thereof shall not be taken
            into
            account for purposes of determining the amount of interest due on such
            date. As
            used in this Note, the term “business day” shall mean any day other than a
            Saturday, Sunday or a day on which commercial banks in the city of New
            York, New
            York are authorized or required by law or executive order to remain closed.
            Each
            capitalized term used herein, and not otherwise defined, shall have the
            meaning
            ascribed thereto in that certain Securities Purchase Agreement, dated
            September
            28, 2006, pursuant to which this Note was originally issued (the “Purchase
            Agreement”).

           

          This
            Note
            is free from all taxes, liens, claims and encumbrances with respect to
            the issue
            thereof and shall not be subject to preemptive rights or other similar
            rights of
            shareholders of the Borrower and will not impose personal liability upon
            the
            holder thereof. The obligations of the Borrower under this Note shall
            be secured
            by that certain Security Agreement and Intellectual Property Security
            Agreement,
            each dated September 28, 2006 by and between the Borrower and the
            Holder.

           

          The
            following terms shall apply to this
            Note:

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

             

          

          ARTICLE
            I.  CONVERSION
            RIGHTS

           

          1.1  Conversion
            Right.
            The
            Holder shall have the right from time to time, and at any time on or
            prior to
            the earlier of (i) the Maturity Date and (ii) the date of payment of
            the Default
            Amount (as defined in Article III) pursuant to Section 1.6(a) or Article
            III,
            the Optional Prepayment Amount (as defined in Section 5.1 or any payments
            pursuant to Section 1.7, each in respect of the remaining outstanding
            principal
            amount of this Note to convert all or any part of the outstanding and
            unpaid
            principal amount of this Note into fully paid and non-assessable shares
            of
            Common Stock, as such Common Stock exists on the Issue Date, or any shares
            of
            capital stock or other securities of the Borrower into which such Common
            Stock
            shall hereafter be changed or reclassified at the conversion price (the
            “Conversion
            Price”)
            determined as provided herein (a “Conversion”);
            provided,
            however,
            that in
            no event shall the Holder be entitled to convert any portion of this
            Note in
            excess of that portion of this Note upon conversion of which the sum
            of (1) the
            number of shares of Common Stock beneficially owned by the Holder and
            its
            affiliates (other than shares of Common Stock which may be deemed beneficially
            owned through the ownership of the unconverted portion of the Notes or
            the
            unexercised or unconverted portion of any other security of the Borrower
            (including, without limitation, the warrants issued by the Borrower pursuant
            to
            the Purchase Agreement) subject to a limitation on conversion or exercise
            analogous to the limitations contained herein) and (2) the number of
            shares of
            Common Stock issuable upon the conversion of the portion of this Note
            with
            respect to which the determination of this proviso is being made, would
            result
            in beneficial ownership by the Holder and its affiliates of more than
            4.99% of
            the outstanding shares of Common Stock and provided further
            that the
            Holder shall not be entitled to convert any portion of this Note during
            any
            month immediately succeeding a Determination Date on which the Borrower
            exercises its prepayment option pursuant to Section 5.2 of this Note.
            For
            purposes of the proviso to the immediately preceding sentence, beneficial
            ownership shall be determined in accordance with Section 13(d) of the
            Securities
            Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except
            as
            otherwise provided in clause (1) of such proviso. The number of shares
            of Common
            Stock to be issued upon each conversion of this Note shall be determined
            by
            dividing the Conversion Amount (as defined below) by the applicable Conversion
            Price then in effect on the date specified in the notice of conversion,
            in the
            form attached hereto as Exhibit A (the “Notice
            of Conversion”),
            delivered to the Borrower by the Holder in accordance with Section 1.4
            below;
            provided that the Notice of Conversion is submitted by facsimile (or
            by other
            means resulting in, or reasonably expected to result in, notice) to the
            Borrower
            before 6:00 p.m., New York, New York time on such conversion date (the
            “Conversion
            Date”).
            The
            term “Conversion
            Amount”
means,
            with respect to any conversion of this Note, the sum of (1) the principal
            amount
            of this Note to be converted in such conversion plus
            (2)
            accrued and unpaid interest, if any, on such principal amount at the
            interest
            rates provided in this Note to the Conversion Date, provided, however,
            that the
            Company shall have the right to pay any or all interest in cash plus
            (3)
            Default Interest, if any, on the amounts referred to in the immediately
            preceding clauses (1) and/or (2) plus
            (4) at
            the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and
            1.4(g) hereof or pursuant to Section 2(c) of that certain Registration
            Rights
            Agreement, dated as of September 28, 2006, executed in connection with
            the
            initial issuance of this Note and the other Notes issued on the Issue
            Date (the
“Registration
            Rights Agreement”).
            The
            term “Determination
            Date” means
            the
            last business day of each month after the Issue Date.

           

          
            
              
              

            

            
              2

              
                

              

            

            
              
              

            

             

          

          1.2  Conversion
            Price.

           

          (a)  Calculation
            of Conversion Price.
            The
            Conversion Price shall be the lesser of (i) the Variable Conversion Price
            (as
            defined herein) and (ii) the Fixed Conversion Price (as defined herein)
            (subject, in each case, to equitable adjustments for stock splits, stock
            dividends or rights offerings by the Borrower relating to the Borrower’s
            securities or the securities of any subsidiary of the Borrower, combinations,
            recapitalization, reclassifications, extraordinary distributions and
            similar
            events). The “Variable
            Conversion Price”
shall
            mean the Applicable Percentage (as defined herein) multiplied by the
            Market
            Price (as defined herein). “Market
            Price”
means
            the average of the lowest three (3) Trading Prices (as defined below)
            for the
            Common Stock during the twenty (20) Trading Day period ending one Trading
            Day
            prior to the date the Conversion Notice is sent by the Holder to the
            Borrower
            via facsimile (the “Conversion
            Date”).
            “Trading
            Price”
means,
            for any security as of any date, the intraday trading price on the
            Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”)
            as
            reported by a reliable reporting service (“Reporting
            Service”)
            mutually acceptable to Borrower and Holder and hereafter designated by
            Holders
            of a majority in interest of the Notes and the Borrower or, if the OTCBB
            is not
            the principal trading market for such security, the intraday trading
            price of
            such security on the principal securities exchange or trading market
            where such
            security is listed or traded or, if no intraday trading price of such
            security
            is available in any of the foregoing manners, the average of the intraday
            trading prices of any market makers for such security that are listed
            in the
“pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot
            be calculated for such security on such date in the manner provided above,
            the
            Trading Price shall be the fair market value as mutually determined by
            the
            Borrower and the holders of a majority in interest of the Notes being
            converted
            for which the calculation of the Trading Price is required in order to
            determine
            the Conversion Price of such Notes. “Trading
            Day”
shall
            mean any day on which the Common Stock is traded for any period on the
            OTCBB, or
            on the principal securities exchange or other securities market on which
            the
            Common Stock is then being traded. “Applicable
            Percentage”
shall
            mean 50%; provided, however, that the Applicable Percentage shall be
            increased
            to (i) 55% in the event that the Registration Statement (as defined in
            the
            Registration Rights Agreement) is filed on or before the Filing Date
            (as defined
            in the in the Registration Rights Agreement) and (ii) 60% in the event
            that the
            Registration Statement (as defined in the Registration Rights Agreement)
            becomes
            effective on or before the Effectiveness Deadline (as defined in the
            Registration Rights Agreement). In addition, the Holder agrees that it
            will
            limit all of its conversions to no more than the greater of (1) $80,000
            per
            calendar month; or (2) the average daily dollar volume calculated during
            the ten
            (10) business days prior to a conversion, per conversion.

           

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

           

          
            
              
              

            

            
              3

              
                

              

            

            
              
              

            

             

          

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

           

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

           

          
            
              
              

            

            
              4

              
                

              

            

            
              
              

            

             

          

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

           

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

           

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

           

          1.4  Method
            of Conversion.

           

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

           

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

           

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

           

          
            
              
              

            

            
              5

              
                

              

            

            
              
              

            

             

          

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

           

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

           

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

           

          (g)  Failure
            to Deliver Common Stock Prior to Deadline.
            Without
            in any way limiting the Holder’s right to pursue other remedies, including
            actual damages and/or equitable relief, the parties agree that if delivery
            of
            the Common Stock issuable upon conversion of this Note is more than three
            (3)
            business days after the Deadline (other than a failure due to the circumstances
            described in Section 1.3 above, which failure shall be governed by such
            Section)
            the Borrower shall pay to the Holder $2,000 per day in cash, for each
            day beyond
            the Deadline that the Borrower fails to deliver such Common Stock. Such
            cash
            amount shall be paid to Holder by the fifth day of the month following
            the month
            in which it has accrued or, at the option of the Holder (by written notice
            to
            the Borrower by the first day of the month following the month in which
            it has
            accrued), shall be added to the principal amount of this Note, in which
            event
            interest shall accrue thereon in accordance with the terms of this Note
            and such
            additional principal amount shall be convertible into Common Stock in
            accordance
            with the terms of this Note.

           

          
            
              
              

            

            
              6

              
                

              

            

            
              
              

            

             

          

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

           

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

           

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

           

          1.6  Effect
            of Certain Events.

           

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

           

          
            
              
              

            

            
              7

              
                

              

            

            
              
              

            

             

          

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

           

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

           

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

           

          
            
              
              

            

            
              8

              
                

              

            

            
              
              

            

             

          

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

           

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

           

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

           

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

           

          
            
              
              

            

            
              9

              
                

              

            

            
              
              

            

             

          

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

           

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

           

          
            
              
              

            

            
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          ARTICLE
            II.  CERTAIN
            COVENANTS

           

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

           

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

           

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

           

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

           

          2.5  Advances

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

           

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

           

          
            
              
              

            

            
              11

              
                

              

            

            
              
              

            

          

           

          ARTICLE
            III.  EVENTS
            OF DEFAULT

           

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

           

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

           

          3.2  Conversion
            and the Shares.
            The
            Borrower fails to issue shares of Common Stock to the Holder (or announces
            or
            threatens that it will not honor its obligation to do so) upon exercise
            by the
            Holder of the conversion rights of the Holder in accordance with the
            terms of
            this Note (for a period of at least sixty (60) days, if such failure
            is solely
            as a result of the circumstances governed by Section 1.3 and the Borrower
            is
            using its best efforts to authorize a sufficient number of shares of
            Common
            Stock as soon as practicable), fails to transfer or cause its transfer
            agent to
            transfer (electronically or in certificated form) any certificate for
            shares of
            Common Stock issued to the Holder upon conversion of or otherwise pursuant
            to
            this Note as and when required by this Note or the Registration Rights
            Agreement, or fails to remove any restrictive legend (or to withdraw
            any stop
            transfer instructions in respect thereof) on any certificate for any
            shares of
            Common Stock issued to the Holder upon conversion of or otherwise pursuant
            to
            this Note as and when required by this Note or the Registration Rights
            Agreement
            (or makes any announcement, statement or threat that it does not intend
            to honor
            the obligations described in this paragraph) and any such failure shall
            continue
            uncured (or any announcement, statement or threat not to honor its obligations
            shall not be rescinded in writing) for three (3) days after the Borrower
            shall
            have been notified thereof in writing by the
            Holder;

           

          3.3  Failure
            to Timely File Registration or Effect Registration.
            The
            Borrower fails to file the Registration Statement within forty-five (45)
            days
            following the Closing Date (as defined in the Purchase Agreement) or
            obtain
            effectiveness with the Securities and Exchange Commission of the Registration
            Statement within one hundred twenty (120) days following the Closing
            Date (as
            defined in the Purchase Agreement) or such Registration Statement lapses
            in
            effect (or sales cannot otherwise be made thereunder effective, whether
            by
            reason of the Borrower’s failure to amend or supplement the prospectus included
            therein
            in
            accordance with the Registration Rights Agreement or otherwise) for more
            than
            ten (10) consecutive days or twenty (20) days in any twelve month period
            after
            the Registration Statement becomes effective;

           

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

           

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

           

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

           

          
            
              
              

            

            
              12

              
                

              

            

            
              
              

            

             

          

          3.7  Judgments.
            Any
            money judgment, writ or similar process shall be entered or filed against
            the
            Borrower or any subsidiary of the Borrower or any of its property or
            other
            assets for more than $250,000, and shall remain unvacated, unbonded or
            unstayed
            for a period of twenty (20) days unless otherwise consented to by the
            Holder,
            which consent will not be unreasonably withheld;

           

          3.8  Bankruptcy.
            Bankruptcy, insolvency, reorganization or liquidation proceedings or
            other
            proceedings for relief under any bankruptcy law or any law for the relief
            of
            debtors shall be instituted by or against the Borrower or any subsidiary
            of the
            Borrower;

           

          3.9  Delisting
            of Common Stock.
            The
            Borrower shall fail to maintain the listing of the Common Stock on at
            least one
            of the OTCBB or an equivalent replacement exchange, the Nasdaq National
            Market,
            the Nasdaq SmallCap Market, the New York Stock Exchange, or the American
            Stock
            Exchange; or

           

          3.10  Default
            Under Other Notes.
            An Event
            of Default has occurred and is continuing under any of the other Notes
            issued
            pursuant to the Purchase Agreement, then, upon the occurrence and during
            the
            continuation of any Event of Default specified in Section 3.1, 3.2, 3.3,
            3.4,
            3.5, 3.7, 3.9, or 3.10, at the option of the Holders of a majority of
            the
            aggregate principal amount of the outstanding Notes issued pursuant to
            the
            Purchase Agreement exercisable through the delivery of written notice
            to the
            Borrower by such Holders (the “Default
            Notice”),
            and
            upon the occurrence of an Event of Default specified in Section 3.6 or
            3.8, the
            Notes shall become immediately due and payable and the Borrower shall
            pay to the
            Holder, in full satisfaction of its obligations hereunder, an amount
            equal to
            the greater of (i) 140% times
            the
sum
            of (w)
            the then outstanding principal amount of this Note plus
            (x)
            accrued and unpaid interest on the unpaid principal amount of this Note
            to the
            date of payment (the “Mandatory
            Prepayment Date”)
            plus
            (y)
            Default Interest, if any, on the amounts referred to in clauses (w) and/or
            (x)
plus
            (z) any
            amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof
            or
            pursuant to Section 2(c) of the Registration Rights Agreement (the then
            outstanding principal amount of this Note to the date of payment plus
            the
            amounts referred to in clauses (x), (y) and (z) shall collectively be
            known as
            the “Default
            Sum”)
            or
            (ii) the “parity value” of the Default Sum to be prepaid, where parity value
            means (a) the highest number of shares of Common Stock issuable upon
            conversion
            of or otherwise pursuant to such Default Sum in accordance with Article
            I,
            treating the Trading Day immediately preceding the Mandatory Prepayment
            Date as
            the “Conversion Date” for purposes of determining the lowest applicable
            Conversion Price, unless the Default Event arises as a result of a breach
            in
            respect of a specific Conversion Date in which case such Conversion Date
            shall
            be the Conversion Date), multiplied
            by
            (b) the
            highest Closing Price for the Common Stock during the period beginning
            on the
            date of first occurrence of the Event of Default and ending one day prior
            to the
            Mandatory Prepayment Date (the “Default
            Amount”)
            and
            all other amounts payable hereunder shall immediately become due and
            payable,
            all without demand, presentment or notice, all of which hereby are expressly
            waived, together with all costs, including, without limitation, legal
            fees and
            expenses, of collection, and the Holder shall be entitled to exercise
            all other
            rights and remedies available at law or in equity. If the Borrower fails
            to pay
            the Default Amount within five (5) business days of written notice that
            such
            amount is due and payable, then the Holder shall have the right at any
            time, so
            long as the Borrower remains in default (and so long and to the extent
            that
            there are sufficient authorized shares), to require the Borrower, upon
            written
            notice, to immediately issue, in lieu of the Default Amount, the number
            of
            shares of Common Stock of the Borrower equal to the Default Amount divided
            by
            the Conversion Price then in effect.

           

          
            
              
              

            

            
              13

              
                

              

            

            
              
              

            

          

           

          ARTICLE
            IV.  MISCELLANEOUS

           

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

           

          4.2  Notices.
            Any
            notice herein required or permitted to be given shall be in writing and
            may be
            personally served or delivered by courier or sent by United States mail
            and
            shall be deemed to have been given upon receipt if personally served
            (which
            shall include telephone line facsimile transmission) or sent by courier
            or three
            (3) days after being deposited in the United States mail, certified,
            with
            postage pre-paid and properly addressed, if sent by mail. For the purposes
            hereof, the address of the Holder shall be as shown on the records of
            the
            Borrower; and the address of the Borrower shall be 13520 Oriental Street,
            Rockville, MD 20853, facsimile number: (301)
            560-6665. Both the Holder and the Borrower may change the address for
            service by
            service of written notice to the other as herein provided.

           

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

           

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

           

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

           

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

           

          
            
              
              

            

            
              14

              
                

              

            

            
              
              

            

             

          

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

           

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

           

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

           

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

           

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

           

          
            
              
              

            

            
              15

              
                

              

            

            
              
              

            

             

          

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

           

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

           

          ARTICLE
            V.  CALL
            OPTION

           

          5.1  Call
            Option.
            Notwithstanding anything to the contrary contained in this Article V,
            so long as
(i) no
            Event of Default or Trading Market Prepayment Event shall have occurred
            and be
            continuing, (ii) the
            Borrower has a sufficient number of authorized shares of Common Stock
            reserved
            for issuance upon full conversion of the Notes, then at any time after
            the Issue
            Date, and (iii) the
            Common Stock is trading at or below $[ ] per share, the Borrower shall
            have the
            right, exercisable on not less than three (3) Trading Days prior written
            notice
            to the Holders of the Notes (which notice may not be sent to the Holders
            of the
            Notes until the Borrower is permitted to prepay the Notes pursuant to
            this
            Section 5.1), to prepay all of the outstanding Notes in accordance with
            this
            Section 5.1. Any notice of prepayment hereunder (an “Optional
            Prepayment”)
            shall
            be delivered to the Holders of the Notes at their registered addresses
            appearing
            on the books and records of the Borrower and shall state (1) that the
            Borrower
            is exercising its right to prepay all of the Notes issued on the Issue
            Date and
            (2) the date of prepayment (the “Optional
            Prepayment Notice”).
            On
            the date fixed for prepayment (the “Optional
            Prepayment Date”),
            the
            Borrower shall make payment of the Optional Prepayment Amount (as defined
            below)
            to or upon the order of the Holders as specified by the Holders in writing
            to
            the Borrower at least one (1) business day prior to the Optional Prepayment
            Date. If the Borrower exercises its right to prepay the Notes, the Borrower
            shall make payment to the holders of an amount in cash (the “Optional
            Prepayment Amount”)
            equal
            to either (i) 120% (for prepayments occurring within thirty (30) days of
            the Issue Date), (ii) 130% for prepayments occurring between thirty-one
            (31) and sixty (60) days of the Issue Date, or (iii) 140% (for prepayments
            occurring after the sixtieth (60th)
            day
            following the Issue Date), multiplied by the sum of (w) the then outstanding
            principal amount of this Note plus
            (x) accrued and unpaid interest on the unpaid principal amount of this Note
            to the Optional Prepayment Date plus
            (y)
            Default Interest, if any, on the amounts referred to in clauses (w) and
            (x)
plus
            (z) any
            amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof
            or
            pursuant to Section 2(c) of the Registration Rights Agreement (the then
            outstanding principal amount of this Note to the date of payment plus
            the
            amounts referred to in clauses (x), (y) and (z) shall collectively be
            known as
            the “Optional
            Prepayment Sum”).
            Notwithstanding notice of an Optional Prepayment, the Holders shall at
            all times
            prior to the Optional Prepayment Date maintain the right to convert all
            or any
            portion of the Notes in accordance with Article I and any portion of
            Notes so
            converted after receipt of an Optional Prepayment Notice and prior to
            the
            Optional Prepayment Date set forth in such notice and payment of the
            aggregate
            Optional Prepayment Amount shall be deducted from the principal amount
            of Notes
            which are otherwise subject to prepayment pursuant to such notice. If
            the
            Borrower delivers an Optional Prepayment Notice and fails to pay the
            Optional
            Prepayment Amount due to the Holders of the Notes within two (2) business
            days
            following the Optional Prepayment Date, the Borrower shall forever forfeit
            its
            right to redeem the Notes pursuant to this Section 5.1.

           

          
            
              
              

            

            
              16

              
                

              

            

            
              
              

            

             

          

          5.2  Partial
            Call Option.
            Notwithstanding anything to the contrary contained in this Article V,
            in the
            event that the Average Daily Price of the Common Stock, as reported by
            the
            Reporting Service, for each day of the month ending on any Determination
            Date is
            below the Initial Market Price, the Borrower may, at its option, prepay
            a
            portion of the outstanding principal amount of the Notes equal to 104%
            of the
            principal amount hereof divided by thirty-six (36) plus one month’s interest
            which will stay all conversions for that month. The term “Initial
            Market Price”
            means
            shall mean the volume weighted average price of the Common Stock for
            the five
            (5) Trading Days immediately preceding the Closing which is $1.25. 

           

           

          

           

          [REMAINDER
            OF PAGE INTENTIONALLY LEFT BLANK]

           

          
            
              
                
                

              

              
                17

                
                  

                

              

              
                
                

              

            

          

          

          IN
            WITNESS WHEREOF,
            Borrower has caused this Note to be signed in its name by its duly authorized
            officer this 28th
            day of
            September, 2006.

           

          
            	 	 	 
	 	TEXTECHNOLOGIES
                    INC.
	 
 	 
 	 
 
	 	By:  	/s/ Peter
                    Maddocks                                            
	 	Peter Maddocks
	 	Chief
                    Executive Officer 

           

          
            
              
              

            

            
              18

              
                

              

            

            
              
              

            

          

           

          EXHIBIT
            A

           

          NOTICE
            OF CONVERSION

          (To
            be
            Executed by the Registered Holder

          in
            order
            to Convert the Notes)

           

          The
            undersigned hereby irrevocably elects to convert $__________ principal
            amount of
            the Note (defined below) into shares of common stock, par value [ ] per
            share
            (“Common
            Stock”),
            of
            Textechnologies Inc., a Delaware corporation (the “Borrower”)
            according to the conditions of the convertible Notes of the Borrower
            dated as of
            September 28, 2006 (the “Notes”),
            as of
            the date written below. If securities are to be issued in the name of
            a person
            other than the undersigned, the undersigned will pay all transfer taxes
            payable
            with respect thereto and is delivering herewith such certificates. No
            fee will
            be charged to the Holder for any conversion, except for transfer taxes,
            if any.
            A copy of each Note is attached hereto (or evidence of loss, theft or
            destruction thereof).

           

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

           

          
            Name
              of
              DTC Prime
              Broker:________________________________________________________________________________________

            Account
              Number:_______________________________________________________________________________________________

          

           

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

           

          
            Name:________________________________________________________________________________________________________

            Address:______________________________________________________________________________________________________

             

          

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

           

          Date
            of
            Conversion:__________________________________________________________________________________

          Applicable
            Conversion
            Price:___________________________________________________________________________

          Number
            of
            Shares of Common Stock to be Issued Pursuant to Conversion
            of the Notes:_______________________________

          Signature:__________________________________________________________________________________________

          Name:_____________________________________________________________________________________________

          Address:___________________________________________________________________________________________

          
            
              
              

            

            
              19

              
                

              

            

            
              
              

            

          

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

           

          
            
              
              

            

            
              20

              
                

              

            

            
              
              

            

          

        

         

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

        
           

           

          CALLABLE
            SECURED CONVERTIBLE NOTE

           

          
            	
                    Rockville,
                      Maryland

                    September
                      28, 2006 

                  	
                     $5,000

                  

          

           

          FOR
            VALUE RECEIVED,
            TEXTECHNOLOGIES INC.,
            a
            Delaware corporation (hereinafter called the “Borrower”),
            hereby promises to pay to the order of NEW MILLENNIUM CAPITAL PARTNERS
            II, LLC
            or registered assigns (the “Holder”)
            the
            sum of $5,000, on September 28, 2009 (the “Maturity
            Date”),
            and
            to pay interest on the unpaid principal balance hereof at the rate of
            six
            percent (6%) (the “Interest
            Rate”)
            per
            annum from September 28, 2006 (the “Issue
            Date”)
            until
            the same becomes due and payable, whether at maturity or upon acceleration
            or by
            prepayment or otherwise. Any amount of principal or interest on this
            Note which
            is not paid when due shall bear interest at the rate of fifteen percent
            (15%)
            per annum from the due date thereof until the same is paid (“Default
            Interest”).
            Interest shall commence accruing on the Issue Date, shall be computed
            on the
            basis of a 365-day year and the actual number of days elapsed and shall
            be
            payable quarterly provided that no interest shall be due and payable
            for any
            month in which the Trading Price (as such term is defined below) is greater
            than
            $1.5625 for each Trading Day (as such term is defined below) of the month.
            All
            payments due hereunder (to the extent not converted into common stock,
            $.001 par
            value per share (the “Common
            Stock”)
            in
            accordance with the terms hereof) shall be made in lawful money of the
            United
            States of America. All payments shall be made at such address as the
            Holder
            shall hereafter give to the Borrower by written notice made in accordance
            with
            the provisions of this Note. Whenever any amount expressed to be due
            by the
            terms of this Note is due on any day which is not a business day, the
            same shall
            instead be due on the next succeeding day which is a business day and,
            in the
            case of any interest payment date which is not the date on which this
            Note is
            paid in full, the extension of the due date thereof shall not be taken
            into
            account for purposes of determining the amount of interest due on such
            date. As
            used in this Note, the term “business day” shall mean any day other than a
            Saturday, Sunday or a day on which commercial banks in the city of New
            York, New
            York are authorized or required by law or executive order to remain closed.
            Each
            capitalized term used herein, and not otherwise defined, shall have the
            meaning
            ascribed thereto in that certain Securities Purchase Agreement, dated
            September
            28, 2006, pursuant to which this Note was originally issued (the “Purchase
            Agreement”).

           

          This
            Note
            is free from all taxes, liens, claims and encumbrances with respect to
            the issue
            thereof and shall not be subject to preemptive rights or other similar
            rights of
            shareholders of the Borrower and will not impose personal liability upon
            the
            holder thereof. The obligations of the Borrower under this Note shall
            be secured
            by that certain Security Agreement and Intellectual Property Security
            Agreement,
            each dated September 28, 2006 by and between the Borrower and the
            Holder.

           

          The
            following terms shall apply to this Note:

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

           

          ARTICLE
            I.  CONVERSION
            RIGHTS

           

          1.1  Conversion
            Right.
            The
            Holder shall have the right from time to time, and at any time on or
            prior to
            the earlier of (i) the Maturity Date and (ii) the date of payment of
            the Default
            Amount (as defined in Article III) pursuant to Section 1.6(a) or Article
            III,
            the Optional Prepayment Amount (as defined in Section 5.1 or any payments
            pursuant to Section 1.7, each in respect of the remaining outstanding
            principal
            amount of this Note to convert all or any part of the outstanding and
            unpaid
            principal amount of this Note into fully paid and non-assessable shares
            of
            Common Stock, as such Common Stock exists on the Issue Date, or any shares
            of
            capital stock or other securities of the Borrower into which such Common
            Stock
            shall hereafter be changed or reclassified at the conversion price (the
            “Conversion
            Price”)
            determined as provided herein (a “Conversion”);
            provided,
            however,
            that in
            no event shall the Holder be entitled to convert any portion of this
            Note in
            excess of that portion of this Note upon conversion of which the sum
            of (1) the
            number of shares of Common Stock beneficially owned by the Holder and
            its
            affiliates (other than shares of Common Stock which may be deemed beneficially
            owned through the ownership of the unconverted portion of the Notes or
            the
            unexercised or unconverted portion of any other security of the Borrower
            (including, without limitation, the warrants issued by the Borrower pursuant
            to
            the Purchase Agreement) subject to a limitation on conversion or exercise
            analogous to the limitations contained herein) and (2) the number of
            shares of
            Common Stock issuable upon the conversion of the portion of this Note
            with
            respect to which the determination of this proviso is being made, would
            result
            in beneficial ownership by the Holder and its affiliates of more than
            4.99% of
            the outstanding shares of Common Stock and provided further
            that the
            Holder shall not be entitled to convert any portion of this Note during
            any
            month immediately succeeding a Determination Date on which the Borrower
            exercises its prepayment option pursuant to Section 5.2 of this Note.
            For
            purposes of the proviso to the immediately preceding sentence, beneficial
            ownership shall be determined in accordance with Section 13(d) of the
            Securities
            Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except
            as
            otherwise provided in clause (1) of such proviso. The number of shares
            of Common
            Stock to be issued upon each conversion of this Note shall be determined
            by
            dividing the Conversion Amount (as defined below) by the applicable Conversion
            Price then in effect on the date specified in the notice of conversion,
            in the
            form attached hereto as Exhibit A (the “Notice
            of Conversion”),
            delivered to the Borrower by the Holder in accordance with Section 1.4
            below;
            provided that the Notice of Conversion is submitted by facsimile (or
            by other
            means resulting in, or reasonably expected to result in, notice) to the
            Borrower
            before 6:00 p.m., New York, New York time on such conversion date (the
            “Conversion
            Date”).
            The
            term “Conversion
            Amount”
means,
            with respect to any conversion of this Note, the sum of (1) the principal
            amount
            of this Note to be converted in such conversion plus
            (2)
            accrued and unpaid interest, if any, on such principal amount at the
            interest
            rates provided in this Note to the Conversion Date, provided, however,
            that the
            Company shall have the right to pay any or all interest in cash plus
            (3)
            Default Interest, if any, on the amounts referred to in the immediately
            preceding clauses (1) and/or (2) plus
            (4) at
            the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and
            1.4(g) hereof or pursuant to Section 2(c) of that certain Registration
            Rights
            Agreement, dated as of September 28, 2006, executed in connection with
            the
            initial issuance of this Note and the other Notes issued on the Issue
            Date (the
“Registration
            Rights Agreement”).
            The
            term “Determination
            Date” means
            the
            last business day of each month after the Issue Date.

           

          
            
              
              

            

            
              2

              
                

              

            

            
              
              

            

             

          

          1.2  Conversion
            Price.

           

          (a)  Calculation
            of Conversion Price.
            The
            Conversion Price shall be the lesser of (i) the Variable Conversion Price
            (as
            defined herein) and (ii) the Fixed Conversion Price (as defined herein)
            (subject, in each case, to equitable adjustments for stock splits, stock
            dividends or rights offerings by the Borrower relating to the Borrower’s
            securities or the securities of any subsidiary of the Borrower, combinations,
            recapitalization, reclassifications, extraordinary distributions and
            similar
            events). The “Variable
            Conversion Price”
shall
            mean the Applicable Percentage (as defined herein) multiplied by the
            Market
            Price (as defined herein). “Market
            Price”
means
            the average of the lowest three (3) Trading Prices (as defined below)
            for the
            Common Stock during the twenty (20) Trading Day period ending one Trading
            Day
            prior to the date the Conversion Notice is sent by the Holder to the
            Borrower
            via facsimile (the “Conversion
            Date”).
            “Trading
            Price”
means,
            for any security as of any date, the intraday trading price on the
            Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”)
            as
            reported by a reliable reporting service (“Reporting
            Service”)
            mutually acceptable to Borrower and Holder and hereafter designated by
            Holders
            of a majority in interest of the Notes and the Borrower or, if the OTCBB
            is not
            the principal trading market for such security, the intraday trading
            price of
            such security on the principal securities exchange or trading market
            where such
            security is listed or traded or, if no intraday trading price of such
            security
            is available in any of the foregoing manners, the average of the intraday
            trading prices of any market makers for such security that are listed
            in the
“pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot
            be calculated for such security on such date in the manner provided above,
            the
            Trading Price shall be the fair market value as mutually determined by
            the
            Borrower and the holders of a majority in interest of the Notes being
            converted
            for which the calculation of the Trading Price is required in order to
            determine
            the Conversion Price of such Notes. “Trading
            Day”
shall
            mean any day on which the Common Stock is traded for any period on the
            OTCBB, or
            on the principal securities exchange or other securities market on which
            the
            Common Stock is then being traded. “Applicable
            Percentage”
shall
            mean 50%; provided, however, that the Applicable Percentage shall be
            increased
            to (i) 55% in the event that the Registration Statement (as defined in
            the
            Registration Rights Agreement) is filed on or before the Filing Date
            (as defined
            in the in the Registration Rights Agreement) and (ii) 60% in the event
            that the
            Registration Statement (as defined in the Registration Rights Agreement)
            becomes
            effective on or before the Effectiveness Deadline (as defined in the
            Registration Rights Agreement). In addition, the Holder agrees that it
            will
            limit all of its conversions to no more than the greater of (1) $80,000
            per
            calendar month; or (2) the average daily dollar volume calculated during
            the ten
            (10) business days prior to a conversion, per conversion.

           

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

           

          
            
              
              

            

            
              3

              
                

              

            

            
              
              

            

             

          

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

           

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

           

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

           

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

           

          
            
              
              

            

            
              4

              
                

              

            

            
              
              

            

             

          

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

           

          1.4  Method
            of Conversion.

           

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

           

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

           

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

           

          
            
              
              

            

            
              5

              
                

              

            

            
              
              

            

             

          

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

           

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

           

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

           

          (g)  Failure
            to Deliver Common Stock Prior to Deadline.
            Without
            in any way limiting the Holder’s right to pursue other remedies, including
            actual damages and/or equitable relief, the parties agree that if delivery
            of
            the Common Stock issuable upon conversion of this Note is more than three
            (3)
            business days after the Deadline (other than a failure due to the circumstances
            described in Section 1.3 above, which failure shall be governed by such
            Section)
            the Borrower shall pay to the Holder $2,000 per day in cash, for each
            day beyond
            the Deadline that the Borrower fails to deliver such Common Stock. Such
            cash
            amount shall be paid to Holder by the fifth day of the month following
            the month
            in which it has accrued or, at the option of the Holder (by written notice
            to
            the Borrower by the first day of the month following the month in which
            it has
            accrued), shall be added to the principal amount of this Note, in which
            event
            interest shall accrue thereon in accordance with the terms of this Note
            and such
            additional principal amount shall be convertible into Common Stock in
            accordance
            with the terms of this Note.

           

          
            
              
              

            

            
              6

              
                

              

            

            
              
              

            

             

          

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

           

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

           

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

           

          
            
              
              

            

            
              7

              
                

              

            

            
              
              

            

             

          

          1.6  Effect
            of Certain Events.

           

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

           

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

           

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

           

          
            
              
              

            

            
              8

              
                

              

            

            
              
              

            

             

          

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

           

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

           

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

           

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

           

          
            
              
              

            

            
              9

              
                

              

            

            
              
              

            

             

          

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

           

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

           

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

           

          
            
              
              

            

            
              10

              
                

              

            

            
              
              

            

          

           

          ARTICLE
            II.  CERTAIN
            COVENANTS

           

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

           

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

           

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

           

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

           

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

           

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

           

          
            
              
              

            

            
              11

              
                

              

            

            
              
              

            

          

           

          ARTICLE
            III.  EVENTS
            OF DEFAULT

           

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

           

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

           

          3.2  Conversion
            and the Shares.
            The
            Borrower fails to issue shares of Common Stock to the Holder (or announces
            or
            threatens that it will not honor its obligation to do so) upon exercise
            by the
            Holder of the conversion rights of the Holder in accordance with the
            terms of
            this Note (for a period of at least sixty (60) days, if such failure
            is solely
            as a result of the circumstances governed by Section 1.3 and the Borrower
            is
            using its best efforts to authorize a sufficient number of shares of
            Common
            Stock as soon as practicable), fails to transfer or cause its transfer
            agent to
            transfer (electronically or in certificated form) any certificate for
            shares of
            Common Stock issued to the Holder upon conversion of or otherwise pursuant
            to
            this Note as and when required by this Note or the Registration Rights
            Agreement, or fails to remove any restrictive legend (or to withdraw
            any stop
            transfer instructions in respect thereof) on any certificate for any
            shares of
            Common Stock issued to the Holder upon conversion of or otherwise pursuant
            to
            this Note as and when required by this Note or the Registration Rights
            Agreement
            (or makes any announcement, statement or threat that it does not intend
            to honor
            the obligations described in this paragraph) and any such failure shall
            continue
            uncured (or any announcement, statement or threat not to honor its obligations
            shall not be rescinded in writing) for three (3) days after the Borrower
            shall
            have been notified thereof in writing by the
            Holder;

           

          3.3  Failure
            to Timely File Registration or Effect Registration.
            The
            Borrower fails to file the Registration Statement within forty-five (45)
            days
            following the Closing Date (as defined in the Purchase Agreement) or
            obtain
            effectiveness with the Securities and Exchange Commission of the Registration
            Statement within one hundred twenty (120) days following the Closing
            Date (as
            defined in the Purchase Agreement) or such Registration Statement lapses
            in
            effect (or sales cannot otherwise be made thereunder effective, whether
            by
            reason of the Borrower’s failure to amend or supplement the prospectus included
            therein
            in
            accordance with the Registration Rights Agreement or otherwise) for more
            than
            ten (10) consecutive days or twenty (20) days in any twelve month period
            after
            the Registration Statement becomes effective;

           

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

           

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

           

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

           

          
            
              
              

            

            
              12

              
                

              

            

            
              
              

            

             

          

          3.7  Judgments.
            Any
            money judgment, writ or similar process shall be entered or filed against
            the
            Borrower or any subsidiary of the Borrower or any of its property or
            other
            assets for more than $250,000, and shall remain unvacated, unbonded or
            unstayed
            for a period of twenty (20) days unless otherwise consented to by the
            Holder,
            which consent will not be unreasonably withheld;

           

          3.8  Bankruptcy.
            Bankruptcy, insolvency, reorganization or liquidation proceedings or
            other
            proceedings for relief under any bankruptcy law or any law for the relief
            of
            debtors shall be instituted by or against the Borrower or any subsidiary
            of the
            Borrower;

           

          3.9  Delisting
            of Common Stock.
            The
            Borrower shall fail to maintain the listing of the Common Stock on at
            least one
            of the OTCBB or an equivalent replacement exchange, the Nasdaq National
            Market,
            the Nasdaq SmallCap Market, the New York Stock Exchange, or the American
            Stock
            Exchange; or

           

          3.10  Default
            Under Other Notes.
            An Event
            of Default has occurred and is continuing under any of the other Notes
            issued
            pursuant to the Purchase Agreement, then, upon the occurrence and during
            the
            continuation of any Event of Default specified in Section 3.1, 3.2, 3.3,
            3.4,
            3.5, 3.7, 3.9, or 3.10, at the option of the Holders of a majority of
            the
            aggregate principal amount of the outstanding Notes issued pursuant to
            the
            Purchase Agreement exercisable through the delivery of written notice
            to the
            Borrower by such Holders (the “Default
            Notice”),
            and
            upon the occurrence of an Event of Default specified in Section 3.6 or
            3.8, the
            Notes shall become immediately due and payable and the Borrower shall
            pay to the
            Holder, in full satisfaction of its obligations hereunder, an amount
            equal to
            the greater of (i) 140% times
            the
sum
            of (w)
            the then outstanding principal amount of this Note plus
            (x)
            accrued and unpaid interest on the unpaid principal amount of this Note
            to the
            date of payment (the “Mandatory
            Prepayment Date”)
            plus
            (y)
            Default Interest, if any, on the amounts referred to in clauses (w) and/or
            (x)
plus
            (z) any
            amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof
            or
            pursuant to Section 2(c) of the Registration Rights Agreement (the then
            outstanding principal amount of this Note to the date of payment plus
            the
            amounts referred to in clauses (x), (y) and (z) shall collectively be
            known as
            the “Default
            Sum”)
            or
            (ii) the “parity value” of the Default Sum to be prepaid, where parity value
            means (a) the highest number of shares of Common Stock issuable upon
            conversion
            of or otherwise pursuant to such Default Sum in accordance with Article
            I,
            treating the Trading Day immediately preceding the Mandatory Prepayment
            Date as
            the “Conversion Date” for purposes of determining the lowest applicable
            Conversion Price, unless the Default Event arises as a result of a breach
            in
            respect of a specific Conversion Date in which case such Conversion Date
            shall
            be the Conversion Date), multiplied
            by
            (b) the
            highest Closing Price for the Common Stock during the period beginning
            on the
            date of first occurrence of the Event of Default and ending one day prior
            to the
            Mandatory Prepayment Date (the “Default
            Amount”)
            and
            all other amounts payable hereunder shall immediately become due and
            payable,
            all without demand, presentment or notice, all of which hereby are expressly
            waived, together with all costs, including, without limitation, legal
            fees and
            expenses, of collection, and the Holder shall be entitled to exercise
            all other
            rights and remedies available at law or in equity. If the Borrower fails
            to pay
            the Default Amount within five (5) business days of written notice that
            such
            amount is due and payable, then the Holder shall have the right at any
            time, so
            long as the Borrower remains in default (and so long and to the extent
            that
            there are sufficient authorized shares), to require the Borrower, upon
            written
            notice, to immediately issue, in lieu of the Default Amount, the number
            of
            shares of Common Stock of the Borrower equal to the Default Amount divided
            by
            the Conversion Price then in effect.

           

          
            
              
              

            

            
              13

              
                

              

            

            
              
              

            

          

           

          ARTICLE
            IV.  MISCELLANEOUS

           

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

           

          4.2  Notices.
            Any
            notice herein required or permitted to be given shall be in writing and
            may be
            personally served or delivered by courier or sent by United States mail
            and
            shall be deemed to have been given upon receipt if personally served
            (which
            shall include telephone line facsimile transmission) or sent by courier
            or three
            (3) days after being deposited in the United States mail, certified,
            with
            postage pre-paid and properly addressed, if sent by mail. For the purposes
            hereof, the address of the Holder shall be as shown on the records of
            the
            Borrower; and the address of the Borrower shall be 13520 Oriental Street,
            Rockville, MD 20853, facsimile number: (301)
            560-6665. Both the Holder and the Borrower may change the address for
            service by
            service of written notice to the other as herein provided.

           

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

           

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

           

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

           

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

           

          
            
              
              

            

            
              14

              
                

              

            

            
              
              

            

             

          

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

           

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

           

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

           

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

           

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

           

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

           

          
            
              
              

            

            
              15

              
                

              

            

            
              
              

            

             

          

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

           

          ARTICLE
            V.  CALL
            OPTION

           

          5.1  Call
            Option.
            Notwithstanding anything to the contrary contained in this Article V,
            so long as
(i) no
            Event of Default or Trading Market Prepayment Event shall have occurred
            and be
            continuing, (ii) the
            Borrower has a sufficient number of authorized shares of Common Stock
            reserved
            for issuance upon full conversion of the Notes, then at any time after
            the Issue
            Date, and (iii) the
            Common Stock is trading at or below $[ ] per share, the Borrower shall
            have the
            right, exercisable on not less than three (3) Trading Days prior written
            notice
            to the Holders of the Notes (which notice may not be sent to the Holders
            of the
            Notes until the Borrower is permitted to prepay the Notes pursuant to
            this
            Section 5.1), to prepay all of the outstanding Notes in accordance with
            this
            Section 5.1. Any notice of prepayment hereunder (an “Optional
            Prepayment”)
            shall
            be delivered to the Holders of the Notes at their registered addresses
            appearing
            on the books and records of the Borrower and shall state (1) that the
            Borrower
            is exercising its right to prepay all of the Notes issued on the Issue
            Date and
            (2) the date of prepayment (the “Optional
            Prepayment Notice”).
            On
            the date fixed for prepayment (the “Optional
            Prepayment Date”),
            the
            Borrower shall make payment of the Optional Prepayment Amount (as defined
            below)
            to or upon the order of the Holders as specified by the Holders in writing
            to
            the Borrower at least one (1) business day prior to the Optional Prepayment
            Date. If the Borrower exercises its right to prepay the Notes, the Borrower
            shall make payment to the holders of an amount in cash (the “Optional
            Prepayment Amount”)
            equal
            to either (i) 120% (for prepayments occurring within thirty (30) days of
            the Issue Date), (ii) 130% for prepayments occurring between thirty-one
            (31) and sixty (60) days of the Issue Date, or (iii) 140% (for prepayments
            occurring after the sixtieth (60th)
            day
            following the Issue Date), multiplied by the sum of (w) the then outstanding
            principal amount of this Note plus
            (x) accrued and unpaid interest on the unpaid principal amount of this Note
            to the Optional Prepayment Date plus
            (y)
            Default Interest, if any, on the amounts referred to in clauses (w) and
            (x)
plus
            (z) any
            amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof
            or
            pursuant to Section 2(c) of the Registration Rights Agreement (the then
            outstanding principal amount of this Note to the date of payment plus
            the
            amounts referred to in clauses (x), (y) and (z) shall collectively be
            known as
            the “Optional
            Prepayment Sum”).
            Notwithstanding notice of an Optional Prepayment, the Holders shall at
            all times
            prior to the Optional Prepayment Date maintain the right to convert all
            or any
            portion of the Notes in accordance with Article I and any portion of
            Notes so
            converted after receipt of an Optional Prepayment Notice and prior to
            the
            Optional Prepayment Date set forth in such notice and payment of the
            aggregate
            Optional Prepayment Amount shall be deducted from the principal amount
            of Notes
            which are otherwise subject to prepayment pursuant to such notice. If
            the
            Borrower delivers an Optional Prepayment Notice and fails to pay the
            Optional
            Prepayment Amount due to the Holders of the Notes within two (2) business
            days
            following the Optional Prepayment Date, the Borrower shall forever forfeit
            its
            right to redeem the Notes pursuant to this Section 5.1.

           

          5.2  Partial
            Call Option.
            Notwithstanding anything to the contrary contained in this Article V,
            in the
            event that the Average Daily Price of the Common Stock, as reported by
            the
            Reporting Service, for each day of the month ending on any Determination
            Date is
            below the Initial Market Price, the Borrower may, at its option, prepay
            a
            portion of the outstanding principal amount of the Notes equal to 104%
            of the
            principal amount hereof divided by thirty-six (36) plus one month’s interest
            which will stay all conversions for that month. The term “Initial
            Market Price”
            means
            shall mean the volume weighted average price of the Common Stock for
            the five
            (5) Trading Days immediately preceding the Closing which is $1.25.

           

           

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          IN
            WITNESS WHEREOF,
            Borrower has caused this Note to be signed in its name by its duly authorized
            officer this 28th
            day of
            September, 2006.

           

          
            	 	 	 
	 	TEXTECHNOLOGIES
                    INC.
	 
 	 
 	 
 
	 	By:  	/s/ Peter
                    Maddocks                                             
	 	Peter Maddocks
	 	Chief
                    Executive Officer 

          
            
              
              

            

            
              17

              
                

              

            

            
              
              

            

          

          EXHIBIT
            A

           

          NOTICE
            OF CONVERSION

           

          (To
            be
            Executed by the Registered Holder

           

          in
            order
            to Convert the Notes)

           

          The
            undersigned hereby irrevocably elects to convert $__________ principal
            amount of
            the Note (defined below) into shares of common stock, par value [ ] per
            share
            (“Common
            Stock”),
            of
            Textechnologies Inc., a Delaware corporation (the “Borrower”)
            according to the conditions of the convertible Notes of the Borrower
            dated as of
            September 28, 2006 (the “Notes”),
            as of
            the date written below. If securities are to be issued in the name of
            a person
            other than the undersigned, the undersigned will pay all transfer taxes
            payable
            with respect thereto and is delivering herewith such certificates. No
            fee will
            be charged to the Holder for any conversion, except for transfer taxes,
            if any.
            A copy of each Note is attached hereto (or evidence of loss, theft or
            destruction thereof).

           

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

           

          
            Name
              of
              DTC Prime
              Broker:________________________________________________________________________________________

            Account
              Number:_______________________________________________________________________________________________

          

           

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

           

          
            Name:________________________________________________________________________________________________________

            Address:______________________________________________________________________________________________________

          

          
          

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

           

          
            Date
              of
              Conversion:__________________________________________________________________________________

            Applicable
              Conversion
              Price:___________________________________________________________________________

            Number
              of
              Shares of Common Stock to be Issued Pursuant to Conversion
              of the Notes:_______________________________

            Signature:_________________________________________________________________________________________

            Name:____________________________________________________________________________________________

            Address:__________________________________________________________________________________________

          

          
            
              
              

            

            
              18

              
                

              

            

            
              
              

            

          

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

           

           

           

           

           

           

           

          19

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