Document:

Exhibit 4.1

                                 FORM OF WARRANT

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES  REPRESENTED BY THIS CERTIFICATE
NOR THE  SECURITIES  INTO  WHICH  THESE  SECURITIES  ARE  EXERCISABLE  HAVE BEEN
REGISTERED  UNDER THE  SECURITIES ACT OF 1933, AS AMENDED,  OR APPLICABLE  STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,  SOLD,  TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE  REGISTRATION  STATEMENT  FOR
THE SECURITIES  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR (B) AN OPINION
OF COUNSEL,  IN A GENERALLY  ACCEPTABLE FORM, THAT  REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD  PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING  THE  FOREGOING,  SUBJECT TO  COMPLIANCE  WITH  APPLICABLE
SECURITIES  LAWS, THE  SECURITIES MAY BE PLEDGED IN CONNECTION  WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
ANY  TRANSFEREE  OF THIS  WARRANT  SHOULD  CAREFULLY  REVIEW  THE  TERMS OF THIS
WARRANT, INCLUDING SECTION 6(D) HEREOF.

                             AEROBIC CREATIONS, INC.

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.: WB-___
Initial  Number of Shares of Common Stock:  _____________after  giving effect to
the Reverse Split (as defined below)
Date of Issuance: November 8, 2006 ("ISSUANCE DATE")

            Aerobic  Creations,  Inc. a Delaware  corporation  (the  "COMPANY"),
hereby  certifies  that,  for good and valuable  consideration,  the receipt and
sufficiency of which are hereby  acknowledged,  [BUYER],  the registered  holder
hereof or its  permitted  assigns (the  "HOLDER"),  is entitled,  subject to the
terms set forth below,  to purchase from the Company,  at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to Purchase Common
Stock  (including  any  Warrants to Purchase  Common  Stock  issued in exchange,
transfer or replacement hereof, the "WARRANT"), at any time or times on or after
the Issuance  Date,  but not after 11:59 P.M.,  New York time, on the Expiration
Date (as defined  below)  fully paid  nonassessable  shares of Common  Stock (as
defined  below) (the  "WARRANT  SHARES").  Except as otherwise  defined  herein,
capitalized  terms in this Warrant  shall have the meanings set forth in Section
15.  This  Warrant is one of the  Warrants to  purchase  Common  Stock (the "SPA
WARRANTS")  issued  pursuant to Section 1 of that  certain  Securities  Purchase
Agreement (Notes and Warrants),  dated as of November 8, 2006 (the "SUBSCRIPTION
DATE"), by and among Maritime  Logistics US Holdings Inc., the Company (pursuant
to that certain  Joinder  Agreement  dated as of the date hereof) and the buyers
(the "BUYERS") referred to therein (the "SECURITIES PURCHASE AGREEMENT").

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      1. EXERCISE OF WARRANT.

            (a)  MECHANICS  OF  EXERCISE.  Subject  to the terms and  conditions
hereof  (including,  without  limitation,  the  limitations set forth in Section
1(f)),  this  Warrant may be  exercised by the Holder on any day on or after the
Issuance Date, in whole or in part, by (i) delivery of a written notice,  in the
form  attached  hereto as EXHIBIT A (the  "EXERCISE  NOTICE"),  of the  Holder's
election  to  exercise  this  Warrant  and (ii) (A) payment to the Company of an
amount  equal to the  applicable  Exercise  Price  multiplied  by the  number of
Warrant  Shares as to which this  Warrant  is being  exercised  (the  "AGGREGATE
EXERCISE  PRICE") in cash or by wire transfer of immediately  available funds or
(B) by notifying the Company that this Warrant is being exercised  pursuant to a
Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required
to  deliver  the  original  Warrant  in order to effect an  exercise  hereunder.
Execution  and delivery of the Exercise  Notice with respect to less than all of
the Warrant  Shares shall have the same effect as  cancellation  of the original
Warrant  and  issuance  of a new Warrant  evidencing  the right to purchase  the
remaining  number of  Warrant  Shares.  On or  before  the  first  Business  Day
following the date on which the Company has received each of the Exercise Notice
and the  Aggregate  Exercise  Price (or  notice  of a  Cashless  Exercise)  (the
"EXERCISE  DELIVERY  DOCUMENTS"),  the Company  shall  transmit by  facsimile an
acknowledgment of confirmation of receipt of the Exercise Delivery  Documents to
the Holder and the Company's transfer agent (the "TRANSFER AGENT"). On or before
the third  Business Day following the date on which the Company has received all
of the Exercise  Delivery  Documents (the "SHARE  DELIVERY  DATE"),  the Company
shall (X) if legends  are not  required to be placed on  certificates  of Common
Stock pursuant to the Securities Purchase Agreement,  provided that the Transfer
Agent is  participating  in The Depository  Trust Company ("DTC") Fast Automated
Securities Transfer Program, and provided,  further, that the Holder is eligible
to receive shares through DTC, credit such aggregate  number of shares of Common
Stock to which the Holder is entitled  pursuant to such exercise to the Holder's
or its designee's  balance account with DTC through its Deposit Withdrawal Agent
Commission  System, or (Y) if the Transfer Agent is not participating in the DTC
Fast  Automated  Securities  Transfer  Program or the Holder is not  eligible to
receive  shares  through DTC,  issue and  dispatch by  overnight  courier to the
address as specified in the Exercise  Notice,  a certificate,  registered in the
Company's  share  register  in the name of the Holder or its  designee,  for the
number of shares of Common  Stock to which the Holder is  entitled  pursuant  to
such  exercise.   The  Holder  undertakes  that  whenever  the  Company  credits
securities  as set  forth in  clause  (X) of the  preceding  sentence,  (A) upon
receipt of notice from the Company that the applicable registration statement is
not, or no longer is, effective in respect of the resale of such securities, the
Holder will not transfer such  securities  (other than (I) in connection  with a
transfer,  wherein the Holder provides ShellCo with an opinion of counsel,  in a
generally  acceptable form, to the effect that such transfer may be made without
registration  under the  applicable  requirements  of the 1933 Act,  or (II) the
Holder  provides  ShellCo with  reasonable  assurances  that the transfer may be
effected  pursuant  to Rule 144 or Rule 144A)  until the  Company  notifies  the
Holder that the applicable registration statement becomes effective (again), and
(B) the Holder shall indemnify and hold the Company  harmless  against any claim
of  securities  laws  violations  in respect of the  transfer (in respect of any
transfers  made by such Holder  after the  receipt of the first  notice from the
Company  provided for in clause (A) of this sentence but prior to the receipt of
the second notice from the Company  provided for in clause (A) of this sentence)
by the Holder of any security as to which such credit at DTC has been  effected.
Upon delivery of the Exercise Delivery  Documents or notification to the Company
of a

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Cashless  Exercise  referred to in Section 1(d),  the Holder shall be deemed for
all corporate purposes to have become the holder of record of the Warrant Shares
in respect of which this Warrant has been  exercised,  irrespective  of the date
such  Warrant  Shares are  credited to the  Holder's  DTC account or the date of
delivery of the certificates evidencing such Warrant Shares, as the case may be.
If this Warrant is submitted in  connection  with any exercise  pursuant to this
Section  1(a) and the  number of  Warrant  Shares  represented  by this  Warrant
submitted  for  exercise  is greater  than the number of  Warrant  Shares  being
acquired upon an exercise,  then the Company shall as soon as practicable and in
no event later than three (3)  Business  Days after any exercise  (the  "WARRANT
DELIVERY DATE") and at its own expense,  issue a new Warrant (in accordance with
Section 6(d))  representing  the right to purchase the number of Warrant  Shares
purchasable  immediately  prior to such exercise  under this  Warrant,  less the
number of  Warrant  Shares in respect of which  this  Warrant is  exercised.  No
fractional  shares of Common  Stock are to be issued  upon the  exercise of this
Warrant,  but rather the number of shares of Common  Stock to be issued shall be
rounded up to the nearest whole number. The Company shall pay any and all taxes,
including without limitation,  all documentary stamp, transfer or similar taxes,
or other incidental expense that may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant.

            (b) EXERCISE PRICE.  For purposes of this Warrant,  "EXERCISE PRICE"
means  $11.00,  per share of Common  Stock  after  giving  effect to the Reverse
Split, as adjusted as provided herein.

            (c) COMPANY'S FAILURE TO TIMELY DELIVER SECURITIES.  If within three
(3) Trading Days after the Company's  receipt of the facsimile  copy of Exercise
Delivery Documents, the Company fails to (x) issue and deliver a certificate for
that  number  of shares of Common  Stock to which  the  Holder is  entitled  and
register  such  shares of Common  Stock on the  Company's  share  register or to
credit the Holder's  balance account with DTC for the number of shares of Common
Stock to which  the  Holder is  entitled  upon such  Holder's  exercise  of this
Warrant or (y) issue and  deliver to the Holder by the Warrant  Delivery  Date a
new  Warrant  for the number of shares of Common  Stock to which such  Holder is
entitled  pursuant to Section 2(a)  hereof,  and if on or after such Trading Day
the Holder  purchases (in an open market  transaction  or  otherwise)  shares of
Common  Stock to  deliver in  satisfaction  of a sale by the Holder of shares of
Common Stock issuable upon such exercise that the Holder  anticipated  receiving
from the Company (a "BUY-IN"), then the Company shall, within three (3) Business
Days after the Holder's request and in the Holder's  discretion,  either (i) pay
cash to the  Holder in an amount  equal to the  Holder's  total  purchase  price
(including  brokerage  commissions,  if any) for the  shares of Common  Stock so
purchased  (the "BUY-IN  PRICE"),  at which point the  Company's  obligation  to
deliver  such  certificate  (and to issue  such  shares of Common  Stock)  shall
terminate,  or (ii)  promptly  honor its  obligation  to deliver to the Holder a
certificate  or  certificates  representing  such  shares of Common  Stock or if
legends are not required to be placed on  certificates  of Common Stock pursuant
to the  Securities  Purchase  Agreement,  provided  that the  Transfer  Agent is
participating  in DTC  Fast  Automated  Securities  Transfer  Program,  upon the
request of the Holder,  credit such aggregate  number of Warrant Shares to which
the  Holder  is  entitled  pursuant  to such  exercise  to the  Holder's  or its
designee's  balance  account  with DTC  through  its  Deposit  Withdrawal  Agent
Commission  system and pay cash to the  Holder in an amount  equal to the excess
(if any) of the Buy-In  Price over the  product of (A) such  number of shares of
Common Stock, times (B) the Closing Bid Price on the date of exercise.

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            (d) CASHLESS EXERCISE.  Notwithstanding anything contained herein to
the contrary, if a Registration Statement or Demand Registration Statement (each
as defined in the Registration  Rights  Agreement) for the resale of the Warrant
Shares that are the subject of the  Exercise  Notice (the  "UNAVAILABLE  WARRANT
SHARES") (i) has not become  effective by the 150th day after the Issuance Date,
or (ii)  is not  available  due to a  Maintenance  Failure  (as  defined  in the
Registration   Rights   Agreement)  that  has  continued  for  more  than  three
consecutive Trading Days, then, until the date that a Registration  Statement or
Demand  Registration  Statement is available for the resale of such  Unavailable
Warrant Shares, the Holder may, in its sole discretion, exercise this Warrant in
whole or in part and, in lieu of making the cash payment otherwise  contemplated
to be made to the Company in respect of the  Unavailable  Warrant  Shares,  upon
such  exercise in payment of the  Aggregate  Exercise  Price,  elect  instead to
receive upon such exercise the "Net Number" of shares of Common Stock determined
according to the following formula (a "CASHLESS EXERCISE")

      Net Number = (A X B) - (A X C)
                   -----------------
                           B

            For purposes of the foregoing formula:

                  A= the total number of shares in respect of which this Warrant
                  is then being exercised.

                  B= the  Closing  Sale Price of the shares of Common  Stock (as
                  reported  by  Bloomberg)   on  the  Trading  Day   immediately
                  preceding the date of the Exercise Notice.

                  C= the  Exercise  Price  then in  effect  for  the  applicable
                  Warrant Shares at the time of such exercise.

            (e) DISPUTES.  In the case of a dispute as to the  determination  of
the Exercise Price or the  arithmetic  calculation  of the Warrant  Shares,  the
Company shall promptly issue to the Holder the number of Warrant Shares that are
not disputed and resolve such dispute in accordance with Section 12.

            (f) LIMITATIONS ON EXERCISES

                  (i)  BENEFICIAL  OWNERSHIP.  The Company  shall not effect the
            exercise of this Warrant, and the Holder shall not have the right to
            exercise  this  Warrant,  to the extent that after giving  effect to
            such exercise,  such Person (together with such Person's affiliates)
            would beneficially own in excess of 9.99% (the "MAXIMUM PERCENTAGE")
            of the  number of shares of  Common  Stock  outstanding  immediately
            after giving effect to such exercise.  For purposes of the foregoing
            sentence,   the   aggregate   number  of  shares  of  Common   Stock
            beneficially  owned by such Person and its affiliates  shall include
            the number of shares of Common Stock  issuable upon exercise of this
            Warrant with respect to which the  determination of such sentence is
            being made,  but shall  exclude the number of shares of Common Stock
            which  would  be  issuable  upon  (i)  exercise  of  the  remaining,
            unexercised  portion

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            of this Warrant beneficially owned by such Person and its affiliates
            and (ii) exercise or conversion of the  unexercised  or  unconverted
            portion of any other securities of the Company beneficially owned by
            such Person and its affiliates (including,  without limitation,  any
            convertible  notes  or  convertible  preferred  stock  or  warrants)
            subject to a limitation on  conversion or exercise  analogous to the
            limitation  contained  herein.  Except as set forth in the preceding
            sentence, for purposes of this paragraph, beneficial ownership shall
            be  calculated in  accordance  with Section 13(d) of the  Securities
            Exchange Act of 1934, as amended (the "EXCHANGE  ACT"). For purposes
            of this Warrant,  in determining the number of outstanding shares of
            Common  Stock,  the  Holder  may rely on the  number of  outstanding
            shares of Common Stock as reflected in (1) the Company's most recent
            Form 10-K, Form 10-KSB,  Form 10-Q,  Form 10-QSB,  Current Report on
            Form 8-K or other  public  filing with the  Securities  and Exchange
            Commission,   as  the  case  may  be,  (2)  a  more  recent   public
            announcement  by the Company or (3) any other written  notice by the
            Company or the Transfer  Agent setting forth the number of shares of
            Common  Stock  outstanding.  For any  reason at any  time,  upon the
            written or oral request of the Holder,  the Company shall within one
            Business Day confirm  orally and in writing to the Holder the number
            of shares of Common Stock then outstanding.  In any case, the number
            of  outstanding  shares of Common  Stock shall be  determined  after
            giving  effect to the  conversion  or exercise of  securities of the
            Company, including the SPA Notes and the SPA Warrants, by the Holder
            and its  affiliates  since  the  date as of  which  such  number  of
            outstanding  shares of Common Stock was reported.  By written notice
            to the  Company,  the  Holder  may  from  time to time  increase  or
            decrease  the  Maximum  Percentage  to any other  percentage  not in
            excess of 9.99% specified in such notice; provided that (i) any such
            increase  will not be  effective  until the  sixty-first  (61st) day
            after such notice is  delivered  to the  Company,  and (ii) any such
            increase  or  decrease  will apply only to the Holder and not to any
            other holder of SPA Warrants.

                  (ii)  PRINCIPAL  MARKET  REGULATION.  The Company shall not be
            obligated to issue any shares of Common Stock upon  exercise of this
            Warrant,  and the Holder of this Warrant shall not have the right to
            receive upon exercise of this Warrant any shares of Common Stock, if
            the  issuance  of such  shares  of Common  Stock  would  exceed  the
            aggregate  number of shares of Common  Stock  which the  Company may
            issue upon conversion or exercise,  as applicable,  of the SPA Notes
            and SPA Warrants without  breaching the Company's  obligations under
            the rules or  regulations  of the  applicable  Eligible  Market (the
            number of shares which may be issued  without  violating  such rules
            and regulations,  the "EXCHANGE  CAP"),  except that such limitation
            shall  not apply in the  event  that the  Company  (A)  obtains  the
            approval of its  stockholders as required by the applicable rules of
            such  Eligible  Market for  issuances  of shares of Common  Stock in
            excess of such amount or (B) obtains a written  opinion from outside
            counsel to the Company  that such  approval is not  required,  which
            opinion shall be reasonably  satisfactory  to the Required  Holders.
            Unless and until such  approval or written  opinion is obtained,  no
            Buyer shall be issued in the aggregate,  upon conversion or exercise
            or otherwise, as applicable, of SPA Notes or SPA Warrants, shares of
            Common

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            Stock in an amount greater than the difference of (A) the product of
            the Exchange Cap  multiplied by a fraction the numerator of which is
            the total  number of shares of Common  Stock  issuable to such Buyer
            upon  the  exercise  of  all  such  Buyer's  SPA  Warrants  and  the
            conversion  or all such  Buyer's  SPA Notes and the  denominator  of
            which is the total  number of shares of Common Stock  issuable  upon
            the exercise of all the SPA Warrants and  conversion  of all the SPA
            Notes minus (B)(ii) the aggregate  number of (x)  Conversion  Shares
            that  have  been  issued  to such  Holder  prior to such  time  upon
            conversion  of any SPA Notes and (y)  Warrant  Shares that have been
            issued to such  Holder  prior to such time upon  exercise of any SPA
            Warrants (in respect of each Buyer, the "EXCHANGE CAP  ALLOCATION").
            In the event that any Buyer shall sell or otherwise  transfer any of
            such Buyer's SPA Warrants,  the transferee  shall be allocated a pro
            rata  portion  of such  Buyer's  Exchange  Cap  Allocation,  and the
            restrictions  of the prior sentence  shall apply to such  transferee
            with respect to the portion of the Exchange Cap Allocation allocated
            to such transferee.  In the event that any holder shall exercise all
            of such  holder's  SPA  Warrants  into a number  of shares of Common
            Stock which, in the aggregate,  is less than such holder's  Exchange
            Cap Allocation,  then the difference  between such holder's Exchange
            Cap  Allocation  and the number of shares of Common  Stock  actually
            issued to such holder shall be allocated to the respective  Exchange
            Cap  Allocations  of the remaining  holders of SPA Warrants on a pro
            rata basis in proportion to the aggregate  number of Warrant  Shares
            and Conversion Shares issuable upon exercise of the SPA Warrants and
            conversion  of the SPA  Notes  (at the  then  prevailing  conversion
            price), if any, then held by each such holder, without regard to any
            limitations on conversion or excercise.

      2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise
Price and the number of Warrant  Shares  shall be adjusted  from time to time as
follows:

            (a)  ADJUSTMENT  UPON  ISSUANCE  OF SHARES OF COMMON  STOCK.  If and
whenever on or after the  Subscription  Date, the Company issues or sells, or in
accordance  with this Section 2(a) is deemed to have issued or sold,  any shares
of Common Stock (including,  without limitation,  the issuance or sale of shares
of Common  Stock  owned or held by or for the  account  of the  Company  and the
issuance of any shares of Common  Stock,  Options or  Convertible  Securities in
exchange for any  non-convertible  security such as a non-convertible  note, but
excluding  Excluded  Securities  or shares of Common  Stock  deemed to have been
issued or sold by the Company in connection with any Excluded  Securities) for a
consideration  per  share  (the "NEW  ISSUANCE  PRICE")  less than a price  (the
"APPLICABLE  PRICE") equal to the Exercise Price in effect  immediately prior to
such  issue or sale or  deemed  issuance  or sale  (the  foregoing  a  "DILUTIVE
ISSUANCE"),  then,  (x) in the event of a Dilutive  Issuance  on or prior to the
first  anniversary  of the Issuance  Date,  the Exercise  Price in effect at the
opening of business on the day next  following  such Dilutive  Issuance shall be
adjusted  to equal the New  Issuance  Price,  and (y) in the event of a Dilutive
Issuance  anytime  following the first  anniversary  of the Issuance  Date,  the
Exercise  Price in effect at the opening of  business on the day next  following
such Dilutive Issuance shall be reduced to an amount equal to the product of (A)
the Exercise Price in effect immediately prior to such Dilutive Issuance and (B)
the quotient  determined  by dividing (1) the sum of (I) the product  derived by
multiplying the Exercise Price in effect immediately

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prior to such Dilutive  Issuance and the number of shares of Common Stock Deemed
Outstanding   immediately   prior  to  such  Dilutive  Issuance  plus  (II)  the
consideration,  if any, received by the Company upon such Dilutive Issuance,  by
(2) the  product  derived  by  multiplying  (I) the  Exercise  Price  in  effect
immediately  prior to such  Dilutive  Issuance  by (II) the  number of shares of
Common Stock Deemed  Outstanding  immediately after such Dilutive  Issuance.  In
determining  whether  any  shares of Common  Stock are  issued or  issuable,  or
Convertible  Securities  or  Options  entitle  the  Holders of SPA  Warrants  to
subscribe  for or  purchase  shares of Common  Stock at less than such  Exercise
Price,  there  shall be taken into  account  any  consideration  received by the
Company  upon  issuance  of any  such  securities,  the  conversion  of any such
Convertible  Securities  and upon  exercise  of such  Options  the value of such
consideration,  if other than cash,  to be determined in good faith by the board
of directors of the Company (the "BOARD OF  DIRECTORS") in the exercise of their
fiduciary duty. Upon each such adjustment of the Exercise Price  hereunder,  the
number of Warrant  Shares  shall be  adjusted  to the number of shares of Common
Stock determined by multiplying the Exercise Price in effect  immediately  prior
to such  adjustment by the number of Warrant Shares  acquirable upon exercise of
this  Warrant  immediately  prior to such  adjustment  and  dividing the product
thereof by the Exercise Price resulting from such adjustment.

            (b) ADJUSTMENT  UPON  SUBDIVISION OR COMBINATION OF COMMON STOCK. If
and whenever on or after the Subscription  Date, the Company (A) pays a dividend
or makes a distribution payable in shares of Common Stock on any class of shares
of capital stock of the Company, (B) subdivides its outstanding shares of Common
Stock into a greater number of shares,  (C) combines its  outstanding  shares of
Common Stock into a smaller  number of shares (other than the Reverse  Split) or
(D)  issues any shares of  capital  stock by  reclassification  of its shares of
Common Stock,  then, and in each such case, (X) the aggregate  number of Warrant
Shares for which this  Warrant  is  exercisable  (the  "WARRANT  SHARE  NUMBER")
immediately  prior to such event  shall be adjusted  (and any other  appropriate
actions  shall be taken by the  Company)  so that the  Warrant  Holder  shall be
entitled to receive upon exercise of this Warrant the number of shares of Common
Stock or other  securities of the Company that it would have owned or would have
been entitled to receive upon or by reason of any of the events described above,
had this Warrant been  exercised  immediately  prior to the  occurrence  of such
event and (Y) the Exercise Price payable upon the exercise of this Warrant shall
be  adjusted  by  multiplying  such  Exercise  Price  immediately  prior to such
adjustment by a fraction,  the numerator of which shall be the number of Warrant
Shares  issuable  upon the  exercise of this Warrant  immediately  prior to such
adjustment,  and the  denominator of which shall be the number of Warrant Shares
issuable immediately  thereafter.  An adjustment made pursuant to this Section 2
shall become effective  immediately upon the opening of business on the day next
following  the record  date  (subject  to Section  2(e)  below) in the case of a
dividend or distribution and shall become effective immediately upon the opening
of  business  on the day  next  following  the  effective  date in the case of a
subdivision, combination or reclassification.

            (c) OTHER EVENTS.  If any event occurs of the type  contemplated  by
the  provisions  of  this  Section  2 but  not  expressly  provided  for by such
provisions  (including,  without limitation,  the granting of stock appreciation
rights,  phantom  stock rights or other rights with equity  features  other than
Excluded  Securities),  then the Board of  Directors  will  make an  appropriate
adjustment  in the  Exercise  Price and the  number of  Warrant  Shares so as to
protect the rights of the Holder;  provided that no such adjustment  pursuant to
this  Section 2(c) will

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increase  the  Exercise  Price or  decrease  the  number  of  Warrant  Shares as
otherwise determined pursuant to this Section 2.

            (d) NOTICE OF  ADJUSTMENT.  Upon the  occurrence  of any event which
requires any  adjustment  or  readjustment  of the  Exercise  Price or change in
number or type of stock, securities and/or other property issuable upon exercise
of this Warrant,  then,  and in each such case,  the Company shall  promptly (i)
file with the Transfer Agent an officer's certificate setting forth the adjusted
Exercise Price after such  adjustment and setting forth a brief statement of the
facts requiring such adjustment,  which certificate shall be conclusive evidence
of the correctness of such adjustment  absent manifest error, (ii) make a public
announcement of such adjustment or readjustment and (iii) give notice thereof to
the holder hereof,  which notice shall state the adjusted  Exercise  Price,  any
change in the number or type of stock, securities and/or other property issuable
upon exercise of this Warrant,  setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based and the effective
date of such adjustment.

            (e) No  adjustment  in the Exercise  Price shall be required  unless
such  adjustment  would require a cumulative  decrease of at least $0.01 in such
price; PROVIDED,  HOWEVER, that any adjustments that by reason of this Section 2
are not  required to be made shall be carried  forward and taken into account in
any subsequent  adjustment until made. All calculations  under this Section 2(e)
shall be made to the nearest cent (with $0.005 being  rounded  upward) or to the
nearest one-tenth of a share (with 0.05 of a share being rounded upward), as the
case may be.

            (f) In any case in which Section 2 provides that an adjustment shall
become  effective on the day next  following  the record date for an event,  the
Company may without  penalty defer until the occurrence of such event issuing to
the Holders of any SPA Warrants  exercised after such record date and before the
occurrence  of such event the  additional  shares of Common Stock  issuable upon
such exercise by reason of the adjustment  required by such event over and above
the shares of Common Stock issuable upon such conversion before giving effect to
such adjustment.

            (g) If any action or  transaction  would  require  adjustment of the
Exercise  Price pursuant to more than one subsection of this Section 2, only one
adjustment  shall be made, and such adjustment shall be the amount of adjustment
that has the highest absolute value.

      3. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

            (a)  PURCHASE  RIGHTS.  In addition to any  adjustments  pursuant to
Section 2 above, if at any time the Company grants, issues or sells any Options,
Convertible  Securities  or rights to purchase  stock,  warrants,  securities or
other  property pro rata to the record  holders of any class of shares of Common
Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon
the terms  applicable to such Purchase  Rights,  the aggregate  Purchase  Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock  acquirable  upon  complete  exercise of this  Warrant  (without
regard to any  limitations on the exercise of this Warrant)  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

                                     - 8 -
<PAGE>

which the record  holders of shares of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.

            (b) FUNDAMENTAL TRANSACTIONS.  If, at any time while this Warrant is
outstanding there is a Fundamental  Transaction,  then the Holder shall have the
right thereafter to receive,  upon exercise of this Warrant, the same amount and
kind of  securities,  cash or property as it would have been entitled to receive
upon the occurrence of such Fundamental  Transaction if it had been, immediately
prior to such  Fundamental  Transaction,  the  holder of the  number of  Warrant
Shares then  issuable  upon  exercise in full of this  Warrant  (the  "ALTERNATE
CONSIDERATION").  For purposes of any such exercise,  the  determination  of the
Exercise  Price  shall be  appropriately  adjusted  to  apply to such  Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such  Fundamental  Transaction,  and the Company
shall  apportion  the  Exercise  Price among the  Alternate  Consideration  in a
reasonable manner  reflecting the relative value of any different  components of
the Alternate Consideration.  If holders of Common Stock are given any choice as
to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it  receives  upon any  exercise  of this  Warrant  following  such  Fundamental
Transaction.  At the Holder's option and request made prior to the  consummation
of a Fundamental  Transaction,  any successor to the Company or surviving entity
in such  Fundamental  Transaction  shall,  either  (1) issue to the Holder a new
warrant  substantially  in the  form of this  Warrant  and  consistent  with the
foregoing provisions and evidencing the Holder's right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof,  or (2) in
the event that the amount of the Alternate  Consideration  issuable per share of
Common Stock in such  Fundamental  Transaction  is less than or equal to 120% of
the Exercise  Price,  purchase the Warrant from the Holder for a purchase price,
payable in cash within five Trading  Days after such  request (or, if later,  on
the effective date of the Fundamental  Transaction),  equal to the Black Scholes
Value of the remaining  unexercised  portion of this Warrant on the date of such
request. The terms of any agreement pursuant to which a Fundamental  Transaction
is effected shall include terms requiring any such successor or surviving entity
to comply  with the  provisions  of this  paragraph  (b) and  insuring  that the
Warrant (or any such replacement  security) will be similarly  adjusted upon any
subsequent transaction analogous to a Fundamental Transaction.

      4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

            (a) The Company  hereby  covenants  and agrees that the Company will
not, by amendment of its  Certificate  of  Incorporation,  Bylaws or through any
reorganization,   transfer   of  assets,   consolidation,   merger,   scheme  of
arrangement,  dissolution,  issue or sale of securities,  or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of  this  Warrant,  and  will  at all  times  in good  faith  carry  out all the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder.  Without  limiting the  generality of the  foregoing,  the
Company  (i) shall not  increase  the par  value of any  shares of Common  Stock
receivable  upon the exercise of this Warrant  above the Exercise  Price then in
effect,  (ii) shall take all such actions as may be necessary or  appropriate in
order  that  the  Company   may  validly  and  legally   issue  fully  paid  and
nonassessable  shares of Common  Stock upon the  exercise of this  Warrant,  and
(iii) shall, after the effectiveness of the Reverse Split, so long as any of the
SPA  Warrants  are  outstanding,  take all action  necessary to reserve and keep

                                     - 9 -
<PAGE>

available out of its authorized and unissued shares of Common Stock,  solely for
the purpose of effecting the exercise of the SPA Warrants, 130% of the number of
shares of Common  Stock as shall  from time to time be  necessary  to effect the
exercise of the SPA Warrants then outstanding (without regard to any limitations
on exercise).

            (b) This Warrant is, and any SPA Warrants issued in substitution for
or  replacement  of this Warrant  will upon  issuance  be, duly  authorized  and
validly issued.

            (c) All Warrant  Shares that may be issued upon the  exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and  nonassessable  and free from all taxes and Liens  with  respect to the
issuance thereof.

            (d) So long as any of the SPA Warrants are outstanding,  the Company
will,  and  will  cause  each of its  Subsidiaries  to  maintain  its  corporate
existence.

            (e) INSUFFICIENT AUTHORIZED SHARES. From and after the effectiveness
of the Reverse Split,  until the date the rights represented by this Warrant may
no longer be  exercised,  the  Company  will at all times  have  authorized  and
reserved at least 130% of the number of shares of Common Stock needed to provide
for the exercise of the rights then  represented by this Warrant (without regard
to any limitations on exercises) (the "REQUIRED  RESERVE  AMOUNT").  The initial
number of shares of Common Stock  reserved for exercises of the SPA Warrants and
each  increase  in the  number of shares of Common  Stock so  reserved  shall be
allocated pro rata among the Holders of the SPA Warrants  based on the number of
SPA  Warrants  then held by each  Holder of the SPA  Warrants or increase in the
number of reserved  shares of Common Stock, as the case may be. In the event any
Holder of the SPA Warrants shall sell or otherwise transfer any of such Holder's
SPA  Warrants,  each  transferee  shall be  allocated a pro rata  portion of the
number of shares of Common  Stock  reserved for such  transferor.  Any shares of
Common Stock  reserved  and  allocated to any Person that ceases to hold any SPA
Warrants  shall be allocated to the remaining  Holders of the SPA Warrants,  pro
rata based on the number of SPA Warrants  then held by such  Holders.  If at any
time after the  effectiveness of the Reverse Split and while any of the Warrants
remain  outstanding  the  Company  does  not have the  Required  Reserve  Amount
authorized and reserved (an "AUTHORIZED SHARE FAILURE"),  then the Company shall
immediately  take all action  necessary  to increase  the  Company's  authorized
shares of Common Stock to an amount  sufficient  to allow the Company to reserve
the Required  Reserve  Amount for the SPA  Warrants  then  outstanding.  Without
limiting the  generality of the foregoing  sentence,  promptly after the date of
the  occurrence  of an  Authorized  Share  Failure,  but in no event  later than
fifteen (15) days after the occurrence of such  Authorized  Share  Failure,  the
Company  shall take all action  necessary to increase the  Company's  Authorized
Shares of Common Stock to an amount  sufficient  to allow the Company to reserve
the  Required  Reserved  Amount for the  Warrants  then  outstanding,  including
obtaining the approval of its  stockholders as required by the applicable  rules
of the  Principal  Market.  In connection  with such actions,  the Company shall
provide each  stockholder  with a proxy statement and shall use its best efforts
to solicit its  stockholders'  approval of such increase in authorized shares of
Common  Stock  and  to  cause  its  board  of  directors  to  recommend  to  the
stockholders that they approve such proposal.

            (f)  LISTING.  The  Company  shall  promptly  secure the  listing or
quotation  of the shares of Common  Stock  issuable  upon the  exercise  of this
Warrant  upon the  Principal

                                     - 10 -
<PAGE>

Market (as  defined in the  Securities  Purchase  Agreement)  or upon such other
Eligible Market (as defined in the Securities Purchase Agreement),  if any, upon
which  shares of Common  Stock are then  listed or quoted  (subject  to official
notice of issuance upon exercise of this Warrant) and shall maintain, so long as
any other shares of Common  Stock shall be so listed or quoted,  such listing or
quotation  of all  shares of Common  Stock from time to time  issuable  upon the
exercise of this  Warrant;  and the Company shall so list or apply for quotation
on each Eligible  Market,  and shall  maintain such listing or quotation of, any
other shares of capital stock of the Company  issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed or quoted
on such Eligible Market.

            (g) BLUE SKY LAWS.  The  Company  shall,  on or  before  the date of
issuance  of  any  Warrant  Shares,  take  such  actions  as the  Company  shall
reasonably  determine are necessary to qualify the Warrant Shares for, or obtain
exemption  for the Warrant  Shares for,  sale to the holder of this Warrant upon
the exercise hereof under applicable securities or "blue sky" laws of the states
of the United States; PROVIDED,  HOWEVER, that the Company shall not be required
in connection  therewith or as a condition thereto to (i) qualify to do business
in any jurisdiction  where it would not otherwise be required to qualify but for
this  Section  4(h)(i),  (ii)  subject  itself to general  taxation  in any such
jurisdiction  or (iii) file a general  consent to service of process in any such
jurisdiction.

      5.  WARRANT  HOLDER  NOT  DEEMED  A   STOCKHOLDER.   Except  as  otherwise
specifically  provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share  capital of the  Company for any  purpose,  nor shall
anything  contained  in this  Warrant be  construed  to confer  upon the Holder,
solely in such  Person's  capacity  as the  Holder of this  Warrant,  any of the
rights of a  stockholder  of the Company or any right to vote,  give or withhold
consent to any corporate  action  (whether any  reorganization,  issue of stock,
reclassification  of stock,  consolidation,  merger,  conveyance or  otherwise),
receive  notice of  meetings,  receive  dividends  or  subscription  rights,  or
otherwise,  prior to the issuance to the Holder of the Warrant Shares which such
Person is then  entitled to receive  upon the due exercise of this  Warrant.  In
addition,  nothing  contained in this Warrant shall be construed as imposing any
liabilities  on the Holder to purchase  any  securities  (upon  exercise of this
Warrant  or  otherwise)  or  as a  stockholder  of  the  Company,  whether  such
liabilities  are  asserted  by the  Company  or by  creditors  of  the  Company.
Notwithstanding this Section 5, the Company shall provide the Holder with copies
of the same  notices  and other  information  given to the  stockholders  of the
Company   generally,   contemporaneously   with  the   giving   thereof  to  the
stockholders.

      6. REISSUANCE OF WARRANTS.

            (a) TRANSFER OF WARRANT.

                  (i) The  Company  shall  maintain at its  principal  executive
offices (or such other  office or agency of the Company as it may  designate  by
notice to the Holder),  a register for this Warrant,  in which the Company shall
record the name and  address of the person in whose name this  Warrant  has been
issued,  as well as the name and  address of each  transferee.  The  Company may
treat the person in whose name any Warrant is registered on the register as

                                     - 11 -
<PAGE>

the owner and Holder thereof for all purposes, notwithstanding any notice to the
contrary,  but in all events  recognizing  any transfers made in accordance with
the terms of this Warrant.

                  (ii) The  Holder  may  assign or  transfer  some or all of its
rights hereunder,  subject to compliance with the 1933 Act and the provisions of
Section 2 of the  Securities  Purchase  Agreement  without  the  consent  of the
Company, but shall promptly notify the Company of such assignment or transfer.

                  (iii) The Company is obligated to register the Warrant  Shares
for resale under the 1933 Act pursuant to the Registration Rights Agreement. The
shares of Common Stock  issuable upon exercise of this Warrant shall  constitute
Registrable  Securities  (as such term is  defined  in the  Registration  Rights
Agreement).  Each Holder of this  Warrant  shall be entitled to all the benefits
afforded to a Holder of any such  Registrable  Securities under the Registration
Rights Agreement and such Holder,  by its acceptance of this Warrant,  agrees to
be bound by and to  comply  with the terms and  conditions  of the  Registration
Rights  Agreement  applicable  to such  Holder as a Holder  of such  Registrable
Securities.

            (b) LOST, STOLEN OR MUTILATED  WARRANT.  Upon receipt by the Company
of  evidence  reasonably  satisfactory  to  the  Company  of  the  loss,  theft,
destruction  or mutilation of this Warrant,  and, in the case of loss,  theft or
destruction,  of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation,  upon surrender and  cancellation
of this  Warrant,  the  Company  shall  execute  and deliver to the Holder a new
Warrant (in accordance with Section 6(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.

            (c)   EXCHANGEABLE   FOR   MULTIPLE   WARRANTS.   This   Warrant  is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company,  for a new Warrant or Warrants (in  accordance  with Section  6(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase  such portion of such Warrant  Shares as is designated by the Holder
at the  time  of  such  surrender;  PROVIDED,  HOWEVER,  that  no  Warrants  for
fractional shares of Common Stock shall be given.

            (d) BOOK ENTRY.  Notwithstanding  anything to the contrary set forth
herein,  upon exercise of this Warrant in accordance with the terms hereof,  the
Holder shall not be required to physically surrender this Warrant to the Company
unless it is being  exercised for all of the Warrant  Shares  represented by the
Warrant.  The Holder and the Company  shall each  maintain  records  showing the
number of Warrant Shares exercised and issued and the dates of such exercises or
shall use such other method,  reasonably satisfactory to the other, so as not to
require physical surrender of this Warrant upon each such exercise. In the event
of any dispute or  discrepancy,  such  records of the Company  establishing  the
number of Warrant  Shares to which the Holder is entitled  shall be  controlling
and  determinative  in the absence of demonstrable  error.  Notwithstanding  the
foregoing,  if this  Warrant  is  exercised  as  aforesaid,  the  Holder may not
transfer this Warrant unless the holder first physically surrenders this Warrant
to the Company,  whereupon the Company will forthwith issue and deliver upon the
order of the Holder a new  Warrant of like tenor,  registered  as the Holder may
request,  representing  in the aggregate the remaining  number of Warrant Shares
represented by this Warrant. The Holder and

                                     - 12 -
<PAGE>

any assignee,  by acceptance  of this  Warrant,  acknowledge  and agree that, by
reason of the provisions of this paragraph,  following  exercises of any portion
of this Warrant, the number of Warrant Shares represented by this Warrant may be
less than the number stated on the face hereof.

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

            If to the Company:

            Aerobic Creations, Inc.
            547 Boulevard
            Kenilworth, NJ 07033
            Telephone: (908) 497-0280
            Facsimile: (908) 497-0295
            Attention: Robert Agresti

            If to a Holder of this  Warrant,  to it at the address and facsimile
number set forth on the Schedule of Buyers to the Securities Purchase Agreement,
with copies to such  holder's  representatives  as set forth on such Schedule of
Buyers,  or, in the case of the holder or any other Person named above,  at such
other  address  and/or  facsimile  number  and/or to the attention of such other
person as the recipient party has specified by written notice to the other party
in  accordance  with this Section 7 at least five (5) Business Days prior to the
effectiveness of such change.  Written  confirmation of receipt (A) given by the
recipient  of  such  notice,  consent,   waiver  or  other  communication,   (B)
mechanically  or  electronically  generated  by the sender's  facsimile  machine
containing the time, date,  recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally  recognized  overnight
delivery service shall be rebuttable  evidence of personal  service,  receipt by
facsimile or deposit with a nationally  recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.

      8.  AMENDMENT  AND  WAIVER.  Except  as  otherwise  provided  herein,  the
provisions  of this  Warrant  may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it,  only if the  Company  has  obtained  the  written  consent of the  Required
Holders; provided that no such action may increase the exercise price of any SPA
Warrant  or  decrease  the  number of shares or class of stock  obtainable  upon
exercise of any SPA Warrant without the written  consent of the Holder.  No such
amendment  shall be  effective to the extent that it applies to less than all of
the holders of the SPA Warrants then outstanding.

      9.  GOVERNING  LAW.  This Warrant  shall be governed by and  construed and
enforced in accordance  with,  and all questions  concerning  the  construction,
validity,

                                     - 13 -
<PAGE>

interpretation  and  performance  of this  Warrant  shall be  governed  by,  the
internal laws of the State of New York,  without  giving effect to any choice of
law or conflict of law  provision  or rule  (whether of the State of New York or
any other  jurisdictions)  that would cause the  application  of the laws of any
jurisdictions other than the State of New York.

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

      11.  SEVERABILITY.  If any  provision of this  Warrant or the  application
thereof  becomes  or is  declared  by a court of  competent  jurisdiction  to be
illegal, void or unenforceable,  the remainder of the terms of this Warrant will
continue in full force and effect.

      12. DISPUTE  RESOLUTION.  In the case of a dispute as to the determination
of the Exercise Price or the arithmetic  calculation of the Warrant Shares,  the
Company shall submit the disputed  determinations or arithmetic calculations via
facsimile within two Business Days of receipt of the Exercise Notice giving rise
to such  dispute,  as the case may be,  to the  Holder.  If the  Holder  and the
Company  are  unable to agree  upon such  determination  or  calculation  of the
Exercise Price or the Warrant Shares within three Business Days of such disputed
determination or arithmetic  calculation being submitted to the Holder, then the
Company  shall,  promptly,  and in any event within two (2) Business Days submit
via  facsimile  (a) the  disputed  determination  of the  Exercise  Price  to an
independent,  reputable  investment bank agreed to by the Company and the Holder
or (b)  the  disputed  arithmetic  calculation  of  the  Warrant  Shares  to the
Company's  independent,  outside  accountant.  The  Company  shall  cause at its
expense the investment  bank or the  accountant,  as the case may be, to perform
the  determinations or calculations and notify the Company and the Holder of the
results  no later  than five (5)  Business  Days from the time it  receives  the
disputed  determinations or calculations.  If such Investment Bank or accountant
agrees with the Company's  determination  or calculations  (as the case may be),
then the Holder shall reimburse the Company for the expense it incurred to cause
the investment  bank/accountant  to perform such  determination  or calculation.
Such investment bank's or accountant's determination or calculation, as the case
may be, shall be binding upon all parties absent demonstrable error.

      13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.

            (a) The remedies provided in this Warrant shall be cumulative and in
addition  to all other  remedies  available  under  this  Warrant  and the other
Transaction  Documents,  at law or in equity  (including  a decree  of  specific
performance and/or other injunctive relief),  and nothing herein shall limit the
right of the Holder to pursue  actual  damages for any failure by the Company to
comply with the terms of this Warrant. The Company acknowledges that a breach by
it of its obligations  hereunder will cause  irreparable  harm to the Holder and
that the  remedy  at law for any such  breach  may be  inadequate.  The  Company
therefore agrees that, in the event of any such breach or threatened breach, the
holder of this  Warrant  shall be entitled,  in addition to all other  available
remedies,  to an  injunction  restraining  any breach,  without the necessity of
showing economic loss and without any bond or other security being required.

                                     - 14 -
<PAGE>

            (b) This Warrant and each of the provisions  hereof shall be subject
to the Intercreditor Agreement.

      14. NOTICE OF CERTAIN EVENTS.  The Company will give written notice to the
Holder of this  Warrant  at least ten (10)  Business  Days  prior to the date on
which the  Company  closes its books or takes a record  (A) with  respect to any
dividend or distribution upon the Common Stock, (B) with respect to any pro rata
subscription  offer to Holders of Common Stock or (C) for determining  rights to
vote in respect of any  Fundamental  Transaction,  dissolution  or  liquidation,
provided that such information  shall be made known to the public prior to or in
conjunction  with such notice being  provided to such Holder to the extent it is
material  non-public  information.  The Company will also give written notice to
the Holder of this Warrant at least ten (10)  Business Days prior to the date on
which any Fundamental  Transaction,  dissolution or liquidation will take place,
provided that such information  shall be made known to the public prior to or in
conjunction  with such notice being  provided to such Holder to the extent it is
material non-public information.

      15. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms
shall have the following meanings:

      (i) "BLACK  SCHOLES  VALUE" means the value of this  Warrant  based on the
      Black and Scholes  Option Pricing Model obtained from the "OV" function on
      Bloomberg  determined  as of the  day  immediately  following  the  public
      announcement of the applicable Fundamental  Transaction and reflecting (i)
      a risk-free  interest rate  corresponding to the U.S.  Treasury rate for a
      period  equal to the  remaining  term of this  Warrant  as of such date of
      request  and (ii) the  actual  volatility  of the Common  Stock  since the
      Issuance Date obtained from the HVT function on Bloomberg.

      (ii) "BLOOMBERG" means Bloomberg Financial Markets.

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

      (iv) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means,  for any security
      as of any date,  the last closing bid price and last closing  trade price,
      respectively,  for such security on the Principal  Market,  as reported by
      Bloomberg,  or, if the  Principal  Market begins to operate on an extended
      hours  basis and does not  designate  the closing bid price or the closing
      trade  price,  as the case may be,  then the last bid price or last  trade
      price,  respectively,  of such security  prior to 4:00:00  p.m.,  New York
      time,  as reported by Bloomberg,  or, if the  Principal  Market is not the
      principal  securities  exchange or trading market for such  security,  the
      last closing bid price or last trade price, respectively, of such security
      on the principal securities exchange or trading market where such security
      is listed or traded as reported by  Bloomberg,  or if the foregoing do not
      apply,  the last closing bid price or last trade price,  respectively,  of
      such security in the  over-the-counter  market on the electronic  bulletin
      board for such  security as reported by  Bloomberg,  or, if no closing bid
      price or last trade price, respectively,  is reported for such security by
      Bloomberg, the average of the bid prices, or the ask prices, respectively,
      of any market

                                     - 15 -
<PAGE>

      makers for such  security as reported in the "pink  sheets" by Pink Sheets
      LLC (formerly the National  Quotation  Bureau,  Inc.).  If the Closing Bid
      Price or the Closing Sale Price cannot be  calculated  for a security on a
      particular  date on any of the foregoing  bases,  the Closing Bid Price or
      the Closing Sale Price,  as the case may be, of such security on such date
      shall be the fair market value as mutually  determined  by the Company and
      the  Holder.  If the  Company  and the Holder are unable to agree upon the
      fair market value of such  security,  then such dispute  shall be resolved
      pursuant  to  Section  12.  All such  determinations  to be  appropriately
      adjusted for any stock dividend,  stock split,  stock combination or other
      similar transaction during the applicable calculation period.

      (v) "COMMON  STOCK" means (i) the Company's  shares of Common  Stock,  par
      value $0.001 per share,  and (ii) any share capital into which such Common
      Stock  shall  have been  changed  or any share  capital  resulting  from a
      reclassification of such Common Stock.

      (vi)  "COMMON  STOCK DEEMED  OUTSTANDING"  means,  at any given time,  the
      number of shares of Common Stock actually  outstanding at such time,  plus
      the number of shares of Common Stock deemed to be outstanding  pursuant to
      Section  2(a) hereof  regardless  of whether  the  Options or  Convertible
      Securities are actually exercisable at such time, but excluding any shares
      of Common  Stock  owned or held by or for the  account  of the  Company or
      issuable  upon  conversion  of the  SPA  Notes  and  exercise  of the  SPA
      Warrants.

      (vii)  "CONVERTIBLE  SECURITIES" means any stock or securities (other than
      Options)  directly  or  indirectly  convertible  into  or  exercisable  or
      exchangeable for shares of Common Stock.

      (viii) "ELIGIBLE MARKET" means the Initial Principal Market,  The New York
      Stock  Exchange,  Inc.,  the American  Stock  Exchange,  The NASDAQ Global
      Select Market, The NASDAQ Global Market or The NASDAQ Capital Market.

      (ix) "EXCLUDED SECURITIES" has the meaning set forth in the SPA Notes.

      (x)  "EXPIRATION  DATE"  means  the date  that is sixty  months  after the
      Issuance  Date;  provided  that if such date  falls on a day other  than a
      Business  Day or on which  trading  does not take place on the  applicable
      Eligible Market (a "HOLIDAY"), the next date that is not a Holiday.

      (xi) "FUNDAMENTAL  TRANSACTION" means that the Company shall,  directly or
      indirectly,  in  one or  more  related  transactions  effected  after  the
      Issuance Date,  (i)  consolidate or merge with or into (whether or not the
      Company  is the  surviving  corporation)  another  Person,  or (ii)  sell,
      assign, transfer,  convey or otherwise dispose of all or substantially all
      of the properties or assets of the Company to another Person,  or (iii) be
      the subject of a purchase, tender or exchange offer by another Person that
      is accepted by the holders of more than 50% of the  outstanding  shares of
      Voting Stock (not  including any shares of Voting Stock held by the Person
      or  Persons  making or party  to, or  associated  or  affiliated  with the
      Persons making or party to, such purchase, tender or

                                     - 16 -
<PAGE>

      exchange  offer),  or (iv) consummate a stock purchase  agreement or other
      business  combination  (including,  without limitation,  a reorganization,
      recapitalization,  spin-off or scheme of arrangement)  with another Person
      whereby such other Person  acquires  more than the 50% of the  outstanding
      shares of Common Stock (not  including  any shares of Common Stock held by
      the other Person or other  Persons  making or party to, or  associated  or
      affiliated  with the other Persons making or party to, such stock purchase
      agreement or other business combination),  or (v) reclassify or change the
      outstanding  shares of Common Stock (other than a change in par value,  or
      from par value to no par value, or from no par value to par value, or as a
      result of a subdivision or  combination),  or (vi) any "person" or "group"
      (as these terms are used for  purposes of Sections  13(d) and 14(d) of the
      Exchange  Act) is or shall  become the  "beneficial  owner" (as defined in
      Rule 13d-3 under the Exchange Act), directly or indirectly,  of 50% of the
      aggregate  ordinary  voting power  represented  by issued and  outstanding
      Common Stock.

      (xii)  "INITIAL  PRINCIPAL  MARKET"  means  the  National  Association  of
      Securities Dealers Inc.'s OTC Bulletin Board.

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

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

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

      (xvi)  "PRINCIPAL  MARKET" means,  from time to time, the Eligible  Market
      upon which the Common Stock is admitted or listed and principally trades.

      (xvii)  "REGISTRATION  RIGHTS  AGREEMENT" means that certain  registration
      rights agreement by and among the Company and the Buyers.

      (xviii)  "REQUIRED   HOLDERS"  means  the  holders  of  the  SPA  Warrants
      representing  at least a majority of shares of Common Stock  issuable upon
      exercise  of the SPA  Warrants  then  outstanding  (without  regard to any
      limitations on exercise thereof);  provided,  that any SPA Warrant that is
      held by an Affiliate of the Company shall not be deemed to be  outstanding
      for purposes of the determination of "Required Holders."

      (xix) "REVERSE  SPLIT" means that certain  reverse split in respect of the
      shares  Common  Stock of the  Company in which each  approximately  11.226
      shares of Common Stock prior to such reverse  split shall be exchanged for
      one share of Common Stock after such  reverse  split to be effected by the
      Company as promptly as practicable after the Issuance Date.

                                     - 17 -
<PAGE>

      (xx) "SPA NOTES" means those certain Senior Secured  Convertible Notes due
      2011  issued  pursuant to the  Securities  Purchase  Agreement  (Notes and
      Warrants) dated as of November 8, 2006 among the Company (pursuant to that
      certain Joinder  Agreement),  MLI and the buyers listed on the Schedule of
      Buyers thereto.

      (xxi)  "SUCCESSOR  ENTITY"  means the  Person  (or,  if so  elected by the
      Required  Holders,  the  Parent  Entity)  formed  by,  resulting  from  or
      surviving any Fundamental  Transaction or the Person (or, if so elected by
      the  Required  Holders,  the Parent  Entity)  with which such  Fundamental
      Transaction shall have been entered into.

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

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

                            [SIGNATURE PAGE FOLLOWS]

                                     - 18 -
<PAGE>

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

                                            AEROBIC CREATIONS, INC.

                                            By: ________________________________
                                            Name:
                                            Title:

<PAGE>

                                                                       EXHIBIT A

                                 EXERCISE NOTICE
            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                        WARRANT TO PURCHASE COMMON STOCK
                             AEROBIC CREATIONS, INC.

      The   undersigned   holder   hereby   exercises   the  right  to  purchase
_________________  of the shares of Common Stock  ("WARRANT  SHARES") of Aerobic
Creations,  Inc.,  a Delaware  corporation  (the  "COMPANY"),  evidenced  by the
attached  Warrant to Purchase Common Stock (the  "WARRANT").  Capitalized  terms
used herein and not  otherwise  defined shall have the  respective  meanings set
forth in the Warrant.

      1. Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:

            ___________  a "Cash  Exercise"  in respect of  ___________  Warrant
Shares; and/or

            When available  pursuant to the terms of the Warrant,  ___________ a
"Cashless Exercise" in respect of ___________ Warrant Shares.

      2. Cash Exercise. In the event that the holder has elected a Cash Exercise
in respect of some or all of the Warrant  Shares to be issued  pursuant  hereto,
the undersigned holder hereby exercises the right to purchase  _________________
of the shares of Common Stock ("WARRANT SHARES") of Aerobic  Creations,  Inc., a
Delaware  corporation  (the  "COMPANY"),  evidenced by the  attached  Warrant to
Purchase  Common Stock (the  "WARRANT").  Capitalized  terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

      3. Payment of Exercise Price. The holder shall pay the Aggregate  Exercise
Price in the sum of  $___________________  to the Company in accordance with the
terms of the Warrant.

      4.  Delivery of Warrant  Shares.  The Company  shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

            Issue to: __________________________________________________________

            Address: ___________________________________________________________

            Facsimile Number: __________________________________________________

            Authorization: _________________________

            By: ____________________________________

            Title: _________________________________

<PAGE>

            Dated: _________________________________

            DTC Participant Number and Name (if electronic book entry transfer):

            Account Number  (if electronic book entry transfer):

                                     - 2 -
<PAGE>

                                 ACKNOWLEDGMENT

      The Company hereby  acknowledges  this Exercise  Notice and hereby directs
___________________________________,  as  transfer  agent  to  issue  the  above
indicated number of shares of Common Stock in accordance with the Transfer Agent
Instructions dated ____________________,  2006 from the Company and acknowledged
and agreed to by the transfer agent.

                                        AEROBIC CREATIONS, INC.

                                        By: ____________________________________
                                            Name:
                                            Title:

                                     - 3 -Exhibit 4.2

                        FORM OF SECURED CONVERTIBLE NOTE

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES  REPRESENTED BY THIS CERTIFICATE
NOR THE  SECURITIES  INTO  WHICH  THESE  SECURITIES  ARE  CONVERTIBLE  HAVE BEEN
REGISTERED  UNDER THE  SECURITIES ACT OF 1933, AS AMENDED,  OR APPLICABLE  STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,  SOLD,  TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE  REGISTRATION  STATEMENT  FOR
THE SECURITIES  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR (B) AN OPINION
OF COUNSEL,  IN A GENERALLY  ACCEPTABLE FORM, THAT  REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD  PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING  THE  FOREGOING,  SUBJECT TO  COMPLIANCE  WITH  APPLICABLE
SECURITIES  LAWS, THE  SECURITIES MAY BE PLEDGED IN CONNECTION  WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
ANY  TRANSFEREE  OF THIS NOTE  SHOULD  CAREFULLY  REVIEW THE TERMS OF THIS NOTE,
INCLUDING  SECTIONS 3(C)(III) AND 18(A) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED
BY THIS NOTE AND,  ACCORDINGLY,  THE SECURITIES  ISSUABLE UPON CONVERSION HEREOF
MAY BE LESS THAN THE AMOUNTS  SET FORTH ON THE FACE  HEREOF  PURSUANT TO SECTION
3(C)(III)  OF  THIS  NOTE.  THIS  INSTRUMENT  IS  SUBJECT  TO  THE  TERMS  OF  A
INTERCREDITOR  AGREEMENT BY AND BETWEEN  FORTRESS CREDIT CORP., AS AGENT (OR ANY
SUCCESSOR OR REPLACEMENT  AGENT) FOR CERTAIN OTHER FINANCIAL  INSTITUTIONS UNDER
THE SENIOR LOAN AGREEMENT (HEREINAFTER DEFINED), AND LAW DEBENTURE TRUST COMPANY
OF NEW YORK (OR ANY SUCCESSOR OR REPLACEMENT  COLLATERAL AGENT), IN ITS CAPACITY
AS  COLLATERAL  AGENT,  FOR THE HOLDER OF THIS NOTE AND THE HOLDERS OF THE OTHER
NOTES,  DATED AS OF NOVEMBER  6, 2006 (AS THE SAME MAY BE AMENDED  SUPPLEMENTED,
RESTATED,  NOVATED OR REPLACED  (INCLUDING IN CONNECTION WITH REPLACEMENT SENIOR
FINANCING) FROM TIME TO TIME, THE "INTERCREDITOR AGREEMENT").

                             AEROBIC CREATIONS, INC.

                            SECURED CONVERTIBLE NOTE

Issuance Date: November 8, 2006      Original Principal Amount: U.S. $__________

            FOR VALUE RECEIVED,  Aerobic Creations, Inc., a Delaware corporation
(which  company has  indicated its intention to change its name to Summit Global
Logistics,  Inc.,  the  "COMPANY"),  hereby  promises  to pay to  the  order  of
[_________]or  registered  permitted assigns ("HOLDER") the amount set out above
as the  Original  Principal  Amount (as  reduced  pursuant  to the terms  hereof
pursuant  to  redemption   (or   prepayment),   conversion  or  otherwise,   the
"PRINCIPAL")  when due,  whether  upon the  Maturity  Date (as  defined  below),
acceleration,

<PAGE>

redemption  (or  prepayment)  or otherwise (in each case in accordance  with the
terms hereof) and to pay interest  ("INTEREST") on any outstanding  Principal at
the applicable Interest Rate, from November 8, 2006 (the "INTEREST  COMMENCEMENT
DATE") until the same becomes due and payable, whether upon an Interest Date (as
defined  below),  the Maturity Date,  acceleration,  conversion,  redemption (or
prepayment)  or otherwise  (in each case in accordance  with the terms  hereof).
This Senior Secured  Convertible Note (including all Senior Secured  Convertible
Notes issued in exchange,  transfer or replacement hereof, as amended, restated,
supplemented and/or modified from time to time in accordance with the provisions
hereof,  this  "NOTE") is one of an issue of Senior  Secured  Convertible  Notes
issued pursuant to the Securities  Purchase  Agreement (as defined below) on the
Closing  Date   (collectively,   the  "NOTES"  and  such  other  Senior  Secured
Convertible Notes, the "OTHER NOTES"). Certain capitalized terms used herein are
defined in Section 28.  Capitalized terms used but not defined herein shall have
the meanings ascribed to them in the Securities Purchase Agreement.

            (1)  MATURITY.  On the Maturity  Date,  the Company shall pay to the
Holder an amount in cash  representing  all outstanding  Principal,  accrued and
unpaid  Interest  and  accrued  and unpaid Late  Charges on such  Principal  and
Interest.  The "MATURITY  DATE" shall be November 8, 2011, as may be extended at
the option of the Holder (i) in the event that,  and for so long as, an Event of
Default (as defined in Section  4(a)) shall have  occurred and be  continuing on
the Maturity  Date (as may be extended  pursuant to this Section 1) or any event
that shall have occurred and be continuing that with the passage of time and the
failure to cure would  result in an Event of Default  and (ii)  through the date
that is ten (10) Business Days after the  consummation of a Change of Control in
the event that a Change of Control is publicly  announced or a Change of Control
Notice (as defined in Section  5(b)) is delivered  prior to the  Maturity  Date.
Except  as  specifically  set  forth  in  Section  8  hereof,  this  Note is not
voluntarily prepayable.

            (2)  INTEREST;  INTEREST  RATE.  (a) Interest on this Note (i) shall
accrue  interest at the Interest Rate,  commencing on the Interest  Commencement
Date,  (ii) shall be computed on the basis of a 360-day year comprised of twelve
(12)  thirty  (30) day  months and (iii)  shall be  payable in arrears  for each
Calendar Quarter on the first day of the succeeding  Calendar Quarter during the
period beginning on the Interest Commencement Date and ending on, and including,
the Maturity Date (each, an "INTEREST  DATE") with the first Interest Date being
January  1,  2007.  Interest  on  this  Note  shall  accrue  from  the  Interest
Commencement  Date  until  the  earlier  to occur of the date (i) the  Principal
Amount is paid or, if a paying agent is engaged by the Company,  transferred  to
such  paying  agent  with  instructions  to pay the same  and  (ii) all  amounts
outstanding under this Note are converted to Common Stock in accordance with the
provisions hereof. Interest shall be payable on each Interest Date to the record
holder of this Note on the applicable  Interest Date, and to the extent that any
principal amount of this Note is converted prior to such Interest Date,  accrued
and unpaid  Interest in respect of such converted  principal  amount and accrued
and  unpaid  Late  Charges in respect  of such  converted  principal  amount and
Interest shall be paid on the  Conversion  Date (as defined below) to the record
holder of this Note on the applicable Conversion Date, in cash.

                  (b) Interest on this Note that is payable,  and is  punctually
paid or duly  provided  for, on any Interest Date shall be paid to the Person in
whose name this Note is  registered  at the close of business on the Record Date
for such  interest  at the office or agency of

                                       2
<PAGE>

the  Company  maintained  for such  purpose or at the office of a payment  agent
located  in the state of New York  engaged  by the  Company  for the  purpose of
making payments under this Note and the Other Notes. Each payment of interest on
this Note shall be made by check  mailed to the address of the Holder  specified
in the register of Notes; PROVIDED,  HOWEVER, that, at the request of the Holder
in writing to the  Company,  interest on the Holder's  Note(s)  shall be paid by
wire transfer in immediately available funds in accordance with the written wire
transfer  instruction supplied by the Holder from time to time to the Company at
least ten (10) Business Days prior to the applicable Interest Date or Conversion
Date.

                  (c) From and after the occurrence  and during the  continuance
of an Event of Default,  the  Interest  Rate shall be  increased  to two percent
(2.0%) in excess of the Interest  Rate  otherwise  payable at such time.  In the
event that such Event of Default is subsequently cured or waived, the adjustment
referred to in the preceding sentence shall cease to be effective as of the date
of such cure or waiver;  provided that the Interest as calculated  and unpaid at
such  increased  rate  during the  continuance  of such  Event of Default  shall
continue  to apply to the extent  relating to the days after the  occurrence  of
such Event of Default to but  excluding the date of cure or waiver of such Event
of  Default.  For  purposes  of this  Section  2(c),  the period of the Event of
Default in respect of Section  4(a)(i) only,  shall commence the first day after
the grace periods  specified  therein expire and shall end on the day upon which
the  applicable  Registration  Statement  becomes  effective  or  again  becomes
available, as applicable.

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

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

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

                        (i)  "CONVERSION   AMOUNT"  means  the  portion  of  the
Principal  to be  converted,  redeemed  or  otherwise  in  respect  of which the
applicable determination is being made.

                        (ii) "CONVERSION PRICE" means, as of any Conversion Date
(as defined  below) or other date of  determination,  $11.00 per share of Common
Stock after the  effectiveness  of the Reverse  Split  subject to  adjustment as
provided herein.

                                       3
<PAGE>

                  (c) MECHANICS OF CONVERSION.

                        (i)  OPTIONAL  CONVERSION.  To  convert  any  Conversion
Amount into shares of Common Stock on any date (a "CONVERSION DATE"), the Holder
shall (A) transmit by facsimile (or otherwise deliver),  for receipt on or prior
to 11:59 p.m.,  New York Time,  on such date,  a copy of an  executed  notice of
conversion in the form attached hereto as EXHIBIT I (the "CONVERSION NOTICE") to
the Company and (B) if required by Section  3(c)(iii),  surrender this Note to a
common  carrier  for  delivery  to the  Company  as  soon as  practicable  on or
following such date (or an  indemnification  undertaking in respect of this Note
in the case of its loss,  theft or  destruction).  On or before the second (2nd)
Trading Day  following the date of receipt of a Conversion  Notice,  the Company
shall transmit by facsimile a confirmation of receipt of such Conversion  Notice
to the Holder and the Company's  transfer  agent (the "TRANSFER  AGENT"),  which
confirmation  shall  constitute an  instruction to the Transfer Agent to process
such Conversion  Notice in accordance with the terms herein (the "SHARE DELIVERY
DATE"),  and (X)  provided  that  the  Transfer  Agent is  participating  in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, the
applicable  registration  statement is effective under the 1933 Act and provided
that the Holder is  eligible  to receive  shares of Common  Stock  through  DTC,
credit such aggregate number of shares of Common Stock to which the Holder shall
be entitled to the Holder's or its designee's  balance  account with DTC through
its Deposit  Withdrawal Agent Commission system, or (Y) if the Transfer Agent is
not participating in the DTC Fast Automated  Securities  Transfer Program or the
Holder is not eligible to receive  shares of Common Stock through DTC, issue and
deliver to the address as specified in the  Conversion  Notice,  a  certificate,
registered in the name of the Holder or its  designee,  for the number of shares
of Common Stock to which the Holder shall be entitled, pay to the Holder in cash
an amount equal to the accrued and unpaid  Interest and Late Charges (as defined
in Section  25(b)),  if any, on the  Conversion  Amount up to and  including the
Conversion  Date.  The Holder  undertakes  that  whenever  the  Company  credits
securities  as set forth in clause (1)(X) of the  preceding  sentence,  (A) upon
receipt of notice from the Company that the applicable registration statement is
not, or no longer is, effective in respect of the resale of such securities, the
Holder will not transfer such  securities  (other than (I) in connection  with a
transfer,  wherein  the  Holder  provides  ShellCo  with an  opinion  of counsel
reasonably  satisfactory  to ShellCo,  in a generally  acceptable  form,  to the
effect that such transfer may be made without  registration under the applicable
requirements  of the  1933  Act,  or  (II)  the  Holder  provides  ShellCo  with
assurances  reasonably  acceptable  to ShellCo that the transfer may be effected
pursuant to Rule 144 or Rule 144) until the Company notifies the Holder that the
applicable  registration statement becomes effective (again), and (B) the Holder
shall  indemnify and hold the Company  harmless  against any claim of securities
laws  violations  in respect  of the  transfer  (after the  receipt of the first
notice from the Company provided for in clause (A) of this sentence but prior to
the receipt of the second notice from the Company  provided for in clause (A) of
this  sentence) by the Holder of any security as to which such credit at DTC has
been effected. If this Note is physically surrendered for conversion as required
by Section 3(c)(iii) and the outstanding  Principal of this Note is greater than
the Principal  being  converted,  then the Company shall, as soon as practicable
and in no event later than three (3)  Business  Days after  receipt of this Note
(the "NOTE  DELIVERY  DATE")and  at its own  expense,  issue and  deliver to the
holder  a  new  Note  (in  accordance  with  Section  18(d))   representing  the
outstanding  Principal not converted.  The Person or Persons entitled to receive
the shares of Common Stock issuable upon a conversion of this

                                       4
<PAGE>

Note shall be treated for all  purposes as the record  holder or holders of such
shares of Common Stock on the Conversion Date.

                        (ii) COMPANY'S FAILURE TO TIMELY CONVERT.

                        (A)  CONVERSION  FAILURE.   Subject  to  the  terms  and
      conditions  of this Note, if the Company shall fail to issue a certificate
      to the  Holder or credit the  Holder's  balance  account  with DTC for the
      number  of shares of Common  Stock to which the  Holder is  entitled  upon
      conversion of any Conversion Amount on or prior to the date which is three
      (3) Trading Days after the Conversion Date (a "CONVERSION  FAILURE"),  and
      if on or after such  Trading Day the Holder  purchases  (in an open market
      transaction  or otherwise)  Common Stock to deliver in  satisfaction  of a
      sale by the Holder of Common Stock issuable upon such  conversion that the
      Holder  anticipated  receiving  from the Company (a  "BUY-IN"),  then,  in
      addition to all other remedies available to the Holder, the Company shall,
      within  three (3)  Business  Days after the  Holder's  request  and in the
      Holder's discretion,  either (i) pay cash to the Holder in an amount equal
      to the Holder's total purchase price  (including  reasonable out of pocket
      brokerage  commissions,  and other reasonable  out-of-pocket  expenses, if
      any) for the shares of Common Stock so purchased (the "BUY-IN PRICE"),  at
      which point the Company's  obligation to deliver such  certificate (and to
      issue such Common  Stock)  shall  terminate,  or (ii)  promptly  honor its
      obligation  to  deliver  to  the  Holder  a  certificate  or  certificates
      representing  such  Common  Stock and pay cash to the  Holder in an amount
      equal to the excess (if any) of the Buy-In  Price over the  product of (A)
      such number of shares of Common Stock,  times (B) the Closing Bid Price on
      the Conversion Date.

                        (B) NOTICE OF VOID CONVERSION;  ADJUSTMENT TO CONVERSION
      PRICE.  If for any reason the Holder has not received all of the shares of
      Common  Stock  prior to the  tenth  (10th)  Business  Day  after the Share
      Delivery Date in respect of a conversion  of this Note,  other than due to
      the pendency of a dispute being resolved in accordance  with Section 23 (a
      "CONVERSION  FAILURE"),  then  the  Holder,  upon  written  notice  to the
      Company,  may void its Conversion Notice in respect of, and retain or have
      returned,  as the case may be, any  portion of this Note that has not been
      converted pursuant to the Holder's Conversion Notice.

                        (iii)  BOOK-ENTRY.   Notwithstanding   anything  to  the
contrary  set forth  herein,  upon  conversion  of any  portion  of this Note in
accordance with the terms hereof, the Holder shall not be required to physically
surrender  this Note to the  Company  unless (A) all of the  Principal  is being
converted or (B) the Holder has provided the Company with prior  written  notice
(which notice may be included in a Conversion Notice)  requesting  reissuance of
this Note upon physical surrender of this Note. The Holder and the Company shall
maintain  records  showing the  Principal  converted  (and the Interest and Late
Charges paid in respect  thereof) and the dates of such conversions or shall use
such other method,  reasonably satisfactory to the Holder and the Company, so as
not to require physical surrender of this Note upon conversion.  Notwithstanding
the  foregoing,  if this Note is converted or redeemed as aforesaid,  the Holder
may not transfer this Note unless the Holder first  physically  surrenders  this
Note to the Company, whereupon the Company will forthwith issue and deliver upon
the order of the Holder a new Note of like tenor,  registered  as the Holder may
request, representing in the aggregate the

                                       5
<PAGE>

remaining  Principal  represented by 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  or redemption of any portion of this
Note, the Principal of this Note may be less than the principal amount stated on
the face hereof.

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

                  (d) LIMITATIONS ON CONVERSIONS.

                        (i) BENEFICIAL  OWNERSHIP.  The Company shall not effect
any  conversion  of this  Note,  and the  Holder of this Note shall not have the
right to convert  any  portion of this Note  pursuant  to Section  3(a),  to the
extent that after giving effect to such  conversion,  the Holder  (together with
the Holder's affiliates) would beneficially own in excess of 9.99% (the "MAXIMUM
PERCENTAGE")  of the number of shares of Common  Stock  outstanding  immediately
after giving effect to such conversion;  PROVIDED,  HOWEVER,  that following the
Optional  Redemption  Notice  Date (as  defined  in  Section  8(a)) the  Maximum
Percentage  shall be of no further  force and effect on the Optional  Redemption
Date, solely for purposes of effecting a Optional Redemption pursuant to Section
8. For purposes of the foregoing  sentence,  the  aggregate  number of shares of
Common Stock  beneficially  owned by the Holder and its affiliates shall include
the number of shares of Common Stock  issuable  upon  conversion of this Note in
respect of which the  determination  of such  sentence is being made,  but shall
exclude the number of shares of Common  Stock  which would be issuable  upon (A)
conversion  of the  remaining,  nonconverted  portion of this Note  beneficially
owned by the Holder or any of its  affiliates  and (B) exercise or conversion of
the unexercised or nonconverted  portion of any other  securities of the Company
(including,  without  limitation,  any Other  Notes or  warrants)  subject  to a
limitation  on  conversion  or exercise  analogous to the  limitation  contained
herein beneficially owned by the Holder or any of its affiliates.  Except as set
forth  in  the  preceding  sentence,  for  purposes  of  this  Section  3(d)(i),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities  Exchange Act of 1934, as amended (the "EXCHANGE  ACT"). For purposes
of this Section  3(d)(i),  in determining  the number of  outstanding  shares of
Common Stock, the Holder may rely on the number of outstanding  shares of Common
Stock as reflected in (x) the Company's most recent Form 10-K, Form 10-KSB, Form
10-Q,  Form  10-QSB or Form 8-K,  as the case may be, (y) a more  recent  public
announcement  by the  Company  or (z) any  other  notice by the  Company  or the
Transfer  Agent setting forth the number of shares of Common Stock  outstanding.
For any reason at any time, upon the written or oral request of the Holder,  the
Company  shall  promptly,  but in no event no later than two (2) Business  Days,
confirm orally and in writing to the Holder the number of shares of Common Stock
then outstanding. In any case,

                                       6
<PAGE>

the number of  outstanding  shares of Common  Stock  shall be  determined  after
giving  effect to the  conversion  or exercise  of  securities  of the  Company,
including this Note, by the Holder or its affiliates  since the date as of which
such  number of  outstanding  shares of Common  Stock was  reported.  By written
notice  to the  Company,  the  Holder  may  increase  or  decrease  the  Maximum
Percentage  to any other  percentage  not in excess of 9.99%  specified  in such
notice;  provided  that (i) any such  increase  will not be effective  until the
sixty-first  (61st) day after such notice is delivered to the Company,  and (ii)
any such increase or decrease will apply only to the Holder and not to any other
holder of Notes.

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

                                       7
<PAGE>

            (4) RIGHTS UPON EVENT OF DEFAULT.

                  (a)  EVENT OF  DEFAULT.  Each of the  following  events  shall
constitute an "EVENT OF DEFAULT":

                        (i) the failure of the applicable Registration Statement
required  to be  filed  pursuant  to the  Registration  Rights  Agreement  to be
declared  effective  by the SEC on or prior to the date that is sixty  (60) days
after the  applicable  Effectiveness  Deadline  (as defined in the  Registration
Rights Agreement),  or, while the applicable  Registration Statement is required
to be  maintained  effective  pursuant to the terms of the  Registration  Rights
Agreement, the effectiveness of the applicable Registration Statement lapses for
any reason (including,  without limitation,  the issuance of a stop order) or is
unavailable  to any  holder  of the  Notes  for  sale  of all of  such  holder's
Registrable  Securities  (as defined in the  Registration  Rights  Agreement) in
accordance with the terms of the Registration  Rights Agreement,  and such lapse
or  unavailability  continues for a period of ten (10)  consecutive  days or for
more than three  times in any 365-day  period  that does not exceed  thirty (30)
days in the aggregate  (other, in each case, than days during an Allowable Grace
Period or a  Maintenance  Grace  Period (as defined in the  Registration  Rights
Agreement));

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

                        (iii) the  Company's  (A)  failure to cure a  Conversion
Failure by delivery,  subject to the Conversion Limitations set forth in Section
3(d),  of the  required  number of shares of Common  Stock  within  fifteen (15)
Business Days after the applicable  Conversion Date or (B) written notice to any
holder of the Notes,  including by way of public  announcement or through any of
its  agents,  at any time,  of its  intention  not to comply  with a request for
conversion  of any Notes  into  shares  of  Common  Stock  that is  tendered  in
accordance  with the  provisions  of the Notes,  other than  pursuant to Section
3(d);

                        (iv) after the  effectiveness  of the Reverse Split,  at
any time  following  the  twentieth  (20th)  consecutive  Business  Day that the
Holder's Authorized Share Allocation is less than the number of shares of Common
Stock that the Holder would be entitled to receive upon a conversion of the full
Conversion  Amount of this Note (without regard to any limitations on conversion
set forth in Section 3(d) or otherwise);

                        (v)  the  Company's  failure  to pay to the  Holder  any
amount of Principal  (including,  without limitation,  any redemption payments),
Interest,  Late Charges or other  amounts when and as due under this Note or any
other Transaction  Document (as defined in the Securities Purchase Agreement) or
any other  agreement,  document,  certificate or other  instrument  delivered in
connection with the  transactions  contemplated  hereby and thereby to which the
Holder is a party,  except, (A) in the case of a failure to pay Interest or Late
Charges  when and as due,  in which case only if such  failure  continues  for a
period of at least five (5) Business  Days and (B) if such payment is prohibited
by the  Intercreditor  Agreement  due  solely  to the  existence  of an Event of
Default occurring under any of the Senior Loan Documents

                                       8
<PAGE>

triggered  pursuant to the Intercreditor  Agreement or the Senior Loan Agreement
by the Holder's  breach of this Note or any  Transaction  Document to which such
Holder is a party;

                        (vi) the  Company's or any  Subsidiary's  failure to pay
any  principal of or interest or premium on any of its  Indebtedness  (excluding
Indebtedness  under the Senior  Loan and  Indebtedness  evidenced  by any of the
Notes),  to  the  extent  that  the  aggregate  principal  amount  of  all  such
Indebtedness  exceeds  $2,000,000,  when due  (whether  by  scheduled  maturity,
required prepayment,  acceleration,  demand or otherwise) and such failure shall
continue after the applicable grace period,  if any,  specified in the agreement
or  instrument  relating to such  Indebtedness,  or any other  default under any
agreement or instrument  relating to any such Indebtedness,  or any other event,
shall  occur and shall  continue  after the  applicable  grace  period,  if any,
specified  in such  agreement  or  instrument,  if the effect of such default or
event is to accelerate,  or to permit the  acceleration of, the maturity of such
Indebtedness;  or any such Indebtedness shall be declared to be due and payable,
or  required  to be  prepaid  (other  than  by a  regularly  scheduled  required
prepayment),  redeemed,  purchased  or defeased  or an offer to prepay,  redeem,
purchase or defease  such  Indebtedness  shall be  required to be made,  in each
case, prior to the stated maturity thereof, except, if such failure is caused by
the Holder's  breach of this Note or any of the  Transaction  Documents to which
such Holder is a party;

                        (vii) the Company or any of its  Subsidiaries  (A) shall
institute any  proceeding or voluntary case seeking to adjudicate it bankrupt or
insolvent,  or seeking  dissolution,  liquidation,  winding up,  reorganization,
arrangement,  adjustment,  protection,  relief or composition of it or its debts
under any law relating to bankruptcy,  insolvency,  reorganization  or relief of
debtors,  or seeking  the entry of an order for relief or the  appointment  of a
receiver, administrative receiver, administrator, trustee, custodian, liquidator
or other similar official for any such Person or for any substantial part of its
property, or any other Insolvency Proceeding,  (B) shall be generally not paying
its debts as such debts  become due or shall admit in writing its  inability  to
pay its debts  generally  or shall be unable to pay its debts,  (C) shall make a
general assignment for the benefit of creditors, or (D) shall take any action to
authorize or effect any of the actions set forth above in this subsection (vii);

                        (viii) any  proceeding  shall be instituted  against the
Company  or any  of its  Subsidiaries  seeking  to  adjudicate  it  bankrupt  or
insolvent,  or seeking  dissolution,  liquidation,  winding up,  reorganization,
arrangement,  adjustment, protection, relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver,  administrative  receiver,
administrator,  trustee, custodian, liquidator or other similar official for any
such Person or for any substantial part of its property, or any other Insolvency
Proceeding  shall be instituted  against the Company or any Subsidiary,  and any
such proceeding shall remain undismissed or unstayed for a period of thirty (30)
days  or any of the  actions  sought  in  such  proceeding  (including,  without
limitation,  the entry of an order for  relief  against  any such  Person or the
appointment  of a receiver,  administrative  receiver,  administrator,  trustee,
custodian,  liquidator or other similar  official for it or for any  substantial
part of its property) shall occur;

                        (ix) any provision of any Note, Security Document or the
Intercreditor  Agreement  or any other  security  document  entered into for the
benefit  of  the  Collateral  Agent  (as  defined  in  the  Securities  Purchase
Agreement)  or any  Holder,  after  delivery  thereof  pursuant  the  Securities
Purchase Agreement or any Note shall at any time for any reason

                                       9
<PAGE>

(other than pursuant to the express terms thereof) cease to be valid and binding
on or enforceable  against the Company or any Guarantor under the Guaranties (as
defined  in  the  Securities   Purchase  Agreement)  (each,  a  "GUARANTOR"  and
collectively,  the "GUARANTORS") intended to be a party thereto, or the validity
or  enforceability  thereof  shall  be  contested  by any  party  thereto,  or a
proceeding   shall  be  commenced  by  the  Company  or  any  Guarantor  or  any
Governmental  Authority  having  jurisdiction  over  any  of  them,  seeking  to
establish the invalidity or unenforceability  thereof, or any the Company or any
Guarantor  shall  deny  in  writing  that  it has any  liability  or  obligation
purported to be created under any Note or Security Document;

                        (x) the Security Agreement, the Intercreditor Agreement,
any Pledge  Agreement,  Guaranty (as each such term is defined in the Securities
Purchase  Agreement) or any other security document entered into for the benefit
of the Collateral Agent (as defined in the Securities Purchase Agreement) or any
Holder, after delivery thereof pursuant the Securities Purchase Agreement or any
Note,  shall for any reason fail or cease to create a valid and  perfected  and,
except to the extent  permitted by the terms hereof or thereof,  second priority
Lien  (subject  to  Permitted  Liens) in favor of the  Collateral  Agent for the
benefit of Holders on any Collateral purported to be covered thereby;

                        (xi) the loss,  suspension or revocation  of, or failure
to renew, any license or permit now held or hereafter acquired by the Company or
any Guarantor,  if such license or permit is not replaced with a similar license
or permit and, after giving effect to such replacement  license or permit,  such
loss,  suspension,  revocation  or failure to renew has or could  reasonably  be
expected to have a Material Adverse Effect;

                        (xii) the  indictment  of the  Company or any  Guarantor
under any criminal  statute,  or commencement  of criminal or civil  proceedings
against the Company or any  Guarantor,  pursuant to which statute or proceedings
the  penalties  or  remedies  sought  or  available  include  forfeiture  to any
Governmental Authority of any material portion of the property of such Person;

                        (xiii) a Change of Control shall have occurred;

                        (xiv) a breach, default, event of default or termination
shall  occur  under any  Acquisition  Document  (as  defined in the Senior  Loan
Agreement) or other Material  Contract  after giving effect to applicable  grace
periods,  if any,  contained in any such Acquisition  Document or other Material
Contract that gives any third party the right to terminate any such  Acquisition
Document  or other  Material  Contract or that  otherwise  could  reasonably  be
expected to have a Material Adverse Effect;

                        (xv)  one or more  final  judgments  or  orders  for the
payment of money is rendered against any the Company or any Subsidiary in excess
of $2,000,000 in the aggregate (provided that, any judgment covered by insurance
where the insurer has assumed  responsibility  in writing for such  judgment and
acknowledged  that the Company or Subsidiary,  as  applicable,  will receive the
proceeds of such  insurance  within thirty (30) days of the issuance of a final,
non-appealable judgment and execution thereon is effectively stayed shall not be
included in calculating such amount) and shall remain  undischarged or unvacated
for a period in excess of sixty (60) days or execution  shall at any time not be
effectively stayed, or any final

                                       10
<PAGE>

judgment  other  than for the  payment  of  money,  or  injunction,  attachment,
garnishment  or execution is rendered  against the Company or any  Subsidiary or
any of the  Collateral  having a value in excess of $2,000,000  and shall remain
undischarged or unvacated for a period in excess of sixty (60) days or execution
shall at any time not be effectively stayed;

                        (xvi) (A) Any  representation  or  warranty  made by the
Company or any  Subsidiary  herein (a)  containing a materiality  threshold,  is
incorrect or misleading  when made or (b) in respect of any such  representation
or  warranty  which  does  not  contain  a  materiality  threshold,  the same is
materially  misleading  or  materially  incorrect  when made or (B) the  Company
breaches any covenant  (other than the covenants set forth in Section 14 of this
Note) or other term or condition of any  Transaction  Document,  except,  in the
case of a breach of a covenant, term or condition which is curable, only if such
breach continues for a period of at least twenty (20) consecutive  Business Days
after notice thereof;

                        (xvii) any  breach or  failure in any  respect to comply
with  Section  14 of  this  Note,  Sections  6(e),  (g),  or (h)  of the  Pledge
Agreement,  or Sections 5(e)(i),  (g), or the first sentence of Section 5 (i) of
the Security Agreement;

                        (xviii)  any Event of Default  (as  defined in the Other
Notes) occurs in respect of any Other Note;

                        (xix)  the  occurrence  of any  acceleration  under  the
Senior Loan Documents in respect of Indebtedness outstanding thereunder;

                        (xx)  the  Company   and/or  any   Guarantor(s)   is/are
enjoined,  restrained  or in any way  prevented by the order of any court or any
Governmental  Authority from conducting all or any material part of its or their
business  for more  than ten (10) days  provided  that  such  curtailment  could
reasonably be expected to have a Material Adverse Effect;

                        (xxi)  any  material  damage  to,  or  loss,   theft  or
destruction of, any Collateral,  whether or not insured, or any strike, lockout,
labor  dispute,  embargo,  condemnation,  act of God or public  enemy,  or other
casualty which causes, for more than ten (10) days, the cessation or substantial
curtailment of revenue producing  activities at any facility of any Obligor,  if
any such event or  circumstance  has or could  reasonably  be expected to have a
Material Adverse Effect; or

                        (xxii)  any  cessation  of a  substantial  part  of  the
business  of the  Company  and/or  any  Guarantor(s)  for a period  which  could
reasonably be expected to have a Material Adverse Effect.

                  (b) REDEMPTION RIGHT. Upon the Company's  obtaining  knowledge
of the  occurrence  of an Event of  Default in respect of this Note or any Other
Note, the Company shall, as soon as possible,  but in any event,  within two (2)
Business  Days  thereafter  deliver  written  notice  thereof via  facsimile and
overnight  courier (an "EVENT OF DEFAULT NOTICE") to the Holder.  Subject to the
provisions of the Intercreditor  Agreement, at any time after the earlier of the
Holder's receipt of such Event of Default Notice and the Holder's becoming aware
of such an Event of  Default  in  respect  of this Note or any Other  Note,  the
Holder may  require  the  Company  to redeem all or any  portion of this Note by
delivering written notice thereof (the "EVENT OF

                                       11
<PAGE>

DEFAULT  REDEMPTION  NOTICE") to the Company,  which Event of Default Redemption
Notice shall indicate the portion of this Note the Holder is electing to redeem.
Each portion of this Note subject to redemption by the Company  pursuant to this
Section 4(b) shall be redeemed as provided in Section 12(a),  (provided that the
Event of  Default  giving  rise to such  redemption  right has not been cured or
waived on or before the second (2nd)  Business Day after the  expiration  of the
payments   standstill   period   set  forth  in  the   Intercreditor   Agreement
(notwithstanding  any shorter cure period set forth in Section 4(a) or any other
provision  hereof))  by the  Company at a price  equal to the greater of (x) the
product of (i) the  Conversion  Amount to be redeemed  together with accrued and
unpaid  Interest  and Late  Charges,  if any  incurred up to and  including  the
Conversion  Date, in respect of such  Conversion  Amount and (ii) the Redemption
Premium or (y) the product of (A) the Closing  Sale Price of the Common Stock on
the date  immediately  preceding  such  Event of Default  multiplied  by (B) the
number of shares of Common  Stock  into which the amount set forth in clause (x)
would have converted into in accordance with Section 3(a) (the "EVENT OF DEFAULT
REDEMPTION  PRICE").  For purposes of this Section  4(b) and Section  12(a),  an
Event of Default  occurring  under Section  4(a)(i) hereof shall be deemed to be
cured  on the day upon  which  the  applicable  Registration  Statement  becomes
effective or again becomes available,  as applicable.  To the extent redemptions
required by this Section 4(b) are deemed or  determined  by a court of competent
jurisdiction  to be  prepayments  of the Note by the Company,  such  redemptions
shall be deemed to be voluntary  prepayments.  The parties  hereto agree that in
the event of the  Company's  redemption  of any  portion  of the Note under this
Section 4(b), the Holder's  damages would be uncertain and difficult to estimate
because of the  parties'  inability  to predict  future  interest  rates and the
uncertainty of the availability of a suitable substitute investment  opportunity
for the Holder. Accordingly,  any Redemption Premium due under this Section 4(b)
is intended by the parties to be, and shall be deemed, a reasonable  estimate of
the Holder's actual loss of its investment opportunity and not as a penalty.

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

                  (a)  ASSUMPTION.  The Company shall not enter into or be party
to a Fundamental Transaction unless, in the case of a Fundamental Transaction of
the type described in clause (ii), (iii), (iv), or (v) of the definition thereof
if the Successor Entity in such  Fundamental  Transaction is a person other than
the Company, (i) such Successor Entity assumes in writing all of the obligations
of the Company under this Note and the other Transaction Documents in accordance
with the provisions of this Section 5(a) pursuant to written  agreements in form
and  substance  reasonably   satisfactory  to  the  Required  Holders  including
agreements  to  deliver  to each  holder of Notes in  exchange  for such Notes a
security of the Successor Entity evidenced by a written instrument substantially
similar in form and  substance  to the  Notes,  including,  without  limitation,
having a principal amount and interest rate equal to the principal  amounts then
outstanding  and the  interest  rates of the Notes held by such  holder,  having
similar  conversion rights as the Notes and having similar ranking to the Notes,
and  reasonably  satisfactory  to the Required  Holders and (ii) such  Successor
Entity (or its Parent  Entity) is a publicly  traded  corporation  whose  common
stock is quoted on or listed for trading on an Eligible  Market  (other than the
Initial Principal Market).  Upon the occurrence of any Fundamental  Transaction,
such Successor Entity shall succeed to, and be substituted for (so that from and
after the date of such  Fundamental  Transaction,  the  provisions  of this Note
referring to the

                                       12
<PAGE>

"Company" shall refer instead to such Successor Entity),  and may exercise every
right and power of the Company and shall  assume all of the  obligations  of the
Company  under this Note with the same  effect as if such  Successor  Entity had
been  named  as  the  Company  herein.  Upon  consummation  of  the  Fundamental
Transaction, such Successor Entity shall deliver to the Holder confirmation that
there shall be issued upon  conversion  or  redemption  of this Note at any time
after the consummation of the Fundamental Transaction,  in lieu of the shares of
the Company's Common Stock (or other securities, cash, assets or other property)
issuable  upon  the  conversion  or  redemption  of  the  Notes  prior  to  such
Fundamental  Transaction,  such shares of the publicly  traded  common stock (or
their  equivalent) of the Successor  Entity  (including its Parent  Entity),  as
adjusted in accordance  with the provisions of this Note. The provisions of this
Section shall apply similarly and equally to successive Fundamental Transactions
and shall be applied  without  regard to any  limitations  on the  conversion or
redemption of this Note.

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

                                       13
<PAGE>

a penalty,  and the  receipt  by the Holder of the Change of Control  Redemption
Price shall constitute full  satisfaction of the amount requested to be redeemed
pursuant to this Section 5.

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

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

                  (b)  OTHER  CORPORATE  EVENTS.  In  addition  to  and  not  in
substitution  for any other rights  hereunder,  but without  duplication  of the
consideration  issuable  pursuant to Section 5(a),  prior to the consummation of
any Fundamental  Transaction pursuant to which holders of shares of Common Stock
are entitled to receive  securities or other assets in respect of or in exchange
for  shares of Common  Stock (a  "CORPORATE  EVENT"),  the  Company  shall  make
appropriate  provision to insure that the Holder will  thereafter have the right
to receive  upon a  conversion  of this Note,  (i) in  addition to the shares of
Common Stock receivable upon such conversion, such securities or other assets to
which the Holder  would have been  entitled  in respect of such shares of Common
Stock  had  such  shares  of  Common  Stock  been  held by the  Holder  upon the
consummation   of  such  Corporate   Event  (without  taking  into  account  any
limitations or restrictions on the  convertibility of this Note) or (ii) in lieu
of the shares of Common Stock otherwise  receivable upon such  conversion,  such
securities or other assets  received by the holders of shares of Common Stock in
connection with the  consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note  initially  been issued
with conversion rights for the form of such  consideration (as opposed to shares
of Common Stock) at a conversion rate for such  consideration  commensurate with
the Conversion Rate.  Provision made pursuant to the preceding sentence shall be
in a form and substance  satisfactory to the Required Holders. The provisions of
this Section shall apply  similarly and equally to successive  Corporate  Events
and shall be applied  without  regard to any  limitations  on the  conversion or
redemption of this Note.

            (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

                  (a)  ADJUSTMENT  OF  CONVERSION  PRICE UPON ISSUANCE OF COMMON
STOCK. If and whenever on or after the Subscription Date, the Company (i) issues
or sells,  or in  accordance  with this Section 7(a) is deemed to have issued or
sold,  any shares of Common Stock  (including  the issuance or sale of shares of
Common Stock owned or held by or for the account of the Company,  but  excluding
shares of Excluded  Securities  and Common  Stock  deemed to have been issued or
sold by the  Company in  connection  with any  Excluded  Security),  Convertible
Securities  or Options  entitling  the  recipient  thereof to  subscribe  for or
purchase

                                       14
<PAGE>

shares of Common  Stock for a  consideration  per share of Common  Stock or (ii)
amend or otherwise modify the terms of any Convertible  Securities or Options to
a price per share of Common Stock (such issuance, subscription or purchase price
or amended or modified price being referred to as the "NEW ISSUANCE PRICE") less
than a price (the  "APPLICABLE  PRICE") equal to the Conversion  Price in effect
immediately  prior  to such  issue  or  sale or  deemed  issuance  or sale  (the
foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance,
the Conversion Price then in effect shall be:

                        (i)  if  such   issuance   occurs  prior  to  the  first
anniversary hereof, adjusted to equal the New Issuance Price, and

                        (ii) if such  issuance  occurs  on or  after  the  first
anniversary  hereof,  reduced  to an  amount  equal  to the  product  of (x) the
Conversion Price in effect  immediately  prior to such Dilutive Issuance and (y)
the quotient  determined  by dividing (1) the sum of (I) the product  derived by
multiplying the Conversion  Price in effect  immediately  prior to such Dilutive
Issuance and the number of shares of Common Stock Deemed Outstanding immediately
prior to such Dilutive Issuance plus (II) the consideration, if any, received by
the  Company  upon  such  Dilutive  Issuance,  by (2)  the  product  derived  by
multiplying  (I) the  Conversion  Price  in  effect  immediately  prior  to such
Dilutive  Issuance  by  (II)  the  number  of  shares  of  Common  Stock  Deemed
Outstanding immediately after such Dilutive Issuance.

                  (b) CERTAIN  DISTRIBUTIONS TO HOLDERS OF COMMON STOCK. In case
the Company shall at any time or from time to time, on or after the Subscription
Date and prior to conversion  of this Note,  distribute to all holders of shares
of Common Stock  (including  any such  distribution  made in  connection  with a
merger or  consolidation  in which the  Company is the  resulting  or  surviving
Person and the Common  Stock is not changed or  exchanged)  cash,  evidences  of
indebtedness of the Company, any Subsidiary or another issuer, securities of the
Company (including Convertible Securities),  any Subsidiary or another issuer or
other assets  (excluding  dividends  payable in shares of Common Stock for which
adjustment  is  made  under  another   paragraph  of  this  Section  7  and  any
distribution  in  connection  with the issuance of any Excluded  Securities)  or
Options to subscribe for or purchase of any of the foregoing,  then, and in each
such case, the Conversion  Price then in effect shall be adjusted (and any other
appropriate actions shall be taken by the Company) by multiplying the Conversion
Price in effect immediately prior to the date of such distribution by a fraction
(x) the  numerator  of which shall be the Weighted  Average  Price of the Common
Stock for the five (5) consecutive Trading Days immediately prior to the date of
distribution  less the then fair market value (as  determined  by the  Company's
Board  of  Directors  in  the  exercise  of  their  fiduciary  duties  with  the
concurrence  of the Required  Holders) of the portion of the cash,  evidences of
indebtedness,  securities or other assets so  distributed  or of such Options to
subscribe  applicable  to one share of Common Stock and (y) the  denominator  of
which shall be the Weighted  Average  Price of the Common Stock for the five (5)
consecutive Trading Days immediately prior to the date of distribution (but such
fraction shall not be greater than one). Such adjustment  shall be made whenever
any such distribution is made and shall become effective retroactively to a date
immediately  following  the  close  of  business  on the  record  date  for  the
determination of stockholders entitled to receive such distribution.

                                       15
<PAGE>

                  (c)  DIVIDENDS  AND  CERTAIN  OTHER  EVENTS IN  RESPECT OF THE
COMMON  STOCK.  In the event that the Company  shall at any time or from time to
time,  on or after the  Subscription  Date and prior to the  conversion  of this
Note,  (A) pay a  dividend  or make a  distribution  payable in shares of Common
Stock on any class of shares of capital stock of the Company,  (B) subdivide its
outstanding  shares of Common Stock into a greater number of shares, (C) combine
its  outstanding  shares of Common Stock into a smaller  number of shares (other
than  pursuant  to the  Reverse  Split (as  defined in the  Securities  Purchase
Agreement)) or (D) issue any shares of capital stock by  reclassification of its
shares of Common  Stock,  the  Conversion  Price in  effect  at the  opening  of
business  on  the  day  following  the  date  fixed  for  the  determination  of
stockholders entitled to receive such dividend or distribution or at the opening
of business on the day following the day on which such subdivision,  combination
or reclassification  becomes effective, as the case may be, shall be adjusted so
that the holder of any Notes  thereafter  surrendered  for  conversion  shall be
entitled to receive the number of shares of Common  Stock that such holder would
have owned or have been  entitled to receive  after the  happening of any of the
events  described above had such Notes been converted  immediately  prior to the
record date in the case of a dividend or  distribution  or the effective date in
the case of a subdivision,  combination or reclassification.  An adjustment made
pursuant  to this  Section  7(c) shall  become  effective  immediately  upon the
opening of  business  on the day next  following  the record  date  (subject  to
Section 7(e) below) in the case of a dividend or  distribution  and shall become
effective immediately upon the opening of business on the day next following the
effective date in the case of a subdivision, combination or reclassification.

                  (d) TENDER OFFERS.  In the event that the Company shall at any
time or from time to time,  on or after the  Subscription  Date and prior to the
conversion of this Note,  make a payment of cash or other  consideration  to the
holders  of shares of Common  Stock in  respect  of a tender  offer or  exchange
offer,  other  than  an  odd-lot  offer,  and  the  value  of the sum of (i) the
aggregate cash and other consideration paid for such shares of Common Stock, and
(ii) any other  consent or other fees paid to holders of shares of Common  Stock
in respect of such tender  offer or exchange  offer  expressed  as an amount per
share of Common  Stock  validly  tendered or  exchanged  pursuant to such tender
offer or exchange offer,  exceeds the Weighted Average Price of the Common Stock
on the  Trading  Day  immediately  prior to the date  any such  tender  offer or
exchange offer is first publicly announced (the "ANNOUNCEMENT  DATE"),  then the
Conversion Price shall be adjusted in accordance with the formula:

            R' = R x O' x P

            F + (P x O)

            For purposes of the foregoing formula:

            R = the  Conversion  Price in effect at the  expiration  time of the
tender  offer or exchange  offer that is the subject of this  Section  7(d) (the
"EXPIRATION TIME");

            R' = the Conversion Price in effect immediately after the Expiration
Time;

            F = the fair market value (as  determined by the Company's  Board of
Directors in the exercise of their fiduciary  duties with the concurrence of the
Required Holders) of the

                                       16
<PAGE>

aggregate  value of all cash and any other  consideration  paid or  payable  for
shares of Common Stock validly  tendered or exchanged  (including any consent or
other  fees) and not  withdrawn  prior to the  Expiration  Time (the  "PURCHASED
SHARES OF COMMON STOCK");

            O = the  number of shares of Common  Stock  outstanding  immediately
after the Expiration Time less any Purchased Shares of Common Stock;

            O' = the number of shares of Common  Stock  outstanding  immediately
after the Expiration Time, plus any Purchased Shares of Common Stock; and

            P = the Weighted  Average  Price of the Common Stock on the five (5)
consecutive  Trading Days beginning two (2) Trading Days after the  Announcement
Date.

Such decrease,  if any, shall become  effective  immediately upon the opening of
business on the day next  following the  Expiration  Time. In the event that the
Company is obligated to purchase  shares  pursuant to any tender offer,  but the
Company is prevented by applicable  law from effecting any such purchases or all
such  purchases are rescinded,  the Conversion  Price shall again be adjusted to
the  Conversion  Price that would then be in effect if such  tender or  exchange
offer had not been made. If the  application  of this Section 7(d) to any tender
or exchange  offer  would  result in an increase  in the  Conversion  Price,  no
adjustment  shall be made for such tender or exchange  offer under this  Section
7(d).

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

            (8) COMPANY'S RIGHT OF OPTIONAL REDEMPTION.

                  (a) OPTIONAL REDEMPTION. If on any Trading Day on or after the
third  anniversary  of the  Issuance  Date and prior to the Maturity  Date,  the
Weighted  Average  Price of the shares of Common  Stock has  equaled or exceeded
180% of the Conversion  Price then in effect for each of 20 consecutive  Trading
Days ending on the  Redemption  Period End Day and provided that the  applicable
Eligible  Market is not the Initial  Principal  Market and no Equity  Conditions
Failure  then  exists,  the  Company  shall  have the right to redeem all or any
portion of the Conversion  Amount then  remaining  under this Note (an "OPTIONAL
REDEMPTION").  The portion of this Note subject to  redemption  pursuant to this
Section 8 shall be  redeemed  by the Company in cash at a price equal to the sum
of (i) the  Principal  being  redeemed  and (ii) the amount of any  accrued  and
unpaid  Late  Charges on such  Principal  and any  accrued  and unpaid  Interest
through the date of redemption (the "OPTIONAL  REDEMPTION  PRICE").  The Company
may exercise its  redemption  right under this Section 8 by delivering a written
notice thereof by confirmed facsimile and overnight courier to all, but not less
than  all,  of the  holders  of Notes  and the  Transfer  Agent  (the  "OPTIONAL
REDEMPTION  NOTICE" and the date such notice is  delivered to all the holders is
referred to as the "OPTIONAL REDEMPTION NOTICE DATE"). The Optional

                                       17
<PAGE>

Redemption  Notice shall be irrevocable.  The Optional  Redemption  Notice shall
state (A) the date on which the Optional  Redemption  shall occur (the "OPTIONAL
REDEMPTION  DATE")  which  date  shall be not less than 30 days nor more than 60
days after the Optional  Redemption Notice Date, and (B) the aggregate principal
amount  (the  "OPTIONAL  REDEMPTION  AMOUNT") of the Notes which the Company has
elected to be  subject to  Optional  Redemption  from all of the  holders of the
Notes  pursuant  to this  Section 8 (and  analogous  provisions  under the Other
Notes)  on the  Optional  Redemption  Date.  The  Company  will  make  a  public
announcement  containing the  information  set forth in the Optional  Redemption
Notice on or before the Optional  Redemption  Notice  Date.  The Company may not
effect  more  than one  Optional  Redemption.  Notwithstanding  anything  to the
contrary in this  Section 8, until the  Optional  Redemption  Price is paid,  in
full, the Optional  Redemption Amount may be converted,  in whole or in part, by
the Holders  into shares of Common Stock  pursuant to Section 3. All  Conversion
Amounts converted by the Holder after the Optional  Redemption Notice Date shall
reduce  the  Conversion  Amount  of this Note  required  to be  redeemed  on the
Optional  Redemption Date.  Redemptions made pursuant to this Section 8 shall be
made in accordance with Section 12 to the extent applicable.

                  (b) PRO RATA REDEMPTION REQUIREMENT.  If the Company elects to
cause  an  Optional   Redemption   pursuant  to  Section  8(a),   then  it  must
simultaneously  take the same  action  in  respect  of the Other  Notes.  If the
Company  elects to cause an Optional  Redemption  pursuant  to Section  8(a) (or
similar  provisions  under the Other  Notes) in  respect of less than all of the
principal amount of the Notes then  outstanding,  then the Company shall require
redemption  of a  principal  amount from the Holder and each holder of the Other
Notes equal to the product of (i) the aggregate  principal amount of Notes which
the  Company  has  elected to cause to be  redeemed  pursuant  to Section  8(a),
multiplied  by (ii)  the  fraction,  the  numerator  of  which is the sum of the
initial  principal  amount of Notes purchased by such holder and the denominator
of which is the  initial  principal  amounts of Notes  purchased  by all holders
holding  outstanding  Notes (such fraction in respect of each holder is referred
to as its "REDEMPTION ALLOCATION PERCENTAGE", and such amount in respect of each
holder is referred to as its "PRO RATA REDEMPTION AMOUNT"); provided that in the
event that the initial holder of any Notes has sold or otherwise transferred any
of such holder's Notes,  the transferee shall be allocated a pro rata portion of
such holder's Redemption Allocation Percentage and Pro Rata Redemption Amount.

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

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

                                       18
<PAGE>

            (11) RESERVATION OF AUTHORIZED SHARES.

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

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

            (12) HOLDER'S REDEMPTIONS.

                  (a) MECHANICS.  The Company shall deliver the applicable Event
of Default  Redemption  Price to the Holder  within five (5) Business Days after
the Company's receipt of the Holder's Event of Default Redemption Notice, if the
Intercreditor  Agreement  does not  prohibit  the  payment by the Company of the
Default  Redemption  Price  at  such  time,  and if  such  payment  is  then  so
prohibited,  on the third  (3rd)  Business  Day after such  prohibition  lapses;
provided  that if the Event(s) of Default  giving rise to the  redemption  right
shall have been cured or waived on or before the second (2nd) Business Day after
such prohibition's lapsing, such

                                       19
<PAGE>

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

                  (b) REDEMPTION BY OTHER HOLDERS. Upon the Company's receipt of
notice from any of the holders of the Other Notes for redemption or repayment as
a result  of an event or  occurrence  substantially  similar  to the  events  or
occurrences described in Section 4(b) (each, an "OTHER REDEMPTION NOTICE"),  the
Company  shall  immediately,  but no later than one (1)  Business  Day after its
receipt  thereof,  forward to the Holder by facsimile a copy of such notice.  If
the  Company  receives a  Redemption  Notice  and one or more  Other  Redemption
Notices, during the seven (7) Business Day period beginning on and including the
date  which is three (3)  Business  Days prior to the  Company's  receipt of the
Holder's  Redemption  Notice and ending on and including the date which is three
(3) Business Days after the Company's receipt of the Holder's  Redemption Notice
and the Company is unable to redeem all  principal,  interest and other  amounts
designated in such Redemption Notice and such Other Redemption  Notices received
during such seven (7) Business Day period,  then the Company  shall redeem a pro
rata amount from each holder of the Notes  (including  the Holder)  based on the
principal  amount  of the  Notes  submitted  for  redemption  pursuant  to  such
Redemption  Notice and such Other  Redemption  Notices  received  by the Company
during such seven Business Day period.

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

                                       20
<PAGE>

            (14) COVENANTS.

                  (a) RANK.  All payments due under this Note (i) shall rank (A)
PARI  PASSU  with  all  Other  Notes,   (B)  junior  to  the  Permitted   Senior
Indebtedness,  (C) senior to the Subordinated Indebtedness, all Indebtedness not
constituting  Permitted  Indebtedness and all Permitted  Indebtedness  expressly
designated  as ranking  junior to the  Notes,  and (D) PARI PASSU with all other
Permitted  Indebtedness  and (ii) shall be secured  by a  security  interest  in
substantially all of the assets of the Company and the Subsidiaries,  other than
the Foreign Subsidiaries (as defined in the Securities Purchase Agreement),  the
escrowed  funds  referenced in SCHEDULE  14(A) and as otherwise  provided in the
Security Agreement (junior only to the security interests securing the Permitted
Senior  Indebtedness) and such security interests shall rank PARI PASSU with the
security   interests   securing   the   Indebtedness   under  the  Other  Notes.
Notwithstanding  the  foregoing,  if Company shall have  received  notice of the
existence of any Lien, the existence or priority of which is in violation of the
first sentence of this Section 14(a), Company shall have ten (10) days after the
receipt  of such  notice to remove  such Lien (or obtain  the  agreement  of the
holder of such Lien that such Lien  ranks in  priority  in  accordance  with the
first sentence of this Section 14(a)).

                  (b)  INCURRENCE  OF  INDEBTEDNESS.  Until  this  Note has been
converted,  redeemed or otherwise  satisfied in accordance with its terms (other
than in respect of contingent indemnification obligations in respect of which no
claim has been  asserted),  the Company  shall not,  and the  Company  shall not
permit any of its Subsidiaries  to, directly or indirectly,  incur or guarantee,
assume  or suffer to exist any  Indebtedness,  other  than (i) the  Indebtedness
evidenced by this Note and the Other Notes and (ii) Permitted Indebtedness.

                  (c)  EXISTENCE OF LIENS.  Until this Note has been  converted,
redeemed or  otherwise  satisfied  in  accordance  with its terms (other than in
respect of contingent  indemnification  obligations in respect of which no claim
has been asserted),  the Company shall not, and the Company shall not permit any
of its Subsidiaries to, create,  incur,  assume or suffer to exist any Lien upon
or in respect of any of its properties, whether now owned or hereafter acquired;
file or suffer to exist under the Uniform  Commercial Code or any similar law or
statute of any jurisdiction,  a financing  statement (or the equivalent thereof)
that names it or any of its Subsidiaries as debtor;  sign or suffer to exist any
security  agreement  authorizing  any  secured  party  thereunder  to file  such
financing  statement (or the  equivalent  thereof);  sell any of its property or
assets subject to an  understanding  or agreement,  contingent or otherwise,  to
repurchase such property or assets  (including  sales of accounts) with recourse
to it or any of its Subsidiaries or assign or otherwise transfer,  or permit any
of its Subsidiaries to assign or otherwise transfer,  any account or other right
to  receive  income;  other  than,  as to  all of the  above,  Permitted  Liens.
Notwithstanding  the  foregoing,  if Company shall have  received  notice of the
existence  of any Lien,  the  existence  of which is in  violation  of the first
sentence  of this  Section  14(c),  Company  shall  have ten (10) days after the
receipt of such notice to effect the removal of such Lien.

                  (d)  RESTRICTED  PAYMENTS.  The  Company  shall  not,  and the
Company shall not permit any of its  Subsidiaries  to,  directly or  indirectly,
redeem,  defease,  repurchase,  repay or make any payments in respect of, by the
payment of cash or cash equivalents (in whole or in part, whether by way of open
market purchases,  tender offers, private transactions or otherwise), all or any
portion  of  any  Indebtedness   (other  than  Permitted  Senior   Indebtedness,
Indebtedness  evidenced by the Other Notes or Permitted Indebtedness (other than
the Permitted

                                       21
<PAGE>

Indebtedness  referenced  in  clauses  (vi)  and  (xii)  hereof  and  any  other
Subordinated Indebtedness),  the payment of which shall not be restricted by the
provisions of this Note,  the Security  Documents,  the Warrant,  the Securities
Purchase  Agreement or the  Registration  Rights  Agreement),  whether by way of
payment in respect of  principal  of (or  premium,  if any) or  interest on such
Indebtedness, if at the time such payment is due or is otherwise made, or, after
giving effect to such payment, an event  constituting,  or that with the passage
of time and  without  being  cured  would  constitute,  an Event of Default  has
occurred  or  would  occur  and is,  or  would  be,  continuing;  provided  that
notwithstanding  the  foregoing,  no principal  (or any portion  thereof) of any
Subordinated  Indebtedness  may be  paid  (whether  upon  maturity,  redemption,
acceleration  or otherwise) so long as this Note is outstanding and for at least
91 days thereafter.

                  (e) RESTRICTION ON REDEMPTION AND CASH  DIVIDENDS.  Until this
Note has been converted,  redeemed or otherwise satisfied in accordance with its
terms  (other  than in  respect of  contingent  indemnification  obligations  in
respect of which no claim has been asserted),  the Company shall not, nor permit
any of its Subsidiaries to, directly or indirectly,

                        (i) Declare or pay any  dividend or other  distribution,
      or  permit  any  Subsidiary  to  declare  or pay  any  dividend  or  other
      distribution,  in each case  directly  or  indirectly,  on  account of any
      equity of the Company or any Subsidiary, except:

                              (A)  any   Subsidiary   of  the  Company  may  pay
            dividends  or  make  other  distributions  to  the  Company  or  any
            Subsidiary;

                              (B) the Company may pay  dividends  in the form of
            common stock or  preferred  stock  otherwise  permitted to be issued
            hereunder  (but in no  event  in the  form of  redeemable  preferred
            equity requiring any payment prior to the Maturity Date); or

                        (ii)  Make  any  repurchase,   redemption   (other  than
      redemption of the Notes in accordance with the terms hereof),  retirement,
      defeasance, sinking fund or similar payment, purchase or other acquisition
      for  value,  direct  or  indirect,  of any  equity of the  Company  or any
      Guarantor  or  any  direct  or  indirect  parent  of  the  Company  or any
      Guarantor,  now or hereafter outstanding or make any payment to retire, or
      to obtain the surrender  of, any  outstanding  warrants,  options or other
      rights for the purchase or acquisition of shares of any class of equity of
      the Company or any  Guarantor,  now or hereafter  outstanding,  except the
      Company and the Guarantors may repurchase  common stock held by employees,
      officers,  and/or  directors  pursuant to any Approved Stock Plan upon the
      termination,  retirement or death of any such  employee,  officer,  and/or
      director in accordance with the provisions of such plan or pursuant to any
      special  incentive  bonus plans  pursuant to the terms  thereof,  provided
      that,  as to any such  repurchase,  each of the  following  conditions  is
      satisfied: (A) as of the date of the payment for such repurchase and after
      giving  effect  thereto on a pro forma  basis,  no Event of Default  shall
      exist or have occurred and be  continuing,  (B) such  repurchase  shall be
      paid with funds legally available therefor,  (C) such repurchase shall not
      violate any law or regulation or the terms of any indenture,  agreement or
      undertaking  to which the Company or any  Guarantor is a party or by which
      the Company or such Guarantor or its or their property are bound, and

                                       22
<PAGE>

      (D) the  aggregate  amount of all  payments  for such  repurchases  in any
      calendar year shall not exceed $2,000,000;

                        (iii)  Return  any equity to any  shareholders  or other
      equity  holders  of the  Company or any of its  Subsidiaries,  or make any
      other distribution of property, assets, equity, warrants, rights, options,
      obligations  or  securities  thereto  as such  (other  than  as  permitted
      hereunder or, in the case of such  distribution of property or assets,  to
      the extent not otherwise prohibited hereunder);

                        (iv)  Pay  any  management  fees  or any  other  fees or
      expenses  (including  the  reimbursement  thereof  by the  Company  or any
      Guarantor)  pursuant  to any  management,  consulting  or  other  services
      agreement  to any of the  shareholders  or  other  equity  holders  of the
      Company or any Guarantor or other  Affiliates  except any such  management
      fees or any  other  fees  or  expenses  (x)  paid  to the  Company  or any
      Guarantor  (whether  paid  by the  Company,  any  Guarantor  or any  other
      Subsidiary  or Affiliate of the Company),  (y) paid by SeaMaster  China to
      Sea Master  Hong Kong (each as  defined  in the  Senior  Loan  Agreement);
      and/or (z) paid by a Subsidiary  that is not the Company or a Guarantor to
      a Subsidiary that is not the Company or a Guarantor or

                        (v)  Directly or  indirectly  make or commit to make any
      optional  prepayment of, or otherwise  repurchase any Indebtedness that is
      subordinated  in  right  of  payment  to  the  Notes,   including  without
      limitation, any Subordinated Indebtedness.

                  (f) MERGER  AND  ACQUISITION  ACTIVITIES.  Until this Note has
been  converted,  redeemed or otherwise  satisfied in accordance  with its terms
(other than with respect to contingent indemnification obligations in respect of
which no claim has been asserted),  the Company shall not and shall not cause or
permit any of its  Subsidiaries  to merge into or with or  consolidate  with any
other  Person or permit any other  Person to merge  into or with or  consolidate
with it or wind up, liquidate or dissolve, or permit any Subsidiary to do any of
the foregoing, except that, subject to compliance with Section 5 hereof, (w) the
Company or any  Subsidiary  organized  under the laws of a  jurisdiction  in the
United  States may merge with and into or  consolidate  with the  Company or any
Subsidiary  organized under the laws of a jurisdiction in the United States, and
any Foreign  Subsidiary  may merge with or  consolidate  with the Company or any
Subsidiary  organized  under the laws of a  jurisdiction  outside  of the United
States that is acceptable  to the  Collateral  Agent,  provided that each of the
following conditions is satisfied:  (A) the Collateral Agent shall have received
not less than ten (10) Business  Days' prior written  notice of the intention of
the Company or such  Subsidiary to so merge or  consolidate,  which notice shall
set forth in reasonable detail satisfactory to the Collateral Agent, the Persons
that are merging or  consolidating,  which person will be the surviving  entity,
the  locations of the assets of the Persons  that are merging or  consolidating,
and  the  material   agreements  and  documents   relating  to  such  merger  or
consolidation,   (B)  the  Collateral  Agent  shall  have  received  such  other
information with respect to such merger or consolidation as the Collateral Agent
may reasonably request, (C) the rights of the Collateral Agent and any Holder in
any  Collateral,  including,  but not limited to, the existence,  perfection and
priority  of any Lien  thereon,  are not  adversely  affected  by such merger or
consolidation,  (D) as of the effective date of the merger or consolidation  and
after giving effect thereto,  no Default or Event of Default shall exist or have
occurred and be continuing, (E) upon the Collateral Agent's request, the

                                       23
<PAGE>

surviving  entity shall  expressly  confirm,  ratify and assume the  obligations
under this Note, the Other Notes and the Security Documents in writing,  in form
and substance satisfactory to the Collateral Agent, and (F) the Collateral Agent
shall have  received,  true,  correct  and  complete  copies of all  agreements,
documents and instruments  relating to such merger or consolidation,  including,
but not limited to, the  certificate or  certificates of merger to be filed with
each appropriate Secretary of State or equivalent  Governmental Authority in the
applicable  jurisdiction (with a copy as filed promptly after such filing),  (x)
the  Company  or any  Subsidiary  may merge  with and into or  consolidate  with
another Person pursuant to a Permitted Acquisition;  provided that (A) the other
party to such merger or  consolidation  shall be  organized  under the laws of a
jurisdiction,  and the surviving  entity shall be organized  under the laws of a
jurisdiction, in each case that is acceptable to the Collateral Agent, or if the
Company or any such  Subsidiary is organized under the laws of a jurisdiction in
the United  States,  such other  party  shall be  organized  under the laws of a
jurisdiction  in the United  States,  (B) the surviving  entity shall  expressly
confirm,  ratify and assume the obligations under this Note, the Other Notes and
the Security  Documents in writing,  in form and substance  satisfactory  to the
Collateral  Agent,  and  (C) the  Company  or such  Subsidiary  shall  expressly
confirm,  ratify and assume the obligations under this Note, the Other Notes and
the Security  Documents,  the  Intercreditor  Agreement and each other  security
document  for the  benefit of the  Collateral  Agent  delivered  pursuant to the
Securities Purchase Agreement to which the Company or such Guarantor was a party
in writing, in form and substance  satisfactory to the Collateral Agent, (y) MLI
Acquisition Corp. may merge with and into MLI pursuant to the Merger and (z) the
sale, merger or dissolution involving FMI Blocker permitted under Section 14(h).

                  (g)  REPORTING  REQUIREMENTS.  Unless the same is available on
EDGAR prior to or on the applicable  due date set forth herein,  until this Note
has been converted, redeemed or otherwise satisfied in accordance with its terms
(other than in respect of contingent  indemnification  obligations in respect of
which no claim has been asserted), the Company shall furnish to the Holder:

                        (i) within thirty (30) days after the end of each fiscal
      quarter of the Company and its  Subsidiaries (A) commencing with the first
      quarter of the Company and its  Subsidiaries  ending  after the  Effective
      Date,  consolidated  and  consolidating  balance sheets,  consolidated and
      consolidating   statements  of  operations   and  retained   earnings  and
      consolidated and consolidating statements of cash flows of the Company and
      its  Subsidiaries as at the end of such quarter,  and (B) on and after the
      end of the first  twelve (12)  months of the Company and its  Subsidiaries
      ending after the Issuance  Date,  for the period  commencing at the end of
      the  immediately  preceding  Fiscal  Year and ending  with the end of such
      quarter,  setting forth in each case in  comparative  form the figures for
      the corresponding date or period of the immediately  preceding Fiscal Year
      setting forth in comparative form any projections with respect thereto, in
      each case all in reasonable detail and certified by an authorized  officer
      of the  Company  as  fairly  presenting,  in all  material  respects,  the
      financial  position of the Company and its  Subsidiaries on a consolidated
      basis as of the end of such quarter and the results of operations and cash
      flows of the Company and its Subsidiaries on a consolidated basis for such
      quarter,  in accordance with GAAP applied in a manner consistent with that
      of the most recent  audited  financial  statements  of the Company and its
      Subsidiaries  furnished to the Holder, subject to the absence of footnotes
      and normal year-end adjustments;

                                       24
<PAGE>

                        (ii)  within  ninety  (90)  days  after  the end of each
      Fiscal  Year  of  the  Company  and  its  Subsidiaries,  consolidated  and
      consolidating balance sheets, consolidated and consolidating statements of
      operations  and  retained  earnings  and  consolidated  and  consolidating
      statements of cash flows of the Company and its Subsidiaries as at the end
      of such Fiscal Year,  and on and after the end of the first Fiscal Year of
      the Company and its Subsidiaries  ending after the Issuance Date,  setting
      forth in each case in comparative form the  corresponding  figures for the
      immediately  preceding  Fiscal Year and for any  projections  with respect
      thereto  previously  provided to the Holder,  all in reasonable detail and
      prepared  in  accordance  with GAAP,  and  accompanied  by a report and an
      unqualified  opinion,  prepared  in  accordance  with  generally  accepted
      auditing  standards,   of  independent  certified  public  accountants  of
      nationally  recognized  standing  selected by the Company  (which  opinion
      shall be without (A) a "going concern" or like qualification or exception,
      (B) any  qualification  or exception as to the scope of such audit, or (C)
      any qualification  which relates to the treatment or classification of any
      item and which, as a condition to the removal of such qualification, would
      require an adjustment to such item,  the effect of which would be to cause
      any noncompliance with the provisions of Section 14(l);

                        (iii)  simultaneously with the delivery of the financial
      statements of the Company and its Subsidiaries required by clauses (i) and
      (ii) of this Section 14(g), a certificate of an authorized  officer of the
      Company  (A)  stating  that  such  authorized  officer  has  reviewed  the
      provisions of the Notes and has made or caused to be made under his or her
      supervision a review of the  condition  and  operations of the Company and
      its  Subsidiaries  during the period covered by such financial  statements
      with a view to determining  whether the Company and its Subsidiaries  were
      in  compliance  with all of the  provisions of the Notes at the times such
      compliance  is required  hereby and thereby,  and that such review has not
      disclosed,  and such authorized officer has no knowledge of, the existence
      during  such  period of an Event of  Default  or,  if an Event of  Default
      existed,  describing  the nature and period of  existence  thereof and the
      action  which the  Company  and its  Subsidiaries  propose to take or have
      taken with  respect  thereto  and (B)  attaching  a schedule  showing  the
      calculations of the financial covenants set forth in Section 14(l);

                        (iv)  within one  hundred and fifty (150) days after the
      date  hereof,  a copy of filing in  respect  of the  Company on Form 10-K,
      including the financial reporting requirements thereof;

                        (v)  promptly  after   submission  to  any  Governmental
      Authority,  all documents and information  furnished to such  Governmental
      Authority  in  connection  with any  investigation  of the  Company or any
      Guarantor other than routine inquiries by such Governmental Authority;

      (vi) as soon as possible, and in any event within three (3) days after, in
      either case, Company and/or  Guarantor(s) obtain knowledge of any Default,
      the  occurrence of any Event of Default or the  occurrence of any event or
      development  that could  reasonably be expected to have a Material Adverse
      Effect,  the written  statement  of an  authorized  officer of the Company
      setting forth the details of such Default, Event of Default or other event
      or development that could reasonably be expected to have a

                                       25
<PAGE>

      Material  Adverse  Effect and the action  which the  Company or any of its
      Subsidiaries proposes to take in respect thereof;

                        (vii) promptly after the commencement thereof but in any
      event not later  than five (5) days  after  service  of process in respect
      thereof on, or the obtaining of knowledge thereof by, the Company,  notice
      of each action,  suit or proceeding before any court or other Governmental
      Authority or other  regulatory body or any arbitrator  which, if adversely
      determined,  could  reasonably  be  expected  to have a  Material  Adverse
      Effect;

                        (viii) upon the  sending or  promptly  after the receipt
      thereof,  all notices,  certificates and financial statements delivered to
      or to be  delivered  by the Company or any of its  Subsidiaries  under the
      terms of the Acquisition Documents;

                        (ix)  promptly  after the  sending  or  filing  thereof,
      copies of all  statements,  reports  and other  material  information  the
      Company or any Subsidiary sends to or files with any national (domestic or
      foreign) securities exchange;

                        (x)  promptly  upon  receipt  thereof,   copies  of  all
      financial reports (including, without limitation,  management letters), if
      any,  submitted  to the  Company  or any  Guarantor  by  its  auditors  in
      connection with any annual or interim audit of the books thereof; and

                        (xi)  promptly  upon  request,  such  other  information
      concerning  the condition or  operations,  financial or otherwise,  of the
      Company or any  Guarantor  as the Holder may from time to time  reasonably
      request.

                  (h)  PRESERVATION OF EXISTENCE,  ETC. Until this Note has been
converted,  redeemed or otherwise  satisfied in accordance with its terms (other
than in respect of contingent indemnification obligations in respect of which no
claim has been  asserted),  the Company shall  maintain and preserve,  and cause
each of its  Subsidiaries  to maintain and preserve,  its existence,  rights and
privileges,  and become or remain,  and cause each of its Subsidiaries to become
or remain, duly qualified and in good standing in each jurisdiction in which the
character of the properties owned or leased by it or in which the transaction of
its business makes such qualification necessary, where the failure to qualify or
be in good  standing  could  reasonably  be expected to have a Material  Adverse
Effect. Notwithstanding anything to the contrary set forth in this Note, without
the  consent of any  Holder,  a  Subsidiary  may be  dissolved  by merger into a
Guarantor or the Company,  or, if not a Guarantor,  dissolved,  and FMI Blocker,
Inc. may be dissolved, by merger or otherwise, or sold; provided that all assets
thereof shall  theretofore  have been  transferred  to the Company and/or one or
more other Guarantors.

                  (i) KEEPING OF RECORDS  AND BOOKS OF ACCOUNT.  Until this Note
has been converted, redeemed or otherwise satisfied in accordance with its terms
(other than in respect of contingent  indemnification  obligations in respect of
which no claim has been asserted), the Company shall keep, and cause each of its
Subsidiaries  to keep,  adequate  records  and books of account,  with  complete
entries made to permit the  preparation  of financial  statements  in accordance
with GAAP.

                                       26
<PAGE>

                  (j) FISCAL YEAR. Until this Note has been converted,  redeemed
or otherwise  satisfied in  accordance  with its terms (other than in respect of
contingent  indemnification  obligations  in  respect of which no claim has been
asserted),  the  Company  shall  cause the Fiscal  Year of the  Company  and its
Subsidiaries  to end on or about  December 31 of each  calendar  year unless the
agent under the Senior Loan  Agreement  consents to a change in such Fiscal Year
(and appropriate related changes to the Senior Loan Agreement), which change, if
so approved, shall automatically become applicable to the Notes.

                  (k) FILING WITH THE SEC.  The Company  shall file the Form 8-K
and any other statement,  report or other information required in respect of the
Merger with the SEC  promptly,  but in any event within four (4)  Business  Days
after the consummation of the Merger.

                  (l) FINANCIAL  COVENANTS.  Until this Note has been converted,
redeemed or  otherwise  satisfied  in  accordance  with its terms (other than in
respect of contingent  indemnification  obligations in respect of which no claim
has been asserted),  neither the Company nor any of the Guarantors shall, unless
the Required Holders shall otherwise consent in writing:

                        (i) TOTAL LEVERAGE RATIO. Permit the ratio of Net Senior
      Indebtedness  to Consolidated  EBITDA of the Company and its  Subsidiaries
      for the twelve (12) consecutive months ending on the last day of the month
      set forth on SCHEDULE  14(L)(I)  hereto to be greater than the  applicable
      ratio for such date set forth on such Schedule;  provided that (x) for the
      purposes  of  calculating   the  ratio  of  Net  Senior   Indebtedness  to
      Consolidated  EBITDA under this  14(l)(i) for the twelve (12)  consecutive
      months  ending  December  31,  2006,  March 31,  2007,  June 30,  2007 and
      September 30, 2007,  respectively,  Consolidated  EBITDA for the three (3)
      month  period from October 1, 2006 to December 31, 2006 shall be equal to:
      (1) the amount  equal to (a)  Consolidated  EBITDA for the period from the
      Issuance  Date to  December  31,  2006  divided  by (b) the number of days
      during such period, multiplied by (2) the number of days during the period
      from and including October 1, 2006 to and including  December 31, 2006 and
      (y) for the purposes of this  Section  14(l)(i),  the amounts  included in
      respect of Consolidated EBITDA of the Company and its Subsidiaries for the
      fiscal  quarters  ending March 31, 2006,  June 30, 2006 and  September 30,
      2006   shall  be  equal  to   $4,652,000,   $2,915,000   and   $5,217,000,
      respectively;

                        (ii)  CONSOLIDATED  LAST TWELVE  MONTHS  EBITDA.  Permit
      Consolidated  EBITDA of the  Company and its  Subsidiaries  for the twelve
      (12)  consecutive  months ending on the last day of the month set forth on
      SCHEDULE  14(L)(II) hereto to be less than the applicable  amount for such
      period set forth on such  Schedule;  provided that (i) prior to the end of
      the first twelve (12) consecutive  month period commencing on the last day
      of the month prior to the date hereof,  such Consolidated  EBITDA shall be
      for the three  (3),  six (6),  and nine (9) month  periods as set forth on
      such Schedule and (ii) for the purposes of calculating Consolidated EBITDA
      under this Section  14(l)(ii) for the periods  October 1, 2006 to December
      31, 2006,  October 1, 2006 to March 31, 2007,  October 1, 2006 to June 30,
      2007 and the twelve (12)  consecutive  months  ending  September 30, 2007,
      Consolidated EBITDA for the three (3) month period from October 1, 2006 to
      December 31, 2006 shall be equal to: (x) the amount

                                       27
<PAGE>

      equal to (1) Consolidated  EBITDA for the period from the Issuance Date to
      December  31, 2006  divided by (2) the number of days during such  period,
      multiplied  by (y) the number of days during the period from and including
      October 1, 2006 to and including December 31, 2006; and

                        (iii)  FIXED  CHARGE  COVERAGE  RATIO.  Permit the Fixed
      Charge Coverage Ratio of the Company and its  Subsidiaries  for the twelve
      (12)  consecutive  months ending on the last day of the month set forth on
      SCHEDULE  14(L)(III) hereto to be less than the applicable amount for such
      period set forth on such  Schedule,  provided that (x) prior to the end of
      the first twelve (12) consecutive  month period commencing on the last day
      of the month prior to the date hereof,  such Fixed Charge  Coverage  Ratio
      shall be for the three  (3),  six (6),  and nine (9) month  periods as set
      forth on such Schedule,  and (y) for the purposes of calculating the Fixed
      Charge  Coverage  Ratio  under this  Section  14(l)(iii)  for the  periods
      October 1, 2006 to December 31,  2006,  October 1, 2006 to March 31, 2007,
      October 1, 2006 to June 30,  2007 and the twelve (12)  consecutive  months
      ending  September  30,  2007,  the Fixed  Charge  Coverage  Ratio shall be
      calculated using  Consolidated  EBITDA for the three (3) month period from
      October 1, 2006 to December 31, 2006 equal to: (A) the amount equal to (1)
      Consolidated  EBITDA for the period from the Issuance Date to December 31,
      2006 divided by (2) the number of days during such period,  multiplied  by
      (B) the number of days  during the period  from and  including  October 1,
      2006 to and  including  December  31,  2006,  and (z) for  purposes of the
      periods October 1, 2006 to December 31, 2006, October 1, 2006 to March 31,
      2007,  October 1, 2006 to June 30,  2007 and the twelve  (12)  consecutive
      months ending September 30, 2007, the portion of the Fixed Charge Coverage
      Ratio comprising principal of Indebtedness scheduled to be paid or prepaid
      from  October  1, 2006  through  December  31,  2006 shall be based on the
      actual  amount  of such  principal  Indebtedness  scheduled  to be paid or
      prepaid during the period from the Issuance Date to December 31, 2006;

                  (m) DISPOSITIONS. Until this Note has been converted, redeemed
or otherwise  satisfied in  accordance  with its terms (other than in respect of
contingent  indemnification  obligations  in  respect of which no claim has been
asserted),  neither the Company nor any Guarantor shall,  directly or indirectly
make any  Disposition  or  enter  into any  agreement  to make any  Disposition,
except:

                        (i) the sale by the  Company  or any  Subsidiary  of any
            inventory in the ordinary course of business;

                        (ii) the sale or other disposition by the Company or any
            Subsidiary of obsolete or  discontinued  inventory,  and the sale or
            other  disposition  by the Company or any  Subsidiary of obsolete or
            worn-out  equipment,  in  each  case,  in  the  ordinary  course  of
            business, whether now owned or hereafter acquired, provided that the
            aggregate  amount of any such  assets  sold in any Fiscal Year shall
            not exceed $1,000,000;

                        (iii) in  addition to the other  sales  permitted  under
            this Section  14(m),  the sale or other  disposition of equipment or
            Real Property;  provided that,

                                       28
<PAGE>

            each of the following  conditions  is satisfied in respect  thereof:
            (A) such proceeds as to any individual sale do not exceed  $250,000;
            (B) as to an asset sale of Real Property or equipment of the Company
            or any  Subsidiary,  such  proceeds  from  all such  asset  sales in
            respect of assets of the Company and such Subsidiary during any year
            shall not,  after giving effect to such asset sale, in the aggregate
            exceed $1,000,000;  (C) the proceeds are used to purchase other Real
            Property  or  equipment  that  will be free and  clear of any  Lien,
            except for Permitted  Liens; (D) such new Real Property or equipment
            is and continues to be subject to the second priority perfected Lien
            of the  Collateral  Agent  (subject to applicable  Permitted  Liens)
            unless the Person  disposing  of such Real  Property or equipment is
            not a  Guarantor;  (E)  such  new  Real  Property  or  equipment  is
            purchased  within one  hundred  eighty  (180) days after the sale or
            other disposition of the equipment or Real Property that was subject
            to such asset sale;  and (F) as to an asset sale of Real Property or
            equipment of the Company or such  Guarantor,  until such time as the
            proceeds  are so used and so long as no Event of  Default  exists or
            has  occurred and is  continuing,  such  proceeds  will be held in a
            deposit  account or investment  account that is subject to a control
            agreement for the benefit of Collateral Agent and agent under Senior
            Loan Agreement or are otherwise  subject to the  Collateral  Agent's
            perfected  security interest and only released from such account for
            the  payment  of the  purchase  price of such new Real  Property  or
            equipment;

                        (iv) the sale, assignment, lease or sublease, license or
            other  disposition  of property by the Company or any  Subsidiary to
            the  Company or any  Guarantor;  provided  that,  such  property  is
            subject  to a  perfected,  second  priority  Lien  in  favor  of the
            Collateral Agent (subject to Permitted Liens);

                        (v)  any  disposition   permitted  under  Section  14(f)
            hereof;

                        (vi) the non-exclusive  license of Intellectual Property
            (as defined in the Securities Purchase Agreement) rights (including,
            without  limitation,  licenses) granted to a customer of the Company
            or any Subsidiary in the ordinary course of business,  substantially
            consistent  with past practice and not  interfering  in any material
            respect  with the  conduct  of the  business  of the  Company or any
            Subsidiary;

                        (vii) any lease or  sub-lease  of Real  Property  to any
            Person other than the Company or a Guarantor on terms and subject to
            conditions  consistent  with the  market in respect of such lease or
            sub-lease at such time;

                        (viii) an asset sale of equipment or Real  Property that
            is part of the consideration for a Permitted Acquisition and each of
            the conditions to such Permitted Acquisition are satisfied, provided
            that,  the  aggregate  value of all such  equipment or Real Property
            subject to all of such asset sales,  shall not exceed $1,000,000 and
            as of the date  thereof  and after  giving  effect  thereto on a pro
            forma basis, no Event of Default shall exist or have occurred and be
            continuing;

                                       29
<PAGE>

                        (ix)  issuances  and  sales of Equity  Interests  to the
            extent  permitted under Section 6.02(l) of the Senior Loan Agreement
            as in effect on the date hereof;

                        (x) any Permitted Lien;

                        (xi) an asset sale or other  disposition  of assets as a
            contribution  to a Subsidiary  or Affiliate as an investment in such
            Subsidiary  or  Affiliate  to the  extent  permitted  under  Section
            14(t)(v) hereof;

                        (xii) the transfer of funds as a payment on Indebtedness
            or  other  obligations  owing  by  or  to  the  Company  and/or  any
            Subsidiary to the extent not otherwise prohibited hereunder;

                        (xiii)  investments and capital  contributions  in or to
            the  Company  and/or  any of its  Subsidiaries  to  the  extent  not
            prohibited hereunder;

                        (xiv)  Subject  to the prior  approval  of the  Required
            Holders:

                              (A) Disposition of non-strategic  business assets;
                  or

                              (B)   Dispositions   by  the   Company   and   its
                  Subsidiaries not otherwise permitted under this Section 14(m).

                  (n)  FEDERAL  RESERVE  REGULATIONS.  Until  this Note has been
converted,  redeemed or otherwise  satisfied in accordance with its terms (other
than in respect of contingent indemnification obligations in respect of which no
claim has been asserted),  neither the Company nor any of its Subsidiaries shall
permit any of the Indebtedness under or the proceeds of this Note to be used for
any  purpose  that would cause such  Indebtedness  to be a margin loan under the
provisions of Regulation T, U or X of the Federal Reserve Board.

                  (o) INVESTMENT  COMPANY ACT OF 1940.  Until this Note has been
converted,  redeemed or otherwise  satisfied in accordance with its terms (other
than in respect of contingent indemnification obligations in respect of which no
claim has been asserted),  neither the Company nor any of its Subsidiaries shall
engage in any business,  enter into any transaction,  use any securities or take
any other action,  or permit any of its Subsidiaries to do any of the foregoing,
that would cause it to become subject to the  registration  requirements  of the
Investment  Company Act of 1940, as amended,  by virtue of being an  "investment
company" or a company "controlled" by an "investment company" not entitled to an
exemption within the meaning of such Act.

                  (p) PROPERTIES.  Until this Note has been converted,  redeemed
or otherwise  satisfied in  accordance  with its terms (other than in respect of
contingent  indemnification  obligations  in  respect of which no claim has been
asserted),  neither  the Company nor any of its  Subsidiaries  shall  permit any
property of the Company or any  Guarantor to become a fixture in respect of real
property  or to become an  accession  in respect of other  personal  property in
respect of which real or personal  property the Collateral Agent does not have a
valid and perfected second priority Lien (subject to the Permitted Liens).

                                       30
<PAGE>

                  (q) AMENDMENT TO  ACQUISITION  DOCUMENTS.  Until this Note has
been  converted,  redeemed or otherwise  satisfied in accordance  with its terms
(other than in respect of contingent  indemnification  obligations in respect of
which  no  claim  has  been  asserted),  neither  the  Company  nor  any  of its
Subsidiaries shall amend, modify,  change, agree to any amendment,  modification
or other change to (or make any payment  consistent  with any amendment or other
change to) or waive any of its rights under any of the Acquisition Documents.

                  (r) NO VIOLATION OF  ANTI-TERRORISM  LAWS. Until this Note has
been  converted,  redeemed or otherwise  satisfied in accordance  with its terms
(other than in respect of contingent  indemnification  obligations in respect of
which no claim has been  asserted),  the Company and  Guarantors  shall not, and
shall not permit any  Subsidiary  to: (i)  violate any of the  prohibitions  set
forth in the Anti-Terrorism  Laws applicable to any of them or the business that
they conduct,  (ii) require the  Collateral  Agent or Holders to take any action
that would  cause the  Collateral  Agent or Holders  to be in  violation  of the
prohibitions set forth in the Anti-Terrorism  Laws, it being understood that the
Collateral  Agent or any Holder  can refuse to honor any such  request or demand
otherwise validly made by a the Company under this Note, (iii) knowingly conduct
any business or engage in making or receiving any  contribution of funds,  goods
or services to or for the benefit of any  Designated  Person or any other Person
identified  in any List,  (iv)  knowingly  deal in, or  otherwise  engage in any
transaction  relating to, any property or interests in property blocked pursuant
to any  Anti-Terrorism  Law, (v) repay the Notes with any funds derived from any
unlawful  activity  with the  result  that the  making of the Notes  would be in
violation  of law,  or (vi)  knowingly  engage in or  conspire  to engage in any
transaction that evades or avoids, or has the purpose of evading or avoiding, or
attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law
(and the Company shall deliver to the Holder any certification or other evidence
requested  from  time  to  time  by the  Holder  in its  reasonable  discretion,
confirming compliance with this Section 14(r).

                  (s) TYPE OF  BUSINESS.  Until  this  Note has been  converted,
redeemed or  otherwise  satisfied  in  accordance  with its terms (other than in
respect of contingent  indemnification  obligations in respect of which no claim
has been  asserted),  the  Company  shall  not,  and shall not permit any of its
Subsidiaries  to,  engage in any  business,  other  than the  businesses  of the
Company,  the  Guarantors  and/or such  Subsidiary  on the Closing  Date and any
business reasonably related, similar, ancillary or complementary to the business
in which the Company,  the Guarantors or the  Subsidiaries of the Company or the
Guarantors are engaged on the Closing Date;

                  (t) LOANS, ADVANCES AND INVESTMENTS.  Until this Note has been
converted,  redeemed or otherwise  satisfied in accordance with its terms (other
than in respect of contingent indemnification obligations in respect of which no
claim has been asserted), the Company shall not, and shall not permit any of its
Subsidiaries  to, make,  directly or  indirectly,  any loans or advance money or
property  to any  person,  or invest in (by  capital  contribution,  dividend or
otherwise) or purchase or repurchase the Equity  Interest or Indebtedness or all
or a  substantial  part of the  assets or  property  of any  person,  or form or
acquire any  Subsidiaries,  or agree to do any of the  foregoing,  or permit any
Subsidiary to do any of the foregoing, except:

                        (i) the  Acquisitions  contemplated  by the  Acquisition
Documents;

                                       31
<PAGE>

                        (ii) loans  existing  on the date hereof as set forth on
SCHEDULE 14(T) hereto,  but not any increase in the principal  amount thereof as
set forth in such Schedule or any other  modification of the terms thereof which
is less  favorable  to any of the  Company,  the  Guarantors,  the  Agent or the
Holders than the existing terms;

                        (iii) any investment in cash or Cash Equivalents so long
as the deposit account,  investment  account or other account in which such cash
or Cash  Equivalents are held is subject to a control  agreement for the benefit
of the Collateral Agent and agent under Senior Loan Agreement (or the Collateral
Agent otherwise has a perfected  security  interest  therein) and the Collateral
Agent has a Lien in such  account  and cash or Cash  Equivalents  to the  extent
required under the Security Agreement;

                        (iv) loans,  capital  contributions or other investments
by the Company or a Guarantor  to the Company or another  Guarantor  on or after
the  date  hereof;  provided  that,  as of the date of any  such  loan,  capital
contribution or other investment and after giving effect thereto, the Company or
Guarantor  making such loan,  capital  contribution or other investment shall be
Solvent;

                        (v) loans, capital contributions or other investments by
the Company or a Guarantor to a Subsidiary  that is not organized under the laws
of a jurisdiction in the United States of America or otherwise to any Subsidiary
or Affiliate that is not a Guarantor; provided that, (A) the aggregate amount of
all such loans at any time  outstanding  and all payments  made for such capital
contributions  or  other  investments  shall  not,  in  the  aggregate,   exceed
$12,000,000;  (B) upon Collateral  Agent's request,  any obligations  arising in
connection with loans by the Company or a Guarantor to a Subsidiary or Affiliate
that  is not a  Guarantor  or the  Company  shall  be  secured  by a  valid  and
enforceable  perfected security interest,  lien and fixed and floating charge on
the assets of such  Subsidiary  or Affiliate  pursuant to agreements in form and
substance  satisfactory to the Collateral  Agent and the Collateral  Agent shall
have  received all of such  agreements  as duly  executed and  delivered by such
parties,  together with such related  agreements and documents as the Collateral
Agent may require; and (C) as of the date of any such loan, capital contribution
or other investment,  and after giving effect thereto,  on a pro forma basis, no
Default or Event of Default shall exist or have occurred and be continuing;

                        (vi)   Permitted   Acquisitions    including,    without
limitation the planned  purchase of the Equity  Interests of SeaMaster  China by
Sea Master Hong Kong or another  Affiliate of the Company and the formation of a
Subsidiary in connection therewith; and

                        (vii)  dividends,  redemptions,  repurchases  and  other
distributions permitted hereunder.

                  (u)  TRANSACTIONS  WITH  AFFILIATES.  Until this Note has been
converted,  redeemed or otherwise  satisfied in accordance with its terms (other
than in respect of contingent indemnification obligations in respect of which no
claim has been asserted), the Company shall not, and shall not permit any of its
Subsidiaries to, enter into, renew,  extend or be a party to, any transaction or
series of related  transactions  (including,  without limitation,  the purchase,
sale,  lease,  transfer  or  exchange  of  property or assets of any kind or the
rendering of services of any kind) with any Affiliate, except:

                                       32
<PAGE>

                  (i) to the  extent  necessary  or  desirable  for the  prudent
operation  of its  business  and for  fair  consideration  and on  terms no less
favorable  to  it  than  would  be  obtainable  in  a  comparable  arm's  length
transaction with a Person that is not an Affiliate  thereof;  provided that, (A)
if each  party to such  transaction  is the  Company  or a  Guarantor,  then the
consideration and terms may be less favorable to one of them to the extent it is
more  favorable  to the other,  provided  that such other  entity is Solvent (as
defined in the Securities  Purchase Agreement) at the time of the transaction or
(B) if a party to such  transaction  is the Company or a Guarantor and the other
is a  Subsidiary  or  Affiliate  that is not the  Company  or a  Guarantor,  the
consideration and terms may be less favorable to such Subsidiary or Affiliate;

                        (ii) transactions expressly permitted by Sections 14(d),
14(e) (other than clause (i)(B)  thereof  unless,  with respect to  transactions
among  Affiliates,  the conditions set forth in Section 14(u)(i) are satisfied),
14(f) (other than clause (y) thereof unless,  with respect to transactions among
Affiliates,  the conditions set forth in Section 14(u)(i) are satisfied),  14(m)
and 14(t); or

                        (iii)  loans  existing  on the date  hereof set forth on
SCHEDULE 14(U) hereto,  but not any increase in the principal  amount thereof as
set forth in such Schedule or any other modification of the terms thereof.

                  (v)  ENVIRONMENTAL.   Until  this  Note  has  been  converted,
redeemed or  otherwise  satisfied  in  accordance  with its terms (other than in
respect of contingent  indemnification  obligations in respect of which no claim
has been  asserted),  the  Company  shall  not,  and shall not permit any of its
Subsidiaries  to,  permit the use,  handling,  generation,  storage,  treatment,
release or  disposal  of  Hazardous  Materials  (as  defined  in the  Securities
Purchase  Agreement)  at  any  property  owned  or  leased  by it or  any of its
Subsidiaries,  except in compliance with  Environmental  Laws (as defined in the
Securities  Purchase  Agreement) and so long as such use, handling,  generation,
storage,  treatment,  release  or  disposal  of  Hazardous  Materials  could not
reasonable be expected to result in a Material Adverse Effect.

                  (w) FURTHER  ASSURANCES.  Until this Note has been  converted,
redeemed or  otherwise  satisfied  in  accordance  with its terms (other than in
respect of contingent  indemnification  obligations in respect of which no claim
has been asserted),  (i) the Company shall,  and shall cause each Subsidiary not
in  existence  on the  Closing  Date  (other  than  in  respect  of any  Foreign
Subsidiary)  to execute and deliver to the  Collateral  Agent,  each in form and
substance satisfactory to the Collateral Agent, promptly and in any event within
ten (10) days after the formation, acquisition or change in status thereof (A) a
Guaranty guaranteeing the obligations under the Notes, (B) a Security Agreement,
(C) if such Subsidiary has any  Subsidiaries,  a Pledge Agreement  together with
(1) if certificated, certificates evidencing (aa) all of the Equity Interests of
any Person organized under the laws of the United States of America and owned by
such Subsidiary or (bb) sixty-five  (65%) percent of the Equity Interests of any
person  organized under the laws of a jurisdiction  other than the United States
of America and owned by such Subsidiary,  provided that such certificates may be
delivered to the agent under the Senior Loan  Documents if the Permitted  Senior
Indebtedness  has not  been  Paid  in  Full  (as  defined  in the  Intercreditor
Agreement),  (2)  undated  stock  powers  or other  appropriate  instruments  of
assignment  executed in blank with signature  guaranteed  executed in blank with
signature  guaranteed,  and (3) such opinion of counsel as the Collateral  Agent
may reasonably

                                       33
<PAGE>

request,  (D) to the  extent  that  such  Subsidiary  has any  interest  in real
property  having a  Current  Value in excess  of  $250,000  in the case of a fee
interest or  requiring  the payment of annual rent  exceeding  in the  aggregate
$250,000 in the case of a leasehold interest, upon the request of the Collateral
Agent  or at the  direction  of  Required  Holder,  each in form  and  substance
satisfactory  to the  Collateral  Agent:  (1)  Mortgages in respect of such real
property and related assets located at the real property,  each duly executed by
such  Person and in  recordable  form;  (2)  evidence of the  recording  of such
Mortgages  in such office or offices as may be  necessary  or, in the opinion of
the Collateral  Agent,  desirable to create and perfect a valid and  enforceable
second  priority  Lien  (subject to  Permitted  Liens) on the Real  Property and
related assets intended to be covered thereby or to otherwise protect the rights
of the Collateral Agent and Holders  thereunder,  (3) a Title Insurance  Policy,
(4) a survey of such Real Property, certified to the Collateral Agent and to the
issuer  of the  Title  Insurance  Policy  by a  licensed  professional  surveyor
reasonably  satisfactory to the Collateral Agent, (5) Phase I environmental site
assessments in respect of such real property,  certified to the Collateral Agent
by a company  satisfactory to the Collateral Agent, and (6) such other documents
or instruments  (including guarantees and opinions of counsel) as the Collateral
Agent may require, and (E) such other agreements,  instruments, approvals, legal
opinions or other  documents  reasonably  requested by the  Collateral  Agent in
order to create,  perfect,  establish the second priority  (subject to Permitted
Liens) of or  otherwise  protect  any Lien  purported  to be covered by any such
Security  Agreement,  Pledge  Agreement  or Mortgage or  otherwise to effect the
intent that such  Subsidiary  shall become bound by all of the terms,  covenants
and agreements contained in the Transaction  Documents and that all property and
assets of such Subsidiary shall become  Collateral for the obligations under the
Notes, except as the Collateral Agent may otherwise agree; and

                        (ii) The Company shall, or shall cause each owner of the
Equity  Interests of any such Subsidiary to, execute and deliver promptly and in
any event  within  three (3) days after the  formation  or  acquisition  of such
Subsidiary  after the date  hereof,  a Pledge  Agreement,  together  with (A) if
certificated,  certificates  evidencing  (1) all of the Equity  Interests of any
such  Subsidiary's  Subsidiary  organized under the laws of the United States of
America,  or (2)  sixty-five  (65%) percent of the Equity  Interests of any such
Subsidiary's  Subsidiary  organized under the laws of a jurisdiction  other than
the United  States of America,  (B) undated  stock  powers or other  appropriate
instruments of assignment executed in blank with signature guaranteed,  (C) such
opinion of counsel as the Collateral  Agent may reasonably  request and (D) such
other  agreements,  instruments,  approvals,  legal opinions or other  documents
requested by the Collateral Agent.

                  (x) COMPLIANCE WITH LAWS.  Until this Note has been converted,
redeemed or  otherwise  satisfied  in  accordance  with its terms (other than in
respect of contingent  indemnification  obligations in respect of which no claim
has been asserted), the Company shall comply, and cause each of its Subsidiaries
to comply,  with all applicable laws, rules,  regulations,  judgments and orders
(including, without limitation, all Environmental Laws) in each case material to
the  conduct of its  business  and  operations,  except  where the failure to so
comply could not reasonably be expected to have a Material Adverse Effect.

            (15) PARTICIPATION. The Holder, as the holder of this Note, shall be
entitled to receive such dividends paid and distributions made to the holders of
Common  Stock to the same extent as if the Holder had  converted  this Note into
Common Stock (without regard

                                       34
<PAGE>

to any  limitations on conversion  herein or elsewhere) and had held such shares
of  Common  Stock  on the  record  date for such  dividends  and  distributions.
Payments  under  the  preceding  sentence  shall be made  concurrently  with the
dividend or distribution to the holders of Common Stock.

            (16)  VOTE TO  ISSUE,  OR CHANGE  THE  TERMS  OF,  NOTES.  Except as
otherwise provided herein, no amendment, modification or waiver of any provision
of a Note or any of the other Transaction Documents, or consent to any departure
by any Obligor or Holder  therefrom,  shall in any event be effective unless the
same shall be in writing and signed by the  Required  Holders and the  Obligors;
provided that no amendment, modification, termination or waiver shall, unless in
writing and signed by each holder of Notes directly affected thereby, (i) reduce
the Principal and, provided, further, that no amendment,  modification or waiver
shall, unless in writing and signed by all Holders, (x) change the definition of
"Required  Holders"  or the  percentage  of Holders  required to take any action
hereunder;  (y)  modify  this  Section  16 or (z)  consent  to  the  assignment,
delegation  or other  transfer by the Company or any other Obligor of any of its
rights and obligations under any Transaction Document, and provided further that
to  reduce  the  interest  rate or any fees or  extend  the time of  payment  of
Principal, interest or any fees, or waive any default, event of default or Event
of Default, the consent of each holder of the Notes directly affected thereby is
required.

            (17)  TRANSFER.   This  Note  may  be  offered,  sold,  assigned  or
transferred  by the Holder  without the consent of the Company,  subject only to
the provisions of Section 2(f) of the  Securities  Purchase  Agreement  provided
that Holder  and/or  assignee  give Company  written  notice of such  assignment
within ten (10) Business Days after the consummation of such assignment.

            (18) REISSUANCE OF THIS NOTE.

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

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

                                       35
<PAGE>

                  (c) NOTE EXCHANGEABLE FOR DIFFERENT  DENOMINATIONS.  This Note
is exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Note or Notes (in accordance with Section 18(d) and in
principal  amounts  of at  least  $1,000)  representing  in  the  aggregate  the
outstanding  Principal of this Note,  and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.

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

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

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

            (21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and all the Purchasers and shall not be construed against
any person as

                                       36
<PAGE>

the drafter  hereof.  The headings of this Note are for convenience of reference
and shall not form part of, or affect the interpretation of, this Note.

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

            (23)  DISPUTE  RESOLUTION.  In  the  case  of a  dispute  as to  the
determination  of the Closing Bid Price,  the Closing Sale Price or the Weighted
Average  Price  or the  arithmetic  calculation  of the  Conversion  Rate or any
Redemption  Price,  the Company  shall  submit the  disputed  determinations  or
arithmetic  calculations  via facsimile within two (2) Business Days of receipt,
or deemed receipt,  of the Conversion Notice or Redemption Notice or other event
giving rise to such  dispute,  as the case may be, to the Holder.  If the Holder
and the  Company  are unable to agree  upon such  determination  or  calculation
within  one  (1)  Business  Day of such  disputed  determination  or  arithmetic
calculation being submitted to the Holder,  then the Company shall, within three
(3) Business  Days submit via facsimile  (a) the disputed  determination  of the
Closing Bid Price,  the Closing Sale Price or the Weighted  Average  Price to an
independent,  reputable  investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic  calculation of the Conversion Rate or
any  Redemption  Price to the Company's  independent,  outside  accountant.  The
Company,  at the  Company's  expense,  shall  cause the  investment  bank or the
accountant,  as the case may be, to perform the  determinations  or calculations
and notify  the  Company  and the  Holder of the  results no later than five (5)
Business  Days from the time such  investment  bank or  accountant  receives the
disputed determinations or calculations.  Such investment bank's or accountant's
determination  or  calculation,  as the case may be,  shall be binding  upon all
parties absent demonstrable error.

            (24) NOTICES; PAYMENTS.

                  (a)  NOTICES.  Whenever  notice is  required to be given under
this Note,  unless  otherwise  provided  herein,  such notice  shall be given in
accordance with Section 9(f) of the Securities Purchase  Agreement.  The Company
shall  provide the Holder with prompt  written  notice of each of the  following
actions  taken  pursuant  to  this  Note,   including  in  reasonable  detail  a
description of such action and the reason  therefor:  confirmation of receipt of
Conversion  Notice  (as  required  by  Section  3(c)(i));  notice of the  credit
Conversion  Shares  on  DTC  (if  so  credited  pursuant  to  Section  3(c)(i));
confirmation  of number of shares of Common  Stock  outstanding  (as required by
Section 3(d)(i)); delivery of an Event of Default Notice (as required by Section
4(b));  delivery of a Change of Control  Notice (as  required by Section  5(b));
notice of Purchase Rights (whenever such right arises pursuant to Section 6(a));
notice of other Corporate Events (whenever such events,  as set forth in Section
6(b) occur);  notice of adjustment of Conversion Price (whenever such adjustment
is required to be calculated pursuant to Section 7(a)); delivery of the Optional
Redemption  Notice (as required by Section 8(a));  notice of and/or  delivery of
Event of  Default  Redemption  Price  or  Change  of  Control  Redemption  Price
(pursuant to Section 12(a)); delivery of an Other Redemption Notice (as required
by Section 12(b));  determinations  and/or  calculations (as required by Section
23);  other  notices  required by this  Section 24, and  disclosure  of material
nonpublic information (as required by Section 29). The Company will give written
notice to the Holder (i) promptly following any adjustment of the

                                       37
<PAGE>

Conversion  Price,  setting  forth in reasonable  detail,  and  certifying,  the
calculation  of such  adjustment and (ii) at least twenty (20) days prior to the
date on which the  Company  closes its books or takes a record (A) in respect of
any dividend or  distribution  upon the Common Stock,  (B) in respect of any pro
rata subscription offer to holders of Common Stock or (C) for determining rights
to vote in respect of any Fundamental  Transaction,  dissolution or liquidation,
provided  in each case that such  information  shall be made known to the public
prior to or in conjunction with such notice being provided to the Holder.

                  (b)  PAYMENTS.  Whenever  any payment of cash is to be made by
the Company to any Person  pursuant to this Note,  such payment shall be made in
lawful money of the United  States of America by a check drawn on the account of
the Company or any payment agent located in the state of New York engaged by the
Company for purposes of making  payments under this Note and the Other Notes and
sent via overnight  courier service to such Person at such address as previously
provided to the Company in writing  (which  address,  in the case of each of the
Purchasers,  shall  initially be as set forth on the Schedule of Buyers attached
to the Securities Purchase  Agreement);  provided that the Holder of Note(s) may
elect to receive a payment of cash via wire  transfer of  immediately  available
funds by  providing  the  Company  with prior  written  notice  setting out such
request  and the  Holder's  wire  transfer  instructions.  Whenever  any  amount
expressed  to be due by the  terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next  succeeding day which is
a Business  Day and, in the case of any  Interest  Date which is not the date on
which this Note is paid in full, the extension of the due date thereof shall not
be taken into account for purposes of determining  the amount of Interest due on
such date.  Any amount of Principal or other  amounts due under the  Transaction
Documents,  other than  Interest,  which is not paid when due shall  result in a
late charge  being  incurred  and  payable by the Company in an amount  equal to
interest  on such amount at the rate of five  percent  (5.0%) per annum from the
date such amount was due until the same is paid in full ("LATE CHARGE").

            (25) CANCELLATION.  After all Principal,  accrued Interest and other
amounts  at any time  owed on this  Note  have  been  paid in full  (other  than
contingent  indemnification  obligations  in  respect of which no claim has been
asserted) or all remaining amounts outstanding hereunder are converted to Common
Stock, this Note shall automatically be deemed canceled, shall be surrendered to
the Company for cancellation and shall not be reissued.

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

            (27) GOVERNING LAW;  JURISDICTION;  SEVERABILITY;  JURY TRIAL.  This
Note shall be  construed  and enforced in  accordance  with,  and all  questions
concerning the construction,  validity,  interpretation  and performance of this
Note shall be governed by, the internal  laws of the State of New York,  without
giving effect to any choice of law or conflict of law provision or rule (whether
of the  State of New York or any  other  jurisdictions)  that  would  cause  the
application of the laws of any  jurisdictions  other than the State of New York.
The Company  hereby  irrevocably  submits to the exclusive  jurisdiction  of the
state and federal courts sitting in The City of New York,  Borough of Manhattan,
for the adjudication of any dispute

                                       38
<PAGE>

hereunder or in connection herewith or with any transaction  contemplated hereby
or discussed herein, and hereby irrevocably  waives, and agrees not to assert in
any suit, action or proceeding,  any claim that it is not personally  subject to
the  jurisdiction  of any such court,  that such suit,  action or  proceeding is
brought  in an  inconvenient  forum or that the  venue of such  suit,  action or
proceeding is improper. Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law. In the event that
any  provision  of this Note is invalid or  unenforceable  under any  applicable
statute or rule of law, then such provision  shall be deemed  inoperative to the
extent that it may conflict  therewith  and shall be deemed  modified to conform
with such statute or rule of law. Any such provision  which may prove invalid or
unenforceable  under any law shall not affect the validity or  enforceability of
any other provision of this Note.  Nothing  contained  herein shall be deemed or
operate to preclude the Holder from  bringing  suit or taking other legal action
against  the  Company in any other  jurisdiction  to  collect  on the  Company's
obligations  to the Holder,  to realize on any  collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor of
the Holder.  THE COMPANY  HEREBY  IRREVOCABLY  WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES  NOT TO  REQUEST,  A JURY  TRIAL  FOR  THE  ADJUDICATION  OF ANY  DISPUTE
HEREUNDER OR IN CONNECTION  WITH OR ARISING OUT OF THIS NOTE OR ANY  TRANSACTION
CONTEMPLATED HEREBY.

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

                  (a)  "ACQUISITIONS"  shall have the  meaning  set forth in the
Securities Purchase Agreement.

                  (b) "ANTI-TERRORISM  LAWS" means the OFAC Laws and Regulations
and the Executive Orders as each of such terms is defined in Section 5.32 of the
Senior Loan Agreement and the USA Patriot Act.

                  (c)  "APPLICABLE   MARGIN"  means  the  amount  determined  as
follows:

         Ratio of Net Senior Indebtedness to
         Consolidated EBITDA                        Applicable Margin

         Greater than 3.0:1.0                                             3.75%

         Equal to or less than 3.0:1.0 but                                3.50%
         greater than 2.5:1.0

         Equal to or less than 2.5:1.0 but                                3.25%
         greater than 2.0:1.0

         Equal to or less than 2.0:1.0 but                                3.00%
         greater than 1.5:1.0

         Equal to or less than 1.5:1.0                                    2.75%

                                       39
<PAGE>

provided  that, (a) the  Applicable  Margin shall be calculated and  established
once each  Fiscal  Quarter  based on the ratio of Net  Senior  Indebtedness  (as
defined in the Senior Loan Agreement) to Consolidated  EBITDA of the Company and
its Subsidiaries  for the immediately  preceding twelve (12) month period ending
as of the last day of the immediately  preceding fiscal quarter and shall remain
in effect until adjusted  thereafter  after the end of the next fiscal  quarter,
(b) each adjustment to the Applicable Margin shall be effective on the date that
the Holder receives the financial statements of the Company and its Subsidiaries
for the  immediately  preceding  Fiscal Quarter in accordance with Section 14(g)
and shall  remain in effect  until  adjusted  thereafter  during the next Fiscal
Quarter, (c) the failure to deliver the financial statements pursuant to Section
14(g)  hereof on the  required  date shall  automatically  cause the  Applicable
Margin to be the highest  applicable  rate set forth above,  effective as of the
date on which the delivery of the financial  statements  was otherwise  required
until the date on which such financial statements are so delivered to the Holder
at which time the Applicable  Margin shall be adjusted in accordance with clause
(a) above, (d) in the event that any of the information  provided to the Holders
which is used in the  calculation  of the  Applicable  Margin  for any period is
subsequently restated or is otherwise changed thereafter, then if the Applicable
Margin for the  applicable  period  would have  resulted in a higher  rate,  the
Company  shall pay to the Holder any  additional  amount in respect of  interest
that  would have been  required  based on the  higher  Applicable  Margin on the
subsequent  interest  payment  date,  and (e)  notwithstanding  anything  to the
contrary  set forth  herein,  until the  effective  date set forth in clause (b)
above that  follows  the last day of the fourth full  Fiscal  Quarter  after the
Issuance Date,  the  Applicable  Margin shall be equal to the greater of (i) the
amount  determined  as set  forth  above  based  on  the  ratio  of  Net  Senior
Indebtedness to Consolidated  EBITDA of the Company and its Subsidiaries for the
immediately preceding twelve (12) month period ending as of the last day of each
Fiscal Quarter prior thereto after giving pro forma effect to the  Acquisitions,
the Senior Loan and the other transactions contemplated hereunder and (ii) three
and one quarter (3.25%) percent per annum.

                  (d)  "APPROVED  STOCK PLAN" means any  employee  benefit  plan
(including,  without limitation,  any equity compensation plan, restricted stock
plan and/or  employee stock ownership plan) or agreement which has been approved
by the Board of  Directors  of the  Company,  pursuant  to which  the  Company's
securities  may be issued to any employee,  consultant,  officer or director for
services provided to the Company or any Subsidiary.

                                       40
<PAGE>

                  (e) "BANKRUPTCY  CODE" means the United States Bankruptcy Code
(11 U.S.C. ss. 101, et seq.), as amended, and any successor statute.

                  (f) "BLOOMBERG" means Bloomberg Financial Markets.

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

                  (h) "CASH EQUIVALENTS" means (i) securities issued or directly
and  fully  guaranteed  or  insured  by  the  United  States  or any  agency  or
instrumentality  thereof  (provided that the full faith and credit of the United
States is pledged in support  thereof)  having  maturities  of not more than one
year  from the date of  acquisition,  (ii) time  deposits  and  certificates  of
deposit of any commercial bank, or which is the principal banking  subsidiary of
a bank holding company  organized  under the laws of the United States,  and any
State  thereof,  the  District of Columbia or any foreign  jurisdiction,  having
capital,  surplus and undivided  profits  aggregating in excess of $500,000,000,
with  maturities of not more than one year from the date of  acquisition by such
Person,  (iii)  repurchase  obligations with a term of not more than ninety (90)
days for  underlying  securities  of the types  described  in  clause  (i) above
entered into with any bank meeting the  qualifications  specified in clause (ii)
above,  (iv)  commercial  paper issued by any Person  incorporated in the United
States rated at least A-1 or the  equivalent  thereof by Standard & Poors Rating
Services or at least P-1 or the equivalent there of by Moody's Investor Service,
Inc.  and in each  case  maturing  not  more  than one  year  after  the date of
acquisition  by  such  Person,   or  (v)   investments  in  money  market  funds
substantially  all of whose  assets are  comprised  of  securities  of the types
described in clauses (i) through (iv) above.

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

                  (j) "CAPITALIZED  LEASE" means, in respect of any Person,  any
lease  of real or  personal  property  by such  Person  as  lessee  which is (a)
required under GAAP to be capitalized on the balance sheet of such Person or (b)
a transaction  of a type commonly  known as a "synthetic  lease" (i.e.,  a lease
transaction that is treated as an operating lease for accounting purposes but in
respect of which  payments  of rent are  intended  to be treated as  payments of
principal and interest on a loan for federal income tax purposes).

                  (k) "CAPITALIZED LEASE  OBLIGATIONS"  means, in respect of any
Person,  obligations  of such  Person  and its  Subsidiaries  under  Capitalized
Leases, and, for purposes hereof, the amount of any such obligation shall be the
capitalized amount thereof determined in accordance with GAAP.

                                       41
<PAGE>

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

                  (m)  "CHANGE  OF  CONTROL  PREMIUM"  means (i) in the first 18
months  following the Issuance Date, 120%, (ii) in the period starting 18 months
from the Issuance Date and ending 42 months from the Issuance  Date,  115%;  and
(iii) thereafter, 110%.

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

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

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

                                       42
<PAGE>

                  (q) "CONTINGENT  OBLIGATION"  means, in respect of any Person,
any  obligation  of such  Person  guaranteeing  or  intended  to  guarantee  any
Indebtedness,  leases, dividends or other obligations ("primary obligations") of
any other  Person (the  "primary  obligor") in any manner,  whether  directly or
indirectly,  including, without limitation, (i) the direct or indirect guaranty,
endorsement  (other than for  collection  or deposit in the  ordinary  course of
business),  co-making,  discounting  with recourse or sale with recourse by such
Person of the  obligation  of a primary  obligor,  (ii) the  obligation  to make
take-or-pay or similar  payments,  if required,  regardless of nonperformance by
any other party or parties to an agreement, (iii) any obligation of such Person,
whether or not  contingent,  (w) to purchase any such primary  obligation or any
property  constituting  direct or indirect security therefor,  (x) to advance or
supply funds (A) for the purchase or payment of any such primary  obligation  or
(B) to maintain  working  capital or equity  capital of the  primary  obligor or
otherwise to maintain the net worth or solvency of the primary  obligor,  (y) to
purchase property,  assets,  securities or services primarily for the purpose of
assuring the owner of any such primary  obligation of the ability of the primary
obligor to make payment of such primary obligation or (z) otherwise to assure or
hold  harmless  the holder of such  primary  obligation  against loss in respect
thereof;  provided that, the term "Contingent  Obligation" shall not include any
product  warranties  extended in the ordinary course of business.  The amount of
any Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable  amount  of  the  primary  obligation  in  respect  of  which  such
Contingent  Obligation is made (or, if less,  the maximum amount of such primary
obligation  for which  such  Person may be liable  pursuant  to the terms of the
instrument  evidencing  such  Contingent   Obligation)  or,  if  not  stated  or
determinable,  the maximum reasonably anticipated liability with respect thereto
(assuming such Person is required to perform thereunder),  as determined by such
Person in good faith.

                  (r)  "CONVERTIBLE  SECURITIES"  means any stock or  securities
(other than Options)  directly or indirectly  convertible into or exercisable or
exchangeable for Common Stock.

                  (s)  "DEFAULT"  means any event  that with  notice or lapse of
time, or both, would give rise to an Event of Default.

                  (t)  "DESIGNATED  PERSON"  means a Person  either (i) included
within the term  "designated  national" as defined in the Cuban  Assets  Control
Regulations,  31 C.F.R.  Part 515, or (ii) designated under Sections 1(a), 1(b),
1(c) or 1(d) of  Executive  Order  No.  13224,  66 Fed.  Reg.  49079  (published
September  25,  2001)  or  similarly   designated  under  any  related  enabling
legislation or any other similar executive orders.

                  (u) "DISPOSITION" means any transaction,  or series of related
transactions,  pursuant to which the Company or any of its  Subsidiaries  sells,
issues, assigns, transfers,  conveys, leases or subleases, licenses or otherwise
disposes of, or permits any Subsidiary to sell, issue, assign, transfer, convey,
lease or sublease,  license or otherwise dispose of, in each case whether in one
transaction  or a  series  of  related  transactions,  all  or any  part  of its
business,  property or assets,  or any  interest  therein,  whether now owned or
hereafter acquired (or agrees to do any of the foregoing), or permits or suffers
any other Person to acquire any interest in its business, assets or property (or
agrees to do any of the foregoing).

                                       43
<PAGE>

                  (v) "ELIGIBLE MARKET" means the Initial Principal Market,  The
New York Stock Exchange,  Inc., the American Stock  Exchange,  The NASDAQ Global
Select Market, The NASDAQ Global Market or The NASDAQ Capital Market.

                  (w)   "EQUITY   CONDITIONS"   means  each  of  the   following
conditions:  (i) on each day during the period  beginning three (3) months prior
to the  applicable  date  of  determination  and  ending  on and  including  the
applicable date of determination  (the "EQUITY  CONDITIONS  MEASURING  PERIOD"),
either (x) the Registration  Statement filed pursuant to the Registration Rights
Agreement  shall be  effective  and  available  for the resale of all  remaining
Registrable  Securities in accordance with the terms of the Registration  Rights
Agreement  or (y) all shares of Common Stock  issuable  upon  conversion  of the
Notes  and  exercise  of  the  Warrants  shall  be  eligible  for  sale  without
restriction and without the need for registration  under any applicable  federal
or state securities laws; (ii) during the Equity Conditions Measuring Period the
Common Stock is designated  for  quotation on any Eligible  Market and shall not
have  been  suspended  from  trading  on such  exchange  or market  (other  than
suspensions of not more than two (2) days and occurring  prior to the applicable
date  of  determination  due  to  business  announcements  by  the  Company  and
suspensions  occurring upon the listing of the Common Stock on another  Eligible
Market  (other  than the  Initial  Principal  Market))  nor shall  delisting  or
suspension by such exchange or market been  threatened or pending  either (A) in
writing by such  exchange or market or (B) by falling  below the then  effective
minimum  listing  maintenance  requirements  of such  exchange or market;  (iii)
during the Equity Conditions  Measuring Period, the Company shall have delivered
Conversion  Shares upon conversion of the Notes and Warrant Shares upon exercise
of the  Warrants  to the  holders  on a  timely  basis as set  forth in  Section
2(c)(ii)  hereof (and analogous  provisions  under the Other Notes) and Sections
2(a) of the Warrants; (iv) any applicable shares of Common Stock to be issued in
connection with the event requiring  determination may be issued in full without
violating  Section 3(d) hereof and the rules or  regulations  of any  applicable
Eligible Market; (v) during the Equity Conditions  Measuring Period, the Company
shall not have failed to timely make any payments  within five (5) Business Days
of when such payment is due pursuant to any  Transaction  Document;  (vi) during
the Equity Conditions Measuring Period, there shall not have occurred either (A)
the  public  announcement  of  a  pending,   proposed  or  intended  Fundamental
Transaction  which has not been  abandoned,  terminated or  consummated,  (B) an
Event of  Default  or (C) an event  that with the  passage  of time or giving of
notice would  constitute  an Event of Default;  (vii) the Company  shall have no
knowledge of any fact that would cause (x) the Registration  Statements required
pursuant to the Registration  Rights Agreement not to be effective and available
for the resale of all remaining  Registrable  Securities in accordance  with the
terms of the  Registration  Rights  Agreement  or (y) any shares of Common Stock
issuable upon  conversion of the Notes and shares of Common Stock  issuable upon
exercise  of the  Warrants  not to be  eligible  for  sale  without  restriction
pursuant to Rule 144(k) and any applicable  state  securities  laws;  (viii) the
Stockholder  Approval (as defined in the Securities  Purchase  Agreement)  shall
have been obtained, if required;  and (ix) the Company otherwise shall have been
in  material  compliance  with  and  shall  not  have  materially  breached  any
provision, covenant, representation or warranty of any Transaction Document.

                  (x) "EQUITY  CONDITIONS  FAILURE" means the failure to satisfy
one or more of the Equity Conditions set forth above.

                                       44
<PAGE>

                  (y) "EQUITY INTERESTS" means, in respect of any Person, all of
the shares of capital stock of (or other ownership or profit  interests in) such
Person,  all of the  warrants,  options  or other  rights  for the  purchase  or
acquisition  from such Person of shares of capital stock of (or other  ownership
or profit interests in) such Person,  all of the securities  convertible into or
exchangeable  for  shares  of  capital  stock of (or other  ownership  or profit
interests  in) such Person or  warrants,  rights or options for the  purchase or
acquisition from such Person of such shares (or such other  interests),  and all
of  the  other  ownership  or  profit   interests  in  such  Person   (including
partnership,  member or trust interests  therein),  whether voting or nonvoting,
and whether or not such shares, warrants, options, rights or other interests are
outstanding on any date of determination.

                  (z) "ERISA" means the Employee  Retirement Income Security Act
of  1974,  as  amended,  and  any  successor  statute  of  similar  import,  and
regulations thereunder, in each case, as in effect from time to time. References
to sections of ERISA shall be construed also to refer to any successor sections.

                  (aa) "ERISA  AFFILIATE"  means (a) any Person subject to ERISA
whose employees are treated as employed by the same employer as the employees of
the Company or any of its  Subsidiaries  under  Internal  Revenue  Code  Section
414(b),  (b) any trade or business  subject to ERISA whose employees are treated
as employed by the same  employer as the  employees of the Company or any of its
Subsidiaries under Internal Revenue Code Section 414(c), (c) solely for purposes
of Section  302 of ERISA and  Section  412 of the  Internal  Revenue  Code,  any
organization subject to ERISA that is a member of an affiliated service group of
which the Company or any of its  Subsidiaries is a member under Internal Revenue
Code  Section  414(m),  or (d) solely for  purposes  of Section 302 of ERISA and
Section 412 of the Internal  Revenue Code, any Person subject to ERISA that is a
party to an arrangement  with the Company or any of its  Subsidiaries  and whose
employees  are  aggregated  with  the  employees  of the  Company  or any of its
Subsidiaries under Internal Revenue Code Section 414(o).

                  (bb) "EXCLUDED  SECURITIES" means any Common Stock, Options or
Convertible  Securities,  stock appreciation  rights or other rights with equity
features  issued or issuable:  (i) in connection  with any Approved  Stock Plan;
(ii) upon  conversion of the Notes or the exercise of the Warrants or the Common
PIPE  Warrants  (as  defined in the  Securities  Purchase  Agreement);  (iii) in
connection  with any Permitted  Acquisitions,  whether through an acquisition of
shares or a merger of any business, assets or technologies,  the primary purpose
of which is not to raise equity capital and (iv) upon  conversion of any Options
or Convertible Securities which are outstanding on the day immediately preceding
the  Subscription  Date,  provided that the terms of such Options or Convertible
Securities  are not  amended,  modified or changed on or after the  Subscription
Date.

                  (cc)  "FISCAL  QUARTER"  means  each  of the  fiscal  quarters
adopted by the Company for financial  reporting  purposes that correspond to the
Company's  "FISCAL YEAR" that ends on December 31, or such other fiscal  quarter
adopted by the Company for financial reporting purposes in accordance with GAAP.

                  (dd) "FUNDAMENTAL  TRANSACTION"  means that the Company shall,
directly or  indirectly,  in one or more  related  transactions,  after the date
hereof (i) be dissolved or

                                       45
<PAGE>

liquidated or be the subject of a plan of dissolution or liquidation  adopted by
its  stockholders;  (ii)  consolidate  or merge with or into (whether or not the
Company is the surviving  corporation)  another  Person or Persons;  (iii) sell,
assign, transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company to another Person; (iv) allow another Person
to make a purchase,  tender or exchange offer that is accepted by the holders of
more than the 50% of the  outstanding  shares of Voting Stock (not including any
shares of Voting  Stock  held by the  Person or  Persons  making or party to, or
associated or  affiliated  with the Persons  making or party to, such  purchase,
tender or exchange  offer),  (v) consummate a stock purchase  agreement or other
business   combination   (including,   without  limitation,   a  reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person whereby
such other Person  acquires  more than 50% of the  outstanding  shares of Voting
Stock  (not  including  any shares of Voting  Stock held by the other  Person or
other Persons  making or party to, or  associated  or affiliated  with the other
Persons  making or party to, such stock  purchase  agreement  or other  business
combination); (vi) any "person" or "group" (as these terms are used for purposes
of  Sections  13(d)  and  14(d)  of the  Exchange  Act) is or shall  become  the
"beneficial  owner" (as defined in Rule 13d-3 under the Exchange Act),  directly
or  indirectly,  of 50% of the aggregate  ordinary  voting power  represented by
issued and  outstanding  Common Stock;  (vii) cease to have during any period of
two (2) years, as the majority of its Board of Directors  individuals who at the
beginning  of such  period  constituted  the Board of  Directors  of the Company
(together with any new directors whose nomination for election was approved by a
vote of at least a  majority  of the  directors  then  still in office  who were
either directors at the beginning of such period or whose election or nomination
for election was  previously so approved);  or (viii) fails to own,  directly or
indirectly,  one  hundred  (100%)  percent  of the  voting  power  (directly  or
indirectly) of the total outstanding voting stock of each of the Company and the
Subsidiaries  other  than  (A)  pursuant  to a sale of the  voting  stock of the
Company or any  Subsidiary  permitted  hereunder,  (B) pursuant to a transfer of
such  voting  stock to a  Guarantor  permitted  herein,  or (C) in the case of a
Subsidiary is acquired after the date hereof pursuant to a Permitted Acquisition
where less than one  hundred  (100%)  percent  of the voting  power of the total
outstanding voting stock of such Subsidiary is acquired.

                  (ee) "GAAP" means United States generally accepted  accounting
principles, consistently applied.

                  (ff) "GOVERNMENTAL  AUTHORITY" means any nation or government,
any foreign,  Federal, State, city, town,  municipality,  county, local or other
political subdivision thereof or thereto and any department,  commission, board,
bureau,   instrumentality,   agency  or  other  entity   exercising   executive,
legislative,  judicial, taxing, regulatory or administrative powers or functions
of or pertaining to government.

                  (gg)  "HEDGING  AGREEMENT"  means any interest  rate,  foreign
currency,  commodity  or  equity  swap,  collar,  cap,  floor  or  forward  rate
agreement,  or other  agreement  or  arrangement  designed  to  protect  against
fluctuations  in  interest  rates  or  currency,   commodity  or  equity  values
(including,  without  limitation,  any option in respect of any of the foregoing
and any  combination  of the  foregoing  agreements  or  arrangements),  and any
confirmation executed in connection with any such agreement or arrangement.

                                       46
<PAGE>

                  (hh) "INDEBTEDNESS"  means, in respect of any Person,  without
duplication,  (i) all  indebtedness of such Person for borrowed money;  (ii) all
obligations  of such  Person for the  deferred  purchase  price of  property  or
services  (provided  that  neither  trade  payables  or other  accounts  payable
incurred in the ordinary  course of such Person's  business and not  outstanding
for more than  ninety (90) days after such  payable  was due under its  original
terms nor such trade payables , if outstanding  longer, that are being contested
or  disputed  by such  Person in good faith in the  ordinary  course of business
shall be deemed to  constitute  Indebtedness)  and  including  any  earn-outs or
similar  arrangements  in connection  with any acquisition of businesses by such
Person,   whether   contingent  or  otherwise   subject  to  any  conditions  or
limitations;   (iii)  all  obligations  of  such  Person   evidenced  by  bonds,
debentures,  notes or other similar  instruments or upon which interest payments
are customarily made; (iv) all  reimbursement,  payment or other obligations and
liabilities  of such Person  created or arising under any  conditional  sales or
other title  retention  agreement in respect of property used and/or acquired by
such Person,  even though the rights and remedies of the lessor,  seller  and/or
lender  thereunder may be limited to  repossession  or sale of such property and
all   obligations   and   liabilities   arising  in  connection  with  factoring
arrangements or other  arrangements  in respect of the sale of receivables;  (v)
that  portion of  Capitalized  Lease  Obligations  of such Person that is (or is
required to be)  classified  as a liability on its balance  sheet in  conformity
with GAAP;  (vi) all obligations and  liabilities,  contingent or otherwise,  of
such  Person,  in  respect  of  letters  of  credit,   acceptances  and  similar
facilities;  (vii) all net  obligations  and  liabilities,  of such Person under
Hedging Agreements; (viii) all Contingent Obligations; (ix) liabilities incurred
under Title IV of ERISA in respect of any plan (other than a Multiemployer Plan)
covered by Title IV of ERISA and  maintained for employees of such Person or any
of its ERISA Affiliates;  (x) withdrawal  liability incurred under ERISA by such
Person or any of its ERISA Affiliates in respect of any Multiemployer  Plan; and
(xi) all  obligations  referred to in clauses (i) through (x) of this definition
of another Person secured by (or for which the holder of such  Indebtedness  has
an  existing  right,  contingent  or  otherwise,  to be secured  by) a Lien upon
property owned by such Person, even though such Person has not assumed or become
liable for the  payment of such  Indebtedness.  The  Indebtedness  of any Person
shall include the  Indebtedness  of any partnership of or joint venture in which
such Person is a general  partner or a joint  venturer to the extent such Person
is liable  therefor  as a result of such  Person's  ownership  interest  in such
entity,  except to the extent the terms of such  Indebtedness  expressly provide
that such Person is not liable  therefor.  None of (1) any Approved  Stock Plan,
(2) the Summit Global  Logistics,  Inc.  Equity  Incentive  Plan, (3) the Summit
Global  Logistics,  Inc.  Management  Incentive  Plan,  (4)  the  Summit  Global
Logistics,  Inc. Severance Benefit Plan or (5) the Summit Global Logistics, Inc.
Supplemental  Executive  Retirement  Plan or any  obligations  under any of them
shall be "Indebtedness" for purposes hereof.

                  (ii) "INITIAL PRINCIPAL MARKET" means the National Association
of Securities Dealers Inc.'s OTC Bulletin Board.

                  (jj)  "INSOLVENCY  PROCEEDING"  means (a) any proceeding by or
against any Person seeking to adjudicate it a bankrupt or insolvent,  or seeking
dissolution,   liquidation,   winding   up,   reorganization,    administration,
arrangement,  adjustment,  protection,  relief or composition of it or its debts
under any law relating to bankruptcy,  insolvency,  reorganization  or relief of
debtors  (including,  but not limited to, any case in respect of any such Person
under any provision of the  Bankruptcy  Code),  or seeking the entry of an order
for relief or the appointment

                                       47
<PAGE>

of  a  receiver,  administrative  receiver,  administrator,  manager,  examiner,
trustee, custodian,  liquidator,  sequestrator or other similar official for any
such Person or for any  substantial  part of its property under any provision of
the  Bankruptcy  Code or  under  any  other  Federal,  State  or  other  foreign
bankruptcy,  insolvency,  receivership,   liquidation  or  similar  law  now  or
hereafter  in  effect,  or (b) the  appointment  of a  receiver,  administrative
receiver,  administrator,  manager, examiner,  trustee,  liquidator,  custodian,
sequestrator  or similar  official for such Person or a substantial  part of its
assets shall occur under any Federal,  State or foreign bankruptcy,  insolvency,
receivership, liquidation or similar law now or hereafter in effect.

                  (kk)  "INTEREST  PERIOD"  means  (i)  initially,   the  period
commencing  on the  Interest  Commencement  Date and  ending  on the nine  month
anniversary of the Interest  Commencement  Date and (b) thereafter,  each period
commencing  on the last day of the  immediately  preceding  Interest  Period and
ending nine months thereafter.

                  (ll) "INTEREST RATE" means, in respect of any Interest Period,
a rate per annum equal to LIBOR plus the Applicable Margin then in effect.

                  (mm) "LIBOR",  in respect of any Interest  Period,  shall mean
the nine-month London Interbank  Offered Rate for deposits in U.S.  dollars,  as
quoted from time to time on Bloomberg  as of  approximately  11:00 a.m.,  London
time, on the second Business Day prior to the first day of such Interest Period.

                  (nn) "LIEN" means any mortgage,  deed of trust, deed to secure
debt or similar  instrument,  pledge,  lien  (statutory or otherwise),  security
interest,  charge,  attachment,  assignment or other  encumbrance or security or
preferential  arrangement  of any nature,  including,  without  limitation,  any
conditional sale or title retention  arrangement,  any Capitalized Lease and any
assignment,  deposit  arrangement or financing  lease intended as, or having the
effect of, security.

                  (oo) "LIST" means that certain list  maintained  by the Office
of Foreign Assets Control  ("OFAC"),  Department of the Treasury,  and/or on any
other similar list maintained by the OFAC pursuant to any  authorizing  statute,
executive order or regulation.

                  (pp) "MATERIAL CONTRACT" means (i) the Acquisition  Documents,
(ii)  each  contract  or  agreement  to  which  the  Company  or  any  of  their
Subsidiaries is a party involving aggregate  consideration payable to or by such
Person of  $1,000,000  or more in any  twelve  month  period and (iii) all other
contracts  or  agreements  material  to  the  business,  operations,   condition
(financial or  otherwise),  performance,  prospects or properties of the Company
and its Subsidiaries (taken as a whole).

                  (qq)  "MULTIEMPLOYER  PLAN"  means a  "multiemployer  plan" as
defined in Section  4001(a)(3) of ERISA to which the Company or any Guarantor or
any ERISA Affiliates has contributed to, or has been obligated to contribute.

                  (rr) "NET SENIOR  INDEBTEDNESS" means in respect of any Person
at any  date,  the  amount  equal  to:  (a)  the  sum of  (i)  the  Consolidated
Indebtedness  of  such  Person  plus  (ii)  the  aggregate  amount  of all  then
outstanding and unpaid trade payables and other obligations of such Person which
are outstanding more than ninety (90) days past due under its original

                                       48
<PAGE>

terms and which are not being contested or disputed by such Person in good faith
in the ordinary  course of business minus (b) in the case of the Company and its
Subsidiaries,  the sum of (i) cash on the  balance  sheet of such  Person as set
forth in such Person's  financial  statements in the form filed with the SEC for
the fiscal  quarter  immediately  prior to such date plus (ii) the  Subordinated
Indebtedness of such Person plus (iii) the Indebtedness evidenced by the Notes.

                  (ss)   "OBLIGORS"   means  the  Company  and  the  Guarantors,
collectively.

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

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

                  (vv)  "PERMITTED   ACQUISITION"  means  the  Acquisitions  (as
defined in the Securities  Purchase  Agreement) and any other acquisition by the
Company  and/or  any  of  its  Subsidiaries,  whether  by  purchase,  merger  or
otherwise,  whether or not involving cash and/or stock  consideration;  provided
that,

                        (i)  immediately  prior  to,  and  after  giving  effect
      thereto,  no  Default  or Event of  Default  shall  have  occurred  and be
      continuing or would result therefrom;

                        (ii) all  transactions in connection  therewith shall be
      consummated in accordance with applicable laws;

                        (iii)  in  the  case  of  the   acquisition   of  Equity
      Interests, (A) all of the Equity Interests (except for any such securities
      in the  nature  of  directors'  qualifying  shares  required  pursuant  to
      applicable  law) acquired or otherwise  issued by such Person or any newly
      formed Subsidiary of the Company in connection with such acquisition shall
      be owned 100% by the Company or a  Subsidiary,  and the Company shall have
      taken,  or caused to be taken,  as of the date such Person is or becomes a
      Subsidiary  of the Company or of another  Subsidiary,  each of the actions
      set forth in Section  5(l) of the  Security  Agreement  unless such Person
      becomes a Foreign  Subsidiary and (B) in the case of a joint venture,  all
      of the Equity  Interests  (except for any such securities in the nature of
      directors' qualifying shares required pursuant to applicable law) acquired
      by Company and/or  Subsidiaries in connection with such acquisition  shall
      be owned  100% by the  Company  or a  Subsidiary  as  applicable,  and the
      Company  shall have taken,  or caused to be taken,  as of the date of such
      acquisition, each of the actions set forth in Section 5(l) of the Security
      Agreement unless such Person is a Foreign Subsidiary;

                        (iv)  the  Company  and  its  Subsidiaries  shall  be in
      compliance with the financial  covenants set forth in Section 14(l) hereof
      on a pro forma basis after  giving  effect to such  acquisition  as of the
      last day of the fiscal quarter most recently ended;

                                       49
<PAGE>

                        (v) the Company shall have  delivered to the  Collateral
      Agent (as defined in the Security  Agreement),  at least ten (10) Business
      Days  prior  to  such  proposed  acquisition,   a  certificate  certifying
      Company's  compliance  with  Section  14(l),  together  with all  relevant
      financial  information  in respect  of such  acquired  assets,  including,
      without limitation,  the aggregate  consideration for such acquisition and
      any information necessary to (A) demonstrate compliance with Section 14(l)
      hereof and (B) enable Collateral Agent to perfect its security interest in
      the  acquired  assets  and/or  Equity  Interests  in  accordance  with the
      Security  Agreement and the Pledge Agreement (other than the assets of and
      Equity Interests of and issued by entities organized outside of the United
      States);

                        (vi) the  cash  consideration  for any such  acquisition
      (excluding therefrom earnouts,  deferred purchase price payments,  Special
      Incentive  Bonuses  and  Subordinated  Indebtedness  derived or arising in
      connection  therewith) shall not exceed the amount of loans then available
      in respect of the Permitted  Indebtedness plus the Company's cash and Cash
      Equivalents  on hand provided that Company and/or its  Subsidiaries  shall
      have at  least  $2,500,000  of cash and Cash  Equivalents  on hand  and/or
      availability  under the Senior Loan  Agreement  after giving effect to the
      applicable Permitted Acquisition; and

                        (vii) the acquired business and/or assets shall comprise
      assets used in, or be an  operating  company or a division of an operating
      company  that  engages  in,  a line  of  business  substantially  similar,
      complimentary  or related to the business that the Company,  Guarantors or
      their Subsidiaries are engaged in on the date hereof.

                  (ww) "Permitted Indebtedness" means:

                        (i) Permitted Senior Indebtedness;

                        (ii) Contingent Obligations of the Company or any of its
Subsidiaries  in respect of any  Indebtedness  described in this  definition  of
Permitted  Indebtedness  which  the  Company  or such  Subsidiary  is  otherwise
permitted to incur hereunder;

                        (iii) (A) contingent  Indebtedness of the Company or any
of its  Subsidiaries  existing on the date hereof  pursuant to the earn-outs and
deferred  purchase price payments under the Acquisition  Documents in accordance
with the  terms  thereof  as in  effect on the date  hereof  and (B)  contingent
Indebtedness  of the Company or any of its  Subsidiaries  arising after the date
hereof pursuant to earn-outs  and/or deferred  purchase price payments under any
Permitted  Acquisition(s)  consummated after the date hereof, provided that such
Indebtedness under clause (B) shall not exceed $30,000,000 in the aggregate;

                        (iv)  any  other  Indebtedness  of  the  Company  or any
Subsidiary listed on SCHEDULE 28(WW) hereto;

                        (v) purchase  money  Indebtedness  of the Company or any
Subsidiary  (including  purchase  money  Capitalized  Leases and  including  all
reimbursement,  payment or other  obligations  and liabilities of the Company or
such Subsidiary  created or arising under any  conditional  sales or other title
retention agreement in respect of property used and/or

                                       50
<PAGE>

acquired by the Company or such Subsidiary,  even though the rights and remedies
of the lessor, seller and/or lender thereunder may be limited to repossession or
sale of such  property)  arising after the date hereof to the extent  secured by
purchase money security interests in equipment  (including  Capitalized  Leases)
and  purchase  money  mortgage,  deed of trust,  deed to secure  debt or similar
instruments  on Real  Property  not to exceed  $5,000,000  in any Fiscal Year or
$15,000,000  in the aggregate at any time  outstanding  (in each case  including
both purchase money Indebtedness secured by equipment and Real Property) so long
as such security  interests and mortgage,  deed of trust, deed to secure debt or
similar  instruments  do  not  apply  to any  property  of  the  Company  or any
Subsidiary  other than the  equipment  or Real  Property so  acquired  and other
equipment  or Real  Property  financed  by such  lender to the extent  that such
financing  constitutes  Permitted  Indebtedness and is evidenced by an agreement
that includes customary  provisions requiring  cross-collateralization  thereof,
and the  Indebtedness  secured thereby does not exceed the cost of the equipment
or Real  Property so acquired and the cost of other  equipment or Real  Property
financed by such lender to the extent that such financing  constitutes Permitted
Indebtedness and is evidenced by an agreement that includes customary provisions
requiring cross-collateralization thereof, as the case may be;

                        (vi)  Indebtedness  of the  Company  or  any  Subsidiary
arising  pursuant to loans or  advances  by the  Company or a  Guarantor  to the
Company or such Subsidiary permitted under Sections 14(t) and 14(u);

                        (vii)  contingent  Indebtedness  existing  on  the  date
hereof in the form of Special  Incentive  Bonuses (as defined in the Senior Loan
Agreement)  to  employees,  directors  and/or  officers  of the  Company  or any
Subsidiary  and/or to sellers of assets and/or Equity  Interests,  in each case,
under the Acquisition  Documents consisting of the TUG New York Bonus Agreement,
the TUG  Miami and Los  Angeles  Bonus  Agreement  and/or  the TUG  China  Bonus
Agreement, each as in effect on the date hereof;

                        (viii)  contingent  Indebtedness  in the form of Special
Incentive Bonuses to employees,  directors and/or officers of the Company or any
Subsidiary and/or to sellers of assets and/or Equity Interests, in each case, in
connection with any Permitted  Acquisitions  consummated  after the date hereof;
provided that (x) the sum of (A) the aggregate  amount of payments in respect of
such Indebtedness to employees,  directors and/or officers of the Company or any
Subsidiary  and/or  to such  sellers,  plus  (B) the  aggregate  amount  of cash
consideration paid in respect of all Permitted Acquisitions  (excluding earnouts
and deferred purchase price payments) other than from the proceeds of the Common
PIPE Offering and any other cash on hand,  shall not exceed in the aggregate for
(A) and (B), $7,500,000 and (y) the Company and its Subsidiaries shall not make,
or be  required  to make,  any  payments  in  respect  of such  Indebtedness  to
employees,  directors and/or officers of the Company or any Subsidiary and/or to
such sellers  unless as of the date of any such payment and after giving  effect
thereto,  no Default or Event of Default  under  Section  4(a)(v),  4(a)(vii) or
4(a)(viii) shall be continuing;

                        (ix)   Indebtedness  to  employees,   directors   and/or
officers of the Company or any Subsidiary in the form of retention  compensation
not to exceed $1,000,000 in the aggregate outstanding at any time;

                                       51
<PAGE>

                        (x) Indebtedness of the Company or any Guarantor arising
after the date hereof consisting of the reimbursement obligations to a financial
institution  in respect of letters of credit or bank  guarantees  issued by such
financial  institution  for the account of the Company or any Guarantor,  in the
ordinary course of business;  provided that (x) upon its request, the Collateral
Agent  shall  have  received  true,  correct  and  complete  copies  of  all  of
agreements, documents and instruments relating to the facility pursuant to which
such  letters  of credit are  issued,  and (y) in no event  shall the  aggregate
amount of all such Indebtedness (contingent or otherwise) at any time exceed the
amount  equal to (A)  $10,000,000  minus  (B) the  outstanding  letter of credit
obligations constituting Permitted Senior Indebtedness at such time;

                        (xi)  Indebtedness  of the  Company  and the  Guarantors
arising  after the date hereof  issued in exchange for, or the proceeds of which
are used to  refinance,  replace  or  substitute  for all or any  portion of the
Indebtedness  permitted  under  clauses  (iv)  or (v) of  this  definition  (the
"REFINANCING   INDEBTEDNESS");   provided  that  as  to  any  such   Refinancing
Indebtedness, each of the following conditions is satisfied: (w) the Refinancing
Indebtedness shall have a weighted average life to maturity and a final maturity
equal to or greater  than the  weighted  average  life to maturity and the final
maturity,  respectively,  of the Indebtedness  being  refinanced,  replaced,  or
substituted for, (x) the Refinancing Indebtedness shall rank in right of payment
no more senior than, and be at least as subordinated (if  subordinated)  to, the
obligations under this Note as the Indebtedness  being  refinanced,  replaced or
substituted for, (y) such extension,  refinancing or modification is pursuant to
terms  that  are not  less  favorable  to the  Company,  its  Subsidiaries,  the
Collateral  Agent  and the  Holder  than  the  terms of the  Indebtedness  being
refinanced,  replaced,  or  substituted  for and (z) after giving effect to such
refinancing,   replacement  or  substitution,   the  principal  amount  of  such
Indebtedness   is  not  greater  than  the  principal   amount  of  Indebtedness
outstanding  immediately prior to such refinancing,  replacement or substitution
(or in the case of the  refinancing,  replacement  or  substitution  of or for a
revolving  credit  facility,  the aggregate of the  commitments of the lender or
lenders under such facility);

                        (xii) In addition to all other  Permitted  Indebtedness,
Subordinated  Indebtedness  of the Company or any  Subsidiary  arising after the
date hereof, provided that (w) the Collateral Agent shall have received not less
than ten (10) days prior written  notice of the intention of the Company or such
Subsidiary  to  incur  such  Indebtedness,  which  notice  shall  set  forth  in
reasonable detail  satisfactory to the Holders the amount of such  Indebtedness,
the person or persons to whom such Indebtedness will be owed, the interest rate,
the schedule of repayments and maturity date with respect thereto and such other
information  as the Holders may request  with respect  thereto,  (x) the Holders
shall  have  received  true,  correct  and  complete  copies of all  agreements,
documents and instruments  evidencing or otherwise related to such Indebtedness,
(y) in no event shall the aggregate principal amount of such Indebtedness at any
time  outstanding  exceed  $40,000,000  and (z) as of the date of incurring such
Indebtedness  and after giving  effect  thereto,  no Default or Event of Default
shall exist or have occurred;

                        (xiii)  Indebtedness of the Company and its Subsidiaries
arising  after the date hereof  consisting  of  obligations  on surety or appeal
bonds;  provided  that,  (x) such surety or appeal  bonds arise in the  ordinary
course of business and do not exceed at any time outstanding $5,000,000, and (y)
in connection with any performance bonds issued by a surety or

                                       52
<PAGE>

other person, the issuer of such bond shall have waived in writing any rights in
or to, or other  interest  in, any of the  Collateral  (other  than  deposits or
pledges of cash  permitted to secure such  Indebtedness  under clause (x) of the
definition of the term Permitted  Liens) in an agreement,  in form and substance
satisfactory to the Collateral Agent.

                        (xiv) Indebtedness of Sea Master Hong Kong arising after
the date  hereof  to  Protex  in an  aggregate  principal  amount  not to exceed
$2,000,000  at any  time,  provided  that,  as of the  date  of  incurring  such
Indebtedness  and after giving  effect  thereto,  no Default or Event of Default
shall exist or have occurred; and

                        (xv)  Indebtedness  consisting of  liabilities  incurred
under Title IV of ERISA in respect of any plan (other than a Multiemployer Plan)
covered by Title IV of ERISA and  maintained for employees of such Person or any
of its ERISA  Affiliates and withdrawal  liability  incurred under ERISA by such
Person or any of its ERISA  Affiliates in respect of any  Multiemployer  Plan to
the extent that in each case such Indebtedness does not otherwise  constitute or
give rise to an Event of Default;

                        (xvi) incentive  bonus plans and other employee  benefit
plans of the Company  and/or its  Subsidiaries  to the extent  that  obligations
under such plans constitute "Indebtedness"; and

                        (xvii) trade payables or other accounts payable incurred
in the ordinary  course of the  Company's or any  Subsidiary's  business and not
outstanding for more than one hundred and twenty (120) days after such amount is
due by the Company or such Subsidiary or, if outstanding  longer, that are being
contested or disputed by the Company and/or such Subsidiary in good faith in the
ordinary course of business.

                  (xx) "PERMITTED LIENS" means:

                        (i) Liens securing the obligations under the Notes;

                        (ii) Liens on the Collateral  securing the  Indebtedness
evidenced by the Senior Loan;

                        (iii) Liens  securing the payment of taxes,  assessments
or other  governmental  charges or levies either not yet overdue or the validity
of which are being contested in good faith by appropriate proceedings diligently
pursued and  available to the Company,  or Guarantor or any other  Subsidiary of
the Company,  as the case may be and in respect of which adequate  reserves have
been set aside on its books and for which  payment is not  required by the terms
of Section 14(x);

                        (iv)  Liens   constituting   purchase   money   security
interests  in  equipment  (including  Capitalized  Leases)  and  purchase  money
mortgages,  deeds of trust, deeds to secure debt or similar  instruments on real
property to secure Indebtedness  permitted under clause (v) of the definition of
the term "Permitted Indebtedness";

                        (v)   Liens   imposed   by  law,   such  as   carriers',
warehousemen's, mechanics', materialmen's and other similar Liens arising in the
ordinary course of business and

                                       53
<PAGE>

securing  obligations  (other than Indebtedness for borrowed money) that are not
overdue by more than thirty (30) days or are being  contested  in good faith and
by appropriate proceedings promptly initiated and diligently conducted; provided
that they are  subordinate  to the  Collateral  Agent's Liens on the  Collateral
except to the extent of customary fees payable in respect of such  obligations),
and a reserve or other  appropriate  provision,  if any, as shall be required by
GAAP shall have been made therefor;

                        (vi) Liens  described  on SCHEDULE  28(XX),  but not the
extension  of  coverage  thereof  to  other  property  or  the  increase  of the
Indebtedness  secured  thereby  (other  than in respect of accrued  interest  in
accordance with the terms thereof);

                        (vii) Liens and the right of setoff against  deposits of
cash by the Company,  any Guarantor or any Subsidiary in the ordinary  course of
business  with any  financial  institution  at which a  deposit  account  of the
Company,  such Guarantor or such Subsidiary is maintained to secure  obligations
of the Company,  such Guarantor or such Subsidiary to such financial institution
in  connection  with  such  deposit  account  and the cash  management  services
provided by such financial  institution  for which such deposit  account is used
consistent  with the current  practices of the Company,  such  Guarantor or such
Subsidiary as of the date hereof;  provided that,  such Liens are subordinate to
the Collateral Agent's Liens on the Collateral except to the extent of customary
fees,  items  returned  unpaid  and  overdrafts   payable  in  respect  of  such
obligations;

                        (viii) Liens arising from (i)  operating  leases and the
precautionary  UCC  financing  statement  filings  in respect  thereof  and (ii)
equipment or other materials  which are not owned by the Company,  any Guarantor
or any Subsidiary located on the premises of the Company, such Guarantor or such
Subsidiary  (but not in connection  with, or as part of, the financing  thereof)
from time to time in the ordinary course of business and consistent with current
practices of the Company,  such  Guarantor or such  Subsidiary of the Company or
such Guarantor and the precautionary UCC financing  statement filings in respect
thereof;

                        (ix) Liens in favor of customs and  revenue  authorities
arising as a matter of law to secure  payment of  customs  duties in  connection
with importation of goods in the ordinary course of business;

                        (x)   deposits   and  pledges  of  cash   securing   (i)
obligations incurred in respect of workers' compensation, unemployment insurance
or other forms of  governmental  insurance or benefits,  (ii) the performance of
bids,  tenders,  leases,  contracts  (other  than for the  payment of money) and
statutory  obligations or (iii)  obligations on surety or appeal bonds permitted
under clause (xiii) of the definition of the term Permitted Indebtedness;

                        (xi)   easements,   zoning   restrictions   and  similar
encumbrances  on real property  owned by the Company or any Subsidiary and minor
irregularities  in the title thereto that do not (x) secure  obligations for the
payment of money, or (y) materially impair the value of such property or its use
by the Company or any  Subsidiary in the normal conduct of the Company's or such
Subsidiary business;

                                       54
<PAGE>

                        (xii) Liens resulting from any judgment or award so long
as (x) such  judgment  or award does not  constitute  an Event of Default  under
Section  4(a)(xv)  and (y) the  enforcement  of such  judgment or award has been
stayed by reason of a pending appeal or otherwise;

                        (xiii) licenses in respect of  Intellectual  Property to
the  extent  permitted  hereunder  or  under  the  other  Transaction  Documents
(including, without limitation, Licenses);

                        (xiv) Liens of the financial institution that has issued
letters  of credit or bank  guarantees  for the  account  of the  Company or any
Guarantor  giving rise to Indebtedness of such Person permitted under clause (x)
of the definition of Permitted Indebtedness on cash and Cash Equivalents of such
Person to secure the reimbursement  obligations to such financial institution in
respect of such  letters of credit and bank  guarantees;  provided  that,  in no
event shall the aggregate  amount of such cash and Cash  Equivalents at any time
exceed the amount equal to one hundred five (105%) percent of the undrawn amount
of such letters of credit and bank guarantees then outstanding;

                        (xv)  Liens to secure  Refinancing  Indebtedness  to the
extent such Liens are otherwise permitted hereunder;

                        (xvi) pledges of any cash earnest money deposits, not to
exceed $3,000,000 in the aggregate, by the Company or any Subsidiary pursuant to
a letter of  interest  or  purchase  agreement  executed  by the Company or such
Subsidiary in connection with any Permitted Acquisition;

                        (xvii)  Liens  arising  under  Section  14(t)(v)  on the
assets  of a  Subsidiary  that is not  the  Company  or a  Guarantor  to  secure
obligations  arising  under loans or advances by the Company or any Guarantor to
such Subsidiary; and

                        (xviii)  the  pledge  of  cash  collateral  to  GMAC  in
connection with that certain  Termination and Release  Agreement dated as of the
date  hereof in  respect of  letters  of credit  issued  for the  benefit of the
Company and/or Guarantors.

                  (yy) "PERMITTED SENIOR INDEBTEDNESS" means (i) the Senior Loan
and all related  obligations;  PROVIDED,  however,  that the aggregate principal
amount of Permitted Senior Indebtedness  outstanding at any time thereunder does
not at any time exceed the Maximum Senior Debt (as defined in the  Intercreditor
Agreement),  and (ii) any guaranties of the Indebtedness described in clause (i)
hereof.

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

                  (aaa)  "PRINCIPAL  MARKET"  means,  from  time  to  time,  the
Eligible  Market  upon  which  the  Common  Stock  is  admitted  or  listed  and
principally trades.

                                       55
<PAGE>

                  (bbb)  "REAL  PROPERTY"  means  all now  owned  and  hereafter
acquired real property of the Company and each Subsidiary,  including  leasehold
interests,  together  with all  buildings,  structures,  and other  improvements
located thereon and all licenses,  easements and appurtenances relating thereto,
wherever located.

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

                  (ddd) "REDEMPTION PREMIUM" means (i) in the case of the Events
of Default described in Section 4(a)(i) - (vi) and (ix) - (xix), 120% or (ii) in
the case of the Events of Default described in Section 4(a)(vii) - (viii), 100%.

                  (eee) "REDEMPTION  PRICES" means,  collectively,  the Event of
Default  Redemption  Price,  Optional  Redemption  Price and  Change of  Control
Redemption Price and, each of the foregoing, individually, a Redemption Price.

                  (fff)  "REGISTRATION  RIGHTS  AGREEMENT"  means  that  certain
registration  rights  agreement  dated as of the Issuance  Date by and among the
Company and the initial  holders of the Notes  relating to, among other  things,
the  registration for resale of the Common Stock issuable upon conversion of the
Notes and exercise of the Warrants.

                  (ggg)   "REQUIRED   HOLDERS"   means  the   holders  of  Notes
representing at least a majority of the aggregate  principal amount of the Notes
then  outstanding;  provided  that any Note that is held by an  Affiliate of the
Company shall not be deemed to be outstanding for purposes of the  determination
of "Required Holders."

                  (hhh)  "REVERSE  SPLIT"  means that certain  reverse  split in
respect of the shares Common Stock of the Company in which each 11.226 shares of
Common  Stock prior to such reverse  split shall be  exchanged  for one share of
Common Stock after such reverse  split to be effected by the Company as promptly
as practicable after the Issuance Date.

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

                  (jjj)  "SECURITIES  PURCHASE  AGREEMENT"  means  that  certain
Securities  Purchase Agreement (Notes and Warrants) dated as of the Subscription
Date by and among Maritime Logistics US Holdings Inc. (and the Company, pursuant
to a Joinder Agreement dated as of the Issuance Date) and the initial holders of
the Notes, pursuant to which the Company issued the Notes.

                  (kkk) "SENIOR  LOAN" the  principal  of,  interest on, and all
fees  and  other  amounts  (including,   without   limitation,   any  reasonable
out-of-pocket costs,  enforcement expenses (including  reasonable  out-of-pocket
legal  fees  and  disbursements),   collateral  protection  expenses  and  other
reimbursement or indemnity  obligations  relating thereto) and all other amounts
payable by the Company  and/or any of its  Subsidiaries,  whether as  principal,
surety,  endorser,  guarantor  or  otherwise,  whether now existing or hereafter
arising, whether arising before or after the commencement of any case in respect
of the Company and/or any of its

                                       56
<PAGE>

Subsidiaries under the U.S.  Bankruptcy Code or any other insolvency  proceeding
(and  including,  without  limitation,  any principal,  interest,  fees,  costs,
expenses and other amounts,  whether or not such amounts are allowable either in
whole or in part,  in any such case or similar  proceeding),  whether  direct or
indirect,  absolute or contingent,  joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured, arising under or in
connection  with the Senior Loan  Agreement  and all  agreements,  documents and
instruments at any time executed  and/or  delivered by the Company and/or any of
its  Subsidiaries  to,  with or in favor of the  agent  under  the  Senior  Loan
Agreement in connection  therewith or related  thereto,  as all of the foregoing
now  exist  or may  hereafter  be  amended,  modified,  supplemented,  extended,
renewed, restated, refinanced, replaced or restructured (in whole or in part and
including  any  agreements  with, to or in favor of any other agent or lender or
group of lenders that at any time refinances, replaces or succeeds to all or any
portion of such obligations),  provided that the principal amount outstanding at
any time thereunder  shall not exceed the Maximum Senior Debt (as defined in the
Intercreditor Agreement).

                  (lll)  "SENIOR  LOAN   AGREEMENT"   means  that  certain  Loan
Agreement  dated as of even date hereof by and among Fortress  Credit Corp.,  in
its   capacity  as   administrative   agent  for  the  lenders   party   thereto
(collectively,  "SENIOR  LENDERS"),  the lenders party thereto,  the Company and
certain of the Subsidiaries.

                  (mmm)  "SENIOR LOAN  DOCUMENTS"  has the same meaning as "LOAN
DOCUMENTS"  set forth in the  Senior  Loan  Agreement,  as in effect on the date
hereof.

                  (nnn) "SUBORDINATED  INDEBTEDNESS" means Indebtedness (secured
or  unsecured)  incurred by the  Company  and/or its  Subsidiaries  that is made
expressly subordinate in right of payment to the Indebtedness  evidenced by this
Note, as reflected in a written agreement  acceptable to the Holder and approved
by the Holder in writing;  provided that no such  Indebtedness  shall provide at
any time for (1) the payment, prepayment,  repayment,  repurchase or defeasance,
directly or  indirectly,  of any  principal or premium,  if any,  thereon  until
ninety-one  (91) days  after  the  Maturity  Date or later  and (2)  total  cash
interest at a rate in excess of eleven percent (11.0%) per annum.

                  (ooo) "SUBSCRIPTION DATE" means November 6, 2006.

                  (ppp)  "SUBSIDIARY"  means,  from time to time,  any entity in
which the Company directly or indirectly, owns any of the capital stock or holds
an equity or similar interest.

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

                  (rrr) "TRADING DAY" means any day on which the Common Stock is
traded on the Principal Market, or, if the Principal Market is not the principal
trading  market for the Common Stock,  then on the Eligible  Market which is the
principal securities exchange or

                                       57
<PAGE>

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

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

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

                  (uuu) "WEIGHTED  AVERAGE PRICE" means,  for any security as of
any date,  the dollar  volume-weighted  average  price for such  security on the
Principal  Market during the period beginning at 9:30:01 a.m., New York Time (or
such other time as the Principal Market publicly  announces is the official open
of trading),  and ending at 4:00:00  p.m.,  New York Time (or such other time as
the Principal  Market  publicly  announces is the official  close of trading) as
reported  by  Bloomberg  through  its  "Volume at Price"  functions,  or, if the
foregoing  does not apply,  the  dollar  volume-weighted  average  price of such
security in the  over-the-counter  market on the  electronic  bulletin board for
such security  during the period  beginning at 9:30:01  a.m.,  New York Time (or
such  other time as such  market  publicly  announces  is the  official  open of
trading),  and ending at 4:00:00 p.m., New York Time (or such other time as such
market  publicly  announces  is the  official  close of  trading) as reported by
Bloomberg,  or, if no dollar volume-weighted  average price is reported for such
security by  Bloomberg  for such hours,  the average of the highest  closing bid
price and the  lowest  closing  ask price of any of the  market  makers for such
security  as  reported in the "pink  sheets" by Pink  Sheets LLC  (formerly  the
National  Quotation  Bureau,  Inc.).  If the  Weighted  Average  Price cannot be
calculated  for a security on a particular  date on any of the foregoing  bases,
the  Weighted  Average  Price of such  security  on such date  shall be the fair
market  value as mutually  determined  by the  Company  and the  Holder.  If the
Company  and the Holder are unable to agree upon the fair  market  value of such
security,  then such dispute shall be resolved  pursuant to Section 23. All such
determinations to be appropriately adjusted for any stock dividend, stock split,
stock combination or other similar transaction during the applicable calculation
period.

            (29)  DISCLOSURE.  The  Company  shall  not,  and  shall  cause  its
Subsidiaries and each of their  respective  officers,  directors,  employees and
agents,  not to,  provide the Holder with any  material,  nonpublic  information
regarding,  the Company or any if its Subsidiaries  from and after the filing of
the 8-K Filing with the SEC without the express  written  consent of the Holder.
If the Holder  has,  or  believes  it has,  received  from the  Company any such
material,   nonpublic   information   regarding   the  Company  or  any  of  the
Subsidiaries,  it shall  provide the Company with written  notice  thereof.  The
Company  shall,  within four (4) Trading  Days of receipt of such  notice,  make
public disclosure of such material, nonpublic information unless the

                                       58
<PAGE>

Company has in good faith determined that the matters relating to such notice do
not constitute material  non-public  information about the Company. In the event
of a breach of the foregoing  covenant by the Company,  any of its Subsidiaries,
or any of  their  respective  officers,  directors,  employees  and  agents,  in
addition to any other remedy provided  herein or in the  Transaction  Documents,
the Holder  shall have the right to make a public  disclosure,  in the form of a
press release,  public advertisement or otherwise,  of such material,  nonpublic
information  with the prior  approval by the Company.  Holder shall not have any
liability to the Company,  any of its  Subsidiaries,  or any of their respective
officers, directors, employees,  stockholders or agents for any such disclosure.
Subject to the foregoing,  none of the Company,  any of its  Subsidiaries or the
Holder shall issue any press releases or any other public  statements in respect
of the transactions  contemplated hereby;  PROVIDED,  HOWEVER,  that the Company
shall be entitled,  without the prior approval of the Holder,  to make any press
release  or other  public  disclosure  in respect  of such  transactions  (i) in
substantial  conformity with the 8-K Filing and contemporaneously  therewith and
(ii) as is required by applicable Requirements of Law.

            (30) INTERCREDITOR  AGREEMENT.  This Note and each of the provisions
hereof shall be subject to the Intercreditor Agreement.

                            [Signature Page Follows]

                                       59
<PAGE>

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

                                     AEROBIC CREATIONS, INC.

                                     By:________________________________
                                        Name:
                                        Title:

<PAGE>

                                    EXHIBIT I

                                     SHELLCO

                                CONVERSION NOTICE

Reference is made to the Senior Secured  Convertible Note (the "NOTE") issued to
the undersigned by ShellCo (the  "COMPANY").  In accordance with and pursuant to
the Note, the  undersigned  hereby elects to convert the  Conversion  Amount (as
defined in the Note) of the Note indicated below into shares of Common Stock par
value  $0.001 per share (the  "COMMON  STOCK")  of the  Company,  as of the date
specified below.

      Date of Conversion:_______________________________________________________

      Aggregate Conversion Amount to be converted:______________________________

Please confirm the following information:

      Conversion Price:_________________________________________________________

      Number of shares of Common Stock to
      be issued:                            ____________________________________

      Installment Amounts to be reduced and
      amount of reduction:                  ____________________________________

Please  issue the Common  Stock into  which the Note is being  converted  in the
following name and to the following address:

      Issue to: ________________________________________________________________

                ________________________________________________________________

                ________________________________________________________________

      Facsimile Number: ________________________________________________________

      Authorization: ___________________________________________________________

            By: ________________________________________________________________

                Title: _________________________________________________________

Dated: _________________________________________________________________________

      Account Number:___________________________________________________________
      (if electronic book entry transfer)

      Transaction Code Number:__________________________________________________
      (if electronic book entry transfer)

<PAGE>

                                 ACKNOWLEDGMENT

            The Company hereby  acknowledges  this Conversion  Notice and hereby
directs  the  Transfer  Agent to issue the above  indicated  number of shares of
Common Stock in accordance  with the Transfer Agent  Instructions  dated _______
__,  200_ from the  Company  and  acknowledged  and agreed to by  Holiday  Stock
Transfer, Inc..

                                          AEROBIC CREATIONS, INC.

                                          By:_________________________________
                                             Name:
                                             Title:

<PAGE>

                                 Schedule 14(a)

                                      Rank

<PAGE>

                                Schedule 14(l)(i)

                              Total Leverage Ratio

<PAGE>

                               Schedule 14(l)(ii)

                      Consolidated Last Twelve Month EBITDA

<PAGE>

                               Schedule 14(l)(iii)

                           Fixed Charge Coverage Ratio

<PAGE>

                                 Schedule 14(t)

                         Loans, Advances and Investments

<PAGE>

                                 Schedule 14(u)

                          Transactions with Affiliates

<PAGE>

                                 Schedule 28(vv)

                         Existing Permitted Indebtedness

<PAGE>

                                 Schedule 28(ww)

                            Existing Permitted Liens

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