Document:

ex103.htm

                                                                                                                        

    Exhibit
10.3                     

     

    

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

    

    Original
Issue Date: ______ __, 2009

    Original
Conversion Price (subject to adjustment herein): $1.3157895

    

    $_______

    

    

    ORIGINAL
ISSUE DISCOUNT

    SENIOR
SECURED CONVERTIBLE PROMISSORY NOTE

    DUE
_______ __, 2011

    

    THIS ORIGINAL ISSUE DISCOUNT SENIOR
SECURED CONVERTIBLE PROMISSORY NOTE is one of a series of duly authorized and
validly issued Original Issue Discount Senior Secured Convertible Promissory
Notes of Magnolia Solar Corporation, a Nevada corporation, (the “Company”), having its
principal place of business at 52-B Cummings Park, Suite 314, Woburn, MA 01801,
designated as its Original Issue Discount Senior Secured Convertible Promissory
Note due ________ __, 2011 (this note, the “Note” and,
collectively with the other notes of such series, the “Notes”).

    

    FOR VALUE
RECEIVED, the Company promises to pay to ______________ or its registered
assigns (the “Holder”), or shall
have paid pursuant to the terms hereunder, the principal sum of $_______ on
_______ __, 2011 (the “Maturity Date”) or
such earlier date as this Note is required or permitted to be repaid as provided
hereunder.  This Note is subject to the following additional
provisions:

    

    Section
1.                      Definitions.  For
the purposes hereof, in addition to the terms defined elsewhere in this Note,
the following terms shall have the following meanings:

    

    “Alternate
Consideration” shall have the meaning set forth in Section
5(e).

    

    “Bankruptcy Event”
means any of the following events: (a) the Company or any Significant Subsidiary
(as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a
case or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof, (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not dismissed
within 60 days after commencement, (c) the Company or any Significant Subsidiary
thereof is adjudicated insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered, (d) the Company or any
Significant Subsidiary thereof suffers any appointment of any custodian or the
like for it or any substantial part of its property that is not discharged or
stayed within 60 calendar days after such appointment, (e) the Company or any
Significant Subsidiary thereof makes a general assignment for the benefit of
creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts, or (g) the Company or any Significant Subsidiary
thereof, by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any corporate or
other action for the purpose of effecting any of the foregoing.

     

     

     

    
      
        
        

      

      
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    “Base Conversion
Price” shall have the meaning set forth in Section 5(b).

    

    “Beneficial Ownership
Limitation” shall have the meaning set forth in Section
4(c).

    

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

    

     “Change of Control
Transaction” means the occurrence after the date hereof of any of (a) an
acquisition after the date hereof by an individual or legal entity or “group”
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company (other than by means of conversion or exercise
of the Notes and the Securities issued together with the Notes), or (b) the
Company merges into or consolidates with any other Person, or any Person merges
into or consolidates with the Company and, after giving effect to such
transaction, the stockholders of the Company immediately prior to such
transaction own less than 66% of the aggregate voting power of the Company or
the successor entity of such transaction, or (c) the Company sells or transfers
all or substantially all of its assets to another Person and the stockholders of
the Company immediately prior to such transaction own less than 66% of the
aggregate voting power of the acquiring entity immediately after the
transaction, or (d) a replacement at one time or within a three year period of
more than one-half of the members of the Board of Directors which is not
approved by a majority of those individuals who are members of the Board of
Directors on the date hereof (or by those individuals who are serving as members
of the Board of Directors on any date whose nomination to the Board of Directors
was approved by a majority of the members of the Board of Directors who are
members on the date hereof), or (e) the execution by the Company of an agreement
to which the Company  is a party or by which it is bound, providing
for any of the events set forth in clauses (a) through (d) above.

    

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

    

    “Conversion” shall
have the meaning ascribed to such term in Section 4.

    

    “Conversion Date”
shall have the meaning set forth in Section 4(a).

    

    “Conversion Price”
shall have the meaning set forth in Section 4(b).

    

    “Conversion Schedule”
means the Conversion Schedule in the form of Schedule 1 attached
hereto.

    

    “Conversion Shares”
means, collectively, the shares of Common Stock issuable upon conversion of this
Note in accordance with the terms hereof.

    

    “Note Register” means
the records of the Company regarding registration and transfer of this
Note.

    

    “Dilutive Issuance”
shall have the meaning set forth in Section 5(b).

    

    “Dilutive Issuance
Notice” shall have the meaning set forth in Section 5(b).

    

     “Event of Default” shall have the meaning set forth in Section
8(a).

     

     

     

    
      
        
        

      

      
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     “Exempt Issuance”
means the issuance of (a) shares of Common Stock or options to employees,
officers, directors or consultants of the Company pursuant to any stock or
option plan duly adopted for such purpose, by a majority of the non-employee
members of the Board of Directors or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise or exchange of or conversion of any Securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement, provided that
such securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise, exchange or
conversion price of such securities, and (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall
only be to a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of funds, but shall
not include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities

     

      “Forced Conversion”
shall have the meaning set forth in Section 6(d).

    

    “Forced Conversion
Date” shall have the meaning set forth in Section 6(d).

    

    “Forced Conversion
Notice” shall have the meaning set forth in Section 6(d).

    

    “Forced Conversion Notice
Date” shall have the meaning set forth in Section 6(d).

    

    “Fundamental
Transaction” shall have the meaning set forth in Section
5(e).

     
 

    “Mandatory Default
Amount”  means the sum of (i) the greater of (A) 130% of the
outstanding Principal Amount of this Note, or (B) the outstanding Principal
Amount of this Note divided by the Conversion Price on the date the Mandatory
Default Amount is either (a) demanded (if demand or notice is required to create
an Event of Default) or otherwise due or (b) paid in full, whichever has a lower
Conversion Price, multiplied by the VWAP on the date the Mandatory Default
Amount is either (x) demanded or otherwise due or (y) paid in full, whichever
has a higher VWAP, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of this Note.

    

     “New York Courts”
shall have the meaning set forth in Section 9(d).

    

    “Notice of Conversion”
shall have the meaning set forth in Section 4(a).

    

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

    

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

    

    “Share Delivery Date”
shall have the meaning set forth in Section 4(d).

    

    “Subscription
Agreement” means the Subscription Agreement, dated as of ________ __,
2009 among the Company and the original Holders, as amended, modified or
supplemented from time to time in accordance with its terms.

    

    “Subsidiary” means any
subsidiary of the Company and shall, where applicable, also include any direct
or indirect subsidiary of the Company formed or acquired after the date
hereof..

    

    “Threshold Period”
shall have the meaning set forth in Section 6(d).

    

    “Trading Day” means a
day on which the principal Trading Market is open for business.

     

     

    
      
        
        

      

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

    

    “Transaction
Documents” this Note, the Warrants, the Security Agreement, the
Subsidiary Guarantee, all exhibits and schedules thereto and hereto and any
other documents or agreements executed in connection with the transactions
contemplated hereunder.

    

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

    

    
      	
              Section
      2.

            	
              Interest and
      Prepayment.  This Note was issued for an original issue
      discount. No regularly scheduled interest payments shall be made on this
      Note. Except as otherwise set forth in this Note, the Company may not
      prepay any portion of the Principal Amount of this Note without the prior
      written consent of the Holder.  No prepayment or conversion
      shall affect the amount of Original Issue Discount received by the
      Holder.

            

    

    

    Section
3.                      
Registration of
Transfers and Exchanges.

     
 

    a) Different
Denominations. This Note is exchangeable for an equal aggregate Principal
Amount of Notes of different authorized denominations, as requested by the
Holder surrendering the same.  No service charge will be payable for
such registration of transfer or exchange.

     
 

    b) Investment
Representations. This Note has been issued subject to certain investment
representations of the original Holder set forth in the Subscription Agreement
and may be transferred or exchanged only in compliance with the Subscription
Agreement and applicable federal and state securities laws and
regulations.

    

    c) Reliance on Note
Register. Prior to due presentment for transfer to the Company of this
Note, the Company and any agent of the Company may treat the Person in whose
name this Note is duly registered on the Note Register as the owner hereof for
the purpose of receiving payment as herein provided and for all other purposes,
whether or not this Note is overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.

    

    Section
4.                        Conversion.

     
 

    a) Voluntary Conversion.
At any time after the Original Issue Date until this Note is no longer
outstanding, (when used in this Note “no longer outstanding” shall include the
Notes being paid in full or fully converted), this Note shall be convertible, in
whole or in part, into shares of Common Stock at the option of the Holder, at
any time and from time to time (subject to the conversion limitations set forth
in Section 4(c) hereof).  The Holder shall effect conversions by
faxing and emailing to the Company a Notice of Conversion, the form of which is
attached hereto as Annex A (each, a
“Notice of
Conversion”), specifying therein the Principal Amount of this Note to be
converted and the date on which such conversion shall be effected (such date,
the “Conversion
Date”).  If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion
is deemed delivered hereunder.  To effect conversions hereunder, the
Holder shall not be required to physically surrender this Note to the Company
unless the entire Principal Amount of this Note has been so converted.
Conversions hereunder shall have the effect of lowering the outstanding
Principal Amount of this Note in an amount equal to the applicable
conversion.  The Holder and the Company shall maintain records showing
the Principal Amount(s) converted and the date of such
conversion(s).  The Company may deliver an objection to any Notice of
Conversion within 1 Business Day of delivery of such Notice of
Conversion.  In the event of any dispute or discrepancy, the records
of the Holder shall be controlling and determinative in the absence of manifest
error. The Holder, and any
assignee by acceptance of this Note, acknowledge and agree that, by reason of
the provisions of this paragraph, following conversion of a portion of this
Note, the unpaid and unconverted Principal Amount of this Note may be less than
the amount stated on the face hereof.

     
 

    
      
        
        

      

      
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    b) Conversion
Price.  The conversion price in effect on any Conversion Date
shall be equal to $1.3157895,
subject to adjustment herein (the “Conversion
Price”).

    

    c) Conversion
Limitations; Holder’s Restriction on
Conversion. Except in connenction with a Tender Offer or other
Fundamental Transaction, the Company shall not effect any conversion of this
Note, and a Holder shall not have the right to convert any portion of this Note,
to the extent that after giving effect to the conversion set forth on the
applicable Notice of Conversion, the Holder (together with the Holder’s
Affiliates, and any other person or entity acting as a group together with the
Holder or any of the Holder’s Affiliates) would beneficially own in excess of
the Beneficial Ownership Limitation (as defined below).  For purposes of
the foregoing sentence, the number of shares of Common Stock beneficially owned
by the Holder and its Affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Note with respect to which such
determination is being made, but shall exclude the number of shares of Common
Stock which are issuable upon (A) conversion of the remaining, unconverted
Principal Amount of this Note beneficially owned by the Holder or any of its
Affiliates and (B) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company  subject to a
limitation on conversion or exercise analogous to the limitation contained
herein (including, without limitation, any other Notes or the Warrants)
beneficially owned by the Holder or any of its Affiliates.  Except as set
forth in the preceding sentence, for purposes of this Section 4(c), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder.  To the
extent that the limitation contained in this Section 4(c) applies, the
determination of whether this Note is convertible (in relation to other
securities owned by the Holder together with any Affiliates) and of which
Principal Amount of this Note is convertible shall be in the sole discretion of
the Holder, and the submission of a Notice of Conversion shall be deemed to be
the Holder’s determination of whether this Note may be converted (in relation to
other securities owned by the Holder together with any Affiliates) and which
Principal Amount of this Note is convertible, in each case subject to the
Beneficial Ownership Limitation. To ensure compliance with this restriction, the
Holder will be deemed to represent to the Company each time it delivers a Notice
of Conversion that such Notice of Conversion has not violated the restrictions
set forth in this paragraph and the Company shall have no obligation to verify
or confirm the accuracy of such determination.   and the rules and
regulations promulgated thereunder.   For
purposes of this Section 4(c), in determining the number of outstanding shares
of Common Stock, the Holder may rely on the number of outstanding shares of
Common Stock as stated in the most recent of the following: (A) the Company’s
most recent periodic or annual report, as the case may be; (B) a more recent
public announcement by the Company; or (C) a more recent notice by the Company
or the Company’s transfer agent setting forth the number of shares of Common
Stock outstanding.  Upon the written or oral request of a Holder, the
Company shall within two Trading Days 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 this Note, by the Holder or its Affiliates since the date as of which
such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon conversion of this Note held by the Holder.  The
Beneficial Ownership Limitation provisions of this paragraph shall be construed
and implemented in a manner otherwise than in strict conformity with the terms
of this Section 4(c) to correct this paragraph (or any portion hereof) which may
be defective or inconsistent with the intended Beneficial Ownership Limitation
contained herein or to make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Note.

     
 

    
      	
              d)  

            	
              Mechanics of
      Conversion.

            

    

     
 

    i. Conversion Shares Issuable
Upon Conversion of Principal Amount.  The number of Conversion
Shares issuable upon a conversion hereunder shall be determined by the quotient
obtained by dividing (x) the outstanding Principal Amount of this Note to be
converted by (y) the Conversion Price.

    i. 

    

    ii. Delivery of Certificate Upon
Conversion. Not later than four Trading Days after each Conversion Date
(the “Share Delivery
Date”), the Company shall deliver, or cause to be delivered, to the
Holder (A) a certificate or certificates representing the Conversion Shares
which, on or after the earlier of (i) the one year anniversary of the Original
Issue Date or (ii) the date on which a registration statement covering the
Conversion Shares is declared effective by the SEC, shall be free of restrictive
legends and trading restrictions (other than those which may then be required by
the Purchase Agreement) representing the number of Conversion Shares being
acquired upon the conversion of this Note..

     
 

    iii. Failure to Deliver
Certificates.  If in the case of any Notice of Conversion such
certificate or certificates are not delivered to or as directed by the
applicable Holder by the third Trading Day after the Conversion Date, the Holder
shall be entitled to elect by written notice to the Company at any time on or
before its receipt of such certificate or certificates, to rescind such
Conversion, in which event the Company shall promptly return to the Holder any
original Note delivered to the Company and the Holder shall promptly return to
the Company the Common Stock certificates representing the Principal Amount of
this Note unsuccessfully tendered for conversion to the Company.

     

     

    
      
        
        

      

      
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    iv.  Obligation Absolute;
Partial Liquidated Damages.  If the Company fails for any
reason to deliver to the Holder such certificate or certificates pursuant to
Section 4(d)(ii) by the Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $1000 of
Principal Amount being converted, $10 per Trading Day (increasing to $20 per
Trading Day on the fifth Trading Day after such liquidated damages begin to
accrue) for each Trading Day after such Share Delivery Date until such
certificates are delivered or Holder rescinds such
conversion.    Nothing herein shall limit a Holder’s right
to pursue actual damages or declare an Event of Default pursuant to Section 8
hereof for the Company’s failure to deliver Conversion Shares within the period
specified herein and the Holder shall have the right to pursue all remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.  The exercise
of any such rights shall not prohibit the Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.

    

    v. Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Conversion. In addition to
any other rights available to the Holder, if the Company fails for any reason to
deliver to the Holder such certificate or certificates by the tenth Trading Day
pursuant to Section 4(d)(ii), and if after such tenth Trading Day the Holder is
required by its brokerage firm to purchase (in an open market transaction or
otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common
Stock to deliver in satisfaction of a sale by the Holder of the Conversion
Shares which the Holder was entitled to receive upon the conversion relating to
such Share Delivery Date (a “Buy-In”), then the
Company shall (A) pay in cash to the Holder (in addition to any other remedies
available to or elected by the Holder) the amount by which (x) the Holder’s
total purchase price (including any brokerage commissions) for the Common Stock
so purchased exceeds (y) the product of (1) the aggregate number of shares of
Common Stock that the Holder was entitled to receive from the conversion at
issue multiplied by (2) the actual sale price at which the sell order giving
rise to such purchase obligation was executed (including any brokerage
commissions) and (B) at the option of the Holder, either reissue (if
surrendered) this Debenture in a Principal Amount equal to the Principal Amount
of the attempted conversion (in which case such conversion shall be deemed
rescinded) or deliver to the Holder the number of shares of Common Stock that
would have been issued if the Company had timely complied with its delivery
requirements under Section 4(d)(ii).  For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of this Debenture with respect to
which the actual sale price of the Conversion Shares (including any brokerage
commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000.  The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in respect
of the Buy-In and, upon request of the Company, evidence of the amount of such
loss.  Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver certificates representing
shares of Common Stock upon conversion of this Debenture as required pursuant to
the terms hereof.

    vi. .

     
 

    vii. Reservation of Shares
Issuable Upon Conversion. The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued shares of Common
Stock for the sole purpose of issuance upon conversion of this Note, as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of Persons other than the Holder (and the other holders of the Notes),
not less than such aggregate number of shares of the Common Stock as shall
(subject to the terms and conditions set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of Section 5)
upon the conversion of the outstanding Principal Amount of this
Note.  The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable and, if the Registration Statement is then
effective under the Securities Act, shall be registered for public sale in
accordance with such Registration Statement.

    

    viii. Fractional Shares. No
fractional shares or scrip representing fractional shares shall be issued upon
the conversion of this Note.  As to any fraction of a share which
Holder would otherwise be entitled to purchase upon such conversion, the Company
shall at its election, either pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Conversion Price
or round up to the next whole share.

    

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

     

     

     

    
      
        
        

      

      
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    Section
5.                      Certain
Adjustments.

     
 

    a) Stock Dividends and Stock
Splits.  If the Company, at any time while this Note is
outstanding: (A) pays a stock dividend or otherwise makes a distribution or
distributions payable in shares of Common Stock on shares of Common Stock or any
Common Stock Equivalents (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company upon conversion of the Notes); (B)
subdivides outstanding shares of Common Stock into a larger number of shares;
(C) combines (including by way of a reverse stock split) outstanding shares of
Common Stock into a smaller number of shares; or (D) issues, in the event of a
reclassification of shares of the Common Stock, any shares of capital stock of
the Company, then the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding any
treasury shares of the Company) outstanding immediately before such event and of
which the denominator shall be the number of shares of Common Stock outstanding
immediately after such event.  Any adjustment made pursuant to this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.

     
 

    b) Subsequent Equity
Sales.  If, at any time while greater than or equal to 50% of
this Note is outstanding,  the Company or any Subsidiary, as
applicable, sells or grants any option to purchase or sells or grants any right
to reprice, or otherwise disposes of or issues (or announces any sale, grant or
any option to purchase or other disposition), any Common Stock or Common Stock
Equivalents entitling any Person to acquire shares of Common Stock at an
effective price per share that is lower than the then applicable Conversion
Price (such lower price, the “Base Conversion
Price” and such issuances, collectively, a “Dilutive Issuance”)
(if the holder of the Common Stock or Common Stock Equivalents so issued shall
at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Common Stock at an effective
price per share that is lower than the Conversion Price, such issuance shall be
deemed to have occurred for less than the Conversion Price on such date of the
Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base
Conversion Price.  Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued.  Notwithstanding the
foregoing, no adjustment will be made under this Section 5(b) in respect of an
Exempt Issuance.  If the Company enters into a Variable Rate
Transaction, despite the prohibition set forth in the Purchase Agreement, the
Company shall be deemed to have issued Common Stock or Common Stock Equivalents
at the lowest possible conversion price at which such securities may be
converted or exercised. The Company shall notify the Holder in writing, no later
than 1 Business Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this Section 5(b), indicating therein the applicable
issuance price, or applicable reset price, exchange price, conversion price and
other pricing terms (such notice, the “Dilutive Issuance
Notice”).  For purposes of clarification, whether or not the
Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon
the occurrence of any Dilutive Issuance, the Holder is entitled to receive a
number of Conversion Shares based upon the Base Conversion Price on or after the
date of such Dilutive Issuance, regardless of whether the Holder accurately
refers to the Base Conversion Price in the Notice of Conversion.

     

    c) Subsequent Rights
Offerings.  If the Company, at any time while the Note is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share that is lower than the VWAP on the record date
referenced below, then the Conversion Price shall be multiplied by a fraction of
which the denominator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase, and
of which the numerator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so
offered (assuming delivery to the Company in full of all consideration payable
upon exercise of such rights, options or warrants) would purchase at such
VWAP.  Such adjustment shall be made whenever such rights or warrants
are issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.

     

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    

    d) Pro Rata
Distributions. If the Company, at any time while this Note is
outstanding, distributes to all holders of Common Stock (and not to the Holders)
evidences of its indebtedness or assets (including cash and cash dividends) or
rights or warrants to subscribe for or purchase any security (other than the
Common Stock, which shall be subject to Section 5(b)), then in each such case
the Conversion Price shall be adjusted by multiplying such Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date mentioned above,
and of which the numerator shall be such VWAP on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to 1 outstanding share of the Common
Stock as determined by the Board of Directors of the Company in good
faith.  In either case the adjustments shall be described in a
statement delivered to the Holder describing the portion of assets or evidences
of indebtedness so distributed or such subscription rights applicable to 1 share
of Common Stock.  Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.

     
 

    e) Fundamental
Transaction. If, at any time while this Note is outstanding, (A) the
Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its
assets in one transaction or a series of related transactions, (C) any tender
offer or exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (D) the Company effects
any reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or exchanged
for other securities, cash or property (in any such case, a “Fundamental
Transaction”), then, upon any subsequent conversion of this Note, the
Holder shall have the right to receive, for each Conversion Share that would
have been issuable upon such conversion immediately prior to the occurrence of
such Fundamental Transaction, the same kind and amount 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 1 share of Common Stock (the “Alternate
Consideration”).  For purposes of any such conversion, the
determination of the Conversion Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of 1 share of Common Stock in such Fundamental Transaction,
and the Company shall apportion the Conversion 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 conversion of this
note following such Fundamental Transaction.  To the extent necessary
to effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder a new
Note consistent with the foregoing provisions and evidencing the Holder’s right
to convert such Note into Alternate Consideration. 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 Section 5(e) and insuring that this Note (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.

    

     

               f)
(i)    Spin Off.  If,
for any reason, prior to the Conversion of this Note  in full, the
Company spins off or otherwise divests itself of a part of its business or
operations or disposes all or of a part of its assets in a transaction (the
“Spin Off”) in which the Company does not receive compensation for such
business, operations or assets, but causes securities of another entity to be
issued to security holders of the Company, then the Company shall  notify
the Holder at least thirty (30) days prior to the record date with respect to
such Spin-Off.

     

    

    (ii) Adjustment for Spin
Off.  If, for any reason, prior to the Conversion or payment of this
Note  in full, the Company spins off or otherwise divests itself of a
part of its business or operations or disposes all or a part of its assets in a
transaction (the “Spin Off”) in which the Company does not receive compensation
for such business, operations or assets, but causes securities of another entity
(the “Spin Off Securities”) to be issued to security holders of the Company,
then

     

    (a)  the Company shall
cause (i) to be reserved Spin Off Securities equal to the number thereof which
would have been issued to the Holder had all of the unconverted portion of this
Note  outstanding on the record date (the “Record Date”) for
determining the amount and number of Spin Off Securities to be issued to
security holders of the Company (the “Outstanding Warrants”) been
converted  as of the close of business on the trading day immediately
before the Record Date (the “Reserved Spin Off Shares”), and (ii) to be issued
to the Holder on the conversion  of all or any of the unconverted
portion of this Note , such amount of the Reserved Spin Off Shares equal to (x)
the Reserved Spin Off Shares multiplied by (y) a fraction, of which (I) the
numerator is the amount of the unconverted Note being converted , and (II) the
denominator is the amount of the unconverted Note  and

     

     

    
      
        
        

      

      
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    (b) the
Conversion Price  Price on the Note  shall be adjusted
immediately after consummation of the Spin Off by multiplying the Conversion
Price by a fraction (if, but only if, such fraction is less than 1.0), the
numerator of which is the average closing bid price of the Common Stock for the
five (5) Trading Days immediately following the fifth Trading Day after the
Record Date, and the denominator of which is the average closing bid price of
the Common Stock on the five (5) trading days immediately preceding the Record
Date; and such adjusted Conversion  Price shall be deemed to be the
Conversion  Price with respect to the Note  after the Record
Date.

     

    

    g)Calculations.  All
calculations under this Section 5 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be.  For purposes of this
Section 5, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding any treasury shares of the Company) issued and
outstanding.

    

    
      	
              h)        

            	
              Notice to the
      Holder.

            

    

    

    i. Adjustment to Conversion
Price.  Whenever the Conversion Price is adjusted pursuant to
any provision of this Section 5, the Company shall promptly deliver to each
Holder a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such
adjustment.

     
 

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

     
 

    Section
6.                      Forced
Conversion.

    

    a) Reserved.

    

    b) Reserved.

    

    c) Reserved.

     

     

     

    
      
        
        

      

      
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    d) Forced Conversion.
Notwithstanding anything herein to the contrary, if after the Original Issue
Date, (i) the closing sales price of the Company’s Common Stock for each
of  the sixty (60) consecutive Trading Days immediately prior to the
issuance of the Forced Conversion Notice (as defined below), which period shall
have commenced only after the Original Issue Date (such period the “Threshold Period”),
exceeds $1.52 (subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common Stock
that occur after the Original Issue Date) and (ii) in excess of 200,000 shares
of the Company’s Common Stock has traded on each of sixty (60) consecutive
Trading Days immediately prior to the issuance of the Forced Conversion Notice,
(iii) on  the Forced Conversion Notice Date and
thereafter  there is an effective registration statement covering the
resale of the Conversion Shares or the Conversion Shares may be immediately
resold in accordance with the provisions of Rule 144 ,(iv) the Company is
current in its required Periodic Filings with the SEC and (v) there are at least
2 market makers for the Common Stock the Company may, within 1 Trading Day after
the end of any such Threshold Period, deliver a written notice to the Holder (a
“Forced Conversion
Notice” and the date such notice is delivered to the Holder, the “Forced Conversion Notice
Date”) to cause the Holder to convert all or part of the then outstanding
Principal Amount of this Note plus, if so specified in the Forced Conversion
Notice, accrued but unpaid liquidated damages and other amounts owing to the
Holder under this Note, it being agreed that the “Conversion Date” for purposes
of Section 4 shall be deemed to occur on the third Trading Day following the
Forced Conversion Notice Date (such third Trading Day, the “Forced Conversion
Date”).  Any Forced Conversion shall be applied ratably to all
Holders based on their initial purchases of Notes pursuant to the Subscription
Agreement; provided that any voluntary conversions by a Holder shall be applied
against the Holder’s pro rata allocation, thereby decreasing the aggregate
amount forcibly converted hereunder if only a portion of this Note is forcibly
converted.  For purposes of clarification, a Forced Conversion shall
be subject to all of the provisions of Section 4, including, without limitation,
the provision requiring payment of liquidated damages and limitations on
conversions. No Forced Conversion Notice shall be effective to the extent it
would require a Conversion in excess of the limitations in Section 4 (c ) of the
Note .

    

    Section
7.                      Failure to Make Timely
Filings.  Until such time as the Holder  may sell the
Common Stock without limitation under Rule 144 the Company agrees that, if the
Company fails to file in a timely manner, beyond any applicable extension
period, on the SEC’s EDGAR system any information required to be filed by it,
whether on a Form 10-K, Form 10-Q, or otherwise, the Company shall be liable to
pay to the Subscriber an amount equal to 2% of the sum of the Total Price for
each thirty (30) day period after which the filing is late. As used in this
Agreement, “Total Price”
means the aggregate of (i) the Purchase Price and (ii) the sum of the Conversion
Price actually paid for the Conversion Shares.  The Company shall pay
any payments incurred under this Section in immediately available funds upon
demand by the Holder.

     
 

    Section
8.                      Events of
Default.

    

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

    

    i. any default in the payment of (A) the Principal Amount
of any Note or (B) liquidated damages and other amounts owing to a Holder on any
Note, as and when the same shall become due and payable (whether on a Conversion
Date or the Maturity Date or by acceleration or otherwise) which default, solely
in the case of a default under clause (B) above, is not cured within 3 Trading
Days;

     
 

    ii. the
Company shall fail to observe or perform any other covenant or agreement
contained in the Notes (other than a breach by the Company of its obligations to
deliver shares of Common Stock to the Holder upon conversion, which breach is
addressed in clause (ix) below) which failure is not cured, if possible to cure,
within the earlier to occur of (A) 7 Trading Days after notice of such failure
sent by the Holder or by any other Holder and (B) 12 Trading Days after the
Company has become or should have become aware of such failure;

    

    iii. a default
or event of default (subject to any grace or cure period provided in the
applicable agreement, document or instrument) shall occur under (A) any of the
Transaction Documents or (B) any other material agreement, lease, document or
instrument to which the Company or any Subsidiary is obligated (and not covered
by clause (vi) below);

    

    iv. any
representation or warranty made in this Note, any other Transaction Documents,
any written statement pursuant hereto or thereto or any other report, financial
statement or certificate made or delivered to the Holder or any other Holder
shall be untrue or incorrect in any material respect as of the date when made or
deemed made;

    

    v. the
Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w)
of Regulation S-X)  shall be subject to a Bankruptcy
Event;

     
 

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    vi. the
Company or any Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there
may be secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement that (a) involves an
obligation greater than $250,000, whether such indebtedness now exists or shall
hereafter be created, and (b) results in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;

    

    vii. the
Common Stock shall not be eligible for listing or quotation for trading on a
Trading Market and shall not be eligible to resume listing or quotation for
trading thereon within five Trading Days;

    

    viii. the
Company shall be a party to any Change of Control Transaction or Fundamental
Transaction or shall agree to sell or dispose of all or in excess of 33% of its
assets in one transaction or a series of related transactions (whether or not
such sale would constitute a Change of Control Transaction);

    

    ix. the
Company shall fail for any reason to deliver certificates to a Holder prior to
the fifth Trading Day after a Conversion Date or any Forced Conversion Date
pursuant to Section 4(d) or the Company shall provide at any time notice to the
Holder, including by way of public announcement, of the Company’s intention to
not honor requests for conversions of any Notes in accordance with the terms
hereof; or

    

    x. any
monetary judgment, writ or similar final process shall be entered or filed
against the Company, any subsidiary or any of their respective property or other
assets for more than $250,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 45 calendar
days.

    

    b) Remedies Upon Event of
Default. If any Event of Default occurs, the outstanding Principal Amount
of this Note, plus liquidated damages and other amounts owing in respect thereof
through the date of acceleration, shall become, at the Holder’s election,
immediately due and payable in cash at the Mandatory Default
Amount.  Commencing 5 days after the occurrence of any Event of
Default that results in the eventual acceleration of this Note, the interest
rate on this Note shall accrue at an interest rate equal to the lesser of 18%
per annum or the maximum rate permitted under applicable law.  Upon
the payment in full of the Mandatory Default Amount, the Holder shall promptly
surrender this Note to or as directed by the Company.  In connection
with such acceleration described herein, the Holder need not provide, and the
Company hereby waives, any presentment, demand, protest or other notice of any
kind, and the Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law.  Such acceleration may be
rescinded and annulled by Holder at any time prior to payment hereunder and the
Holder shall have all rights as a holder of the Note until such time, if any, as
the Holder receives full payment pursuant to this Section 8(b).  No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.

    

    Section
9.                      Miscellaneous.

     
 

    a) Notices.  Any
and all notices or other communications or deliveries to be provided by the
Holder hereunder, including, without limitation, any Notice of Conversion, shall
be in writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address
set forth above, or such other facsimile number or address as the Company may
specify for such purpose by notice to the Holder delivered in accordance with
this Section 9(a).  Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, or sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile number or address of
the Holder appearing on the books of the Company, or if no such facsimile number
or address appears, at the principal place of business of the
Holder.  Any notice or other communication or deliveries hereunder
shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified on the signature page prior to 5:30 p.m. (New York
City time), (ii) the date immediately following the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified on the signature page between 5:30 p.m. (New York City time) and 11:59
p.m. (New York City time) on any date, (iii) the second Business Day following
the date of mailing, if sent by nationally recognized overnight courier service
or (iv) upon actual receipt by the party to whom such notice is required to be
given.

     

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    

    b) Absolute Obligation.
Except as expressly provided herein, no provision of this Note shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of and liquidated damages (if any) on this Note at the time,
place, and rate, and in the coin or currency, herein prescribed.  This
Note is a direct debt obligation of the Company.  This Note ranks
pari passu with all other
Notes now or hereafter issued under the terms set forth herein.

     
 

    c) Lost or Mutilated
Note.  If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Note, or in lieu of or in substitution
for a lost, stolen or destroyed Note, a new Note for the principal amount of
this Note so mutilated, lost, stolen or destroyed, but only upon receipt of
evidence of such loss, theft or destruction of such Note, and of the ownership
hereof, reasonably satisfactory to the Company.

    

    d) Governing
Law.  All questions concerning the construction, validity,
enforcement and interpretation of this Note shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflict of laws thereof.  Each
party agrees that all legal proceedings concerning the interpretation,
enforcement and defense of the transactions contemplated by any of the
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in the City of New York,
Borough of Manhattan (the “New York
Courts”).  Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Note and
agrees that such service shall constitute good and sufficient service of process
and notice thereof.  Nothing contained herein shall be deemed to limit
in any way any right to serve process in any other manner permitted by
applicable law. Each party hereto hereby irrevocably waives, to the fullest
extent permitted by applicable law, any and all right to trial by jury in any
legal proceeding arising out of or relating to this Note or the transactions
contemplated hereby. If either party shall commence an action or proceeding to
enforce any provisions of this Note, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred in the investigation, preparation and
prosecution of such action or proceeding.

     
 

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

     
 

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

     
 

    
      
        
        

      

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

    

    h) Headings.  The
headings contained herein are for convenience only, do not constitute a part of
this Note and shall not be deemed to limit or affect any of the provisions
hereof.

    

    i) Assumption.  Any
successor to the Company or any surviving entity in a Fundamental Transaction
shall (i) assume, prior to such Fundamental Transaction, all of the obligations
of the Company under this Note and the other Transaction Documents pursuant to
written agreements in form and substance satisfactory to the Holder (such
approval not to be unreasonably withheld or delayed) and (ii) issue to the
Holder a new note of such successor entity evidenced by a written instrument
substantially similar in form and substance to this Note, including, without
limitation, having a principal amount and interest rate equal to the Principal
Amount and the interest rate of this Note and having similar ranking to this
Note, which shall be satisfactory to the Holder (any such approval not to be
unreasonably withheld or delayed).  The provisions of this Section 9(i)
shall apply similarly and equally to successive Fundamental Transactions and
shall be applied without regard to any limitations of this Note.

    

    j) Secured
Obligation.  The obligations of the Company under this Note are
secured by all assets of the Company and each Subsidiary pursuant to the
Security Agreement, dated as of December 31, 2009 between the Company, the
Subsidiaries of the Company and the Secured Parties (as defined
therein).

    

    k) The
Company and  the Buyer acknowledge and agree that irreparable damage
would occur in the event that any provision of this Note  or any of
the other Transaction Agreements were not performed in accordance with its
specific terms or were otherwise breached.  It is accordingly agreed
that the parties (including any Holder) shall be entitled to an injunction or
injunctions, without (except as specified below) the necessity to post a bond,
to prevent or cure breaches of the provisions of this Agreement or such other
Transaction Agreement and to enforce specifically the terms and provisions
hereof or thereof, this being in addition to any other remedy to which any of
them may be entitled by law or equity; provided, however that the Company,
upon receipt of a Notice of Conversion, may not fail or refuse to deliver the
stock certificates and the related legal opinions, if any, based on any claim
that the Holder has violated any provision hereof or for any other reason,
unless the Company has first posted a bond for one hundred fifty percent (150%)
of the principal amount and then obtained a court order specifically directing
it not to deliver said stock certificates to the Holder. This provision
is deemed incorporated by reference into each of the Transaction Agreements as
if set forth therein in full.

     

    

    *********************

     

     

    
      
        
        

      

      
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    IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly
authorized officer as of the date first above indicated.

     

    
      
        	 	MAGNOLIA SOLAR
      CORPORATION	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	
                Facsimile
      No. for delivery of Notices: _______________

              	 

      

     

     

     

     

    
      
        
        

      

      
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    ANNEX
A

    

    NOTICE
OF CONVERSION

    

    

    The undersigned hereby elects to
convert principal under the Original Issue Discount Senior Secured Convertible
Note due ______ __, 2011 of Magnolia Solar Corporation, a Nevada corporation
(the “Company”), into
shares of common stock (the “Common Stock”), of
the Company according to the conditions hereof, as of the date written
below.  If shares of Common Stock are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance
therewith.  No fee will be charged to the holder for any conversion,
except for such transfer taxes, if any.

    

    By the delivery of this Notice of
Conversion the undersigned represents and warrants to the Company that its
ownership of the Common Stock does not exceed the amounts specified under
Section 4 of this Note, as determined in accordance with Section 13(d) of the
Exchange Act.

    

    The undersigned agrees to comply with
the prospectus delivery requirements under the applicable securities laws in
connection with any transfer of the aforesaid shares of Common
Stock.

    

    Conversion
calculations:

    Date to
Effect Conversion:

    

    Principal
Amount of Note to be Converted:

    

    

    Number of
shares of Common Stock to be issued:

    

    

    Signature:

    

    Name:

    

    Address
for Delivery of Common Stock Certificates:

    

    Or

    

    DWAC Instructions:

    

    Broker
No: _______________                                          

    Account
No:    ____________

     

     

     

     

     

    
      
        
        

      

      
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    Schedule
1

    

    CONVERSION
SCHEDULE

    

    The
Original Issue Discount Senior Secured Convertible Notes due on ________ __,
2011 in the aggregate Principal Amount of $_______ are issued by Magnolia Solar
Corporation, a Nevada corporation. This Conversion Schedule reflects conversions
made under Section 4 of the above referenced Note.

    

    Dated:

    

    

    
      	
               

              Date
      of Conversion

              (or
      for first entry, Original Issue Date)

            	 	
               

              Amount
      of Conversion

            	 	
               

              Aggregate
      Principal Amount Remaining Subsequent to Conversion

              (or
      original Principal Amount)

            	 	
               

              Company
      Attest

            
	 
      	 	 
      	 	 
      	 	 
      
	 
      	 	 
      	 	 
      	 	 
      
	
               

            	 	 
      	 	 
      	 	 
      
	 
      	 	 
      	 	 
      	 	 
      
	 
      	 	 
      	 	 
      	 	 
      
	 
      	 	 
      	 	 
      	 	 
      
	 
      	 	 
      	 	 
      	 	 
      
	 
      	 	 
      	 	 
      	 	 
      
	 
      	 	 
      	 	 
      	 	 
      

    

    

    

    
16ex104.htm

    

    

     

    Midtown
Partners & Co.,
LLC                                                                                                           

    4218 West
Linebaugh Avenue

    Tampa,
FL  33624                                                                                                           

    Phone: 813.885.5744 ♦ Fax:
813.885.5911

     

    

    

    PLACEMENT
AGENT AGREEMENT

    

    This
agreement (the “Agreement”), made as of this 5th day of September, 2008, by and
between MAGNOLIASOLAR, INC., a
Delaware corporation, (the “Company”), with its principal place of business at
52-B Cummings Park, Suite 314, Woburn, MA 01801-2123and MIDTOWN PARTNERS &
CO., LLC, (the “Placement Agent”, “Midtown” or “Midtown Partners”), a
Florida limited liability company, with its principal place of business at 4218
West Linebaugh Avenue, Tampa, FL 33624, confirms the understanding and agreement
between the Company and the Placement Agent as follows:

    

    SECTION
I

    

    The
Company hereby engages the Placement Agent as the Company’s exclusive placement
agent in connection with a proposed private placement in the United States (the
“Offering”) of up to twenty-five million dollars (US$25,000,000) of the
Company’s securities (the “Financing”). It is intended that the Offering will be
made solely “accredited investors” (the “Accredited Investors”), as such term is
defined in Rule 501(a) of Regulation D (“Regulation D”) promulgated under the
United States Securities Act of 1933, as amended (the “Securities Act”),
pursuant to an exemption from registration under applicable federal and state
securities laws available under Rule 506 of Regulation D and in accordance with
the terms of this Agreement.  The terms and conditions of the
Financing shall be subject to a final term Sheet to be set forth at a later date to
be approved by the Company. The Placement Agent hereby accepts such
engagement upon the terms and conditions set forth in this Agreement. This
Agreement shall not give rise to any commitment or obligation by the Placement
Agent to purchase any of the Financing or, except as set forth herein, to find
purchasers for the Financing, it being understood that the Offering will be
conducted on a best efforts basis.

    

    The
Placement Agent shall provide the following services (the
“Services”):

    

    (a)  Advise
the Company with regard to the size of the Offering and the structure and terms
of the Financing in light of the current market environment;

    

    (b)  Assist
the Company in identifying and evaluating prospective qualified Accredited
Investors;

    

    (c)  Approach
such investors on a “best efforts basis” regarding an investment in the Company;
and

     

    (d)  Work with
the Company to develop a negotiating strategy and assist with the negotiations
with such potential investors; and

     

    (e)  Advise
the Company with respect to the reverse merger process, including but not
limited to public shell selection,

    

    In
connection with the Placement Agent providing the Services, the Company agrees
to keep the Placement Agent up to date and apprised of all material business,
market and current legal practices and developments related to the Company and
its operations and management, including, but not limited to providing the
Placement Agent with lists of current members and investors and potential
investors.  The Placement Agent shall devote such time and effort, as
it deems commercially reasonable under the

    circumstances
in rendering the Services.  The Placement Agent shall not provide any
work that is in the ordinary purview of a certified public
accountant.  The Placement Agent cannot guarantee results on behalf of
the Company, but shall pursue all avenues that it deems reasonable through its
network of contacts.

     

    
      
         

      

      
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    SECTION
II

    

    The
Placement Agent, its affiliates and any person acting on its or their behalf
hereby represent, warrant and agree as follows (the “Placement Agent
Parties”):

    

    (a)           The
Placement Agent Parties will cooperate with the Company to ensure that the
Financing offered and sold by the Placement Agent have been and will be offered
and sold in compliance with all federal and state securities laws and
regulations governing the registration and conduct of broker-dealers, and each
Placement Agent Party making an offer or sale of Financing was or will be, at
the time of any such offer or sale, registered as a broker-dealer pursuant to
Section 15(b) of the United States Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and under the laws of each applicable state of the United
States (unless exempted from the respective state’s broker-dealer registration
requirements), and in good standing with the Financial Industry Regulatory
Authority.

    

    (b)           The
Placement Agent will use its best efforts to ensure that the Financing offered
and sold by the Placement Agent has been and will be sold only to investors that
it reasonably believes are Accredited Investors in accordance with Rule 506 of
Regulation D and applicable state securities laws; provided, however, the
Company shall make all necessary filings under Rule 503 of Regulation D and such
similar notice filings under applicable state securities laws.  Prior
to the sale and delivery of a Company security to any such investor, the
Placement Agent Parties will obtain an executed subscription agreement and an
executed investors’ rights agreement in the form agreed upon by the Company and
the Placement Agent (the “Subscription Documents”).

    

    (c)           In
connection with the offers and sales of the Financing, the Placement Agent
Parties have not and will not

    

    (1)           Offer
or sell, or solicit any offer to buy, any Financing by any form of “general
solicitation” or “general advertising”, as such terms are used in Regulation D,
or in any manner involving a public offering within the meaning of Section 4(2)
of the Securities Act;

    

    (2)           Use
any written material other than the term sheet, that will be approved by the
Company and the Placement Agent at a later date, and the Subscription Documents,
and shall only rely upon and communicate information that is publicly available
regarding the Company to any potential investors (without limiting the
foregoing, none of the Placement Agent Parties is authorized to make any
representation or warranty to any offeree concerning the Company or an
investment in the Financing); or

    

    (3)           Take
any action that would constitute a violation of Regulation M under the Exchange
Act.

    

    (d)           The
Placement Agent shall cause each affiliate or each party acting on its or their
behalf with whom they enter into contractual arrangements relating to the offer
and sale of any Financing to agree, for the benefit of the Company, to the same
provisions contained in this Agreement.

    

    SECTION
III

    

    The
Company hereby represents, warrants and agrees as follows:

    

    (a)           This
Agreement and the Subscription Documents have been authorized, executed and
delivered by the Company and, when executed by the Placement Agent each will
constitute the valid and binding agreement of the Company enforceable against
the Company in accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency or reorganization, moratorium or other similar
laws relating to or affecting creditors’ rights generally or by general
equitable principles.

     

    
      
         

      

      
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    (b)           The
offer and sale of the Financing, the Shares, and the Warrants shall be exempt
from registration under the Securities Act, and will comply, in all material
respects with the requirements of Rule 506 of Regulation D promulgated under the
Securities Act and any applicable state securities laws. No documents prepared
by the Company in connection with the Offering, or any amendment or supplement
thereto, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.

    

    (c)           The
financial statements, audited and unaudited (including the notes thereto),
included in the Company’s latest annual information form and subsequent
quarterly reports (the “Financial Statements”), present fairly the financial
position of the Company as of the dates indicated and the results of operations
and cash flows of the Company for the periods specified. Such Financial
Statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved except
as otherwise stated therein.

    

    (d)           No
federal, state or foreign governmental agency has issued any order preventing or
suspending the Offering.

    

    (e)           The
Company is a Delaware corporation organized, existing and with active status
under the laws of Nevada, with corporate power and authority under such laws to
own, lease and operate its properties and conduct its business as now conducted.
The Company has all power, authority, authorization and approvals as may be
required to enter into this Agreement and each of the Subscription Documents,
and to carry out the provisions and conditions hereof and thereof, and to issue
and sell the Financing, the Shares, and Warrants.

    

    (f)           The
Financing, the Shares, the Warrants, and common shares issuable upon exercise of
the Warrants (the “Warrant Shares”), have all been authorized for issuance and
sale pursuant to the Subscription Documents, and when issued and delivered by
the Company against payment therefore in accordance with the terms of the
Subscription Documents, will be validly issued and fully paid and
non-assessable.

    

    (g)           With
the exception of any approvals required by the Securities and Exchange
Commission related to the Offering, no further approval or authorization of any
shareholder of the Company, its Board of Directors or other person or group is
required for the issuance and sale of the Financing, the Shares, the Warrants or
the Warrant Shares.

    

    (h)           Since
the public filing of the Company’s latest audited or unaudited financial
statements there has not been any (A) material adverse change in the business,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company, (B) transaction that is material to the Company,
except transactions in the ordinary course of business, (C) obligation that is
material to the Company, direct or contingent, incurred by the Company, except
obligations incurred in the ordinary course of business, (D) change that is
material to the Company or in the common shares or outstanding indebtedness of
the Company, or (E) dividend or distribution of any kind declared, paid, or made
in respect of the common shares.

     

    (i)  In
connection with the offers and sales of the Financing,

    

    (1) Neither
the Company nor any of its directors, officers, employees, agents or
representatives (“Company Representatives”) has taken or will take any action
which has caused or may cause the Offering not to qualify for exemption from the
registration requirements of the Securities Act or of United States federal,
state or other securities or other laws. In connection with the Offering,
neither the Company nor the Company Representatives shall offer or cause to be
offered the Shares or Warrants by any form of general solicitation or general
advertising as defined in Rule 502(c) of Regulation D.  Neither the
Company nor, to the Company’s knowledge, any of the Company Representatives has,
prior to the date hereof, made any offer or sale of securities which could be
integrated for purposes of the Securities Act or the rules and regulations
thereunder with the offer and sale of the Shares or Warrants in this
Offering.

     

    
      
         

      

      
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    (2) The
Company shall notify the Placement Agent as soon as practicable of the receipt
of any notification with respect to the modification, rescission, withdrawal or
suspension of the qualification or registration of the Financing, Shares or
Warrants or of an exemption from such registration or qualification in any
jurisdiction.  The Company will use its reasonable best efforts to
prevent the issuance of any such modification, rescission, withdrawal or
suspension and, if any such modification, rescission, withdrawal or suspension
is issued, to obtain the lifting thereof as promptly as possible.

    

    (3) The
Company shall not solicit any offer to buy or offer to sell the Financing,
Shares or Warrants by any form of general solicitation or advertising,
including, without limitation, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar medium or
broadcast over the Internet, television or radio or at any seminar or meeting
whose attendees have been invited by any general solicitation or
advertising.

     

    (4)
Notify
the Placement Agent promptly of the acceptance or rejection of any
subscription.

    

    (5) The
Company shall cooperate with the Placement Agent’s counsel to file five (5)
copies of a Notice of Sales of Securities on Form D with the Securities and
Exchange Commission no later than fifteen (15) days after the receipt into
escrow of subscription funds.  The Company shall file promptly such
amendments to such Notices on Form D as shall become necessary and shall also
comply with any filing requirement imposed by the laws of any state, province or
jurisdiction in which offers and sales are made, including all appropriate “blue
sky” filings.

    

    (6) The
Company shall not, directly or indirectly, engage in any act or activity which
may jeopardize the status of the Offering as an exempt transaction under the
Securities Act or under the securities or “blue sky” laws of any jurisdiction in
which the Offering may be made.

    

    SECTION
IV

    

    The
parties agree that the obligations of the Placement Agent to close the Offering
(the “Closing”) shall be subject to the satisfaction of the following
conditions, unless expressly waived in writing by the parties:

    

    (a)           The
Offering shall not be subject to any regulatory or judicial proceeding
questioning or reviewing its effectiveness for the purpose of offering the
Financing for sale and issuance.

    

    (b)           The
Company shall deliver a certificate of an officer of the Company dated as of the
Closing that affirms the accuracy of the representations and warranties
contained in Section III hereof.

    

    (c)           
The Agent shall have received an opinion of counsel to the Company, dated as of
the Closing, containing such opinions as requested by the Placement Agent
including that the Financing offered and sold in compliance with this Agreement
are not required to be registered under the Securities Act.

    

    (d)           The
Company shall have paid, or made arrangements satisfactory to the Agent for the
payment of, all such expenses as required by Section VII below.

    

    (e)           The
Placement Agent and the Company shall have finalized and agreed to the form of
the warrant agreement and registration rights agreement referred to in Section
VII below.

    

    (f)           The
Placement Agent shall have received certificates for Shares and Warrants sold to
the investors in the Offering, duly executed and made out in the name of such
investors for the amount purchased.

     

    
      
         

      

      
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    (g)           The
Placement Agent shall have received a certificate of the Secretary of the
Company, dated as of the closing date, certifying to the charter, bylaws, good
standing in its state of incorporation and board resolutions relating to the
Offering as of such date and the incumbency of the officers executing
documentation delivered at the closing.

    

    (h)           If
there is more than one closing, then at each closing there shall be delivered to
the Placement Agent updated opinions, certificates or other information
described in this Section.

    

    SECTION
V

    

    (a)           The
term of this Agreement shall commence on the date first written above and shall
expire the earlier of one (1) year after the date the Company (1) provides the
Placement Agent with requested due diligence materials and (2) the Company and
the Placement Agent mutually agree that information documents (including, but
not limited to: a business plan; executive summary; three-year historical income
statement, statement of cash flows, and balance sheet; five-year projected
financial statements; use of proceeds statement; investor presentation;
valuation analysis), to be provided and approved by the Company, are ready for
presentation to the Placement Agent’s network of potential financing sources or
the closing of the Offering, unless terminated in accordance with the provisions
set forth below, or extended by the mutual written consent of the parties hereto
(the “Term”).  This Agreement may be terminated only:

    

    (1)           By
the Placement Agent for any reason at any time upon thirty (30) days’ prior
written notice; or

    

    (2)           By
the Placement Agent upon default in the payment of any amounts due to the
Placement Agent pursuant to this Agreement or any breach of the representations,
warranties or covenants contained in this Agreement or any document prepared by
the Company in connection with the Offering, if such default continues for more
than fifteen (15) days following receipt by the Company from the Placement Agent
of written notice of such default and demand for payment or cure of such breach;
or.

    

    (3)           By
the Company or the Placement Agent for any reason at any time upon fifteen (15)
days’ prior written notice after the completion of the initial Term;
or

    

    (4)           By
the Company in the event (i) a Financing with minimum gross proceeds
of  $1,000,000 has not been completed within the initial ninety (90)
day period following execution of this Agreement and (ii) a second financing
with minimum gross proceeds of $3,000,000 has not occurred by the six (6) month
anniversary of execution of this Agreement; or

    

    (5)           By
mutual agreement of the parties.

    

    (a) In
the event of termination, the Placement Agent shall be immediately paid in full
on all items of compensation and expenses (including any amounts deferred)
payable to the Placement Agent pursuant hereto, as of the date of
termination.

    

    (b) The
Placement Agent Fee or Financing Fee shall become due and payable to Placement
Agent upon the date that the Company receives the proceeds of the Financing from
the party providing the Financing.  A Placement Agent Fee shall also
be payable with respect to any subsequent offering of securities of the Company
or any Qualified Financing (as defined in Section VI hereof) accepted and
received by Company within twenty four (24) months after the termination or
expiration of this Agreement, by any party or source of funding introduced or
facilitated by Placement Agent to Company; or

     
 

    SECTION
VI

    

    At any time during the twenty four
(24) months following the termination of this Agreement, the Placement Agent
shall be entitled to the compensation and fees as set forth in Section VII of
this Agreement for any Qualified Financing (as defined below) received by the
Company. “Qualified Financing” shall mean an investment from a person after the
termination of this Agreement that directly results from the Placement Agent’s
performance of the Services hereunder during the Term of this Agreement or use
by the Company of materials or work product prepared by the Placement Agent in
connection with such Services (for the avoidance of doubt this shall mean any
solicitation of a potential investor or an introduction of a potential investor
to the Company by the Placement Agent related to the Offering during the Term of
this Agreement).   The Placement Agent agrees to provide to the
Company within ten (10) days after the termination of this Agreement (the
“Delivery Deadline”) a list of all persons solicited on behalf of the Company or
introduced to the Company by the Placement Agent related to the Offering (the
“Solicitation List”) to assist the parties in making a later determination as to
whether a Qualified Financing has occurred.  If the Solicitation List
is not provided to the Company prior to the expiration of the Delivery Deadline,
the Company’s obligation to pay any commissions or fees related to a Qualified
Financing pursuant to this Section VII shall immediately terminate. For purposes
of this Agreement, receipt of Qualified Financing shall be deemed to be received
by the Company on the date that a letter of intent or a definitive agreement
regarding the Qualified Financing is executed by the Company and the party
providing such financing.  The compensation or fees shall become
payable to the Placement Agent upon the date that the Company receives the
proceeds of the Qualified Financing.

     

    
      
         

      

      
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    The provisions set forth in this
Section VI shall survive any termination of this Agreement.

    

    SECTION
VII

    

    The
Company shall pay to the Placement Agent a non-refundable retainer fee of common
stock purchase warrants (the “Retainer Warrants”) in an amount equal to 1% of
the total common stock outstanding as of the date of execution of this
Agreement.  The Retainer Warrants shall be exercisable at the
equivalent of a $17 million valuation.  The Retainer Warrants shall
have identical terms and conditions as the PA Warrants below.  The
retainer fee and is due and payable upon the execution to this
Agreement.

    

    In
consideration for the performance of the Services hereunder, the Company hereby
agrees to pay to the Placement Agent such fees (“The “Placement Agent Fee” or
the “Financing Fee”) as outlined below:

    

    (a)           If
either the Company or the Placement Agent receives subscriptions for Financing
as a part of the Offering (the “Investors”), the Company shall:

    

    1) Pay to
the Placement Agent in US dollars via wire from the third party agent’s escrow
at closing an amount equal to ten percent (10%) of the principal amount of the
Financing purchased by the Investors (the “Financing Fee”), and pay to the
Placement Agent a warrant solicitation fee equal to ten percent (10%) of the
gross proceeds received by the Company on the exercise of any Warrants purchased
by the Investors, which shall be payable immediately following such
exercise.

    

    2) On
each closing date of a Financing on which aggregate consideration is paid or
becomes payable to the Company for its Equity Securities, the Company shall
issue to the Placement Agent or its permitted assigns warrants (the “ PA
Warrants”) to purchase such number of shares of the common stock of the Company
equal to ten percent (10%) of the aggregate number of (x) shares of common stock
of the Company issued at each such Closing and (y) issuable by the Company under
the terms of any convertible securities issued in connection with the
Financings, which shall include the issuance to the Placement Agent of all
Series of Warrants equal to ten percent (10%) of the number of Warrants issued
to the  Investors. The number of shares of common stock issuable upon
exercise of the Warrants shall include all shares of common stock issuable under
the securities, including, without limitation, shares issuable upon conversion
or exercise of the securities.  The PA Warrants shall have a seven (7)
year term and shall provide for cashless exercise (even if the Purchasers do not
have such right) and have terms and conditions identical to the Warrants
purchased by the Investors, including, without limitation, anti-dilution,
including protection against issuances of securities at prices (or with exercise
prices, in the case of warrants, options or rights) below the exercise price of
the Warrants and full ratchet provisions to take into account any issuance of
additional shares of common stock as a result of an adjustment to the Securities
or the shares of common stock underlying the Securities.  The PA
Warrants shall not be callable or redeemable. The PA Warrants shall also include
one (1) demand registration right exercisable following the first anniversary of
the closing, and piggyback registration rights.  The PA Warrants shall
be transferable within Midtown Partners and to any designee of the Placement
Agent, at the Placement Agent’s discretion.

     

    
      
         

      

      
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    3) An
escrow with a third party agent approved by the parties hereto will be used for
each closing to which the Placement Agent shall be a party.  All
consideration due the Placement Agent shall be paid to the Placement Agent
directly there from.  Any fee charged by the escrow agent in the
performance of its duties as escrow agent shall be borne by the
Company.

    

    4)  Cause
its affiliates to pay to the Placement Agent all compensation described in this
Section VII with respect to all securities sold to a purchaser or purchasers at
any time prior to the expiration of twelve (12) months after the expiration of
this Agreement (the “Tail Period”).

    

    5) In
addition to all other payments set forth in this Section VII, the Company agrees
to pay two percent (2%) of the principal amount of the Financing purchased by
the Investors (the “Non-accountable Fee”), less the non-refundable due diligence
fee stated at the beginning of this Section VII herein, which will be used to
pay Placement Agent expenses including fees such as entertainment expenses,
travel, etc. The Company also agrees to pay for the legal and due diligence fees
of the investor(s) as outlined in a final tern sheet to be set forth at a later
date to be approved by the Company.

    

    (b)           It
is acknowledged and agreed that the Company shall bear all costs and expenses
incident to the issuance, offer, sale and delivery of the
Financing.  These costs and expenses will include but are not limited
to state “Blue Sky” fees, legal fees, printing costs, travel costs, mailing,
couriers, personal background checks, and other expenses incidental to the
advancement and completion of the Offering.  The Company shall
promptly, upon request, from time to time reimburse the Placement Agent’s
expenses within ten (10) days of receipt by the Company of a written request
from the Placement Agent for reimbursement of expenses, including documentation
therefore satisfactory to the Company. These expenses shall not exceed
$20,000.  The Company must pre-approve any expense in excess of
$1,000.  Upon execution of this Agreement, the Company shall
immediately pay to the Placement Agent $1,000 to conduct personal background
checks on the Company’s Officers and Directors using a background investigation
agency.  All reimbursements under this section shall be credited
against the Non-accountable Fee referenced in Section VII, subsection
5.

     

    (c)           Subject
to the other requirements set forth in this Agreement, the Placement Agent may
introduce investors to the Offering directly or through other FINRA member
broker-dealers. If the Placement Agent utilizes any intermediaries, the
Placement Agent shall be the Company’s point of contact, not the intermediary,
and the Placement Agent, not the Company, shall be responsible for any
compensation arrangement with the intermediary. The Company’s sole compensation
arrangement, responsibility and obligation are with the Placement
Agent.  The Placement Agent will disclose the identity and
compensation arrangements with all of its intermediaries in order to allow the
Company to adequately disclose such arrangements, where necessary.

    

    (d)           If
at any time during the term of this Agreement or within twelve (12) months from
the effective date of the termination of this Agreement, the Company proposes to
effect a financing, or future offering of securities, contemplates conducting a
financing of future offering of securities, receives an offer to conduct such a
financing or future offering of securities or to engage an investment banking
firm or broker dealer to provide any other services to the Company (other than
the services to be provided by Midtown hereunder during the term of this
Agreement), the Company shall offer to retain Midtown as its advisor, investment
banker or broker dealer in connection with such financing or future offering of
securities or the provision of such other advisory services or other matter,
upon such terms as the parties may mutually agree, such terms to be set forth in
a separate engagement letter or other agreement between the
parties.  Such offer shall be made in writing in order to be
effective.  The Company shall not offer to retain any other investment
banking firm or broker dealer in connection with any such financing or future
offering of securities or other matter on terms more favorable than those
discussed with Midtown without offering to retain Midtown on such more favorable
terms.  Midtown shall notify the Company within ten (10) days of its
receipt of the written offer contemplated above as to whether or not it agrees
to accept such retention.  If Midtown should decline such retention,
the Company shall have no further obligations to Midtown with respect to that
particular offer, except as specifically provided for herein.

     

    
      
         

      

      
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    SECTION
VIII

    

    (a) The
Company agrees to indemnify and hold harmless the Placement Agent, any person
who controls the Placement Agent within the meaning of the Securities Act,
Section 20(a) of the Exchange Act or any applicable statute, and each partner,
director, officer, employee, agent and representative of the Placement Agent
from and against any loss, damage, expense, liability or claim, or actions or
proceedings in respect thereof (including, without limitation, reasonable
attorneys’ fees and expenses incurred in investigating, preparing or defending
against any litigation commenced, collectively “Damages”) which any such person
or entity may incur or which may be made or brought against any such person
arising out of or based upon: (i) any material breach of any of the agreements,
representations or warranties of the Company contained in or contemplated by
this Agreement or the Subscription Documents, including, without limitation,
those arising out of or based on any alleged untrue statement of a material fact
or omission to state a material fact required to be stated in any document
prepared by the Company in connection with this Offering or the Subscription
Documents or necessary in order to make the statements appearing therein not
misleading in the light of the circumstances in which they were made, except
insofar as any loss, damage, expense, liability or claim, or actions or
proceedings arises out of or is based upon  any alleged untrue
statement of a material fact contained in information furnished in writing by
the Placement Agent, (ii) any violation of any federal or state securities laws
attributable to the Offering, or (iii) any violation of law by the Company or
any affiliate thereof, or any director, officer, employee, agent or
representative of any of them, related to or arising out of the
Offering.  This indemnity agreement by, and the agreements, warranties
and representations of, the Company shall survive the offer, sale and delivery
of the Financing and the termination of this Agreement and shall remain in full
force and effect regardless of any investigation made by or on behalf of any
person indemnified hereunder, and termination of this Agreement and acceptance
of any payment for the Financing hereunder.

    

    (b) The
Placement Agent agrees to indemnify and hold harmless the Company and its
affiliates, any person who controls any of them within the meaning of the
Securities Act, Section 20(a) of the Exchange Act or any applicable statute, and
each officer, director, employee, agent and representative of the Company or any
of its affiliates from and against any Damages which any such person or entity
may incur or which may be made or brought against any such person, but only to
the extent the same arises out of or is based upon: (i) any breach of any of the
agreements, representations or warranties of the Placement Agent contained in
this Agreement, or (ii) any untrue statement of a material fact in any
information provided to the Company in writing by the Placement Agent, expressly
for use in the documents prepared by the Company for distribution to
investors  in connection with this Offering.  This indemnity
agreement by, and the agreements, warranties and representations of, the
Placement Agent shall survive the offer, sale and delivery of the Financing and
shall remain in full force and effect regardless of any investigation made by or
on behalf of any person indemnified hereunder, and termination of this Agreement
and acceptance of any payment for the Financing hereunder.

    

    (c) If any
action is brought against a party (the “Indemnified Party”) in respect of which
indemnity may be sought against one or more other parties (the “Indemnifying
Party” or “Indemnifying Parties”), the Indemnified Party shall promptly notify
the Indemnifying Party or Parties in writing of the institution of such action;
provided, however, the failure
to give such notice shall not release the Indemnifying Party or Parties from its
or their obligation to indemnify the Indemnified Party hereunder except to the
extent the Indemnifying Party actually incurs damage by reason of such failure
and shall not release the Indemnifying Party or Parties from any other
obligations or liabilities to the Indemnified Party in any event.  The
Indemnifying Party or Parties may at its or their own expense elect to assume
the defense of such action, including the employment of counsel reasonably
acceptable to the Indemnified Party; provided, however, that no
Indemnifying or Indemnified Party shall consent to the entry of any judgment or
enter into any settlement by which the other party is to be bound without the
prior written consent of such other party, which consent shall not be
unreasonably withheld.  In the event the Indemnifying Party or Parties
assume a defense hereunder, the Indemnified Party shall be entitled to retain
its own counsel in connection therewith and, except as provided below, shall
bear the fees and expenses of any such counsel, and counsel to the Indemnified
Party or Parties shall cooperate with such counsel to the Indemnifying Party in
connection with such proceeding.  If an Indemnified Party reasonably
determines that there are or may be differing or additional defenses available
to the Indemnified Party which are not available to the Indemnifying Party, or
that there is or may be a conflict between the respective positions of the
Indemnifying Party and of the Indemnified Party in conducting the defense of any
action, then the Indemnifying Party shall bear the reasonable fees and expenses
of any counsel retained by the Indemnified Party in connection with such
proceeding; provided that the Indemnifying Party shall not be liable for the
expense of more than one separate counsel in any one action.  All
references to the Indemnified Party contained in this paragraph (c) include, and
extend to and protect with equal effect, any persons who may control the
Indemnified Party within the meaning of the Securities Act, Section 20(a) of the
Exchange Act or any applicable statute, any successor to the Indemnified Party
and each of its partners, officers, directors, employees, agents and
representatives.  The indemnity agreements set forth in this Section
VIII shall be in addition to any other obligations or liabilities of the
Indemnifying Party or Parties hereunder or at common law or
otherwise.  Notwithstanding anything herein to the contrary, in no
event shall the Placement Agent be obligated to indemnify any person or entity
in an amount in excess of the gross cash consideration received by the Placement
Agent for Services rendered hereunder.

     

    
      
         

      

      
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    (d) Notwithstanding
the provisions of paragraphs (a) and (b) hereof, no Indemnified Party hereunder
shall be entitled to or receive indemnification pursuant to this Agreement if it
is determined by a court of competent jurisdiction (not subject to appeal) that
the Damages in question were caused primarily by the gross negligence or willful
misconduct of such Indemnified Party.

    

    (e) If
recovery is not available under the foregoing indemnification provisions of this
Section VIII, for any reason other than as specified therein, the party entitled
to indemnification by the terms thereof shall be entitled to contribution to
losses, damages, liabilities and expenses of the nature contemplated by such
indemnification provisions.  In determining the amount of such
contribution, there shall be considered the relative benefits received by the
Company on the one hand, and the Placement Agent on the other hand from the
Placement (which shall be deemed to be the portion of the proceeds of the
Placement realized by each party), the parties’ relative knowledge and access to
information concerning the matter with respect to which the claim was asserted,
the opportunity to correct and prevent any statement or omission, the relative
culpability of the parties, the relative benefits received by the parties and
any other equitable considerations appropriate under the
circumstances.  No party shall be liable for contribution with respect
to any action or claim settled without its consent.  Any party
entitled to contribution will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a claim
for contribution may be made against another party or parties under this Section
VIII, notify such party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section VIII or otherwise.  For purposes of this
Section VIII, each person, if any, who controls a party to this Agreement within
the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act shall have the same rights to contribution as that party to this Placement
Agreement.

    

    SECTION
IX

    

    All
notices, demands or other communications given hereunder shall be in writing and
shall be deemed to have been duly given when delivered in person or transmitted
by facsimile transmission or the fifth calendar day after being mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
addresses herein above first mentioned or to such other address as any party
hereto shall designate to the other for such purpose herein set
forth.

    

    SECTION
X

    

    Governing
Law.  The subject matter of this Agreement shall be governed by
and construed in accordance with the laws of the State of Florida (without
reference to its choice of law principles), and to the exclusion of the law of
any other forum, without regard to the jurisdiction in which any action or
special proceeding may be instituted.  EACH PARTY HERETO AGREES TO
SUBMIT TO THE PERSONAL JURISDICTION AND VENUE OF THE STATE AND/OR FEDERAL COURTS
LOCATED IN HILLSBOROUGH COUNTY, FLORIDA FOR RESOLUTION OF ALL DISPUTES ARISING
OUT OF, IN CONNECTION WITH, OR BY REASON OF THE INTERPRETATION, CONSTRUCTION,
AND ENFORCEMENT OF THIS AGREEMENT, AND HEREBY WAIVES THE CLAIM OR DEFENSE
THEREIN THAT SUCH COURTS CONSTITUTE AN INCONVENIENT FORUM.  AS A
MATERIAL INDUCEMENT FOR THIS AGREEMENT, EACH PARTY SPECIFICALLY WAIVES THE RIGHT
TO TRIAL BY JURY OF ANY ISSUES SO TRIABLE.   If it becomes
necessary for any party to institute legal action to enforce the terms and
conditions of this Agreement, the prevailing party may be awarded reasonable
attorneys fees, expenses and costs.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    
 

    Confidentiality.
The Placement Agent may acquire certain non-public information respecting the
business of the Company in connection with the performance of services
hereunder, including information, which is reasonably understood to be
proprietary or confidential in nature (collectively, “Confidential
Information”).  The Placement Agent hereby agrees that all
Confidential Information shall be kept strictly confidential by the Placement
Agent and its affiliates, members, partners, shareholders, managers, directors,
officers, employees, advisors, agents, and controlling persons (collectively,
“Representatives”), except that Confidential Information or portions thereof may
be (i) disclosed to Representatives who need to know such information for the
purpose of enabling the Placement Agent to perform services hereunder (it being
understood that prior to such disclosure, such Representative will be informed
by the Placement Agent of the confidential nature of such Confidential
Information and shall agree to be bound by this Agreement) or (ii) used by the
Placement Agent or representative for the sole purpose of the solicitation of
investors for future transactions.  The Placement Agent shall be
responsible for any breach of this provision by any of its
Representatives.  For purposes hereof, Confidential Information shall
not include any information which (i) at the time of disclosure or thereafter is
or becomes generally known by the public (other than as a result of its
disclosure by the Placement Agent or its Representatives), (ii) was or becomes
available to the Placement Agent on a non-confidential basis from a person who
is not subject to a confidentiality agreement concerning that information, or
(iii) is required by law to be disclosed by the Placement Agent (provided that
if such disclosure is required by order of a court or administrative agency, the
Placement Agent shall notify the Company as soon as possible so that the Company
may seek a protective order).

    

    Assignments
and Binding Effect.  This Agreement shall be binding on and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.  The rights and obligations of the parties under
this Agreement may not be assigned or delegated without the prior written
consent of both parties, and any purported assignment without such written
consent shall be null and void.

    

    Modification
and Waiver.  Only an instrument in writing executed by the
parties hereto may amend this Agreement.  The failure of any party to
insist upon strict performance of any of the provisions of this Agreement shall
not be construed as a waiver of any subsequent default of the same or similar
nature, or any other nature.

    

    Construction.  The
captions used in this Agreement are provided for convenience only and shall not
affect the meaning or interpretation of any provision of this
Agreement.

    

    Facsimile
Signatures.  Facsimile transmission of any signed original
document, and re-transmission of any signed facsimile transmission, shall be the
same as delivery of an original.  At the request of either party, the
parties shall confirm facsimile transmitted signatures by signing an original
document. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute one and the same agreement. 

    

    Severability.  If
any provision of this Agreement shall be invalid or unenforceable in any respect
for any reason, the validity and enforceability of any such provision in any
other respect, and of the remaining provisions of this Agreement, shall not be
in any way impaired.

    

    Exclusive.  The
Company acknowledges and agrees that Midtown is being granted exclusive rights
with respect to the Services to be provided to the Company and the Company is
not free to engage other parties to provide services similar to those being
provided by Midtown hereunder without the prior written consent of
Midtown.

     

    
      
         

      

      
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    Non-Circumvention.  The
Company hereby irrevocably agrees not to circumvent, avoid, bypass, or obviate,
directly or indirectly, the intent of this Agreement. The Company agrees not to
accept any investment opportunity from any third party to whom Placement Agent
introduces to the Company (or whom the company has a prior relationship with)
without the consent of Placement Agent, unless for each business opportunity
accepted by the Company from a third party introduced by Placement Agent or
otherwise, the Company remits a term sheet and then a contract which defines a
mutually agreeable compensation structure for Placement Agent.  In
addition, the Company shall not work with, negotiate with or enter into any
financing whatsoever with any Investor, Consultant or Placement Agent without
Midtown’s prior written consent.  If the Company raises capital
through in any offering or sale of securities  while engaged with
Midtown as the exclusive Placement Agent, the Company shall pay to Midtown all
of its fees in Section VII, even if the Placement Agent has provided no
assistance whatsoever in raising such capital.

    

    Survivability.  Neither
the termination of this Agreement nor the completion of any services to be
provided by the Placement Agent hereunder, shall affect the provisions of this
Agreement that shall remain operative and in full force and effect.

    

    Entire
Agreement.  This Agreement constitutes the entire agreement and
understanding of the parties hereto with respect to the subject matter of this
Agreement and supersedes all prior understandings and agreements, whether
written or oral, among the parties with respect to such subject
matter.

    

    

    If the
foregoing correctly sets forth the understanding between the Placement Agent and
the Company, please so indicate in the space provided below for that purpose
within ten (10) days of the date hereof  or this Agreement shall be
withdrawn and become null and void.  The undersigned parties hereto
have caused this Agreement to be duly executed by their authorized
representatives, pursuant to corporate board approval and intend to be legally
bound.

     

    
      
        	MAGNOLIASOLAR,
      INC.   	 	 	
                MIDTOWN
      PARTNERS & CO., LLC

                 

                 

              	 
	
                /s/
      Ashok K. Sood

              	 	 	
                /s/
      Bruce Jordan

              	 
	
                Ashok
      K. Sood, PhD

              	 	 	
                Bruce
      Jordan, President

              	 
	
              	 	 	
                Title

              	 

      

    

    

    

    

     

    11

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