Document:

Exhibit
4.2

SERIES B
CONVERTIBLE NOTE

NEITHER THE ISSUANCE AND SALE OF
THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH
THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF
(A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS
OF THIS NOTE, INCLUDING SECTIONS 3(d)(iii) AND 17(a) HEREOF. THE PRINCIPAL
AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
PURSUANT TO SECTION 3(d)(iii) OF THIS NOTE.

OPEN ENERGY
CORPORATION

Series B Convertible Note

	
  Issuance Date: September 19, 2007

  	
  Original Principal
  Amount: U.S. $20,000,000

  

 

FOR VALUE RECEIVED, Open Energy Corporation, a Nevada
corporation (the “Company”),
hereby promises to pay to The Quercus Trust or its registered assigns (“Holder”) the amount set out above as the Original Principal
Amount (as reduced pursuant to the terms hereof pursuant to conversion or
otherwise, the “Principal”) when due, whether upon
the Maturity Date (as defined below), acceleration, redemption or otherwise (in
each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the Interest Rate
as required by Section 2 hereof. This Series B Convertible Note (including all
Series B Convertible Notes issued in exchange, transfer or replacement hereof,
this “Note”) is one of an issue of
Convertible Notes issued pursuant to the Securities Purchase Agreement (as
defined below) on the Closing Date (collectively, the “Notes”
and such other Convertible Notes, the “Other Notes”).
Certain capitalized terms used herein are defined in Section 27. Capitalized
terms used but not defined herein shall have the meanings set forth in the
Securities Purchase Agreement.

(1)          PAYMENTS
OF PRINCIPAL. On the Maturity Date, the Company shall pay to the Holder an
amount in cash representing all outstanding Principal, accrued and unpaid
Interest, if any, and accrued and unpaid Late Charges, if any, on such
Principal and Interest. The

“Maturity  Date”
shall be three (3) years from the date of the Initial Closing, as may be extended
at the option of the Holder (i) in the event that, and for so long as, a
Trigger Event (as defined in Section 4(a)) shall have occurred and be
continuing on the Maturity Date (as may be extended pursuant to this Section 1)
or any event that shall have occurred and be continuing that with the passage
of time and the failure to cure would result in a Trigger Event, and (ii)
through the date that is ten (10) Business Days after the consummation of a
Change of Control in the event that a Change of Control is publicly announced.
Other than as specifically permitted by the Note, the Company may not prepay
any portion of the outstanding Principal, accrued and unpaid Interest or
accrued and unpaid Late Charges, if any, on Principal and Interest.

(2)          INTEREST;
INTEREST RATE. During the term of this Note, Interest shall accrue on
outstanding Principal at an interest rate equal to six percent (6%) per annum
(the “Interest Rate”) commencing on the
Issuance Date. Interest shall be calculated on the basis of a 365-day year and
the actual number of days elapsed, to the extent permitted by applicable law.
Any Interest that shall accrue hereunder shall be payable quarterly in arrears
on each January 1, April 1, July 1 and October 1 (each an “Interest
Payment Due Date”), beginning on the first such date after the
Issuance Date hereof, in cash or shares of Common Stock (“Interest
Shares”) at the option of the Company. If the Company elects to pay
all or any portion of any Interest due in shares of the Company’s common stock,
par value $0.001 per share (the “Common Stock”),
such Interest to be paid in Interest Shares shall be paid in a number of fully
paid and nonassessable shares (rounded to the nearest whole cent) equal to the
quotient of (a) the amount of Interest payable on such Interest Date less any
such Interest to be paid in cash on such Interest Date divided by (b) an amount
equal to 95% of the 5-day Weighted Average Price (as defined in Section 27) of
the Common Stock ending on the Trading Day prior to such Interest Payment Due
Date, with the right of the Company to make such payment of Interest in
Interest Shares subject to the following conditions: (i) the Common Stock shall
have traded an average of at least 300,000 shares per day for each of the five
trading days prior to the applicable Interest Payment Due Date, (ii) a
registration statement covering the resale by the Holder of the Interest Shares
shall be current and effective as of the date of delivery of such Interest
Shares to the Holder, and (iii) a Trigger Event, as defined below, in
accordance with Section 4(a)(v), shall not have occurred. Interest hereunder
will be paid to the Holder or its assignee in whose name this Note is
registered on the records of the Company regarding registration and transfers of
Notes.

(3)          CONVERSION
OF NOTES. This Note shall be convertible by the Holder into shares of the
Company’s Common Stock on the terms and conditions set forth in this Section 3.

(a)          Conversion Right. Subject to the provisions of Section 3(e),
at any time or times on or after the Issuance Date, the Holder shall be
entitled to convert, at the Holder’s sole option, any portion of the
outstanding and unpaid Conversion Amount (as defined below) into fully paid and
nonassessable shares of Common Stock, at the Conversion Rate (as defined
below). The Company shall not issue any fraction of a share of Common Stock
upon any conversion. If the issuance would result in the issuance of a fraction
of a share of Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share. The Company shall pay any and all
transfer, stamp and similar taxes that may be payable with respect to the
issuance and delivery of Common Stock upon conversion of any Conversion Amount;
provided that the Company shall not be required to pay any tax that may
be payable in respect of any issuance of Common Stock to any Person other than
the converting Holder or with respect to any income tax due by the Holder with
respect to such Common Stock.

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(b)         Forced Conversion. The Company shall have the right to call
all, but not less than all, of the Notes for conversion at the Conversion Price
(as defined below) if the Weighted Average Price for the Company’s Common Stock
has exceeded 300% of the Conversion Price of the Series A Notes for at least 20
Trading Days during a 30 Trading Day period ending within 5 Trading Days prior
to the Company sending a notice (the “Forced
Conversion Notice”) of forced conversion and the date of such forced
conversion (the “Forced Conversion Notice
Date”) to the Holders the (“Measurement
Period”), and if the following
conditions are satisfied: (i) there is either an effective registration
statement providing for the resale of the shares of Common Stock underlying the
Notes during each Trading Day of the Measurement Period or all of the shares of Common Stock underlying
the Notes may be resold pursuant to Rule 144(k) of the Securities Act without
restriction during each Trading Day of the Measurement Period; and (ii) the
Common Stock has traded an average of 400,000 shares per day during the
Measurement Period. The date the Notes shall be converted pursuant to this
provision shall be thirty (30) days after the Forced Conversion Notice Date
specified in the Forced Conversion Notice sent to the Holders.

(c)          Conversion Rate. The number of shares of Common Stock
issuable upon conversion of any Conversion Amount shall be determined by
dividing (x) such Conversion Amount by (y) the then applicable Conversion Price
(the “Conversion Rate”).

(i)                                     “Conversion
Amount” means the sum of (A) the portion of the Principal to be
converted, redeemed or otherwise with respect to which this determination is
being made, (B) accrued and unpaid Interest with respect to such Principal, if
any, and (C) accrued and unpaid Late Charges with respect to such Principal and
Interest, if any.

(ii)                                  “Conversion
Price” means, as of any Conversion Date (as defined below) or other
date of determination, an amount equal to $0.50, subject to adjustment as
provided herein.

(d)         Mechanics of Conversion.

(i)                                     Optional Conversion. To convert any Conversion Amount into
shares of Common Stock on any date (a “Conversion
Date”), the Holder shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., New York Time, on such date, a
copy of an executed notice of conversion in the form attached hereto as Exhibit
I (the “Conversion Notice”) to
the Company and (B) if required by Section 3(d)(iii), surrender this Note to a
common carrier for delivery to the Company as soon as practicable on or
following such date (or an indemnification undertaking with respect to this
Note in the case of its loss, theft or destruction). On or before the second (2nd) Trading Day following the date of receipt of a Conversion Notice, the
Company shall transmit by facsimile a confirmation of receipt of such
Conversion Notice to the Holder and the Company’s transfer agent (the “Transfer Agent”). If this Note is
physically surrendered for conversion as required by Section 3(d)(iii) and the
outstanding Principal of this Note is greater than the Principal portion of the
Conversion Amount being converted, then the Company shall as soon as
practicable and in no

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event
later than three (3) Business Days after receipt of this Note and at its own
expense, issue and deliver to the holder a new Note (in accordance with Section
17(d)) representing the outstanding Principal not converted. The Person or
Persons entitled to receive the shares of Common Stock issuable upon a
conversion of this Note shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date. In the event
of a partial conversion of this Note pursuant hereto, the principal amount
converted shall be deducted from the outstanding Principal for purposes of
calculating interest payments due on the Note pursuant to Section 2.

(ii)                                  Delivery
of Certificates. On or before the third (3rd) Trading Day following the
date of receipt of a Conversion Notice (the “Share
Delivery Date”) or request
for removal of restrictive legends on the shares of Common Stock issuable in
connection therewith, the Company shall (X) provided that the Transfer
Agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer
Program, credit such aggregate number of shares of Common Stock to which the
Holder shall be entitled to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal Agent Commission system or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver to the address as specified in the
Conversion Notice, a certificate, registered in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder shall be
entitled.

(A)                              If such delivery is made
more than two (2) additional Trading Days after conversion or request for
removal of legend (a “Conversion Failure”),
as the case may be, then the Company will compensate the Holder at a rate of
$100 per day for each of the first ten (10) Trading Days and $200 per day
thereafter for each $10,000 of securities. In such event, after the first such
ten (10) Trading Days noted above, the Holder will also have the right to
rescind its Conversion Notice for the Notes.

(B)                                If
the certificates have not been delivered by the fifth (5th) Trading Day after conversion or request
for removal of legend, as the case may be, and the Holder has purchased (in an
open market transaction or otherwise) Common Stock to deliver in satisfaction
of a sale by the Holder of Common Stock issuable upon such conversion that the
Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three (3) Trading
Days after the Holder’s request and in the Holder’s discretion, either (i) pay
cash to the Holder in an amount equal to the Holder’s total purchase price
(including brokerage commissions and other out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such
certificate (and to issue such Common Stock) shall terminate, or (ii) promptly
honor its obligation to deliver to the Holder a certificate or certificates
representing such Common Stock and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the Conversion Date.

(iii)                               Registration; Book-Entry. The Company shall maintain a register (the “Register”) for the recordation of the names
and addresses of the holders of each Note and the principal amount of the Notes
held by such holders (the “Registered Notes”).
The entries in the Register shall be conclusive and binding for all purposes
absent

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manifest error. The Company
and the holders of the Notes shall treat each Person whose name is recorded in
the Register as the owner of a Note for all purposes, including, without
limitation, the right to receive payments of principal and interest hereunder,
notwithstanding notice to the contrary. A Registered Note may be assigned or
sold in whole or in part only by registration of such assignment or sale on the
Register. Upon its receipt of a request to assign or sell all or part of any
Registered Note by a Holder, the Company shall record the information contained
therein in the Register and issue one or more new Registered Notes in the same
aggregate principal amount as the principal amount of the surrendered
Registered Note to the designated assignee or transferee pursuant to Section
17. Notwithstanding anything to the contrary set forth herein, upon conversion
of any portion of this Note in accordance with the terms hereof, the Holder
shall not be required to physically surrender this Note to the Company unless (A)
the full Conversion Amount represented by this Note is being converted or (B)
the Holder has provided the Company with prior written notice (which notice may
be included in a Conversion Notice) requesting reissuance of this Note upon
physical surrender of this Note. The Holder and the Company shall maintain
records showing the Principal, Interest and Late Charges, if any, converted and
the dates of such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require physical
surrender of this Note upon conversion.

(iv)                              Pro Rata Conversion; Disputes. In the event that the Company receives a
Conversion Notice from more than one holder of Notes for the same Conversion
Date and the Company can convert some, but not all, of such portions of the
Notes submitted for conversion, the Company shall convert from each holder of
Notes electing to have Notes converted on such date a pro rata amount of such
holder’s portion of its Notes submitted for conversion based on the principal
amount of Notes submitted for conversion on such date by such holder relative
to the aggregate principal amount of all Notes submitted for conversion on such
date. In the event of a dispute as to the number of shares of Common Stock issuable
to the Holder in connection with a conversion of this Note, the Company shall
issue to the Holder the number of shares of Common Stock not in dispute and
resolve such dispute in accordance with Section 22.

(e)                                  Limitations on Conversions.  

(i)                                     Principal Market Regulation.

(A) Exchange Cap. The
Company shall not be obligated to issue any shares of Common Stock upon
conversion of this Note or exercise of the Warrants and no Buyer shall be
entitled to receive any shares of Common Stock if the issuance of such shares
of Common Stock would exceed that number of shares of Common Stock which the
Company may issue upon exercise or conversion, as applicable, of the Warrants
and Notes or otherwise without breaching the Company’s obligations under the
rules or regulations of any applicable Eligible Market (the “Exchange Cap”), except that such limitation
shall not apply in the event that the Company (A) obtains the approval of its
stockholders as required by the applicable rules of the Eligible Market for
issuances of shares of Common Stock in excess of such amount or (B) obtains a
written opinion from outside counsel to the Company that such approval is not
required, which opinion shall be reasonably satisfactory to the Required
Holders. Until such approval or written

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opinion is obtained, no Buyer shall be issued in the
aggregate, upon exercise or conversion, as applicable, of any Warrants or
Notes, shares of Common Stock in an amount greater than the product of the
Exchange Cap multiplied by a fraction, the numerator of which is the total
number of shares of Common Stock underlying the Notes issued to such Buyer
pursuant to the Securities Purchase Agreement on the Issuance Date and the
denominator of which is the aggregate number of shares of Common Stock underlying
the Series A Notes and Series B Notes issued to the Buyers pursuant to the
Securities Purchase Agreement on the Issuance Date (with respect to each Buyer,
the “Exchange Cap Allocation”). In
the event that any Buyer shall sell or otherwise transfer any of such Buyer’s
Notes, the transferee shall be allocated a pro rata portion of such Buyer’s
Exchange Cap Allocation, and the restrictions of the prior sentence shall apply
to such transferee with respect to the portion of the Exchange Cap Allocation
allocated to such transferee. In the event that any holder of Notes shall
convert all of such holder’s Notes into a number of shares of Common Stock
which, in the aggregate, is less than such holder’s Exchange Cap Allocation,
then the difference between such holder’s Exchange Cap Allocation and the
number of shares of Common Stock actually issued to such holder shall be
allocated to the respective Exchange Cap Allocations of the remaining holders
of the Series A Notes and Series B Notes on a pro rata basis in proportion to
the total number of shares of Common Stock underlying the Series A Notes and
Series B Notes then held by each such holder. In the event that the Company is
prohibited from issuing any Conversion Shares for which a Conversion Notice has
been received as a result of the operation of this Section 3(e)(2), the Company
shall pay cash in exchange for cancellation of such Conversion Shares, at a
price per Conversion Share equal to the Weighted Average Price as of the date
of the attempted conversion.

(B) Redemption Upon
Exchange Cap Violation. In the event that, anytime after the Shareholder
Issuance Voting Deadline (as defined in the Securities Purchase Agreement), (A)
the Shareholder Issuance Approval (as defined in the Securities Purchase
Agreement), if applicable, has not been obtained and (B) the then Holder’s
current Fully Diluted Amount (as defined below) would exceed the Holder’s
Pro-Rata Portion (as defined below) of the Exchange Cap (an “Exchange Cap Violation”), then the Company shall be required
to redeem, from time to time, a sufficient amount of the Notes such that the
Holder’s Fully Diluted Amount after such redemption equals the Holder’s
Pro-Rata Portion of the Exchange Cap (an “Exchange Cap Redemption”).
Each Exchange Cap Redemption shall be at a redemption price, in cash, equal to
the outstanding principal amount of this Note to be redeemed, plus all accrued
and unpaid Interest, Late Charges and any other amounts when and as due under
this Note (the “Exchange Cap Redemption Amount”).
The Exchange Cap Redemption Amount shall be applied first to accrued and unpaid
Interest, Late Charges and any other amounts when and as due under this Note,
and then to the principal amount of the Note.

The Exchange Cap
Redemption Amount shall be due and payable to the Holder within five (5)
Business Days of the date of each applicable Exchange Cap Violation (each, an “Exchange Redemption Payment Date”).

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For purposes hereof, “Fully Diluted Amount” shall mean (i) the aggregate number of
shares of Common Stock that have been issued to the Holder upon the conversion
of Holder’s Note, plus (ii) the aggregate number of shares of Common Stock that
would be issuable to the Holder upon the full Conversion of all of Holder’s
outstanding Note, together with any accrued and unpaid Interest, Late Charges
and any other amounts when and as due under this Note and the full exercise of
Holders Warrants (in each case, without regard to any limitations on conversion
herein or elsewhere, including but not limited to the Exchange Cap and without
regard to whether or not a sufficient number of shares are authorized and
reserved to effect any such exercise and issuance).

“Holder’s
Pro-Rata Portion” shall mean the purchase price of the Note
purchased by the Holder in this offering, divided by the aggregate purchase
price of all Notes sold by the Company in this offering.

(4)          RIGHTS
UPON TRIGGER EVENT.

(a)          Trigger Event. Each of the following events shall
constitute a “Trigger Event”:

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

(ii)                                  the Company’s (A) failure to cure a
Conversion Failure by delivery of the required number of shares of Common Stock
within ten (10) Trading Days after the applicable Conversion Date or (B)
written notice to any holder of the Notes or public announcement, at any time,
of its intention not to comply with a request for conversion of any Notes into
shares of Common Stock that is tendered in accordance with the provisions of
the Notes;

(iii)                               at any time following the thirtieth (30th) day that the Company fails to have a sufficient number of authorized
shares of Common Stock available to satisfy its obligations for issuance upon a
conversion of the full Conversion Amount of this Note (without regard to any
limitations on conversion);

(iv)                              the Company’s failure to pay to the Holder
any amount of Principal (including, without limitation, any redemption
payments), Interest, Late Charges or other amounts when and as due under this
Note, except, in the case of a failure to pay any Interest and Late Charges
when and as due, in which case only if such failure continues for a period of
at least fifteen (15) Business Days;

(v)                                 the failure to pay when due or any
acceleration, prior to maturity of any Indebtedness of the Company or any
Subsidiaries of $100,000 or more of such Indebtedness in the aggregate and such
failure to pay continues uncured for more than ten (10) Business Days, other
than with respect to any Other Notes;

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(vi)                              the Company or any of its Material
Subsidiaries (as defined in SEC Regulation S-X), pursuant to or within the
meaning of Title 11, U.S. Code, or any similar Federal, foreign or state law
for the relief of debtors (collectively, “Bankruptcy Law”), (A) commences a
voluntary case, (B) consents to the entry of an order for relief against it in
an involuntary case, (C) consents to the appointment of a receiver, trustee,
assignee, liquidator or similar official (a “Custodian”), (D) makes a general
assignment for the benefit of its creditors or (E) admits in writing that it is
generally unable to pay its debts as they become due;

(vii)                           a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that (A) is for relief against the
Company or any of its Subsidiaries in an involuntary case, (B) appoints a
Custodian of the Company or any of its Subsidiaries or (C) orders the
liquidation of the Company or any of its Subsidiaries;

(viii)                        a final judgment or judgments for the payment
of money aggregating in excess of $250,000 are rendered against the Company or
any of its Subsidiaries and which judgments are not, within sixty (60) days
after the entry thereof, bonded, discharged or stayed pending appeal, or are
not discharged within sixty (60) days after the expiration of such stay;
provided, however, that any judgment which is covered by insurance or an
indemnity from a credit worthy party shall not be included in calculating the
$250,000 amount, provided that the creditworthiness of any such party shall be
determined by the Company’s board of directors in their reasonable judgment;

(ix)                                the Company breaches any representation,
warranty, covenant or other term or condition of any Transaction Document, and
such breach constitutes, individually or in the aggregate, a Material Adverse
Effect; provided, however, that in the case of a breach of a covenant which is
curable, only if such breach continues for a period of at least ten (10)
consecutive Business Days;

(x)                                   any breach or failure in any material respect
to comply with Section 12 of this Note;

(xi)                                the Company’s failure to engage the services
of a transfer agent for its Common Stock that is a participant in the
Depository Trust Company’s Full Fast Program prior to the date on which the
Registration Statement is declared effective by the SEC; or

(xii)                             the Company has failed to comply in good
faith with the Dispute Resolution Procedures (as defined herein) or has failed
to adjust the Conversion Price as required hereunder following a Dilutive
Issuance, or otherwise (after any applicable Dispute Resolution Procedure
required herein).

(b)         Redemption Right. Upon the occurrence
of a Trigger Event with respect to this Note or any Other Note, the Company
shall within three (3) Business Day deliver written notice thereof via
facsimile or e-mail and overnight courier (a “Trigger
Event Notice”) to the Holder. At any time after the earlier of the
Holder’s receipt of a Trigger Event Notice and the Holder becoming aware of a
Trigger Event, the Holder may require the Company to redeem all or any portion
of this Note by delivering written notice thereof (the “Trigger Event

 8
 

Redemption Notice”)
to the Company, which Trigger Event Redemption Notice shall indicate the
portion of this Note the Holder is electing to have redeemed. Each portion of
this Note subject to redemption by the Company pursuant to this Section 4(b)
shall be redeemed by the Company at an amount equal to any accrued and unpaid
liquidated damages and Interest, plus the greater of (A) the Conversion Amount
to be redeemed multiplied by the Redemption Premium, or (B) the Conversion
Amount to be redeemed multiplied by the quotient of (i) the Closing Sale Price
at the time of the Triggering Event (or at the time of payment of the
redemption price, if greater) divided by (ii) the Conversion Price (the “Trigger Event  Redemption Price”), provided, however, (B) shall be applicable
only in the event that a Trigger Event of the type specified in Section
4(a)(i), (ii), (iii) or (iv) hereof has occurred and remains uncured or the
Conversion Shares otherwise could not be received or sold by the Holder without
any resale restrictions (or pursuant to an effective Registration Statement).
After a Trigger Event occurs, the Conversion Price shall be permanently
decreased (but not increased) on the first Business Day of each calendar month
thereafter (each a “Trigger Adjustment Date”)
until either the Trigger Event is cured or the Trigger Event Redemption Price
is paid in full, to a price (the “Trigger
Event Reset Price”) equal to the lesser of (i) the Conversion Price
then in effect, or (ii) the lowest Weighted Average Price that has occurred on
any Trigger Adjustment Date since the date of occurrence of the Trigger Event.
Redemptions required by this Section 4(b) shall be made in accordance with the
provisions of Section 11. To the extent redemptions required by this Section
4(b) are deemed or determined by a court of competent jurisdiction to be
prepayments of the Note by the Company, such redemptions shall be deemed to be
voluntary prepayments. The parties hereto agree that in the event of the
Company’s redemption of any portion of the Note under this Section 4(b), the
Holder’s damages would be uncertain and difficult to estimate because of the
parties’ inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any Triggering Event Redemption Price due under this Section 4(b)
is intended by the parties to be, and shall be deemed, a reasonable estimate of
the Holder’s actual loss of its investment opportunity and not as a penalty.

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

(a)          Assumption. The Company shall not enter into or be party to a Fundamental
Transaction unless (i) the Successor Entity assumes in writing all of the
obligations of the Company under this Note and the other Transaction Documents
in accordance with the provisions of this Section 5(a), including agreements to
deliver to each holder of Notes in exchange for such Notes a security of the
Successor Entity evidenced by a written instrument substantially similar in
form and substance to the Notes, including, without limitation, having a
principal amount and interest rate equal to the principal amounts then
outstanding and the interest rates of the Notes held by such holder, having
similar conversion rights as the Notes and having similar ranking to the Notes
and (ii) the Successor Entity is a publicly traded corporation whose common
stock is quoted on or listed for trading on an Eligible Market and has “Substantially Similar
Trading Characteristics” (as defined below) as the Company. For purposes hereof,
an entity shall have Substantially Similar Trading Characteristics as the
Company if the average daily dollar trading volume of the common stock of such
entity is equal to or in excess of $500,000 for the 60th through the
16th day prior to the public announcement of such transaction. Upon
the occurrence of any Fundamental Transaction, the Successor Entity

 9
 

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

(b)         Redemption
Right. If at the time known to the Company, no sooner than fifteen (15)
days nor later than ten (10) days prior to the consummation of a Change of
Control, but in any event not prior to the public announcement of such Change
of Control, the Company shall deliver written notice thereof via facsimile and
overnight courier to the Holder (a “Change of
Control  Notice”). At
any time during the period beginning on the date of the Holder’s receipt of a
Change of Control Notice and ending twenty (20) Trading Days after the
consummation of such Change of Control, the Holder may require the Company to
redeem all or any portion of this Note after receipt by the Company of such
notice and promptly after (or upon, in the case of such notice delivered prior
to the Change of Control) consummation of the Change of Control by delivering
written notice thereof (“Change of Control
Redemption Notice”) to the Company, which Change of Control
Redemption Notice shall indicate the Conversion Amount the Holder is electing
to have redeemed. The portion of this Note subject to redemption pursuant to
this Section 5 shall be redeemed by the Company in cash for an amount equal to
any accrued and unpaid liquidated damages, plus the greater of (i) the product
of (x) the Conversion Amount being redeemed and (y) the quotient determined by
dividing (A) the greater of the Closing Sale Price of the Common Stock
immediately prior to the consummation of the Change of Control, the Closing
Sale Price immediately following the public announcement of such proposed
Change of Control and the Closing Sale Price of the Common Stock immediately
prior to the public announcement of such proposed Change of Control by (B) the
Conversion Price and (ii) Change of Control Premium of the Conversion Amount
being redeemed (the “Change of Control
Redemption Price”). Redemptions required by this Section 5 shall be
made in accordance with the provisions of Section 11 and shall have priority to
payments to stockholders in connection with a Change of Control. To the extent
redemptions required by this Section 5(b) are deemed or determined by a court
of competent jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 5, until the Change of Control
Redemption Price is paid in full, the Conversion Amount submitted for
redemption under this Section 5(b) may be converted, in whole or in part, by
the Holder into Common Stock pursuant to Section 3.

 10
 

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

(a)          Purchase
Rights. If at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
“Purchase Rights”), then the
Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have acquired if
the Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Note (without taking into account any limitations
or restrictions on the convertibility of this Note) immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights. Notwithstanding any provision of this Section 6(a) to the contrary, in
the event that the Weighted Average Price of the Common Stock equals or exceeds
150% of the applicable Conversion Price for each of the twenty (20) consecutive
Trading Days immediately preceding a Purchase Right Date and the Company’s
Common Stock has traded an average of at least 600,000 shares per day during
each of such twenty consecutive Trading Days, then this Section 6(a) shall not
apply to such Purchase Right.

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

 11
 

(7)          ADJUSTMENT OF CONVERSION PRICE UPON
SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at any time on or after the Subscription Date
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time on or
after the Subscription Date combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior to
such combination will be proportionately increased.

(8)          ADJUSTMENT UPON ISSUANCE OF SHARES
OF COMMON STOCK.
If the Company issues or sells, or in accordance with this Section 8 is deemed
to have issued or sold, any shares of Common Stock (including the issuance or
sale of shares of Common Stock owned or held by or for the account of the
Company, but excluding shares of Common Stock deemed to have been issued by the
Company in connection with any Excluded Securities for a consideration per
share (the “New Issuance Price”) less than a
price (the “Applicable Price”) equal to the
Conversion Price in effect immediately prior to such issue or sale or deemed
issuance or sale (the foregoing a “Dilutive Issuance”),
then immediately after such Dilutive Issuance, the Conversion Price then in
effect shall be reduced to an amount equal to the New Issuance Price. Upon each
such adjustment of the Conversion Price hereunder, the number of Conversion
Shares shall be adjusted to the number of shares of Common Stock determined by
multiplying the Conversion Price in effect immediately prior to such adjustment
by the number of Conversion Shares acquirable upon conversion of this Note
immediately prior to such adjustment and dividing the product thereof by the
Conversion Price resulting from such adjustment. For purposes of determining
the adjusted Conversion Price under this Section 8, the following shall be
applicable:

(a)                                  Issuance
of Options. If the Company in any manner grants any Options and the lowest
price per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such Option is less than
the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 8(a), the “lowest price per share for which one share of Common Stock
is issuable upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option and upon conversion, exercise or exchange
of any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Conversion Price or number of Conversion Shares shall be made
upon the actual issuance of such shares of Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of
such shares of Common Stock upon conversion, exercise or exchange of such
Convertible Securities.

(b)                                 Issuance
of Convertible Securities. If the Company in any manner issues or
sells any Convertible Securities and the lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or exchange
thereof is less than the Applicable Price,

 12
 

then
such share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this
Section 8(b), the “lowest price per share for which one share of Common Stock
is issuable upon the conversion, exercise or exchange” shall be equal to the
sum of the lowest amounts of consideration (if any) received or receivable by
the Company with respect to one share of Common Stock upon the issuance or sale
of the Convertible Security and upon conversion, exercise or exchange of such
Convertible Security. No further adjustment of the Conversion Price or number
of Conversion Shares shall be made upon the actual issuance of such shares of
Common Stock upon conversion, exercise or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of this Note has been or
is to be made pursuant to other provisions of this Section 8, no further
adjustment of the Conversion Price or number of Conversion Shares shall be made
by reason of such issue or sale.

(c)                                  Change in
Option Price or Rate of Conversion. If the purchase price provided for
in any Options, the additional consideration, if any, payable upon the issue,
conversion, exercise or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exercisable or
exchangeable for shares of Common Stock increases or decreases at any time, the
Conversion Price and the number of Conversion Shares in effect at the time of
such increase or decrease shall be adjusted to the Conversion Price and the
number of Conversion Shares which would have been in effect at such time had
such Options or Convertible Securities provided for such increased or decreased
purchase price, additional consideration or increased or decreased conversion
rate, as the case may be, at the time initially granted, issued or sold. For
purposes of this Section 8(c), if the terms of any Option or Convertible
Security that was outstanding as of the date of issuance of this Note are
increased or decreased in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the shares of Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 8 shall be made if such adjustment would
result in an increase of the Conversion Price then in effect or a decrease in
the number of Conversion Shares.

(d)                     Calculation
of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction, the Options will be deemed to have been
issued for the difference of (i) the aggregate fair market value of such
Options and other securities issued or sold in such integrated transaction,
less (ii) the fair market value of the securities other than such Option,
issued or sold in such transaction and the other securities issued or sold in
such integrated transaction will be deemed to have been issued or sold for the
balance of the consideration received by the Company. If any shares of Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be
deemed to be the net amount received by the Company therefor. If any shares of
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Weighted Average Price of such security on
the date of receipt. If any shares of Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving

 13
 

entity in connection with any merger in
which the Company is the surviving entity, the amount of consideration therefor
will be deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such shares of
Common Stock, Options or Convertible Securities, as the case may be. The fair
value of any consideration other than cash or securities will be determined
jointly by the Company and the Required Holders. If such parties are unable to
reach agreement within ten (10) days after the occurrence of an event requiring
valuation (the “Valuation Event”),
the fair value of such consideration will be determined within five (5)
Business Days after the tenth day following the Valuation Event by an
independent, reputable appraiser jointly selected by the Company and the
Required Holders. The determination of such appraiser shall be final and
binding upon all parties absent manifest error and the fees and expenses of
such appraiser shall be borne by the Company.

(e)                      Record
Date. If the Company takes a record of the holders of shares of Common
Stock for the purpose of entitling them (i) to receive a dividend or other
distribution payable in shares of Common Stock, Options or in Convertible
Securities or (ii) to subscribe for or purchase shares of Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued
or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

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

(10)                            RESERVATION OF AUTHORIZED SHARES.

(a)          Reservation. So long
as any of the Notes are outstanding, the Company shall take all action
necessary to reserve and keep available out of its authorized and unissued Common
Stock, solely for the purpose of effecting the conversion of the Notes, 120% of
the number of shares of Common Stock as shall from time to time be necessary to
effect the conversion of all of the Notes then outstanding; provided that at no
time shall the number of shares of Common Stock so reserved be less than the
number of shares required to be reserved by the previous sentence (without
regard to any limitations on conversions) (the “Required Reserve Amount”). The number of shares of Common
Stock reserved for conversions of the Notes and each increase in the number of
shares so reserved shall be allocated pro rata among the holders of the Notes
based on the principal amount of the Notes held by each holder at the Closing
(as defined in the Securities Purchase Agreement) or increase in the number of
reserved shares, as the case may be (the “Authorized
Share Allocation”). In the event that a holder shall sell or
otherwise transfer any of such holder’s Notes, each transferee shall be
allocated a pro rata portion of such holder’s Authorized Share Allocation. Any
shares of Common Stock reserved and allocated to any Person which ceases to
hold any Notes shall be allocated to the remaining holders of Notes, pro rata
based on the principal amount of the Notes then held by such holders.

 14
 

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

(11)                            HOLDER’S REDEMPTIONS.

(a)          The Company shall deliver the
applicable Trigger Event Redemption Price to the Holder within five (5)
Business Days after the Company’s receipt of the Holder’s Trigger Event
Redemption Notice. If the Holder has submitted a Change of Control Redemption
Notice in accordance with Section 5(b), the Company shall deliver the
applicable Change of Control Redemption Price to the Holder concurrently with
the consummation of such Change of Control if such notice is received prior to
the consummation of such Change of Control and within five (5) Business Days
after the Company’s receipt of such notice otherwise. In the event of a
redemption of less than all of the Conversion Amount of this Note, the Company
shall promptly cause to be issued and delivered to the Holder a new Note (in
accordance with Section 17(d)) representing the outstanding Principal which has
not been redeemed. In the event that the Company does not pay the applicable
Redemption Price to the Holder within the time period required, at any time
thereafter and until the Company pays such unpaid Redemption Price in full, the
Holder shall have the option, in lieu of redemption, to require the Company to
promptly return to the Holder all or any portion of this Note representing the
Conversion Amount that was submitted for redemption and for which the
applicable Redemption Price (together with any Late Charges thereon) has not
been paid. Upon the Company’s receipt of such notice, (x) the Redemption Notice
shall be null and void with respect to such Conversion Amount, (y) the Company
shall immediately return this Note, or issue a new Note (in accordance with
Section 17(d)) to the Holder representing such Conversion Amount and (z) the
Conversion Price of this Note or such new Notes shall be adjusted to the lesser
of (A) the Conversion Price as in effect on the date on which the Redemption
Notice is voided and (B) the lowest Closing Bid Price of the Common Stock during
the period beginning on and including the date on which the Redemption Notice
is delivered to the Company and ending on and including the date on which the
Redemption Notice is voided. The Holder’s delivery of a notice voiding a
Redemption Notice and exercise of its rights following such notice shall not
affect the Company’s obligations to make any payments of Late Charges which
have accrued prior to the date of such notice with respect to the Conversion
Amount subject to such notice.

 15

(b)         Redemption by Other Holders. Upon the
Company’s receipt of notice from any of the holders of the Other Notes for
redemption or repayment as a result of an event or occurrence substantially
similar to the events or occurrences described in Section 4(b) or Section 5(b)
(each, an “Other Redemption Notice”),
the Company shall immediately, but no later than one (1) Business Day of its
receipt thereof, forward to the Holder by facsimile a copy of such notice. If
the Company receives a Redemption Notice and one or more Other Redemption
Notices, during the seven (7) Business Day period beginning on and including
the date which is three (3) Business Days prior to the Company’s receipt of the
Holder’s Redemption Notice and ending on and including the date which is three
(3) Business Days after the Company’s receipt of the Holder’s Redemption Notice
and the Company is unable to redeem all principal, interest and other amounts
designated in such Redemption Notice and such Other Redemption Notices received
during such seven (7) Business Day period, then the Company shall redeem a pro
rata amount from each holder of the Notes (including the Holder) based on the
principal amount of the Notes submitted for redemption pursuant to such
Redemption Notice and such Other Redemption Notices received by the Company
during such seven (7) Business Day period.

(12)                            VOTING RIGHTS. The Holder shall have no voting
rights as the holder of this Note, except as required by law, including, but
not limited to, Nevada Revised Statutes, Title 7,Chapter 78, and as expressly
provided in this Note.

(13)                            COVENANTS.

(a)          Rank.                                          All
payments due under this Note (A) shall rank pari
passu with all of the Series B Notes and the Series B Notes, and (B)
shall rank at least pari passu with
all other unsecured Indebtedness of the Company incurred on or after the date
of this Note.

(b)         Incurrence
of Indebtedness. So long as there remains twenty-five percent (25%) or
more of the original face amount of the Notes outstanding, the
Company shall not, and the Company shall not permit any of its Subsidiaries to
incur or guarantee or assume any Indebtedness, other than (i) the Indebtedness
evidenced by this Note and the Other Notes, and (ii) other Permitted
Indebtedness, without the prior written consent of the Holders of fifty percent
(50%) of the then outstanding amount of the Notes.

(c)          Existence
of Liens. So long as there remains twenty-five percent (25%) or
more of the original Notes outstanding, other than Permitted Liens, the
Company shall not, and the Company shall not permit any of its Subsidiaries to
allow any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract
rights) owned by the Company or any of its Subsidiaries (collectively, “Liens”), to the extent such Lien is upon or
in a material portion of (x) the Company’s property and assets or (y) the
property and assets of the Company and its Subsidiaries taken as a whole on a
consolidated basis; unless, all payment obligations under the Notes are secured
on an equal and ratable basis as the obligations secured by such Lien until
such time as such obligations are no longer secured by a Lien without the prior
written consent of the Holders of 50% of the then outstanding Notes.

 16
 

(d)         Restricted
Payments. The Company shall not, and the Company shall not permit any of
its Subsidiaries to, directly or indirectly, redeem, defease, repurchase, repay
or make any payments in respect of, by the payment of cash or cash equivalents
(in whole or in part, whether by way of open market purchases, tender offers,
private transactions or otherwise), all or any portion of any Permitted
Indebtedness (other than this Note and the Other Notes), whether by way of
payment in respect of principal of (or premium, if any) or interest on such
Indebtedness, if at the time such payment is due or is otherwise made or after
giving effect to such payment, an event constituting, or that with the passage
of time and without being cured would constitute, a Trigger Event has occurred
and is continuing.

(e)          Restriction
on Redemption and Cash Dividends. Until all of the Notes have been
converted, redeemed or otherwise satisfied in accordance with their terms, the
Company shall not, directly or indirectly, redeem, repurchase or declare or pay
any cash dividend or distribution on its capital stock without the prior
express written consent of the Required Holders.

(14)                            PARTICIPATION. The Holder, as the holder of this
Note, shall be entitled to receive such dividends paid and distributions made
generally to all the holders of Common Stock to the same extent as if the
Holder had so converted this Note into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock. Notwithstanding any provision of
this Section 16 to the contrary, in the event that the Weighted Average Price
of the Common Stock equals or exceeds 150% of the applicable Conversion Price
or the average daily trading volume of the Common Stock equals or exceeds
600,000 shares per day for each of the twenty (20) consecutive Trading Days
immediately preceding a the date of a change to the Conversion Price, then this
Section 16 shall not apply to such change to the Conversion Price addressed in
Sections 7 and 8.

(15)                            VOTE TO ISSUE, OR CHANGE THE TERMS
OF, NOTES. In
addition to the written consent of the Company, the affirmative vote of the
Required Holders at a meeting duly called for such purpose or the written
consent without a meeting of the Required Holders shall be required for any
change or amendment to this Note or the Other Notes. No consideration shall be
offered or paid to any holder of Notes to amend or consent to a waiver or
modification of the Notes unless the same consideration also is offered to all
of the holders of Notes.

(16)                            TRANSFER. This Note may be offered, sold,
assigned or transferred by the Holder without the consent of the Company,
subject only to the provisions of Section 2(f) of the Securities Purchase
Agreement.

(17)                            REISSUANCE OF THIS NOTE.

(a)          Transfer. If this
Note is to be transferred, the Holder shall surrender this Note to the Company,
whereupon the Company will forthwith issue and deliver upon the order of the
Holder a new Note (in accordance with Section 17(d)), registered as the Holder
may request, representing the outstanding Principal being transferred by the
Holder and, if less then the entire outstanding Principal is being transferred,
a new Note (in accordance with Section 17(d)) to the Holder representing the
outstanding Principal not being transferred. The Holder 

 17
 

and any assignee, by acceptance of this
Note, acknowledge and agree that, by reason of the provisions of Section
3(d)(iii) following conversion or redemption of any portion of this Note, the
outstanding Principal represented by this Note may be less than the Principal
stated on the face of this Note.

(b)         Lost,
Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with
Section 17(d)) representing the outstanding Principal.

(c)          Note
Exchangeable for Different Denominations. This Note is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for
a new Note or Notes (in accordance with Section 17(d)) representing in the
aggregate the outstanding Principal of this Note, and each such new Note will
represent such portion of such outstanding Principal as is designated by the
Holder at the time of such surrender.

(d)         Issuance
of New Notes. Whenever the Company is required to issue a new Note pursuant to
the terms of this Note, such new Note (i) shall be of like tenor with this
Note, (ii) shall represent, as indicated on the face of such new Note, the
Principal remaining outstanding (or in the case of a new Note being issued
pursuant to Section 17(a) or Section 17(c), the Principal designated by the
Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal
remaining outstanding under this Note immediately prior to such issuance of new
Notes), (iii) shall have an issuance date, as indicated on the face of such new
Note, which is the same as the Issuance Date of this Note, (iv) shall have the
same rights and conditions as this Note, and (v) shall represent accrued and
unpaid Interest and Late Charges on the Principal and Interest of this Note, if
any, from the Issuance Date.

(18)                            REMEDIES, CHARACTERIZATIONS, OTHER
OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note and any of the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief) and nothing herein shall limit the
Holder’s right to pursue actual and consequential damages for any failure by
the Company to comply with the terms of this Note. Amounts set forth or
provided for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the Holder and
shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, specifically including but not limited to the Company’s
failure to adjust the Conversion Price as required hereunder following a
Dilutive Issuance, the Holder shall be entitled, upon posting a bond and
demonstrating economic loss, in addition to all other available remedies, to an
injunction restraining any breach.

 18
 

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

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

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

(22)                            DISPUTE RESOLUTION. In the case of a dispute as to
the determination of the Closing Bid Price, the Closing Sale Price or the
Weighted Average Price, the determination of the occurrence of a Dilutive
Issuance which would trigger a reset of the Conversion Price, the determination
of the Company entering into an agreement to issue securities pursuant to an
Equity Line (as defined in the Securities Purchase Agreement), the
determination of the Company entering into an agreement to issue Variable
Equity Securities (as defined in the Securities Purchase Agreement) or the
arithmetic calculation of the Conversion Rate or any Redemption Price, or the
determination of the Company entering into a transaction that would violate any
of the Additional Issuance Restrictions (as defined in the Securities Purchase
Agreement) the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within one (1) Business Day of receipt, or deemed
receipt, of the Conversion Notice or Redemption Notice or other event giving
rise to such dispute, as the case may be, to the Holder. If the Holder and the
Company are unable to agree upon such determination or calculation within one
(1) Business Day of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Company shall, within one (1) Business Day
submit via facsimile (a) the disputed determination of the Closing Bid Price,
the Closing Sale Price or the Weighted Average Price to an independent,
reputable investment bank (which is ranked in the top 10 investment banks
nationally, by revenue) selected by the Company and approved by the Holder, or
(b) a copy of the disputed agreement or other documentation pursuant to which
the Holder believes securities may be issued pursuant to an Equity Line or as
Variable Equity Securities, or which Holder believes may be a Dilutive Issuance
which would trigger a reset of the Conversion Price, or which Holder believes
may violate the Additional Issuance Restrictions, to an independent law firm
selected by the Company and approved by Holder or (c) the disputed arithmetic
calculation of the Conversion Rate or any Redemption Price to the Company’s
independent, outside accountant (which is ranked in the top 10 accounting firms
nationally, by revenue). The Company, at the Company’s expense, shall cause the
investment bank, the law firm or the accountant, as the case may be, to perform
the

 19
 

determinations or calculations and notify the Company and the
Holder of the results no later than five (5) Business Days from the time it
receives the disputed determinations or calculations.  Such investment bank’s, law firm’s or
accountant’s determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error. 
The procedures required by this Section 22 are collectively referred to
herein as the “Dispute Resolution Procedures.”

(23)                            NOTICES; PAYMENTS.

(a)          Notices.  Whenever notice is required to be given under
this Note, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement.  The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Note, including in
reasonable detail a description of such action and the reason therefore.  Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable
detail, and certifying, the calculation of such adjustment and (ii) at least
twenty (20) days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata subscription offer to holders of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.

(b)         Payments.  Whenever any payment of cash is to be made by
the Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the
case of each of the Purchasers, shall initially be as set forth on the Schedule
of Buyers attached to the Securities Purchase Agreement); provided that the
Holder may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder’s wire transfer instructions.  Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day and, in
the case of any Interest Date which is not the date on which this Note is paid
in full, the extension of the due date thereof shall not be taken into account
for purposes of determining the amount of Interest due on such date.  Any amount of Principal which is not paid
when due shall result in a late charge being incurred and payable by the
Company in an amount equal to interest on such amount at the rate of eleven
percent (11.0%) per annum from the date such amount was due until the same is
paid in full (“Late Charge”).

(24)                            CANCELLATION. 
After all Principal, accrued Interest and other amounts at any time owed
on this Note have been paid in full, this Note shall automatically be deemed
canceled, shall be surrendered to the Company for cancellation and shall not be
reissued.

(25)                            WAIVER OF NOTICE. 
To the extent permitted by law, the Company hereby waives demand,
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note and the
Securities Purchase Agreement.

 20
 

(26)                            GOVERNING LAW; JURISDICTION;
SEVERABILITY; JURY TRIAL.  This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any
other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. 
The Company hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in The City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner
permitted by law.  In the event that any
provision of this Note is invalid or unenforceable under any applicable statute
or rule of law, then such provision shall be deemed inoperative to the extent
that it may conflict therewith and shall be deemed modified to conform with
such statute or rule of law.  Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Note.  Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action
against the Company in any other jurisdiction to collect on the Company’s
obligations to the Holder, to realize on any collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor
of the Holder.  THE COMPANY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH
OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

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

(a)                                  “Approved Stock Plan” means any employee
benefit plan which has been or hereafter is approved by the Board of Directors
of the Company, pursuant to which the Company’s securities may be issued to any
employee, officer or director for services provided to the Company.

(b)                                 “Bloomberg” means Bloomberg Financial
Markets.

(c)                                  “Business Day” means any day other than
Saturday, Sunday or other day on which commercial banks in The City of New York
are authorized or required by law to remain closed.

(d)                                 “Change of Control” means any Fundamental
Transaction other than (A) any reorganization, recapitalization or
reclassification of Common Stock, in which a majority of holders of the Company’s
voting power immediately prior to such reorganization, recapitalization or
reclassification continue after such reorganization, recapitalization or
reclassification to hold publicly traded securities and, directly or
indirectly, the voting power of the surviving entity or entities necessary to
elect a majority of the members of the board of

 21
 

directors (or their equivalent if other
than a corporation) of such entity or entities, (B) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company or (C) in the event of a Change of Control
involving consideration paid to holders of the Company’s Common Stock, the
consideration per share of the Company’s Common Stock to be received by the
holders thereof is greater (as to amounts other than cash, as determined
reasonably and in good faith by the Board of Directors of the Company) than the
product of the (x) Change of Control Premium and (y) Conversion Price then in
effect.

(e)                                  “Change of Control Premium” means (i) 120%
from the Issuance Date through the first anniversary of the Issuance Date, (ii)
115% after the first anniversary of the Issuance Date through the second
anniversary of the Issuance Date and (iii) 110% thereafter.

(f)                                    “Closing
Bid Price” and “Closing Sale Price”
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on the Principal Market,
as reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the
closing trade price, as the case may be, then the last bid price or last trade
price, respectively, of such security prior to 4:00:00 p.m., New York Time, as
reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid
price or last trade price, respectively, of such security on the principal
securities exchange or trading market where such security is listed or traded
as reported by Bloomberg, or if the foregoing do not apply, the last closing
bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the
bid prices, or the ask prices, respectively, of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.).  If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Closing Bid Price or
the Closing Sale Price, as the case may be, of such security on such date shall
be the fair market value as mutually determined by the Company and the
Holder.  If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 22.  All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination or other
similar transaction during the applicable calculation period.

(g)                                 “Closing Date” shall have the meaning set
forth in the Securities Purchase Agreement, which date is the date the Company
initially issued Notes pursuant to the terms of the Securities Purchase
Agreement.

(h)                                 “Common Stock Deemed Outstanding” shall
mean, at any given time, the number of shares of Common Stock actually
outstanding at such time, plus (i) the number of shares of Common Stock deemed
to be outstanding pursuant to Sections 8(a) and 8(b) hereof regardless of
whether the Options or Convertible Securities are actually exercisable at such
time and (ii) plus the number of shares of Common Stock underlying Options or
Convertible Securities issued pursuant to the Approved Stock Plans that are
actually exercisable or convertible at such time at an exercise price or
conversion price that is less than or equal to the

 22
 

per share fair market value of such
underlying shares of Common Stock, but excluding any shares of Common Stock
owned or held by or for the account of the Company or issuable upon conversion
of the Notes or the Other Notes.

(i)                                     “Contingent
Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the
primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect
thereto.

(j)                                     “Convertible Notes” has the meaning ascribed
to such term in the Securities Purchase Agreement, and shall include all notes
issued in exchange thereof or replacement thereof.

(k)                                  “Convertible Securities” means any stock or
securities (other than Options) directly or indirectly convertible into or
exercisable or exchangeable for Common Stock.

(l)                                     “Eligible Market” means The New York Stock
Exchange, Inc., the American Stock Exchange, The NASDAQ Global Select Market,
The NASDAQ Global Market, The NASDAQ Capital Market, or the NASD’s OTC Bulletin
Board.

(m)                                “Excluded
Securities” means any Common
Stock issued or issuable: (i) in connection with any Approved Stock Plan; (ii)
upon conversion of the Series B Notes or Series B Notes or the exercise of the
Series B Warrants or the Series B Warrants; (iii) upon conversion of any
Options or Convertible Securities which are outstanding on the day immediately
preceding the Subscription Date, provided that the terms of such Options or
Convertible Securities are not amended, modified or changed on or after the
Subscription Date; (iv) in connection with mergers, acquisitions, strategic
business partnerships or joint ventures, in each case with non-affiliated third
parties and otherwise on an arm’s-length basis, the primary purpose of which is
not to raise additional capital; (v) upon the issuance of Options or the
exercise of any Options issued to financial institutions in connection with
commercial credit agreements or issuance of non-convertible debt by the
Company, each of which the primary purpose is not to raise additional capital,
(vi) pursuant to a bona fide firm commitment underwritten public offering with
a nationally recognized underwriter that generates gross proceeds to the
Company in excess of $10 million (other than an “at-the-market offering” as
defined in rule 415 under the 1933 Act and “equity lines”), provided that such
underwritten offering is completed at a per share price that is greater than
the applicable Conversion Price, and (vii) securities issued in connection with
corporate partnering transactions or terms approved by the Board of Directors
of the Company and the primary purpose of which is not to raise equity capital.

(n)                                 “Fundamental Transaction” means that the
Company shall, directly or indirectly, in one or more related transactions, (i)
consolidate or merge with or into (whether or not the Company is the surviving
corporation) another Person or Persons, or (ii) sell,

 23
 

assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of the Company
to another Person, or (iii) allow another Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than the 50% of the
outstanding shares of Voting Stock (not including any shares of Voting Stock
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
or (iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than the 50% of the outstanding shares of Voting Stock (not including any
shares of Voting Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party
to, such stock purchase agreement or other business combination), (v)
reorganize, recapitalize or reclassify its Common Stock or (vi) any “person” or
“group” (as these terms are used for purposes of Sections 13(d) and 14(d) of
the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Common Stock.

(o)                                 “GAAP” means United States generally
accepted accounting principles, consistently applied.

(p)                                 “Holder Pro Rata Amount” means a fraction
(i) the numerator of which is the lesser of the Principal amount outstanding as
of the relevant measurement date the Principal amount of this Note on the
Issuance Date and (ii) the denominator of which is the lesser of the aggregate
principal amount of all Notes issued to the initial purchasers pursuant to the
Securities Purchase Agreement on the Issuance Date and the Principal amount
outstanding as of the relevant measuring date of all such Notes.

(q)                                 “Options” means any rights, warrants or
options to subscribe for or purchase shares of Common Stock or Convertible
Securities, other than those issued solely in connection with any acquisition
of any entity or business or equity securities issuable in connection with the
stock option or other employee benefit plans of the Company and is Subsidiaries
and which are exercisable at a price not less than the closing price of the
Company’s Common Stock as reported on the Trading Day immediately preceding the
date of grant.

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

(s)                                  “Permitted Indebtedness” means (A)
Indebtedness incurred by the Company that is made expressly subordinate in
right of payment to the Indebtedness evidenced by this Note, as reflected in a
written agreement acceptable to the Holder and approved by the Holder in
writing, and which Indebtedness does not provide at any time for (1) the
payment, prepayment, repayment, repurchase or defeasance, directly or
indirectly, of any principal or premium, if any, thereon until ninety-one (91)
days after the Maturity Date or later and (2) total interest and fees at a rate
in excess of three percent (3%) over the greater of the

 24
 

Interest Rate
and the rate for U.S. treasury notes with comparable maturity per annum; (B)
Indebtedness existing as of the Issuance Date and set forth in the Schedule of
Exceptions; (C) Indebtedness issued in exchange for, or the net proceeds of
which are used to extend, refund, renew, refinance, defease or replace
Permitted Indebtedness; (D) intercompany Indebtedness among the Company and its
Subsidiaries, provided that if issued by the Company, the intercompany
Indebtedness is subordinated in right of payment to the Notes, provided,
however, that (i) such extension, refund, renewal, refinancing, defeasance or
replacement is pursuant to terms that are not materially less favorable to the
Company and its Subsidiaries than the terms of the Indebtedness being extended,
refinanced or modified and (ii) after giving effect to such extension, refund,
renewal, refinancing, defeasance or replacement, the amount of such
Indebtedness is not greater than the amount of Indebtedness outstanding
immediately prior to such refund, renewal, refinancing, defeasance or
replacement; (E) hedging obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating and/or fixed
rate Permitted Indebtedness; (F) Indebtedness of a Person or business existing
at the time such Person or business was acquired by the Company or any of its
Subsidiaries, provided that such acquisition is not prohibited hereunder and
such Indebtedness was not incurred in contemplation of such acquisition and has
no recourse to the Company’s and its Subsidiaries’ existing assets and
properties; (G) Indebtedness incurred solely in respect of bankers acceptances,
letters of credit and performance bonds (to the extent that such incurrence
does not result in the incurrence of any obligation to repay any obligation
relating to borrowed money or other Indebtedness), all in the ordinary course
of business in amounts and for the purposes customary in the Company’s
industry; (H) Indebtedness incurred in the ordinary course of business by the
Company or its subsidiaries including, without limitation, trade payables,
revolving credit card accounts and similar credit arrangements; and (I)
Indebtedness of the Company or any subsidiary to financial institutions or
similar entities in connection with commercial credit arrangements, equipment financings,
commercial property lease transactions or similar transactions.

(t)                                    “Permitted Liens”
means:

(i)                                     any Lien for
taxes, assessments or governmental charges or claims not yet due or delinquent
or being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP;

(ii)                                  any statutory Lien
arising in the ordinary course of business by operation of law with respect to
a liability that is not yet due or delinquent

(iii)                               any Lien imposed by law
or created by operation of law, including, without limitation, materialmen’s
mechanics’, landlords’, carriers’, warehousemen’s, suppliers’ and vendors’
Liens, Liens for master’s and crew’s wages and other similar Liens, arising in
the ordinary course of business with respect to a liability that is not yet due
or delinquent or that are being contested in good faith by appropriate
proceedings;

(iv)                              Liens incurred or
deposits and pledges made in connection with (1) obligations incurred in
respect of workers’ compensation, unemployment insurance or other forms of
governmental insurance or benefits or legislation, (2) the performance of
letters of credits, bids, tenders, leases, contracts (other than for the
payment of

 25
 

money) and statutory obligations or (3) obligations on surety or appeal
bonds, but only to the extent such deposits or pledges are made or otherwise
arise in the ordinary course of business and secure obligations not past due;

(v)                                 reservations,
exceptions, encroachments, rights-of-way, covenants, conditions, easements,
restrictions and similar encumbrances or charges on real property and minor
irregularities in the title thereto that do not (i) secure obligations for the
payment of money or (ii) materially impair the value of such property or its
use by the Company or any of its Subsidiaries in the normal conduct of such
Person’s business;

(vi)                              Liens securing the
Company’s obligations under the Notes;

(vii)                           Liens in favors of the
Company or any of its Subsidiaries;

(viii)                        Liens on property, shares of
stock or Indebtedness or other assets of a Person existing at the time such
Person is merged with or into or consolidated with the Company or any of its
Subsidiaries or otherwise acquired by the Company or its Subsidiaries, provided
that such merger or consolidation is not prohibited hereunder and such Liens
were not incurred in contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the Company or any of its Subsidiaries;

(ix)                                Liens on property
existing at the time of acquisition thereof by the Company or any of its
Subsidiaries, provided that such acquisition is not prohibited hereunder and
such Liens were not incurred in contemplation of such acquisition and do not extend
to property or assets of the Company or its Subsidiaries existing immediately
prior to such acquisition;

(x)                                   Liens existing on
the date hereof and either (x) described on the Schedule of Exceptions hereto
or (y) with a value of less than $100,000 individually and $500,000 in the
aggregate;

(xi)                                Liens to secure any
extension, renewal, refinancing or refunding (or successive extensions,
renewals, refinancings or refundings), in whole or in part, of any Indebtedness
secured by Liens referred to in the foregoing clauses (ix), (x) and (xii)
hereof; provided that such Liens do not extend to any other property of the
Company or any of its Subsidiaries and the principal amount of the Indebtedness
secured by such Lien is not increased;

(xii)                             judgment Liens not giving
rise to an Event of Default so long as such Liens are adequately bonded and any
appropriate legal proceedings that may have been initiated for the review of
such judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have expired;

(xiii)                          Liens securing hedging
obligations permitted to be incurred pursuant to clause (F) of the definition
of Permitted Indebtedness;

 26
 

(xiv)                         Liens upon specific items of
inventory or other goods and proceeds of any Person securing such Person’s
obligations in respect of banker’s acceptances issued or credited for the
account of such Person to facilitate the purchase, shipment or storage of such
inventory or goods;

(xv)                            Liens securing reimbursement
obligations with respect to commercial letters of credit which encumber
documents and other property relating to such letters of credit and products
and proceeds thereof;

(xvi)                         Liens arising out of
consignment or similar arrangements for the sale of goods in the ordinary
course of business,

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

(xviii)                   Liens on assets leased to the
Company or any of its Subsidiaries if such lease is properly classified as an
operating lease in accordance with GAAP;

(xix)                           Liens with respect to
conditional sale or other title retention agreements and any leases in the
nature thereof, provided any such Lien with respect to conditional sales or
other title retention agreements encumbers only property and accretions thereto
(and proceeds arising from the disposition thereof) which are subject to such
conditional sale or other title retention agreement or lease in the nature
thereof;

(xx)                              leases and subleases of,
and licenses and sub-licenses with respect to, property where the Company or
any of its Subsidiaries is the lessor or licensor (or sublessor or
sublicensor), provided that such leases, subleases, licenses and sublicenses do
not in the aggregate materially interfere with the business of the Company and
its Subsidiaries taken as a whole; and

(xxi)                            Liens securing Indebtedness
permitted to be incurred pursuant to clause (C) and (H) of the definition of
Permitted Indebtedness, provided that such Liens do not extend to any other
property of the Company or its Subsidiaries and the principal amount of the
Indebtedness secured by such Lien is not increased.

(u)                                 “Person” means an individual or legal
entity, including but not limited to a corporation, a limited liability
company, a partnership, a joint venture, a trust, an unincorporated
organization and a government or any department or agency thereof.

(v)                                 “Principal Market” means the NASD OTC
Bulletin Board.

(w)                               “Redemption Notices” means, collectively,
the Trigger Event Redemption Notices and the Change of Control Redemption
Notices, each of the foregoing, individually, a Redemption Notice.

 27
 

(x)                                   “Redemption Premium” means (i) in the case
of the Trigger Events described in Section 4(a)(i) - (vi) and (ix) - (xii),
125% during the first twelve months that this Note is outstanding and 115%
thereafter or (ii) in the case of the Trigger Events described in Section
4(a)(vii) - (viii), 100%.

(y)                                 “Redemption Prices” means, collectively, the
Trigger Event Redemption Price and the Change of Control Redemption Price, each
of the foregoing, individually, a Redemption Price.

(z)                                    “Required Holders” means, in the event that
there remains fifteen percent (15%) or more of the original dollar amount of
the Notes issued still outstanding, holders of Notes representing at least
fifty percent (50%) of the aggregate principal amount of the Notes then
outstanding.

(aa)                            “SEC” means the United States Securities and
Exchange Commission.

(bb)  “Securities
Purchase Agreement” means that certain securities purchase agreement
dated as of the Subscription Date by and among the Company and the initial
holders of the Notes pursuant to which the Company issued the Notes and the
Warrants.

(cc)                            “Subscription Date” means September __,
2007.

(dd)                          “Subsidiary” means any entity in which the
Company, directly or indirectly, owns any of the capital stock or holds an
equity or similar interest.

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

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

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

 28
 

(hh)                          “Warrants” has the meaning ascribed to such
term in the Securities Purchase Agreement, and shall include all warrants
issued in exchange therefor or replacement thereof.

(ii)                                  Weighted Average Price” means, for any security as of any
date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00:00 p.m., New York Time (or such other time as
the Principal Market publicly announces is the official close of trading) as
reported by Bloomberg through its “Volume at Price” functions, or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as such market publicly announces is the official open of trading),
and ending at 4:00:00 p.m., New York Time (or such other time as such market
publicly announces is the official close of trading) as reported by Bloomberg,
or, if no dollar volume-weighted average price is reported for such security by
Bloomberg for such hours, the average of the highest closing bid price and the
lowest closing ask price of any of the market makers for such security as
reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.).  If the Weighted
Average Price cannot be calculated for a security on a particular date on any
of the foregoing bases, the Weighted Average Price of such security on such
date shall be the fair market value as mutually determined by the Company and
the Holder.  If the Company and the
Holder are unable to agree upon the fair market value of such security, then
such dispute shall be resolved pursuant to Section 22.  All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.

(28)                            DISCLOSURE. Upon receipt or delivery by the
Company of any notice in accordance with the terms of this Note, unless the
Company has in good faith determined that the matters relating to such notice
do not constitute material, nonpublic information relating to the Company or
its Subsidiaries, the Company shall comply with the disclosure requirements
under the U.S. federal securities laws.

[Signature
Page Follows]

 

 29

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

	
   

  	
  OPEN ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David
  Saltman

  
	
   

  	
   

  	
  Name: David
  Saltman

  
	
   

  	
   

  	
  Title: Chief
  Executive Officer

  

 

EXHIBIT I

OPEN ENERGY CORPORATION

CONVERSION NOTICE

Reference is made to the Series B Convertible Note (the “Series B  Note”) issued
to the undersigned by OPEN ENERGY CORPORATION (the “Company”).  In accordance with and pursuant to the Note,
the undersigned hereby elects to convert the Conversion Amount (as defined in
the Note) of the Note indicated below into shares of Common Stock par value
$0.001 per share (the “Common Stock”)
of the Company, as of the date specified below.

	
  Date of Conversion:

  	
   

  
	
   

  	
   

  
	
  Aggregate Conversion Amount to be converted:

  	
   

  
	
   

  	
   

  
	
  Please confirm
  the following information:

  	
   

  
	
   

  	
   

  
	
  Conversion Price:

  	
   

  
	
   

  	
   

  
	
  Number of shares of Common Stock to be issued:

  	
   

  
	
   

  	
   

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

  	
   

  
	
   

  	
   

  
	
  Issue to:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Facsimile Number:

  	
   

  
	
   

  	
   

  
	
  Authorization:

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  
	
   

  	
   

  
	
  Account Number:

  	
   

  
	
   (if electronic book entry
  transfer)

  	
   

  
	
   

  	
   

  
	
  Transaction Code Number:

  	
   

  
	
   (if electronic book entry
  transfer)

  	
   

  

 

ACKNOWLEDGMENT

The Company hereby
acknowledges this Conversion Notice and hereby directs Madison Stock Transfer,
Inc. to issue the above-indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated [      ],
2007 from the Company and acknowledged and agreed to by Madison Stock Transfer,
Inc.

	
   

  	
  OPEN ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 2Exhibit
4.3

SERIES B
WARRANT

NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS.  THE SECURITIES
HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD
RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN
THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
THE SECURITIES.

OPEN ENERGY CORPORATION

SERIES B WARRANT TO PURCHASE
COMMON STOCK

Warrant No.:
0709-1

Number of Shares
of Common Stock: 40,000,000

Date of Issuance: September 19, 2007 (“Issuance Date”)

Open Energy Corporation,
a Nevada corporation (the “Company”),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, The Quercus Trust, the registered
holder hereof or its permitted assigns (the “Holder”),
is entitled, subject to the terms set forth below, to purchase from the
Company, at the Exercise Price (as defined below) then in effect, upon
surrender of this Series B Warrant to Purchase Common Stock (including any
Warrants to purchase Common Stock issued in exchange, transfer or replacement
hereof, the “Warrant”), at any
time or times on or after the date hereof, but not after 11:59 p.m., New York
time, on the Expiration Date (as defined below), Forty Million (40,000,000)
fully paid nonassessable shares of Common Stock (as defined below)  (the “Warrant
Shares”).  Except as otherwise
defined herein, capitalized terms in this Warrant shall have the meanings set
forth in Section 15.  This Series B
Warrant is one of the series of Warrants to purchase Common Stock issued
pursuant to Section 1 of that certain Securities Purchase Agreement, dated as
of September 19, 2007 (the “Subscription Date”),
by and among the Company and the investors (the “Buyers”) referred to therein (the “Securities Purchase Agreement”).

1.               EXERCISE
OF WARRANT.

(a)          Mechanics of Exercise.  Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)),
this Warrant may be exercised by the Holder on any day on or after the date
hereof, in whole or in part, by (i) delivery of a written notice, in the
form attached hereto as Exhibit A (the “Exercise
Notice”), of the Holder’s election to exercise this Warrant and
(ii) (A) payment to the Company of an amount equal to the applicable
Exercise Price multiplied by the number of Warrant Shares as to which this
Warrant is being exercised (the “Aggregate Exercise Price”)
in cash or by wire transfer of immediately available funds or (B) by notifying
the Company that this Warrant is being exercised pursuant to a Cashless
Exercise (as defined in Section 1(d)). 
The Holder shall not be required to deliver the original Warrant in
order to effect an exercise hereunder. 
Execution and delivery of the Exercise Notice with respect to less than
all of the Warrant Shares shall have the same effect as cancellation of the
original Warrant and issuance of a new Warrant evidencing the right to purchase
the remaining number of Warrant Shares. 
On or before the second (2nd)
Business Day following the date on which the Company has received each of the
Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless
Exercise) (the “Exercise Delivery Documents”), the
Company shall transmit by facsimile an acknowledgment of confirmation of
receipt of the Exercise Delivery Documents to the Holder and the Company’s
transfer agent (the “Transfer Agent”).  On or before the third (3rd) Business Day following the date on
which the Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the Company shall (X) provided that
the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the
request of the Holder, credit such aggregate number of shares of Common Stock
to which the Holder is entitled pursuant to such exercise to the Holder’s or
its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission
system, which balance account shall be specified in the Exercise Notice, or (Y)
if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company’s
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise. Upon delivery of the Exercise Notice and Aggregate Exercise Price
referred to in clause (ii)(A) above or notification to the Company of a
Cashless Exercise referred to in Section 1(d), the Holder shall be deemed for
all corporate purposes to have become the holder of record of the Warrant
Shares with respect to which this Warrant has been exercised, irrespective of
the date of delivery of the certificates evidencing such Warrant Shares.  If this Warrant is submitted in connection
with any exercise pursuant to this Section 1(a) and the number of Warrant
Shares represented by this Warrant submitted for exercise is greater than the
number of Warrant Shares being acquired upon an exercise, then the Company
shall as soon as practicable and in no event later than five (5) Business Days
after any exercise and at its own expense, issue a new Warrant (in accordance
with Section 7(d)) representing the right to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant, less
the number of Warrant Shares with respect to which this Warrant is
exercised.  No fractional shares of
Common Stock are to be issued upon the exercise of this Warrant, but rather the
number of shares of Common Stock to be issued shall be rounded up to the
nearest whole number.  The Company shall
pay any and all taxes which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant.

 2
 

(b)         Exercise Price.  For purposes of this Warrant, “Exercise Price” means $0.506 per share, subject to adjustment
as provided herein.

(c)          Company’s Failure to
Timely Deliver Securities. Upon the Company’s receipt of an Exercise Notice
or request for removal of restrictive legends on the shares of Common Stock
issuable in connection therewith, the Company will deliver, or cause to be
delivered, the certificates evidencing such shares of Common Stock to the
Holder within three (3) Trading Days.  If
such delivery is made more than two
(2) additional Trading Days after exercise or request for removal of
legend, as the case may be, then the Company will compensate the Holder at a
rate of $100 per day for each of the first ten (10) Trading Days and $200 per
day thereafter for each $10,000 of securities. 
In such event, after the first such ten (10) Trading Days noted above,
the Holder will also have the right to rescind its Exercise Notice for the
Warrants.  If the certificates have not
been delivered by the fifth (5th)
Trading Day after conversion or request for removal of legend, as the case may
be, and the Holder has purchased (in an open market transaction or otherwise)
Common Stock to deliver in satisfaction of a sale by the Holder of Common Stock
issuable upon such conversion that the Holder anticipated receiving from the
Company (a “Buy-In”), then the Company shall,
within three (3) Trading Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions and other
out-of-pocket expenses, if any) for the shares of Common Stock so purchased
(the “Buy-In Price”), at which point the
Company’s obligation to deliver such certificate (and to issue such Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Common Stock and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock, times (B)
the Closing Bid Price on the Conversion Date.

(d)         Cashless Exercise.
 Notwithstanding
anything contained herein to the contrary, if at any time after the twelve (12)
month anniversary of the Issuance Date, a Registration Statement (as defined in
the Registration Rights Agreement) covering the Warrant Shares that are the
subject of an Exercise Notice (the “Unavailable Warrant Shares”)
is not available for the resale of such Unavailable Warrant Shares, the Holder
may, in its sole discretion, exercise this Warrant in whole or in part and, in
lieu of making the cash payment otherwise contemplated to be made to the
Company upon such exercise in payment of the Aggregate Exercise Price, elect
instead to receive upon such exercise the “Net Number” of shares of Common
Stock determined according to the following formula (a “Cashless
Exercise”):

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

B

For purposes of
the foregoing formula:

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

 3
 

B= the arithmetic average
of the Weighted Average Prices of the shares of Common Stock (as reported by
Bloomberg) for the five (5) consecutive Trading Days ending on the date
immediately preceding the date of the Exercise Notice.

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

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

(f)            Limitations on
Exercise.

(i)                                                       Principal
Market Regulation.  The Company shall
not be obligated to issue any shares of Common Stock upon exercise of this
Warrant or conversion of SPA Notes and no Buyer shall be entitled to receive
any shares of Common Stock if the issuance of such shares of Common Stock would
exceed that number of shares of Common Stock which the Company may issue upon
exercise or conversion, as applicable, of the SPA Warrants and SPA Notes or
otherwise without breaching the Company’s obligations under the rules or
regulations of any applicable Eligible Market (the “Exchange Cap”),
except that such limitation shall not apply in the event that the Company (A)
obtains the approval of its stockholders as required by the applicable rules of
the Eligible Market for issuances of shares of Common Stock in excess of such
amount or (B) obtains a written opinion from outside counsel to the Company
that such approval is not required, which opinion shall be reasonably
satisfactory to the Required Holders. 
Until such approval or written opinion is obtained, no Buyer shall be
issued in the aggregate, upon exercise or conversion, as applicable, of any SPA
Warrants or SPA Notes, shares of Common Stock in an amount greater than the
product of the Exchange Cap multiplied by a fraction, the numerator of which is
the total number of shares of Common Stock underlying the SPA Warrants issued
to such Buyer pursuant to the Securities Purchase Agreement on the Issuance
Date and the denominator of which is the aggregate number of shares of Common
Stock underlying the SPA Warrants issued to the Buyers pursuant to the
Securities Purchase Agreement (with respect to each Buyer, the “Exchange Cap Allocation”). 
In the event that any Buyer shall sell or otherwise transfer any of such
Buyer’s SPA Warrants, the transferee shall be allocated a pro rata portion of
such Buyer’s Exchange Cap Allocation, and the restrictions of the prior
sentence shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee.  In the event that any holder of SPA Warrants
shall exercise all of such holder’s SPA Warrants into a number of shares of
Common Stock which, in the aggregate, is less than such holder’s Exchange Cap
Allocation, then the difference between such holder’s Exchange Cap Allocation
and the number of shares of Common Stock actually issued to such holder shall
be allocated to the respective Exchange Cap Allocations of the remaining
holders of SPA Warrants on a pro rata basis in proportion to the shares of
Common Stock underlying the SPA Warrants then held by each such holder.  In the event that the Company is prohibited
from issuing any Warrant Shares for which an Exercise Notice has been received
as a result of the operation of this Section 1(f)(2), the Company shall pay
cash in exchange for cancellation of such Warrant Shares, at a price per
Warrant Share equal to the difference between the Weighted Average Price and
the Exercise Price as of the date of the attempted exercise.

 4
 

(g)                                 Insufficient
Authorized Shares.  If at any time
while any of the Warrants remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common Stock (an “Authorized
Share Failure”) to
satisfy its obligation to reserve for issuance upon exercise of the Warrants no
less than 120% of the number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of all of the Warrants then outstanding
(the “Required Reserve Amount”), then the Company shall
immediately take all action necessary to increase the Company’s authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount for the Warrants then outstanding.  Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than sixty (60) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock.  In
connection with such meeting, the Company shall provide each stockholder with a
proxy statement and shall use its best efforts to solicit its stockholders’
approval of such increase in authorized shares of Common Stock and to cause its
board of directors to recommend to the stockholders that they approve such
proposal.

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

(a)          Adjustment upon
Issuance of shares of Common Stock. 
If the Company issues or sells, or in accordance with this Section 2 is deemed
to have issued or sold, any shares of Common Stock (including the issuance or
sale of shares of Common Stock owned or held by or for the account of the
Company, but excluding shares of Common Stock deemed to have been issued by the
Company in connection with any Excluded Securities (as defined in the SPA
Notes) for a consideration per share (the “New Issuance Price”)
less than a price (the “Applicable Price”)
equal to the Exercise Price in effect immediately prior to such issue or sale
or deemed issuance or sale (the foregoing a “Dilutive
Issuance”), then immediately after such Dilutive Issuance, the
Exercise Price then in effect shall be reduced to an amount equal to the New
Issuance Price.  Upon each such
adjustment of the Exercise Price hereunder, the number of Warrant Shares shall
be adjusted to the number of shares of Common Stock determined by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares acquirable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.  For
purposes of determining the adjusted Exercise Price under this Section 2(a),
the following shall be applicable:

(i)                                     Issuance of Options.  If the Company grants any Options (except in
connection with the issuance of any Excluded Securities) and the lowest price
per share for which one share of Common Stock is issuable upon the exercise of
any such Option or upon conversion, exercise or exchange of any Convertible
Securities issuable upon exercise of any such Option is less than the
Applicable Price, then such share of Common Stock shall be 

 5
 

deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such price per
share.  For purposes of this Section
2(a)(i), the “lowest price per share for which one share of Common Stock is
issuable upon exercise of such Options or upon conversion, exercise or exchange
of such Convertible Securities” shall be equal to the sum of the lowest amounts
of consideration (if any) received or receivable by the Company with respect to
any one share of Common Stock upon the granting or sale of the Option, upon
exercise of the Option and upon conversion, exercise or exchange of any
Convertible Security issuable upon exercise of such Option.  No further adjustment of the Exercise Price
or number of Warrant Shares shall be made upon the actual issuance of such shares
of Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.

(ii)                                  Issuance
of Convertible Securities.  If the
Company in any manner issues or sells any Convertible Securities (except in
connection with the issuance of any Excluded Securities) and the lowest price
per share for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the issuance or sale of such Convertible
Securities for such price per share.  For
the purposes of this Section 2(a)(ii), the “lowest price per share for which
one share of Common Stock is issuable upon the conversion, exercise or
exchange” shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to one share of Common
Stock upon the issuance or sale of the Convertible Security and upon
conversion, exercise or exchange of such Convertible Security.  No further adjustment of the Exercise Price
or number of Warrant Shares shall be made upon the actual issuance of such
shares of Common Stock upon conversion, exercise or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of this
Warrant has been or is to be made pursuant to other provisions of this Section
2(a), no further adjustment of the Exercise Price or number of Warrant Shares
shall be made by reason of such issue or sale.

(iii)                               Change
in Option Price or Rate of Conversion. 
If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exercise or exchange
of any Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time (except in each case in connection with the
issuance of any Excluded Securities), the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or 

 6
 

decrease shall
be adjusted to the Exercise Price and the number of Warrant Shares which would
have been in effect at such time had such Options or Convertible Securities
provided for such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the case may be, at
the time initially granted, issued or sold. 
For purposes of this Section 2(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the date of issuance of this
Warrant are increased or decreased in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the shares of
Common Stock deemed issuable upon exercise, conversion or exchange thereof
shall be deemed to have been issued as of the date of such increase or
decrease.  No adjustment pursuant to this
Section 2(a) shall be made if such adjustment would result in an increase of
the Exercise Price then in effect or a decrease in the number of Warrant
Shares.

(iv)                              Calculation
of Consideration Received.  In case
any Option is issued in connection with the issue or sale of other securities
of the Company, together comprising one integrated transaction (except in
connection with the issuance of any Excluded Securities), the Options will be
deemed to have been issued for the difference of (x) the aggregate fair market
value of such Options and other securities issued or sold in such integrated
transaction, less (y) the fair market value of the securities other than such
Option, issued or sold in such transaction and the other securities issued or
sold in such integrated transaction will be deemed to have been issued or sold
for the balance of the consideration received by the Company.  If any shares of Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
amount received by the Company therefor. 
If any shares of Common Stock, Options or Convertible Securities are
issued or sold for a consideration other than cash, the amount of such
consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the Weighted
Average Price of such security on the date of receipt.  If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or Convertible Securities,
as the case may be.  The fair value of
any consideration other than cash or securities will be determined in good
faith by the Board of Directors of the Company within five (5) days after the
occurrence of an event requiring valuation. 
If the Required Holders disagree with the determination of the Board of
Directors and give written notice of such disagreement to the Company within
ten (10) 

 7
 

days after the
occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will
be determined within five (5) Business Days after the tenth day following the
Valuation Event by an independent, reputable appraiser jointly selected by the
Company and the Required Holders.  The determination
of such appraiser shall be final and binding upon all parties absent manifest
error and the fees and expenses of such appraiser shall be borne by the
Company.

(v)                                 Record
Date.  If the Company takes a record
of the holders of shares of Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in shares of Common Stock,
Options or in Convertible Securities or (B) to subscribe for or purchase
shares of Common Stock, Options or Convertible Securities, then such record
date will be deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.

(b)         Adjustment upon
Subdivision or Combination of Common Stock. 
If the Company at any time on or after the Subscription Date subdivides
(by any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be
proportionately increased.  If the
Company combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination will
be proportionately increased and the number of Warrant Shares will be
proportionately decreased.  Any
adjustment under this Section 2(b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.

(c)          Minimum Adjustment.  No adjustment in the Exercise Price and the
number of Warrants shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Exercise Price as last adjusted; provided,
however, that any adjustments which would be required to be made but for
this Section 2(c) shall be carried forward and taken into account in any
subsequent adjustment.  All calculations
under this Section 2 shall be made to the nearest cent, with one half cent
being rounded upward.

(d)         Floor Price.  If the Company’s Common Stock is listed on
either the NYSE, AMEX or NASDAQ Stock Market, and such market requires
stockholder approval to adjust the Exercise Price in accordance with this
Section 2, then, until such time as the Company receives any required
stockholder approval, no adjustment pursuant to Section 2(a) shall cause the
Exercise Price to be less than the closing bid price of the Common Stock on the
date immediately prior to the date of the Securities Purchase Agreement, as
adjusted for any stock dividend, stock split, stock combination,
reclassification or similar transaction.

 8
 

3.               RIGHTS
UPON DISTRIBUTION OF ASSETS.  If the
Company shall declare or make any dividend or other distribution of its assets
(or rights to acquire its assets) to holders of all or substantially all of its
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities not
addressed by Section 2 above, property or options not addressed by Section 2
above by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the
issuance of this Warrant, then, in each such case:

(a)          any Exercise Price in
effect immediately prior to the close of business on the record date fixed for
the determination of holders of shares of Common Stock entitled to receive the
Distribution shall be reduced, effective as of the close of business on such
record date, to a price determined by multiplying such Exercise Price by a
fraction of which (i) the numerator shall be the Weighted Average Price of a
share of Common Stock on the Trading Day immediately preceding such record date
minus the value of the Distribution (as determined in good faith by the Company’s
Board of Directors) applicable to one share of shares of Common Stock, and (ii)
the denominator shall be the Weighted Average Price of a share of Common Stock
on the Trading Day immediately preceding such record date; or

(b)         the number of Warrant Shares
shall be increased to a number of shares equal to the number of shares of
Common Stock obtainable immediately prior to the close of business on the
record date fixed for the determination of holders of shares of Common Stock
entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding paragraph (a); provided that in
the event that the Distribution is of shares of Common Stock (or common stock)
(“Other Shares of Common Stock”) of a
company whose common shares are traded on a national securities exchange or a
national automated quotation system, then the Holder may elect to receive a
warrant to purchase Other Shares of Common Stock in lieu of an increase in the
number of Warrant Shares, the terms of which shall be identical to those of
this Warrant, except that such warrant shall be exercisable into the number of
shares of Other Shares of Common Stock that would have been payable to the
Holder pursuant to the Distribution had the Holder exercised this Warrant
immediately prior to such record date and with an aggregate exercise price
equal to the product of the amount by which the exercise price of this Warrant
was decreased with respect to the Distribution pursuant to the terms of the
immediately preceding paragraph (a) and the number of Warrant Shares calculated
in accordance with the first part of this paragraph (b).

4.               PURCHASE
RIGHTS; FUNDAMENTAL TRANSACTIONS.

(a)          Purchase Rights.  In addition to any adjustments pursuant to
Section 2 above, during the term hereof, the Company grants, issues or sells
any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to all or substantially all of the record
holders of any class of shares of Common Stock (the “Purchase
Rights”), then, upon exercise of this Warrant, the Holder will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights, in lieu of any adjustments to which the Holder is
otherwise entitled under Section 2 above in respect of such Purchase Right,
which the Holder could have acquired if the Holder had held the proportionate
number of shares of Common Stock acquirable upon exercise of this Warrant
(without regard to 

 9
 

any limitations on the exercise of this
Warrant) immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of shares of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.  Notwithstanding any provision of
this Section 6(a) to the contrary, in the event that the Weighted Average Price
of the Common Stock equals or exceeds 150% of the applicable Exercise Price for
each of the twenty (20) consecutive Trading Days immediately preceding a
Purchase Right Date and the Company’s Common Stock has traded an average of at
least 600,000 shares per day during each of such twenty consecutive Trading
Days, then this Section 6(a) shall not apply to such Purchase Right.

(b)         Fundamental Transactions.  The
Company shall not enter into or be party to a Fundamental Transaction unless
(i) the Successor Entity assumes in writing all of the obligations of the
Company under this Warrant and the other Transaction Documents in accordance
with the provisions of this Section 4(b) pursuant to written agreements in
form and substance reasonably satisfactory to the Required Holders and approved
by the Required Holders prior to such Fundamental Transaction, including
agreements to deliver to each holder of Warrants in exchange for such Warrants a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant, including, without limitation, an adjusted
exercise price equal to the value for the shares of Common Stock reflected by
the terms of such Fundamental Transaction, and exercisable for a corresponding
number of shares of capital stock equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) prior to such Fundamental
Transaction, and reasonably satisfactory to the Required Holders and (ii)
the Successor Entity (including its Parent Entity) is a publicly traded
corporation whose common stock is quoted on or listed for trading on an
Eligible Market and
has “Substantially Similar Trading Characteristics” (as defined below) as the
Company.  For purposes hereof, an entity
shall have Substantially Similar Trading Characteristics as the Company if the
average daily dollar trading volume of the common stock of such entity is equal
to or in excess of $500,000 for the 60th through the 16th day prior to the
public announcement of such transaction. 
Upon the occurrence of any Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after the effective
date of such Fundamental Transaction, the provisions of this Warrant referring
to the “Company” shall refer instead to the Successor Entity), and may exercise
every right and power of the Company and shall assume all of the obligations of
the Company under this Warrant with the same effect as if such Successor Entity
had been named as the Company herein.  Upon consummation of the Fundamental
Transaction, the Successor Entity shall deliver to the Holder confirmation that
there shall be issued upon exercise of this Warrant at any time after
the consummation of the Fundamental Transaction, in lieu of the shares of the
Common Stock (or other securities, cash, assets or other property) issuable upon the exercise of the Warrant prior to
such Fundamental Transaction, such shares of stock, securities, cash, assets or
any other property whatsoever (including warrants or other purchase or
subscription rights) which the Holder would have been entitled to receive upon
the happening of such Fundamental Transaction had this Warrant been converted
immediately prior to such Fundamental Transaction, as adjusted in accordance with
the provisions of this Warrant.  In
addition to and not in substitution for any other rights hereunder, prior to
the consummation of any Fundamental Transaction pursuant to which holders of
shares of Common Stock are entitled to receive securities or other assets with
respect to or in exchange for shares of Common Stock (a “Corporate
Event”), the Company shall make appropriate provision to insure that
the Holder 

 10
 

will thereafter have the right to receive
upon an exercise of this Warrant at any time
after the consummation of the Fundamental Transaction but prior to the
Expiration Date, in lieu of the shares of the
Common Stock (or other securities, cash, assets or other property) issuable upon the exercise of this Warrant prior to
such Fundamental Transaction, such
shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder
would have been entitled to receive upon the happening of such Fundamental
Transaction had this Warrant been exercised immediately prior to such
Fundamental Transaction.  Provision
made pursuant to the preceding sentence shall be in a form and substance
reasonably satisfactory to the Required Holders.  The provisions of this Section shall apply similarly
and equally to successive Fundamental Transactions and Corporate Events and
shall be applied without regard to any limitations on the exercise of this Warrant.

(c)           Not later than ten (10)
days prior to the consummation of a Fundamental Transaction, but not prior to
the public announcement of such Fundamental Transaction, the Company shall
deliver written notice thereof via facsimile to the Holder (a “Fundamental Transaction Notice”).  Notwithstanding the foregoing, in the event
of a Fundamental Transaction in which a Successor Entity that is a publicly
traded corporation whose stock is quoted or listed for trading on an Eligible
Market does not assume this Warrant such that the Warrant shall be exercisable
for the publicly traded Common Stock of such Successor Entity, then, at the
request of the Holder, delivered anytime before the 90th day after such
Fundamental Transaction, the Company
(or the Successor Entity) shall purchase this Warrant from the Holder by
paying to the Holder, within five Business Days after such request (or, if
later, on the effective date of the Fundamental Transaction), cash in an amount
equal to the Black Scholes Value of the remaining unexercised portion of this
Warrant on the date of such Fundamental Transaction.

5.               NONCIRCUMVENTION.  The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any other
voluntary action, solely with the intention of so doing, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, and will at
all times in good faith carry out all the provisions of this Warrant and take
all action as may be required to protect the rights of the Holder.  Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares
of Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (ii) shall take all such actions as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock upon the exercise of this
Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding
take all action necessary to reserve and keep available out of its authorized
and unissued shares of Common Stock, solely for the purpose of effecting the
exercise of the SPA Warrants, 120% of the number of shares of Common Stock as
shall from time to time be necessary to effect the exercise of the SPA Warrants
then outstanding (without regard to any limitations on exercise).

6.               WARRANT
HOLDER NOT DEEMED A STOCKHOLDER. 
Except as otherwise specifically provided herein, the Holder, solely in
such Person’s capacity as a holder of this Warrant, shall not be entitled to
vote or receive dividends or be deemed the holder of share capital of the
Company for any purpose, nor shall anything contained in this Warrant be 

 11
 

construed to confer upon the Holder, solely in such Person’s capacity
as the Holder of this Warrant, any of the rights of a stockholder of the
Company or any right to vote, give or withhold consent to any corporate action
(whether any reorganization, issue of stock, reclassification of stock,
consolidation, merger, conveyance or otherwise), receive notice of meetings,
receive dividends or subscription rights, or otherwise, prior to the issuance
to the Holder of the Warrant Shares which such Person is then entitled to
receive upon the due exercise of this Warrant. 
In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on the Holder to purchase any securities (upon exercise
of this Warrant or otherwise) or as a stockholder of the Company.  Notwithstanding this Section 6, the Company
shall provide the Holder with copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously with the
giving thereof to the stockholders.

7.               REISSUANCE
OF WARRANTS.

(a)          Transfer of Warrant.  If this Warrant is to be transferred, the
Holder shall surrender this Warrant to the Company together with an opinion
from Holder’s counsel, satisfactory to the Company and its counsel, that such
transfer complies with the requirements of all applicable federal and state
securities laws, whereupon the Company will forthwith issue and deliver upon
the order of the Holder a new Warrant (in accordance with Section 7(d)),
registered as the Holder may request, representing the right to purchase the
number of Warrant Shares being transferred by the Holder and, if less then the
total number of Warrant Shares then underlying this Warrant is being
transferred, a new Warrant (in accordance with Section 7(d)) to the Holder
representing the right to purchase the number of Warrant Shares not being
transferred.

(b)         Lost, Stolen or
Mutilated Warrant.  Upon receipt by
the Company of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant, and, in the case of loss,
theft or destruction, of any indemnification undertaking by the Holder to the
Company in customary form and, in the case of mutilation, upon surrender and
cancellation of this Warrant, the Company shall execute and deliver to the
Holder a new Warrant (in accordance with Section 7(d)) representing the right
to purchase the Warrant Shares then underlying this Warrant.

(c)          Exchangeable for
Multiple Warrants.  This Warrant is
exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant
Shares then underlying this Warrant, and each such new Warrant will represent
the right to purchase such portion of such Warrant Shares as is designated by
the Holder at the time of such surrender; provided, however, that no Warrants
for fractional shares of Common Stock shall be given.

(d)         Issuance of New Warrants.  Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall
be of like tenor with this Warrant, (ii) shall represent, as indicated on the
face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other 

 12
 

new Warrants issued in connection with such
issuance, does not exceed the number of Warrant Shares then underlying this
Warrant), (iii) shall have an issuance date, as indicated on the face of such
new Warrant which is the same as the Issuance Date, and (iv) shall have the
same rights and conditions as this Warrant.

8.               NOTICES.  Whenever notice is required to be given under
this Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement.  The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason therefore.  Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) promptly
after any adjustment of the Exercise Price, setting forth in reasonable detail
and certifying the calculation of such adjustment and (ii) at least ten (10)
days prior to the date on which the Company closes its books or takes a record
(A) with respect to any dividend or distribution upon the shares of Common
Stock, (B) with respect to any grants, issuances or sales of any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property to all holders of shares of Common Stock or (C) for determining
rights to vote with respect to any Fundamental Transaction, dissolution or
liquidation, provided in each case that such information shall be made known to
the public prior to or in conjunction with such notice being provided to the
Holder.

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

10.         GOVERNING LAW.  This Warrant shall be governed by and
construed and enforced in accor­dance with, and all questions concerning the
construction, validity, interpretation and performance of this Warrant shall be
governed by, the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.  The
Company hereby irrevocably submits to the exclusive jurisdiction of the state
and federal courts sitting in The City of New York, Borough of Manhattan, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by law.  In the event that any provision of this Warrant
is invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law.  Any such provision which may prove
invalid or unenforceable under any law shall not affect the validity or
enforceability of any other provision 

 13
 

of this Warrant.  Nothing
contained herein shall be deemed or operate to preclude the Holder from
bringing suit or taking other legal action against the Company in any other
jurisdiction to collect on the Company’s obligations to the Holder, to realize
on any collateral or any other security for such obligations, or to enforce a
judgment or other court ruling in favor of the Holder.  THE COMPANY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

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

12.         DISPUTE
RESOLUTION.  In the case of a dispute
as to the determination of the Exercise Price, the determination of the occurrence of
a Dilutive Issuance which would trigger a reset of the Exercise Price,
the arithmetic calculation of the Warrant Shares, or the determination of the Company entering into a transaction
that would violate any of the Additional Issuance Restrictions (as defined in
the Securities Purchase Agreement), the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
Business Days of receipt of the Exercise Notice giving rise to such dispute, as
the case may be, to the Holder.  If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three Business
Days of such disputed determination or arithmetic calculation being submitted
to the Holder, then the Company shall, within two Business Days submit via facsimile
(a) the disputed determination of the Exercise Price to an independent,
reputable investment bank (which
is ranked in the top 10 investment banks nationally, by revenue) selected
by the Company and approved by the Holder, or (b) a copy of the disputed agreement
or other documentation pursuant to which the Holder believes securities may be
issued pursuant to an Equity Line or as Variable Equity Securities, or which
Holder believes may be a Dilutive Issuance which would trigger a reset of the
Conversion Price, or
which Holder believes may violate the Additional Issuance Restrictions, to an
independent law firm selected by the Company and approved by Holder, or (c) the disputed arithmetic
calculation of the Warrant Shares to the Company’s independent, outside
accountant
(which is ranked
in the top 10 accounting firms nationally, by revenue).  The Company shall use its reasonable efforts
to cause at its expense the investment bank, law firm or the accountant, as the
case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than ten Business Days from the
time it receives the disputed determinations or calculations.  Such investment bank’s, law firm’s or accountant’s
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.  The procedures required by this Section 12
are collectively referred to herein as the “Dispute Resolution Procedures.”

13.         REMEDIES, OTHER
OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Warrant shall
be cumulative and in addition to all other remedies available under this
Warrant and the other Transaction Documents, at law or in equity (including a
decree of specific performance and/or other injunctive relief), and nothing
herein 

 14
 

shall limit the
right of the Holder right to pursue actual damages for any failure by the
Company to comply with the terms of this Warrant.  The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Holder and that
the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the
event of any such breach or threatened breach, specifically including but not
limited to the Company’s failure to adjust the Exercise Price as required
hereunder following a Dilutive Issuance, the holder of this Warrant
shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.

14.         TRANSFER.  This Warrant may be offered for sale, sold,
transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement.

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

(a)          “Black Scholes Value” means the value of
this Warrant based on the Black and Scholes Option Pricing Model obtained from
the “OV” function on Bloomberg determined as of the day immediately following
the public announcement of the applicable Fundamental Transaction and
reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury
rate for a period equal to the remaining term of this Warrant as of such date
of request and (ii) an expected volatility equal to the greater of 80% and the
100 day volatility obtained from the HVT function on Bloomberg.

(b)         “Bloomberg”
means Bloomberg Financial Markets.

(c)          “Business Day”
means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain
closed.

(d)         “Common Stock”
means (i) the Company’s shares of Common Stock, par value $0.001 per
share, and (ii) any share capital into which such Common Stock shall have
been changed or any share capital resulting from a reclassification of such
Common Stock.

(e)          “Common
Stock Deemed Outstanding” means, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 2(a)(i)
and 2(a)(ii) hereof regardless of whether the Options or Convertible Securities
are actually exercisable at such time, but excluding any shares of Common Stock
owned or held by or for the account of the Company or issuable upon exercise of
the SPA Warrants.

(f)            “Convertible
Securities” means any stock or securities (other than Options)
directly or indirectly convertible into or exercisable or exchangeable at the
option of the holder thereof for shares of Common Stock.

 15
 

(g)         “Eligible
Market” means the Principal Market, The New York Stock Exchange,
Inc., the American Stock Exchange, The NASDAQ Global Market, The NASDAQ Global
Select Market, the NASDAQ Capital Market or the NASD’s OTC Bulletin Board.

(h)         “Expiration
Date” means the date eighty four (84) months after the Initial
Closing Date under the terms of the Securities Purchase Agreement or, if such
date falls on a day other than a Business Day or on which trading does not take
place on the Principal Market (a “Holiday”), the
next date that is not a Holiday.

(i)             “Fundamental
Transaction” means that the Company shall, directly or indirectly, in one or more related transactions, (i)
consolidate or merge with or into (whether or not the Company is the surviving
corporation) another Person, or (ii) sell, assign, transfer, convey or
otherwise dispose of all or substantially all of the properties or assets of
the Company to another Person, or (iii) allow another Person to make a
purchase, tender or exchange offer that is accepted by the holders of more than
the 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another
Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock
(not including any shares of Common Stock held by the other Person or other
Persons making or party to, or associated or affiliated with the other Persons
making or party to, such stock purchase agreement or other business
combination), (v) reorganize,
recapitalize or reclassify its Common Stock, or (vi) any
“person” or “group” (as these terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act) is or shall become the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50%
of the aggregate ordinary voting power represented by issued and outstanding Common
Stock.

(j)             “Options”
means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities, other than those that may be issued as
part of a compensation package of any employee of the Company or it Subsidiaries
and which are exercisable at a price not less than the closing price of the
Company’s Common Stock as reported on the Principal Market on the Trading Day
immediately preceding the date of grant.

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

(l)             “Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, any other entity
and a government or any department or agency thereof.

(m)       “Principal
Market” means the NASD OTC Bulletin Board.

 16
 

(n)         “Registration
Rights Agreement” means that certain registration rights agreement
by and among the Company and the Buyers.

(o)         “Required
Holders” means the holders of the Series B Warrants representing at
least a majority of shares of Common Stock underlying the Series B Warrants
then outstanding, provided fifteen percent (15%) or more of the Series B
Warrants originally issued remain outstanding.

(p)         “SPA Notes” means the Notes (as defined in
the Securities Purchase Agreement);

(q)          “SPA Warrants” means the Warrants (as
defined in the Securities Purchase Agreement).

(r)            “Successor
Entity” means the
Person (or, if so elected by the Required Holders, the Parent Entity) formed
by, resulting from or surviving any Fundamental Transaction or the Person (or,
if so elected by the Required Holders, the Parent Entity) with which such
Fundamental Transaction shall have been entered into.

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

(t)            “Weighted
Average Price” means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market during
the period beginning at 9:30:01 a.m., New York City time, and ending at 4:00:00
p.m., New York City time, as reported by Bloomberg through its “Volume at
Price” function or, if the foregoing does not apply, the dollar volume-weighted
average price of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at 9:30:01 a.m., New
York City time, and ending at 4:00:00 p.m., New York City time, as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the Weighted Average Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Weighted Average Price of such security on such date shall be the fair market
value as determined in good faith by the Board of Directors of the
Company.  If the Required Holders
disagree with the determination of the Board of Directors and give written
notice of such disagreement to the Company, then such dispute shall be resolved
pursuant to Section 12 with the term “Weighted Average Price” being substituted
for the term “Exercise Price.” All such determinations shall be appropriately
adjusted for any share dividend, share split or other similar transaction
during such period.

[Signature
Page Follows]

 17

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

	
   

  	
  OPEN ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Saltman

  
	
   

  	
  Name: David Saltman

  
	
   

  	
  Title: Chief Executive Officer

  

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE
THIS

SERIES B WARRANT TO PURCHASE COMMON STOCK

OPEN ENERGY CORPORATION

c/o John E. Hart

Fax: (858) 794-8811

The undersigned holder hereby exercises the right to
purchase                    
of the shares of Common Stock (“Warrant
Shares”) of Open Energy Corporation, a Nevada corporation (the “Company”), evidenced by the attached
Warrant to Purchase Common Stock (the “Warrant”).  Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

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

                      a “Cash Exercise” with respect to             Warrant
Shares; and/or

                      a “Cashless Exercise” with respect to             Warrant
Shares.

2.  Payment of
Exercise Price.  In the event that the
holder has elected a Cash Exercise with respect to some or all of the Warrant
Shares to be issued pursuant hereto, the holder shall pay the Aggregate
Exercise Price in the sum of $             to
the Company in accordance with the terms of the Warrant.

3.  At the
time such Holder was offered the Warrant, it was, at the date hereof, and on
each date on which it exercises any Warrants, it will be either: (i) an
“accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8) under the Securities Act of 1933, as amended, or (ii) a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act.  Such Buyer is not required to be registered
as a broker-dealer under Section 15 of the Securities Exchange Act of 1934, as
amended.

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

	
  Date:

  	
   

  	
  ,

  	
   

  	
   

  
	
   

  
	
   

  	
   

  
	
  Name of Registered Holder

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
						

 

ACKNOWLEDGMENT

The Company hereby
acknowledges this Exercise Notice and hereby directs Madison Stock Transfer,
Inc. to issue the above-indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated [      ],
2007 from the Company and acknowledged and agreed to by Madison Stock Transfer,
Inc.

	
   

  	
  OPEN ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

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