Document:

SUBLEASE AGREEMENT

                                     BETWEEN

                                ORACLE USA, INC.
                             a Colorado corporation

                                 As Sublandlord

                                       AND

                         GALAXY NUTRITIONAL FOODS, INC.,
                             a Delaware corporation

                                  As Subtenant

                             5955 T.G. Lee Boulevard
                                Orlando, Florida

                Portion of Second (2nd) Floor Known As Suite 201

<PAGE>

                                    SUBLEASE

THIS SUBLEASE ("Sublease") is entered into as of October 3, 2006, by and between
ORACLE USA,  INC., a Colorado  corporation  having its  principal  office at c/o
Oracle  Corporation,  500  Oracle  Parkway,  Redwood  Shores,  California  94065
("Sublandlord")  and GALAXY  NUTRITIONAL  FOODS,  INC.,  a Delaware  corporation
having  its   principal   office  at  2441  Viscount   Row,   Orlando,   Florida
32809("Subtenant").

                                    RECITALS

            WHEREAS,  Citadel II Limited Partnership,  as Landlord  ("Landlord")
and Oracle  Corporation,  predecessor-in-interest  to Sublandlord,  entered into
that certain Lease Agreement dated as of October 20, 1994 (the "Original  Master
Lease"), as amended by that certain First Amendment to Lease dated as of May 12,
1995  (the  "First  Amendment"),  that  certain  letter  agreement  dated  as of
September 7, 1995 (the "Second  Amendment")  and by that certain Third Amendment
to Lease dated as of November  13, 1995 (the "Third  Amendment")  (the  Original
Master Lease, as amended by the First  Amendment,  the Second  Amendment and the
Third Amendment,  being referred to herein as the "Master  Lease"),  for certain
space (the "Master Lease  Premises")  in the Building  located at 5955 T. G. Lee
Boulevard in the city of Orlando, Florida (the "Building"). A copy of the Master
Lease is attached hereto as Exhibit E.

            WHEREAS, the term of the Original Master Lease, as extended, expires
on February 28, 2009; and

            WHEREAS,   Subtenant  wishes  to  sublease  from  Sublandlord,   and
Sublandlord  wishes to  sublease  to  Subtenant,  a portion of the Master  Lease
Premises  containing  approximately  11,514  rentable square feet located on the
second (2nd) floor of the  Building,  known as Suite 201,  said space being more
particularly  identified  and  described  on the floor plan  attached  hereto as
Exhibit A and incorporated herein by reference (the "Subleased Premises").

            NOW,  THEREFORE,  in consideration  of the foregoing,  and for other
good and  valuable  consideration,  the receipt and adequacy of which are hereby
acknowledged by the parties, Sublandlord and Subtenant hereby agree as follows:

      1.  Sublease.  Sublandlord  hereby  subleases to Subtenant  and  Subtenant
hereby subleases from  Sublandlord for the term, at the rental,  and upon all of
the  conditions  set  forth  herein,  the  Subleased  Premises,  along  with the
non-exclusive  right to use all  facilities  serving the Subleased  Premises and
intended for common use,  including,  but not limited to, all entrances,  exits,
driveways,  elevators,  stairways,  corridors  and  hallways,  public  or common
restrooms, service drives and parking areas.

      2. Term.

            (a) Generally.  The term of this Sublease ("Term") shall commence on
the date (the "Commencement Date") that is the later to occur of (x) October 15,
2006 and (y) the date that  Sublandlord  delivers  possession  of the  Subleased
Premises  to  Subtenant  and  (z)  the  date  upon  which  Sublandlord  procures
Landlord's  consent to this  Sublease  (the  "Consent",  and the date upon which
Sublandlord  procures the Consent being the "Effective Date") and end on January
31, 2009 (the  "Expiration  Date"),  unless  sooner  terminated  pursuant to any
provision hereof.  Upon the determination of the Commencement Date,  Sublandlord
and  Subtenant  will  enter  into a letter  agreement  in the form of  Exhibit B
attached  hereto.  Sublandlord  represents  that it has requested the Consent to
this Sublease from  Landlord.  Sublandlord  further agrees that it shall provide
Subtenant with a copy of Landlord's Consent immediately upon receipt thereof.

<PAGE>

            (b) Early Access.  Subtenant and Subtenant's  representatives  shall
have the right to enter the Subleased Premises from and after the later to occur
of (x)  October  1,  2006,  and (y) the  Effective  Date (the  date  upon  which
Subtenant  first has such access to the  Subleased  Premises  being  referred to
herein as the "Early  Access  Date") for the sole  purposes of  installation  of
Subtenant's personal property and the testing of equipment,  furniture, fixtures
and  voice  and  data  cabling,  all  subject  to  the  terms,   conditions  and
requirements  of the Master  Lease.  All of the rights  and  obligations  of the
parties under this Sublease (other than Subtenant's obligation to pay Base Rent,
but expressly including without limitation  Subtenant's obligation to pay excess
utility charges  pursuant to the Master Lease,  Subtenant's  obligation to carry
insurance  pursuant  to  the  Master  Lease,  and  Subtenant's   indemnification
obligations and/or liability for damages, reasonable costs and expenses incurred
by  Sublandlord  by reason of any default by Subtenant or failure on Subtenant's
part to comply with the terms of this  Sublease)  shall  commence upon the Early
Access Date, and Subtenant shall be deemed to occupy the Subleased Premises from
and after the Early  Access Date.  Subtenant  shall be liable for any damages to
the  Subleased  Premises  caused  by  Subtenant's  activities  at the  Subleased
Premises  from and after the  Early  Access  Date  and,  prior to  entering  the
Subleased  Premises,  Subtenant  shall  obtain all  insurance  it is required to
obtain   hereunder  and  shall  provide   certificates   of  such  insurance  to
Sublandlord.  Subtenant shall coordinate such entry with  Sublandlord,  and such
entry  shall  be made in  compliance  with  all  terms  and  conditions  of this
Sublease,  the Master Lease and the rules and regulations attached to the Master
Lease.

      3. Rent.

            3.1 Rent Payments.  From and after the  Commencement  Date Subtenant
shall pay to Sublandlord as base rent for the Subleased Premises during the Term
("Base Rent") the following:

<TABLE>
<CAPTION>
--------------------------------------------------- -------------------------------------- ---------------------------
                                                         Base Rent Rate Per Rentable                Monthly
                      Period                                Square Foot Per Year                   Base Rent*
--------------------------------------------------- -------------------------------------- ---------------------------
<S>                                                                <C>                               <C>
       October 15, 2006 - November 14, 2006                        $ 0.00                            $     0.00
--------------------------------------------------- -------------------------------------- ---------------------------
        November 15, 2006 - Nov. 14, 2007                          $18.50                            $12,333.33
--------------------------------------------------- -------------------------------------- ---------------------------
        November 15, 2007 - Nov. 14, 2008                          $19.06                            $12,706.67
--------------------------------------------------- -------------------------------------- ---------------------------
       November 15, 2008 - January 31, 2009                        $19.63                            $13,086.67
--------------------------------------------------- -------------------------------------- ---------------------------
</TABLE>

*While  Subtenant  will have the right to occupy all of the Subleased  Premises,
Subtenant  will pay  Base  Rent as if the  Subleased  Premises  contained  8,000
rentable square feet.

<PAGE>

Base Rent shall be paid on the first day of each month of the Term,  except that
Subtenant  shall prepay the Base Rent payable  hereunder  for the periods of (i)
November  15, 2006 - December  14, 2006  ($12,333.33),  (ii)  October 15, 2007 -
November  14, 2007  ($12,333.33),  (iii)  November  15, 2007 - December 14, 2007
($12,706.67), and (iv) December 15, 2007 - January 14, 2008 ($12,706.67), for an
aggregate prepayment of $50,080.00, upon execution and delivery of this Sublease
to  Sublandlord.  The Base  Rent for any  partial  month  shall be  prorated  by
multiplying  the monthly Base Rent by a fraction,  the numerator of which is the
number of days of the partial month included in the Term and the  denominator of
which is the total number of days in the full  calendar  month.  Subtenant  will
also be  responsible  for the  payment of all taxes based on the payment of Base
Rent hereunder.  All Rent (hereinafter defined) shall be payable in lawful money
of the United States, by regular bank check of Subtenant,  to Sublandlord at the
following address:

                           1001 Sunset Boulevard
                           Rocklin, California 95765
                           Attention:  Lease Administration

or to such other persons or at such other places as Sublandlord may designate in
writing.  This Sublease is intended to be a so-called "gross" Sublease,  without
any  obligation on the part of Subtenant to pay for  pass-throughs  of operating
expenses, property taxes, Landlord's insurance, or other recurring payments that
are payable by Sublandlord  as the Tenant under the Master Lease.  The foregoing
will not excuse  Subtenant from its obligation to pay applicable  sales taxes on
the Rent  payable  hereunder or from any  payments  owing  pursuant to the final
sentence of Section 5.2 below. As used herein, "Rent" shall mean,  collectively,
Base Rent and all other sums  payable by  Subtenant  to  Sublandlord  under this
Sublease, whether or not expressly designated as "rent", all of which are deemed
and designated as rent pursuant to the terms of this Sublease.

      4.  Security  Deposit.  Concurrently  with  Subtenant's  execution of this
Sublease,  Subtenant  shall deposit with  Sublandlord the sum of $24,666.67 (the
"Security  Deposit").  The  Security  Deposit  shall be held by  Sublandlord  as
security for the faithful performance by Subtenant of all the provisions of this
Sublease to be performed  or observed by  Subtenant.  If Subtenant  fails to pay
rent or other sums due  hereunder,  or  otherwise  defaults  with respect to any
provisions of this  Sublease,  Sublandlord  may use,  apply or retain all or any
portion  of the  Security  Deposit  for the  payment of any rent or other sum in
default  or for the  payment  of any other sum to which  Sublandlord  may become
obligated by reason of Subtenant's default, or to compensate Sublandlord for any
loss or damage which  Sublandlord may suffer thereby.  If Sublandlord so uses or
applies all or any portion of the Security  Deposit,  Subtenant shall within ten
(10) days after  demand  therefor  deposit  cash with  Sublandlord  in an amount
sufficient  to restore  the  Security  Deposit to the full  amount  thereof  and
Subtenant's  failure  to do so  shall be a  material  breach  of this  Sublease.
Sublandlord shall not be required to keep the Security Deposit separate from its
general  accounts.   If  Subtenant  performs  all  of  Subtenant's   obligations
hereunder,  the Security Deposit, or so much thereof as has not theretofore been
applied by Sublandlord,  shall be returned,  without interest, to Subtenant (or,
at Sublandlord's  option, to the last assignee,  if any, of Subtenant's interest
hereunder)  within  thirty  (30)  days  following  the later to occur of (i) the
expiration  of the Term,  and (ii) after  Subtenant's  vacation of the Subleased
Premises  in  accordance  with  the  provisions  of  this  Sublease.   No  trust
relationship is created herein between Sublandlord and Subtenant with respect to
the Security Deposit.

<PAGE>

      5. Use and Occupancy.

            5.1 Use. The Subleased  Premises shall be used and occupied only for
general  office use, and for no other use or purpose  without  Landlord's  prior
written consent.

            5.2  Compliance  with Master  Lease.  Subtenant  agrees that it will
occupy the Subleased  Premises in accordance  with the terms of the Master Lease
and will not  suffer  to be done or omit to do any act  which  may  result  in a
violation of or a default  under any of the terms and  conditions  of the Master
Lease,  or  render  Sublandlord  liable  for  any  damage,   charge  or  expense
thereunder.  Except  to the  extent  that any such  failure  is due to the gross
negligence  or willful  misconduct  of  Sublandlord,  its  employees,  agents or
contractors,  Subtenant  further  covenants and agrees to indemnify  Sublandlord
against  and  hold  Sublandlord  harmless  from  any  claim,   demand,   action,
proceeding,  suit, liability, loss, judgment, expense (including attorneys fees)
and  damages of any kind or nature  whatsoever  arising out of, by reason of, or
resulting from,  Subtenant's  failure to perform or observe any of the terms and
conditions  of the Master Lease or this  Sublease.  Any other  provision in this
Sublease to the contrary notwithstanding,  Subtenant shall pay to Sublandlord as
Rent  hereunder  any and all sums which  Sublandlord  may be  required to pay to
Landlord  arising out of a request by  Subtenant  for, or use by  Subtenant  of,
additional or over-standard  Building  services from Landlord (for example,  but
not by way of limitation,  charges  associated  with  after-hour  HVAC usage and
overstandard electrical usage).

            5.3  Landlord's  Obligations.  Sublandlord  shall not be required to
perform any of the covenants,  agreements  and/or  obligations of Landlord under
the  Master  Lease  and,  insofar  as  any  of  the  covenants,  agreements  and
obligations  of  Sublandlord  hereunder  are required to be performed  under the
Master  Lease by Landlord  thereunder,  Subtenant  acknowledges  and agrees that
Sublandlord  shall be  entitled  to look to Landlord  for such  performance.  In
addition,  Sublandlord  shall have no  obligation  to perform any repairs or any
other  obligation  of  Landlord  under the  Master  Lease.  Notwithstanding  the
foregoing,  Sublandlord acknowledges and agrees that it is not released from its
obligations under the Master Lease. Sublandlord shall not be responsible for any
failure  or  interruption,  for  any  reason  whatsoever,  of  the  services  or
facilities that may be appurtenant to or supplied at the Building by Landlord or
otherwise,  including, without limitation, heat, air conditioning,  ventilation,
life-safety, water, electricity,  elevator service and cleaning service, if any;
and no failure to furnish,  or interruption  of, any such services or facilities
shall give rise to any (i)  abatement,  diminution  or reduction of  Subtenant's
obligations  under  this  Sublease  (provided  that  if and to the  extent  that
Sublandlord  is entitled to an abatement in rent payable  under the Master Lease
as a result of a failure or interruption in services which affects the Subleased
Premises,  Subtenant  will similarly be entitled to receive an abatement in Rent
payable   hereunder),   or  (ii)   liability   on  the   part  of   Sublandlord.
Notwithstanding  the  forgoing  provisions  of clause  (i)  above,  if a service
interruption  occurs which is due to the gross negligence or willful  misconduct
of Sublandlord, its agents' employees or contractors, and Subtenant is prevented
from using,  and does not use, a portion of the  Subleased  Premises as a direct
result  of such  service  interruption  for a period  in  excess  of  three  (3)
consecutive  business days, the Rent payable under this Sublease shall be abated
following the  expiration  of such three (3) business day period,  for such time
that  Subtenant  continues  to be  prevented  from using,  and does not use, the
subject area of the Subleased  Premises in the proportion that the rentable area
of the subject area of the Subleased  Premises  bears to the total rentable area
of the Subleased  Premises.  Notwithstanding  the foregoing,  Sublandlord  shall
promptly  take  such  action  as  may   reasonably   be  indicated,   under  the
circumstances,   to  secure  such  performance   upon  Subtenant's   request  to
Sublandlord to do so and shall thereafter  diligently prosecute such performance
on the part of Landlord.

<PAGE>

      6. Master Lease and Sublease Terms.

            6.1 Subject to Master  Lease.  This  Sublease is and shall be at all
times subject and subordinate to the Master Lease.  Subtenant  acknowledges that
Subtenant  has  reviewed  and is  familiar  with all of the  terms,  agreements,
covenants and conditions of the Master Lease.  Additionally,  Subtenant's rights
under this  Sublease  shall be subject to the terms of the  Consent.  During the
Term and for all periods  subsequent  thereto with respect to obligations  which
have arisen  prior to the  termination  of this  Sublease,  Subtenant  agrees to
perform  and comply  with,  for the benefit of  Sublandlord  and  Landlord,  the
obligations of Sublandlord under the Master Lease which pertain to the Subleased
Premises and/or this Sublease,  except for those  provisions of the Master Lease
which are directly  contradicted  by this Sublease,  in which event the terms of
this  Sublease  document  shall  control  over  the  Master  Lease.  Sublandlord
covenants  that it will  provide  Subtenant  with  copies of any  amendments  or
modifications  to the Master Lease subsequent to the execution of this Sublease.
Sublandlord   covenants  and  agrees  that  all  warranties  and  covenants  and
agreements of Landlord to the "Tenant"  under the Master Lease shall be assigned
from Sublandlord to Subtenant as the same pertain to the Subleased Premises.

            6.2  Incorporation of Terms of Master Lease.  The terms,  conditions
and respective obligations of Sublandlord and Subtenant to each other under this
Sublease shall be the terms and conditions of the Master Lease, except for those
provisions of the Master Lease which are directly contradicted by this Sublease,
in which event the terms of this  Sublease  shall control over the Master Lease.
Therefore,  for the purposes of this Sublease,  wherever in the Master Lease the
word  "Landlord" is used it shall be deemed to mean  Sublandlord and wherever in
the Master Lease the word "Tenant" is used it shall be deemed to mean Subtenant.
Any non-liability,  release,  indemnity or hold harmless provision in the Master
Lease for the  benefit of Landlord  that is  incorporated  herein by  reference,
shall be deemed to inure to the benefit of Sublandlord,  Landlord, and any other
person  intended  to  be  benefited  by  said  provision,  for  the  purpose  of
incorporation  by  reference  in  this  Sublease.  Any  non-liability,  release,
indemnity or hold harmless  provision in the Master Lease for the benefit of the
"Tenant" that is incorporated  herein by reference,  shall be deemed to inure to
the benefit of Subtenant  and any other person  intended to be benefited by said
provision,  for the purpose of incorporation by reference in this Sublease.  Any
right of Landlord under the Master Lease (a) of access or inspection,  (b) to do
work in the Master Lease  Premises or in the  Building,  (c) in respect of rules
and regulations,  which is incorporated herein by reference,  shall be deemed to
inure to the benefit of Sublandlord,  Landlord, and any other person intended to
be benefited by said provision, for the purpose of incorporation by reference in
this  Sublease.  Any  right of the  "Tenant"  under  the  Master  Lease of quiet
enjoyment or any other provision benefiting the "Tenant" under the Master Lease,
which is  incorporated  herein  by  reference,  shall be  deemed to inure to the
benefit of  Subtenant,  and any other  person  intended to be  benefited by said
provision, for the purpose of incorporation by reference in this Sublease.

<PAGE>

            6.3  Modifications.  For the purposes of incorporation  herein,  the
terms of the Master Lease are subject to the following additional modifications:

                  (a)  Approvals.  In all  provisions of the Master Lease (under
the terms thereof and without  regard to  modifications  thereof for purposes of
incorporation into this Sublease) requiring the approval or consent of Landlord,
Subtenant  shall  be  required  to  obtain  the  approval  or  consent  of  both
Sublandlord and Landlord,  which consent, in the case of Sublandlord,  shall not
be unreasonably withheld, conditioned or delayed.

                  (b)  Deliveries.   In  all  provisions  of  the  Master  Lease
requiring  Tenant to  submit,  exhibit  to,  supply  or  provide  Landlord  with
evidence,  certificates,  or any  other  matter  or  thing,  Subtenant  shall be
required to submit,  exhibit to, supply or provide, as the case may be, the same
to both Landlord and Sublandlord.

                  (c) Damage; Condemnation. Sublandlord shall have no obligation
to  restore  or  rebuild  any  portion  of  the  Subleased  Premises  after  any
destruction  or taking by eminent  domain  other than as set forth in the Master
Lease. In the event of any damage or destruction of the Subleased Premises, or a
taking  thereof as more  particularly  described  in  Sections  19 and 20 of the
Original  Master  Lease,  Sublandlord  shall retain its right to  terminate  the
Master Lease and Subtenant shall have a similar right to terminate this Sublease
as that right shall apply to the Subleased Premises.

                  (d) Insurance. In all provisions of the Master Lease requiring
Tenant to designate  Landlord as an additional or named insured on its insurance
policy,  Subtenant shall be required to so designate Landlord and Sublandlord on
its insurance policy.  In all provisions of the Master Lease requiring  Landlord
to designate  the "Tenant" as an  additional  or named  insured on its insurance
policy,  or to provide  certificate(s) of insurance or other proof of insurance,
Sublandlord  shall be  required  to so  designate  Subtenant  and/or to  provide
certificate(s) or evidence of insurance to Subtenant.

                  (e)   Assignment   and   Subletting.   For  the   purposes  of
incorporating  the  provisions of Article 9 of the Original  Master  Lease,  the
following shall apply:

                        (1) The sixth  (6th)  sentence  of  Section  9(a) of the
Original Master Lease shall not apply as between Sublandlord and Subtenant.

                        (2)  Sublandlord  shall have the right,  to be exercised
within fifteen (15) business days after the receipt of all required  information
and documentation from Subtenant regarding a proposed assignment or sublease, to
recapture the portion of the Subleased  Premises that  Subtenant is proposing to
assign or sublease.  If  Sublandlord  exercises  such right of  recapture,  this
Sublease shall  automatically  be amended (or terminated if the entire Subleased
Premises  is being  assigned or sublet or so much of the  Subleased  Premises is
being assigned or sublet that the remainder is rendered effectively unusable) to
delete  the  applicable  portion of the  Subleased  Premises,  effective  on the
proposed  effective  date of the  sublease  or  assignment,  and  Rent  shall be
adjusted on a prorated basis.

<PAGE>

            6.4  Exclusions.  Notwithstanding  the terms of  Section  6.2 above,
Subtenant  shall  have no rights  nor  obligations  under the  following  parts,
Sections and Exhibits of the Master Lease:

                  (a) Original  Master Lease.  Article 1, Sections  2(c),  2(e),
2(f),  Article 3,  Section  4(a),  Article 7  (reference  to  "Exhibit C" only),
Article 14,  Article 25, Article 26, Article 41, Article 42, Article 43, Article
44,  Article 45,  Article 47,  Article 48,  Article 50,  Article 52, Article 53,
Exhibit A, Exhibit A-1, Exhibit C, Schedule C-1, Exhibit C-2.

                  (b) First Amendment.  Sections 1, 2, 3, 4, 5, 6, 7, 8, Exhibit
A.

                  (c) Second Amendment.  Sections 1, 2, 3, 4, 5, 6, 7, 8, 9, 10,
11, 12, 13, 14, 15, 16, 17, 18, 19, 20, Exhibit A, Exhibit B.

                  (d) Third Amendment. Sections 1, 2, 3, 4, 5, 6, 7, 8.

      7. Assignment and Subletting.  Subtenant shall not assign this Sublease or
further sublet all or any part of the Subleased  Premises  except subject to and
in compliance  with all of the terms and conditions of Article 9 of the Original
Master  Lease,  and  Sublandlord  (in addition to Landlord)  shall have the same
rights with  respect to  assignment  and  subleasing  as Landlord has under such
Article 9. Fifty  percent (50%) of all "bonus rent"  (calculated  as provided in
Article 9 of the Original  Master Lease) in connection  with any such assignment
or sublease  shall be payable to  Sublandlord as and when received by Subtenant.
Subtenant  shall pay all fees and costs payable to Master  Landlord  pursuant to
the  Master  Lease in  connection  with any  proposed  assignment,  sublease  or
transfer of the  Subleased  Premises,  together  with  Sublandlord's  reasonable
out-of-pocket  costs  up to a  maximum  of One  Thousand  Five  Hundred  Dollars
($1,500.00)  relating to  Subtenant's  request for such  consent,  regardless of
whether such consent is granted, and the effectiveness of any such consent shall
be conditioned upon Master Landlord's and Sublandlord's receipt of all such fees
and costs.

      8. Default.

            (a)  Subtenant's  Default.  It shall  constitute an event of default
hereunder if Subtenant fails within a reasonable  period  following  notice from
Sublandlord to perform any obligation hereunder (including,  without limitation,
the obligation to pay Rent), or any obligation  under the Master Lease which has
been incorporated herein by reference, and, in each instance,  Subtenant has not
remedied such failure after delivery of any written  notice  required under this
Sublease  and passage of fifty  percent  (50%) of any  applicable  grace or cure
period provided in the Master Lease as modified, if at all, by the provisions of
this Sublease, provided that with respect to non-monetary defaults,  Subtenant's
cure period  shall be the longer of (A)  one-half  of, or (B) five (5) days less
than, the actual cure period  provided for such  non-monetary  default under the
Master Lease.

            (b) It shall constitute an event of default hereunder if Sublandlord
fails to  promptly  seek  and/or  diligently  pursue  Landlord's  Consent in any
instance  under this  Sublease  where such  Consent is required and such failure
continues for an unreasonable period following notice from Subtenant.

<PAGE>

      9.  Remedies.  In  the  event  of  any  default  hereunder  by  Subtenant,
Sublandlord  shall have all remedies  provided to the  "Landlord"  in the Master
Lease as if an event of default had occurred thereunder and all other rights and
remedies  otherwise  available  at  law  and in  equity.  Without  limiting  the
generality of the  foregoing,  Sublandlord  may continue this Sublease in effect
after  Subtenant's  breach and  abandonment  and recover Rent as it becomes due.
Sublandlord may resort to its remedies  cumulatively or in the  alternative.  In
the event of any default  hereunder  by  Sublandlord,  Subtenant  shall have all
remedies available under the Master Lease.

      10.  Right to Cure  Defaults.  If  Subtenant  fails to perform  any of its
obligations under this Sublease after expiration of all applicable grace or cure
periods  as set  forth  herein  or in the  Master  Lease,  as  applicable,  then
Sublandlord may, but shall not be obligated to, perform any such obligations for
Subtenant's  account.  All  reasonable,  actual costs and  expenses  incurred by
Sublandlord  in  performing  any such act for the account of Subtenant  shall be
deemed Rent payable by  Subtenant to  Sublandlord  upon  demand,  together  with
interest thereon at the lesser of (i) twelve percent (12%) per annum or (ii) the
maximum  rate  allowable  under law (the  "Interest  Rate") from the date of the
expenditure  until  repaid.   If  Sublandlord   undertakes  to  perform  any  of
Subtenant's obligations for the account of Subtenant pursuant hereto, the taking
of such action shall not constitute a waiver of any of  Sublandlord's  remedies.
Subtenant  hereby  expressly waives its rights under any statute to make repairs
at the expense of Sublandlord.

      11. Consents and Approvals.  In any instance when Sublandlord's consent or
approval is required under this Sublease, Sublandlord's refusal to consent to or
approve  any  matter or thing  shall be deemed  reasonable  if such  consent  or
approval is  required  under the  provisions  of the Master  Lease  incorporated
herein by reference but has been refused by Landlord.  Sublandlord covenants and
agrees that, in any instance  where  Landlord's  consent or approval is required
under this Sublease pursuant to the terms of the Master Lease, Sublandlord shall
diligently  seek to obtain such approval or consent from  Landlord.  Sublandlord
shall not unreasonably  withhold,  condition or delay its consent to or approval
of a matter if such consent or approval is required  under the provisions of the
Master Lease and Landlord has consented to or approved of such matter.

      12. Sublandlord's  Liability.  Notwithstanding any other term or provision
of this  Sublease,  the liability of Sublandlord to Subtenant for any default in
Sublandlord's obligations under this Sublease shall be limited to actual, direct
damages,  and under no  circumstances  shall Subtenant,  its partners,  members,
shareholders,  directors, agents, officers, employees, contractors,  sublessees,
successors  and/or assigns be entitled to recover from Sublandlord (or otherwise
be indemnified by Sublandlord)  for: (a) any losses,  costs,  claims,  causes of
action,  damages or other  liability  incurred in  connection  with a failure of
Landlord, its partners,  members,  shareholders,  directors,  agents,  officers,
employees,  contractors,  successors  and/or  assigns  to perform or cause to be
performed Landlord's obligations under the Master Lease, (b) lost revenues, lost
profit or other consequential, special or punitive damages arising in connection
with this Sublease for any reason, or (c) any damages or other liability arising
from or incurred in connection  with the condition of the Subleased  Premises or
suitability of the Subleased Premises for Subtenant's  intended uses.  Subtenant
shall,  however,  have  the  right  to seek any  injunctive  or other  equitable
remedies as may be available to Subtenant under applicable law.  Notwithstanding
any other term or provision of this Sublease, no personal liability shall at any
time be asserted or enforceable against Sublandlord's  stockholders,  directors,
officers, or partners on account of any of Sublandlord's  obligations or actions
under this Sublease. As used in this Sublease,  the term "Sublandlord" means the
holder of the tenant's interest under the Master Lease and  "Sublandlord"  means
the holder of  sublandlord's  interest under this Sublease.  In the event of any
assignment or transfer of the  Sublandlord's  interest under this Sublease,  and
provided that (i) Subtenant has been notified of such assignment or transfer and
(ii) all of  Subtenant's  Security  Deposit  and  prepaid  rents  have also been
assigned or transferred to such assignee or transferee of Sublandlord  and (iii)
the assignee or  transferee  has agreed to recognize  Subtenant's  rights as set
forth herein and recognize  Subtenant as its subtenant in a written  instrument.
Sublandlord  shall be and  hereby is  entirely  relieved  of all  covenants  and
obligations  of  Sublandlord  hereunder  accruing  subsequent to the date of the
transfer.

<PAGE>

      13.  Attorneys'  Fees.  If  Sublandlord  or Subtenant  brings an action to
enforce the terms hereof or to declare rights  hereunder,  the prevailing  party
who recovers substantially all of the damages,  equitable relief or other remedy
sought in any such action on trial and appeal  shall be entitled to receive from
the other party its costs associated therewith,  including,  without limitation,
reasonable attorney's fees and costs from the other party.

      14. Delivery of Possession.

            14.1  Generally.  Except as expressly set forth herein,  Sublandlord
shall deliver, and Subtenant shall accept,  possession of the Subleased Premises
in their "AS IS" condition as the Subleased  Premises exists on the date hereof.
Sublandlord  shall have no  obligation  to  furnish,  render or supply any work,
labor, services, materials, furniture (other than the Furniture, defined below),
fixtures,  equipment,  decorations or other items to make the Subleased Premises
ready  or  suitable  for  Subtenant's  occupancy;  provided,  however,  that (x)
Sublandlord will remove the cubicles  itemized on Exhibit C attached hereto from
the Subleased  Premises prior to the Commencement  Date (if the  electrical/data
feeds for the  remaining  cubicles  are  located  at one of the  cubicles  to be
removed  by  Sublandlord,  Subtenant  will be  responsible  for  relocating  the
electrical/data  feeds as necessary,  at Subtenant's cost), (y) Sublandlord will
remove all "dead  storage"  items from the closets and offices in the  Subleased
Premises prior to the  Commencement  Date, and (z) Sublandlord  will deliver the
Subleased  Premises to Subtenant in general  working order,  including,  but not
limited to missing or burned out light bulbs replaced, and missing door hardware
replaced and a working  refrigerator  in the break room. In making and executing
this Sublease, Subtenant has relied solely on such investigations,  examinations
and  inspections  as Subtenant has chosen to make or has made and has not relied
on any  representation  or warranty  concerning  the  Subleased  Premises or the
Building, except as expressly set forth in this Sublease. Subtenant acknowledges
that  Sublandlord  has afforded  Subtenant the opportunity for full and complete
investigations,  examinations and inspections of the Subleased  Premises and the
common areas of the Building.  Subtenant  acknowledges that it is not authorized
to make or do any alterations or  improvements  in or to the Subleased  Premises
except as permitted by the  provisions of this Sublease and the Master Lease and
that upon  termination of this Sublease,  Subtenant  shall deliver the Subleased
Premises to  Sublandlord  in  substantially  the same condition as the Subleased
Premises  were at the  commencement  of the  Term,  reasonable  wear  and  tear,
casualty and Sublandlord and Landlord  obligations excepted and that Subtenant's
obligation  to remove any  improvements  shall be  governed by Article 23 of the
Master Lease, as incorporated herein by reference.

<PAGE>

            14.2 Subtenant Improvements.

                  (a)  Generally.  If  Subtenant  intends to  construct  certain
improvements  within the  Subleased  Premises  ("Subtenant  Improvements"),  all
Subtenant Improvements shall be carried out in accordance with the Master Lease.
Sublandlord  and  Landlord  will  have  the  right  to  approve  the  plans  and
specifications  for  any  proposed  Subtenant  Improvements,   as  well  as  any
contractors  whom  Subtenant  proposes  to retain to  perform  such  work;  such
approval  on  the  part  of  Sublandlord  will  not  be  unreasonably  withheld,
conditioned or delayed. Accordingly,  Subtenant will submit all such information
for Sublandlord's  review and written approval prior to commencement of any such
work;  Sublandlord  agrees to promptly forward such information to Landlord.  If
Landlord  imposes  any  construction  management  fee  in  connection  with  the
performance of Subtenant  Improvements,  Subtenant  will be responsible  for the
payment  of  such  fee.  Subtenant  expressly   acknowledges  that  Landlord  or
Sublandlord  may  require  Subtenant  to  remove  some  or all of the  Subtenant
Improvements  at the expiration or sooner  termination of the Term in accordance
with  Article 23 of the  Master  Lease,  as  incorporated  herein by  reference.
Promptly  following the completion of any Subtenant  Improvements  or subsequent
alterations or additions by or on behalf of Subtenant, Subtenant will deliver to
Sublandlord  a  reproducible  copy of "as built"  drawings of such work together
with a CAD  file of the  "as-built"  drawings  in the  then-current  version  of
AutoCad.

                  (b)  Code-Required  Work. If the  performance of any Subtenant
Improvements or other work by Subtenant within the Subleased Premises "triggers"
a requirement for code-related upgrades to or improvements of any portion of the
Building,  Subtenant  shall be  responsible  for the cost of such  code-required
upgrade or improvements.

      15. Holding Over. If Subtenant  fails to surrender the Subleased  Premises
at the  expiration or earlier  termination  of this  Sublease,  occupancy of the
Subleased  Premises  after  the  termination  or  expiration  shall be that of a
tenancy at sufferance.  Subtenant's  occupancy of the Subleased  Premises during
the holdover  shall be subject to all the terms and  provisions of this Sublease
and Subtenant shall pay an amount equal to 150% of the Rent on a  month-to-month
basis due for the period  immediately  preceding  the  holdover.  No holdover by
Subtenant or payment by Subtenant  after the expiration or early  termination of
this Sublease shall be construed to extend the Term or prevent  Sublandlord from
immediate   recovery  of  possession  of  the  Subleased   Premises  by  summary
proceedings  or  otherwise.  In addition to the payment of the amounts  provided
above, if Sublandlord is unable to deliver  possession of the Subleased Premises
to a  new  subtenant  or to  Landlord,  as  the  case  may  be,  or  to  perform
improvements for a new subtenant, as a result of Subtenant's holdover or perform
improvements,  Subtenant  shall  be  liable  to  Sublandlord  for  all  damages,
including,  without limitation,  consequential damages, that Sublandlord suffers
from the  holdover;  Subtenant  expressly  acknowledges  that such  damages  may
include all of the holdover rent charged by Landlord under the Master Lease as a
result of  Subtenant's  holdover,  which Master Lease holdover rent may apply to
the entire Master Lease Premises.

<PAGE>

      16. Sublandlord's Representations: Sublandlord represents that:

            (a) to the  best of its  knowledge,  on the  Commencement  Date  all
utility,  mechanical,  plumbing and other systems serving the Subleased Premises
shall be in good operating condition and repair;

            (b) Sublandlord is the owner of a leasehold  estate in the Subleased
Premises and has the right and power to enter into this  Sublease and to perform
the same and, by this instrument, conveys a good leasehold interest to Subtenant
in accordance  with and subject to the terms,  conditions and provisions  hereof
and in the Master Lease;

            (c) To Sublandlord's best knowledge,  there are no current claims of
other parties,  encumbrances,  mortgages,  liens, restrictions,  reservations or
defects in Sublandlord's  leasehold estate in the Subleased  Premises that would
interfere  with or  impair  or  result in any  interference  or  impairments  of
Subtenant's  use,  occupancy  or  enjoyment  of the  Subleased  Premises or with
Subtenant's rights hereunder;

            (d) That Subtenant,  on payment of Rent and full  performance of the
covenants and  agreements  hereof,  shall  peaceably and quietly have,  hold and
enjoy the  Subleased  Premises  and all  rights,  easements,  appurtenances  and
privileges  belonging  in or  otherwise  appertaining  thereto  during  the Term
without  molestation or hindrance of any person claiming through Subtenant (this
provision  will not bind  Landlord or make  Subtenant  liable for the actions of
Landlord);

            (e) The execution and  performance  of this Sublease by  Sublandlord
will not violate or cause a default under any  agreement,  instrument,  or other
transaction  to  which  Sublandlord  is a  party  by  which  Sublandlord  or the
Subleased Premises are bound.

      17.  Parking.  During the Term  Subtenant  shall be permitted to use up to
fifty-eight (58) of the parking spaces allocated to Sublandlord  pursuant to the
Master Lease and the Parking Agreement between Landlord and Sublandlord,  a copy
of which shall be  provided to  Subtenant  prior to the  Commencement  Date (the
"Parking  Agreement"),  such use to be in compliance  with the provisions of the
Master Lease and the Parking Agreement.

      18. Notices:  Any notice by either party to the other required,  permitted
or provided  for herein shall be valid only if in writing and shall be deemed to
be duly given only if (a) delivered personally,  or (b) sent by means of Federal
Express,  UPS Next Day Air or another  reputable  express mail delivery  service
guaranteeing  next day  delivery,  or (c) sent by  United  States  Certified  or
registered mail, return receipt requested,  addressed: (i) if to Sublandlord, at
the following addresses:

                 Oracle USA, Inc.
                 c/o Oracle Corporation
                 1001 Sunset Boulevard
                 Rocklin, California 95765
                 Attn:      Lease Administration

<PAGE>

with a copy to:

                 Oracle USA, Inc.
                 c/o Oracle Corporation
                 500 Oracle Parkway
                 Box 5OP7
                 Redwood Shores, California 94065
                 Attn:      Legal Department

and (ii) if to Subtenant, at the following addresses:

          Prior to occupancy:

                 Galaxy Nutritional Foods, Inc.
                 2441 Viscount Row
                 Orlando, Florida  32809
                 Attn:          Mr. Salvatore J. Furnari

          After occupancy:

                 Galaxy Nutritional Foods, Inc.
                 5955 TG Lee Boulevard, Suite ___
                 Orlando, Florida  32822
                 Attn:          Mr. Salvatore J. Furnari

or at such other  address for either party as that party may designate by notice
to the  other.  A notice  shall be deemed  given  and  effective,  if  delivered
personally,  upon hand delivery  thereof (unless such delivery takes place after
hours or on a holiday or  weekend,  in which  event the  notice  shall be deemed
given on the next succeeding  business day), if sent via overnight  courier,  on
the  business  day next  succeeding  delivery to the  courier,  and if mailed by
United States  certified or registered  mail,  three (3) business days following
such mailing in accordance with this Section.

<PAGE>

      19. Furniture. During the Term, at no charge to Subtenant, Subtenant shall
be  permitted  to use the  existing  modular  and office  furniture  and cabling
located in the  Subleased  Premises and described in more  particular  detail in
Exhibit  D  attached  hereto  (the  "Furniture").  Subtenant  shall  accept  the
Furniture  in its  current  condition  without  any  warranty  of  fitness  from
Sublandlord  (Subtenant  expressly  acknowledges  that  no  warranty  is made by
Sublandlord with respect to the condition of any cabling currently located in or
serving  the  Subleased  Premises);  for  purposes  of  documenting  the current
condition  of the  Furniture,  Subtenant  and  Sublandlord  shall,  prior to the
Commencement  Date,  conduct a joint  walk-through of the Subleased  Premises in
order to  inventory  items of damage or  disrepair  in the  Furniture  and shall
attach such completed inventory to this Sublease as part of Exhibit D. Subtenant
shall use the  Furniture  only for the  purposes  for which  such  Furniture  is
intended and shall be responsible for the proper maintenance, care and repair of
the  Furniture,  at  Subtenant's  sole cost and expense,  and using  maintenance
contractors specified by Sublandlord. No item of Furniture shall be removed from
the Subleased Premises without  Sublandlord's prior written consent. On or about
the date of  expiration  of the Term,  the  parties  shall once again  conduct a
walk-through  of  the  Subleased  Premises  to  catalog  any  items  of  damage,
disrepair,  misuse  or loss  among  the  Furniture  (reasonable  wear  and  tear
excepted),  and Subtenant  shall be  responsible,  at Subtenant's  sole cost and
expense,  for curing any such items (including,  with respect to loss, replacing
any lost item with a substantially  similar like-new item reasonably  acceptable
to  Sublandlord).  Subtenant  shall not  modify,  reconfigure  or  relocate  the
Furniture  except with the advanced written  permission of Sublandlord,  and any
work of modifying any Furniture  (including,  without  limitation,  changing the
configuration  of,  "breaking  down" or  reassembly of cubicles or other modular
furniture)  shall be  performed  at  Subtenant's  sole cost using  Sublandlord's
specified  vendors or an  alternate  vendor  approved in writing by  Sublandlord
(such approval to be granted or withheld on Sublandlord's good faith discretion,
based  upon   Sublandlord's   assessment  of  factors  which  include,   without
limitation,  whether  the  performance  by  such  vendor  will  void  applicable
warranties  for  such   furniture  and  whether  such  vendor  is   sufficiently
experienced in the design of such furniture).

      20. Brokers. Subtenant represents that it has dealt directly with and only
with Cushman & Wakefield of Florida, Inc. ("Subtenant's Broker"), as a broker in
connection with this Sublease. Sublandlord represents that it has dealt directly
with and  only  with  The  Ezra  Company  and  McFadden  Realty  Advisors,  Inc.
("Sublandlord's  Broker"),  as  a  broker  in  connection  with  this  Sublease.
Sublandlord  and Subtenant shall indemnify and hold each other harmless from all
claims of any brokers other than  Subtenant's  Broker and  Sublandlord's  Broker
claiming to have  represented  Sublandlord or Subtenant in connection  with this
Sublease.   Subtenant  and  Sublandlord   agree  that  Subtenant's   Broker  and
Sublandlord's Broker shall be paid commissions by Sublandlord in connection with
this Sublease pursuant to a separate agreement.

      21. Estoppel Certificates.  Within fifteen (15) business days after either
party's request, from time to time, the other party shall execute and deliver to
the  requesting  party or, as  directed  by the  requesting  party,  an estoppel
certificate in a form reasonably  acceptable to the certifying  party certifying
as to the terms and status of payments of Rent and other matters relating to the
Sublease that may be reasonably requested.

      22. Signage.  Sublandlord,  at Sublandlord's  cost, will initially provide
Subtenant with Building-standard  directory signage identifying  Subtenant.  Any
changes to or replacement  or such signage will be at Subtenant's  sole cost and
expense.

      23. Interpretation. Irrespective of the place of execution or performance,
this Sublease shall be governed by and construed in accordance  with the laws of
the State of Florida.  If any  provision  of this  Sublease  or the  application
thereof to any person or circumstance  shall,  for any reason and to any extent,
be invalid or unenforceable,  the remainder of this Sublease and the application
of that  provision to other persons or  circumstances  shall not be affected but
rather shall be enforced to the extent  permitted by law. The table of contents,
captions,  headings  and  titles,  if  any,  in this  Sublease  are  solely  for
convenience of reference and shall not affect its interpretation.  This Sublease
shall be construed  without  regard to any  presumption  or other rule requiring
construction  against the party  causing this Sublease or any part thereof to be
drafted.  If any words or phrases in this Sublease  shall have been stricken out
or  otherwise  eliminated,  whether or not any other words or phrases  have been
added,  this Sublease  shall be construed as if the words or phrases so stricken
out or  otherwise  eliminated  were  never  included  in  this  Sublease  and no
implication or inference shall be drawn from the fact that said words or phrases
were  so  stricken  out  or  otherwise  eliminated.  Each  covenant,  agreement,
obligation or other  provision of this Sublease shall be deemed and construed as
a separate and independent covenant of the party bound by, undertaking or making
same,  not dependent on any other  provision of this Sublease  unless  otherwise
expressly provided. All terms and words used in this Sublease, regardless of the
number or gender in which they are used,  shall be deemed to  include  any other
number and any other  gender as the context may  require.  The word  "person" as
used in this Sublease shall mean a natural person or persons,  a partnership,  a
corporation or any other form of business or legal association or entity.

<PAGE>

      24.  Complete  Agreement.   There  are  no  representations,   warranties,
agreements, arrangements or understandings, oral or written, between the parties
or their  representatives  relating to the subject matter of this Sublease which
are not fully  expressed in this  Sublease.  This Sublease  cannot be changed or
terminated nor may any of its provisions be waived orally or in any manner other
than by written agreement executed by both parties.

      25. Counterparts.  This Sublease may be executed in separate counterparts,
each of which shall  constitute  an  original  and all of which  together  shall
constitute  one and the same  instrument.  This Sublease shall be fully executed
when each party whose  signature is required has signed and delivered to each of
the parties at least one counterpart, even though no single counterpart contains
the signatures of all parties hereto.

IN WITNESS  WHEREOF,  the parties  hereto hereby execute this Sublease as of the
day and year first above written.

                             SUBLANDLORD:   ORACLE USA, INC.,
                                            a Colorado corporation

Witness:  ----------------------------      By:  /s/ Daniel Cooperman
                                            Print Name:  Daniel Cooperman
Witness:                                    Title:  Senior Vice President
          ----------------------------

                                SUBTENANT:  GALAXY NUTRITIONAL FOODS, INC.,
                                            a(n) Delaware corporation

Witness:                                    By:  /s/ Salvatore J. Furnari
          ----------------------------
                                            Print Name:  Salvatore J. Furnari
Witness:                                    Title:  Chief Financial Officer
          ----------------------------THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES MAY NOT BE SOLD,
      TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
      FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
      AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT
      REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE
      144
      OR REGULATION S UNDER SAID ACT.

     

    CALLABLE
      SECURED CONVERTIBLE NOTE

     

    
      	
              Houston,
                Texas

            	 
	
              October
                5, 2006

            	
              $165,000

            

    

     

    FOR
      VALUE RECEIVED,
      GLOBALNET CORPORATION,
      a
      Nevada corporation (hereinafter called the “Borrower”),
      hereby promises to pay to the order of AJW Offshore, Ltd. or registered assigns
      (the “Holder”)
      the
      sum of $165,000, on October 4, 2009 (the “Maturity
      Date”),
      and
      to pay interest on the unpaid principal balance hereof at the rate of six
      percent (6%) per annum from October 5, 2006 (the “Issue
      Date”)
      until
      the same becomes due and payable, whether at maturity or upon acceleration
      or by
      prepayment or otherwise. Any amount of principal or interest on this Note which
      is not paid when due shall bear interest at the rate of fifteen percent (15%)
      per annum from the due date thereof until the same is paid (“Default
      Interest”).
      Interest shall commence accruing on the issue date, shall be computed on the
      basis of a 365-day year and the actual number of days elapsed and shall be
      payable, quarterly on March 31, June 30, September 30 and December 31
      of each year beginning on September 30, 2006. All payments due hereunder (to
      the
      extent not converted into common stock, $.005 par value per share, of the
      Borrower (the “Common
      Stock”)
      in
      accordance with the terms hereof) shall be made in lawful money of the United
      States of America. All payments shall be made at such address as the Holder
      shall hereafter give to the Borrower by written notice made in accordance with
      the provisions of this Note. Whenever any amount expressed to be due by the
      terms of this Note is due on any day which is not a business day, the same
      shall
      instead be due on the next succeeding day which is a business day and, in the
      case of any interest payment date which is not the date on which this Note
      is
      paid in full, the extension of the due date thereof shall not be taken into
      account for purposes of determining the amount of interest due on such date.
      As
      used in this Note, the term “business day” shall mean any day other than a
      Saturday, Sunday or a day on which commercial banks in the city of New York,
      New
      York are authorized or required by law or executive order to remain closed.
      Each
      capitalized term used herein, and not otherwise defined, shall have the meaning
      ascribed thereto in that certain Securities Purchase Agreement, dated May 25,
      2006, pursuant to which this Note was originally issued (the “Purchase
      Agreement”).
      

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

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

     

    The
      following terms shall apply to this Note:

     

    ARTICLE
      I.  CONVERSION
      RIGHTS

     

    1.1  Conversion
      Right.
      The
      Holder shall have the right from time to time, and at any time on or prior
      to
      the later of (i) the Maturity Date and (ii) the date of payment of the Default
      Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III,
      the Optional Prepayment Amount (as defined in Section 5.1 or any payments
      pursuant to Section 1.7, each in respect of the remaining outstanding principal
      amount of this Note to convert all or any part of the outstanding and unpaid
      principal amount of this Note into fully paid and non-assessable shares of
      Common Stock, as such Common Stock exists on the Issue Date, or any shares
      of
      capital stock or other securities of the Borrower into which such Common Stock
      shall hereafter be changed or reclassified at the conversion price (the
“Conversion
      Price”)
      determined as provided herein (a “Conversion”);
      provided,
      however,
      that in
      no event shall the Holder be entitled to convert any portion of this Note in
      excess of that portion of this Note upon conversion of which the sum of (1)
      the
      number of shares of Common Stock beneficially owned by the Holder and its
      affiliates (other than shares of Common Stock which may be deemed beneficially
      owned through the ownership of the unconverted portion of the Notes or the
      unexercised or unconverted portion of any other security of the Borrower
      (including, without limitation, the warrants issued by the Borrower pursuant
      to
      the Purchase Agreement) subject to a limitation on conversion or exercise
      analogous to the limitations contained herein) and (2) the number of shares
      of
      Common Stock issuable upon the conversion of the portion of this Note with
      respect to which the determination of this proviso is being made, would result
      in beneficial ownership by the Holder and its affiliates of more than 4.9%
      of
      the outstanding shares of Common Stock. For purposes of the proviso to the
      immediately preceding sentence, beneficial ownership shall be determined in
      accordance with Section 13(d) of the Securities Exchange Act of 1934, as
      amended, and Regulations 13D-G thereunder, except as otherwise provided in
      clause (1) of such proviso. The number of shares of Common Stock to be issued
      upon each conversion of this Note shall be determined by dividing the Conversion
      Amount (as defined below) by the applicable Conversion Price then in effect
      on
      the date specified in the notice of conversion, in the form attached hereto
      as
      Exhibit A (the “Notice
      of Conversion”),
      delivered to the Borrower by the Holder in accordance with Section 1.4 below;
      provided that the Notice of Conversion is submitted by facsimile (or by other
      means resulting in, or reasonably expected to result in, notice) to the Borrower
      before 6:00 p.m., New York, New York time on such conversion date (the
“Conversion
      Date”).
      The
      term “Conversion
      Amount”
means,
      with respect to any conversion of this Note, the sum of (1) the principal amount
      of this Note to be converted in such conversion plus
      (2)
      accrued and unpaid interest, if any, on such principal amount at the interest
      rates provided in this Note to the Conversion Date plus
      (3)
      Default Interest, if any, on the amounts referred to in the immediately
      preceding clauses (1) and/or (2) plus
      (4) at
      the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and
      1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights
      Agreement, dated as of May 25, 2006, executed in connection with the initial
      issuance of this Note and the other Notes issued on the Issue Date (the
“Registration
      Rights Agreement”).

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    1.2  Conversion
      Price.

     

    (a)  Calculation
      of Conversion Price.
      The
      Conversion Price shall be the lesser of (i) the Variable Conversion Price (as
      defined herein) and (ii) the Fixed Conversion Price (as defined herein)
      (subject, in each case, to equitable adjustments for stock splits, stock
      dividends or rights offerings by the Borrower relating to the Borrower’s
      securities or the securities of any subsidiary of the Borrower, combinations,
      recapitalization, reclassifications, extraordinary distributions and similar
      events). The “Variable
      Conversion Price”
shall
      mean the Applicable Percentage (as defined herein) multiplied by the Market
      Price (as defined herein). “Market
      Price”
means
      the average of the lowest three (3) Trading Prices (as defined below) for the
      Common Stock during the twenty (20) Trading Day period ending one Trading Day
      prior to the date the Conversion Notice is sent by the Holder to the Borrower
      via facsimile (the “Conversion
      Date”).
      “Trading
      Price”
means,
      for any security as of any date, the intraday trading price on the
      Over-the-Counter Bulletin Board (the “OTCBB”)
      as
      reported by a reliable reporting service mutually acceptable to and hereafter
      designated by Holders of a majority in interest of the Notes and the Borrower
      or, if the OTCBB is not the principal trading market for such security, the
      intraday trading price of such security on the principal securities exchange
      or
      trading market where such security is listed or traded or, if no intraday
      trading price of such security is available in any of the foregoing manners,
      the
      average of the intraday trading prices of any market makers for such security
      that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If
      the Trading Price cannot be calculated for such security on such date in the
      manner provided above, the Trading Price shall be the fair market value as
      mutually determined by the Borrower and the holders of a majority in interest
      of
      the Notes being converted for which the calculation of the Trading Price is
      required in order to determine the Conversion Price of such Notes. “Trading
      Day”
shall
      mean any day on which the Common Stock is traded for any period on the OTCBB,
      or
      on the principal securities exchange or other securities market on which the
      Common Stock is then being traded. “Applicable
      Percentage”
shall
      mean 20.0%. The “Fixed
      Conversion Price”
shall
      mean $.03.

     

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

     

    
      
         

      

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

     

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

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

    1.4  Method
      of Conversion.

     

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

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

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

     

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

     

    (d)  Delivery
      of Common Stock Upon Conversion.
      Subject
      to Stockholder Approval (as defined in Section 4(k) of the Purchase Agreement),
      upon receipt by the Borrower from the Holder of a facsimile transmission (or
      other reasonable means of communication) of a Notice of Conversion meeting
      the
      requirements for conversion as provided in this Section 1.4, the Borrower shall
      issue and deliver or cause to be issued and delivered to or upon the order
      of
      the Holder certificates for the Common Stock issuable upon such conversion
      within two (2) business days after such receipt (and, solely in the case of
      conversion of the entire unpaid principal amount hereof, surrender of this
      Note)
      (such second business day being hereinafter referred to as the “Deadline”)
      in
      accordance with the terms hereof and the Purchase Agreement (including, without
      limitation, in accordance with the requirements of Section 2(g) of the Purchase
      Agreement that certificates for shares of Common Stock issued on or after the
      effective date of the Registration Statement upon conversion of this Note shall
      not bear any restrictive legend).

     

    (e)  Obligation
      of Borrower to Deliver Common Stock.
      Upon
      receipt by the Borrower of a Notice of Conversion subject to Stockholder
      Approval (as defined in Section 4(k) of the Purchase Agreement), the Holder
      shall be deemed to be the holder of record of the Common Stock issuable upon
      such conversion, the outstanding principal amount and the amount of accrued
      and
      unpaid interest on this Note shall be reduced to reflect such conversion, and,
      unless the Borrower defaults on its obligations under this Article I, all rights
      with respect to the portion of this Note being so converted shall forthwith
      terminate except the right to receive the Common Stock or other securities,
      cash
      or other assets, as herein provided, on such conversion. If the Holder shall
      have given a Notice of Conversion as provided herein, the Borrower’s obligation
      to issue and deliver the certificates for Common Stock shall be absolute and
      unconditional, irrespective of the absence of any action by the Holder to
      enforce the same, any waiver or consent with respect to any provision thereof,
      the recovery of any judgment against any person or any action to enforce the
      same, any failure or delay in the enforcement of any other obligation of the
      Borrower to the holder of record, or any setoff, counterclaim, recoupment,
      limitation or termination, or any breach or alleged breach by the Holder of
      any
      obligation to the Borrower, and irrespective of any other circumstance which
      might otherwise limit such obligation of the Borrower to the Holder in
      connection with such conversion. The Conversion Date specified in the Notice
      of
      Conversion shall be the Conversion Date so long as the Notice of Conversion
      is
      received by the Borrower before 6:00 p.m., New York, New York time, on such
      date.

     

    
      
         

      

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

     

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

     

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

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

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

     

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

     

    1.6  Effect
      of Certain Events.

     

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

     

    
      
         

      

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

     

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

     

    
      
         

      

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

     

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

     

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

     

    
      
         

      

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

     

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

     

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

     

    
      
         

      

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

     

    
      
         

      

      
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    ARTICLE
      II.  CERTAIN
      COVENANTS

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
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    ARTICLE
      III.  EVENTS
      OF DEFAULT

     

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

     

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

     

    3.2  Conversion
      and the Shares.
      The
      Borrower fails to issue shares of Common Stock to the Holder (or announces
      or
      threatens that it will not honor its obligation to do so) upon exercise by
      the
      Holder of the conversion rights of the Holder in accordance with the terms
      of
      this Note (for a period of at least sixty (60) days, if such failure is solely
      as a result of the circumstances governed by Section 1.3 and the Borrower is
      using its best efforts to authorize a sufficient number of shares of Common
      Stock as soon as practicable), fails to transfer or cause its transfer agent
      to
      transfer (electronically or in certificated form) any certificate for shares
      of
      Common Stock issued to the Holder upon conversion of or otherwise pursuant
      to
      this Note as and when required by this Note or the Registration Rights
      Agreement, or fails to remove any restrictive legend (or to withdraw any stop
      transfer instructions in respect thereof) on any certificate for any shares
      of
      Common Stock issued to the Holder upon conversion of or otherwise pursuant
      to
      this Note as and when required by this Note or the Registration Rights Agreement
      (or makes any announcement, statement or threat that it does not intend to
      honor
      the obligations described in this paragraph) and any such failure shall continue
      uncured (or any announcement, statement or threat not to honor its obligations
      shall not be rescinded in writing) for ten (10) days after the Borrower shall
      have been notified thereof in writing by the Holder;

     

    3.3  Failure
      to Timely File Registration or Effect Registration.
      The
      Borrower fails to file the Registration Statement within thirty (30) days
      following an Investor Demand (as set forth in the Registration Rights Agreement)
      or obtain effectiveness with the Securities and Exchange Commission of the
      Registration Statement within one hundred twenty (60) days following the
      Investor Demand (as defined in the Registration Rights Agreement) or such
      Registration Statement lapses in effect (or sales cannot otherwise be made
      thereunder effective, whether by reason of the Borrower’s failure to amend or
      supplement the prospectus included therein in accordance with the Registration
      Rights Agreement or otherwise) for more than twenty (20) consecutive days or
      forty (40) days in any twelve month period after the Registration Statement
      becomes effective;;

     

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

     

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

     

    
      
         

      

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

     

    3.7  Judgments.
      Any
      money judgment, writ or similar process shall be entered or filed against the
      Borrower or any subsidiary of the Borrower or any of its property or other
      assets for more than $50,000, and shall remain unvacated, unbonded or unstayed
      for a period of twenty (20) days unless otherwise consented to by the Holder,
      which consent will not be unreasonably withheld;

     

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

     

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

     

    3.10  Default
      Under Other Notes.
      An Event
      of Default has occurred and is continuing under any of the other Notes issued
      pursuant to the Purchase Agreement,

     

    then,
      upon the occurrence and during the continuation of any Event of Default
      specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
      of the Holders of a majority of the aggregate principal amount of the
      outstanding Notes issued pursuant to the Purchase Agreement exercisable through
      the delivery of written notice to the Borrower by such Holders (the
“Default
      Notice”),
      and
      upon the occurrence of an Event of Default specified in Section 3.6 or 3.8,
      the
      Notes shall become immediately due and payable and the Borrower shall pay to
      the
      Holder, in full satisfaction of its obligations hereunder, an amount equal
      to
      the greater of (i) 130% times
      the
sum
      of (w)
      the then outstanding principal amount of this Note plus
      (x)
      accrued and unpaid interest on the unpaid principal amount of this Note to
      the
      date of payment (the “Mandatory
      Prepayment Date”)
      plus
      (y)
      Default Interest, if any, on the amounts referred to in clauses (w) and/or
      (x)
plus
      (z) any
      amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
      pursuant to Section 2(c) of the Registration Rights Agreement (the then
      outstanding principal amount of this Note to the date of payment plus
      the
      amounts referred to in clauses (x), (y) and (z) shall collectively be known
      as
      the “Default
      Sum”)
      or
      (ii) the “parity value” of the Default Sum to be prepaid, where parity value
      means (a) the highest number of shares of Common Stock issuable upon conversion
      of or otherwise pursuant to such Default Sum in accordance with Article I,
      treating the Trading Day immediately preceding the Mandatory Prepayment Date
      as
      the “Conversion Date” for purposes of determining the lowest applicable
      Conversion Price, unless the Default Event arises as a result of a breach in
      respect of a specific Conversion Date in which case such Conversion Date shall
      be the Conversion Date), multiplied
      by
      (b) the
      highest Closing Price for the Common Stock during the period beginning on the
      date of first occurrence of the Event of Default and ending one day prior to
      the
      Mandatory Prepayment Date (the “Default
      Amount”)
      and
      all other amounts payable hereunder shall immediately become due and payable,
      all without demand, presentment or notice, all of which hereby are expressly
      waived, together with all costs, including, without limitation, legal fees
      and
      expenses, of collection, and the Holder shall be entitled to exercise all other
      rights and remedies available at law or in equity. If the Borrower fails to
      pay
      the Default Amount within five (5) business days of written notice that such
      amount is due and payable, then the Holder shall have the right at any time,
      so
      long as the Borrower remains in default (and so long and to the extent that
      there are sufficient authorized shares), to require the Borrower, upon written
      notice, to immediately issue, in lieu of the Default Amount, the number of
      shares of Common Stock of the Borrower equal to the Default Amount divided
      by
      the Conversion Price then in effect.

     

    
      
         

      

      
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    ARTICLE
      IV.  MISCELLANEOUS

     

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

     

    4.2  Notices.
      Any
      notice herein required or permitted to be given shall be in writing and may
      be
      personally served or delivered by courier or sent by United States mail and
      shall be deemed to have been given upon receipt if personally served (which
      shall include telephone line facsimile transmission) or sent by courier or
      three
      (3) days after being deposited in the United States mail, certified, with
      postage pre-paid and properly addressed, if sent by mail. For the purposes
      hereof, the address of the Holder shall be as shown on the records of the
      Borrower; and the address of the Borrower shall be 2616 South Loop West, Suite
      660, Houston, Texas 77054, facsimile number: . Both the Holder and the Borrower
      may change the address for service by service of written notice to the other
      as
      herein provided.

     

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

     

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

     

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

     

    
      
         

      

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

     

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

     

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

     

    
      
         

      

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

     

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

     

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

     

    4.12  Notice
      of Corporate Events.
      Except
      as otherwise provided below, the Holder of this Note shall have no rights as
      a
      Holder of Common Stock unless and only to the extent that it converts this
      Note
      into Common Stock. The Borrower shall provide the Holder with prior notification
      of any meeting of the Borrower’s shareholders (and copies of proxy materials and
      other information sent to shareholders). In the event of any taking by the
      Borrower of a record of its shareholders for the purpose of determining
      shareholders who are entitled to receive payment of any dividend or other
      distribution, any right to subscribe for, purchase or otherwise acquire
      (including by way of merger, consolidation, reclassification or
      recapitalization) any share of any class or any other securities or property,
      or
      to receive any other right, or for the purpose of determining shareholders
      who
      are entitled to vote in connection with any proposed sale, lease or conveyance
      of all or substantially all of the assets of the Borrower or any proposed
      liquidation, dissolution or winding up of the Borrower, the Borrower shall
      mail
      a notice to the Holder, at least twenty (20) days prior to the record date
      specified therein (or thirty (30) days prior to the consummation of the
      transaction or event, whichever is earlier), of the date on which any such
      record is to be taken for the purpose of such dividend, distribution, right
      or
      other event, and a brief statement regarding the amount and character of such
      dividend, distribution, right or other event to the extent known at such time.
      The Borrower shall make a public announcement of any event requiring
      notification to the Holder hereunder substantially simultaneously with the
      notification to the Holder in accordance with the terms of this Section
      4.6.

     

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

     

    
      
         

      

      
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    ARTICLE
      V.  CALL
      OPTION

     

    5.1  Call
      Option.
      Notwithstanding anything to the contrary contained in this Article V, so long
      as
(i) no
      Event of Default or Trading Market Prepayment Event shall have occurred and
      be
      continuing, (ii) the
      Borrower has a sufficient number of authorized shares of Common Stock reserved
      for issuance upon full conversion of the Notes, then at any time after the
      Issue
      Date, and (iii) the
      Common Stock is trading at or below $.10 per share, the Borrower shall have
      the
      right, exercisable on not less than ten (10) Trading Days prior written notice
      to the Holders of the Notes (which notice may not be sent to the Holders of
      the
      Notes until the Borrower is permitted to prepay the Notes pursuant to this
      Section 5.1), to prepay all of the outstanding Notes in accordance with this
      Section 5.1. Any notice of prepayment hereunder (an “Optional
      Prepayment”)
      shall
      be delivered to the Holders of the Notes at their registered addresses appearing
      on the books and records of the Borrower and shall state (1) that the Borrower
      is exercising its right to prepay all of the Notes issued on the Issue Date
      and
      (2) the date of prepayment (the “Optional
      Prepayment Notice”).
      On
      the date fixed for prepayment (the “Optional
      Prepayment Date”),
      the
      Borrower shall make payment of the Optional Prepayment Amount (as defined below)
      to or upon the order of the Holders as specified by the Holders in writing
      to
      the Borrower at least one (1) business day prior to the Optional Prepayment
      Date. If the Borrower exercises its right to prepay the Notes, the Borrower
      shall make payment to the holders of an amount in cash (the “Optional
      Prepayment Amount”)
      equal
      to either (i) 60% (for prepayments occurring within sixty (60) days of the
      Issue Date), (ii) 130% for prepayments occurring between sixty-one (61) and
      one hundred twenty (60) days of the Issue Date, or (iii) 140% (for prepayments
      occurring after the one hundred twentieth (60th)
      day
      following the Issue Date), multiplied by the sum of (w) the then outstanding
      principal amount of this Note plus
      (x) accrued and unpaid interest on the unpaid principal amount of this Note
      to the Optional Prepayment Date plus
      (y)
      Default Interest, if any, on the amounts referred to in clauses (w) and (x)
      plus
      (z) any
      amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
      pursuant to Section 2(c) of the Registration Rights Agreement (the then
      outstanding principal amount of this Note to the date of payment plus
      the
      amounts referred to in clauses (x), (y) and (z) shall collectively be known
      as
      the “Optional
      Prepayment Sum”).
      Notwithstanding notice of an Optional Prepayment, the Holders shall at all
      times
      prior to the Optional Prepayment Date maintain the right to convert all or
      any
      portion of the Notes in accordance with Article I and any portion of Notes
      so
      converted after receipt of an Optional Prepayment Notice and prior to the
      Optional Prepayment Date set forth in such notice and payment of the aggregate
      Optional Prepayment Amount shall be deducted from the principal amount of Notes
      which are otherwise subject to prepayment pursuant to such notice. If the
      Borrower delivers an Optional Prepayment Notice and fails to pay the Optional
      Prepayment Amount due to the Holders of the Notes within two (2) business days
      following the Optional Prepayment Date, the Borrower shall forever forfeit
      its
      right to redeem the Notes pursuant to this Section 5.1.

     

    
      
         

      

      
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    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF,
      Borrower has caused this Note to be signed in its name by its duly authorized
      officer this 5th
      day of
      October, 2006.

    
      	 	 	 
	 	GLOBALNET
              CORPORATION
	 
 	 
 	 
 
	 	By:  	/s/ Thomas
              P.
              Dunn
	 	
              
Thomas
              P. Dunn
	 	Chief
              Financial Officer

    

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    EXHIBIT
      A

     

    NOTICE
      OF CONVERSION

    (To
      be
      Executed by the Registered Holder

    in
      order
      to Convert the Notes)

     

    The
      undersigned hereby irrevocably elects to convert $__________ principal amount
      of
      the Note (defined below) into shares of common stock, par value $.005 per share
      (“Common
      Stock”),
      of
      GlobalNet Corporation, a Nevada corporation (the “Borrower”)
      according to the conditions of the convertible Notes of the Borrower dated
      as of
      October 5, 2006 (the “Notes”), as of the date written below. If securities are
      to be issued in the name of a person other than the undersigned, the undersigned
      will pay all transfer taxes payable with respect thereto and is delivering
      herewith such certificates. No fee will be charged to the Holder for any
      conversion, except for transfer taxes, if any. A copy of each Note is attached
      hereto (or evidence of loss, theft or destruction thereof).

     

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

     

    Name
      of
      DTC Prime Broker: ___________________________________

    Account
      Number: __________________________________________

     

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

     

    Name:
      _________________________________________________

    Address:
      ______________________________________________

     

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

     

    Date
      of
      Conversion:___________________________

    Applicable
      Conversion Price:____________________

    Number
      of
      Shares of Common Stock to be Issued Pursuant to

    Conversion
      of the Notes:________________________

    Signature:___________________________________

    Name:______________________________________

    Address:____________________________________

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

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

     

    
      
         

      

      
        23

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