Document:

Exhibit 10.5 J Gaynor Employment Agreement

    EXHIBIT
      10.5

     

    EMPLOYMENT
      AGREEMENT

     

    THIS
      AGREEMENT ("Agreement"), dated September 25, 2006 (the "Effective Date"), is
      made and entered into by and between AtheroGenics,
      Inc.,
      a
      Georgia corporation (hereinafter called the "Employer"), and Joseph
      M. Gaynor, Jr.,
      a
      resident of the State of Georgia (hereinafter the "Executive").

     

    W
      I T N E S S E T H :

     

    WHEREAS,
      the
      Executive has been employed by Employer since June, 2005;

     

    WHEREAS,
      the
      Employer and Executive mutually desire that the Executive's employment be
      continued; and

     

    WHEREAS,
      the
      Employer and Executive mutually desire to enter into an employment contract
      which will supersede any prior contracts; 

     

    NOW,
      THEREFORE,
      in
      consideration of the premises and the mutual covenants and agreements herein
      contained, the parties hereto agree as follows:

     

    1.  Period
      of Employment.

     

    In
      exchange for the compensation, benefits and perquisites described in this
      Agreement, and upon such other terms and conditions hereinafter set forth,
      the
      Employer agrees to employ the Executive for the "Period of Employment" (as
      hereinafter defined). For purposes of this Agreement, the "Period of Employment"
      shall commence as of the Effective Date of this Agreement and, unless earlier
      terminated as provided in this Agreement, shall consist of an initial period
      of
      one (1) year (the "Initial Term"), and shall automatically be extended for
      additional one (1) year terms (each additional one (1) year term called a
      "Renewal Term") unless Employer or Executive shall notify the other not less
      than 30 days prior to the expiration of either the Initial Term or any Renewal
      Term that Executive's employment will end at the expiration of the then existing
      Initial Term or Renewal Term.

     

    2.  Position
      and Responsibilities.

     

    During
      the Period of Employment, the Executive agrees to serve as the Senior Vice
      President, General Counsel and Secretary of AtheroGenics, Inc. reporting
      directly to the Chief Executive Officer of the Employer (hereinafter the "CEO"),
      and to perform those functions and duties customarily assigned to individuals
      serving in the position in which the Executive serves hereunder. Without
      limiting the foregoing, Executive shall be considered an executive officer
      of
      Employer, and shall be a member of Employer's management executive committee.
      In
      addition, Executive shall keep the Board of Directors of Employer and the CEO
      of
      Employer fully apprised of all material developments occurring under Executive's
      supervision and responsibility. 

     

    Executive
      shall be responsible for keeping senior management and Board of Directors of
      Employer apprised of Employer’s progress in the legal arena. Executive is
      expected to insure 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    that
      legal department activities are carried out with the highest standards of
      excellence, integrity and commercial utility. Executive’s duties shall include
      supervision of other employees in the Legal Department including IP
      management.

     

    Except
      as
      may otherwise be approved in advance by the CEO of Employer, the Executive
      shall
      devote his full working time throughout the Period of Employment to the services
      required of him hereunder. The Executive shall render his services exclusively
      to the Employer during the Period of Employment, and shall use his best efforts,
      judgment and energy to improve and advance the business and interests of the
      Employer in a manner consistent with the duties of his position. 

     

    3.  Compensation,
      Benefits and Perquisites.

     

    (a)  Base
      Salary

     

    In
      exchange for the performance of his duties and responsibilities hereunder and
      all other services rendered by the Executive in any capacity to the Employer,
      the Employer agrees to pay base salary ("Base Salary") to the Executive for
      the
      Initial Term equal to $275,000.00 per year. For any Renewal Term thereafter
      during which this Agreement remains in effect, the Executive's Base Salary
      for
      each such Renewal Term shall be reviewed based upon an annual performance
      appraisal and competitive market conditions and may be increased from time
      to
      time by the Employer (at the sole discretion of Employer). Base Salary shall
      be
      payable according to the customary payroll practices of the
      Employer.

     

    (b)  Incentive
      Compensation

     

    In
      addition to Base Salary, the Executive shall be eligible to receive such
      incentive compensation ("Incentive Compensation") as shall be determined by
      the
      CEO and the Board of Directors of Employer (or a committee of the Board). The
      amount of such Incentive Compensation to be earned in any year shall be based
      upon certain strategic and financial goals which shall be determined by the
      Executive and the CEO of the Employer. Such strategic and financial goals and
      target Incentive Compensation shall be set forth in the Employer's annual budget
      during the term of this Agreement. For 2006, the target Incentive Compensation
      shall be $77,000.00. Incentive Compensation earned for a calendar year pursuant
      to this Agreement shall be payable no later than sixty (60) days following
      the
      expiration of the calendar year.

     

    (c)  Equity
      Compensation

     

    The
      Executive shall be eligible to participate in the Employer's Equity Ownership
      Plans and receive such awards of stock and/or options thereunder as shall be
      determined by the Board of Directors or a committee thereof. 

     

    (d)  General
      Benefits and Perquisites

     

    During
      the term of this Agreement, the Executive shall be entitled to participate,
      in
      accordance with the terms and conditions thereof, in all employee benefit plans
      or perquisite programs generally available to all executive management personnel
      of the Employer which may 

     

    
      
        
        

      

      
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    be
      in
      effect from time to time during the term of this Agreement; provided, however,
      that nothing contained herein shall require the Employer to establish, or
      maintain, any such plan. These benefits are provided in accordance with the
      provisions of each individual plan, which may be amended from time to time
      at
      the sole discretion of the Employer.

     

    (e) Additional
      Disability Coverage

     

    In
      addition to the employee benefit plan coverage provided under Section 3(d)
      above, during the term of this Agreement the Executive will be provided with
      additional "Disability" (as hereinafter defined) benefits in an amount such
      that
      the total annual Disability benefit payable under this provision, together
      with
      payments under any short-term and/or long-term disability program or policy
      maintained by the Employer and from workers compensation with respect to the
      disabling condition, will be equal to 70% of the Executive's annualized Base
      Salary immediately prior to the Disability. The Disability benefit provided
      under this Section 3(e) will be paid from the date of the Disability in the
      same
      manner and at the same time that benefits are paid under the Employer’s
      short-term or long-term disability program or policy, as applicable, until
      the
      earliest of (i) the cessation of the Disability; (ii) the Executive's
      death; (iii) the Executive's attainment of age 65; (iv) the date when short-term
      disability benefits terminate if long-term disability benefits do not
      immediately commence thereafter pursuant to the terms of that policy; or (v)
      the
      date when long-term disability policy benefits terminate pursuant to the terms
      of that policy.

     

    For
      purposes of this Agreement, the term "Disability" or "Disabled" has the same
      meaning as provided in the long-term disability plan maintained by the Employer,
      not taking into account any exclusion or waiting period under such plan or,
      if
      the Employer determines that Code Section 409A is applicable, has the meaning
      set forth in Code Section 409A and the related tax regulations. In the event
      of
      a dispute, the determination of Disability or Disabled shall be made by the
      Board of Directors or its designee. In the event that the Executive shall
      dispute the determination of the Board of Directors or its designee as to the
      Disability of the Executive, the Executive may appeal the determination to
      a
      panel of three doctors, one to be selected by the Executive at his expense,
      one
      to be selected by the Board of Directors or its designee at its expense, and
      one
      to be selected by the doctors chosen by the Executive and the Board of Directors
      or its designee whose expense shall be shared equally between Executive and
      Employer. The decision of the panel of doctors shall be final. Any termination
      for Disability under this Agreement shall not affect the rights, if any, that
      the Executive may otherwise have under the long-term disability plan the
      Employer may have in effect at the date of such termination and in which the
      Executive is then participating. Employer shall have the right to review any
      determination of Disability no more frequently than bi-annually. 

     

    (f) Reimbursement
      of Business Expenses

     

    The
      Employer will reimburse the Executive for all reasonable and necessary business
      expenses (including, but not limited to, professional and service organization
      dues, journal subscriptions and educational seminars, conferences, symposiums
      and other meetings) and related travel expenses, incurred or expended in
      connection with the performance of his duties and responsibilities as Executive
      under this Agreement in accordance with the reimbursement 

     

    
      
        
        

      

      
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    policies
      of Employer. Any reimbursement payments made to Executive pursuant to the
      reimbursement policies of the Employer during the term of this Agreement shall
      be paid no later than March 15 of the calendar year immediately following the
      expiration of the calendar year in which the related expense was
      incurred.

     

    (g) Change
      of
      Control

     

    In
      the
      event of a Change of Control, as defined in Section 4(g) hereof, 18 months
      of
      vesting for unvested stock options granted to the Executive pursuant to the
      Employer's Equity Ownership Plans (or any other or successor plans) shall be
      immediately accelerated (but the period during which Executive may exercise
      the
      stock options shall not be extended under this Agreement).

     

    4.  Termination
      of Agreement.

     

    (a)  General

     

    Upon
      termination of Executive for any reason, (i) the Employer shall pay the
      Executive any Base Salary that was earned through the effective date of his
      termination but which remained unpaid as of that date, and (ii) Executive shall
      be entitled to any benefits that have been accrued and vested under any of
      Employer's employee benefit plans in accordance with and to the extent provided
      in such benefit plans. Except as otherwise provided in this Agreement, Executive
      shall not be entitled to any other benefits or payments under this Agreement
      in
      the event of termination of Employment.

     

    (b)  Involuntary
      Termination

     

    Employer
      recognizes that the Executive would incur substantial damage to personal and
      professional reputation in the event of an Involuntary Termination.
      Consequently, should such Involuntary Termination occur during the Period of
      Employment, the Employer shall pay to the Executive, as liquidated damages,
      an
      amount (the "Severance Amount") equivalent to the sum of (i) one times
      Executive's then current annualized Base Salary and (ii) a percentage of the
      target Incentive Compensation otherwise stipulated for the benefit of Executive
      pursuant to Section 3(b) of this Agreement for the calendar year in which the
      Involuntary Termination occurs as follows: 

     

    
      	
               Aggregate
                Period of Employment

               with
                Employer

            	
               Percentage
                of Target Incentive

              Compensation
                Table

            
	
               Under
                one
                year            

            	
               None

            
	 One
              year up to two years	
              50%

            
	 Two
              years and over	
              100%

            

    

    

     

    
      
        
        

      

      
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    The
      Severance Amount shall be paid in a lump sum in cash on Executive’s Delayed
      Payment Date (together with interest at the Prime Rate from the date of
      Executive’s termination of employment to the Executive’s Delayed Payment Date).
      Payment of the Severance Amount shall be contingent upon Executive signing
      (and
      not revoking) a general release of all claims, in a form attached hereto as
      Exhibit
      A.
      

     

    Upon
      Executive's becoming ineligible to participate in the group health plan(s)
      sponsored by the Employer, Executive may elect continuation coverage
      ("Continuation Coverage") under such plan(s) as permitted by the Consolidated
      Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"). During such
      COBRA coverage period, the Employer will pay the premiums for COBRA Continuation
      Coverage (excluding any medical flexible spending account coverage) until the
      first to occur of (i) the first anniversary of the Involuntary Termination,
      or
      (ii) the date on which the Executive commences employment with a new employer
      and is eligible to participate in a subsequent employer's medical and healthcare
      employee benefits program with respect to the Employer's insured group health
      plan; provided, however, that such payments shall not exceed the amount paid
      by
      Employer for the medical and healthcare coverage in effect for Executive and
      his
      dependents immediately prior to the COBRA coverage period. All other premiums
      shall be paid by Executive.

     

    If
      the
      Executive's employment terminates due to an Involuntary Termination, the
      Employer shall accelerate the vesting of its stock options previously granted
      to
      Executive pursuant to the Employer's Equity Ownership Plan (or any other or
      successor plans) as follows (but the period during which Executive may exercise
      the stock options shall not be extended under this Agreement):

     

    
      	
               

              Aggregate
                Period of

               Employment
                with Employer 

            	
               Options
                to Have Accelerated

               Vesting
                as of Date of

               Involuntary
                Termination

            
	Under
              one year	 None
	
              One
                year up to two years

               

               

            	
               Options
                otherwise vesting within 6

               months
                following Involuntary

               Termination

            
	
               Two
                years and over 

               

                 

            	
              Options
                otherwise vesting within 12 

              months
                following Involuntary

              Termination

            

    

     

    If
      the
      Involuntary Termination or a Constructive Discharge occurs within 24 months
      following a Change of Control, in lieu of the Severance Amount provided in
      the
      first paragraph of this Section 4(b) (but paid in the same manner as earlier
      provided), the Severance Amount shall be the aggregate of (i) 2 times annualized
      Base Salary and (ii) 100% of the target Incentive Compensation otherwise payable
      to him for the year in which the Involuntary Termination or Constructive
      Discharge occurs. In addition, vesting for all unvested stock options granted
      pursuant to the Employer's Equity Ownership Plan (or any other or successor
      plans) shall be immediately accelerated (but the period during which Executive
      may exercise the stock options 

     

    
      
        
        

      

      
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    shall
      not
      be extended under this Agreement). In order to reduce the impact of any possible
      excise tax, AtheroGenics agrees to provide a gross up payment equal to the
      sum
      of a) the excise tax under Code Section 4999 payable on the severance package
      and b) the federal, state, local, employment tax and excise tax on the gross
      up
      payment. 

     

    Except
      as
      provided under this Section 4(b), as of the effective date of an Involuntary
      Termination, all other obligations of the Employer to Executive under this
      Agreement shall cease.

     

    (c)  Voluntary
      Resignation

     

    Except
      in
      the case of a voluntary resignation which results from a Constructive Discharge,
      if the Executive voluntarily resigns from the positions described in Section
      2
      during the period in which this Agreement is in effect, then the Employer shall
      pay the Executive the benefits provided in Section 4(a) of this Agreement.
      No
      Incentive Compensation will be paid to the Executive following the date of
      a
      voluntary resignation. The respective terms and provisions of any other employee
      benefit or perquisite program shall control in the case of a voluntary
      resignation.

     

    Unless
      otherwise specifically stated in this Agreement, as of the effective date of
      a
      voluntary resignation, all obligations of the Employer to Executive under this
      Agreement shall cease.

     

    The
      Executive must notify the Board of Directors in writing of his intent to
      voluntarily terminate employment at least thirty (30) days prior to the
      effective date of such voluntary resignation.

     

    (d)  Termination
      for Cause

     

    Notwithstanding
      any other provision contained in this Agreement, the Employer has the right,
      at
      any time, to effect a "Termination for Cause" (as defined in Section 4(g)),
      of
      Executive's employment under this Agreement. Upon the date of such Termination
      for Cause, the Employer shall pay the Executive the benefits provided in Section
      4(a) of this Agreement. No Incentive Compensation will be paid to the Executive
      following the date of a Termination for Cause. The respective terms and
      provisions of any other employee benefit or perquisite program shall control
      in
      the case of a Termination for Cause.

     

    Unless
      otherwise specifically stated in this Agreement, as of the effective date of
      a
      Termination for Cause, all obligations of the Employer to Executive under this
      Agreement shall cease.

     

    (e)  Disability

     

    In
      the
      event the Executive becomes Disabled at any time during the term of this
      Agreement, the Employer shall make payments to the Executive in amounts equal
      solely to those specified in Section 3(e) and for the time period specified
      in
      Section 3(e). Such payments shall be paid in the same manner and at the same
      time that Base Salary would have been paid had this 

     

    
      
        
        

      

      
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    Agreement
      continued. Notwithstanding the foregoing, the Executive shall also be entitled
      to a pro rata portion of his target Incentive Compensation otherwise stipulated
      for the benefit of Executive for the calendar year in which he became Disabled,
      provided Executive is Disabled as of the end of such calendar year. Such pro
      rata portion shall be determined by multiplying (i) the total target Incentive
      Compensation that the Executive was projected to receive in respect of the
      year
      of his Disability by (ii) the quotient of the number of days in such year prior
      to his Disability, divided by 365. Such pro rata Incentive Compensation will
      be
      payable at the same time that the full Incentive Compensation would have been
      payable to the Executive as provided in Section 3(b) hereof.

     

    Except
      as
      provided under this Section 4(e) and Section 3(e), as of the effective date
      of
      the Disability, all other obligations of the Employer to Executive under this
      Agreement shall cease.

     

    (f)  Death

     

    In
      the
      event of the death of Executive during the term of this Agreement, the heirs,
      personal representatives or beneficiaries designated in writing by Executive,
      as
      required by applicable law, shall receive (i) the benefits and payments
      described in Section 4(a) of this Agreement; (ii) a pro rata portion of the
      target Incentive Compensation otherwise stipulated for the benefit of Executive
      for the calendar year in which Executive dies (such pro rata portion determined
      by multiplying (x) the total target Incentive Compensation that the Executive
      was projected to receive in respect of the year of his death by (y) the quotient
      of the number of days in such year prior to his death, divided by 365); and
      (iii) accelerated vesting of stock options previously granted to Executive
      that
      otherwise would have vested within 12 months following Executive's death. Such
      pro rata Incentive Compensation will be payable at the same time that the full
      Incentive Compensation would have been payable to the Executive as provided
      in
      Section 3(b) hereof. 

     

    (g)  Certain
      Definitions

     

    "Change
      of Control"
      shall be
      deemed to have occurred if (i) a tender offer shall be made and consummated
      for
      the ownership of 50% or more of the outstanding voting securities of the
      Employer, (ii) the Employer shall be merged or consolidated with another
      corporation and as a result of such merger or consolidation less than 50% of
      the
      outstanding voting securities of the surviving or resulting corporation shall
      be
      owned in the aggregate by the former shareholders of the Employer, (iii) the
      Employer shall sell all or substantially all of its assets to another
      corporation which corporation is not wholly owned by the Employer, (iv) a
      person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as in
      effect on the date hereof) of the Securities Exchange Act of 1934, as amended
      ("Exchange Act"), or other legal entity shall acquire 50% or more of the
      outstanding voting securities of the Employer (whether directly, indirectly,
      beneficially or of record), or (v) individuals who, as of the date hereof,
      together with those directors (x) for whose election proxies shall have been
      solicited by the board and (y) who are then serving as directors appointed
      by
      the board to fill pre-existing vacancies on the board or vacancies caused by
      death or resignation, but not by either removal or to fill newly created
      directorships, constitute the Board of Directors of the Employer (the “Incumbent
      Board”) cease to constitute at least a majority of the Board as a result of an
      actual or threatened election contest 

     

    
      
        
        

      

      
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    with
      respect to the election or removal of directors or other actual or threatened
      solicitation of proxies or consents by or on behalf of a person other than
      the
      Incumbent Board. For purposes hereof, ownership of voting securities shall
      take
      into account and shall include ownership as determined by applying the
      provisions of Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant
      to
      the Exchange Act. 

     

    “Code”
      means
      the
      Internal Revenue Code of 1986, as amended.

     

    "Constructive
      Discharge"
      means
      the termination of the Executive's employment by the Executive on account of
      (i)
      any reduction in the Executive's then-current Base Salary without the consent
      of
      the Executive, (ii) any material reduction in the level or scope of the job
      responsibility or status of the Executive occurring without the consent of
      the
      Executive (including not reporting directly to the Chief Executive Officer
      of
      the Company or its successor; not retaining “Officer” status, such as Chief
      Medical Officer, Chief Financial Officer or Chief Scientific Officer of the
      Company or its successor; or ceasing to have responsibility for a significant
      department or function), or (iii) any relocation to any Employer location which
      is more than 50 miles from its current location and to which the Executive
      has
      not agreed; provided, however, that no termination by Executive shall be
      considered a Constructive Discharge unless Executive has first provided written
      notice to the Chief Executive Officer of Employer of the factual circumstances
      forming the basis for the claim of constructive discharge and of Executive’s
      intent to treat those circumstances as a Constructive Discharge under this
      Agreement, and has further provided the Employer with a period of at least
      fifteen (15) days in which to cure such alleged breach.

     

    “Delayed
      Payment Date”
      means
      the date that is six (6) months and one (1) day after the date of Executive’s
      termination of employment.

     

    "Involuntary
      Termination"
      means
      the Executive's (i) involuntary separation from service with the Employer,
      other
      than as a result of his death, Disability, mandatory retirement pursuant to
      a
      retirement policy of Employer or Termination for Cause, or (ii) receipt of
      notice of the Employer's intent not to extend the Period of Employment as
      specified in Section 1. Involuntary Termination also means Executive's voluntary
      resignation of employment within 90 days following events constituting a
      Constructive Discharge. Any other type of voluntary termination of employment
      shall not be deemed an Involuntary Termination. 

     

     “Prime
      Rate”
      means
      the “Prime Rate” of interest as reported in “Interest Rates & Bonds” in the
      Wall Street Journal, compounded daily.

     

    "Termination
      for Cause"
      means
      the termination of the Executive's employment as a result of conduct by the
      Executive amounting to (i) fraud or dishonesty against the Employer,
      (ii) willful misconduct, or repeated refusal to follow the reasonable
      directions of the Board of Directors or chief executive officer of the Employer,
      (iii) knowing violation of law in the course of performance of the duties of
      Executive's employment with the Employer, (iv) any violation of the Employer’s
      formal policies regarding nondiscrimination and equal employment opportunity,
      sexual harassment and other forms of unlawful workplace harassment, or insider
      trading of Employer’s securities (whether directly or indirectly),
      (v) repeated and frequent absences from work without a reasonable excuse,
      (vi) intoxication with alcohol or drugs while on the 

     

    
      
        
        

      

      
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    Employer's
      premises during regular business hours, (vii) a conviction or plea of
      guilty or nolo contendere
      to a
      felony or other crime of moral turpitude in the course of his employment (e.g.,
      fraud, theft, embezzlement and the like), (viii) gross negligence in the
      performance of Executive’s duties; or (ix) a breach or violation of the terms of
      this Agreement. With respect to (ii) above, Termination for Cause shall not
      be
      permitted until after the Executive has been given written notice of his alleged
      actions described in clause (ii), listing in reasonable specificity such alleged
      actions, and after the Executive shall have failed to improve such performance
      within the time period (which shall have been a reasonable time period)
      specified in such notice, such time period to be not less than 15 days.

     

    5.  Indemnification.

     

    The
      Employer will indemnify the Executive to the fullest extent permitted by
      applicable laws and regulations in accordance with the Bylaws and Amended and
      Restated Articles of Incorporation of the Employer. The Employer shall insure
      and provide a defense to the Executive against all costs, charges and expenses
      incurred in connection with any action, suit or proceeding to which he may
      be
      made a party by reason of his good faith execution of his duties as described
      in
      Section 2. In the event that the Executive is found to be liable or culpable,
      in
      any action, suit or proceeding involving sexual harassment, discrimination
      or
      fraud, the Executive will be obliged to repay to the Employer any costs, charges
      or expenses incurred by the Employer in connection therewith. The Employer
      shall
      enter into an Indemnification Agreement (the “Indemnification Agreement”) with
      the Executive which sets forth in greater detail the indemnification obligations
      of the Employer.

     

    6.  Consolidation,
      Merger or Sale of Assets.

     

    Nothing
      in this Agreement shall preclude the Employer from consolidating or merging
      into
      or with, or transferring all or substantially all of its assets to another
      organization which assumes this Agreement and all obligations and undertakings
      of the Employer hereunder. Upon such a consolidation, merger or sale of assets,
      the term "Employer" as used will mean the other organization, no termination
      of
      Executive's employment under this Agreement shall be deemed to have occurred
      merely because of the consummation of a transaction described in this Section
      6,
      and this Agreement shall continue in full force and effect.

     

    7.  Assignment.

     

    The
      Employer, with the prior written approval of the Executive, shall have the
      right
      to assign this Agreement to an affiliate or subsidiary corporation, and all
      covenants and agreements hereunder shall inure to the benefit of and be
      enforceable by or against its successors and assigns.

     

    This
      Agreement provides for the personal services of the Executive. The Executive
      shall not have the right to assign or transfer any of the rights or benefits
      hereunder, nor shall they be subject to voluntary or involuntary
      alienation.

     

    
      
        
        

      

      
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    8.  Amendment,
      Modification, Termination or Waiver.

     

    The
      parties hereby irrevocably agree that no attempted amendment, modification,
      restatement, termination, discharge or change (collectively, "Amendment") of
      this Agreement shall be valid and effective, unless the parties shall
      unanimously agree in writing to such Amendment. No waiver of any provision
      of
      this Agreement shall be effective unless it is in writing and signed by the
      party against whom it is asserted, and any such written waiver shall only be
      applicable to the specific instance to which it relates and shall not be deemed
      to be a continuing or future waiver.

     

    9.  Non-Competition.
      

     

    (a)  Noncompetition

     

    The
      parties acknowledge and agree that, because of Executive's access to the Trade
      Secrets and Confidential Information (each as hereinafter defined) as well
      as
      his duties as described in Section 2, efforts by Executive to engage in directly
      competitive activities would cause significant, irreparable harm to Employer.
      The parties further agree that the relevant competitive market for the
      Restricted Activities (defined below) is nationwide, that Executive will be
      actively working on behalf of Employer throughout the United States of America,
      and that Employer would be directly and severely harmed by competitive
      activities anywhere in the United States of America. Therefore, the parties
      agree that, during his employment and the applicable Restricted Period, except
      on behalf of the Employer, Executive shall not engage in the Restricted
      Activities within the United States of America. For purposes of this Section,
      the "Restricted Activities" shall mean activities substantially similar to
      the
      Executive's responsibilities described in Section 2 of this Agreement for any
      company, entity or individual that engages in the research, development,
      marketing or commercialization of pharmaceuticals or biopharmaceuticals that
      use
      an anti-inflammatory mechanism to treat or prevent atherosclerosis. For purposes
      of this Section, the "Restricted Period" shall be one (1) year after termination
      of employment.

     

    (b)  Nonsolicitation
      of joint venture partners.

     

    During
      his employment and for one (1) year thereafter, Executive will not solicit
      or
      induce any company with whom (i) Employer had a joint venture relationship
      or
      similar partnering relationship during the last 24 months of Executive’s
      employment and (ii) Executive had material contact within the last 24 months
      of
      Executive’s employment, for the purpose of establishing a similar joint venture
      relationship on behalf of another entity with regard to the research,
      development, marketing or commercialization of pharmaceuticals or
      biopharmaceuticals that use an anti-inflammatory mechanism to treat or prevent
      atherosclerosis.

     

    (c)  Nonsolicitation
      of customers

     

    During
      his employment and for one (1) year thereafter, Executive will not solicit
      or
      induce any customer or actively sought prospective customer of Employer, with
      whom Executive had material contact during the last 24 months of his employment,
      for the purpose of 

     

    
      
        
        

      

      
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    providing
      products or services relating to pharmaceuticals or biopharmaceuticals used
      to
      treat or prevent atherosclerosis by an anti-inflammatory mechanism.

     

    (d)  Nonsolicitation
      of employees

     

    During
      his employment and for one (1) year thereafter, Executive will not solicit
      or
      hire any employee of Employer who was employed by Employer at any time during
      the three (3) month period prior to the date of Executive's termination, and
      will not solicit, encourage, or induce any such employee to leave the employ
      of
      Employer.

     

    (e)  Nondisparagement.

     

    During
      his employment and for three (3) years thereafter, Executive will refrain from
      making derogatory or disparaging statements to any person or entity regarding
      the Company, its management, its products or its services. This provision shall
      not prohibit Executive from responding truthfully to a subpoena or an inquiry
      from a governmental agency or as otherwise required by law.

     

    (f)  Reasonableness
      of covenants

     

    Executive
      acknowledges and agrees that the covenants in this section are reasonably
      limited and are necessary to protect the legitimate business interests of
      Employer. Executive further acknowledges and agrees that he is capable of
      finding adequate employment and making a living without violating these
      covenants.

     

    (g)  Remedies

     

    Executive
      acknowledges and agrees that, in the event of a breach of the above covenants,
      the harm to Employer would be immediate, significant, and irreparable. Executive
      agrees that, in addition to and without waiving any other remedies to which
      Employer may be entitled (including recovery of damages), Employer shall be
      entitled to obtain an injunction to prevent actual or threatened violation
      of
      these covenants, and shall not be required to post a bond or other security
      in
      order to obtain preliminary or permanent injunctive relief.

     

    10.  Intellectual
      Property.

     

    (a)  For
      purposes of this Agreement, the following definitions apply:

     

    (i)  "Trade
      Secret" means any scientific, technical or non-technical data or information
      of
      Employer, without regard to form, including but not limited to, formulas,
      techniques, processes, procedures, improvements, know-how, patterns,
      compilations, programs, computer software, devices, methods, techniques,
      drawings, processes, financial data, financial plans, product or website plans,
      market feasibility studies, designs and design concepts, documents and manuals
      related to product plans, designs and design concepts, or lists (whether in
      written form or otherwise) of actual or potential customers or suppliers, which
      (i) derive economic value, actual or potential, from not being generally known
      to and not being readily ascertainable by proper means by other persons who
      can
      obtain economic value from its 

     

    
      
        
        

      

      
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    disclosure
      or use and (ii) are the subject of efforts that are reasonable under the
      circumstances to maintain its secrecy. Trade Secrets also include any
      information described in this Section 10(a)(i) which Employer obtains from
      another party and which Employer treats as proprietary or designates as trade
      secrets, whether or not owned or developed by Employer.

     

    (ii)  "Confidential
      Information" means any data or information, without regard to form, other than
      Trade Secrets, that is of value to Employer and is not generally known to
      competitors of Employer, including without limitation, lists of any information
      about Employer's employees, sales and marketing techniques and information,
      price lists, pricing policies, Employer's business methods, training and
      operations materials, and contracts, records and contractual relations with
      Employer's customers and suppliers. Confidential Information also includes
      any
      information described in this Section 10(a)(ii) which Employer obtains from
      another party and which Employer treats as proprietary or designates as
      confidential information, whether or not owned or developed by
      Employer.

     

    (iii)  Failure
      to mark any of the Trade Secrets or Confidential Information as confidential
      shall not affect its status as Trade Secrets or Confidential Information under
      this Agreement.

     

    (b)  Executive
      recognizes and acknowledges that Employer is engaged in the business of
      research, development, marketing and commercialization of pharmaceuticals and
      biopharmaceuticals used to treat or prevent specific medical conditions, which
      activities involve the use of skilled experts and the expenditure of substantial
      amounts of time and money. As a result of such investments of skill, time and
      money, Employer has developed certain Confidential Information and Trade Secrets
      which give Employer significant advantages over its competitors. Due to the
      nature of Executive's employment with Employer, Executive understands that
      he
      has had, and may have in the future, frequent direct and indirect contact with
      various suppliers, sources and customers of Employer and may be presented with,
      have access to, and/or participate in the development of both Confidential
      Information and Trade Secrets. These Trade Secrets and Confidential Information
      constitute valuable, special and unique assets of Employer and any disclosure
      thereof contrary to the terms of this Agreement would cause substantial loss
      of
      competitive advantage and other serious injury to Employer.

     

    (c)  For
      the
      reasons recited in Section 10(b) above, Executive covenants and agrees
      that:

     

    (i)  During
      Executive's employment with Employer and after the termination thereof, whether
      such termination is at Executive's instance or Employer's, Executive will not,
      except as expressly authorized or directed by Employer, use, copy, or disclose,
      or permit any unauthorized person access to, any Trade Secrets belonging to
      Employer or any third party; and

     

    (ii)  During
      Executive's employment with Employer and for a period of five (5) years after
      termination, whether such termination is at Executive's instance or Employer's,
      Executive will not use, copy, or disclose, or permit any unauthorized person
      access to, any Confidential Information belonging to Employer or any third
      party.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (iii)  Upon
      request of Employer and in any event upon the termination of Executive's
      employment with Employer, Executive will deliver to Employer all memoranda,
      notes, records, tapes, documentation, disks, manuals, files or other documents,
      and all copies thereof, concerning or containing Confidential Information or
      Trade Secrets in his possession, whether made or compiled by Executive or
      furnished to Executive by Employer.

     

    (iv)  All
      inventions, discoveries, developments, designs, Trade Secrets, trademarks,
      copyrightable subject matter and other proprietary information or work product,
      whether or not patentable (collectively, "Inventions"), which Executive has
      made
      or conceived, or may make or conceive, either solely or jointly with others,
      while providing services to Employer or relating to any of Employer's actual
      or
      anticipated business known to Executive while employed by Employer, or suggested
      by or resulting from any task assigned to Executive or work performed by
      Executive for or on behalf of Employer, shall be the exclusive property of
      Employer. During Executive's employment and thereafter, Executive will promptly
      disclose any and all such Inventions to Employer and will promptly execute
      and
      deliver, without requiring Employer to provide any further consideration
      therefor, such confirmatory assignments, instruments or documents as Employer
      deems necessary or desirable to vest title thereto in Employer. During
      Executive’s employment and thereafter, Executive will assist Employer in
      obtaining, maintaining, and enforcing patents and other proprietary rights
      in
      connection with any Invention, without requiring Employer to provide any further
      consideration therefor. In addition, during Executive’s employment and
      thereafter, Executive will promptly execute and deliver, without requiring
      Employer to provide any further consideration therefor, any documents necessary
      or appropriate to comply with any regulatory requirements, inquiries or requests
      by the Food and Drug Administration or other regulatory bodies, agencies,
      political entities or the like regarding matters for which Executive had
      responsibility during his employment.

     

    (d)  Executive
      acknowledges that Employer does not wish to incorporate any unlicensed or
      unauthorized materials into its products or technology. Therefore, Executive
      agrees that Executive will not knowingly disclose to Employer, knowingly use
      in
      Employer's business, or knowingly cause Employer to use, any information or
      material which is confidential to any third party unless Employer has a written
      agreement with such third party or Employer otherwise has the right to receive
      and use such information. Executive will not knowingly incorporate into
      Executive's work any material which is subject to the copyrights or patent
      of
      any third party unless Employer has a written agreement with such third party
      or
      otherwise has the right to receive and use such material.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    (e)  Executive
      represents that there are no other contracts to assign inventions that are
      now
      in existence between Executive and any other person or entity. Executive further
      represents that there are no contracts or other restrictions which would
      restrict or impair Executive’s performance under this Agreement. As a matter of
      record, Executive attaches as Exhibit B a brief description of all Inventions
      made or conceived by Executive prior to Executive’s employment with the Employer
      which Executive desires to be excluded from this Agreement.

     

    11.  Litigation
      Assistance.

     

    Following
      the termination of Executive's employment for whatever reason, Executive agrees
      to assist the Employer (upon the Employer's request) with regard to threatened
      or actual litigation concerning the Employer where Executive has knowledge
      of
      the facts relating to such threatened or actual litigation. Executive's
      assistance in such matter may include, but not be limited to, meeting with
      the
      Employer's attorneys and other professional advisors; providing truthful
      testimony at a deposition, hearing and/or trial; and providing witness
      statements or affidavits. Employer agrees to provide Executive with reasonable
      notice of the need for such assistance and to use reasonable efforts to
      accommodate Executive's schedule and minimize the burdens on Executive. Employer
      shall, as soon as practicable, reimburse Executive's reasonable out-of-pocket
      expenses associated with such assistance and shall, as soon as practicable,
      pay
      to Executive the sum of $150 per hour for Executive's time devoted to these
      obligations; provided, however, that any reimbursement payments or other
      payments made to Executive pursuant to this Section 11 shall be paid no later
      than March 15 of the calendar year immediately following the expiration of
      the
      calendar year in which the related expense was incurred or the service was
      rendered, as applicable. 

     

    12.  Dispute
      Resolution.

     

    Any
      controversy or claim arising out of or relating to the interpretation or
      application of this Agreement, or any breach hereof, shall be settled by
      arbitration in the Fulton County, Georgia area in accordance with the rules
      of
      the American Arbitration Association ("AAA") then in effect, and judgment upon
      the award rendered by the arbitrator(s) shall be final and binding on the
      parties hereto and may be entered in any court having jurisdiction
      thereof.

     

    All
      arbitrations pursuant to this Agreement shall be determined by a single
      arbitrator selected from a panel proposed by the AAA pursuant to the
      then-current arbitrator selection procedures of the AAA. Each party will bear
      equally the costs and expenses of arbitration, and each party will bear the
      costs and expenses of its own counsel, technical advisors and expert witnesses,
      unless the decision of the arbitrator otherwise directs. 

     

    Any
      arbitration award rendered in accordance with this Section 12 will be satisfied
      promptly and without the need for the prevailing party to seek enforcement,
      which may be sought in any court having competent jurisdiction. In the event
      resort to enforcement proceedings are required for any award or decision, the
      party which has not complied with the arbitral award or decision will be
      responsible for both parties' reasonable attorneys' fees and all costs in the
      enforcement proceeding. The decision of the arbitrators shall be tendered within
      

     

    
      
        
        

      

      
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    sixty
      (60) days of final submission of the parties in writing or any hearing before
      the arbitrators and shall include their individual votes.

     

    Notwithstanding
      the foregoing, in the event of a breach or threatened breach of sections 9
      or
      10, Employer shall be permitted to seek temporary injunctive relief in a court
      of competent jurisdiction. Any damages claims arising out of an alleged breach
      of sections 9 or 10 shall be resolved by arbitration in accordance with this
      Section 12.

     

    The
      parties hereto expressly agree to this arbitration provision: 

     

    Initials:
      ________   Initials:
      ________

     

    13.  Amendment
      of Equity Ownership Agreements.

     

    The
      various Equity Ownership Agreements entered into with respect to stock option
      grants made by the Employer to Executive on or before December 31, 2003 (the
      "Equity Ownership Agreements"), are hereby amended to reflect the accelerated
      option vesting and other option-related provisions of this Agreement. Except
      as
      modified herein, the terms of the Equity Ownership Agreements shall remain
      in
      full force and effect, and nothing in this Agreement shall extend the period
      during which Executive may exercise the stock options subject to the Equity
      Ownership Agreements.

     

    14.  Entire
      Agreement.

     

    This
      Agreement and the Indemnification Agreement set forth all the promises,
      covenants, agreements, conditions and understandings between the parties hereto
      with respect to the subject matter hereof, and supersede all prior and
      contemporaneous agreements, understandings, inducements or conditions expressed
      or implied, oral or written, except as contained herein and in the
      Indemnification Agreement. This Agreement shall not supersede any prior grant
      of
      stock options to Executive pursuant to a formal written stock option agreement.
      

     

    15.  Change
      in Taxation.

     

    If
      subsequent to the effective date of this Agreement, there occurs a change in
      the
      tax laws, regulations or administrative interpretations which would materially
      impact the taxation of the benefits hereunder, either party to this Agreement
      may propose an amendment. Any such proposed amendment shall be subject to
      Section 8. The provisions of this Agreement have been structured by the Employer
      acting in good faith to avoid to the extent practicable any additional tax
      on
      Executive under Section 409A of the Code.

     

    16.  Provisions
      Severable.

     

    This
      Agreement is intended to be performed in accordance with, and only to the extent
      permitted by, all applicable laws, ordinances, rules, and regulations of the
      jurisdiction in which the parties do business. If any provision of this
      Agreement, or the application thereof to any person or circumstance shall,
      for
      any reason or to any extent, be invalid or unenforceable, the remainder of
      this
      Agreement and the application of such provision to other persons or

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    circumstances
      shall not be affected thereby, but rather shall be enforced to the greatest
      extent permitted by law.

     

    17.  Withholding.

     

    The
      Employer shall have the right to withhold from any and all payments required
      to
      be made to the Executive pursuant to this Agreement all federal, state, local,
      and/or other taxes which the Employer determines are required to be withheld
      in
      accordance with applicable statutes or regulations.

     

    18.  Governing
      Law.

     

    This
      Agreement shall be construed in accordance with the laws of the State of Georgia
      and the venue of any dispute or litigation shall be Fulton County,
      Georgia.

     

    19.  ERISA
      Rules.

     

    Notwithstanding
      anything to the contrary contained in this Agreement, all benefits provided
      hereunder will be subject to applicable rules and regulations promulgated under
      the Employee Retirement Income Security Act of 1974, as amended.

     

    IN
      WITNESS WHEREOF,
      the
      parties hereto have executed this Agreement effective as of the day and year
      first above written.

     

     
      
      	ATHEROGENICS,
              INC.
	 
	 By:______________________________
	 Title:_____________________________
	 Date:_____________________________
	 
	 EXECUTIVE:
	 _________________________________
	Joseph
              M. Gaynor, Jr.
	 Date:_____________________________

   

     

    
 

     

    [NOTE:
      The parties must initial paragraph 12 in addition to signing on this page.]
      

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

     

    FORM
      OF GENERAL RELEASE

     

    For
      and
      in consideration of the severance payments provided to _______________
      (“Executive”) pursuant to the Employment Agreement between AtheroGenics, Inc.
      (“Employer”) and Executive, effective as of ________________, 200__, which is
      expressly incorporated by reference herein, along with other consideration,
      the
      receipt and sufficiency of which are hereby acknowledged, Executive does hereby
      release, acquit, and forever discharge Employer (or any affiliate, officer,
      director or employee of Employer) from, and does hereby covenant and agree
      never
      to institute or cause to be instituted any suit or other form of action or
      proceeding of any kind or nature whatsoever against Employer (or any affiliate,
      officer, director, or employee of Employer) based upon, any and all claims,
      demands, indebtedness, agreements, promises, causes of action, obligations,
      damages, or liabilities of any nature whatsoever, in law or in equity, whether
      or not known, suspected or claimed, that Executive ever had, has claimed to
      have, now has, or may hereafter have or claim to have against Employer by reason
      of any act, event, occurrence, or thing occurring on or before the date of
      this
      General Release.

    The
      claims released herein specifically include, but are not limited to, any claims
      arising in tort or contract, any claim based on wrongful discharge, any claim
      based on breach of contract, any claim based on sexual harassment or any other
      form of workplace harassment, and any claim arising under federal, state or
      local law prohibiting race, sex, age, religion, national origin, handicap,
      disability or other forms of discrimination, or retaliation, including but
      not
      limited to Title VII of the Civil Rights Act of 1964, as amended; 42 U.S.C.
§
1981; the Age Discrimination in Employment Act; the Older Workers Benefit
      Protection Act; the Pregnancy Discrimination Act; the Americans with
      Disabilities Act; the Family and Medical Leave Act; and the Employee Retirement
      Income Security Act, each as amended.

    Executive
      acknowledges that he has been advised to consult with an attorney of his choice
      regarding the form and content of this General Release, and that he enters
      into
      this General Release voluntarily and of his own free will. Executive further
      acknowledges that he has been provided with a period of at least twenty-one
      (21)
      days within which to consider the terms of this General Release. Executive
      understands that he may revoke this General Release within seven (7) days after
      signing it, by delivering written notice of revocation to the Chief

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    Executive
      Officer of Employer, and that this General Release will not become effective
      or
      enforceable until the seven-day revocation period has expired. Executive
      acknowledges that execution of this General Release is a condition precedent
      to
      receipt of the severance payments provided in the Employment Agreement, and
      that, in the absence of fulfilling this condition precedent by executing this
      General Release, Executive would not be entitled to receive those severance
      payments. If Executive revokes this General Release within seven (7) days after
      signing it, it will become null and void, and Executive will not be entitled
      to
      any of the severance benefits provided in the Employment Agreement.

    This
      General Release and the releases and covenants contained herein shall be binding
      upon Executive, his heirs, executors, administrators, assigns, agents, attorneys
      in fact, attorneys at law, and representatives. This General Release and the
      releases and covenants contained herein shall inure to the benefit of Employer
      and each of its predecessors, successors, and assigns, and to each of its and
      their past and present employees, agents, attorneys in fact, attorneys at law,
      representatives, officers, directors, shareholders, partners, joint venturers,
      and all of said individuals’ heirs, executors, administrators and
      assigns.

     

    Witness
      the execution of this General Release on the ____ day of ________,
      200__.

     

    __________________________________

    Executive

    

     

    

     

    
      
        
        

      

      
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    EXHIBIT
      B

     

    LIST
      OF PRIOR INVENTIONS

     

    

     

    

     

    

    
      
        
        

      

      
        19SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of ______________among IBSG International, Inc., a Florida corporation
      (the “Company”),
      and
      the Investors identified on the signature pages hereto (each, including its
      successors and assigns, a “Purchaser”
and
      collectively the “Purchasers”).

     

    WHEREAS,
      subject to the terms and conditions set forth in this Agreement and pursuant
      to
      Section 4(2) of the Securities Act of 1933, as amended (the “Securities
      Act”)
      and
      Rule 506 promulgated thereunder, the Company desires to issue and sell to each
      Purchaser, and each Purchaser, severally and not jointly, desires to purchase
      from the Company, securities of the Company as more fully described in this
      Agreement.

     

    NOW,
      THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
      and for other good and valuable consideration the receipt and adequacy of which
      are hereby acknowledged, the Company and each Purchaser agree as
      follows:

     

    ARTICLE
      I.

    DEFINITIONS

     

    1.1 Definitions.
      In
      addition to the terms defined elsewhere in this Agreement: (a) capitalized
      terms
      that are not otherwise defined herein have the meanings given to such terms
      in
      the Senior Secured Convertible Notes (as defined herein), and (b) the following
      terms have the meanings indicated in this Section 1.1:

     

    “Affiliate”
means
      any Person that, directly or indirectly through one or more intermediaries,
      controls or is controlled by or is under common control with a Person, as such
      terms are used in and construed under Rule 144 under the Securities
      Act.
      With
      respect to a Purchaser, any investment fund or managed account that is managed
      on a discretionary basis by the same investment manager as such Purchaser will
      be deemed to be an Affiliate of such Purchaser.

     

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

     

    “Closing”
means
      the closing of the purchase and sale of the Securities pursuant to Section
      2.1.

     

    “Closing
      Date”
means
      the Trading Day when all of the Transaction Documents have been executed and
      delivered by the applicable parties thereto, and all conditions precedent to
      (i)
      the Purchasers’ obligations to pay the Subscription Amount and (ii) the
      Company’s obligations to deliver the appropriate Senior Secured Convertible
      Notes have been satisfied or waived.

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    
      
         

      

      
        -1-

        
          

        

      

      
         

      

    

    “Common
      Stock”
means
      the common stock of the Company, and any other class of securities into which
      such securities may hereafter be reclassified or changed into.

     

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

     

    “Company
      Counsel”
means
      Joseph I. Emas, Esq.

     

    “Conversion
      Price”
shall
      have the meaning ascribed to such term in the Senior
      Secured Convertible Notes.

     

    “Effective
      Date”
means
      the date that the initial Registration Statement filed by the Company pursuant
      to the Registration Rights Agreement is first declared effective by the
      Commission.

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

    

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

    

    “Force
      Majeure”
shall
      mean the following acts or omissions provided that they are beyond the direct
      control of the Company: an act of God, an act of war, terrorism, natural
      disaster or prolonged and systematic failure of communication or electrical
      services. Force Majeure shall not include any act or omission by the Commission
      or the Trading Market.

    

    “Liens”
means
      a
      lien, charge, security interest, encumbrance, right of first refusal, preemptive
      right or other restriction. 

    

    “Person”
means
      an individual or corporation, partnership, trust, incorporated or unincorporated
      association, joint venture, limited liability company, joint stock company,
      government (or an agency or subdivision thereof) or other entity of any
      kind.

     

    “Proceeding”
means
      an action, claim, suit, investigation or proceeding (including, without
      limitation, an investigation or partial proceeding, such as a deposition),
      whether commenced or threatened.

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

    “Registration
      Rights Agreement”
means
      the Registration Rights Agreement, dated the date hereof, among the Company
      and
      the Purchasers, in the form of Exhibit
      B
      attached
      hereto.

     

    “Registration
      Statement”
means
      a
      registration statement meeting the requirements set forth in the Registration
      Rights Agreement and covering the resale of the Underlying Shares by each
      Purchaser as provided for in the Registration Rights Agreement.

     

    “Rule
      144”
means
      Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

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

     

    “Senior
      Secured Convertible Notes”
means,
      the 10% Senior
      Secured Convertible Notes due,
      subject to the terms therein, 30 months from their date of issuance, issued
      by
      the Company to the Purchasers hereunder, in the form of Exhibit
      A
      hereto.

     

    “Short
      Sales”
shall
      include all “short sales” as defined in Rule 200 of Regulation SHO under the
      Exchange Act (but shall not be deemed to include the location and/or reservation
      of borrowable shares of Common Stock). 

     

    “Subscription
      Amount”
      means,
      as
      to each Purchaser, the aggregate amount
      to be
      paid for Senior Secured Convertible Notes purchased hereunder as specified
      below
      such Purchaser’s name on the signature page of this Agreement and next to the
      heading “Subscription Amount”, in United States Dollars and in immediately
      available funds.

     

    

    “Trading
      Day”
means
      a
      day on which the Common Stock is traded on a Trading Market.

     

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

     

    “Transaction
      Documents”
means
      this Agreement, the Senior
      Secured Convertible Notes,
      the
      Registration Rights Agreement, and any other documents or agreements executed
      in
      connection with the transactions contemplated hereunder.

     

    “Underlying
      Shares”
means
      the shares of Common Stock issued and issuable upon conversion or redemption
      of
      the Senior
      Secured Convertible Notes.
      

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    ARTICLE
      II.

    PURCHASE
      AND SALE

     

    2.1 Closing.
      On the
      Closing Date, upon the terms and subject to the conditions set forth herein,
      substantially concurrent with the execution and delivery of this Agreement
      by
      the parties hereto, the Company agrees to sell, and each Purchaser agrees to
      purchase in the aggregate, severally and not jointly, the amount of principal
      amount of the Senior Secured Convertible Notes subscribed to, payable via wire
      transfer an immediate available funds to the Company equal to their Subscription
      Amount and the Company shall deliver to each Purchaser their respective Senior
      Secured Convertible Notes (closing). Upon satisfaction of the conditions set
      forth in herein, the Closing shall occur at the offices of the Company, or
      such
      other location as the parties shall mutually agree. The Company shall have
      the
      right, but not the obligation, to raise up to $3,000,000 pursuant to the terms
      and conditions of this Agreement.

     

    2.2  Deliveries.

     

    (a) On
      each
      Closing Date, the Company shall deliver or cause to be delivered to each
      Purchaser the following:

     

    
      	 	
              (i)
                

            	
               
                this Agreement duly executed by the
                Company;

            

    

     

    (ii) a
      Senior
      Secured Convertible Note with a principal amount equal to such Purchaser’s
      Subscription Amount, registered in the name of such Purchaser; 

     

    (iii) the
      Warrant; and

     

    (iv) the
      Registration Rights Agreement duly executed by the Company.

     

    (b) On
      the
      Closing Date, each Purchaser shall deliver or cause to be delivered to the
      Company (except as noted) the following: 

     

    
      	 	
              (i)

            	
              this
                Agreement duly executed by such
                Purchaser;

            

    

     

    (ii) such
      Purchaser’s Subscription Amount by wire transfer to the Company;
      and

     

    (iii) the
      Registration Rights Agreement duly executed by such Purchaser.

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

    2.3 Closing
      Conditions. 

     

    (a) The
      obligations of the Company hereunder in connection with the Closing are subject
      to the following conditions being met:

     

    (i) the
      accuracy in all material respects when made and on the Closing Date of the
      representations and warranties of the Purchasers contained herein;

     

    (ii) all
      obligations, covenants and agreements of the Purchasers required to be performed
      at or prior to the Closing Date shall have been performed; and

     

    (iii) the
      delivery by the Purchasers of the items set forth in Section 2.2(b) of this
      Agreement.

     

    (b) The
      respective obligations of the Purchasers hereunder in connection with the
      Closing are subject to the following conditions being met:

     

    (i) the
      accuracy in all material respects on the Closing Date of the representations
      and
      warranties of the Company contained herein;

     

    (ii) the
      delivery by the Company of the items set forth in Section 2.2(a) of this
      Agreement; 

     

    (iii) there
      shall have been no Material Adverse Effect with respect to the Company since
      the
      date hereof; and

     

    (iv) from
      the
      date hereof to the Closing Date, trading in the Common Stock shall not have
      been
      suspended by the Commission or the Company’s principal Trading Market (except
      for any suspension of trading of limited duration agreed to by the Company,
      which suspension shall be terminated prior to the Closing), and, at any time
      prior to the Closing Date, trading in securities generally as reported by
      Bloomberg Financial Markets shall not have been suspended or limited, or minimum
      prices shall not have been established on securities whose trades are reported
      by such service, or on any Trading Market, nor shall a banking moratorium have
      been declared either by the United States or New York State authorities nor
      shall there have occurred any material outbreak or escalation of hostilities
      or
      other national or international calamity of such magnitude in its effect on,
      or
      any material adverse change in, any financial market which, in each case, in
      the
      reasonable judgment of each Purchaser, makes it impracticable or inadvisable
      to
      purchase the Senior Secured Convertible Notes at the Closing.

     

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

    ARTICLE
      III.

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1 Representations
      and Warranties of the Company.
      The
      Company hereby make the representations and warranties set forth below to each
      Purchaser. 

     

    (a) Organization
      and Qualification.
      The
      Company and each of the subsidiaries is an entity duly incorporated or otherwise
      organized, validly existing and in good standing under the laws of the
      jurisdiction of its incorporation or organization (as applicable), with the
      requisite power and authority to own and use its properties and assets and
      to
      carry on its business as currently conducted. Neither the Company nor any
      subsidiary is in violation or default of any of the provisions of its respective
      certificate or articles of incorporation, bylaws or other organizational or
      charter documents. Each of the Company and its subsidiaries is duly qualified
      to
      conduct business and is in good standing as a foreign corporation or other
      entity in each jurisdiction in which the nature of the business conducted or
      property owned by it makes such qualification necessary, except where the
      failure to be so qualified or in good standing, as the case may be, could not
      have or reasonably be expected to result in (i) a material adverse effect on
      the
      legality, validity or enforceability of any Transaction Document, (ii) a
      material adverse effect on the results of operations, assets, business,
      prospects or condition (financial or otherwise) of the Company and its
      subsidiaries, taken as a whole, or (iii) a material adverse effect on the
      Company’s ability to perform in any material respect on a timely basis its
      obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material
      Adverse Effect”).

     

    (b) Authorization;
      Enforcement.
      The
      Company has the requisite corporate power and authority to enter into and to
      consummate the transactions contemplated by each of the Transaction Documents
      and otherwise to carry out its obligations hereunder and thereunder. The board
      of directors of the Company have approved the terms and consummation of the
      transactions contemplated by each of the Transaction Documents. The execution
      and delivery of each of the Transaction Documents by the Company and the
      consummation by each of the transactions contemplated thereby have been duly
      authorized by all necessary action on the part of the Company and no further
      action is required by the Company, its board of directors or stockholders in
      connection therewith. Each Transaction Document has been (or upon delivery
      will
      have been) duly executed by the Company, and, when delivered in accordance with
      the terms hereof and thereof, will constitute the valid and binding obligation
      of the Company enforceable against the Company in accordance with its terms
      except (i) as limited by general equitable principles and applicable bankruptcy,
      insolvency, reorganization, moratorium and other laws of general application
      affecting enforcement of creditors’ rights generally, (ii) as limited by laws
      relating to the availability of specific performance, injunctive relief or
      other
      equitable remedies and (iii) insofar as indemnification and contribution
      provisions may be limited by applicable law.

     

    (c) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company and each of the Acquisition Subsidiaries
      of
      the other transactions contemplated hereby and thereby do not and will not:
      (i)
      conflict with or violate any provision of the Company’s certificate or articles
      of incorporation, bylaws or other organizational or charter documents, or (ii)
      conflict with, or constitute a default (or an event that with notice or lapse
      of
      time or both would become a default) under, result in the creation of any Lien
      upon any of the properties or assets of the Company or give to others any rights
      of termination, amendment, acceleration or cancellation (with or without notice,
      lapse of time or both) of, any agreement, credit facility, debt or other
      instrument (evidencing a debt or otherwise) or other understanding to which
      the
      Company is a party or by which any property or asset of the Company is bound
      or
      affected, or (iii) subject to the Required Approvals, conflict with or result
      in
      a violation of any law, rule, regulation, order, judgment, injunction, decree
      or
      other restriction of any court or governmental authority to which the Company
      is
      subject (including federal and state securities laws and regulations), or by
      which any property or asset of the Company is bound or affected; except in
      the
      case of each of clauses (ii) and (iii), such as could not have or reasonably
      be
      expected to result in a Material Adverse Effect.

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

    (d) Filings,
      Consents and Approvals.
      Neither
      the Company nor any of its subsidiaries is required to obtain any consent,
      waiver, authorization or order of, give any notice to, or make any filing or
      registration with, any court or other federal, state, local or other
      governmental authority or other Person in connection with the execution,
      delivery and performance by the Company of the Transaction
      Documents.

     

    (e) Issuance
      of the Securities.
      The
      Underlying Shares are duly authorized and, when issued and paid for in
      accordance with the applicable Transaction Documents, will be duly and validly
      issued, fully paid and nonassessable, free and clear of all Liens imposed by
      the
      Company other than restrictions on transfer provided for in the Transaction
      Documents, when issued in accordance with the terms of the Transaction
      Documents, will be validly issued, fully paid and nonassessable, free and clear
      of all Liens imposed by the Company. The Company has reserved from its duly
      authorized capital stock a number of shares of Common Stock for issuance of
      the
      Underlying Shares. 

     

    (f) Capitalization.
      The
      capitalization of the Company is as set forth in the SEC Reports (as defined
      below). No Person has any right of first refusal, preemptive right, right of
      participation, or any similar right to participate in the transactions
      contemplated by the Transaction Documents. The issuance and sale of the Senior
      Secured Convertible Notes will not obligate the Company to issue shares of
      Common Stock or other securities to any Person (other than the Purchasers)
      and
      will not result in a right of any holder of Company securities to adjust the
      exercise, conversion, exchange or reset price under any of such securities.
      All
      of the outstanding shares of capital stock of the Company are validly issued,
      fully paid and nonassessable, have been issued in compliance with all federal
      and state securities laws, and none of such outstanding shares was issued in
      violation of any preemptive rights or similar rights to subscribe for or
      purchase securities. No further approval or authorization of any stockholder,
      the Board of Directors of the Company or others is required for the issuance
      and
      sale of the Senior Secured Convertible Notes. 

     

    (g) SEC
      Reports; Financial Statements.
      The
      Company has filed all reports, schedules, forms, statements and other documents
      required to be filed by it under the Securities Act and the Exchange Act,
      including pursuant to Section 13(a) or 15(d) thereof, for the two years
      preceding the date hereof (or such shorter period as the Company was required
      by
      law or regulation to file such material) (the foregoing materials, including
      the
      exhibits thereto and documents incorporated by reference therein, being
      collectively referred to herein as the “SEC
      Reports”)
      on a
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Reports prior to the expiration of any such extension. As
      of
      their respective dates, the SEC Reports complied in all material respects with
      the requirements of the Securities Act and the Exchange Act and the rules and
      regulations of the Commission promulgated thereunder, as applicable, and none
      of
      the SEC Reports, when filed, contained any untrue statement of a material fact
      or omitted to state a material fact required to be stated therein or necessary
      in order to make the statements therein, in the light of the circumstances
      under
      which they were made, not misleading. The financial statements of the Company
      included in the SEC Reports comply in all material respects with applicable
      accounting requirements and the rules and regulations of the Commission with
      respect thereto as in effect at the time of filing. 

     

    (h) Material
      Changes.
      Since
      the date of the latest audited financial statements included within the SEC
      Reports, except as specifically disclosed in a subsequent SEC Report, (i) there
      has been no event, occurrence or development that has had or that could
      reasonably be expected to result in a Material Adverse Effect, (ii) the Company
      has not incurred any liabilities (contingent or otherwise) other than (A) trade
      payables and accrued expenses incurred in the ordinary course of business
      consistent with past practice and (B) liabilities not required to be reflected
      in the Company’s financial statements pursuant to GAAP or disclosed in filings
      made with the Commission, (iii) the Company has not altered its method of
      accounting, (iv) the Company has not declared or made any dividend or
      distribution of cash or other property to its stockholders or purchased,
      redeemed or made any agreements to purchase or redeem any shares of its capital
      stock and (v) the Company has not issued any equity securities to any officer,
      director or Affiliate, except pursuant to existing Company stock option plans.
      The Company does not have pending before the Commission any request for
      confidential treatment of information. 

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

    (i) Litigation.
      Except
      as disclosed to the Purchasers in writing, there is no action, suit, inquiry,
      notice of violation, proceeding or investigation pending or, to the knowledge
      of
      the Company, threatened against or affecting the Company, any Subsidiary or
      any
      of their respective properties before or by any court, arbitrator, governmental
      or administrative agency or regulatory authority (federal, state, county, local
      or foreign) (collectively, an “Action”)
      which
      (i) adversely affects or challenges the legality, validity or enforceability
      of
      any of the Transaction Documents or the Securities or (ii) could, if there
      were
      an unfavorable decision, have or reasonably be expected to result in a Material
      Adverse Effect. 

     

    (j) Labor
      Relations.
      No
      material labor dispute exists or, to the knowledge of the Company, is imminent
      with respect to any of the employees of the Company which could reasonably
      be
      expected to result in a Material Adverse Effect. None of the Company’s employees
      is a member of a union that relates to such employee’s relationship with the
      Company, and the Company is not a party to a collective bargaining agreement,
      and the Company believes that its relationships with their employees are good.
      

     

    (k) Sarbanes-Oxley;
      Internal Accounting Controls.
      The
      Company is in material compliance with all provisions of the Sarbanes-Oxley
      Act
      of 2002 which are applicable to it as of the Closing Date. The
      Company and the Subsidiaries currently maintain a system of internal accounting
      controls sufficient to provide reasonable assurance that (i) transactions are
      executed in accordance with management’s general or specific authorizations,
      (ii) transactions are recorded as necessary to permit preparation of financial
      statements in conformity with GAAP and to maintain asset accountability, (iii)
      access to assets is permitted only in accordance with management’s general or
      specific authorization, and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences. The Company has established disclosure
      controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
      15d-15(e)) for the Company and designed such disclosure controls and procedures
      to ensure that information required to be disclosed by the Company in the
      reports it files or submits under the Exchange Act is recorded, processed,
      summarized and reported, within the time periods specified in the Commission’s
      rules and forms. The Company’s certifying officers have evaluated the
      effectiveness of the Company’s disclosure controls and procedures as of the end
      of the period covered by the Company’s most recently filed periodic report under
      the Exchange Act (such date, the “Evaluation
      Date”).
      The
      Company presented in its most recently filed periodic report under the Exchange
      Act the conclusions of the certifying officers about the effectiveness of the
      disclosure controls and procedures based on their evaluations as of the
      Evaluation Date. Since the Evaluation Date, there have been no changes in the
      Company’s internal control over financial reporting (as such term is defined in
      the Exchange Act) that has materially affected, or is reasonably likely to
      materially affect, the Company’s internal control over financial
      reporting.

     

    (l) Brokers
      Fees.
      The
      Company agrees to pay a placement fee to Bristol Investment Group. The fee
      will
      be equal to 8% of the cash received by the Company and 8% of the warrants issued
      by the Company to the investor upon closing as defined above. Issuance of
      warrants shall occur at the point of conversion by the Purchasers of the Senior
      Secured Convertible Notes or their redemption by the Company. The Purchasers
      shall have no obligation with respect to any fees or with respect to any claims
      made by or on behalf of other Persons for fees of a type contemplated in this
      Section that may be due in connection with the transactions contemplated by
      the
      Transaction Documents. 

     

    (m) Private
      Placement.
      Assuming the accuracy of the Purchasers representations and warranties set
      forth
      in Section 3.2, no registration under the Securities Act is required for the
      offer and sale of the Securities by the Company to the Purchasers as
      contemplated hereby. The issuance and sale of the Securities hereunder does
      not
      contravene the rules and regulations of the Trading Market.

     

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

    (n) Investment
      Company.
      The
      Company is not, and immediately after receipt of payment for the Securities,
      will not be or be an Affiliate of, an “investment company” within the meaning of
      the Investment Company Act of 1940, as amended. The Company shall conduct its
      business in a manner so that it will not become subject to the Investment
      Company Act.

     

    (o) Listing
      and Maintenance Requirements.
      The
      Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the
      Exchange Act, and the Company has taken no action designed to, or which to
      its
      knowledge is likely to have the effect of, terminating the registration of
      the
      Common Stock under the Exchange Act nor has the Company received any
      notification that the Commission is contemplating terminating such registration.
      The Company has not, in the 12 months preceding the date hereof, received notice
      from any Trading Market on which the Common Stock is or has been listed or
      quoted to the effect that the Company is not in compliance with the listing
      or
      maintenance requirements of such Trading Market. The Company is, and has no
      reason to believe that it will not in the foreseeable future continue to be,
      in
      compliance with all such listing and maintenance requirements.

     

    (p) Disclosure.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, the Company confirms that neither
      it
      nor any other Person acting on its behalf has provided any of the Purchasers
      or
      their agents or counsel with any information that it believes constitutes or
      might constitute material, nonpublic information. The Company understands and
      confirms that the Purchasers will rely on the foregoing representation in
      effecting transactions in securities of the Company. The Company acknowledges
      and agrees that no Purchaser makes or has made any representations or warranties
      with respect to the transactions contemplated hereby other than those
      specifically set forth in Section 3.2 hereof.

     

    (q) No
      General Solicitation.
      Neither
      the Company nor any person acting on behalf of the Company has offered or sold
      any of the Securities by any form of general solicitation or general
      advertising. The Company has offered the Securities for sale only to the
      Purchasers and certain other “accredited investors” within the meaning of Rule
      501 under the Securities Act.

     

    (r) Foreign
      Corrupt Practices.
      Neither
      the Company, nor to the knowledge of the Company, any agent or other person
      acting on behalf of the Company, has (i) directly or indirectly, used any funds
      for unlawful contributions, gifts, entertainment or other unlawful expenses
      related to foreign or domestic political activity, (ii) made any unlawful
      payment to foreign or domestic government officials or employees or to any
      foreign or domestic political parties or campaigns from corporate funds, (iii)
      failed to disclose fully any contribution made by the Company (or made by any
      person acting on its behalf of which the Company is aware) which is in violation
      of law, or (iv) violated in any material respect any provision of the Foreign
      Corrupt Practices Act of 1977, as amended.

     

    (s) No
      Disagreements with Accountants and Lawyers.
      There
      are no disagreements of any kind presently existing, or reasonably anticipated
      by the Company to arise, between the Company and the accountants and lawyers
      formerly or presently employed by the Company and the Company is current with
      respect to any fees owed to its accountants and lawyers.

     

    (t) Acknowledgment
      Regarding Purchasers’ Purchase of Securities.
      The
      Company acknowledges and agrees that each of the Purchasers is acting solely
      in
      the capacity of an arm’s length purchaser with respect to the Transaction
      Documents and the transactions contemplated thereby. The Company further
      acknowledges that no Purchaser is acting as a financial advisor or fiduciary
      of
      the Company (or in any similar capacity) with respect to the Transaction
      Documents and the transactions contemplated thereby and any advice given by
      any
      Purchaser or any of their respective representatives or agents in connection
      with the Transaction Documents and the transactions contemplated thereby is
      merely incidental to the Purchasers’ purchase of the Securities. The Company
      further represents to each Purchaser that the Company’s decision to enter into
      this Agreement and the other Transaction Documents has been based solely on
      the
      independent evaluation of the transactions contemplated hereby by the Company
      and its representatives.

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

    3.2 Representations
      and Warranties of the Purchasers.
      Each
      Purchaser hereby, for itself and for no other Purchaser, represents and warrants
      as of the date hereof and as of the Closing Date to the Company as
      follows:

     

    (a) Organization;
      Authority.
      Such
      Purchaser is an entity duly organized, validly existing and in good standing
      under the laws of the jurisdiction of its organization with full right,
      corporate or partnership power and authority to enter into and to consummate
      the
      transactions contemplated by the Transaction Documents and otherwise to carry
      out its obligations hereunder and thereunder. The execution, delivery and
      performance by such Purchaser of the transactions contemplated by this Agreement
      have been duly authorized by all necessary corporate or similar action on the
      part of such Purchaser. Each Transaction Document to which it is a party has
      been duly executed by such Purchaser, and when delivered by such Purchaser
      in
      accordance with the terms hereof, will constitute the valid and legally binding
      obligation of such Purchaser, enforceable against it in accordance with its
      terms, except (i) as limited by general equitable principles and applicable
      bankruptcy, insolvency, reorganization, moratorium and other laws of general
      application affecting enforcement of creditors’ rights generally, (ii) as
      limited by laws relating to the availability of specific performance, injunctive
      relief or other equitable remedies and (iii) insofar as indemnification and
      contribution provisions may be limited by applicable law.

     

    (b) Own
      Account.
      Such
      Purchaser understands that the Securities are “restricted securities” and have
      not been registered under the Securities Act or any applicable state securities
      law and is acquiring the Senior
      Secured Convertible Notes as
      principal for its own account and not with a view to or for distributing or
      reselling such Senior
      Secured Convertible Notes or
      any
      part thereof in violation of the Securities Act or any applicable state
      securities law, has no present intention of distributing any of such
Senior
      Secured Convertible Notes in
      violation of the Securities Act or any applicable state securities law and
      has
      no direct or indirect arrangement or understandings with any other persons
      to
      distribute or regarding the distribution of such Senior
      Secured Convertible Notes (this
      representation and warranty not limiting such Purchaser’s right to sell the
      Securities pursuant to the Registration Statement or otherwise in compliance
      with applicable federal and state securities laws) in violation of the
      Securities Act or any applicable state securities law. Such Purchaser is
      acquiring the Securities hereunder in the ordinary course of its business.
      Such
      Purchaser understands that no United States federal or state agency or any
      other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the
      Senior
      Secured Convertible Notes.

     

    (c) Purchaser
      Status.
      At the
      time such Purchaser was offered the Senior
      Secured Convertible Notes,
      it was,
      and at the date hereof it is, and on each date on which it converts any Senior
      Secured Convertible Notes it will be either: (i) an “accredited investor” as
      defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities
      Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under
      the Securities Act. Such Purchaser is not required to be registered as a
      broker-dealer under Section 15 of the Exchange Act.

     

    (d) Experience
      of Such Purchaser.
      Such
      Purchaser, either alone or together with its representatives, has such
      knowledge, sophistication and experience in business and financial matters
      so as
      to be capable of evaluating the merits and risks of the prospective investment
      in the Senior
      Secured Convertible Notes,
      and has
      so evaluated the merits and risks of such investment. Such Purchaser is able
      to
      bear the economic risk of an investment in the Securities and, at the present
      time, is able to afford a complete loss of such investment.

     

    (e) General
      Solicitation.
      Such
      Purchaser is not purchasing the Senior
      Secured Convertible Notes as
      a
      result of any advertisement, article, notice or other communication regarding
      the Senior
      Secured Convertible Notes published
      in any newspaper, magazine or similar media or broadcast over television or
      radio or presented at any seminar or any other general solicitation or general
      advertisement.

     

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

    (f) Short
      Sales and Confidentiality Prior To The Date Hereof.
      Other
      than the transaction contemplated hereunder, such Purchaser has not directly
      or
      indirectly, nor has any Person acting on behalf of or pursuant to any
      understanding with such Purchaser, executed any disposition, including Short
      Sales, in the securities of the Company during the period commencing
      from
      the time
      that such Purchaser first received a term sheet (written or oral) from the
      Company or any other Person setting forth the material terms of the transactions
      contemplated hereunder until the date hereof (“Discussion
      Time”).
      

     

    (g) Reliance.
      Such
      Purchaser understands that the Senior
      Secured Convertible Notes are
      being
      offered and sold in reliance on specific exemptions from the registration
      requirements of United States federal and state securities laws and that the
      Company is relying upon the truth and accuracy of, and such Purchaser’s
      compliance with, the representations, warranties and covenants of such Purchaser
      set forth herein in order to determine the availability of such exemptions
      and
      the eligibility of such Purchaser to acquire the Securities.

     

    ARTICLE
      IV.

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1 Transfer
      Restrictions.

     

    (a) The
      Senior
      Secured Convertible Notes and Underlying Shares may
      only
      be disposed of in compliance with state and federal securities laws. In
      connection with any transfer of Securities other than pursuant to an effective
      registration statement or Rule 144, to the Company or to an affiliate of a
      Purchaser, the Company may require the transferor thereof to provide to the
      Company an opinion of counsel selected by the transferor and reasonably
      acceptable to the Company, the form and substance of which opinion shall be
      reasonably satisfactory to the Company, to the effect that such transfer does
      not require registration of such transferred Senior
      Secured Convertible Notes and Underlying Shares under
      the
      Securities Act. As a condition of transfer, any such transferee shall agree
      in
      writing to be bound by the terms of this Agreement and shall have the rights
      of
      a Purchaser under this Agreement and the Registration Rights
      Agreement.

     

    (b) The
      Purchasers agree to the imprinting, so long as is required by this Section
      4.1(b), of a legend on any of the Senior
      Secured Convertible Notes and Underlying Shares in
      the
      following form:

     

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

     

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

    

    (c) Each
      Purchaser, severally and not jointly with the other Purchasers, agrees that
      the
      removal of the restrictive legend from certificates representing Senior
      Secured Convertible Notes and Underlying Shares as
      set
      forth in this Section 4.1 is predicated upon the Company’s reliance that the
      Purchaser will sell any Securities pursuant to either the registration
      requirements of the Securities Act, including any applicable prospectus delivery
      requirements, or an exemption there from, and that if Securities are sold
      pursuant to a Registration Statement, they will be sold in compliance with
      the
      plan of distribution set forth therein.

     

    4.2 Acknowledgment
      of Dilution.
      The
      Company acknowledges that the issuance of the Underlying Shares may result
      in
      dilution of the outstanding shares of Common Stock, which dilution may be
      substantial under certain market conditions. The Company further acknowledges
      that its obligations under the Transaction Documents, including without
      limitation its obligation to issue the Underlying Shares pursuant to the
      Transaction Documents, are unconditional and absolute and not subject to any
      right of set off, counterclaim, delay or reduction, regardless of the effect
      of
      any such dilution or any claim the Company may have against any Purchaser and
      regardless of the dilutive effect that such issuance may have on the ownership
      of the other stockholders of the Company.

     

    4.3 Conversion
      and Exercise Procedures.
      The
      form of Notice of Conversion included in the Senior Secured Convertible
      Notes set
      forth
      the totality of the procedures required of the Purchasers in order to convert
      the Senior Secured Convertible Notes. No additional legal opinion or other
      information or instructions shall be required of the Purchasers convert their
      Senior Secured Convertible Notes. The Company shall honor exercises of
      conversions of the Senior Secured Convertible Notes and shall deliver Underlying
      Shares in accordance with the terms, conditions and time periods set forth
      in
      the Transaction Documents.

     

    4.4 Non-Public
      Information.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, the Company covenants and agrees
      that
      neither it nor any other Person acting on its behalf will provide any Purchaser
      or its agents or counsel with any information that the Company believes
      constitutes material non-public information, unless prior thereto such Purchaser
      shall have executed a written agreement regarding the confidentiality and use
      of
      such information. The Company understands and confirms that each Purchaser
      shall
      be relying on the foregoing representations in effecting transactions in
      securities of the Company.

     

    4.5 Warrants.
      Upon
      each Closing, the Purchasers will be issued 3-year warrants to purchase up
      to
      33% of the Principal Amount of the Senior Secured Convertible Notes (on an
      as
      converted basis) at an exercise price equal to 110% of the Conversion Price.
      The
      Warrants shall be exercisable on a cashless basis and shall include
      anti-dilution provisions. 

     

    4.6 Right
      Of Participation.
      For as
      long as over 50% of the Senior Secured Convertible Notes are outstanding,
      following the closing of this Offering, (i) the Purchasers shall have a right
      of
      participation in any new fund raising undertaken by the Company in a percentage
      equal to the ratio of the face value of the then outstanding Senior Secured
      Convertible Note of that Purchaser to the amount raised in the new financing
      and
      (ii) the Purchasers shall be entitled at their option, to invest an additional
      $1.75 million on the same terms as the investment described
      herein-.

     

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

    ARTICLE
      V.

    MISCELLANEOUS

     

    5.1 Termination. 
      This Agreement may be terminated by any Purchaser, as to such Purchaser’s
      obligations hereunder only and without any effect whatsoever on the obligations
      between the Company and the other Purchasers, by written notice to the other
      parties, if the Closing has not been consummated on or before July 5, 2006;
      provided,
      however,
      that no
      such termination will affect the right of any party to sue for any breach by
      the
      other party (or parties).

     

    5.2 Entire
      Agreement.
      The
      Transaction Documents, together with the exhibits and schedules thereto, contain
      the entire understanding of the parties with respect to the subject matter
      hereof and supersede all prior agreements and understandings, oral or written,
      with respect to such matters, which the parties acknowledge have been merged
      into such documents and exhibits.

     

    5.3 Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile number set forth on the signature
      pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading
      Day,
      (b) the next Trading Day after the date of transmission, if such notice or
      communication is delivered via facsimile at the facsimile number set forth
      on
      the signature pages attached hereto on a day that is not a Trading Day or later
      than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd
      Trading
      Day following the date of mailing, if sent by U.S. nationally recognized
      overnight courier service, or (d) upon actual receipt by the party to whom
      such
      notice is required to be given. The address for such notices and communications
      shall be as set forth on the signature pages attached hereto.

     

    5.4 Amendments;
      Waivers.
      No
      provision of this Agreement may be waived, modified, supplemented or amended
      except in a written instrument signed, in the case of an amendment, by the
      Company and each Purchaser or, in the case of a waiver, by the party against
      whom enforcement of any such waived provision is sought. No waiver of any
      default with respect to any provision, condition or requirement of this
      Agreement shall be deemed to be a continuing waiver in the future or a waiver
      of
      any subsequent default or a waiver of any other provision, condition or
      requirement hereof, nor shall any delay or omission of any party to exercise
      any
      right hereunder in any manner impair the exercise of any such
      right.

     

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

     

    5.6 Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns. The Company may not assign this
      Agreement or any rights or obligations hereunder without the prior written
      consent of each Purchaser (other than by merger). Any Purchaser may assign
      any
      or all of its rights under this Agreement to any Person to whom such Purchaser
      assigns or transfers any Securities, provided such transferee agrees in writing
      to be bound, with respect to the transferred Securities, by the provisions
      of
      the Transaction Documents that apply to the “Purchasers”.

     

    5.7 No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except as otherwise set
      forth
      in Section 4.11.

     

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

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

     

    5.9 Survival.
      The
      representations, warranties, covenants and other agreements contained herein
      shall survive the Closing and the delivery, exercise and/or conversion of the
      Securities, as applicable for the applicable statue of limitations.

     

    5.10 Execution.
      This
      Agreement may be executed in two or more counterparts, all of which when taken
      together shall be considered one and the same agreement and shall become
      effective when counterparts have been signed by each party and delivered to
      the
      other party, it being understood that both parties need not sign the same
      counterpart. In the event that any signature is delivered by facsimile
      transmission or by e-mail delivery of a “.pdf” format data file, such signature
      shall create a valid and binding obligation of the party executing (or on whose
      behalf such signature is executed) with the same force and effect as if such
      facsimile or “.pdf” signature page were an original thereof.

     

    5.11 Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, illegal, void or unenforceable, the
      remainder of the terms, provisions, covenants and restrictions set forth herein
      shall remain in full force and effect and shall in no way be affected, impaired
      or invalidated, and the parties hereto shall use their commercially reasonable
      efforts to find and employ an alternative means to achieve the same or
      substantially the same result as that contemplated by such term, provision,
      covenant or restriction. It is hereby stipulated and declared to be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

     

    5.12 Remedies.
      In
      addition to being entitled to exercise all rights provided herein or granted
      by
      law, including recovery of damages, each of the Purchasers and the Company
      will
      be entitled to specific performance under the Transaction Documents. The parties
      agree that monetary damages may not be adequate compensation for any loss
      incurred by reason of any breach of obligations contained in the Transaction
      Documents and hereby agrees to waive and not to assert in any action for
      specific performance of any such obligation the defense that a remedy at law
      would be adequate. 

     

    
      
         

      

      
        -14-

        
          

        

      

      
         

      

    

    5.13 Usury.
      To the
      extent it may lawfully do so, the Company hereby agrees not to insist upon
      or
      plead or in any manner whatsoever claim, and will resist any and all efforts
      to
      be compelled to take the benefit or advantage of, usury laws wherever enacted,
      now or at any time hereafter in force, in connection with any claim, action
      or
      proceeding that may be brought by any Purchaser in order to enforce any right
      or
      remedy under any Transaction Document. Notwithstanding any provision to the
      contrary contained in any Transaction Document, it is expressly agreed and
      provided that the total liability of the Company under the Transaction Documents
      for payments in the nature of interest shall not exceed the maximum lawful
      rate
      authorized under applicable law (the “Maximum
      Rate”),
      and,
      without limiting the foregoing, in no event shall any rate of interest or
      default interest, or both of them, when aggregated with any other sums in the
      nature of interest that the Company may be obligated to pay under the
      Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
      contract rate of interest allowed by law and applicable to the Transaction
      Documents is increased or decreased by statute or any official governmental
      action subsequent to the date hereof, the new maximum contract rate of interest
      allowed by law will be the Maximum Rate applicable to the Transaction Documents
      from the effective date forward, unless such application is precluded by
      applicable law. If under any circumstances whatsoever, interest in excess of
      the
      Maximum Rate is paid by the Company to any Purchaser with respect to
      indebtedness evidenced by the Transaction Documents, such excess shall be
      applied by such Purchaser to the unpaid principal balance of any such
      indebtedness or be refunded to the Company, the manner of handling such excess
      to be at such Purchaser’s election.

     

    5.14 Independent
      Nature of Purchasers’ Obligations and Rights.
      The
      obligations of each Purchaser under any Transaction Document are several and
      not
      joint with the obligations of any other Purchaser, and no Purchaser shall be
      responsible in any way for the performance or non-performance of the obligations
      of any other Purchaser under any Transaction Document. Nothing contained herein
      or in any other Transaction Document, and no action taken by any Purchaser
      pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
      an association, a joint venture or any other kind of entity, or create a
      presumption that the Purchasers are in any way acting in concert or as a group
      with respect to such obligations or the transactions contemplated by the
      Transaction Documents. Each Purchaser shall be entitled to independently protect
      and enforce its rights, including without limitation the rights arising out
      of
      this Agreement or out of the other Transaction Documents, and it shall not
      be
      necessary for any other Purchaser to be joined as an additional party in any
      proceeding for such purpose. Each Purchaser has been represented by its own
      separate legal counsel in their review and negotiation of the Transaction
      Documents. 

     

    5.15 Liquidated
      Damages.
      The
      Company’s obligations to pay any partial liquidated damages or other amounts
      owing under the Transaction Documents is a continuing obligation of the Company
      and shall not terminate until all unpaid partial liquidated damages and other
      amounts have been paid notwithstanding the fact that the instrument or security
      pursuant to which such partial liquidated damages or other amounts are due
      and
      payable shall have been canceled.

     

    5.16 Construction.
      The
      parties agree that each of them and/or their respective counsel has reviewed
      and
      had an opportunity to revise the Transaction Documents and, therefore, the
      normal rule of construction to the effect that any ambiguities are to be
      resolved against the drafting party shall not be employed in the interpretation
      of the Transaction Documents or any amendments hereto.

     

    (Signature
      Pages Follow)

     

    
      
         

      

      
        -15-

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
      Agreement to be duly executed by their respective authorized signatories as
      of
      the date first indicated above.

     

    
      	
              IBSG
                INTERNATIONAL, INC.

               

            	
              Address
                for Notice:

            
	
              By:__________________________________________

              Name:

              Title:

            	 
	
              With
                a copy to (which shall not constitute notice):

               

              Joseph
                I. Emas

              Attorney
                at Law

              1224
                Washington Avenue

              Miami
                Beach, FL 33139

              Facsimile:
                (305) 531-1274

            	 

    

    

    

    

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGE FOR PURCHASER FOLLOWS]

    
      
         

      

      
        -16-

        
          

        

      

      
         

      

    

    [PURCHASER
      SIGNATURE PAGES TO CFWH SECURITIES PURCHASE AGREEMENT]

    

    IN
      WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
      to be duly executed by their respective authorized signatories as of the date
      first indicated above.

     

    Name
      of
      Purchaser: ________________________________________________________

    Signature
      of Authorized Signatory of Purchaser:
      __________________________________

    Name
      of
      Authorized Signatory:
      ____________________________________________________

    Title
      of
      Authorized Signatory:
      _____________________________________________________

    Email
      Address of Purchaser:
      ________________________________________________

    Facsimile
      Number of Purchaser:
      ________________________________________________

    

    Address
      for Notice of Purchaser:

    

    

    

    

    Address
      for Delivery of Securities for Purchaser (if not same as above):

    

    

    

    

    

    Subscription
      Amount: $_____________________________

    

    

    

    

    EIN
      Number: [PROVIDE
      THIS UNDER SEPARATE COVER]

    

    [SIGNATURE
      PAGES CONTINUE]

    

    
      
         

      

      
        -17-

        
          

        

      

      
         

      

    

    EXHIBIT
      A

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

    

    Original
      Issue Date: ______________

    Original
      Conversion Price (subject to adjustment herein): $0.12
      per
      share

    

    $________

    

    

    
      
         

      

      
        -18-

        
          

        

      

      
         

      

    

    10%
      SENIOR SECURED CONVERTIBLE NOTES

    DUE
      _______________

    

    THIS
      SENIOR SECURED CONVERTIBLE NOTES is one of a series of duly authorized and
      validly issued Senior Secured Convertible Note of IBSG International, Inc.,
      a
      Florida corporation, having its principal place of business at 1132 Celebration
      Blvd. Celebration, FL 34747 (the “Company”),
      designated as its 10% Senior Secured Convertible Notes, due in thirty months
      from the date herein (this Senior Secured Convertible Note, the “Senior
      Secured Convertible Note”
and
      collectively with the other such series of Senior Secured Convertible Notes,
      the
“Senior
      Secured Convertible Notes”).

    

    FOR
      VALUE
      RECEIVED, the Company promises to pay to CAMOFI
      MASTER LDC or
      its
      registered assigns (the “Holder”),
      or
      shall have paid pursuant to the terms hereunder, the principal sum of $1,250,000
      by _________________(thirty months from the date herein or the date of final
      payment), or such earlier date as this Senior Secured Convertible Note is
      required or permitted to be repaid as provided hereunder (the “Maturity
      Date”),
      and
      to pay interest to the Holder on the aggregate unconverted and then outstanding
      principal amount of this Senior Secured Convertible Note in accordance with
      the
      provisions hereof. This Senior Secured Convertible Note is subject to the
      following additional provisions:

    

    Section
      1. Definitions.
      For the
      purposes hereof, in addition to the terms defined elsewhere in this Senior
      Secured Convertible Note, (a) capitalized terms not otherwise defined herein
      shall have the meanings set forth in the Purchase Agreement and (b) the
      following terms shall have the following meanings:

    

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

    

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

    

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

    

    “Buy-In”
shall
      have the meaning set forth in Section 4(d)(v).

    

    “Common
      Stock”
means
      the common stock, no par value per share, of the Company and stock of any other
      class of securities into which such securities may hereafter be reclassified
      or
      changed into.

    

    
      
         

      

      
        -19-

        
          

        

      

      
         

      

    

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

    

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

    

    “Mandatory
      Default Amount”
means
      the sum of (i) the greater of (A) 130% of the outstanding principal amount
      of
      this Senior Secured Convertible Note, plus all accrued and unpaid interest
      hereon, or (B) the outstanding principal amount of this Senior Secured
      Convertible Note, plus all accrued and unpaid interest hereon, divided by the
      Conversion Price on the date the Mandatory Default Amount is either demanded
      (if
      demand or notice is required to create an Event of Default) or otherwise due,
      and (ii) all other amounts, costs, expenses and liquidated damages due in
      respect of this Senior Secured Convertible Note.

    

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

    

    “Person”
means
      an individual or corporation, partnership, trust, incorporated or unincorporated
      association, joint venture, limited liability company, joint stock company,
      government (or an agency or subdivision thereof) or other entity of any
      kind.

    

    “Purchase
      Agreement”
means
      the Securities Purchase Agreement among the Company and the original Holders,
      as
      amended, modified or supplemented from time to time in accordance with its
      terms.

    

    “Registration
      Rights Agreement”
means
      the Registration Rights Agreement among the Company and the original Holders,
      dated as of the date of the Purchase Agreement, as amended, modified or
      supplemented from time to time in accordance with its terms.

    

    “Registration
      Statement”
means
      a
      registration statement that registers the resale of all Conversion Shares and
      Interest Conversion Shares of the Holder, who shall be named as a “selling
      stockholder” therein, and meets the requirements of the Registration Rights
      Agreement.

    

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

    

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

    

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

    

    “Transaction
      Documents”
shall
      have the meaning set forth in the Purchase Agreement.

    
      
         

      

      
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    Section
      2. Interest.

     

    a) Payment
      of Interest in Cash or Kind.
      The
      Company shall pay interest to the Holder on the aggregate unconverted and then
      outstanding principal amount of this Senior Secured Convertible Note at the
      rate
      of 10% per annum, payable on the one year anniversary of the Original Issue
      Date, on each Conversion Date (as to that principal amount then being
      converted), on each Company Optional Redemption Date (as to that principal
      amount then being converted), on each Optional Redemption Date (as to that
      principal amount then being redeemed) and on the Maturity Date (except that,
      if
      any such date is not a Business Day, then such payment shall be due on the
      next
      succeeding Business Day) and on the Maturity Date but no interest payment will
      be do by the Company until after one year from the final closing date and
      (except that, if any such date is not a Business Day, then such payment shall
      be
      due on the next succeeding Business Day) (each such date, an “Interest
      Payment Date”),
      in
      cash. If the Purchaser and the Company agree, the payment of interest can apply
      to shares, see
      (b) below for conditions
      (the
      amount to be paid in shares, the “Interest
      Share Amount”),
      or a
      combination, thereof; provided,
      however,
      that as
      to such Interest Payment Date, prior to such Interest Notice Period (but not
      more than 5 Trading Days prior to the commencement of such Interest Notice
      Period), the Company shall have delivered to the Holder’s account with The
      Depository Trust Company a number of shares of Common Stock to be applied
      against such Interest Share Amount equal to the quotient of (x) the applicable
      Interest Share Amount divided by (y) the then Conversion Price (the
“Interest
      Conversion Shares”).
      

     

    b) Company’s
      Election to Pay Interest in Kind.
      Subject
      to the terms and conditions herein, the decision whether to pay interest
      hereunder in cash or shares of Common Stock shall be at the discretion
      of the Company and the Purchaser (it is intended to be a cash payment so in
      the
      case of disagreement, cash payment (s) will be made as specified above.
Prior
      to
      the commencement of any Interest Notice Period, the Company shall deliver to
      the
      Holder a written notice of its election to pay interest hereunder on the
      applicable Interest Payment Date either in cash, shares of Common Stock or
      a
      combination thereof and the Interest Share Amount as to the applicable Interest
      Payment Date, provided that the Company may indicate in such notice that the
      election contained in such notice shall apply to future Interest Payment Dates
      until revised by a subsequent notice. During any Interest Notice Period, the
      Company’s election (whether specific to an Interest Payment Date or continuous)
      shall be irrevocable as to such Interest Payment Date. Subject to the
      aforementioned conditions, failure to timely provide such written notice shall
      be deemed an election by the Company to pay the interest on such Interest
      Payment Date in cash. At any time the Company delivers a notice to the Holder
      of
      its election to pay the interest in shares of Common Stock, the Company shall
      timely file a prospectus supplement pursuant to Rule 424 disclosing such
      election. The aggregate number of shares of Common Stock otherwise issuable
      to
      the Holder on an Interest Payment Date shall be reduced by the number of
      Interest Conversion Shares previously issued to the Holder in connection with
      such Interest Payment Date.

    

    c) Interest
      Calculations.
      Interest shall be calculated on the basis of a 360-day year and shall accrue
      daily commencing on the Original Issue Date until payment in full of the
      principal sum, together with all accrued and unpaid interest, liquidated damages
      and other amounts which may become due hereunder, has been made. Payment of
      interest in shares of Common Stock (other than the Interest Conversion Shares
      issued prior to an Interest Notice Period) shall otherwise occur pursuant to
      Section 4(d)(ii) herein and, solely for purposes of the payment of interest
      in
      shares, the Interest Payment Date shall be deemed the Conversion Date. Interest
      shall cease to accrue with respect to any principal amount converted, provided
      that the Company actually delivers the Conversion Shares within the time period
      required by Section 4(d)(ii). Interest hereunder will be paid to the Person
      in
      whose name this Senior Secured Convertible Note is registered on the records
      of
      the Company regarding registration and transfers of this Senior Secured
      Convertible Note (the “Senior
      Secured Convertible Note Register”).
      Except as otherwise provided herein, if at any time the Company pays interest
      partially in cash and partially in shares of Common Stock to the holders of
      the
      Senior Secured Convertible Notes, then such payment shall be distributed ratably
      among the holders of the then-outstanding Senior Secured Convertible Notes
      based
      on their (or their predecessor’s) initial purchases of Senior Secured
      Convertible Notes pursuant to the Purchase Agreement.

    

    d) Late
      Fee.
      All
      overdue accrued and unpaid interest to be paid hereunder shall entail a late
      fee
      at an interest rate equal to the lesser of 18% per annum or the maximum rate
      permitted by applicable law (“Late
      Fees”)
      which
      shall accrue daily from the date such interest is due hereunder through and
      including the date of payment in full. Notwithstanding anything to the contrary
      contained herein, if on any Interest Payment Date the Company has elected to
      pay
      accrued interest in the form of Common Stock but the Company is not able to
      pay
      accrued interest in Common Stock because it fails to satisfy the conditions
      for
      payment in Common Stock set forth above, then, at
      the
      option of the Holder, the
      Company, in lieu of delivering either
      shares
      of
      Common Stock pursuant to this Section 2 or
      paying
      the regularly scheduled interest payment in cash, shall deliver, within five
      Trading Days of each applicable Interest Payment Date, an amount in cash equal
      to the product of (x) the number of shares of Common Stock otherwise deliverable
      to the Holder in connection with the payment of interest due on such Interest
      Payment Date multiplied by (y) the highest average reported stock price during
      the period commencing on the Interest Payment Date and ending on the Trading
      Day
      prior to the date such payment is made. If any Interest Conversion Shares are
      issued to the Holder in connection with an Interest Payment Date and are not
      applied against an Interest Share Amount, then the Holder shall promptly return
      such excess shares to the Company.

     

    e) Prepayment.
      The
      Company may prepay any portion of the principal amount of this Senior Secured
      Convertible Note without the prior written consent of the Holder. 

     

    
      
         

      

      
        -21-

        
          

        

      

      
         

      

    

    Section
      3.  Registration
      of Transfers and Exchanges.
      

     

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

     

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

    

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

    

    Section
      4.  Conversion.

     

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

     

    b) Conversion
      Price.
      The
      conversion price in effect on any Conversion Date shall be equal to $0.12
      (subject
      to adjustment herein) (the “Conversion
      Price”).

    

    
      
         

      

      
        -22-

        
          

        

      

      
         

      

    

    c) Conversion
      Limitations.
      The
      Company shall not effect any conversion of this Senior Secured Convertible
      Note,
      and a Holder shall not have the right to convert any portion of this Senior
      Secured Convertible Note, to the extent that after giving effect to the
      conversion set forth on the applicable Notice of Conversion, such Holder
      (together with such Holder’s Affiliates, and any other person or entity acting
      as a group together with such Holder or any of such Holder’s Affiliates) would
      beneficially own in excess of the Beneficial Ownership Limitation (as defined
      below).  For purposes of the foregoing sentence, the number of shares of
      Common Stock beneficially owned by such Holder and its affiliates shall include
      the number of shares of Common Stock issuable upon conversion of this Senior
      Secured Convertible Note with respect to which such determination is being
      made,
      but shall exclude the number of shares of Common Stock which are issuable upon
      (A) conversion of the remaining, unconverted principal amount of this Senior
      Secured Convertible Note beneficially owned by such Holder or any of its
      Affiliates and (B) exercise or conversion of the unexercised or unconverted
      portion of any other securities of the Company subject to a limitation on
      conversion or exercise analogous to the limitation contained herein (including,
      without limitation, any other Senior Secured Convertible Notes) beneficially
      owned by such Holder or any of its Affiliates.  Except as set forth in the
      preceding sentence, for purposes of this Section 4(c)(ii), beneficial ownership
      shall be calculated in accordance with Section 13(d) of the Exchange Act and
      the
      rules and regulations promulgated thereunder. To the extent that the limitation
      contained in this Section applies, the determination of whether this Senior
      Secured Convertible Note is convertible (in relation to other securities owned
      by such Holder together with any Affiliates) and of which principal amount
      of
      this Senior Secured Convertible Note is convertible shall be in the sole
      discretion of such Holder, and the submission of a Notice of Conversion shall
      be
      deemed to be such Holder’s determination of whether this Senior Secured
      Convertible Note may be converted (in relation to other securities owned by
      such
      Holder together with any Affiliates) and which principal amount of this Senior
      Secured Convertible Note is convertible, in each case subject to such aggregate
      percentage limitations. To ensure compliance with this restriction, each Holder
      will be deemed to represent to the Company each time it delivers a Notice of
      Conversion that such Notice of Conversion has not violated the restrictions
      set
      forth in this paragraph and the Company shall have no obligation to verify
      or
      confirm the accuracy of such determination. In
      addition, a determination as to any group status as contemplated above shall
      be
      determined in accordance with Section 13(d) of the Exchange Act and
      the
      rules and regulations promulgated thereunder. For
      purposes of this Section, in determining the number of outstanding shares of
      Common Stock, a Holder may rely on the number of outstanding shares of Common
      Stock as stated in the most recent of the following: (A) the Company’s most
      recent Form 10-QSB or Form 10-KSB, as the case may be; (B) a more recent public
      announcement by the Company; or (C) a more recent notice by the Company or
      the
      Company’s transfer agent setting forth the number of shares of Common Stock
      outstanding.  Upon the written or oral request of a Holder, the Company
      shall within two Trading Days confirm orally and in writing to such Holder
      the
      number of shares of Common Stock then outstanding.  In any case, the number
      of outstanding shares of Common Stock shall be determined after giving effect
      to
      the conversion or exercise of securities of the Company, including this Senior
      Secured Convertible Note, by such Holder or its Affiliates since the date as
      of
      which such number of outstanding shares of Common Stock was reported. The
“Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the
      Common Stock outstanding immediately after giving effect to the issuance of
      shares of Common Stock issuable upon conversion of this Senior Secured
      Convertible Note held by the Holder. The Beneficial Ownership Limitation
      provisions of this Section 4(c)(ii) may be waived by such Holder, at the
      election of such Holder, upon not less than 61 days’ prior notice to the
      Company, to change the Beneficial Ownership Limitation to 9.99% of the number
      of
      shares of the Common Stock outstanding immediately after giving effect to the
      issuance of shares of Common Stock upon conversion of this Senior Secured
      Convertible Note held by the Holder and the provisions of this Section 4(c)(ii)
      shall continue to apply. Upon such a change by a Holder of the Beneficial
      Ownership Limitation from such 4.99% limitation to such 9.99% limitation, the
      Beneficial Ownership Limitation may not be further waived by such Holder. The
      provisions of this paragraph shall be construed and implemented in a manner
      otherwise than in strict conformity with the terms of this Section 4(c)(ii)
      to
      correct this paragraph (or any portion hereof) which may be defective or
      inconsistent with the intended Beneficial Ownership Limitation herein contained
      or to make changes or supplements necessary or desirable to properly give effect
      to such limitation.
      The
      limitations contained in this paragraph shall apply to a successor holder of
      this
      Senior Secured Convertible Note.

     

    d) Mechanics
      of Conversion.

     

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

     

    
      
         

      

      
        -23-

        
          

        

      

      
         

      

    

    ii. Delivery
      of Certificate Upon Conversion.
      Not
      later than three Trading Days after each Conversion Date (the “Share
      Delivery Date”),
      the
      Company shall deliver, or cause to be delivered, to the Holder (unless a delay
      is a result of a Force Majeure, provided the Company continues to use
      commercially reasonable efforts to ultimately perform its obligations hereunder)
      (A) a certificate or certificates representing the Conversion Shares which,
      on
      or after the Effective Date, shall be free of restrictive legends and trading
      restrictions (other than those which may then be required by the Purchase
      Agreement) representing the number of shares of Common Stock being acquired
      upon
      the conversion of this Senior Secured Convertible Note (including, if the
      Company has given continuous notice pursuant to Section 2(b) for payment of
      interest in shares of Common Stock at least 20 Trading Days prior to the date
      on
      which the Conversion Notice is delivered to the Company, shares of Common Stock
      representing the payment of accrued interest otherwise determined pursuant
      to
      Section 2(a) but assuming that the Interest Payment Period is the 20 Trading
      Days period immediately prior to the date on which the Conversion Notice is
      delivered to the Company and excluding for such issuance the condition that
      the
      Company deliver Interest Conversion Shares as to such interest payment) and
      (B)
      a bank check in the amount of accrued and unpaid interest (if the Company has
      elected or is required to pay accrued interest in cash). On or after the
      Effective Date or after resale pursuant to Rule 144(k) is permitted (subject
      to
      the delivery of the requisite and customary documentation), the Company shall
      use its best efforts to deliver any certificate or certificates required to
      be
      delivered by the Company under this Section 4 electronically through the
      Depository Trust Company or another established clearing corporation performing
      similar functions. 

     

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

     

    

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

    

    v. Fractional
      Shares.
      Upon a
      conversion hereunder the Company shall not be required to issue stock
      certificates representing fractions of shares of Common Stock, but may if
      otherwise permitted, make a cash payment in respect of any final fraction of
      a
      share. If the Company elects not, or is unable, to make such a cash payment,
      the
      Holder shall be entitled to receive, in lieu of the final fraction of a share,
      1
      whole share of Common Stock.

    

    
      
         

      

      
        -24-

        
          

        

      

      
         

      

    

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

    

    Section
      5. Certain
      Adjustments.

     

    a) Stock
      Dividends.
      If the
      Company, at any time while this Senior Secured Convertible Note is outstanding
      pays a stock dividend or otherwise makes a distribution or distributions payable
      in shares of Common Stock on shares of Common Stock or any Common Stock
      Equivalents (which, for avoidance of doubt, shall not include any shares of
      Common Stock issued by the Company upon conversion of, or payment of interest
      on, this Senior Secured Convertible Note), then the Conversion Price shall
      be
      multiplied by a fraction of which the numerator shall be the number of shares
      of
      Common Stock (excluding any treasury shares of the Company) outstanding
      immediately before such event and of which the denominator shall be the number
      of shares of Common Stock outstanding immediately after such event. Any
      adjustment made pursuant to this Section shall become effective immediately
      after the record date for the determination of stockholders entitled to receive
      such dividend or distribution and shall become effective immediately after
      the
      effective date in the case of a subdivision, combination or
      re-classification.

    

    b) Pro
      Rata Distributions.
      If the
      Company, at any time while this Senior Secured Convertible Note is outstanding,
      distributes to all holders of Common Stock (and not to the Holders) evidences
      of
      its indebtedness or assets (including cash and cash dividends) or rights or
      warrants to subscribe for or purchase any security (other than the Common Stock,
      which shall be subject to Section 5(b)), then in each such case the Conversion
      Price shall be adjusted by multiplying such Conversion Price in effect
      immediately prior to the record date fixed for determination of stockholders
      entitled to receive such distribution by a fraction of which the denominator
      shall be the VWAP determined as of the record date mentioned above, and of
      which
      the numerator shall be such VWAP on such record date less the then fair market
      value at such record date of the portion of such assets or evidence of
      indebtedness so distributed applicable to 1 outstanding share of the Common
      Stock as determined by the Board of Directors of the Company in good faith.
      In
      either case the adjustments shall be described in a statement delivered to
      the
      Holder describing the portion of assets or evidences of indebtedness so
      distributed or such subscription rights applicable to 1 share of Common Stock.
      Such adjustment shall be made whenever any such distribution is made and shall
      become effective immediately after the record date mentioned above.
“VWAP”
means,
      for any date, the price determined by the first of the following clauses that
      applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
      the daily volume weighted average price of the Common Stock for such date (or
      the nearest preceding date) on the Trading Market on which the Common Stock
      is
      then listed or quoted as reported by Bloomberg Financial L.P. (based on a
      Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b)  if
      the OTC Bulletin Board is not a Trading Market, the volume weighted average
      price of the Common Stock for such date (or the nearest preceding date) on
      the
      OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted on
      the
      OTC Bulletin Board and if prices for the Common Stock are then reported in
      the
“Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency
      succeeding to its functions of reporting prices), the most recent bid price
      per
      share of the Common Stock so reported; or (d) in all other cases, the fair
      market value of a share of Common Stock as determined by an independent
      appraiser selected in good faith by the Holder and reasonably acceptable to
      the
      Company.

     

    
      
         

      

      
        -25-

        
          

        

      

      
         

      

    

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

    

    d) Subsequent
      Equity Sales.
      If the
      Company, at any time while this Senior Secured Convertible Note is outstanding,
      sells or grants any option to purchase or sells or grants any right to reprice
      its securities, or otherwise disposes of or issues (or announces any sale,
      grant
      or any option to purchase or other disposition) any Common Stock or securities
      entitling any Person to acquire shares of Common Stock at an effective price
      per
      share that is lower than the then Conversion Price (such lower price, the
“Base
      Conversion Price”
and
      such issuances collectively, a “Dilutive
      Issuance”)
      (if
      the holder of the Common Stock or securities so issued shall at any time,
      whether by operation of purchase price adjustments, reset provisions, floating
      conversion, exercise or exchange prices or otherwise, or due to warrants,
      options or rights per share which are issued in connection with such issuance,
      be entitled to receive shares of Common Stock at an effective price per share
      that is lower than the Conversion Price, such issuance shall be deemed to have
      occurred for less than the Conversion Price on such date of the Dilutive
      Issuance), then the Conversion Price shall be reduced to equal the Base
      Conversion Price. Such adjustment shall be made whenever such Common Stock
      or
      Common Stock Equivalents are issued. Notwithstanding
      the foregoing, no adjustment will be made under this Section 5(b) in respect
      of
      an Exempt Issuance.
      The
      Company shall notify the Holder in writing, no later than the Business Day
      following the issuance of any Common Stock or Common Stock Equivalents subject
      to this Section 5(d), indicating therein the applicable issuance price, or
      applicable reset price, exchange price, conversion price and other pricing
      terms
      (such notice, the “Dilutive
      Issuance Notice”).
      For
      purposes of clarification, whether or not the Company provides a Dilutive
      Issuance Notice pursuant to this Section 5(d), upon the occurrence of any
      Dilutive Issuance, the Holder is entitled to receive a number of Conversion
      Shares based upon the Base Conversion Price on or after the date of such
      Dilutive Issuance, regardless of whether the Holder accurately refers to the
      Base Conversion Price in the Notice of Conversion. “Exempt
      Issuance”
means
      the issuance of (a) shares of Common Stock or options to employees, officers
      or
      directors of the Company pursuant to any stock or option plan duly adopted
      by a
      majority of the non-employee members of the Board of Directors of the Company
      or
      a majority of the members of a committee of non-employee directors established
      for such purpose, (b) securities upon the exercise or exchange of or conversion
      of any Securities issued hereunder and/or other securities exercisable or
      exchangeable for or convertible into shares of Common Stock issued and
      outstanding on the date of this Agreement (including but not limited to those
      securities disclosed in the SEC Reports), provided that such securities have
      not
      been amended since the date of this Agreement to increase the number of such
      securities or to decrease the exercise, exchange or conversion price of any
      such
      securities and (c) securities issued pursuant to mergers, acquisitions or
      strategic transactions approved by a majority of the disinterested directors,
      provided any such issuance shall only be to a Person which is, itself or through
      its subsidiaries, an operating company in a business synergistic with the
      business of the Company and in which the Company receives benefits in addition
      to the investment of funds, but shall not include a transaction in which the
      Company is issuing securities primarily for the purpose of raising capital
      or to
      an entity whose primary business is investing in securities.

    
      
         

      

      
        -26-

        
          

        

      

      
         

      

    

     

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

    

    e) Notice
      to the Holder.

    

    i. Adjustment
      to Conversion Price.
      Whenever the Conversion Price is adjusted pursuant to any provision of this
      Section 5, the Company shall promptly mail to each Holder a notice setting
      forth
      the Conversion Price after such adjustment and setting forth a brief statement
      of the facts requiring such adjustment. If the Company issues a variable rate
      security, despite the prohibition thereon in the Purchase Agreement, the Company
      shall be deemed to have issued Common Stock or Common Stock Equivalents at
      the
      lowest possible conversion or exercise price at which such securities may be
      converted or exercised in the case of a Variable Rate Transaction (as defined
      in
      the Purchase Agreement).

     

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

     

    Section
      6. Events
      of Default.
      

    

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

    
      
         

      

      
        -27-

        
          

        

      

      
         

      

    

    

    i. any
      default in the payment of (A) the principal amount of any Senior Secured
      Convertible Note or (B) interest, liquidated damages and other amounts owing
      to
      a Holder on any Senior Secured Convertible Note, as and when the same shall
      become due and payable (whether on a Conversion Date or the Maturity Date or
      by
      acceleration or otherwise) which default, solely in the case of an interest
      payment or other default under clause (B) above, is not cured within 7 Trading
      Days;

     

    ii. the
      Company shall fail to observe or perform any other covenant or agreement
      contained in the Senior Secured Convertible Notes (other than a breach by the
      Company of its obligations to deliver shares of Common Stock to the Holder
      upon
      conversion, which breach is addressed in clause (xi) below) which failure is
      not
      cured, if possible to cure, within the earlier to occur
      of
(A)
      10
Trading
      Days after notice of such failure sent by the Holder or by any other
      Holder
      and (B)
      20 Trading Days after the Company has become or should have become aware of
      such
      failure;

    

    iii. a
      default
      or event of default (subject to any grace or cure period provided in the
      applicable agreement, document or instrument) shall occur under (A) any of
      the
      Transaction Documents or (B) any other material agreement, lease, document
      or
      instrument to which the Company or any Subsidiary is obligated (and not covered
      by clause (vi) below) which, if possible to cure, within the earlier to
occur
      of
      (A) 10 Trading Days after notice of such failure sent by the Holder or by any
      other Holder and (B) 20 Trading Days after the Company has become or should
      have
      become aware of such failure;

    

    iv. any
      representation
      or warranty made in this Senior Secured Convertible Note, any other Transaction
      Documents, any written statement pursuant hereto or thereto or any other report,
      financial statement or certificate made or delivered to the Holder or any other
      Holder shall
      be
      untrue or incorrect in any material respect as of the date when made or deemed
      made which, if possible to cure, is not cured within the earlier to occur of
      (A)
      10 Trading Days after notice of such failure sent by the Holder or by any other
      Holder and (B) 20 Trading Days after the Company has become or should have
      become aware of such material untrue or incorrect disclosure;

    

    v. the
      Company shall be subject to a Bankruptcy Event;

     

    vi. the
      Company shall default on any of its obligations under any mortgage, credit
      agreement or other facility, indenture agreement, factoring agreement or other
      instrument under which there may be issued, or by which there may be secured
      or
      evidenced, any indebtedness for borrowed money or money due under any long
      term
      leasing or factoring arrangement that (a) involves an obligation greater than
      $150,000, whether such indebtedness now exists or shall hereafter be created,
      and (b) results in such indebtedness becoming or being declared due and payable
      prior to the date on which it would otherwise become due and payable;

    

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

    

    
      
         

      

      
        -28-

        
          

        

      

      
         

      

    

    

    b) Remedies
      Upon Event of Default.
      If any
      Event of Default occurs, the outstanding principal amount of this Senior Secured
      Convertible Note, plus accrued but unpaid interest, liquidated damages and
      other
      amounts owing in respect thereof through the date of acceleration, shall become,
      at the Holder’s election, immediately due and payable in cash at the Mandatory
      Default Amount. Commencing 7 days after the occurrence of any Event of Default
      that results in the eventual acceleration of this Senior Secured Convertible
      Note, the interest rate on this Senior Secured Convertible Note shall accrue
      at
      an interest rate equal to the lesser of 18% per annum or the maximum rate
      permitted under applicable law. Upon the payment in full of the Mandatory
      Default Amount, the Holder shall promptly surrender this Senior Secured
      Convertible Note to or as directed by the Company. In connection with such
      acceleration described herein, the Holder need not provide, and the Company
      hereby waives, any presentment, demand, protest or other notice of any kind,
      and
      the Holder may immediately and without expiration of any grace period enforce
      any and all of its rights and remedies hereunder and all other remedies
      available to it under applicable law. Such acceleration may be rescinded and
      annulled by Holder at any time prior to payment hereunder and the Holder shall
      have all rights as a holder of the Senior Secured Convertible Note until such
      time, if any, as the Holder receives full payment pursuant to this Section
      8(b).
      No such rescission or annulment shall affect any subsequent Event of Default
      or
      impair any right consequent thereon.

    

    Section
      7. Miscellaneous.
      

     

    a) Security
      Obligation
      The
      obligations of the Company hereunder are secured by a lien on the Collateral
      of
      the Company (junior to the investment by Lewis Investments). "Collateral"
      means the
      properties, assets and rights of
      the
      Company (excluding
      the subsidiaries),
      wherever located, whether now owned or hereafter acquired or arising,
and
      all
      proceeds and products thereof: all personal property and fixtures of every
      kind
      and nature assets of the
      Company (excluding
      the subsidiaries).

    

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

     

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

     

    
      
         

      

      
        -29-

        
          

        

      

      
         

      

    

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

    

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

     

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

     

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

     

    
      
         

      

      
        -30-

        
          

        

      

      
         

      

    

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

    

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

    

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

    

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

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

    

    

    
      	
              IBSG
                INTERNATIONAL, INC.

            
	
              By:__________________________________________

              Name:
                Michael Rivers, Ph. D.

              Title:
                CEO and President

            

    

    
      
         

      

      
        -31-

        
          

        

      

      
         

      

    

    ANNEX
      A

    

    NOTICE
      OF CONVERSION

     

    

    The
      undersigned hereby elects to convert principal under the 10% Senior Secured
      Convertible Notes of IBSG International, Inc., a Florida corporation (the
“Company”),
      into
      shares of common stock, (the “Common
      Stock”),
      of
      the Company according to the conditions hereof, as of the date written below.
      If
      shares are to be issued in the name of a person other than the undersigned,
      the
      undersigned will pay all transfer taxes payable with respect thereto and is
      delivering herewith such certificates and opinions as reasonably requested
      by
      the Company in accordance therewith. No fee will be charged to the holder for
      any conversion, except for such transfer taxes, if any.

    

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

    

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

    

    Conversion
      calculations:   

    Date
      to
      Effect Conversion:

    

    Principal
      Amount of Senior Secured Convertible Note
      to be Converted:

    

    Payment
      of Interest in Common Stock __ yes __ no

    If
      yes,
      $_____ of Interest Accrued on Account of Conversion at Issue.

    Number
      of
      shares of Common Stock to be issued:

    Signature:

    Name:

    Address:

     

    
      
         

      

      
        -32-

        
          

        

      

      
         

      

    

    Schedule
      1

    

    CONVERSION
      SCHEDULE

    

    The
      10%
      Senior Secured Convertible Notes, in the aggregate principal amount of
      $____________ issued by IBSG International, Inc. This Conversion Schedule
      reflects conversions made under Section 4 of the above referenced Senior Secured
      Convertible Note.

    

    Dated:
      

    

    

    
      	
               

              Date
                of Conversion

              (or
                for first entry, Original Issue Date)

            	
               

              Amount
                of Conversion

            	
               

              Aggregate
                Principal Amount Remaining Subsequent to Conversion

              (or
                original Principal Amount)

            	
               

              Company
                Attest

            
	 	 	 	 
	 	 	 	 
	
               

               

               

            	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 

    

    

    
      
         

      

      
        -33-

        
          

        

      

      
         

      

    

    

        EXHIBIT
        B 

      

      REGISTRATION
        RIGHTS AGREEMENT

      

      This
        Registration Rights Agreement (this “Agreement”)
        is
        made and entered into as of__________, among IBSG International, Inc., a
        Florida
        corporation (the “Company”),
        and
        the several purchasers signatory hereto (each such purchaser is a “Purchaser”
and
        collectively, the “Purchasers”).

      

      This
        Agreement is made pursuant to the Securities Purchase Agreement, dated as
        of the
        date hereof between the Company and each Purchaser (the “Purchase
        Agreement”).

      

      The
        Company and each Purchaser hereby agrees as follows:

      

      1.
        Definitions

      

       Capitalized
        terms used and not otherwise defined herein that are defined in the Purchase
        Agreement shall have the meanings given such terms in the Purchase
        Agreement.
        As used
        in this Agreement, the following terms shall have the following
        meanings:

      

      “Filing
        Date”
means,
        with respect to the initial Registration Statement required hereunder, the
        45th
        calendar
        day following the closing of this Offering hereunder and, with respect to
        any
        additional Registration Statements which may be required pursuant to Section
        3(c), the 30th
        day
        following the date on which the Company first knows, or reasonably should
        have
        known that such additional Registration Statement is required
        hereunder.

      

      “Holder”
or
        “Holders”
means
        the holder or holders, as the case may be, from time to time of Registrable
        Securities.

      

      “Prospectus”
means
        the prospectus included in a Registration Statement (including, without
        limitation, a prospectus that includes any information previously omitted
        from a
        prospectus filed as part of an effective registration statement in reliance
        upon
        Rule 430A promulgated under the Securities Act), as amended or supplemented
        by
        any prospectus supplement, with respect to the terms of the offering of any
        portion of the Registrable Securities covered by a Registration Statement,
        and
        all other amendments and supplements to the Prospectus, including post-effective
        amendments, and all material incorporated by reference or deemed to be
        incorporated by reference in such Prospectus.

      

      
        
           

        

        
          -34-

          
            

          

        

        
           

        

      

      “Registrable
        Securities”
means
        (i) all of the shares of Common Stock issuable upon conversion in full of
        the
        Senior Secured Convertible Notes; (ii) all shares issuable as interest or
        principal on the Senior Secured Convertible Notes assuming all permissible
        interest and principal payments are made in shares of Common Stock and the
        Senior Secured Convertible Notes are held until maturity; and (iii) all shares
        of Common Stock underlying the Warrants. 

      

      “Registration
        Statement”
means
        the registration statements required to be filed hereunder and any additional
        registration statements contemplated by Section 3(c), including (in each
        case)
        the Prospectus, amendments and supplements to such registration statement
        or
        Prospectus, including pre- and post-effective amendments, all exhibits thereto,
        and all material incorporated by reference or deemed to be incorporated by
        reference in such registration statement.

      

      “Rule
        415”
means
        Rule 415 promulgated by the Commission pursuant to the Securities Act, as
        such
        Rule may be amended from time to time, or any similar rule or regulation
        hereafter adopted by the Commission having substantially the same purpose
        and
        effect as such Rule.

      

      “Rule
        424”
means
        Rule 424 promulgated by the Commission pursuant to the Securities Act, as
        such
        Rule may be amended from time to time, or any similar rule or regulation
        hereafter adopted by the Commission having substantially the same purpose
        and
        effect as such Rule.

      

      2.
         Shelf
        Registration

      

      On
        or
        prior to each Filing Date, the Company shall prepare and file with the
        Commission a “Shelf” Registration Statement covering the resale of of the
        Registrable Securities on such Filing Date for an offering to be made on
        a
        continuous basis pursuant to Rule 415. The Registration Statement shall be
        on
        Form SB-2 (except if the Company is not then eligible to register for resale
        the
        Registrable Securities on Form SB-2, in which case such registration shall
        be on
        another appropriate form in accordance herewith). Subject to the terms of
        this
        Agreement, the Company shall use its best efforts to cause a Registration
        Statement to be declared effective under the Securities Act as promptly as
        possible after the filing thereof, and shall use its best efforts to keep
        such
        Registration Statement continuously effective under the Securities Act until
        the
        earlier of the date that all Registrable Securities covered by such Registration
        Statement (i) have been sold or (ii) may be sold without volume restrictions
        pursuant to Rule 144(k), as determined by the counsel to the Company pursuant
        to
        a written opinion letter to such effect, addressed and acceptable to the
        Company’s transfer agent and the affected Holders (the “Effectiveness
        Period”).
        The
        Company shall telephonically request effectiveness of a Registration Statement
        as of 5:00 pm Eastern Time on a Trading Day. The Company shall immediately
        notify the Holders via facsimile of the effectiveness of a Registration
        Statement on the same Trading Day that the Company telephonically confirms
        effectiveness with the Commission, which shall be the date requested for
        effectiveness of a Registration Statement. The Company shall, by 9:30 am
        Eastern
        Time on the Trading Day after the Effective Date (as defined in the Purchase
        Agreement), file a final Prospectus with the Commission as required by Rule
        424.

      
        
           

        

        
          -35-

          
            

          

        

        
           

        

      

      

      3.
         Registration
        Procedures.

      

      In
        connection with the Company’s registration obligations hereunder, the Company
        shall:

      

      (a) Not
        less
        than three Trading Days prior to the filing of each Registration Statement
        and
        not less than three Trading Day prior to the filing of any related Prospectus
        or
        any amendment or supplement thereto (including any document that would be
        incorporated or deemed to be incorporated therein by reference), the Company
        shall, (i) furnish to each Holder copies of all such documents proposed to
        be
        filed, which documents (other than those incorporated or deemed to be
        incorporated by reference) will be subject to the review of such Holders,
        and
        (ii) cause its officers and directors, counsel and independent certified
        public
        accountants to respond to such inquiries as shall be necessary, in the
        reasonable opinion of respective counsel to each Holder to conduct a reasonable
        investigation within the meaning of the Securities Act. The Company shall
        not
        file a Registration Statement or any such Prospectus or any amendments or
        supplements thereto to which the Holders of a majority of the Registrable
        Securities shall reasonably object in good faith, provided that, the Company
        is
        notified of such objection in writing no later than three Trading Days after
        the
        Holders have been so furnished copies of a Registration Statement or 1 Trading
        Day after the Holders have been so furnished copies of any related Prospectus
        or
        amendments or supplements thereto. Each Holder agrees to furnish to the Company
        a completed Questionnaire in the form attached to this Agreement as Annex
        B (a
“Selling
        Shareholder Questionnaire”)
        not
        less than two Trading Days prior to the Filing Date or by the end of the
        fourth
        Trading Day following the date on which such Holder receives draft materials
        in
        accordance with this Section. 

      

      (b) (i)
        Prepare and file with the Commission such amendments, including post-effective
        amendments, to a Registration Statement and the Prospectus used in connection
        therewith as may be necessary to keep a Registration Statement continuously
        effective as to the applicable Registrable Securities for the Effectiveness
        Period and prepare and file with the Commission such additional Registration
        Statements in order to register for resale under the Securities Act all of
        the
        Registrable Securities; (ii) cause the related Prospectus to be amended or
        supplemented by any required Prospectus supplement (subject to the terms
        of this
        Agreement), and as so supplemented or amended to be filed pursuant to Rule
        424;
        (iii) respond as promptly as reasonably possible to any comments received
        from
        the Commission with respect to a Registration Statement or any amendment
        thereto
        and as promptly as reasonably possible provide the Holders true and complete
        copies of all correspondence from and to the Commission relating to a
        Registration Statement (provided that the Company may excise any information
        contained therein which would constitute material non-public information
        as to
        any Holder which has not executed a confidentiality agreement with the Company);
        and (iv) comply in all material respects with the provisions of the Securities
        Act and the Exchange Act with respect to the disposition of all Registrable
        Securities covered by a Registration Statement during the applicable period
        in
        accordance (subject to the terms of this Agreement) with the intended methods
        of
        disposition by the Holders thereof set forth in such Registration Statement
        as
        so amended or in such Prospectus as so supplemented.

      

      (c) Notify
        the Holders of Registrable Securities to be sold (which notice shall, pursuant
        to clauses (iii) through (vi) hereof, be accompanied by an instruction to
        suspend the use of the Prospectus until the requisite changes have been made)
        as
        promptly as reasonably possible (and, in the case of (i)(A) below, not less
        than
        one Trading Day prior to such filing) and (if requested by any such Person)
        confirm such notice in writing no later than one Trading Day following the
        day
        (i)(A) when a Prospectus or any Prospectus supplement or post-effective
        amendment to a Registration Statement is proposed to be filed; (B) when the
        Commission notifies the Company whether there will be a “review” of such
        Registration Statement and whenever the Commission comments in writing on
        such
        Registration Statement; and (C) with respect to a Registration Statement
        or any
        post-effective amendment, when the same has become effective; (ii) of any
        request by the Commission or any other Federal or state governmental authority
        for amendments or supplements to a Registration Statement or Prospectus or
        for
        additional information; (iii) of the issuance by the Commission or any other
        federal or state governmental authority of any stop order suspending the
        effectiveness of a Registration Statement covering any or all of the Registrable
        Securities or the initiation of any Proceedings for that purpose; (iv) of
        the
        receipt by the Company of any notification with respect to the suspension
        of the
        qualification or exemption from qualification of any of the Registrable
        Securities for sale in any jurisdiction, or the initiation or threatening
        of any
        Proceeding for such purpose; (v) of the occurrence of any event or passage
        of
        time that makes the financial statements included in a Registration Statement
        ineligible for inclusion therein or any statement made in a Registration
        Statement or Prospectus or any document incorporated or deemed to be
        incorporated therein by reference untrue in any material respect or that
        requires any revisions to a Registration Statement, Prospectus or other
        documents so that, in the case of a Registration Statement or the Prospectus,
        as
        the case may be, it will not contain any untrue statement of a material fact
        or
        omit to state any material fact required to be stated therein or necessary
        to
        make the statements therein, in light of the circumstances under which they
        were
        made, not misleading; and (vi) the occurrence or existence of any pending
        corporate development with respect to the Company that the Company believes
        may
        be material and that, in the determination of the Company, makes it not in
        the
        best interest of the Company to allow continued availability of a Registration
        Statement or Prospectus; provided that any and all of such information shall
        remain confidential to each Holder until such information otherwise becomes
        public, unless disclosure by a Holder is required by law; provided,
        further,
        notwithstanding each Holder’s agreement to keep such information confidential,
        the Holders make no acknowledgement that any such information is material,
        non-public information.

      

      
        
           

        

        
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      (d) Use
        its
        best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
        of
        (i) any order suspending the effectiveness of a Registration Statement, or
        (ii)
        any suspension of the qualification (or exemption from qualification) of
        any of
        the Registrable Securities for sale in any jurisdiction, at the earliest
        practicable moment.

      

      (e) Furnish
        to each Holder, if requested and without charge, at least one conformed copy
        of
        each such Registration Statement and each amendment thereto, including financial
        statements and schedules, all documents incorporated or deemed to be
        incorporated therein by reference to the extent requested by such Person,
        and
        all exhibits to the extent requested by such Person (including those previously
        furnished or incorporated by reference) promptly after the filing of such
        documents with the Commission, such copy to be in EDGAR format.

      

      (f) Subject
        to the terms of this Agreement, the Company hereby consents to the use of
        such
        Prospectus and each amendment or supplement thereto by each of the selling
        Holders in connection with the offering and sale of the Registrable Securities
        covered by such Prospectus and any amendment or supplement thereto, except
        after
        the giving of any notice pursuant to Section 3(d).

      

      (g) If
        NASDR
        Rule 2710 requires any broker-dealer to make a filing prior to executing
        a sale
        by a Holder, the Company shall (i) make an Issuer Filing with the NASDR,
        Inc.
        Corporate Financing Department pursuant to proposed NASDR Rule
        2710(b)(10)(A)(i), (ii) respond within seven Trading Days to any comments
        received from NASDR in connection therewith, (iii) and pay the filing fee
        required in connection therewith.

      

      (h) Prior
        to
        any resale of Registrable Securities by a Holder, use its commercially
        reasonable efforts to register or qualify or cooperate with the selling Holders
        in connection with the registration or qualification (or exemption from the
        Registration or qualification) of such Registrable Securities for the resale
        by
        the Holder under the securities or Blue Sky laws of such jurisdictions within
        the United States as any Holder reasonably requests in writing, to keep each
        registration or qualification (or exemption therefrom) effective during the
        Effectiveness Period and to do any and all other acts or things reasonably
        necessary to enable the disposition in such jurisdictions of the Registrable
        Securities covered by each Registration Statement; provided, that the Company
        shall not be required to qualify generally to do business in any jurisdiction
        where it is not then so qualified, subject the Company to any material tax
        in
        any such jurisdiction where it is not then so subject or file a general consent
        to service of process in any such jurisdiction.

      

      (i) If
        requested by the Holders, cooperate with the Holders to facilitate the timely
        preparation and delivery of certificates representing Registrable Securities
        to
        be delivered to a transferee pursuant to a Registration Statement, which
        certificates shall be free, to the extent permitted by the Purchase Agreement,
        of all restrictive legends, and to enable such Registrable Securities to
        be in
        such denominations and registered in such names as any such Holders may
        request.

      

      (j) Upon
        the
        occurrence of any event contemplated by this Section 3, as promptly as
        reasonably possible under the circumstances taking into account the Company’s
        good faith assessment of any adverse consequences to the Company and its
        stockholders of the premature disclosure of such event, prepare a supplement
        or
        amendment, including a post-effective amendment, to a Registration Statement
        or
        a supplement to the related Prospectus or any document incorporated or deemed
        to
        be incorporated therein by reference, and file any other required document
        so
        that, as thereafter delivered, neither a Registration Statement nor such
        Prospectus will contain an untrue statement of a material fact or omit to
        state
        a material fact required to be stated therein or necessary to make the
        statements therein, in light of the circumstances under which they were made,
        not misleading. If
        the
        Company notifies the Holders in accordance with clauses (iii) through (vi)
        of
        Section 3(d) above to suspend the use of any Prospectus until the requisite
        changes to such Prospectus have been made, then the Holders shall suspend
        use of
        such Prospectus. The Company will use its best efforts to ensure that the
        use of
        the Prospectus may be resumed as promptly as is practicable. The Company
        shall
        be entitled to exercise its right under this Section 3(k) to suspend the
        availability of a Registration Statement and Prospectus, subject to the payment
        of partial liquidated damages pursuant to Section 2(b), for a period not
        to
        exceed 60 calendar days (which need not be consecutive days) in any 12 month
        period.

      

      
        
           

        

        
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      (k) Comply
        with all applicable rules and regulations of the Commission.

      

      (l) The
        Company may require each selling Holder to furnish to the Company a certified
        statement as to the number of shares of Common Stock beneficially owned by
        such
        Holder and, if required by the Commission, the natural persons thereof that
        have
        voting and dispositive control over the Shares. During any periods that the
        Company is unable to meet its obligations hereunder with respect to the
        registration of the Registrable Securities solely because any Holder fails
        to
        furnish such information within three Trading Days of the Company’s request, any
        liquidated damages that are accruing at such time as to such Holder only
        shall
        be tolled and any Event that may otherwise occur solely because of such delay
        shall be suspended as to such Holder only, until such information is delivered
        to the Company.
        If the
        Company will be unable to meet its obligations hereunder as to a Holder with
        respect to the registration of the Registrable Securities as a consequence
        of
        such Holder’s failure to furnish such information, the Company may exclude such
        Holder’s Registrable Securities from the Registration Statement provided that
        the Company continues to use reasonable best efforts to obtain such information
        from the Holder and include such Registrable Securities in the Registration
        Statement or a registration statement when the information becomes available
        to
        the Company.

      

      4.
         Registration
        Expenses.
        All
        fees and expenses incident to the performance of or compliance with this
        Agreement by the Company shall be borne by the Company whether or not any
        Registrable Securities are sold pursuant to a Registration Statement. The
        fees
        and expenses referred to in the foregoing sentence shall include, without
        limitation, (i) all registration and filing fees (including, without limitation,
        fees and expenses (A) with respect to filings required to be made with any
        Trading Market on which the Common Stock is then listed for trading, (B)
        in
        compliance with applicable state securities or Blue Sky laws reasonably agreed
        to by the Company in writing (including, without limitation, fees and
        disbursements of counsel for the Company in connection with Blue Sky
        qualifications or exemptions of the Registrable Securities) and (C) if not
        previously paid by the Company in connection with an Issuer Filing, with
        respect
        to any filing that may be required to be made by any broker through which
        a
        Holder intends to make sales of Registrable Securities with NASD Regulation,
        Inc. pursuant to the NASD Rule 2710, so long as the broker is receiving no
        more
        than a customary brokerage commission in connection with such sale, (ii)
        printing expenses (including, without limitation, expenses of printing
        certificates for Registrable Securities), (iii) messenger, telephone and
        delivery expenses, (iv) fees and disbursements of counsel for the Company,
        (v)
        Securities Act liability insurance, if the Company so desires such insurance,
        and (vi) fees and expenses of all other Persons retained by the Company in
        connection with the consummation of the transactions contemplated by this
        Agreement. In addition, the Company shall be responsible for all of its internal
        expenses incurred in connection with the consummation of the transactions
        contemplated by this Agreement (including, without limitation, all salaries
        and
        expenses of its officers and employees performing legal or accounting duties),
        the expense of any annual audit and the fees and expenses incurred in connection
        with the listing of the Registrable Securities on any securities exchange
        as
        required hereunder. In no event shall the Company be responsible for any
        broker
        or similar commissions of any Holder or, except to the extent provided for
        in
        the Transaction Documents, any legal fees or other costs of the
        Holders.

      

      5.
        Indemnification

      

      (a) Indemnification
        by the Company.
        The
        Company shall, notwithstanding any termination of this Agreement, indemnify
        and
        hold harmless each Holder, the officers, directors, members, partners, agents,
        brokers (including brokers who offer and sell Registrable Securities as
        principal as a result of a pledge or any failure to perform under a margin
        call
        of Common Stock), investment advisors and employees (and any other Persons
        with
        a functionally equivalent role of a Person holding such titles, notwithstanding
        a lack of such title or any other title) of each of them, each Person who
        controls any such Holder (within the meaning of Section 15 of the Securities
        Act
        or Section 20 of the Exchange Act) and the officers, directors, members,
        shareholders, partners, agents and employees (and any other Persons with
        a
        functionally equivalent role of a Person holding such titles, notwithstanding
        a
        lack of such title or any other title) of each such controlling Person, to
        the
        fullest extent permitted by applicable law, from and against any and all
        losses,
        claims, damages, liabilities, costs (including, without limitation, reasonable
        attorneys’ fees) and expenses (collectively, “Losses”),
        as
        incurred, arising out of or relating to (1) any untrue or alleged untrue
        statement of a material fact contained in a Registration Statement, any
        Prospectus or any form of prospectus or in any amendment or supplement thereto
        or in any preliminary prospectus, or arising out of or relating to any omission
        or alleged omission of a material fact required to be stated therein or
        necessary to make the statements therein (in the case of any Prospectus or
        form
        of prospectus or supplement thereto, in light of the circumstances under
        which
        they were made) not misleading or (2) any violation or alleged violation
        by the
        Company of the Securities Act, the Exchange Act or any state securities law,
        or
        any rule or regulation thereunder, in connection with the performance of
        its
        obligations under this Agreement, except to the extent, but only to the extent,
        that (i) such untrue statements or omissions are based solely upon information
        regarding such Holder furnished in writing to the Company by such Holder
        expressly for use therein, or to the extent that such information relates
        to
        such Holder or such Holder’s proposed method of distribution of Registrable
        Securities and was reviewed and expressly approved in writing by such Holder
        expressly for use in a Registration Statement, such Prospectus or such form
        of
        Prospectus or in any amendment or supplement thereto (it being understood
        that
        the Holder has approved Annex A hereto for this purpose) or (ii) in the case
        of
        an occurrence of an event of the type specified in Section 3(d)(iii)-(vi),
        the
        use by such Holder of an outdated or defective Prospectus after the Company
        has
        notified such Holder in writing that the Prospectus is outdated or defective
        and
        prior to the receipt by such Holder of the Advice contemplated in Section
        6(d).
        The Company shall notify the Holders promptly of the institution, threat
        or
        assertion of any Proceeding arising from or in connection with the transactions
        contemplated by this Agreement of which the Company is aware.

      

      
        
           

        

        
          -38-

          
            

          

        

        
           

        

      

      (b) Indemnification
        by Holders.
        Each
        Holder shall, severally and not jointly, indemnify and hold harmless the
        Company, its directors, officers, agents and employees, each Person who controls
        the Company (within the meaning of Section 15 of the Securities Act and Section
        20 of the Exchange Act), and the directors, officers, agents or employees
        of
        such controlling Persons, to the fullest extent permitted by applicable law,
        from and against all Losses, as incurred, to the extent arising out of or
        based
        solely upon: (x) such Holder’s failure to comply with the prospectus delivery
        requirements of the Securities Act or (y) any untrue or alleged untrue statement
        of a material fact contained in any Registration Statement, any Prospectus,
        or
        any form of prospectus, or in any amendment or supplement thereto or in any
        preliminary prospectus, or arising out of or relating to any omission or
        alleged
        omission of a material fact required to be stated therein or necessary to
        make
        the statements therein not misleading (i) to the extent, but only to the
        extent,
        that such untrue statement or omission is contained in any information so
        furnished in writing by such Holder to the Company specifically for inclusion
        in
        such Registration Statement or such Prospectus or (ii) to the extent that
        such
        information relates to such Holder’s proposed method of distribution of
        Registrable Securities and was reviewed and expressly approved in writing
        by
        such Holder expressly for use in a Registration Statement (it being understood
        that the Holder has approved Annex A hereto for this purpose), such Prospectus
        or such form of Prospectus or in any amendment or supplement thereto or (ii)
        in
        the case of an occurrence of an event of the type specified in Section
        3(d)(iii)-(vi), the use by such Holder of an outdated or defective Prospectus
        after the Company has notified such Holder in writing that the Prospectus
        is
        outdated or defective and prior to the receipt by such Holder of the Advice
        contemplated in Section 6(d). In no event shall the liability of any selling
        Holder hereunder be greater in amount than the dollar amount of the net proceeds
        received by such Holder upon the sale of the Registrable Securities giving
        rise
        to such indemnification obligation.

      

      (c) Conduct
        of Indemnification Proceedings.
        If any
        Proceeding shall be brought or asserted against any Person entitled to indemnity
        hereunder (an “Indemnified
        Party”),
        such
        Indemnified Party shall promptly notify the Person from whom indemnity is
        sought
        (the “Indemnifying
        Party”)
        in
        writing, and the Indemnifying Party shall have the right to assume the defense
        thereof, including the employment of counsel reasonably satisfactory to the
        Indemnified Party and the payment of all fees and expenses incurred in
        connection with defense thereof; provided, that the failure of any Indemnified
        Party to give such notice shall not relieve the Indemnifying Party of its
        obligations or liabilities pursuant to this Agreement, except (and only)
        to the
        extent that it shall be finally determined by a court of competent jurisdiction
        (which determination is not subject to appeal or further review) that such
        failure shall have prejudiced the Indemnifying Party.

      

      An
        Indemnified Party shall have the right to employ separate counsel in any
        such
        Proceeding and to participate in the defense thereof, but the fees and expenses
        of such counsel shall be at the expense of such Indemnified Party or Parties
        unless: (1) the Indemnifying Party has agreed in writing to pay such fees
        and
        expenses; (2) the Indemnifying Party shall have failed promptly to assume
        the
        defense of such Proceeding and to employ counsel reasonably satisfactory
        to such
        Indemnified Party in any such Proceeding; or (3) the named parties to any
        such
        Proceeding (including any impleaded parties) include both such Indemnified
        Party
        and the Indemnifying Party, and counsel to the Indemnified Party shall
        reasonably believe that a material conflict of interest is likely to exist
        if
        the same counsel were to represent such Indemnified Party and the Indemnifying
        Party (in which case, if such Indemnified Party notifies the Indemnifying
        Party
        in writing that it elects to employ separate counsel at the expense of the
        Indemnifying Party, the Indemnifying Party shall not have the right to assume
        the defense thereof and the reasonable fees and expenses of no more than
        one
        separate counsel shall be at the expense of the Indemnifying Party). The
        Indemnifying Party shall not be liable for any settlement of any such Proceeding
        effected without its written consent, which consent shall not be unreasonably
        withheld or delayed. No Indemnifying Party shall, without the prior written
        consent of the Indemnified Party, effect any settlement of any pending
        Proceeding in respect of which any Indemnified Party is a party, unless such
        settlement includes an unconditional release of such Indemnified Party from
        all
        liability on claims that are the subject matter of such Proceeding.

      

      
        
           

        

        
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      Subject
        to the terms of this Agreement, all reasonable fees and expenses of the
        Indemnified Party (including reasonable fees and expenses to the extent incurred
        in connection with investigating or preparing to defend such Proceeding in
        a
        manner not inconsistent with this Section) shall be paid to the Indemnified
        Party, as incurred, within ten Trading Days of written notice thereof to
        the
        Indemnifying Party; provided, that the Indemnified Party shall promptly
        reimburse the Indemnifying Party for that portion of such fees and expenses
        applicable to such actions for which such Indemnified Party is judicially
        determined to be not entitled to indemnification hereunder.

      

      (d) Contribution.
        If the
        indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
        Party or insufficient to hold an Indemnified Party harmless for any Losses,
        then
        each Indemnifying Party shall contribute to the amount paid or payable by
        such
        Indemnified Party, in such proportion as is appropriate to reflect the relative
        fault of the Indemnifying Party and Indemnified Party in connection with
        the
        actions, statements or omissions that resulted in such Losses as well as
        any
        other relevant equitable considerations. The relative fault of such Indemnifying
        Party and Indemnified Party shall be determined by reference to, among other
        things, whether any action in question, including any untrue or alleged untrue
        statement of a material fact or omission or alleged omission of a material
        fact,
        has been taken or made by, or relates to information supplied by, such
        Indemnifying Party or Indemnified Party, and the parties’ relative intent,
        knowledge, access to information and opportunity to correct or prevent such
        action, statement or omission. The amount paid or payable by a party as a
        result
        of any Losses shall be deemed to include, subject to the limitations set
        forth
        in this Agreement, any reasonable attorneys’ or other fees or expenses incurred
        by such party in connection with any Proceeding to the extent such party
        would
        have been indemnified for such fees or expenses if the indemnification provided
        for in this Section was available to such party in accordance with its
        terms.

      

      The
        parties hereto agree that it would not be just and equitable if contribution
        pursuant to this Section 5(d) were determined by pro rata allocation or by
        any
        other method of allocation that does not take into account the equitable
        considerations referred to in the immediately preceding paragraph.
        Notwithstanding the provisions of this Section 5(d), no Holder shall be required
        to contribute, in the aggregate, any amount in excess of the amount by which
        the
        proceeds actually received by such Holder from the sale of the Registrable
        Securities subject to the Proceeding exceeds the amount of any damages that
        such
        Holder has otherwise been required to pay by reason of such untrue or alleged
        untrue statement or omission or alleged omission, except in the case of fraud
        by
        such Holder.

      

      The
        indemnity and contribution agreements contained in this Section are in addition
        to any liability that the Indemnifying Parties may have to the Indemnified
        Parties.

      

      6.
        Miscellaneous

      

      (a) Remedies.
        In the
        event of a breach by the Company or by a Holder, of any of their respective
        obligations under this Agreement, each Holder or the Company, as the case
        may
        be, in addition to being entitled to exercise all rights granted by law and
        under this Agreement, including recovery of damages, will be entitled to
        specific performance of its rights under this Agreement. The Company and
        each
        Holder agree that monetary damages would not provide adequate compensation
        for
        any losses incurred by reason of a breach by it of any of the provisions
        of this
        Agreement and hereby further agrees that, in the event of any action for
        specific performance in respect of such breach, it shall not assert or shall
        waive the defense that a remedy at law would be adequate.

      

      (b) No
        Piggyback on Registrations.
        The
        Company shall not file any other registration statements until the initial
        Registration Statement required hereunder is declared effective by the
        Commission, provided that this Section 6(b) shall not prohibit the Company
        from
        filing amendments to registration statements already filed. The Company and
        the
        Holder acknowledges that Shares
        from the previous SB-2 that are not outside of the 144 period, a small offering
        from late 2005 (neither to exceed 4 million shares in total) and the Lewis
        Investment warrants and conversion stocks shall also be registered.

      

      
        
           

        

        
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      (c) Compliance.
        Each
        Holder covenants and agrees that it will comply with the prospectus delivery
        requirements of the Securities Act as applicable to it in connection with
        sales
        of Registrable Securities pursuant to a Registration Statement.

      

      (d) Discontinued
        Disposition.
        Each
        Holder agrees by its acquisition of Registrable Securities that, upon receipt
        of
        a notice from the Company of the occurrence of any event of the kind described
        in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue
        disposition of such Registrable Securities under a Registration Statement
        until
        it is advised in writing (the “Advice”)
        by the
        Company that the use of the applicable Prospectus (as it may have been
        supplemented or amended) may be resumed. The Company will use its best efforts
        to ensure that the use of the Prospectus may be resumed as promptly as it
        practicable. The Company agrees and acknowledges that any periods during
        which
        the Holder is required to discontinue the disposition of the Registrable
        Securities hereunder shall be subject to the provisions of Section
        2(b).

      

      (e) Amendments
        and Waivers.
        The
        provisions of this Agreement, including the provisions of this sentence,
        may not
        be amended, modified or supplemented, and waivers or consents to departures
        from
        the provisions hereof may not be given, unless the same shall be in writing
        and
        signed by the Company and each Holder of the then outstanding Registrable
        Securities. Notwithstanding the foregoing, a waiver or consent to depart
        from
        the provisions hereof with respect to a matter that relates exclusively to
        the
        rights of Holders and that does not directly or indirectly affect the rights
        of
        other Holders may be given by Holders of all of the Registrable Securities to
        which such waiver or consent relates; provided,
        however,
        that
        the provisions of this sentence may not be amended, modified, or supplemented
        except in accordance with the provisions of the immediately preceding sentence.
        

      

      (f) Notices.
        Any and
        all notices or other communications or deliveries required or permitted to
        be
        provided hereunder shall be delivered as set forth in the Purchase Agreement.
        

      

      (g) Successors
        and Assigns.
        This
        Agreement shall inure to the benefit of and be binding upon the successors
        and
        permitted assigns of each of the parties and shall inure to the benefit of
        each
        Holder. The Company may not assign (except by merger) its rights or obligations
        hereunder without the prior written consent of all of the Holders of the
        then-outstanding Registrable Securities. Each Holder may assign their respective
        rights hereunder in the manner and to the Persons as permitted under the
        Purchase Agreement.

      

      (h) Execution
        and Counterparts.
        This
        Agreement may be executed in two or more counterparts, all of which when
        taken
        together shall be considered one and the same agreement and shall become
        effective when counterparts have been signed by each party and delivered
        to the
        other party, it being understood that both parties need not sign the same
        counterpart. In the event that any signature is delivered by facsimile
        transmission or by e-mail delivery of a “.pdf” format data file, such signature
        shall create a valid and binding obligation of the party executing (or on
        whose
        behalf such signature is executed) with the same force and effect as if such
        facsimile or “.pdf” signature page were an original thereof.

      

      (i) Governing
        Law.
        All
        questions concerning the construction, validity, enforcement and interpretation
        of this Agreement shall be determined in accordance with the provisions of
        the
        Purchase Agreement.

      

      (j) Cumulative
        Remedies.
        The
        remedies provided herein are cumulative and not exclusive of any other remedies
        provided by law.

      

      
        
           

        

        
          -41-

          
            

          

        

        
           

        

      

      (k) Severability.
        If any
        term, provision, covenant or restriction of this Agreement is held by a court
        of
        competent jurisdiction to be invalid, illegal, void or unenforceable, the
        remainder of the terms, provisions, covenants and restrictions set forth
        herein
        shall remain in full force and effect and shall in no way be affected, impaired
        or invalidated, and the parties hereto shall use their commercially reasonable
        efforts to find and employ an alternative means to achieve the same or
        substantially the same result as that contemplated by such term, provision,
        covenant or restriction. It is hereby stipulated and declared to be the
        intention of the parties that they would have executed the remaining terms,
        provisions, covenants and restrictions without including any of such that
        may be
        hereafter declared invalid, illegal, void or unenforceable.

      

      (l) Headings.
        The
        headings in this Agreement are for convenience only, do not constitute a
        part of
        the Agreement and shall not be deemed to limit or affect any of the provisions
        hereof.

      

      (m) Independent
        Nature of Holders’ Obligations and Rights.
        The
        obligations of each Holder hereunder are several and not joint with the
        obligations of any other Holder hereunder, and no Holder shall be responsible
        in
        any way for the performance of the obligations of any other Holder hereunder.
        Nothing contained herein or in any other agreement or document delivered
        at any
        closing, and no action taken by any Holder pursuant hereto or thereto, shall
        be
        deemed to constitute the Holders as a partnership, an association, a joint
        venture or any other kind of entity, or create a presumption that the Holders
        are in any way acting in concert with respect to such obligations or the
        transactions contemplated by this Agreement. Each Holder shall be entitled
        to
        protect and enforce its rights, including without limitation the rights arising
        out of this Agreement, and it shall not be necessary for any other Holder
        to be
        joined as an additional party in any proceeding for such purpose.

      

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

      
        
           

        

        
          -42-

          
            

          

        

        
           

        

      

      

      IN
        WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
        as
        of the date first written above.

      

      
        	
                IBSG
                  INTERNATIONAL, INC.

              
	
                By:__________________________________________

                Name:

                Title:

              

      

           

      

      [SIGNATURE
        PAGE OF HOLDERS FOLLOWS]

      

      
        
           

        

        
          -43-

          
            

          

        

        
           

        

      

      [SIGNATURE
        PAGE OF HOLDERS]

       

      Name
        of
        Holder: __________________________

      Signature
        of Authorized Signatory of Holder:
        __________________________

      Name
        of
        Authorized Signatory: _________________________

      Title
        of
        Authorized Signatory: __________________________

       

      

      

      [SIGNATURE
        PAGES CONTINUE]

      
        
           

        

        
          -44-

          
            

          

        

        
           

        

      

      Plan
        of Distribution

      

      Each
        Selling Stockholder (the “Selling
        Stockholders”)
        of the
        common stock and any of their pledgees, assignees and successors-in-interest
        may, from time to time, sell any or all of their shares of common stock on
        the
        OTC Bulletin Board or any other stock exchange, market or trading facility
        on
        which the shares are traded or in private transactions. These sales may be
        at
        fixed or negotiated prices. A Selling Stockholder may use any one or more
        of the
        following methods when selling shares:

       

      
        	 	
                ·

              	
                ordinary
                  brokerage transactions and transactions in which the broker-dealer
                  solicits purchasers;

              

      

       

      
        	 	
                ·

              	
                block
                  trades in which the broker-dealer will attempt to sell the shares
                  as agent
                  but may position and resell a portion of the block as principal
                  to
                  facilitate the transaction;

              

      

       

      
        	 	
                ·

              	
                purchases
                  by a broker-dealer as principal and resale by the broker-dealer
                  for its
                  account;

              

      

       

      
        	 	
                ·

              	
                an
                  exchange distribution in accordance with the rules of the applicable
                  exchange;

              

      

       

      
        	 	
                ·

              	
                privately
                  negotiated transactions;

              

      

       

      
        	 	
                ·

              	
                settlement
                  of short sales entered into after the effective date of the registration
                  statement of which this prospectus is a part;

              

      

       

      
        	 	
                ·

              	
                broker-dealers
                  may agree with the Selling Stockholders to sell a specified number
                  of such
                  shares at a stipulated price per
                  share;

              

      

       

      
        	 	
                ·

              	
                through
                  the writing or settlement of options or other hedging transactions,
                  whether through an options exchange or
                  otherwise;

              

      

       

      
        	 	
                ·

              	
                a
                  combination of any such methods of sale;
                  or

              

      

       

      
        	 	
                ·

              	
                any
                  other method permitted pursuant to applicable
                  law.

              

      

       

      The
        Selling Stockholders may also sell shares under Rule 144 under the Securities
        Act of 1933, as amended (the “Securities
        Act”),
        if
        available, rather than under this prospectus.

       

      
        
           

        

        
          -45-

          
            

          

        

        
           

        

      

      Broker-dealers
        engaged by the Selling Stockholders may arrange for other brokers-dealers
        to
        participate in sales. Broker-dealers may receive commissions or discounts
        from
        the Selling Stockholders (or, if any broker-dealer acts as agent for the
        purchaser of shares, from the purchaser) in amounts to be negotiated, but,
        except as set forth in a supplement to this Prospectus, in the case of an
        agency
        transaction not in excess of a customary brokerage commission in compliance
        with
        NASDR Rule 2440; and in the case of a principal transaction a markup or markdown
        in compliance with NASDR IM-2440. 

       

      In
        connection with the sale of the common stock or interests therein, the Selling
        Stockholders may enter into hedging transactions with broker-dealers or other
        financial institutions, which may in turn engage in short sales of the common
        stock in the course of hedging the positions they assume. The Selling
        Stockholders may also sell shares of the common stock short and deliver these
        securities to close out their short positions, or loan or pledge the common
        stock to broker-dealers that in turn may sell these securities. The Selling
        Stockholders may also enter into option or other transactions with
        broker-dealers or other financial institutions or the creation of one or
        more
        derivative securities which require the delivery to such broker-dealer or
        other
        financial institution of shares offered by this prospectus, which shares
        such
        broker-dealer or other financial institution may resell pursuant to this
        prospectus (as supplemented or amended to reflect such
        transaction).

       

      The
        Selling Stockholders and any broker-dealers or agents that are involved in
        selling the shares may be deemed to be “underwriters” within the meaning of the
        Securities Act in connection with such sales. In such event, any commissions
        received by such broker-dealers or agents and any profit on the resale of
        the
        shares purchased by them may be deemed to be underwriting commissions or
        discounts under the Securities Act. Each Selling Stockholder has informed
        the
        Company that it does not have any written or oral agreement or understanding,
        directly or indirectly, with any person to distribute the Common Stock. In
        no
        event shall any broker-dealer receive fees, commissions and markups which,
        in
        the aggregate, would exceed eight percent (8%).

       

      The
        Company is required to pay certain fees and expenses incurred by the Company
        incident to the registration of the shares. The Company has agreed to indemnify
        the Selling Stockholders against certain losses, claims, damages and
        liabilities, including liabilities under the Securities Act. 

       

      Because
        Selling Stockholders may be deemed to be “underwriters” within the meaning of
        the Securities Act, they will be subject to the prospectus delivery requirements
        of the Securities Act including Rule 172 thereunder. In addition, any securities
        covered by this prospectus which qualify for sale pursuant to Rule 144 under
        the
        Securities Act may be sold under Rule 144 rather than under this prospectus.
        There is no underwriter or coordinating broker acting in connection with
        the
        proposed sale of the resale shares by the Selling Stockholders.

       

      We
        agreed
        to keep this prospectus effective until the earlier of (i) the date on which
        the
        shares may be resold by the Selling Stockholders without registration and
        without regard to any volume limitations by reason of Rule 144(k) under the
        Securities Act or any other rule of similar effect or (ii) all of the shares
        have been sold pursuant to this prospectus or Rule 144 under the Securities
        Act
        or any other rule of similar effect. The resale shares will be sold only
        through
        registered or licensed brokers or dealers if required under applicable state
        securities laws. In addition, in certain states, the resale shares may not
        be
        sold unless they have been registered or qualified for sale in the applicable
        state or an exemption from the registration or qualification requirement
        is
        available and is complied with.

       

      Under
        applicable rules and regulations under the Exchange Act, any person engaged
        in
        the distribution of the resale shares may not simultaneously engage in market
        making activities with respect to the common stock for the applicable restricted
        period, as defined in Regulation M, prior to the commencement of the
        distribution. In addition, the Selling Stockholders will be subject to
        applicable provisions of the Exchange Act and the rules and regulations
        thereunder, including Regulation M, which may limit the timing of purchases
        and
        sales of shares of the common stock by the Selling Stockholders or any other
        person. We will make copies of this prospectus available to the Selling
        Stockholders and have informed them of the need to deliver a copy of this
        prospectus to each purchaser at or prior to the time of the sale (including
        by
        compliance with Rule 172 under the Securities Act).

      
        
           

        

        
          -46-

          
            

          

        

        
           

        

      

      Annex
        B

       

      IBSG
        INTERNATIONAL, INC.

       

      Selling
        Securityholder Notice and Questionnaire

       

      The
        undersigned beneficial owner of common stock, no par value per share (the
        “Common
        Stock”),
        of
        IBSG International, Inc., a Florida corporation (the “Company”),
        (the
“Registrable
        Securities”)
        understands that the Company has filed or intends to file with the Securities
        and Exchange Commission (the “Commission”)
        a
        registration statement on Form SB-2 (the “Registration
        Statement”)
        for
        the registration and resale under Rule 415 of the Securities Act of 1933,
        as
        amended (the “Securities
        Act”),
        of
        the Registrable Securities, in accordance with the terms of the Registration
        Rights Agreement, dated as of April 5, 2006 (the “Registration
        Rights Agreement”),
        among
        the Company and the Purchasers named therein. A copy of the Registration
        Rights
        Agreement is available from the Company upon request at the address set forth
        below. All capitalized terms not otherwise defined herein shall have the
        meanings ascribed thereto in the Registration Rights Agreement.

       

      Certain
        legal consequences arise from being named as a selling securityholder in
        the
        Registration Statement and the related prospectus. Accordingly, holders and
        beneficial owners of Registrable Securities are advised to consult their
        own
        securities law counsel regarding the consequences of being named or not being
        named as a selling securityholder in the Registration Statement and the related
        prospectus.

       

      NOTICE

       

      The
        undersigned beneficial owner (the “Selling
        Securityholder”)
        of
        Registrable Securities hereby elects to include the Registrable Securities
        owned
        by it and listed below in Item 3 (unless otherwise specified under such Item
        3)
        in the Registration Statement.

       

      
        
           

        

        
          -47-

          
            

          

        

        
           

        

      

      The
        undersigned hereby provides the following information to the Company and
        represents and warrants that such information is accurate:

       

      QUESTIONNAIRE

       

      1. Name.

       

      
        	 	
                (a)

              	
                Full
                  Legal Name of Selling
                  Securityholder

              

      

       

      
        	 
	 

      

      

      
        	 	
                (b)

              	
                Full
                  Legal Name of Registered Holder (if not the same as (a) above)
                  through
                  which Registrable Securities Listed in Item 3 below are
                  held:

              

      

       

      
        	 
	 

      

      

      
        	 	
                (c)

              	
                Full
                  Legal Name of Natural Control Person (which means a natural person
                  who
                  directly or indirectly alone or with others has power to vote or
                  dispose
                  of the securities covered by the
                  questionnaire):

              

      

       

      
        	 
	 

      

      

       

      
        
           

        

        
          -48-

          
            

          

        

        
           

        

      

      2.
        Address for Notices to Selling Securityholder:

       

      
        	 
	 
	 
	
                Telephone: 

              
	
                Fax: 

              
	
                Contact
                  Person: 

              

      

      

      3.
        Beneficial Ownership of Registrable Securities:

       

      
        	 	
                (a)

              	
                Type
                  and Principal Amount of Registrable Securities beneficially owned
                  (not
                  including the Registrable Securities that are issuable pursuant
                  to the
                  Purchase Agreement):

              

      

       

      
        	 
	 
	 
	 

      

      

       

      
        
           

        

        
          -49-

          
            

          

        

        
           

        

      

      4.
        Broker-Dealer Status:

       

      
        	 	
                (a)

              	
                Are
                  you a broker-dealer?

              

      

       

      Yes
         No
        

       

      
        	 	
                (b)

              	
                If
                  “yes” to Section 4(a), did you receive your Registrable Securities as
                  compensation for investment banking services to the
                  Company.

              

      

       

      Yes
         No
        

       

      
        	 	
                Note:

              	
                If
                  no, the Commission’s staff has indicated that you should be identified as
                  an underwriter in the Registration
                  Statement.

              

      

       

      
        	 	
                (c)

              	
                Are
                  you an affiliate of a
                  broker-dealer?

              

      

       

      Yes
         No
        

       

      
        	 	
                (d)

              	
                If
                  you are an affiliate of a broker-dealer, do you certify that you
                  bought
                  the Registrable Securities in the ordinary course of business,
                  and at the
                  time of the purchase of the Registrable Securities to be resold,
                  you had
                  no agreements or understandings, directly or indirectly, with any
                  person
                  to distribute the Registrable
                  Securities?

              

      

       

      Yes
         No
        

       

      
        	 	
                Note:

              	
                If
                  no, the Commission’s staff has indicated that you should be identified as
                  an underwriter in the Registration
                  Statement.

              

      

       

      
        
           

        

        
          -50-

          
            

          

        

        
           

        

      

      5.
        Beneficial Ownership of Other Securities of the Company Owned by the Selling
        Securityholder.

       

      Except
        as set forth below in this Item 5, the undersigned is not the beneficial
        or
        registered owner of any securities of the Company other than the Registrable
        Securities listed above in Item 3.

       

      
        	 	
                (a)

              	
                Type
                  and Amount of Other Securities beneficially owned by the Selling
                  Securityholder:

              

      

       

      
        	 
	 
	 

      

      
 

      6.
        Relationships with the Company:

       

      Except
        as set forth below, neither the undersigned nor any of its affiliates, officers,
        directors or principal equity holders (owners of 5% of more of the equity
        securities of the undersigned) has held any position or office or has had
        any
        other material relationship with the Company (or its predecessors or affiliates)
        during the past three years.

       

      State
        any
        exceptions here:

       

      
        	 
	 
	 

      

      

       

      The
        undersigned agrees to promptly notify the Company of any inaccuracies or
        changes
        in the information provided herein that may occur subsequent to the date
        hereof
        at any time while the Registration Statement remains effective.

       

      By
        signing below, the undersigned consents to the disclosure of the information
        contained herein in its answers to Items 1 through 6 and the inclusion of
        such
        information in the Registration Statement and the related prospectus
and
        any
        amendments or supplements thereto.
        The
        undersigned understands that such information will be relied upon by the
        Company
        in connection with the preparation or amendment of the Registration Statement
        and the related prospectus.

       

      
        
           

        

        
          -51-

          
            

          

        

        
           

        

      

      IN
        WITNESS WHEREOF the undersigned, by authority duly given, has caused this
        Notice
        and Questionnaire to be executed and delivered either in person or by its
        duly
        authorized agent.

       

      Dated:
          Beneficial
        Owner:  

      

      By:  

      Name:

      Title: 

      

      PLEASE
        FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN
        THE ORIGINAL BY OVERNIGHT MAIL, TO:

      

      

      
        
           

        

        
          -52-

          
            

          

        

        
           

        

      

       

      

        THIS
          WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
          HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED
          UNTIL
          (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
          (THE “SECURITIES ACT”) SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR
          (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY
          SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE SECURITIES
          ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH
          TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND
          SHALL
          BE ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT OR ANY
          SHARES
          OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT.

        Date:
          ____________

        WARRANT
          TO PURCHASE COMMON STOCK

        OF

        IBSG
          INTERNATIONAL, INC. 

         

        IBSG
          International, Inc., a Florida corporation (the “Company”), is issuing in a
          private placement (the “Placement”) units consisting of (i) a 10% Senior Secured
          Convertible Note, and (ii) common stock purchase warrants. This Warrant,
          together with all of the warrants issued to investors in the Placement,
          are
          referred to herein collectively as, the “Warrants.” 

        1. Grant
          of Warrant.
          The
          Company hereby grants to the Warrant holder a warrant to purchase 3,437,500
          shares (the “Shares”) of common stock of the Company, no par value, (the “Common
          Stock”) (equal to 33% of the Senior Secured Convertible Notes of the Company
          subscribed for as of the date hereof, the (“Notes”)) of the Company’s Common
          Stock subject to equitable adjustments and other terms and conditions
          hereinafter set forth.

         

        2. Exercise
          Price.
          The
          exercise price of this Warrant is 110% of the Conversion Price of the Notes.
          (subject to adjustments hereunder). 

         

        3. Term
          of Warrant.
          This
          Warrant shall expire at 5:00 p.m. New York time on ________________(three
          years
          from the date herein) and shall not be exercisable after such date.

         

        4. Manner
          of Exercise of Warrant.

         

        (a) This
          Warrant may be exercised in full or in part by the holder (the “Warrant
          holder”)
          giving
          written notice to the Company in the form of Exhibit A hereto and accompanied
          by
          payment in full for the Shares. Payment shall be in cash, certified or
          bank
          cashier’s check or checks payable to the order of the Company or shall be made
          pursuant to the Net Issue Election as set forth in Section 5. Upon such
          exercise, delivery of a certificate for fully paid, non-assessable shares
          of
          Common Stock shall be made at the principal office of the Company to the
          person
          exercising this Warrant, within thirty (30) days from the date of receipt
          of the
          notice by the Company, or at such time, place and manner as may be agreed
          upon
          by the Company and Warrant holder.

        
          
             

          

          
            -53-

            
              

            

          

          
             

          

        

        (b) At
          the
          time of exercise of this Warrant, the Company shall have available such
          number
          of shares of Common Stock as will be sufficient to satisfy the requirements
          of
          this Warrant. The Warrant holder shall not have any of the rights of a
          stockholder of the Company in respect of the Shares until the earlier of
          (i) one
          or more certificates for such shares shall be delivered to the Warrant
          holder
          upon the due exercise of this Warrant or (ii) thirty (30) days after delivery
          of
          the notice described in Section 4(a) hereof.

         

        5. Net
          Issue Election.
          The
          Warrant holder may elect to receive, without the payment by the Warrant
          holder
          of any additional consideration, shares equal to the value of this Warrant
          or
          any portion hereof by the surrender of this Warrant or such portion to
          the
          Company at the office of the Company. Thereupon, the Company shall issue
          to the
          Warrant holder such number of fully paid and nonassessable shares of Common
          Stock as is computed using the following formula:

        X
          = Y
          (A-B)

        A
          

        where
          

        X
          = the
          number of shares to be issued to the Warrant holder pursuant to this Section
          5.

        Y
          = the
          number of shares covered by this Warrant in respect of which the net issue
          election is made pursuant to this Section 5.

        A
          = the
          fair
          market value of one share of Common Stock. 

        B
          = the
          Exercise Price in effect under this Warrant at the time the net issue election
          is made pursuant to this Section 5.

        Fair
          market value shall have the meaning set forth below:

         

        (a) If
          the
          Common Stock is listed on a national securities exchange or admitted to
          unlisted
          trading privileges on such exchange or listed for trading on The Nasdaq
          Stock
          Market, Inc. (“Nasdaq”), the current market value shall be the closing price of
          the Common Stock on such exchange or market on the Exchange Date or if
          no such
          sale is made on such day, the average closing bid and asked prices for
          such day
          on such exchange or market; or

         

        (b) If
          the
          Common Stock is not so listed or traded, the current market value shall
          be the
          mean of the last reported bid and asked prices reported by the NASD Electronic
          Bulletin Board (or its successor) on the last business day prior to the
          Exchange
          Date; or

         

        (c) If
          the
          Common Stock is not so listed or admitted to unlisted trading privileges
          and bid
          and asked prices are not so reported, the current market value shall be
          an
          amount determined in such reasonable manner as may be prescribed by the
          Board of
          Directors of the Company. The Board of Directors of the Company shall promptly
          respond in writing to an inquiry by the Warrant holder as to the fair market
          value of one share of Common Stock.

         

        6. Representation
          Letter and Restrictive Legend.
          Upon
          the date on which this Warrant is exercised, the person exercising this
          Warrant
          shall give a written representation to the Company in the form attached
          hereto
          as Exhibit A and the Company shall place a “restrictive legend” as described in
          Exhibit A, upon any certificate for the shares issued by reason of such
          exercise; provided,
          however,
          that
          the Company shall not place such a “restrictive legend” on Shares which have
          been registered for resale under the Securities Act pursuant to Section
          8(g) of
          this Agreement. 

         

        
          
             

          

          
            -54-

            
              

            

          

          
             

          

        

        7. Adjustment
          Rights.
          The
          exercise price per share and the number of Shares purchasable hereunder
          are
          subject to adjustment, as follows:

        

        a) Stock
          Dividends.
          If the
          Company, at any time while this Warrant is outstanding pays a stock dividend
          or
          otherwise makes a distribution or distributions payable in shares of Common
          Stock on shares of Common Stock or any Common Stock Equivalents (which,
          for
          avoidance of doubt, shall not include any shares of Common Stock issued
          by the
          Company upon conversion of, or payment of interest on, this Warrant), then
          the
          Conversion Price shall be multiplied by a fraction of which the numerator
          shall
          be the number of shares of Common Stock (excluding any treasury shares
          of the
          Company) outstanding immediately before such event and of which the denominator
          shall be the number of shares of Common Stock outstanding immediately after
          such
          event. Any adjustment made pursuant to this Section shall become effective
          immediately after the record date for the determination of stockholders
          entitled
          to receive such dividend or distribution and shall become effective immediately
          after the effective date in the case of a subdivision, combination or
          re-classification.

        

        b) Pro
          Rata Distributions.
          If the
          Company, at any time while this Warrant is outstanding, distributes to
          all
          holders of Common Stock (and not to the Holders) evidences of its indebtedness
          or assets (including cash and cash dividends) or rights or warrants to
          subscribe
          for or purchase any security (other than the Common Stock, which shall
          be
          subject to Section 7(b)), then in each such case the Conversion Price shall
          be
          adjusted by multiplying such Conversion Price in effect immediately prior
          to the
          record date fixed for determination of stockholders entitled to receive
          such
          distribution by a fraction of which the denominator shall be the VWAP determined
          as of the record date mentioned above, and of which the numerator shall
          be such
          VWAP on such record date less the then fair market value at such record
          date of
          the portion of such assets or evidence of indebtedness so distributed applicable
          to 1 outstanding share of the Common Stock as determined by the Board of
          Directors of the Company in good faith. In either case the adjustments
          shall be
          described in a statement delivered to the Holder describing the portion
          of
          assets or evidences of indebtedness so distributed or such subscription
          rights
          applicable to 1 share of Common Stock. Such adjustment shall be made whenever
          any such distribution is made and shall become effective immediately after
          the
          record date mentioned above. “VWAP”
means,
          for any date, the price determined by the first of the following clauses
          that
          applies: (a) if the Common Stock is then listed or quoted on a Trading
          Market,
          the daily volume weighted average price of the Common Stock for such date
          (or
          the nearest preceding date) on the Trading Market on which the Common Stock
          is
          then listed or quoted as reported by Bloomberg Financial L.P. (based on
          a
          Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b)  if
          the OTC Bulletin Board is not a Trading Market, the volume weighted average
          price of the Common Stock for such date (or the nearest preceding date)
          on the
          OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted
          on the
          OTC Bulletin Board and if prices for the Common Stock are then reported
          in the
“Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency
          succeeding to its functions of reporting prices), the most recent bid price
          per
          share of the Common Stock so reported; or (d) in all other cases, the fair
          market value of a share of Common Stock as determined by an independent
          appraiser selected in good faith by the Holder and reasonably acceptable
          to the
          Company.

        

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

        

        
          
             

          

          
            -55-

            
              

            

          

          
             

          

        

        d) Subsequent
          Equity Sales.
          If the
          Company, at any time while this Warrant is outstanding, sells or grants
          any
          option to purchase or sells or grants any right to reprice its securities,
          or
          otherwise disposes of or issues (or announces any sale, grant or any option
          to
          purchase or other disposition) any Common Stock or securities entitling
          any
          Person to acquire shares of Common Stock at an effective price per share
          that is
          lower than the then Conversion Price (such lower price, the “Base
          Conversion Price”
and
          such issuances collectively, a “Dilutive
          Issuance”)
          (if
          the holder of the Common Stock or securities so issued shall at any time,
          whether by operation of purchase price adjustments, reset provisions, floating
          conversion, exercise or exchange prices or otherwise, or due to warrants,
          options or rights per share which are issued in connection with such issuance,
          be entitled to receive shares of Common Stock at an effective price per
          share
          that is lower than the Conversion Price, such issuance shall be deemed
          to have
          occurred for less than the Conversion Price on such date of the Dilutive
          Issuance), then the Conversion Price shall be reduced to equal the Base
          Conversion Price. Such adjustment shall be made whenever such Common Stock
          or
          Common Stock Equivalents are issued. Notwithstanding
          the foregoing, no adjustment will be made under this Section 5(b) in respect
          of
          an Exempt Issuance.
          The
          Company shall notify the Holder in writing, no later than the Business
          Day
          following the issuance of any Common Stock or Common Stock Equivalents
          subject
          to this Section 5(d), indicating therein the applicable issuance price,
          or
          applicable reset price, exchange price, conversion price and other pricing
          terms
          (such notice, the “Dilutive
          Issuance Notice”).
          For
          purposes of clarification, whether or not the Company provides a Dilutive
          Issuance Notice pursuant to this Section 7(d), upon the occurrence of any
          Dilutive Issuance, the Holder is entitled to receive a number of Conversion
          Shares based upon the Base Conversion Price on or after the date of such
          Dilutive Issuance, regardless of whether the Holder accurately refers to
          the
          Base Conversion Price in the Notice of Conversion. “Exempt
          Issuance”
means
          the issuance of (a) shares of Common Stock or options to employees, officers
          or
          directors of the Company pursuant to any stock or option plan duly adopted
          by a
          majority of the non-employee members of the Board of Directors of the Company
          or
          a majority of the members of a committee of non-employee directors established
          for such purpose, (b) securities upon the exercise or exchange of or conversion
          of any Securities issued hereunder and/or other securities exercisable
          or
          exchangeable for or convertible into shares of Common Stock issued and
          outstanding on the date of this Agreement (including but not limited to
          those
          securities disclosed in the SEC Reports), provided that such securities
          have not
          been amended since the date of this Agreement to increase the number of
          such
          securities or to decrease the exercise, exchange or conversion price of
          any such
          securities and (c) securities issued pursuant to mergers, acquisitions
          or
          strategic transactions approved by a majority of the disinterested directors,
          provided any such issuance shall only be to a Person which is, itself or
          through
          its subsidiaries, an operating company in a business synergistic with the
          business of the Company and in which the Company receives benefits in addition
          to the investment of funds, but shall not include a transaction in which
          the
          Company is issuing securities primarily for the purpose of raising capital
          or to
          an entity whose primary business is investing in securities.

        

        

        Calculations.
          All
          calculations under this Section 5 shall be made to the nearest cent or
          the
          nearest 1/100th of a share, as the case may be. For purposes of this Section
          7,
          the number of shares of Common Stock deemed to be issued and outstanding
          as of a
          given date shall be the sum of the number of shares of Common Stock (excluding
          any treasury shares of the Company) issued and outstanding.

        

        e) Notice
          to the Holder.

        

        i. Adjustment
          to Conversion Price.
          Whenever the Conversion Price is adjusted pursuant to any provision of
          this
          Section 5, the Company shall promptly mail to each Holder a notice setting
          forth
          the Conversion Price after such adjustment and setting forth a brief statement
          of the facts requiring such adjustment. If the Company issues a variable
          rate
          security, despite the prohibition thereon in the Purchase Agreement, the
          Company
          shall be deemed to have issued Common Stock or Common Stock Equivalents
          at the
          lowest possible conversion or exercise price at which such securities may
          be
          converted or exercised in the case of a Variable Rate Transaction (as defined
          in
          the Purchase Agreement).

         

        
          
             

          

          
            -56-

            
              

            

          

          
             

          

        

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

         

        8. Representations,
          Warranties And Covenants of the Company.

         

        (a) Reservation
          of Warrant Shares.
          At the
          time of exercise of this Warrant, the Shares issuable upon exercise of
          the
          Warrants granted under this Warrant Agreement shall have been duly and
          validly
          reserved and, when issued in accordance with the provisions of this Warrant
          Agreement, will be validly issued, fully paid and non-assessable, and will
          be
          free of any taxes, liens, charges or encumbrances of any nature whatsoever.
          The
          Company has made available on request to the Warrant holders true, correct
          and
          complete copies of its corporate charter and by-laws, as amended to date.
          The
          issuance of certificates for shares of Common Stock upon exercise of the
          Warrants granted under this Warrant Agreement shall be made without charge
          to
          the Warrant holders for any issuance tax or transfer tax in respect thereof,
          or
          other cost incurred by the Company in connection with such exercise and
          the
          related issuance of Shares. 

         

        (b) Due
          Authority.
          The
          execution and delivery by the Company of this Warrant and the performance
          of all
          obligations of the Company hereunder have been duly authorized by all necessary
          corporate action on the part of the Company, and this Warrant is not
          inconsistent with the Company’s corporate charter or by-laws, each as amended to
          date, does not contravene any law or governmental rule, regulation or order
          applicable to it, does not and will not contravene any provision of, or
          constitute a default under, any material indenture, mortgage, contract
          or other
          instrument to which it is a party or by which it is bound, and this Warrant
          constitutes a legal, valid and binding agreement of the Company, enforceable
          against it in accordance with its terms.

         

        (c) Consents
          and Approvals.
          No
          consent or approval of, giving of notice to, registration with, or taking
          of any
          other action in respect of any state, Federal or other governmental authority
          or
          agency is required with respect to the execution, delivery and performance
          by
          the Company of its obligations under this Warrant.

        
          
             

          

          
            -57-

            
              

            

          

          
             

          

        

        (d) Issued
          Securities.
          All
          issued and outstanding shares of capital stock and other securities of
          the
          Company have been duly authorized and validly issued and are fully paid
          and
          nonassessable. All outstanding shares of capital stock and other securities
          of
          the Company were issued in full compliance with all applicable Federal
          and state
          securities laws. In addition, no shareholder of the Company has anti-dilution
          rights or preemptive rights to purchase new issuances of the Company’s capital
          stock that would be triggered in either case in connection with the issuance
          or
          exercise of the Warrants.

         

        (e) Exempt
          Transaction.
          Subject
          to the accuracy of the Warrant holders’ representations in the investment
          representation letter attached hereto as Exhibit A, the issuance of the
          Shares
          upon exercise of this Warrant will constitute a transaction exempt from
          (i) the
          registration requirements of Section 5 of the Securities Act and (ii) the
          qualification requirements of applicable state securities laws.

         

        (f) Compliance
          with Rule 144.
          At the
          written request of any Warrant holder who proposes to sell Shares issuable
          upon
          the exercise of the Warrants and/or conversion of the Shares in compliance
          with
          Rule 144 promulgated by the Securities and Exchange Commission, the Company
          shall furnish to such Warrant holder, within ten days after receipt of
          such
          request, a written statement confirming the Company’s compliance with the filing
          requirements of the Securities and Exchange Commission as set forth in
          such
          Rule, as such Rule may be amended from time to time.

         

        (g) Registration
          Rights.
          The
          Company agrees to register the Shares for resale under the Securities Act
          on the
          terms and subject to the conditions set forth in the Purchase Agreement
          between
          the Company and each of the investors in the Placement.

         

        9. Rights
          as a Shareholder.
          The
          Warrant holder shall have no rights as a shareholder with respect to any
          Shares
          unless and until a certificate or certificates representing such shares
          are duly
          issued and delivered to the Warrant holder. Except as otherwise expressly
          provided in Section 7 hereof, no adjustment shall be made for dividends
          or other
          rights for which the record date is prior to the date such stock certificate
          is
          issued.

         

        10. Redemption.
          On not
          less than 30 days’ written notice (the “Redemption Notice”) to registered
          holders of the Warrants being redeemed, the Warrants may be redeemed, at
          the
          option of the Company, at a price of $.01 per Warrant (the “Call Price”),
          provided (i) the fair market value of the Common Stock (determined in accordance
          with Section 5 hereof) shall exceed ten times the Exercise Price immediately
          preceding the date of the Redemption Notice, (ii) a registration statement
          covering the Shares filed under the Securities Act has been declared effective
          and remains effective for at least 90 days following the date fixed for
          redemption of the Warrants (the “Redemption Date”), (iii) the Equity Conditions
          are met and (iv) no lock-up agreement with the Company or its underwriter
          or
          agent would prohibit the sale or transfer of the Shares. Any right to exercise
          a
          Warrant shall terminate at 5:00 P.M. (New York time) on the business day
          immediately preceding the Redemption Date. On and after the Redemption
          Date, the
          Warrant holder shall have no further rights except to receive, upon surrender
          of
          the Warrant, the Call Price.

         

        For
          purposes of this Warrant, the term “Equity Conditions” shall mean, during the
          period in question, (i)
          the
          Company shall have duly honored all conversions and redemptions scheduled
          to
          occur or occurring by virtue of one or more Notice of Conversions, if any,
          (ii)
          all liquidated damages and other amounts owing in respect of the Notes
          shall
          have been paid; (iii)
          there is an effective Registration Statement pursuant to which the Holder
          is
          permitted to utilize the prospectus thereunder to resell all of the shares
          issuable pursuant to the Transaction Documents (and the Company believes,
          in
          good faith, that such effectiveness will continue uninterrupted for the
          foreseeable future), (iv) the Common Stock is trading on the Trading Market
          and
          all of the shares issuable pursuant to the Transaction Documents are listed
          for
          trading on a Trading Market (and the Company believes, in good faith, that
          trading of the Common Stock on a Trading Market will continue uninterrupted
          for
          the foreseeable future), (v) there is a sufficient number of authorized
          but
          unissued and otherwise unreserved shares of Common Stock for the issuance
          of all
          of the shares issuable pursuant to the Transaction Documents, (vi) there
          is then
          existing no Event of Default or event which, with the passage of time or
          the
          giving of notice, would constitute an Event of Default, (vii) all of the
          shares
          issued or issuable pursuant to the transaction proposed would not violate
          the
          limitations set forth in Section 12, (viii)
          no
          public announcement of a pending or proposed Fundamental Transaction, Change
          of
          Control Transaction or acquisition transaction has occurred that has not
          been
          consummated and (ix) the closing price for the Common Stock is at least
          115% of
          the Conversion Price (as adjusted).

        
          
             

          

          
            -58-

            
              

            

          

          
             

          

        

        11. Modification
          of Agreement.
          The
          provisions of this Warrant may from time to time be amended, modified or
          waived,
          if such amendment, modification or waiver is applicable to all of the
          outstanding Warrants and is in writing and consented to by the Company
          and the
          holders of a majority of the outstanding Warrants and such amendment,
          modification or waiver shall be binding upon the holder of this Warrant
          (and any
          assignee thereof) regardless of whether the Holder consented to such amendment,
          modification or waiver; provided that nothing shall prevent the Company
          and a
          registered holder from consenting to modifications to this Warrant which
          affect
          or are applicable to such registered Holder only.

         

        12. Exercise
          Limitations;
          Holder’s
          Restrictions.
          Anything to the contrary hereunder notwithstanding, the Holder shall not
          have
          the right to exercise any portion of this Warrant, to the extent that after
          giving effect to such issuance after exercise, the Holder (together with
          the
          Holder’s affiliates), as set forth on the applicable Notice of Exercise, would
          beneficially own in excess of 4.99% of the number of shares of the Common
          Stock
          outstanding immediately after giving effect to such issuance.  For purposes
          of the foregoing sentence, the number of shares of Common Stock beneficially
          owned by the Holder and its affiliates shall include the number of shares
          of
          Common Stock issuable upon exercise of this Warrant with respect to which
          the
          determination of such sentence is being made, but shall exclude the number
          of
          shares of Common Stock which would be issuable upon (A) exercise of the
          remaining, nonexercised portion of this Warrant beneficially owned by the
          Holder
          or any of its affiliates and (B) exercise or conversion of the unexercised
          or
          nonconverted portion of any other securities of the Company (including,
          without
          limitation, any other Notes or Warrants) subject to a limitation on conversion
          or exercise analogous to the limitation contained herein beneficially owned
          by
          the Holder or any of its affiliates.  Except as set forth in the preceding
          sentence, for purposes of this Warrant, beneficial ownership shall be calculated
          in accordance with Section 13(d) of the Exchange Act, it being acknowledged
          by
          Holder that the Company is not representing to Holder that such calculation
          is
          in compliance with Section 13(d) of the Exchange Act and Holder is solely
          responsible for any schedules required to be filed in accordance therewith.
          To
          the extent that the limitation contained in this Section applies, the
          determination of whether this Warrant is exercisable (in relation to other
          securities owned by the Holder) and of which a portion of this Warrant
          is
          exercisable shall be in the sole discretion of such Holder, and the submission
          of a Notice of Exercise shall be deemed to be such Holder’s determination of
          whether this Warrant is exercisable (in relation to other securities owned
          by
          such Holder) and of which portion of this Warrant is exercisable, in each
          case
          subject to such aggregate percentage limitation, and the Company shall
          have no
          obligation to verify or confirm the accuracy of such determination. For
          purposes
          of this Section, in determining the number of outstanding shares of Common
          Stock, the Holder may rely on the number of outstanding shares of Common
          Stock
          as reflected in (x) the Company’s most recent Form 10-QSB or Form 10-KSB (or
          similar form), as the case may be, (y) a more recent public announcement
          by the
          Company or (z) any other notice by the Company or the Company’s Transfer Agent
          setting forth the number of shares of Common Stock outstanding.  Upon the
          written or oral request of the Holder, the Company shall within two Trading
          Days
          confirm orally and in writing to the Holder the number of shares of Common
          Stock
          then outstanding.  In any case, the number of outstanding shares of Common
          Stock shall be determined after giving effect to the conversion or exercise
          of
          securities of the Company, including this Warrant, by the Holder or its
          affiliates since the date as of which such number of outstanding shares
          of
          Common Stock was reported. The provisions of this Section may be waived
          by the
          Holder upon, at the election of the Holder, not less than 61 days’ prior notice
          to the Company, and the provisions of this Section shall continue to apply
          until
          such 61st
          day (or
          such later date, as determined by the Holder, as may be specified in such
          notice
          of waiver).

        
          
             

          

          
            -59-

            
              

            

          

          
             

          

        

        IN
          WITNESS WHEREOF, the Company has caused this Warrant to be signed in its
          name by
          its duly authorized officers.

        

        
          	 
	
                  IBSG
                    INTERNATIONAL, INC. 

                
	
                  By:      

                
	
                  Dr.
                    Michael Rivers, PhD., President and Chief Executive
                    Officer

                

        

        

        
          
             

          

          
            -60-

            
              

            

          

          
             

          

        

        EXHIBIT
          A

        TO
          WARRANT AGREEMENT

        IBSG
          International, Inc.

        1132
          Celebration Blvd.

        Celebration,
          Florida 34747 

        

        Re:
          Notice of Warrant Exercise

        Gentlemen:

         

        The
          undersigned is the holder of a Warrant dated June 30, 2006 (the “Warrant”)
          issued by IBSG International, Inc., a Florida corporation (the “Company”).
          Capitalized terms used as defined terms herein, unless otherwise defined,
          shall
          have the same meaning assigned to them in the Warrant.

         

        Pursuant
          to Section 4(a) of the Warrant, the Warrant holder hereby gives notice
          to the
          Company of the Warrant holder’s exercise of the Warrant. Simultaneous with the
          delivery of this notice of Warrant exercise, the Warrant holder has either
          (i)
          hereby delivered to the Company the total exercise price of $________,
          or (ii)
          hereby provided notice to the Company that Warrant holder is exercising
          the
          Warrant pursuant to the Net Issue Election set forth in Section 5 of the
          Warrant.

         

        In
          connection with foregoing Warrant exercise, the Warrant holder hereby represents
          and warrants that the Warrant holder is purchasing said Shares for Warrant
          holder’s own account for investment and not with a view to, or for sale in
          connection with, any distribution thereof in violation of applicable Federal
          or
          state securities laws and that Warrant holder will make no transfer of
          the same
          except in compliance with the Securities Act of 1933, as amended and the
          rules
          and regulations promulgated thereunder as then in force (the “Securities Act”).
          The Warrant holder understands that you are relying upon such representation
          and
          warranty in allowing the issuance and sale of said Shares to the Warrant
          holder
          without registering the same under the Securities Act. In view of the Warrant
          holder’s representation and warranty, the Warrant holder agrees that there may
          be affixed to the certificate for the Shares to be issued to the Warrant
          holder
          and to all certificates issued hereafter representing such Shares (until
          in the
          written opinion of counsel to the Warrant holder delivered to the Company,
          which
          opinion must be satisfactory to the Company’s counsel, it is no longer necessary
          or required) a legend as follows: 

         

        TRANSFER
          RESTRICTED

        “THESE
          SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
          AMENDED
          (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE TRANSFERRED BY
          SALE ASSIGNMENT, PLEDGE OR OTHERWISE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
          STATEMENT AS TO THESE SECURITIES UNDER THE ACT AND ANY APPLICABLE STATE
          SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND
          ITS
          COUNSEL THAT SUCH A REGISTRATION IS NOT REQUIRED UNDER THE ACT OR THE SECURITIES
          LAWS OF ANY STATE.”

         

        Sincerely,

         

        Signature

        ______________________________

        Print
          Name

        

        
          
             

          

          
            -61-

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