Document:

f8k061507ex10i_somerset.htm

    DEBENTURE

     

    THE
      SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
      OF
      1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND
      ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
      REQUIREMENTS OF SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS OF
      TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
      PERMITTED UNDER SUCH LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM.
      THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
      SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION” OR THE “SEC”) OR ANY
      OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED
      UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF
      THE
      OFFERING MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS
      UNLAWFUL.

    
 

    
      
        	
                FACE
                  AMOUNT:

              	
                $2,700,000

              
	
                PRICE:

              	
                $2,700,000

              
	
                DEBENTURE
                  NUMBER:

              	
                June
                  2007 101

              
	
                ISSUANCE
                  DATE:

              	
                June
                  12, 2007

              
	
                MATURITY
                  DATE:

              	
                June
                  12, 2012

              

      

    FOR
      VALUE
      RECEIVED, Somerset International, Inc., a Delaware corporation (the
“Company”), hereby promises to pay DUTCHESS PRIVATE EQUITIES FUND, LTD.
      (the “Holder”) by June 12, 2012 (the “Maturity Date”), the
      principal amount of Two Million Seven Hundred Thousand U.S. Dollars
      ($2,700,000), and to pay interest and redemption on the principal amount
      thereof, and any accrued penalties, in such amounts, at such times and on such
      terms and conditions as are specified herein.

     

    This
      Debenture (this “Debenture”) is subject to automatic conversion at the
      end of five (5) years from the date of issuance, at which time the Debenture
      outstanding will be automatically converted based upon the formula set forth
      in
Article 3.2(c) hereof. The funds from this Note shall be held in escrow
      in accordance with the Escrow Agreement dated June 12 , 2007 (“Escrow
      Agreement”) pending the acquisition of Vanwell Electronics, Inc. and Meadowland,
      Security and Electronic Supply, Inc. Payment of the full subscription amount
      will be made by wire transfer by Dutchess Private Equities Fund, Ltd. (the
      “Holder”) on or prior to the closing per the wire instructions of the
      Escrow Agent that will be established. In the event of a failure to close the
      acquisition of Vanwell Electronics, Inc. and Meadowland, Security and Electronic
      Supply, Inc. by July 30, 2007, subscription funds will be returned by the
      Company without interest or charges.

    

    

    

    

    _____               _______

     JXA                      DHL

    
      
        
        

      

      
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    Article
      1      Interest.

     

    (a)  The
      Company shall pay interest (“Interest”) at the rate of twelve percent
      (12%) per annum, compounded daily, on the unpaid Face Amount of this Debenture
      at such times and in such amounts as outlined in this Article 1. The
      Company shall make mandatory monthly payments of interest (the “Interest
      Payments”), in an amount equal to the interest accrued on the principal
      balance of the Debenture from the last Interest Payment until such time as
      the
      current Interest Payment is due and payable. The Interest Payments shall
      commence on June 30, 2007 and shall continue each month while there is an
      outstanding balance on the Face Amount of the Debenture. The Interest Payments
      shall be paid the last day of each such month. The Holder shall retain the
      right, but not the obligation, to convert any Interest due and payable under
      this Debenture on terms outlined in Section 3 of this
      Debenture.

     

    (b)  Any
      monies paid to the Holder in excess of the Interest due when paid shall be
      credited toward the redemption of the Face Amount of this
      Debenture.

     

    Article
      2                 Method
      of Payment.

     

    Section
      2.1               Repayment
      of Debenture.

     

    (a)     Commencing
      on
      December 30, 2007, the Company shall make monthly amortizing payments to the
      Holder (the “Amortizing Payments”) on the Interest outlined in Article
      1 hereof, and the Face Amount and the Redemption Amount (as defined in
Article 14 hereof), with such Amortizing Payments to be paid on the last
      business day of each month for so long as there is an outstanding balance on
      this Debenture, in the amount as outlined below (the “Amortizing Payment
      Amount”).

     

    (i)  December
      30, 2007 through and including May 31, 2008 – Fifteen thousand dollars ($15,000)
      per month;

     

    (ii)  June
      30,
      2008 through and including November 30, 2008 – Thirty-five thousand dollars
      ($35,000) per month;

     

    (iii)  December
      30, 2008 through and including May 31, 2009 – Forty-five thousand dollars
      ($45,000) per month;

     

    (iv)  June
      30,
      2009 and each month thereafter until the Face Amount is paid in full –
Seventy-five thousand dollars ($75,000) per month;

     

     
      Upon the Maturity Date, all amounts due under this Debenture shall become
      immediately due and payable to the Holder.

     

    (b)     Notwithstanding
      any
      provision to the contrary in this Debenture, the Company may pay in full to
      the
      Holder the Face Amount, or any balance remaining thereon, in readily available
      funds, at any time and from time to time without penalty.

     

    _____               _______

     JXA                      DHL

    
      
        
        

      

      
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    (c)   After
      the
      date on which United States Securities and Exchange Commission (the
“Commission” or the “SEC”) declares the registration statement (the
“Registration Statement") covering the shares underlying the conversion
      of this Debenture (the “Conversion Shares”) effective (the “Effective
      Date”), the Holder shall be entitled to either (i) request an Interest
      Payment and Amortizing Payment, from the Company in the amounts set forth above;
      or (ii) elect to convert a portion of this Debenture pursuant to Article 3
hereof in an amount equal to or greater than the Amortizing Payment
      Amount.
      In the event the Holder is unable to convert that portion of this Debenture
      equal to the Amortizing Payment Amount during any calendar month, the Holder
      shall send a notice to the Company within three (3) days of the date on which
      such Payment is due (the “Payment Date”) with the total amount then due
      and the Company shall make a payment in cash in an amount equal to the
      difference between the amount converted by the Holder and the Payment Amount
      due
      for that month.

     

    (d)  
Nothing
      contained in this Article 2 shall limit the amount the Holder can elect
      to convert during a calendar month except as defined in Section 3.2 (i)
hereof.

     

    (e)   All
      Payments made under this Article 2 shall be applied toward the total
      Redemption Amount as outlined in Article 14 hereof.

     

    (f)   The
      Company may make additional payments toward Redemption (“Prepayments”)
without any penalties.

     

    (g)           Notwithstanding
      the above, the Company hereby irrevocably agrees to pay

     

    to
      the
      Holder forty percent (40%) of the earning before interest, taxes, depreciation
      and amortization (“EBITDA”) generated by the Company in excess of fifty thousand
      dollars ($50,000) per month, or its subsidiaries or investments ("EBITDA
      Share"), toward the Payment Amount, on a monthly basis. In the event the EBITDA
      Share for any month is greater than the Payment Amount then due, the Holder
      shall still be entitled to the full EBITDA Share amount.

     

    Article
      3                 Conversion.

     

    Section
      3.1              Conversion
      Privilege.

     

    (a)   The
      Holder of this Debenture shall have the right to convert (a “Conversion”)
any and all amounts owing under this Debenture into shares of common
      stock
      of the Company, par value $0.00 1 per share (the “Common Stock”), at any
      time following the Closing Date (as such term is defined in that certain
      Debenture Registration Rights Agreement, of even date herewith, by and between
      the Company and the Holder (the “Debenture  Registration
      Rights Agreement”)) but which is before the close of business on the
      Maturity Date, except as set forth in Section 3.2(c) hereof. The number
      of shares of Common Stock issuable upon the Conversion of this Debenture is
      determined pursuant to Section 3.2 hereof and rounding the result up to
      the nearest whole share.

     

    (b)   This
      Debenture may not be converted, whether in whole or in part, except in
      accordance with this Article 3.

     

    
      _____               _______

       JXA                      DHL

    
      
        
        

      

      
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     (c)   In
      the event all or any
      portion of this Debenture remains outstanding on the Maturity Date, the
      unconverted portion of such Debenture shall automatically be converted into
      shares of Common Stock on such date in the manner set forth in Section 3.2
hereof.

     

     Section
      3.2    Conversion
      Procedure.

     

    (a)             Conversion
      Procedures. The Holder may elect to convert the unpaid Face Amount of and
      accrued Interest on this Debenture, in whole or in part, at any time following
      the Closing Date. Such Conversion shall be effectuated by the Holder sending
      to
      the Company a facsimile or electronic mail version of the signed Notice of
      Conversion, attached hereto as Exhibit A, which evidences the Holder’s
      intention to convert the Debenture as indicated. The date on which the Notice
      of
      Conversion is delivered (the “Conversion Date”) shall be deemed to be the
      date on which the Holder has delivered to the Company a facsimile or electronic
      mail of the signed Notice of Conversion. Notwithstanding the above, any Notice
      of Conversion received by 5:00 P.M. Boston Time shall be deemed to have been
      received on such business day, with receipt being via a confirmation of time
      of
      facsimile of the Holder.

     

    (b)             Common
      Stock to be Issued. Upon the Holder's Conversion of any Debenture, the
      Company shall issue the number of shares of Common Stock equal to the
      Conversion. If, at the time of Conversion, the Registration Statement has been
      declared effective, the Company shall instruct its transfer agent to issue
      stock
      certificates without restrictive legend (other than a legend referring to such
      Registration Statement and prospectus delivery requirements) or stop transfer
      instructions. If, at the time of the Holder's Conversion, the Registration
      Statement has not been declared effective, the Company shall instruct the
      transfer agent to issue the certificates with an appropriate legend. The Company
      shall act as Registrar and shall maintain an appropriate ledger containing
      the
      necessary information with respect to this Debenture. The Company represents
      and
      warrants to the Holder that no instructions, other than these instructions,
      have
      been given or will be given to the transfer agent and that the Common Stock
      shall otherwise be freely resold, except as may be otherwise set forth
      herein.

     

    (c)             Conversion
      Price. The Holder is entitled to convert the unpaid Face Amount of this
      Debenture, plus accrued interest, any time following a Closing Date, at the
      lesser of the following prices (the “Conversion Price”): (i) seventy-five
      percent (75%) of the lowest closing bid price of the Common Stock during the
      ten
      (10) trading days immediately prior to a Conversion Notice; or (ii) 20/100
      U.S.
      dollars ($.20). No fractional shares or scrip representing fractions of shares
      will be issued upon Conversion, but the number of shares issuable shall be
      rounded up, in the event of a partial share, to the nearest whole share. The
      Holder shall retain all rights of Conversion during any partial trading
      days.

     

    (d)             Maximum
      Interest. Nothing contained in this Debenture shall be deemed to establish
      or require the Company to pay interest to the Holder at a rate in excess of
      the
      maximum rate permitted by applicable law.

     

    
      _____               _______

       JXA                      DHL

    
      
        
        

      

      
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    In
      the
      event that the rate of interest required to be paid exceeds the maximum rate
      permitted by applicable law, the rate of interest required to be paid thereunder
      shall be automatically reduced to the maximum rate permitted under applicable
      law and such excess, if so ordered, shall be credited on any remaining balances
      due to the Holder. In the event that the interest rate on this Debenture is
      required to be adjusted pursuant to this Section 3.2(d), then the parties
      hereto agree that the terms of this Debenture shall remain in full force and
      effect except as is necessary to make the interest rate comply with applicable
      law.

     

    (e)             Opinion
      Letter. The Company hereby acknowledges that the date of consideration for
      this Debenture is the Issuance Date and shall use all commercially reasonable
      best efforts to facilitate sales under Rule 144 of the Securities Act. The
      Company shall provide an opinion letter from counsel within two (2) business
      days of written request by the Holder stating that the date of consideration
      for
      the Debenture is the Issuance Date and submission of proper Rule 144 support
      documentation consisting of a Form 144, a broker's representation letter and
      a
      seller's representation letter. In the event the Company does not deliver the
      opinion letter within two business days, the Company shall be in default as
      outlined in Article 6. In the event that counsel to the Company fails or refuses
      to render an opinion as required to issue the Shares in accordance with this
      paragraph (either with or without restrictive legends, as applicable), then
      the
      Company irrevocably and expressly authorizes counsel to the Holder to render
      such opinion and shall authorize the Transfer Agent to accept and to rely on
      such opinion for the purposes of issuing the Shares (which is attached as
      Exhibit E to that certain Subscription Agreement, of even date herewith, by
      and
      between the Company and the Holder). Any costs incurred by Holder for such
      opinion letter shall be added to the Face Amount of the Debenture.

     

    (f)             Delivery
      of Shares.

     

        (i)  Within
      three (3) business days after receipt of the Notice of Conversion (the
“Certificate Deadline”), the Company shall deliver a certificate, in
      accordance with Section 3.2(c) hereof for the number of shares of Common
      Stock issuable upon a Conversion. In the event the Company does not make
      delivery of said certificate by the Certificate Deadline, the Company shall
      pay
      to Holder in cash, as liquidated damages, an additional fee per day equal to
      three percent (3%) of the dollar value of the Debentures being
      converted.

     

        (ii)  If
      the
      failure of the Company to issue the certificate pursuant to this Article
      3.2(f) is due to the unavailability of a sufficient number of authorized
      shares of Common Stock of the Company, then the provisions of this Article
      3.2(f) shall apply as well as the provisions of Article 3.2(k) hereof
      shall apply.

     

        (iii)  The
      Company shall make any payments required under this Article 3.2(f) in
      immediately available funds by the Certificate Deadline. Nothing herein shall
      limit the Holder’s right, at the Holder's sole discretion, to pursue actual
      damages or cancel the conversion for the Company’s failure to issue and deliver
      the certificate by the Certificate Deadline.

     

    _____               _______

     JXA                      DHL

    
      
        
        

      

      
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        (iv)  The
      Company shall at all times reserve (or make alternative written arrangements
      for
      reservation or contribution of shares) and have available all Common Stock
      necessary to meet Conversion of the full amount of the Debentures then
      outstanding and due to the
      Holder, unless so waived by the Holder in writing. If, at any time, the Holder
      submits a Notice of Conversion and the Company does not have sufficient
      authorized but unissued shares of Common Stock (or alternative shares of Common
      Stock as may be contributed by Stockholders) available to effect, in full,
      a
      Conversion of the Debentures (a “Conversion Default”, the date of
      such default being referred to herein as the “Conversion Default Date”),
the Company shall issue to the Holder all of the shares of Common Stock
      which are then currently available. Any Debentures or any portion thereof,
      which
      cannot be converted due to the Company's lack of sufficient authorized common
      stock (the “Unconverted Debentures”), may be deemed null and void upon
      written notice sent by the Holder to the Company. The Company shall provide
      notice of such Conversion Default (“Notice of Conversion Default”) to the
      Holder, by facsimile, within one (1) business days of such default.

     

        (v)  In
      the
      event of Conversion Default, the Company will pay to the Holder an amount
      computed as follows (the “Conversion Default Rate”):

     

    (N
      / 365)
      x (0.24) x (initial issuance price of outstanding and/or tendered but not
      converted

    Debentures
      held by the Holder)

     

    Where
      N
      is equal to the number of days from the Conversion Default Date to the date
      that
      the Company authorizes a sufficient number of shares of Common Stock to effect
      conversion of all remaining Debentures (the “Authorization Date”). The
      Company shall send notice to Holder of outstanding Debenture that additional
      shares of Common Stock have been authorized, stating the Authorization Date
      and
      the amount of Holder’s accrued Conversion Default Payments (“Authorization
      Notice”). The accrued Conversion Default shall be paid in cash or shall be
      convertible into Common Stock at the Conversion Rate, upon written notice sent
      by the Holder to the Company, as follows: (i) in the event the Holder elects
      to
      take such payment in cash, cash payment shall be made to the Holder within
      five
      (5) business days, or (ii) in the event Holder elects to take such payment
      in
      stock, the Holder may convert at the Conversion Default Rate within five (5)
      business days until the expiration of the Conversion period.

     

        (vi)  The
      Company acknowledges that its failure to maintain a sufficient number of
      authorized but unissued shares of Common Stock to effect in full a Conversion
      of
      the Debentures will cause the Holder to suffer irreparable harm, and that
      damages will be difficult to ascertain. Accordingly, the parties agree that
      it
      is appropriate to include in this Debenture a provision for liquidated damages.
      The parties acknowledge and agree that the liquidated damages provision set
      forth in this Section represents the parties’ good faith effort to quantify such
      damages and, as such, agree that the form and amount of such liquidated damages
      are reasonable and will not constitute a penalty. The payment of liquidated
      damages shall not relieve the Company from its obligations to deliver the Common
      Stock pursuant to the terms of this Debenture. Nothing herein shall limit the
      Holder’s right to pursue actual damages for the Company’s failure to maintain a
      sufficient number of authorized shares of Common Stock.

     

    
      _____               _______

       JXA                      DHL

    
      
        
        

      

      
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        (vii)    
      If by the Certificate Deadline, any portion of the shares of the Debentures
      have
      not been delivered to the Holder and the Holder purchases, in an open market
      transaction or otherwise, shares of Common Stock necessary to make delivery
      of
      shares which would
      have been delivered if the full amount of the shares to be converted and
      delivered to the Holder by the Company (the “Covering Shares”), then the
      Company shall pay to the Holder, in addition to any other amounts due to the
      Holder pursuant to this Debenture, and not in lieu thereof, the Buy-In
      Adjustment Amount (as defined below). The “Buy In Adjustment Amount” is
      the amount equal to the excess, if any, of (x) the Holder's total purchase
      price
      (including brokerage commissions, if any) for the Covering Shares, minus (y)
      the
      net proceeds (after brokerage commissions, if any) received by the Holder from
      the sale of the sold shares. The Company shall pay the Buy-In Adjustment Amount
      to the Holder in immediately available funds within five (5) business days
      of
      written demand by the Holder. By way of illustration and not in limitation
      of
      the foregoing, if the Holder purchases shares of Common Stock having a total
      purchase price (including brokerage commissions) of $11,000 to cover a Buy-In
      with respect to shares of Common Stock it sold for net proceeds of $10,000,
      the
      Buy-In Adjustment Amount which the Company would be required to pay to the
      Holder would be $1,000.

     

    (g)             Prospectus
      and Other Documents. The Company shall furnish to the Holder one (1)
      prospectus and any other documents incidental to the registration of the
      Conversion Shares, including any amendment of or supplements thereto. Any
      filings submitted via EDGAR will constitute fulfillment of the Company's
      obligation under this Section.

     

    (h)             Limitation
      on Issuance of Shares. If the Company’s Common Stock becomes listed on the
      Nasdaq SmallCap Market after the issuance of this Debenture, the Company may
      be
      limited in the number of shares of Common Stock it may issue by virtue of (A)
      the number of authorized shares or (B) the applicable rules and regulations
      of
      the principal securities market on which the Common Stock is listed or traded,
      including, but not necessarily limited to, NASDAQ Rule 4310(c)(25)(H)(i) or
      Rule
      4460(i)(1), as may be applicable (collectively, the “Cap Regulations”).
Without limiting the other provisions thereof: (i) the Company will
      take all
      steps necessary to issue the Conversion Shares without violating the Cap
      Regulations, and (ii) if, despite taking such steps, the Company cannot issue
      such Conversion Shares without violating the Cap Regulations or the Holder
      cannot convert as a result of the Cap Regulations (each such Debenture, an
      “Unconverted Debenture”) the Holder shall have the right to elect either
      of the following options:

     

        (i)  if
      permitted by the Cap Regulations, require the Company to issue shares of Common
      Stock in accordance with the Holder's Notice of Conversion at a conversion
      purchase price equal to the average of the closing bid price per share of Common
      Stock for any five (5) consecutive Trading Days (subject to certain equitable
      adjustments for certain events occurring during such period) during the sixty
      (60) Trading Days immediately preceding the Conversion Date; or

     

        (ii)  require
      the Company to redeem each Unconverted Debenture for an amount (the
“Redemption Amount”), payable in cash, equal to the sum of (i) one
      hundred twenty-five percent (125%) of the principal of an Unconverted Debenture,
      plus (ii) any accrued but unpaid interest thereon through and including the
      date
      on which the Redemption Amount is paid to the holder (the “Redemption
      Date”).

     

    _____               _______

     JXA                      DHL

    
      
        
        

      

      
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    The
      Holder may elect, without limitation, one of the above remedies with respect
      to
      a portion of such Unconverted Debenture and the other remedy with respect to
      other portions of the Unconverted Debenture. The Unconverted Debenture shall
      contain provisions substantially consistent with the above terms, with such
      additional provisions as may be consented to by the Holder. The provisions
      of
      this Section are not intended to limit the scope of the provisions otherwise
      included in the Unconverted Debenture.

     

    (i)             Limitation
      on Amount of Conversion and Ownership. Notwithstanding anything to the
      contrary in this Debenture, in no event shall the Holder be entitled to convert
      that amount of Debenture, and in no event shall the Company permit that amount
      of conversion, into that number of shares, which when added to the sum of the
      number of shares of Common Stock beneficially owned, (as such term is defined
      under Section 13(d) and Rule 13d-3 of the Securities Exchange Act of 1934,
      as
      may be amended, (the “Exchange Act”)), by the Holder, would exceed four
      and ninety-nine one hundredths percent (4.99%) of the number of shares of Common
      Stock outstanding on the Conversion Date, as determined in accordance with
      Rule
      1 3d-1 (j) of the Exchange Act. In the event that the number of shares of Common
      Stock outstanding as determined in accordance with Section 13(d) of the Exchange
      Act is different on any Conversion Date than it was on the Closing Date, then
      the number of shares of Common Stock outstanding on such Conversion Date shall
      govern for purposes of determining whether the Holder would be acquiring
      beneficial ownership of more than four and ninety-nine one hundredths percent
      (4.99%) of the number of shares of Common Stock outstanding on such Conversion
      Date. However, nothing in this Section 3.2(i) shall be read to reduce the
      amount of principal, Interest or penalties, if any, due to the
      Holder.

     

    (j)             Legend.
      The Holder acknowledges that each certificate representing the Debentures,
      and the Common Stock unless registered pursuant to the Debenture Registration
      Rights Agreement, shall be stamped or otherwise imprinted with a legend
      substantially in the following form:

     

    THE
      SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD,
      TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT
      TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
      AMENDED, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT
      (OR
      ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES),
      OR
      (iii) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH
      ACT.

     

    (k)      
Prior
      to Conversion of this Debenture, if at any time the Conversion of all the
      Debentures and exercise of all the Warrants outstanding would result in an
      insufficient number of authorized shares of Common Stock being available to
      cover all the Conversions, then in such event, the Company will move to call
      and
      hold a shareholder’s meeting or have shareholder action with written consent of
      the proper number of shareholders within thirty (30) days of such event, or
      such
      greater period of time if statutorily required or reasonably necessary as
      regards standard brokerage house and/or SEC requirements and/or procedures,
      for
      the purpose of authorizing additional shares of Common Stock such as necessary
      to facilitate the Holder's Conversions.

     

     

    

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       JXA                      DHL

    

     

    
      
        
        

      

      
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    In
      such
      an event, management of the Company shall recommend to all shareholders to
      vote
      their shares in favor of increasing the authorized number of shares of Common
      Stock. Management of the Company shall vote all of its shares of Common Stock
      in
      favor of increasing the number of shares of authorized Common Stock to an amount
      equal to three hundred percent (300%) of the remaining balance on this
      Debenture. The Company represents and warrants that under no circumstances
      will
      it deny or prevent the Holder’s right to convert the Debentures as permitted
      under the terms of any of the Transaction Documents (as such term is defined
      in
      that certain Debenture Registration Rights Agreement, of even date herewith,
      by
      and between the Company and the Holder). Nothing in this Section shall limit
      the
      obligation of the Company to make the payments set forth in this Article 3.
The Holder, at its sole option, may request the company to authorize
      and
      issue additional shares if the Holder feels it is necessary for Conversions
      in
      the future. In the event the Company’s shareholder’s meeting does not result in
      the necessary authorization, the Company shall redeem the outstanding Debentures
      for an amount equal to the sum of the principal of the outstanding Debentures
      plus accrued interest thereon multiplied by one hundred thirty-three percent
      (133%).

     

     

    Section
      3.3     Fractional Shares.
      The Company shall not issue fractional shares of Common Stock, or scrip
      representing fractions of such shares, upon the conversion of this Debenture.
      Instead, the Company shall round up, to the nearest whole share.

     

    Section
      3.4     Taxes on
      Conversion. The Company shall pay any documentary, stamp or similar issue or
      transfer tax due on the issue of shares of Common Stock upon the conversion
      of
      this Debenture. However, the Holder shall pay any such tax which is due because
      the shares are issued in a name other than its name.

     

    Section
      3.5     Company to Reserve
      Stock. The Company shall reserve and maintain the number of shares of Common
      Stock required pursuant to and upon the terms set forth in the Transaction
      Documents to permit the Conversion of this Debenture. All Conversion Shares
      shall, upon issuance by the Company, be validly issued, fully paid and
      nonassessable and free and clear from all taxes, liens, charges and encumbrances
      with respect to the issuance thereof.

     

    Section
      3.6     Restrictions on
      Sale. This Debenture has not been registered under the Securities Act and is
      being issued under Section 4(2) of Securities Act and Rule 506 of Regulation
      D
      promulgated under the Securities Act. This Debenture and the Conversion Shares
      may only be sold pursuant to registration under or an exemption from the
      Securities Act.

     

     

    Section
      3.7     Stock Splits,
      Combinations and Dividends. If the shares of Common Stock are subdivided or
      combined into a greater or smaller number of shares of Common Stock, or if
      a
      dividend is paid on the Common Stock in shares of Common Stock, the Conversion
      Price shall be proportionately reduced in the case of a subdivision of shares
      or
      stock dividend, or proportionately increased in the case of combination of
      shares, in each such case, by the ratio that the total number of shares of
      Common Stock outstanding immediately after such event bears to the total number
      of shares of Common Stock outstanding immediately prior to such
      event.

     

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        9

        
          

        

      

      
        
        

      

    

     

    Article
      4    Mergers.

     

        The
      Company
      shall not consolidate or merge into, or transfer any or all of its assets to,
      any person, unless such person assumes in writing the obligations of the Company
      under this Debenture and immediately after such transaction no Event of Default
      (as defined below) exists. Any reference herein to the Company shall refer
      to
      such surviving or transferee corporation and the obligations of the Company
      shall terminate only upon such written assumption of the Company's obligation.
      In the event of a merger, or other consolidation, the Company shall give notice
      to the Holder simultaneously with the announcement to the public
      markets.

     

    Article
      5     Security.

     

        This
      Debenture, and the Company’s obligations hereunder, are secured by that certain
      Security Agreement, of even date herewith, by and between the Company and the
      Holder (the “Security Agreement”).

     

    Article
      6    Defaults and
      Remedies.

     

              
Section
      6.1     Events of Default.
      An “Event of Default” occurs if any one of the following occur:

     

    (a)  the
      Company does not make timely payment or Conversion, in whole or in part,
      necessary to cover the principal, interest or other sum due on the Maturity
      Date, Conversion Date, upon redemption, or otherwise described
      herein;

     

    (b)  the
      Company does not make a Payment in cash for a period of three (3) business
      days
      when due as described in this Debenture; or,

     

    (c)  any
      of
      the Company’s representations or warranties contained in the Transaction
      Documents or this Debenture were false when made or the Company fails to comply
      with any of its other agreements in the Transaction Documents and such failure
      continues for a period of five (5) business days; or,

     

    (d)  the
      Company pursuant to or within the meaning of any Bankruptcy Law: (i) commences
      a
      voluntary case; (ii) consents to the entry of an order for relief against it
      in
      an involuntary case; (iii) consents to the appointment of a Custodian (as
      defined below) of it or for all or substantially all of its property or (iv)
      makes a general assignment for the benefit of its creditors or (v) a court
      of
      competent jurisdiction enters an order or decree under any Bankruptcy Law that
      (A) is for relief against the Company in an involuntary case; (B) appoints
      a
      Custodian of the Company for all or substantially all of its property or (C)
      orders the liquidation of the Company, and the order or decree remains unstayed
      and in effect for sixty (60) calendar days; or,

     

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        10

        
          

        

      

      
        
        

      

    

    
      	
               

            

    

     

    (e)  the
      Company’s Common Stock is suspended or no longer listed on any recognized
      exchange including electronic over-the-counter bulletin board (“Principal
      Market”) for in excess of three (3) consecutive Trading Days. Failure to
      comply with the requirements for continued listing on a Principal Market for
      a
      period of five (5) trading days; or notification from a Principal Market that
      the Company is not in compliance with the conditions for such continued listing
      on such Principal Market; or,

     

    (f)  the
      Company breaches any covenant or condition of the Transaction Documents, and
      such breach, if subject to cure, continues for a period of five (5) business
      days; or,

     

    (g)  the
      Registration Statement is not declared effective by the SEC within one hundred
      and five (105) days of the Filing Date; or,

     

    (h)  the
      Company’s failure to pay any taxes when due unless such taxes are being
      contested in good faith by appropriate proceedings and with respect to which
      adequate reserves have been provided on the Company’s books; provided, however,
      that in the event that such failure is curable, the Company shall have ten
      (10)
      business days to cure such failure; or,

     

    (i)  an
      attachment or levy is made upon the Company’s assets having an aggregate value
      in excess of one hundred thousand dollars ($100,000) or a judgment is rendered
      against the Company or the Company’s property involving a liability of more than
      one hundred thousand dollars ($100,000) which shall not have been vacated,
      discharged, stayed or bonded pending appeal within ninety (90) days from the
      entry hereof; or,

     

    (j)  any
      change in the Company’s condition or affairs (financial or otherwise) which in
      the Holder’s reasonable, good faith opinion, would have a Material Adverse
      Effect; provided, however, that in the event that such failure is curable,
      the
      Company shall have ten (10) business days to cure such failure; or,

     

    (k)  any
      Lien,
      except for Permitted Liens, created hereunder or under any of the Transaction
      Documents for any reason ceases to be or is not a valid and perfected Lien
      having a first priority interest; or,

     

    (l)  the
      indictment or threatened indictment of the Company, any officer of the Company
      under any criminal statute, or commencement or threatened commencement of
      criminal or civil proceeding against the Company or any officer of the Company
      pursuant to which statute or proceeding penalties or remedies sought or
      available include forfeiture of any of the property of the company.

     

    Section
      6.2     Remedies.

     

    (a)            In
      the Event of Default, the Holder may elect to secure a portion of
      the

     

    Company's
      assets in Pledged Collateral (as defined in the Security Agreement). The Holder
      may also elect to garnish revenue from the Company in an amount that will repay
      the Holder on the schedules outlined in this Debenture.

     

    
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        11

        
          

        

      

      
        
        

      

    

     

     

    (b)   In
      the Event of Default,
      as outlined in this Debenture, the Holder can exercise its right to increase
      the
      Face Amount of the Debenture by ten percent (10%) as an initial penalty, and
      by
      ten percent (10%) for each subsequent Event of Default. In addition, the Holder
      may elect to increase the Face Amount by two and one-half percent (2.5%) per
      month (pro-rata for partial periods) paid as liquated damages (“Liquidated
      Damages”), compounded daily. It is the intention and acknowledgement of both
      parties that the Liquidated Damages not be deemed as interest or a penalty
      under
      the terms of this Debenture.

     

      
      Section 6.3     Acceleration.
If an Event of
      Default occurs, the Holder by notice to the Company may
      declare the remaining principal amount of this Debenture, together with all
      accrued interest and any liquidated damages, to be immediately due and payable
      in full.

     

      
      Section 6.4     Seniority. The
      Company warrants that no indebtedness of the Company is senior to this Debenture
      in right of payment, whether with respect to interest, damages or upon
      liquidation or dissolution or otherwise. The Company warrants that it has taken
      all necessary steps to subordinate its other obligations to the rights of the
      Holder hereunder.

     

      
      Section 6.5     Cost of
      Collections. If an Event of Default occurs, the Company shall pay the
      Holder's reasonable costs of collection, including reasonable attorney's fees
      and costs of arbitration.

     

    Article
      7    Registered
      Debentures.

     

      
Section
      7.1    Record
      Ownership. The
      Company or its attorney shall maintain a register of the Holder of the
      Debentures (the “Register”) showing their names and addresses and the
      serial numbers and principal amounts of Debentures issued to them. The Register
      may be maintained in electronic, magnetic or other computerized form. The
      Company may treat the person named as the Holder of this Debenture in the
      Register as the sole owner of this Debenture. The Holder of this Debenture
      is
      exclusively entitled to receive payments of interest on this Debenture, receive
      notifications with respect to this Debenture, convert it into Common Stock
      and
      otherwise exercise all of the rights and powers as the absolute owner
      hereof.

     

        Section
      7.2    Worn
      or Lost Debentures.
If this Debenture becomes worn, defaced or mutilated but is still
      substantially intact and recognizable, the Company or its agent may issue a
      new
      Debenture in lieu hereof upon its surrender. Where the Holder of this Debenture
      claims that the Debenture has been lost, destroyed or wrongfully taken, the
      Company shall issue a new Debenture in place of the Debenture if the Holder
      so
      requests by written notice to the Company.

     

    
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    Article
      8    Notice.

     

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

     

    
      
        	
                If
                  to the Company:

              	
                Somerset
                  International Group, Inc.

              
	 	
                90
                  Washington Valley Road

              
	 	
                Bedminster,
                  NJ 07921

              
	 	
                Attention:John
                  X. Adiletta

              
	 	
                Telephone:
                  (908) 719-8909

              
	 	
                Facsimile:
                  (908) 953-0797

              
	 	 
	
                With
                  a copy to:

              	
                Anslow
                  & Jaclin, LLP

              
	 	
                195
                  Route 9, Suite 204 Manalapan, NJ 07726

              
	 	
                Attention:
                  Gregg E. Jaclin

              
	 	
                Telephone:
                  (732))409- 1212

              
	 	
                Facsimile:
                  (732)577-1188

              
	 	 
	
                If
                  to the Holder:

              	
                Dutchess
                  Capital Management, LLC

              
	 	
                50
                  Commonwealth Ave, Suite 2 Boston, MA 02116

              
	 	
                Attention:
                  Douglas Leighton

              
	 	
                Telephone:
                  (617) 301-4700

              
	 	
                Facsimile:
                  (617) 249-0947

              

      

    

        

            Each
      party hereto
      shall provide five (5) business days prior notice to the other party hereto
      of
      any change in address, phone number or facsimile number.

     

    Article
      9    Time.

     

          Where
      this Debenture authorizes
      or requires the payment of money or the performance of a condition or obligation
      on a Saturday or Sunday or a holiday on which the United States Stock Markets
      (“US Markets”) are closed (a “Holiday”), such payment shall be
      made or condition or obligation performed on the last business day preceding
      such Saturday, Sunday or Holiday. A “business day” shall mean a day on
      which the US Markets are open for a full day or half day of
      trading.

     

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     JXA                      DHL

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    Article
      10    No
      Assignment.

     

    This
      Debenture and the obligations of the Company hereunder shall not be assignable
      by the Company.

     

    Article
      11    Rules of
      Construction.

     

    In
      this
      Debenture, unless the context otherwise requires, words in the singular number
      include the plural, and in the plural include the singular, and words of the
      masculine gender include the feminine and the neuter, and when the tense so
      indicates, words of the neuter gender may refer to any gender. The numbers
      and
      titles of sections contained in the Debenture are inserted for convenience
      of
      reference only, and they neither form a part of this Debenture nor are they
      to
      be used in the construction or interpretation hereof. Wherever, in this
      Debenture, a determination of the Company is required or allowed, such
      determination shall be made by a majority of the Board of Directors of the
      Company and if it is made in good faith, it shall be conclusive and binding
      upon
      the Company and the Holder of this Debenture. Any capitalized term used but
      not
      defined in this Debenture shall have the meaning ascribed to it in the
      Transaction Documents.

     

    Article
      12    Governing
      Law.

     

    The
      validity, terms, performance and enforcement of this Debenture shall be governed
      and construed by the provisions hereof and in accordance with the laws of the
      Commonwealth of Massachusetts applicable to agreements that are negotiated,
      executed, delivered and performed solely in the Commonwealth of
      Massachusetts.

     

    Article
      13    Disputes Under
      Debenture.

     

    All
      disputes arising under this Debenture shall be governed by and interpreted
      in
      accordance with the laws of the Commonwealth of Massachusetts, without regard
      to
      principles of conflict of laws. The parties to this Debenture shall submit
      all
      disputes arising under this Debenture to arbitration in Boston, Massachusetts
      before a single arbitrator of the American Arbitration Association (the “AAA”).
      The arbitrator shall be selected by application of the rules of the AAA, or
      by
      mutual agreement of the parties, except that such arbitrator shall be an
      attorney admitted to practice law in the Commonwealth of Massachusetts. No
      party
      hereto will challenge the jurisdiction or venue provisions as provided in this
      section. Nothing in this section shall limit the Holder's right to obtain an
      injunction for a breach of this Debenture from a court of law. Any injunction
      obtained shall remain in full force and effect until the arbitrator, as set
      forth in Article 13, fully adjudicates the dispute.

     

    Article
      14     Redemption.

     

    In
      the
      event the Company’s Common Stock is trading below the 20/100 US dollars ($.20)
      per share, the Company shall have the right to redeem the Holder, in cash,
      the
      Debenture, in whole or in part (“Redemption Amount”), at a price equal to
      one hundred and twenty-five percent (125%) of the outstanding principal amount
      of the Debenture, including accrued interest (and penalties if applicable),
      in
      lieu of the Holder converting pursuant to Article 3. 

     

    
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        14

        
          

        

      

      
        
        

      

    

     

    Any
      Payments, as defined in Article 2 hereof, shall apply to the Redemption
      Amount. In the event the Company's Common Stock is greater than 20/100 US
      dollars ($.20) per share, the Holder shall retain the right, but not the
      obligation, to refuse a Redemption Amount, in part or in whole. Any portion
      of
      the Payment Amount not converted shall be paid in cash to the Holder under
      the
      terms described in this Article 14.

     

    Article
      15    Holder
      Warrants.

     

    As
      an
      additional inducement to the Holder entering into the Transaction Documents,
      the
      Company shall issue to the Holder a warrant to purchase thirteen million five
      hundred thousand (13,500,000) shares of its common stock exercisable at a strike
      price of $0.12, as set forth in the Warrant.

     

    Article
      16    Waiver.

     

    The
      Holder's delay or failure at any time or times hereafter to require strict
      performance by the Company of any undertakings, agreements or covenants shall
      not waive, affect, or diminish any right of the Holder under this Debenture
      to
      demand strict compliance and performance herewith. Any waiver by the Holder
      of
      any Event of Default shall not waive or affect any other Event of Default,
      whether such Event of Default is prior or subsequent thereto and whether of
      the
      same or a different type. None of the undertakings, agreements and covenants
      of
      the Company contained in this Debenture, and no Event of Default, shall be
      deemed to have been waived by the Holder, nor may this Debenture be amended,
      changed or modified, unless such waiver, amendment, change or modification
      is
      evidenced by an instrument in writing specifying such waiver, amendment, change
      or modification and signed by the Holder.

     

    Article
      17    Integration.

     

    This
      Debenture is the final definitive agreement between the Company and the Holder
      with respect to the terms and conditions set forth herein, and, the terms of
      this Debenture may not be contradicted by evidence of prior, contemporaneous,
      or
      subsequent oral agreements of the parties hereto. The execution and delivery
      of
      this Debenture is done in conjunction with the execution of the other
      Transaction Documents.

     

    Article
      18    Failure To Meet
      Obligations by the Company.

     

         
The
      Company acknowledges that its failure to timely meet any of its obligations
      hereunder, including, but without limitation, its obligations to make payments,
      deliver shares and, as necessary, to register and maintain sufficient number
      of
      shares, will cause the Holder to suffer irreparable harm and that the actual
      damage to the Holder will be difficult to ascertain. Accordingly, the parties
      hereto agree that it is appropriate to include in this Debenture a provision
      for
      liquidated damages. The parties acknowledge and agree that the liquidated
      damages provision set forth in this section represents the parties’ good faith
      effort to quantify such damages and, as such, agree that the form and amount
      of
      such liquidated damages are reasonable and do not constitute a penalty. The
      payment of liquidated damages shall not relieve the
      Company from its obligations to deliver the Common Stock pursuant to the terms
      of this Debenture.

     

    
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        15

        
          

        

      

      
        
        

      

    

     

     

    Article
      19    Representations
      and Warranties of the Company.

     

    The
      Company hereby represent and warrants to the Holder that: (i) it is voluntarily
      issuing this Debenture of its own freewill, (ii) it is not issuing this
      Debenture under economic duress, (iii) the terms of this debenture are
      reasonable and fair to the Company, and (iv) the Company has had independent
      legal counsel of its own choosing review this Debenture, advise the Company
      with
      respect to this Debenture, and represent the Company in connection with its
      issuance of this Debenture.

     

    Article
      20    Acknowledgements
      of the Parties.

     

    Notwithstanding
      anything in this Debenture to the contrary, the parties hereto hereby
      acknowledge and agree to the following: (i) the Holder makes no representations
      or covenants that it will not engage in trading in the securities of the
      Company; (ii) the Company shall, by 8:30 a.m. Boston Time on the trading day
      following the date hereof, file a current report on Form 8-K disclosing the
      material terms of the transactions contemplated hereby and in the other
      Transaction Documents; (iii) the Company has not and shall not provide material
      non-public information to the Holder unless prior thereto the Holder shall
      have
      executed a written agreement regarding the confidentiality and use of such
      information; and (iv) the Company understands and confirms that the Holder
      will
      be relying on the acknowledgements set forth in clauses (i) through (iii) above
      if the Holder effects any transactions in the securities of the
      Company.

     

    Article
      21    Equity Line
      Obligations

     

    Section
      13.1 At the request of the Holder, at any time after the Company's current
      effective registration statement for the Equity Line of Credit with Dutchess
      Private Equities, LP (“Investor”) (File No: 333-13 8224), has five
      hundred thousand (500,000) shares or less remaining for issuance, the Company
      shall immediately prepare and file a registration statement for the registration
      of shares as set forth in the Investment Agreement. The Holder shall also retain
      the right to determine the date of the filing of such registration statement.
      Payments pursuant to this Debenture may be drawn directly from the Closing
      of
      each Put. The Company agrees to fully execute and diligently carry out Puts
      to
      the Investor, on the terms set forth in the Investment Agreement. The Company
      agrees that the Put Amount shall be for the maximum amount allowed under the
      Investment Agreement. Further, the Company agrees to issue Puts to the Investor
      for the maximum frequency allowed under the Investment Agreement. Failure to
      comply with the terms of the Investment Agreement with respect to the Puts
      will
      result in an Event of Default as defined in this Agreement in Article
      6.

     

    
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    Article
      22    Use of
      Proceeds

     

    The
      Company shall use the funds to consummate the acquisition of Vanwell
      Electronics, Inc. and Meadowland, Security and Electronic Supply, Inc. and
      for
      working capital purposes and the funds shall be held in escrow pending
      completion of the acquisition as set forth in the Escrow Agreement.

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

     

     

     

     

     

     

     

    

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        17

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have caused this Debenture to be duly
      executed on the day and year first above written.

     

    SOMERSET
      INTERNATIONAL, INC.

     

    By: __________________________________                                             

    Name:
      John X. Adiletta

    Title:
      Chief Executive Officer

     

                              DUTCHESS
      PRIVATE EQUITIES FUND,
      LTD.

     

    By:  _________________________________                                        

    Name:
      Douglas H. Leighton 

    Title:
      Director

     

     

    

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        18

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

     

    NOTICE
      OF CONVERSION

     

     

    Somerset
      International, Inc. 

     

    Re:
      Notice of Conversion  

     

    Gentlemen:

     

    The
      undersigned hereby irrevocably elects, as
      of ______________________________________________________, to convert
$__________________
      of its convertible debenture (the “Debenture”) into Common Stock of
Somerset
      International, Inc. (the “Company”) according to the conditions set forth
      in the Debenture issued by the Company.

     

    Date
      of
      Conversion 
      
        

      

    

     

    Applicable
      Conversion Price   
      
        

      
                                                                                                              

    Number
      of
      Debentures Issuable upon this Conversion 
      
                                                                                                                

     

    Name:
      Dutchess Private Equities Fund, LTD.

     

    Address:
      50 Commonwealth Ave, Boston, MA 02116

     

    Phone:     617-301-4700       Fax:
      617-249-0947

     

     

                                DUTCHESS
      PRIVATE
      EQUITIES FUND, LTD.,

     

    By:  ___________________________________                                        

    Name:
      Douglas H. Leighton 

    Title:
      Director

    _____               _______

     JXA                      DHL

     

     

    19f8k061507ex10ii_somerset.htm

    

    WARRANT

     

    THESE
      SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND MAY NOT BE TRANSFERRED UNLESS PURSUANT TO AN EFFECTIVE
      REGISTRATION STATEMENT UNDER THE SECURITIES ACT, A "NO-ACTION" LETTER FROM
      THE
      UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION” OR THE
“SEC”) WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS
      OF
      RULE 144 OF THE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER
      TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH
      REGISTRATION.

     

    Somerset
      International Group, Inc.

     

    WARRANT
      NO. JUNE 2007 101

     

    Dated:
      June 12, 2007

     

    Somerset
      International Group, Inc., a corporation organized under the laws of the
      State of Delaware (the “Company”), hereby certifies that, for value
      received from Dutchess Private Equities Fund, Ltd., a Cayman Island exempted
      company (the “Holder”), is entitled, subject to the terms set forth
      below, to purchase from the Company up to a total of thirteen million five
      hundred thousand (13,500,000) shares of the common stock, $0.001 par value
      per
      share (the “Common Stock”), of the Company (the
“Warrant  Shares”), at an exercise price equal to 12/100
      US dollars ($.12) per share (the “Exercise  Price”). This
      Warrant may be exercised on a cashless basis anytime after issuance through
      and
      including the fifth (5th) anniversary of its original issuance as noted above
      (the “Expiration Date”), subject to the following terms and
      conditions:

     

    1.             Registration
      of Warrant. The Company shall, from time to time and whenever requested by
      the Holder, register this Warrant in conformity with records to be maintained
      by
      the Company for such purpose (the “Warrant Register”) in the name of the
      Holder. The Company shall treat the registered Holder of this Warrant as the
      absolute owner hereof for any and all purposes, including the exercise hereof
      or
      any distribution to the Holder, and the Company shall not be affected by notice
      to the contrary.

     

    2.             Registration
      of Transfers and Exchanges.

     

    (a)            The
      Company or the transfer agent shall enter or record the

     

    transfer
      of all or any portion of this Warrant in the Warrant Register, upon surrender
      of  this
      Warrant to the Company at the office specified herein or pursuant to Section
      11  hereof.

     

     

    _____    _____

     DHL      JXA

     

    
 

    
      
        
           

        

        
          1

          
            

          

        

        
           

        

      

    

    

    Upon
      any
      such registration or transfer, a new warrant to purchase Common Stock, in
      substantially the form of this Warrant (any such new warrant hereinafter
      referred to as a “New Warrant”), evidencing the portion of this Warrant
      so transferred shall be issued to the transferee and a New Warrant evidencing
      the remaining portion of this Warrant not so transferred, if any, shall be
      issued to the Holder. The acceptance of the New Warrant by the transferee
      thereof shall be deemed the acceptance of such transferee of all of the rights
      and obligations of a holder of a Warrant.

     

    (b)
      This
      Warrant is exchangeable, upon the surrender hereof by the Holder to the office
      of the Company specified herein or pursuant to Section
      3(b)  hereof for one or more New Warrants, evidencing in the
      aggregate the right to purchase the number of Warrant Shares which may then
      be
      purchased hereunder. Any such New Warrant shall be dated as of the date of
      such
      exchange.

     

               3.      Duration
      and Exercise of
      Warrants.

     

    (a)  This
      Warrant shall be exercisable by the registered Holder on any business day before
      5:00 P.M., Boston time, at any time and from time to time on or after the date
      hereof to and including the Expiration Date. At 5:00 P.M., Boston time on the
      Expiration Date, the portion of this Warrant not exercised prior thereto shall
      be and become void and of no value. Prior to the Expiration Date, the Company
      may not call or otherwise redeem this Warrant without the prior written consent
      of the Holder, which consent shall be given or withheld at the sole and absolute
      discretion of the Holder.

     

    (b)  Subject
      to Section 2(b), Section 6 and Section 10 hereof, upon: (x)
      surrender of this Warrant, together with the Form of Election to Purchase
      attached hereto duly completed and signed, to the Company at its address for
      notice set forth in Section 11 hereof; and (y) payment of the Exercise
      Price multiplied by the number of Warrant Shares that the Holder intends to
      purchase hereunder, in the manner provided hereunder, all as specified by the
      Holder in the Form of Election to Purchase, the Company shall promptly (but
      in
      no event later than five (5) business days after the Date of Exercise (as
      defined below)) issue or cause to be issued and cause to be delivered to the
      Holder in such name(s) as the Holder may designate, a certificate for the
      Warrant Shares issuable upon such exercise and free of restrictive legends
      unless (i) a registration statement covering the resale of the Warrant Shares
      and naming the Holder as a selling stockholder thereunder is not then effective
      or the Warrant Shares are not freely transferable without volume restrictions
      pursuant to Rule 144(k) promulgated under the Securities Act then the Warrant
      Shares will bear a Securities Act restrictive legend, or (ii) this Warrant
      shall
      have been issued pursuant to a written agreement between the original Holder
      and
      the Company, as required by such agreement. Any person so designated by the
      Holder to receive Warrant Shares shall be deemed to have become holder of record
      of such Warrant Shares as of the Date of Exercise of this Warrant. A “Date of
      Exercise” means the date on which the Company shall have received (I) this
      Warrant (or any New Warrant, as applicable), together with the Form of Election
      to Purchase attached hereto (or
      attached to such New Warrant) appropriately completed and duly signed; and
      (II)
      payment of the Exercise Price for the number of Warrant Shares so indicated
      by
      the holder hereof to be purchased.

     

    
       

      _____    _____

       DHL      JXA

       

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    (c)
      This
      Warrant shall be exercisable in its entirety or, from time to time, for a
      portion of the number of Warrant Shares. If less than all of the Warrant Shares
      which may be purchased under this Warrant are exercised at any time, the Company
      shall issue or cause to be issued, at its expense, a New Warrant evidencing
      the
      right to purchase the remaining number of Warrant Shares for which no exercise
      has been evidenced by this Warrant. In the event the Common Stock representing
      the Warrant Shares is not delivered per the written instructions of the Holder
      within five (5) business days after the Notice of Election and Warrant is
      received by the Company (the “Delivery Date”), then the Company shall pay
      to Holder in cash two percent (2.0%) of the dollar value of the Warrant Shares
      to be issued per each day after the Delivery Date that the Warrant Shares are
      not delivered. The Company acknowledges that its failure to deliver the Warrant
      Shares by the Delivery Date will cause the Holder to suffer damages in an amount
      that will be difficult to ascertain. Accordingly, the parties hereto agree
      that
      it is appropriate to include in this Warrant this provision for liquidated
      damages. The parties hereto acknowledge and agree that the liquidated damages
      provision set forth in this section represents the parties’ good faith effort to
      quantify such damages and therefore agree that the form and amount of such
      liquidated damages are reasonable and will not constitute a penalty.
      Notwithstanding the foregoing, the payment of liquidated damages shall not
      relieve the Company from its obligations to deliver the Common Stock pursuant
      to
      the terms of this Warrant. The Company shall make any payments incurred under
      this Section 3 in immediately available funds within five (5) business
      days from the date of issuance of the applicable Warrant Shares. Nothing herein
      shall limit Holder’s right to pursue actual damages or cancel the Notice of
      Election for the Company’s failure to issue and deliver Common Stock to the
      Holder within seven (7) business days following the Delivery Date.

     

    4.              Registration
      Rights. During the term of this Warrant, the Company agrees to use its best
      efforts to file a registration statement with the SEC covering the resale of
      the
      Warrant Shares and naming the Holder as a selling stockholder (unless the
      Warrant Shares are otherwise freely transferable without volume restrictions
      pursuant to Rule 144(k) or Rule 144A promulgated under the Securities Act).
      The
      registration rights granted to the Holder pursuant to this Section shall
      continue until all of the Holder's Warrant Shares have been sold in accordance
      with an effective registration statement or upon the Expiration Date, or as
      otherwise provided in the Debenture Registration Rights Agreement entered into
      between the Company and the original Holder as of the original issuance date
      hereof. The Company will pay all registration expenses in connection
      therewith.

     

    5.            Payment
      of Taxes. Upon the exercise of this Warrant, the Company will pay all
      documentary stamp taxes attributable to the issuance of Warrant Shares;
      provided, however, that the Company shall not be required to pay any tax that
      may be payable in respect of any transfer involved in the registration of any
      certificates for Warrant Shares or Warrants in a name other than that of the
      Holder. 

     

    
       

      _____    _____

       DHL      JXA

       

    
      
        
           

        

        
          3

          
            

          

        

        
           

        

      

    

    

    The
      Holder shall be responsible for all other tax liability that may arise as a
      result of holding or transferring this Warrant or receiving Warrant Shares
      upon
      exercise hereof.

     

    6.              Replacement
      of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the
      Company shall issue or cause to be issued in exchange and substitution for
      and
      upon cancellation hereof, or in lieu of and substitution for this Warrant,
      a New
      Warrant, but only upon receipt of evidence reasonably satisfactory to the
      Company of such loss, theft or destruction and indemnity, if requested,
      satisfactory to it. Applicants for a New Warrant under such circumstances shall
      comply with such other reasonable regulations and procedures and pay such other
      reasonable charges as the Company may prescribe.

     

    7.              Reservation
      of Warrant Shares. The Company covenants that it will at all times reserve
      and keep available out of the aggregate of its authorized but unissued Common
      Stock, solely for the purpose of enabling it to issue Warrant Shares upon
      exercise of this Warrant as herein provided, the number of Warrant Shares which
      are then issuable and deliverable upon the exercise of this entire Warrant,
      free
      from preemptive rights or any other actual contingent purchase rights of persons
      other than the Holder (taking into account the adjustments and restrictions
      of
Section 8 hereof). The Company covenants that all Warrant Shares that
      shall be so issuable and deliverable shall, upon issuance and the payment of
      the
      applicable Exercise Price in accordance with the terms hereof, be duly and
      validly authorized, issued and fully paid and nonassessable. If the Company
      does
      not have a sufficient amount of Common Stock authorized to reserve for the
      Warrant Shares, it shall, as soon as reasonably practicable, use its best
      efforts to increase the number of its authorized shares such that the Company
      will have a sufficient amount of Common Stock authorized to reserve for the
      Warrant Shares.

     

     8.        
      Certain Adjustments. The Exercise Price and number of Warrant Shares
      issuable upon exercise of this Warrant are subject to adjustment from time
      to
      time as set forth in this Section 8. Upon each such adjustment of the
      Exercise Price pursuant to this Section 8, the Holder shall thereafter
      but prior to the Expiration Date be entitled to purchase, at the Exercise Price
      resulting from such adjustment, the number of Warrant Shares obtained by
      multiplying the Exercise Price in effect immediately prior to such adjustment
      by
      the number of Warrant Shares issuable upon exercise of this Warrant immediately
      prior to such adjustment and dividing the product thereof by the Exercise Price
      resulting from such adjustment.

     

    (a)
      An
      adjustment shall be made, if the Company, at any time while this Warrant is
      outstanding (i) pays a stock dividend (except scheduled dividends paid on
      outstanding preferred stock as of the date hereof which contain a stated
      dividend rate) or otherwise make distribution(s) on shares of its Common Stock
      or on any other class of capital stock and not the Common Stock payable in
      shares of Common Stock; (ii) subdivides outstanding shares of Common Stock
      into
      a larger number of shares; or 

     

    
       

      _____    _____

       DHL      JXA

       

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

       

      (iii)combines
        outstanding shares of Common Stock into a smaller number of shares. If either
        (i), (ii) or (iii) above occurs, the Exercise Price shall be multiplied by
        a
        fraction of which the numerator shall be the number of shares of Common Stock
        (excluding treasury shares, if any) outstanding before such event and of
        which
        the denominator shall be the number of shares of Common Stock (excluding
        treasury shares, if any) outstanding 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 or combination, and shall apply to successive
        subdivisions and combinations.

    

     

    (b)  In
      case
      of any reclassification of the Common Stock, any consolidation or merger of
      the
      Company with or into another entity, the sale or transfer of all or
      substantially all of the assets of the Company, or any compulsory share exchange
      pursuant to which the Common Stock is converted into other securities, cash
      or
      property, then the Holder shall have the right thereafter to exercise this
      Warrant only into the shares of stock and other securities and property
      receivable upon or deemed to be held by holders of Common Stock following such
      reclassification, consolidation, merger, sale, transfer or share exchange, and
      the Holder shall be entitled upon such event to receive such amount of
      securities or property equal to the amount of Warrant Shares such Holder would
      have been entitled to had such Holder exercised this Warrant immediately prior
      to such reclassification, consolidation, merger, sale, transfer or share
      exchange. The terms of any such consolidation, merger, sale, transfer or share
      exchange shall include such terms so as to continue to give to the Holder the
      right to receive the securities or property set forth in this Section 8(b)
upon any exercise following any such reclassification, consolidation,
      merger, sale, transfer or share exchange.

     

    (c)  At
      any
      time while this Warrant is outstanding, if the Company distributes to all
      holders of Common Stock (and not to holders of this Warrant) evidence of its
      indebtedness or assets or rights or warrants to subscribe for or purchase any
      security (excluding those referred to in Section 8(a), Section 8(b) and
Section 8(d)  hereof), then in each such case the Exercise
      Price shall be determined by multiplying the Exercise 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 Exercise Price determined as of the record date mentioned above,
      and of which the numerator shall be such Exercise Price 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 one outstanding share
      of
      Common Stock as determined by the Company's independent certified public
      accountants that regularly examines the financial statements of the Company
      (the
“Appraiser”).

     

     

    _____    _____

     DHL      JXA

     

    

    
      
        
           

        

        
          5

          
            

          

        

        
           

        

      

    

    

    
      (d)     If,
        at any
        time while this Warrant is outstanding, the Company shall issue or cause
        to be
        issued rights or warrants to acquire or otherwise sell or distribute shares
        of
        Common Stock for a consideration per share less than the lower of the Exercise
        Price then in effect and the then fair market value of the Common Stock,
        then, forthwith upon such issue or sale, the Exercise Price shall
        be
        reduced to the price (calculated to the nearest one hundredth of a cent)
        determined by multiplying the Exercise Price in effect immediately prior
        thereto
        by a fraction, the numerator of which shall be the sum of (i) the number
        of
        shares of Common Stock outstanding immediately prior to such issuance, and
        (ii)
        the number of shares of Common Stock which the aggregate consideration received
        (or to be received, assuming exercise or conversion in full of such rights,
        warrants and convertible securities) for the issuance of such additional
        shares
        of Common Stock would purchase at the Exercise Price, and the denominator
        of
        which shall be the sum of the number of shares of Common Stock outstanding
        immediately after the issuance of such additional shares. Such adjustment
        shall
        be made successively whenever such an issuance is made.

    

     

    (e)            For
      the purposes of this Section 8, the following clauses shall
      also be applicable:

     

    (i)         Record
      Date. In case the Company shall take a record of the holders of its Common
      Stock for the purpose of entitling them (A) to receive a dividend or other
      distribution payable in Common Stock or in securities convertible or
      exchangeable into shares of Common Stock, or (B) to subscribe for or purchase
      Common Stock or securities convertible or exchangeable into shares of Common
      Stock, then such record date shall be deemed to be the date of the issue or
      sale
      of the shares of Common Stock deemed to have been issued or sold upon the
      declaration of such dividend or the making of such other distribution or the
      date of the granting of such right of subscription or purchase, as the case
      may
      be.

     

    (ii)           Treasury
      Shares. The number of shares of Common Stock outstanding at any given time
      shall not include shares owned or held by or for the account of the Company,
      and
      the disposition of any such shares shall be considered an issue or sale of
      Common Stock.

     

    (f)            All
      calculations under this Section 8 shall be made to the nearest
      cent or the nearest 1/100th of a share, as the case may be.

     

    (g)   
Whenever
      the Exercise
      Price is adjusted pursuant to Section 8(c) hereof, the Holder, after
      receipt of the determination by the Appraiser, shall have the right to select
      an
      additional appraiser (which shall be a nationally recognized accounting firm),
      in which case the adjustment shall be equal to the average of the adjustments
      recommended by each of the Appraiser and such additional appraiser appointed
      under this Section 8(g). The Holder shall promptly mail or cause to be
      mailed to the Company, a notice setting forth the Exercise Price after such
      adjustment and setting forth a brief statement of the facts requiring such
      adjustment. Such adjustment shall become effective immediately after the record
      date mentioned above, if:

     

    (i)            the
      Company shall declare a dividend (or any other distribution)
      on its Common Stock;

     

    
       

      _____    _____

       DHL      JXA

       

    
      
        
           

        

        
          6

          
            

          

        

        
           

        

      

    

    

    (ii)  the
      Company shall declare a special nonrecurring

    cash
      dividend on or a redemption of its Common Stock;

     

    (iii)  the
      Company shall authorize the granting to all holders of the Common Stock rights
      or warrants to subscribe for or purchase any shares of capital stock of any
      class or of any rights;

     

    (iv)  the
      approval of any stockholders of the Company shall be required in connection
      with
      any reclassification of the Common Stock of the Company, 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, or any compulsory share exchange
      whereby the Common Stock is converted into other securities, cash or property;
      or

     

    (v)  the
      Company shall authorize the voluntary dissolution, liquidation or winding up
      of
      the affairs of the Company, then the Company shall cause to be mailed to the
      Holder at their last addresses as they shall appear upon the Warrant Register,
      at least thirty (30) 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 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 Common Stock of record shall be entitled to exchange
      their shares of Common Stock for securities, cash or other property deliverable
      upon such reclassification, consolidation, merger, sale, transfer, share
      exchange, dissolution, liquidation or winding up; provided, however, that the
      failure to mail such notice or any defect therein or in the mailing thereof
      shall not affect the validity of the corporate action required to be specified
      in such notice.

     

    9.    Payment
      of
      Exercise Price.     The Holder, at its
      sole election, may pay
      the
      Exercise Price in one of the following manners:

     

    (a)              Cash
      Exercise. The Holder shall deliver immediately available
      funds; or

     

    (b)              Cashless
      Exercise. If at any time after one year from the date of issuance of this
      Warrant there is no effective Registration Statement registering the resale
      of
      the Warrant Shares by the Holder at such time, this Warrant may also be
      exercised at such time by means of a cashless exercise. In such event, the
      Holder shall surrender this Warrant to the Company, together with a notice
      of
      cashless exercise, and the Company shall issue to the Holder the number of
      Warrant Shares determined as follows:

     

    X
      = Y (A-B)/A

     

    _____    _____

     DHL      JXA

     

    

    
      
        
           

        

        
          7

          
            

          

        

        
           

        

      

    

    

    

     

    where:

    X
      = the
      number of Warrant Shares to be issued to the Holder.

     

    Y
      = the
      number of Warrant Shares with respect to which this Warrant is being
      exercised.

     

    A
      = the
      average closing bid price of the Common Stock for the five (5) trading days
      immediately prior to the Date of Exercise.

     

    B
      = the
      Exercise Price.

     

    For
      purposes of Rule 144 of the Securities Act, it is intended, understood and
      acknowledged that the Warrant Shares issued in a cashless exercise transaction
      shall be deemed to have been acquired by the Holder, and the holding period
      for
      the Warrant Shares shall be deemed to have been commenced, on the issue
      date.

     

    (c)
      Notwithstanding anything in this Warrant to the contrary, the Holder is limited
      in the amount of this Warrant it may exercise. In no event shall the Holder
      be
      entitled to exercise any amount of this Warrant in excess of that amount upon
      exercise of which the sum of (1) the number of shares of Common Stock
      beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3
      of the Securities Exchange Act of 1934, as amended (the “Exchange Act”))
      by the Holder, and (2) the number of Warrant Shares issuable upon the exercise
      of any Warrants then owned by Holder, would result in beneficial ownership
      by
      the Holder of more than four and ninety-nine one hundredths percent (4.99%)
      of
      the outstanding shares of Common Stock of the Company, as determined in
      accordance with Rule13d-1(j) of the Exchange Act. Furthermore, the Company
      shall
      not process any exercise that would result in beneficial ownership by the Holder
      of more than four and ninety-nine one hundredths percent (4.99%) of the
      outstanding shares of Common Stock of the Company.

     

    10.              Fractional
      Shares. The Company shall not be required to issue or cause to be issued
      fractional Warrant Shares on the exercise of this Warrant. The number of full
      Warrant Shares which shall be issuable upon the exercise of this Warrant shall
      be computed on the basis of the aggregate number of Warrant Shares purchasable
      on exercise of this Warrant so presented. If any fraction of a Warrant Share
      would, except for the provisions of this Section 10, be issuable on the
      exercise of this Warrant, the Company shall pay an amount in cash equal to
      the
      Exercise Price multiplied by such fraction.

     

    
       

      _____    _____

       DHL      JXA

       

    
      
        
           

        

        
          8

          
            

          

        

        
           

        

      

    

    

    
      11.              Notices.
        Any and all notices or other communications or deliveries hereunder shall
        be
        in writing and 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 telephone number specified in this Section
        prior to 5:00 p.m. Boston time on a business day, (ii) the business day after
        the date of transmission, if such notice or communication is delivered via
        facsimile at the facsimile telephone number specified in this Section later
        than
        5:00 p.m. Boston time on any date and earlier than 11:59 p.m. Boston time
        on
        such date, (iii) the 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. The addresses for
        such
        communications shall be:

    

     

    
      	
              If
                to the Company:

            	
              Somerset
                International Group, Inc.

            
	 	
              90
                Washington Valley Road

            
	 	
              Bedminster,
                NJ 07921

            
	 	
              Attention:                      John
                X. Adiletta

            
	 	
              Telephone:
                (908) 719-8909

            
	 	
              Facsimile:
                (908) 953-0797

            
	 	 
	
              With
                a copy to:

            	
              Anslow
                & Jaclin, LLP

            
	 	
              195
                Route 9, Suite 204

            
	 	
              Manalapan,  NJ   07726

            
	 	
              Attention:
                Gregg E. Jaclin

            
	 	
              Telephone:
                (732))409- 1212

            
	 	
              Facsimile:
                (732)577-1188

            
	 	 
	
              If
                to the Holder:

            	
              Dutchess
                Capital Management, LLC

              50
                Commonwealth Ave, Suite 2

            
	 	
              Boston,
                MA 02116

            
	 	
              Attention:
                Douglas Leighton

            
	 	
              Telephone:
                (617) 301-4700

            
	 	
              Facsimile:
                (617) 249-0947

            

    

     

            12.                  Warrant
      Agent. The Company shall serve as warrant agent under this Warrant. Upon
      thirty (30) days notice to the Holder, the Company may appoint a new warrant
      agent. Any corporation into which the Company or any new warrant agent may
      be
      merged or any corporation resulting from any consolidation to which the Company
      or any new warrant agent shall be a party or any corporation to which the
      Company or any new warrant agent transfers substantially all of its corporate
      trust or shareholders services business shall be a successor warrant agent
      under
      this Warrant without any further action. Any such successor warrant agent shall
      promptly cause notice of its succession as warrant agent to be mailed (by first
      class mail, postage prepaid) to the Holder at the Holder's last address as
      shown
      on the Warrant Register.

     

            13.            Miscellaneous.

     

    (a)
      This
      Warrant shall be binding on and inure to the benefit of the parties hereto.
      This
      Warrant may be amended only in writing signed by the Company and the
      Holder.

     

    _____    _____

     DHL      JXA

     

    

    
      
        
           

        

        
          9

          
            

          

        

        
           

        

      

    

    

    

     

    (b)  Nothing
      in this Warrant shall be construed to give to any person or corporation other
      than the Company and the Holder any legal or equitable right, remedy or cause
      under this Warrant. This Warrant shall inure to the sole and exclusive benefit
      of the Company and the Holder.

     

    (c)  This
      Warrant shall be governed by and construed and enforced in accordance with
      the
      laws of the Commonwealth of Massachusetts without regard to the principles
      of
      conflicts of law thereof.

     

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

     

    (e)  In
      case
      any one or more of the provisions of this Warrant shall be invalid or
      unenforceable in any respect, the validity and enforceability of the remaining
      terms and provisions of this Warrant shall not in any way be affected or
      impaired thereby and the parties will attempt in good faith to agree upon a
      valid and enforceable provision which shall be a commercially reasonable
      substitute therefor, and upon so agreeing, shall incorporate such substitute
      provision in this Warrant.

     

    (f)  The
      Company hereby represent and warrants to the Holder that: (i) it is voluntarily
      issuing this Warrant of its own freewill, (ii) it is not issuing this Warrant
      under economic duress, (iii) the terms of this Warrant are reasonable and fair
      to the Company, and (iv) the Company has had independent legal counsel of its
      own choosing review this Warrant, advise the Company with respect to this
      Warrant, and represent the Company in connection with its issuance of this
      Warrant.

     

    (g)  Any
      capitalized term used but not defined in this Warrant shall have the meaning
      ascribed to it in the Transaction Documents (as such term is defined in that
      certain Debenture Registration Rights Agreement, of even date herewith, by
      and
      between the Company and the Holder).

     

    (h)  This
      Warrant may be executed in any number of counterparts, each of which when so
      executed shall be deemed to be an original and, all of which taken together
      shall constitute one and the same Warrant. In the event that any signature
      is
      delivered by facsimile transmission, such signature shall create a valid binding
      obligation of the party executing (or on whose behalf such signature is
      executed) the same with the same force and effect as if such facsimile signature
      were the original thereof.

     

    (i)  This
      Warrant and the obligations of the Company hereunder shall not be assignable
      by
      the Company.

    
       

      _____    _____

       DHL      JXA

       

    
      
        
           

        

        
          10

          
            

          

        

        
           

        

      

    

    

     

    (j)     
      Notwithstanding anything in this Warrant to the contrary, the parties hereto
      hereby acknowledge and agree to the following: (i) the Holder makes no
      representations or covenants that it will not engage in trading in the
      securities of the Company; (ii) the Company shall, by 8:30 a.m. Boston Time
      on
      the trading day following the date hereof, file a current report on Form 8-K
      disclosing the material terms of the transactions contemplated hereby and in
      the
      other Transaction Documents; (iii) the Company has not and shall not provide
      material non-public information to the Holder unless prior thereto the Holder
      Party shall have executed a written agreement regarding the confidentiality
      and
      use of such information; and (iv) the Company understands and confirms that
      the
      Holder will be relying on the acknowledgements set forth in clauses (i) through
      (iii) above if the Holder effects any transactions in the securities of the
      Company.

     

    14.     Disputes
      Under This Agreement.

     

    All
      disputes arising under this Warrant shall be governed by and interpreted in
      accordance with the laws of the Commonwealth of Massachusetts, without regard
      to
      principles of conflict of laws. The parties hereto will submit all disputes
      arising under this Agreement to arbitration in Boston, Massachusetts before
      a
      single arbitrator of the American Arbitration Association (the “AAA”). The
      arbitrator shall be selected by application of the rules of the AAA, or by
      mutual agreement of the parties, except that such arbitrator shall be an
      attorney admitted to practice law in the Commonwealth of Massachusetts. No
      party
      hereto will challenge the jurisdiction or venue provisions provided in this
      Section 14. Nothing in this Section 14 shall limit the Holder's
      right to obtain an injunction for a breach of this Agreement from a court of
      law. Any injunction obtained shall remain in full force and effect until the
      arbitrator, as set forth in this Section 14 fully adjudicates the
      dispute.

     

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      OF PAGE INTENTIONALLY LEFT BLANK]

     

     

     

     

     

    
       

      _____    _____

       DHL      JXA

       

    

    

    
      
        
           

        

        
          11

          
            

          

        

        
           

        

      

    

    

    

     

     

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

     

     

                               
      SOMERSET INTERNATIONAL GROUP, INC.

     

    By __________________________________                                    

     

    Name:
      John X. Adiletta

    Title:
      Chief Executive Officer

     

     

                                       
      DUTCHESS PRIVATE EQUITIES FUND, LTD.

     

    By:   ________________________________                                       

     

    Name:
      Douglas H. Leighton 

    Title:
      Director

     

     

    

       

      _____    _____

       DHL      JXA

       

    

    
      
        
           

        

        
          12

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
      A

     

    FORM
      OF ELECTION TO PURCHASE

     

    Somerset
      International Group, Inc.

     

    Re:
      Intention to Exercise Right to Purchase Shares of Common Stock Under the Warrant
      

     

    Gentlemen:

     

    In
      accordance with the Warrant enclosed with this Form of Election to Purchase,
      the
      undersigned hereby irrevocably elects to
      purchase ___________________________shares of Common
      Stock, $0.001 par value per share, of Somerset International Group, Inc. and,
      if
      such Holder is not utilizing the cashless exercise provisions set forth in
      the
      Warrant, encloses
      herewith $_________________ in cash, certified or official bank check(s), which
      sum represents
      the aggregate Exercise Price for the number of shares of Common Stock to which
      this Form of Election to Purchase relates, together with any applicable taxes
      payable by the undersigned pursuant to the Warrant. Any capitalized terms used
      but not defined in this Form of Election to Purchase shall have the meaning
      ascribed to them in the accompanying Warrant.

     

    The
      undersigned requests that certificates for the shares of Common Stock issuable
      upon this exercise be issued in the name of:

     

    
      
        

      
(Please insert SS# or FEIN #)

     

    
      
        

      
(Please print name and address)

     

    If
      the
      number of shares of Common Stock issuable upon this exercise shall not be all
      of
      the shares of Common Stock which the undersigned is entitled to purchase in
      accordance with the enclosed Warrant, the undersigned requests that a New
      Warrant evidencing the right to purchase the shares of Common Stock not issuable
      pursuant to the exercise evidenced hereby be issued in the name of and delivered
      to:

     

    
      
        

      
(Please print name and address)

     

     

    Dated:                                   ,
      _____                                           Name of
      Holder:

     

                                        Signed:   _____________________________________                                                              

                                        Print
      Name:    __________________________________                                                             

                                        Title:   _______________________________________                                                              

     

    (Signature
      must conform in all respects to name of Holder as specified on the face of
      the
      Warrant)

     

     

     

    _____    _____

     DHL      JXA

     

    13

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