OPERATING LOAN AND SECURITY AGREEMENT

Subject to and in accordance with the terms and conditions of this Agreement Lender will make loans to the Company (the “Loans”), up to an aggregate amount of $750,000 to be funded in increments of $250,000 during the time periods specified below:

Security Interest. As security for the indebtedness, liabilities, and other obligations of the Company to Lender hereunder, the Company hereby grants a security interest in favor of Lender in and to the following specific equipment:

The Notes. The Company has duly authorized and, subject to the provisions of Section 3.3 hereof, will issue to the Lender at each Closing as hereinafter defined, as evidence of the loans to be made pursuant to this Agreement three secured convertible notes, each in the principal sum of $250,000, and with principal and any accrued, unpaid interest to be due thirty-six (36) months after the date of issuance, being the date of advance of funds by the Lender under each respective note, and convertible at the Lender’s election into shares of the Company’s common stock, par value $0.0001, at a fixed conversion price of $0.40 per share (collectively called the “Notes” and each individually a “Note”). The Notes will be issued in the basic form attached as Exhibit “A” and will bear interest at the rate of 12% per annum from date of advance of funds thereunder, which interest shall be payable quarterly in arrears on the first day of each calendar quarter commencing July 1, 2008. The interest may, in the Company’s discretion be paid either in cash or by the issuance of a number of restricted shares of the Company’s common stock, par value $0.0001, corresponding to an aggregate market value of shares that is 110% of the amount of interest otherwise payable in cash. The market value of such shares shall be established by the five day average closing price for a share of the common stock of the Company through and including the five trading days immediately preceding the date on which the payment is due. The Company hereby agrees and the Notes will reflect that the Company’s issuance of any new securities to parties other than Lender or Professional Offshore Opportunity Fund, Ltd. (and its co-investors under January 2008 debentures) convertible into shares of its common stock, $0.0001 par value, at a conversion price which is below $0.32 per share (adjusted to reflect any stock splits or recapitalization transactions) will constitute an Event of Default, after which the Lender may by issuance of written notice sent via certified mail, return receipt requested, elect to declare the full amount of principal and interest owing on the Notes to be in default, unless the Company agrees to adjust the conversion price applicable under the terms of the Notes and/or agree upon other modifications to the Notes acceptable to Lender as an adjustment to equalize the conversion price terms hereof with those of the subsequently issued securities. Notwithstanding the foregoing conversion price terms (or the exercise price terms of the warrants described in 3.2 below), in the event that Lender fails to provide the total agreed funding aggregating $750,000, any Note issued hereunder shall automatically and without further action by either party be deemed amended to substitute a fixed conversion price of $0.75 per share, and any warrant attached to such Note as described below in 3.2 will automatically be deemed amended to substitute a fixed exercise price of $1.00 per share.

The Warrants. The Company has duly authorized and will issue to the Lender concurrently with each incremental closing (being the date of advance of funds under each separate Note) common stock purchase warrants aggregating 625,000 shares each, at an exercise price of $0.80 per share. Additionally, the Company has authorized and agreed to issue conditionally to the Lender a common stock purchase warrant to acquire an aggregate 1,875,000 shares at an exercise price of $1.00, in the event that, but only in the event that: (i) Lender has fulfilled its commitment to advance an aggregate $750,000, and (ii) the Company has requested and Lender has concurrently released pursuant to the Company’s request, Lender’s Collateral pledged hereunder to secure the loans evidenced by the Notes as an accommodation for purposes described in Section 2 above. In the event that such conditional warrant is required to be issued, it shall be dated on the date Lender effectively releases Lender’s security interest in the Collateral and will be exercisable in whole or in part at any time and from time to time during the period commencing on the date of issuance thereof and ending on the fifth (5^th) consecutive anniversary of the Closing Date. The form of warrant to be issued concurrently with each Note is attached in the form of Exhibit “B”, and the form of warrant conditionally issuable if the Company is unable or declines to substitute collateral is attached as Exhibit “C”.

Lender acknowledges that the Company has listed its common stock on the American Stock Exchange and understands that the issuance of the shares underlying the Notes and warrants to purchase securities hereunder is subject to the prior approval of the American Stock Exchange of such listing and any approval requirements by the shareholders of the Company which the American Stock Exchange may require. The Company agrees to use commercially reasonable efforts to secure any and all required approvals of shareholders but shall not be deemed in default or breach if and to the extent such shareholder approval is withheld or deferred or required to be re-submitted to shareholders for approval at a later date.

Closings. On and subject to the terms and conditions of this Agreement, the Lender hereby agrees to sell and issue on or about the date specified in Section 1 above, the applicable Note dated as of the date of advance of funds by Lender to evidence the incremental amount then advanced pursuant to each respective Note, each such funding date being referred to herein as a “Closing”.

Deliveries at Closings. At each Closing, the Company will deliver to the Lender: 1) the applicable Note due thirty-six (36) months after date as described in Section 3.1 above in exchange for Lender’s cash advance in good and sufficient funds, and 2) the five year purchase warrant attached to the respective Note having an exercise price of $0.80 per share and 3) at the third and final Closing, provided that Lender has advanced an aggregate $750,000, the form of warrant attached as Exhibit “C” covering an aggregate 1,875,000 shares at an exercise price of $1.00, such delivery and issuance to remain subject to the requirements of the American Stock Exchange for actual issuance of the underlying shares upon conversion or exercise of debentures and options, including the obtaining of any approval of shareholders that may subsequently be determined to be required.

The Company represents and warrants to the Lender as follows:

Organization, etc. The Company has been duly formed, and is validly existing as a corporation in good standing under the laws of Delaware and is qualified to do business as a foreign corporation in each jurisdiction in which the failure to be so qualified could reasonably be expected to have a material adverse effect on the assets, liabilities, condition (financial or other), business or results of operations of the Company taken as a whole (a “Material Adverse Effect”). The Company has the requisite corporate power and authority to own, lease and operate its properties and to conduct its businesses as presently conducted. The Company has the requisite corporate power and authority to enter into, execute, deliver and perform all of its duties and obligations under this Agreement and to consummate the transactions contemplated hereby.

Authorization. The execution, delivery and performance of this Agreement and the issuance of the Securities shall have been duly authorized by all necessary corporate action on the part of the Company, including, without limitation, the due authorization by the affirmative votes of a majority of the disinterested directors of the Company’s Board of Directors on the date on which this Agreement is signed.

Validity; Enforceability. This Agreement and the Notes and warrants shall at the applicable Closing have each been duly executed and delivered by the Company, and constitute the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with their respective terms, except as such enforceability or the effectiveness of any term or provision may be limited by, or subject to, any bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and subject to general principles of equity.

Capitalization. As of the date hereof, the authorized capital stock of the Company consists of the Company consists of 100,000,000 shares of Common Stock, $0.0001 par value. The Company will at all times reserve a sufficient number of shares of its Common Stock for future issuance upon the exercise or conversion of the Securities covered by this Agreement and all other agreements and instruments convertible into or exercisable to acquire Common Stock.

Governmental and Stock Exchange Approvals and Consents. The execution and delivery by the Company of this Agreement, and the performance by the Company of the transactions contemplated hereby, do not and will not require the Company to effectuate or obtain any registration with, consent or approval of, or notice to any federal, state or other governmental authority or regulatory body, other than: i) periodic and other filings under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and ii) approval of a listing application and/or notifications to the American Stock Exchange with respect to the issuance of the Common Stock issuable upon conversion or exercise of the notes and exercise of the warrants comprising the Securities. The parties hereto agree and acknowledge that, in making the representations and warranties in the foregoing sentence of this Section 5.5, the Company is relying on the representations and warranties made by the Lender in Section 6. To the best knowledge of the Company, the issuance and sale of the Securities will not contravene the rules and regulations of the American Stock Exchange, whose rules and regulations require under certain circumstances that a listed company obtain shareholder approval in connection with a transaction (other than a public offering), involving the potential issuance of shares of common stock (including shares of common stock issuable upon the conversion or exercise of other securities) equal to 20% or more of its aggregate shares of common stock, or its aggregate voting power, outstanding before the transaction for less than the greater of book or market value of its common stock as of the date of the transaction. Based upon the new investment and fixed exercise prices applicable with respect to all securities that will be acquired by the Lender hereunder, the Company believes that no specific approval requirement of the shareholders of the Company will be applicable to the issuance and delivery of the Securities covered hereby, but reserves the right to seek any such approval the Company’s Board of Directors deems appropriate or which may be requested by the American Stock Exchange as a condition of its listing of the underlying shares issuable with respect to the Securities covered by this Agreement.

No Violation. The execution and delivery of this Agreement and the performance by the Company of the transactions contemplated hereby will not (i) conflict with or result in a breach of any provision of the articles of incorporation or by-laws of the Company, (ii) result in a default or breach of, or require any consent, approval, authorization or permit of, or filing or notification to, any person, company or entity under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, loan, factoring arrangement, license, agreement, lease or other instrument or obligation to which the Company is a party or by which the Company or its assets may be bound or (iii) violate any law, judgment, order, writ, injunction, decree, statute, rule or regulation of any court, administrative agency, bureau, board, commission, office, authority, department or other governmental entity applicable to the Company or its subsidiaries, except, in the case of clause (ii) or (iii) above, any such event that could not reasonably be expected to have a Material Adverse Effect or materially impair the transactions contemplated hereby.

Issuances of Securities. The Securities to be delivered at the Closing shall be validly issued, and, upon payment therefore, will be fully paid and non-assessable. The offering, issuance, sale and delivery of the Securities as contemplated by this Agreement are exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the “Securities Act”), are being made in compliance with all applicable federal and (except for any violation or non-compliance that could not reasonably be expected to have a Material Adverse Effect) state laws and regulations concerning the offer, issuance and sale of securities, and are not being issued in violation of any preemptive or other rights of any stockholder of the Company. The parties hereto agree and acknowledge that, in making the representations and warranties in the foregoing sentence of this Section 5.7, the Company is relying on the representations and warranties made by the Lender in Section 6.

Absence of Certain Developments. Since December 31, 2007, except as disclosed in the Company’s periodic and current reports and other public filings with the SEC under the Securities Exchange Act of 1934, there has not been any: (i) material adverse change in the condition, financial or otherwise, of the Company (taken as a whole) or in the assets, liabilities, properties or business of the Company and its Subsidiary (taken as a whole); (ii) declaration, setting aside or payment of any dividend or other distribution with respect to, or any direct or indirect redemption or acquisition of, any capital stock of the Company; (iii) waiver of any valuable right of the Company or its Subsidiary or cancellation of any material debt or claim held by the Company or its Subsidiary; (iv) material loss, destruction or damage to any property of the Company or its Subsidiary, whether or not insured; (v) acquisition or disposition of any material assets (or any contract or arrangement therefore) or any other material transaction by the Company or its Subsidiary otherwise than for fair value in the ordinary course of business consistent with past practice; or (vi) other agreement or understanding, whether in writing or otherwise, for the Company or its Subsidiary to take any action of the type, or any action that would result in an event of the type, specified in clauses (i) through (v).

Commission Filings. The Company has filed all required forms, reports and other documents with the Securities and Exchange Commission (the “Commission”) for periods from and after the completion of its initial public offering in December 2006 (collectively, the Commission Filings”), each of which has complied in all material respects with all applicable requirements of the Securities Act and/or the Exchange Act (as applicable). The Company has heretofore made accessible to the Lender all of the Commission Filings.

Brokers. The Company has employed the brokerage firm of ▇▇ ▇▇▇▇▇▇ & Company, L.L.C., a member of the National Association of Securities Dealers with respect to this transaction, and has agreed to pay the Broker a cash fee equal to 8% of gross invested capital received by the company.

The Lender represents and warrants to the Company as follows:

Validity; Enforceability. This Agreement has been duly executed and delivered by the Lender, and constitutes the legal, valid and binding obligation of the Lender, enforceable against the Lender in accordance with its terms, except as such enforceability may be limited by, or subject to, any bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and subject to general principles of equity.

Investment Representations. The Lender understands that the Securities are being offered and sold pursuant to an exemption from registration pursuant to Federal Rule 506 of Regulation D under the Securities Act of 1933 and are based in part upon Lender’s representations contained in this Agreement, including, without limitation, that the Lender is an “accredited investor” within the meaning of Regulation D under the Securities Act as stated in 6.7 below. Lender confirms that Lender has received or has had full access to all the information Lender considers necessary or appropriate to make an informed investment decision with respect to the Securities to be purchased by it under this Agreement and the common stock acquired by Lender upon the conversion of the convertible notes and exercise of the warrants, respectively. Lender further confirms that Lender has had an opportunity to ask questions and receive answers from the Company regarding the Company’s business, management and financial affairs and the terms and conditions of the sale of the Securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to the Lender or to which the Lender had access. No oral or written representations have been made or oral or written information furnished to the Lender or the Lender’s advisors in connection with the Securities that were in any way inconsistent with this Agreement. The Lender is not purchasing the securities as a result of or subsequent to: (1) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television, radio or the internet or (2) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

Lender Understands Economic Risks. Lender acknowledges that Lender can bear the economic risk and complete loss of Lender’s investment in the Securities. Lender has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it Lender is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect his own interests. Lender understands that Lender must bear the economic risk of this investment until the Securities are sold pursuant to: (i) an effective registration statement under the Securities Act; or (ii) an exemption from registration is available with respect to such sale.

Lender’s Awareness of Specific Risks Relating to the Company’s Business. The Lender has been given the opportunity to review the merits and risks of the investment provided for in this Agreement with legal counsel and with an investment advisor to the extent the Lender deemed advisable. Lender acknowledges that Lender has been advised by the Company carefully to consider the risks and uncertainties described in the Company’s periodic and reports filed with the SEC before executing this Agreement. In particular, the Company had advised Lender that the Company anticipates that significant additional equity or debt funding may be required in addition to Lender’s investment not only to expand the Company’s operations, but also to sustain its operations and satisfy its contractual obligations until the Company achieves profitability. There can be no assurance that the Company will achieve cash flow from operations sufficient to satisfy its working capital requirements, or at all, or that the additional financing the Company may require will be available to the Company on commercially reasonable terms, or at all.

Acquisition For Own Account. The Lender is acquiring the Securities for the Lender’s own account for investment only, and not as a nominee or agent and not with a view towards or for resale in connection with their distribution.

Lender Can Protect His Interest. and has such knowledge and experience in financial or business matters that

Accredited Investor. The Lender represents and warrants to the Company that Lender is an accredited investor within the meaning of Regulation D under the Securities Act because Lender comes within one of the categories of investors as defined in the certification attached as Exhibit “D” hereto and herby confirms that Lender has provided a separate signed copy of the certification to ▇.▇ ▇▇▇▇▇▇, LLC, on which Lender has also signed his name next to the appropriate category(ies) in which Lender is included.

Legends.

The Convertible Note shall bear substantially the following legend:

The shares issued upon conversion of the unsecured convertible notes shall bear a legend which shall be in substantially the following form until such shares are covered by an effective registration statement filed with the SEC:

The Warrants shall bear substantially the following legend:

Filings Required to Update Lender’s Schedule 13G. The Company and the Lender acknowledge that the Lender has filed and will be required to amend and supplement a Schedule 13G to reflect the additional securities and amendments effected upon the Closing contemplated by this Agreement.

Covenants of the Company. The Company covenants and agrees with the Lender that, so long as the Notes or any of them remain outstanding:

STOP ORDERS. The Company will advise the Lender, promptly after it receives notice of issuance by the Securities and Exchange Commission (the “SEC”), any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of any securities of the Company, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose.

MARKET REGULATIONS. The Company shall notify the SEC, American Stock Exchange and applicable state authorities, in accordance with their requirements, to the extent applicable to the Company, of the transactions contemplated by this Agreement, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Securities to the Lender and promptly provide copies thereof to the Lender.

REPORTING REQUIREMENTS. The Company will timely file with the SEC all reports required to be filed pursuant to the Exchange Act and refrain from terminating its status as an issuer required by the Exchange Act to file reports thereunder even if the Exchange Act or the rules or regulations thereunder would permit such termination.

USE OF FUNDS. The Company agrees that it will use the proceeds of the sale of the Convertible Notes and the Warrants for general working capital and general business purposes of the Company and its subsidiaries.

ACCESS TO FACILITIES. Each of the Company and each of his Subsidiaries will permit any representatives designated by the Lender (or any successor of the Lender), upon reasonable notice and during normal business hours, at such person’s expense and accompanied by a representative of the Company, to:

visit and inspect any of the properties of the Company or any of its Subsidiaries;

examine the corporate and financial records of the Company or any of its Subsidiaries (unless such examination is not permitted by federal, state or local law or by contract) and make copies thereof or extracts there from; and

discuss the affairs, finances and accounts of the Company or any of its Subsidiaries with the directors, officers and independent accountants of the Company or any of its subsidiaries.

Taxes. Each of the Company and each of its Subsidiaries will promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company and its Subsidiaries; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company and/or such Subsidiary shall have set aside on its books adequate reserves with respect thereto, and provided, further, that the Company and its Subsidiaries will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefore.

Insurance. Each of the Company and its Subsidiaries will keep its assets which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, explosion and other risks customarily insured against by companies in similar business similarly situated as the Company and its Subsidiaries; and the Company and its Subsidiaries will maintain, with financially sound and reputable insurers, insurance against other hazards and risks and liability to persons and property to the extent and in the manner which the Company reasonably believes is customary for companies in similar business similarly situated as the Company and its Subsidiaries and to the extent available on commercially reasonable terms.

Rule 144 Sales. The Company agrees to cooperate with the Lender in connection with any resales made pursuant and subject to the applicable requirements of Rule 144 and provide legal opinions necessary to allow such resales provided the Company and its counsel receive reasonably requested representations and documentation from the selling Lender and broker, if any.

Covenants of the Lender. The Lender, and each of them, covenant and agree with the Company as follows:

CONFIDENTIALITY. The Lender, agrees that Lender will not disclose, and will not include in any public announcement, the name of the Company, unless expressly agreed to by the Company or unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement.

NON-PUBLIC INFORMATION. The Lender agrees not to effect any sales in the shares of the Company’s Common Stock while in possession of material, non-public information regarding the Company if such sales would violate applicable securities law.

COMPANY INDEMNIFICATION. The Company agrees to indemnify, hold harmless, reimburse and defend Lender against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Lender which results, arises out of or is based upon a third party claim attributable to: (i) any misrepresentation by the Company in this Agreement, any other schedules attached hereto or thereto; or (ii) any breach or default in performance by Company of any covenant or undertaking to be performed by the Company hereunder.

LENDER’S INDEMNIFICATION. Lender agrees to indemnify, hold harmless, reimburse and defend the Company and each of the Company’s officers, directors, agents, affiliates, control persons and principal shareholders, at all times against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Company which results, arises out of or is based upon: (i) any misrepresentation by Lender or breach of any warranty by Lender in this Agreement or any Related Agreement or in any exhibits or schedules attached hereto; or (ii) any breach or default in performance by Lender of any covenant or undertaking to be performed by Lender hereunder, under any Related Agreement or any other agreement entered into by the Company and Lender relating hereto or thereto.

Governing Law. This agreement and the other related agreements shall be governed by and construed and enforced in accordance with the laws of the state of Colorado applicable to contracts made and performed in such state, without regard to principles of conflicts of laws.

Disputes. The parties desire that their disputes be resolved by a judge applying such applicable laws. Therefore, to achieve the best combination of the benefits of the judicial system and of arbitration, the parties hereto waive all rights to trial by jury in any action, suit, or proceeding brought to resolve any dispute, whether arising in contract, tort, or otherwise between the Lender and/or the company arising out of, connected with, related or incidental to the relationship established between them in connection with this agreement, any other related agreement or the transactions related hereto or thereto.

Successors. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Securities from time to time, other than the holders of Common Stock which has been sold by the Lender pursuant to Rule 144 or an effective registration statement. No Lender shall be permitted to assign its rights hereunder or under any Related Agreement to a competitor of the Company.

Entire Agreement. This Agreement, the Related Agreements, the exhibits and schedules hereto and thereto and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein.

Severability. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

This Agreement may be amended or modified only upon the written consent of the Company and the Lender.

The obligations of the Company and the rights of the Lender under this Agreement may be waived only with the written consent of the Lender.

The obligations of the Lender and the rights of the Company under this Agreement may be waived only with the written consent of the Company.

Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given:

upon personal delivery to the party to be notified;

when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next business day;

three (3) business days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or

one (1) day after deposit with a nationally recognized overnight  _____  courier, specifying next day delivery, with written verification of receipt.

All communications shall be sent as follows:

IF TO THE COMPANY, TO:

 

 

 

 

 

IF TO THE LENDER, TO:

 

 

 

 

 

Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

Facsimile Signatures; Counterparts. This Agreement may be executed by facsimile signatures and in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

Broker’s Fees. Each party hereto represents and warrants that ▇▇ ▇▇▇▇▇▇ is the broker for this transaction and that no other agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker’s or finder’s fee or any other commission directly or indirectly in connection with the transactions contemplated herein.

▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇

Conversion at Option of Holder. The Holder shall have the right (the “Conversion Right”) at any time or from time to time prior to the day this Note is paid in full, to convert all or any part of the outstanding and unpaid principal amount of this Note as shall remain unpaid at the effective date of the conversion, into, fully paid and non-assessable shares of Common Stock, par value $.0001 per share, at a conversion price of $0.40 per share (the “Conversion Price”). The Conversion Right may be exercised notwithstanding Maker’s issuance of a notice of intention to make a voluntary prepayment, and the effective date of an elective conversion is the date of Holder’s delivery of a “Conversion Notice” in the form attached hereto.

Automatic Conversion. The Note will automatically convert into shares of the Company’s common stock on the date when closing bid price of a share of the Company’s common stock equals $3.75 per share or greater for twenty (20) of thirty (30) consecutive trading days on the American Stock Exchange, provided that the underlying shares have either been registered for resale by the holders of the securities or are eligible to be sold under and subject to Rule 144 under the Securities Act of 1933.

Mechanics of Conversion. The Holder shall effect any elective conversions by delivering to the Company a completed notice in the form attached hereto as Exhibit “A” (a “Conversion Notice”). Unless the Holder is converting the entire principal amount outstanding under this Note or an Automatic Conversion has occurred, the Holder is not required to physically surrender this Note to the Company in order to effect conversions. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note plus any accrued and unpaid interest thereon paid in equity securities in an amount equal to the applicable conversion. The Company shall maintain records showing the principal amount converted and the date of such conversions and will promptly notify Holder if an Automatic Conversion occurs. Upon conversion of the entire unpaid principal amount of this Note and any accrued, unpaid interest, whether in connection with a conversion at the option of Holder pursuant to exercise of the Conversion Right or pursuant to an Automatic Conversion, this Note shall be surrendered by the Holder to the Company for cancellation and a certificate representing the Common Stock issued to Holder therefor shall be delivered to Holder. No fractional shares or scrip shall be issued upon any conversion of this Note. Instead of any fractional shares that would otherwise be issuable upon conversion of this Note, the Company shall pay a cash adjustment in respect of such fractional interest in an amount equal to that fractional interest of the Conversion Price at which the Note was converted.

Reservation of Authorized Shares. The Company agrees and represents that until this Note is paid in full or converted, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the full conversion of this Note. The Company further agrees and represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable and that the Company will instruct its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note.

Effect of Capital Reorganization or Reclassification. If the number of outstanding shares of Common Stock of the Company shall be increased or decreased as a result of a stock split, a reverse stock split or similar recapitalization or reclassification of stock not involving any change in the shareholder’s equity or the aggregate market value of shares outstanding as a result thereof, the per share Conversion Price shall be proportionately adjusted so that the percentage of the Common Stock acquirable by the Holder upon conversion immediately prior to the event and immediately following the event remains the same.

The Maker shall fail to pay any interest payment on this Note when due for a period of thirty (30) days after notice of such default has been sent by the Holder to the Maker.

The Maker shall dissolve or terminate the existence of the Maker.

The Maker shall file a petition in bankruptcy, make an assignment for the benefit of its creditors, or consent to or acquiesce in the appointment of a receiver for all or substantially all of its property, or a petition for the appointment of a receiver shall be filed against the Maker and remain unstayed for at least ninety (90) days.

If the Company issues any new securities to any investor other than to the Holder or to Professional Offshore Opportunity Fund, Ltd. (and its co-investors) under January 2008 notes convertible into shares of its common stock, $0.0001 par value, at a conversion price which is below $0.32 per share (adjusted to reflect any stock splits or recapitalization transactions) such issuance will constitute an Event of Default hereunder unless the Company in its discretion adjusts the conversion price hereunder or other terms hereof acceptable to the Holder.

if to Holder:

 

 

 

if to the Company:

 

 

 

 

 

Name:

 

Title:

 

Date:

 

By:

 

Entity Name (if applicable):

 

By:

Name:

 

Title:

 

Date:

 

 

 

Entity Name (if applicable):

 

By:

Name:

 

Title:

 

Date:

 

 

 

 

 

By:

 

Name:

 

Title:

 

Date:

 

 

 

By:

 

Name:

 

Title:

 

Date:

 

 

1.

 

 

Res. Address

 

City 

 

S.S # or Tax I.D. # 

 

2.

 

Bus. Address

 

City

 

Type of Business

 

Position and Description of Responsibilities

 

Please indicate the frequency of Investors investment in privately placed securities.

Often 

 

 

Seldom 

 

Name

 

 

Firm

 

▇▇▇▇▇▇▇

 

▇▇▇▇

 

ADDITIONAL INFORMATION, if any, useful to qualify me as an investor:

 

 

 

 

 

 

 

 

 

Investor’s Name (Print)

 

 

Joint Investor’s Name (Print)

 

 

Investor’s Signature

 

 

Joint Investor’s Signature