Form of Amended and Restated Convertible Demand Promissory Note with Warrant

(1) Capital Adjustments.  In case Maker shall at any time after March 26, 2008: (i) declare a dividend on the outstanding Common Stock payable in shares of its capital stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then, in each case, the Conversion Price, the number of shares of Common Stock subject to the Warrant and the exercise price of the Warrant in effect, at the time of the record date for such dividend or of the effective date of such subdivision or combination, shall be proportionately adjusted so that the Holder shall be entitled to receive the aggregate number and kind of shares upon conversion hereof as in effect immediately prior to such dividend, subdivision or combination, which, if the Note had been converted immediately prior to such time, the Holder would have owned upon such conversion and been entitled to pursuant to the Warrant, if applicable.  Such adjustment shall be made successively whenever any event listed above shall occur.  Any adjustment under this paragraph shall become effective at the close of business on the date the dividend, subdivision or combination becomes effective.

 

(2) Merger, Consolidation or Sale of Assets.  If Maker is a party to a reorganization, a merger or consolidation with or into another corporation, or the sale of Maker’s properties and assets as, or substantially as, an entirety to any other person, then, as a part of such transaction, lawful provision shall be made so that this Note and the underlying Warrant shall pertain and apply to the securities and/or other property to which the holder of the number of shares of Common Stock of Maker then covered by this Note and the Warrant would have been entitled had this Note been converted in whole immediately prior to the effective date of such reorganization, merger, consolidation or sale.  In any such case, appropriate adjustment shall be made in the application of the provisions of this Note with respect to the rights and interests of the Holder after the reorganization, merger, consolidation or sale to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any securities or other property deliverable after that event upon conversion of this Note.  Maker shall not effect any such reorganization, merger, consolidation or sale unless upon or prior to the consummation thereof the successor corporation, or if Maker shall be the surviving corporation but is not the issuer of the shares of stock or other securities or property to be delivered to holders of shares of the Common Stock outstanding at the effective time thereof, then such issuer, shall assume by written instrument the obligation to deliver to the Holder such shares of stock, securities, cash or other property as the Holder shall be entitled to in accordance with the foregoing provisions.

 

(3) De Minimis Adjustments.  No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least $0.01 in the Conversion Price and no adjustment in the number of shares of Common Stock subject to the Warrant shall be required unless such adjustment would required an increase or decrease of at least one whole share; provided, however, that any adjustment less than this amount which is not made shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, on a cumulative basis, amounts to an adjustment of at least this amount.

 

(4) Notice to Holder of Adjustment.  Whenever the Conversion Price and/or number of shares of Common Stock subject to the Warrant are adjusted as herein provided, Maker shall cause to be mailed to the Holder a notice (i) stating that the Conversion Price and/or number of shares of Common Stock subject to the Warrant have been adjusted, (ii) setting forth the Conversion Price and/or number of shares of Common Stock subject to the Warrant as adjusted, and (iii) showing in reasonable detail the computations and the facts upon which such adjustment is based.

(a) Delivery of Certificate.  In the case of Holder's election to convert this Note into Maker’s Common Stock as provided under Section 2, Holder shall deliver a written notice of such election to Maker in which Holder shall so indicate such election.  Any conversion shall be deemed to have been made at the close of business on the date the recipient is deemed to have received such notice.  Upon the exchange of this Note for shares of Common Stock, Maker shall, as soon as practicable, take all such steps as may be necessary to issue such Stock, in exchange for this Note, and thereafter deliver to Holder a certificate or certificates for the number of shares of Stock to which Holder shall be entitled against receipt of this Note, duly endorsed for cancellation.

(b) Noteholder Not Deemed a Stockholder.  Unless and until this Note is converted or exchanged into Common Stock as set forth herein, Holder shall not be entitled to vote or receive dividends or be deemed the holder of Common Stock of the Company for any purpose (other than to the extent that Holder may previously own shares of Common Stock of the Company, prior to or exclusive from the conversion of this Note), nor shall anything contained in this Note be construed to confer upon the Holder any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate actions (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance of record to the Holder of the Common Stock which it is then entitled to receive upon the due exercise of its right to convert this Note, as aforesaid.

(c) Reservation of Shares.  Maker covenants that, at the exchange date, it will make available out of its authorized Common Stock, solely for the purpose of issue upon exchange of this Note for Common Stock, such number of shares of Common Stock as shall then be issuable upon the exchange of this Note.

(d) Validity of Issuance.  Maker covenants that all shares of Common Stock issued hereunder shall, at the time of delivery, be duly and validly issued, fully paid and nonassessable.

(e) Taxes.  Holder shall pay any documentary, stamp or similar issue or transfer tax due on the issue of Common Stock upon the conversion of such Holder’s Note.  Holder shall also pay any tax which is due because the Common Stock is issued in a name other than Payee’s name and any income taxes, capital gains taxes or other similar taxes.

(f) No Fractional Shares.  Instead of any fractional shares of any Common Stock which would otherwise be issuable upon conversion of this Note, Maker shall pay in cash the amount of outstanding principal that is not so converted, such payment to be in the form a check payable to Holder.  The holder of fractional interests shall not be entitled to any rights as security holders of Maker in respect of such fractional interests.

4.           Events of Default.  The occurrence or existence of any one of the following events or conditions shall constitute an “Event of Default”:

(a)           Maker shall fail to pay the principal of, or interest on, this Note when the same becomes due and payable in accordance with the terms hereof and such amount remains unpaid for ten (10) days after the due date thereof;

(b)           Maker fails to observe or perform any other covenant or agreement on the part of Maker contained in this Note which failure continues for a period of sixty (60) days after the date of written notice thereof from Holder; or

(c)           Maker makes a general assignment for the benefit of its creditors or applies to any tribunal for the appointment of a trustee or receiver of a substantial part of the assets of Maker, or commences any proceedings relating to Maker under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debts, dissolution or other liquidation law of any jurisdiction; or any such application is filed, or any such proceedings are commenced against Maker and Maker indicates its consent to such proceedings, or an order or decree is entered by a court of competent jurisdiction appointing such trustee or receiver, or adjudicating Maker bankrupt or insolvent, or approving the petition in any such proceedings, and such order or decree remains unstayed and in effect for ninety (90) days.

5.           Remedies.

(a)           If an Event of Default occurs and is continuing, Holder may, by notice in writing to Maker, declare the entire unpaid principal of the Note to be due and payable immediately, and upon any such declaration the principal and unpaid interest on the Note shall become and be immediately due and payable, and Holder may thereupon proceed to protect and enforce its rights either by suit in equity or by action at law or by other appropriate proceedings, whether for specific performance (to the extent permitted by law) of any covenant or agreement contained herein or in aid of the exercise of any power granted herein, or proceed to enforce the payment of this Note or to enforce any other legal or equitable right of Holder.

(b)           In the event this Note is placed in the hands of an attorney for collection or for enforcement, or in the event that Holder incurs any costs incident to the collection of any indebtedness evidenced hereby, Maker agrees to pay all reasonable attorneys’ fees and expenses, all court and other costs and the reasonable costs of any other collection efforts.  Forbearance to exercise the remedies set forth herein with respect to any failure or breach of Maker shall not constitute a waiver by Holder of any of such remedies.

6.           Expenses.  Each of Maker and Payee shall bear its own costs incurred in connection with the negotiation, documentation and execution of this Note, the closing of the transactions contemplated herein, and any amendment, waiver, consent, supplement or modification hereto.

(b) Mergers, Consolidations or Sale of Assets.  If the Company is a party to a reorganization (other than as provided for herein), or a merger or consolidation with or into another corporation, or the sale of the Company’s properties and assets as, or substantially as, an entirety to any other person, then, as a part of such transaction, lawful provision shall be made so that this Warrant shall pertain and apply to the securities and/or other property to which the holder of the number of shares of Common Stock of the Company then covered by this Warrant would have been entitled had this Warrant been exercised in whole immediately prior to the effective date of such reorganization, merger, consolidation or sale.  In any such case, appropriate adjustment shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the reorganization, merger, consolidation or sale to the end that the provisions of this Warrant shall be applicable after that event, as near as reasonably may be, in relation to any securities or other property deliverable after that event upon exercise of this Warrant. Any such adjustment shall be made by and set forth in a supplemental agreement between the Company, or any successor thereto, and the Holder and shall for all purposes hereof conclusively be deemed to be an appropriate adjustment.  The Company shall not effect any such reorganization, merger, consolidation or sale unless upon or prior to the consummation thereof the successor corporation, or if the Company shall be the surviving corporation and is not the issuer of the shares of stock or other securities or property to be delivered to holders of shares of the Common Stock outstanding at the effective time thereof, then such issuer, shall assume by written instrument the obligation to deliver to the Holder such shares of stock, securities, cash or other property as the Holder shall be entitled to purchase in accordance with the foregoing provisions.

 

(c) Notice to Holder of Adjustment.  Whenever the number of shares of Warrant Stock or the Exercise Price is adjusted as herein provided, the Company shall cause to be mailed to the Holder a notice (i) stating that the number of shares of Warrant Stock have been adjusted, (ii) setting forth the adjusted number of shares of Warrant Stock, (iii) the Exercise Price, as adjusted, and (iv) showing in reasonable detail the computations and the facts, including the amount of consideration received or deemed to have been received by the Company, upon which such adjustments are based.

 

(d) De Minimis Adjustments. All calculations under this Section 6 shall be made to the nearest cent or to the nearest share, as the case may be; provided, however that, no adjustment in the Exercise Price shall be required if such adjustment is less than $.01; and provided, further, that any adjustments which by reason of this Section 6 are not required to be made shall be carried forward and taken into account in any subsequent adjustment.

(a) Investment Intent Only.  This Warrant will be acquired for Holder’s own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).  Holder has no present intention of selling, granting any participation or interest in, or otherwise distributing, transferring or disposing of this Warrant.

 

(b) Accredited Holder.  Holder (a) is an “Accredited Investor” as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act, and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of such Holder’s prospective investment in the Warrant; (b) has the ability to bear the economic risks of such Holder’s prospective investment, including a complete loss of Holder’s investment in the Warrant; (c) has not been offered the Warrant by any form of advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any such media; (d) has had an opportunity to ask questions and receive answers from representatives of the Company regarding the terms and conditions of the Warrant and the condition of the Company’s business, including, without limitation, its financial condition; and (e) acknowledges that Holder has conducted its own due diligence with respect to the Company, the Warrant and any other matter which Holder believes to be material to a decision to lend and further acknowledges that Holder is making its investment decision based on this due diligence.

 

(c) Compliance with Laws.  Holder acknowledges compliance with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, also known as the “USA PATRIOT Act.”  Additionally, Holder represents that neither it nor any of its principal owners, partners, members, directors or officers are included on: (i) the Office of Foreign Assets Control list of foreign nations, organizations and individuals subject to economic and trade sanctions, based on United States foreign policy and national security goals; (ii) Executive Order 13224, which sets forth a list of individuals and groups with whom United States persons are prohibited from doing business because such individuals and groups have been identified as terrorists or persons who support terrorism or (iii) any other watch list issued by any governmental authority, including the Securities and Exchange Commission.

 

(d) No Registration; Legend.  Holder acknowledges that (a) neither the Warrant nor any securities obtainable upon conversion or payment thereof have been registered under the Securities Act or the securities laws of any state or other jurisdiction in reliance upon exemptions from such registration requirements for non-public offerings and (b) the Company is under no obligation to register the Warrant or securities obtainable upon exercise hereof under the Securities Act or any securities laws of any state or take any action to make any exemption from such registration provisions available.  Such Holder acknowledges the Warrant and any securities obtainable upon exercise hereof must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available.  Holder understands that no public market now exists for any of the securities issued by the Company hereunder and that there is no assurance that a public market will ever exist for such securities.  Holder agrees to the imprinting, so long as required by law, of a legend on this Warrant and the Warrant Stock should the Warrant be exercised in the following form or one similar to it.