WAVE SYSTEMS CORP
EX-10.2
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<p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">EXHIBIT

10.2</font></u></b></p>



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<p align="left" style="margin:0in 0in .0001pt;text-align:left;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">THESE

SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS

AMENDED, OR UNDER THE SECURITIES ACT OF ANY STATE. THESE SECURITIES MAY NOT BE

SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT

COVERING THE SECURITIES BEING SOLD UNDER THE SECURITIES ACT OF 1933, AS

AMENDED, AND SUCH STATE LAWS AS MAY BE APPLICABLE, OR A WRITTEN OPINION OF

COUNSEL TO THE EFFECT THAT SUCH TRANSFER OR SALE MAY BE EFFECTED WITHOUT THE

REGISTRATION OF THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,

AND THE APPLICABLE STATE SECURITIES LAWS.</font></b></p>



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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">SUBORDINATED CONVERTIBLE PROMISSORY NOTE</font></b></p>



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<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">

 <tr>

  <td width="51%" style="padding:0in 0in 0in 0in;width:51.84%;">

  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Irvine,

  California</font></p>

  </td>

  <td width="48%" valign="top" style="padding:0in 0in 0in 0in;width:48.16%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">September 30,

  2002</font></p>

  </td>

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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">FOR VALUE RECEIVED, the

undersigned, SSP Solutions, Inc., a Delaware corporation (the &#147;<u>Company</u>&#148;),

promises to pay to Wave Systems Corp., at Attention: Gerry&nbsp;Feeney, 480

Pleasant Street, Lee, Massachusetts 01238 (or at such other place as may, from

time to time, be designated from time to time), in lawful money of the United

States of America and in immediately available funds, the principal sum of Two

Hundred Seventy Thousand Dollars ($270,000), or, such greater or lesser

principal sum as may be outstanding from time to time under this Subordinated

Convertible Promissory Note (this &#147;<u>Note</u>&#148;) at the times provided herein

(as defined below).</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Terms.</u></font></b></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">This Note is executed and

delivered by the Company pursuant and subject to that certain Termination and

Mutual Release Agreement between the Company and Wave Systems Corp. dated

effective as of August 31, 2002 (the &#147;<u>Termination Agreement</u>&#148;).</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Payment of Interest.</u></font></b></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">This Note shall not bear

interest.</font></p>



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<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Maturity of Note.</u></font></b></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">This Note shall mature on

December 31, 2005 (the &#147;<u>Maturity Date</u>&#148;); provided that if an Event of

Default occurs (as defined in <u>Section 9</u>), the Maturity Date shall be

accelerated as set forth in <u>Section&nbsp;10</u>; provided further, that the

Maturity Date may be extended as set forth in <u>Section 8.1</u>.</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1</font></p>





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<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Cancellation.</u></font></b></p>



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<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">After all principal at any

time owed on this Note has been paid in full or converted into Common Stock,

this Note shall be surrendered to the Company for cancellation and shall not be

reissued.</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Severability.</u></font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The illegality or

unenforceability of any provision of this Note shall not in any way affect or

impair the legality or enforceability of the remaining provisions of this Note.</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">6.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>No Prepayment Penalty or

Premium.</u></font></b></p>



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<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company may prepay

the whole or any part of the outstanding principal sum of this Note without

prepayment penalty or premium.</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">7.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Subordination.</font></b></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">7.1&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Obligations Subordinated to Senior

Debt</u>. </font></b>Notwithstanding any provision of this Note

to the contrary, the Company covenants and agrees, and the holder of this Note

and any subsequent holder of this Note, by accepting this Note, likewise

covenants and agrees, that all amounts owing, whether due or to become due,

under this Note (the &#147;Note Obligations&#148;) shall be subordinated to the extent

set forth in this Section 7 to the prior payment of the Senior Debt (as defined

below) in full when due, in cash or cash equivalents satisfactory to the

holders of such Senior Debt. This Section 7 shall constitute a continuing offer

to and covenant with all persons who become holders of, or continue to hold,

Senior Debt (irrespective of whether such Senior Debt was created or acquired

concurrently or after the issuance of this Note). The provisions of this

Section 7 are made for the benefit of all present and future holders of Senior

Debt, if any (and their successors and assigns), and shall be enforceable by

them directly against every holder of this Note.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">7.2&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Priority and Payment Over of

Proceeds in Certain Events.</u></font></b></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Upon any payment or distribution of

assets of the Company, whether in cash, property, securities or otherwise, in

the event of any dissolution, winding up or total or partial liquidation,

reorganization, arrangement, adjustment, protection, relief or composition, or

assignment for the benefit of creditors of the Company, whether voluntary or

involuntary or in bankruptcy, insolvency, receivership, reorganization, relief

or other proceedings or upon an assignment for the benefit of creditors or any

other marshalling of all or part of the assets and liabilities of the Company,

including, but not limited to, upon the occurrence of any of the events

described in Sections 9(c), 9(d) or 9(e) (the foregoing events herein

collectively referred to as an &#147;Insolvency Event&#148;), all Senior Debt shall first

be paid in full, in cash, or payment provided for in cash equivalents in a manner

satisfactory to the holders of Senior Debt, before the holder of this Note or

any subsequent holder of this Note shall be entitled to receive any payment</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2</font></p>





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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">or distribution of assets of

the Company for application to any of the Note Obligations. Upon any Insolvency

Event, any payment or distribution of assets of the Company, whether in cash,

property, securities or otherwise, to which the holder of this Note or any

subsequent holder of this Note would be entitled on account of the Note

Obligations, except for the provisions of this Section 7, shall be made by the

Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent

or other person making such payment or distribution, directly to the holders of

the Senior Debt or their representatives for application to the payment or

prepayment of all such Senior Debt in full after giving effect to any

concurrent payment or distribution to the holders of such Senior Debt.</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; If there has occurred and is

continuing a default in (i) the payment of all or any portion of any Senior

Debt, or (ii) compliance by the Company with any covenant under the Senior

Debt, unless and until such default shall have been cured or waived, the

Company shall not make any payment on or with respect to any Note Obligations

or acquire this Note (or any portion thereof) for cash, property, securities or

otherwise and the holder of this Note shall not receive from the Company,

directly or indirectly, any payment or distribution on account of the Note

Obligations. The failure to make any payment with respect to the Note

Obligations by reason of the provisions of this Section 7.2 shall not be

construed as preventing the occurrence of an Event of Default; provided that

any acceleration of payment of the Note Obligations resulting therefrom shall

be automatically rescinded if and when all of the following conditions shall be

simultaneously satisfied within 90 days after notice to the Company and the

holders of the Senior Debt of the occurrence of such payment default:&#160; (i) the payment, the failure of which gave

rise to the Event of Default is made and (ii) no other Event of Default shall

have occurred and be continuing.</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(c)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; If, notwithstanding the foregoing

provisions prohibiting payments or distributions, any holder hereof receives

any payment of, or on account of, any Note Obligations that were prohibited by

this Section 7, before all Senior Debt shall have been paid in full, then and

in such event such payments or distributions shall be received and held in

trust for the holders of the Senior Debt and promptly paid over or delivered to

the holders of the Senior Debt remaining unpaid to the extent necessary to pay

in full, in cash or cash equivalents satisfactory to the holders of the Senior

Debt, such Senior Debt after giving effect to any concurrent payment or

distribution to the holder of such Senior Debt, provided, that any such payment

which is, for any reason, not so paid over or delivered shall be held in trust

by such holder for the holders of Senior Debt.</font></p>



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<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">7.3&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Rights

of Holders of Senior Debt Not To Be Impaired, etc</u></font></b><u>.</u></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; No right of any present or future

holder of any Senior Debt to enforce the subordination and other terms and

conditions provided herein shall at any time in any way be prejudiced or

impaired by any act or failure to act in good faith by any such holder, or by

any noncompliance by the Company with the terms and provisions and covenants

herein regardless of any knowledge thereof any such holder may have or otherwise

be charged with.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; This Section 7 and the provisions of

Section 2 may not be amended without the written consent of each holder of the

Senior Debt, if any, and of the holder of this Note, and any purported

amendment without such consent shall be void. No holder of</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3</font></p>





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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Senior Debt shall be prejudiced

in such holder&#146;s right to enforce the subordination and other terms and

conditions of this Note by any act or failure to act by the Company or anyone

in custody of their respective assets or property.</font></p>



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<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">7.4&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Subrogation</u></font></b><u>.</u></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">No payment of

or distribution of or with respect to the Senior Debt pursuant to the

provisions of this Note shall entitle the holder of this Note to exercise any

rights of subrogation in respect thereof until the Senior Debt shall have been

paid and satisfied in full. After the payment of the Senior Debt in full and

provided no payments are voidable, the holder of this Note shall be subrogated

to the rights of the holder or holders of the Senior Debt to receive

distributions applicable to the Senior Debt to the extent the distributions

otherwise payable to the holder of this Note have been applied to the payment

of the Senior Debt.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">7.5&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Obligations

of the Company Unconditional</u></font></b><u>.</u> Nothing contained

in this Note is intended to or shall impair, as between the Company and the

holder of this Note, the obligation of the Company, which is absolute and

unconditional, to pay to the holder of this Note all Note Obligations as and

when the same shall become due and payable in accordance with their terms, or

to affect the relative rights of the holders of the Senior Debt, the holder of

this Note, any subsequent holder of this Note and other creditors of the

Company (other than the holders of Senior Debt).</p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">7.6&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Additional

Rights of Holders of the Senior Debt</u></font></b><u>.</u> If

the Senior Debt has not been paid in full, in cash or cash equivalents

satisfactory to the holders of the Senior Debt, at the time the Company is

subject to an Insolvency Event, the holders of the Senior Debt are hereby

irrevocably authorized, but shall have no obligation, to demand, sue for,

collect and receive every payment or distribution received in respect of any

such Insolvency Proceeding and give acquittance therefor. Furthermore, in

connection with any Insolvency Event, the holders of Senior Debt are

irrevocably authorized to file a proof of claim for or collect the holder of

this Note&#146;s claims for common stock hereunder hereunder first for the benefit

of the holders of Senior Debt to the extent thereof and then for the benefit of

holder of this Note (but without creating any duty or liability to the holder

of this Note other than to remit to the holder of this Note distributions, if

any, actually received in such proceedings after the Senior Debt has been paid

and satisfied in full.</p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">7.7&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Senior

Debt Changes</u></font></b>. &#147;Senior Debt&#148; means an amount owing

by the Company, including principal, interest (including any interest accruing

during any bankruptcy proceeding), premium, if any, fees (including, without

limitation, any commitment, agency, facility, structuring, restructuring or

other fee), costs, expenses and indemnities, from time to time for indebtedness

for borrowed money under notes, debentures or other evidence of indebtedness

issued to, or agreements with, a bank, financial institution, institutional

investor, investment fund or other lender for the purpose of obtaining working

or permanent capital for the Company (&#147;Senior Debt&#148;). The holder of this Note

hereby waives any and all notice of renewal, extension or accrual of any of the

Senior Debt, present or future, and agrees and consents that without notice to

or consent of the holder of this Note:&#160;

(a) the obligations and liabilities of the Company or any other party or

parties under the Senior Debt may, from time to time, in whole or in part, be

renewed,</p>



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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4</font></p>





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<hr size="2" width="100%" noshade color="gray" align="left">



</font></div>



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<p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">refinanced, replaced,

increased, extended, refunded, modified, amended, accelerated, compromised,

supplemented, terminated, decreased, sold, exchanged, waived, or released; (b)

the holders of Senior Debt and their representatives may exercise or refrain

from exercising any right, remedy or power granted by any document creating or

evidencing the Senior Debt or at law, in equity, or otherwise, with respect to

the Senior Debt or in connection with any collateral security or lien (legal or

equitable) held, given or intended to be given therefor (including, without

limitation, the right to perfect any lien or security interest created in

connection therewith); and (c) any and all collateral security and/or liens

(legal or equitable) at any time, present or future, held, given or intended to

be given for the Senior Debt, and any rights or remedies of the holders of

Senior Debt and their representatives in respect thereof, may, from time to

time, in whole or in part, be exchanged, sold, surrendered, released, modified,

perfected, unperfected, waived or extended by the holders of Senior Debt and

their representatives.</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">7.8&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Execution

of Subordination Agreement</u></font></b><u>.</u> The holder of

this Note agrees that, upon the request of any holder of Senior Debt, it shall

execute and deliver a subordination agreement for the benefit of such holder of

Senior Debt (in form reasonably acceptable to the holder of this Note and its

counsel) reflecting the terms of this Section 7; provided, however that the

foregoing shall not require holder of this Note to execute or deliver any

agreement which provides for additional terms of subordination or otherwise

adversely modifying (whether by change, addition or deletion) the terms hereof.</p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">8.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Conversion</font></b>.</p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">8.1&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Automatic Conversion</u></font></b><u>.</u>

Subject to the conversion restrictions contained in subsection 6(d) of the

Termination Agreement (&#147;Conversion Restrictions&#148;), if and to the extent the

principal amount of this Note has not been repaid or voluntarily converted on

or prior to the Maturity Date, as the same may be accelerated or extended, then

the principal amount of this Note automatically will convert on the Maturity

Date into such number of shares of Common Stock as is equal to the number

determined by dividing the outstanding principal amount of this Note by the

Conversion Rate (as defined below) in effect on the date of conversion and then

adjusting such quotient, if necessary, pursuant to Section 8.6 below. If and to

the extent the entire principal balance of this Note cannot be converted under

this provision at the Maturity Date due to the Conversion Restrictions, then

the greatest portion of the principal balance that may be converted without violating

the Conversion Restrictions automatically will convert, and the Maturity Date

of this Note shall then be extended for an additional five years.</p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">8.2&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Optional

Conversion</u></font></b><u>.</u> Subject to the Conversion

Restrictions, the holder of this Note and the Company each shall have the

right, at any time or from time to time, to convert this Note, in whole or in

part, into such number of shares of Common Stock as is equal to the number

determined by dividing the principal amount of this Note to be converted by the

Conversion Rate in effect on the date of conversion and then adjusting such

quotient, if necessary, pursuant to Section 8.6 below. Each optional conversion

shall be effected by delivery of written notice to the Company or the holder,

as the case may be, by the party electing to effect the optional conversion,

stating the amount of principal desired to be converted.</p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5</font></p>





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<hr size="2" width="100%" noshade color="gray" align="left">



</font></div>



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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">8.3&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Conversion

Procedure in the Event of Conversion</u></font></b><u>.</u> In

the event of automatic conversion pursuant to Section 8.1, the outstanding

principal amount of this Note will convert automatically without any further

action by the Company whether or not this Note is surrendered to the Company or

its transfer agent. In the event of elected conversion pursuant to Section 8.2,

on the effective date of the notice of conversion, the portion of this Note

specified in such notice to be converted shall be deemed converted. The Company

will not be obligated to issue certificates evidencing the securities issuable

upon any automatic or elected conversion of this Note unless this Note is

either delivered to the Company or its transfer agent, or the holder of this

Note notifies the Company or its transfer agent that this Note has been lost,

stolen, or destroyed and executes an agreement reasonably satisfactory to the

Company to indemnify the Company from any loss incurred by it in connection

with this Note. At its expense and without charge for any issuance tax, the

Company will, as soon as practicable thereafter, issue and deliver to the

holder of this Note a certificate or certificates for the number of shares to

which the holder of this Note will be entitled upon such conversion (bearing

such legends as are required by applicable state and federal securities laws in

the opinion of counsel to the Company) in the name of the holder and in such

denomination or denominations as the holder has specified in writing, together

with a check payable to the holder of this Note for any cash amounts payable as

described in Section&nbsp;8.4. Upon conversion of this Note, the Company shall

take all such actions as are necessary in order to insure that the securities

issuable with respect to such conversion will be validly issued, fully paid and

non-assessable. The Company will not close its books against the transfer of

the securities issued or issuable upon conversion of this Note in any manner

that interferes with the timely conversion of this Note.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">8.4</font></b><b><font size="1" style="font-size:3.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><u>Fractional

Shares</u></b><u>.</u> No fractional shares shall be issued upon conversion of

this Note. In lieu of the Company issuing any fractional shares to the holder

of this Note upon the conversion of this Note, the Company shall pay to the

holder of this Note an amount in cash equal to the product obtained by

multiplying the Conversion Rate applied to effect such conversion by the

fraction of a share not issued pursuant to the previous sentence. Upon

conversion of this Note in full and the payment of the amounts specified in

this Note, the Company shall be released from all its obligations and liabilities

under this Note.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">8.5&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Adjustments

to Conversion Rate</font></b>.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">For purposes of this

Note, the &#147;<u>Conversion Rate</u>&#148; shall initially be $1.35 and shall be

adjusted from time to time in accordance with the provisions of this Section

8.5. &#147;Capital Stock&#148; means any and all shares, rights to purchase, warrants,

options, convertible securities, participation or other equivalents of or

interests (other than security interests) in (however designed and whether

voting or nonvoting) corporate stock. </font><font size="2" style="font-size:10.0pt;">&#147;Person&#148;

means an individual, a limited liability company, a partnership, a joint

venture, a corporation, a trust, an unincorporated organization and a

government or any department or agency thereof.</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6</font></p>





<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></div>



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<p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; If the Company (i) declares a

dividend, or makes a distribution in shares of Common Stock, on any Common

Stock, (ii) subdivides or reclassifies any outstanding Common Stock into a

greater number of shares, (iii) combines any series of outstanding Common Stock

into a smaller number of shares, (iv) pays a dividend or makes a distribution

on any Common Stock in shares of Capital Stock other than Common Stock or (v)

issues by reclassification of Common Stock shares of Capital Stock, the

conversion privilege and the Conversion Rate in effect immediately prior

thereto shall be adjusted so that the holder of the Note thereafter surrendered

for conversion shall be entitled to receive the number of shares of Common

Stock or other Capital Stock that such holder would have owned or have been

entitled to receive after the happening of any of the events described above

had the Note been converted immediately prior to the happening of such event.

An adjustment made pursuant to this Section 8.5(a) shall become effective

immediately after the record date in the case of a dividend or distribution and

shall become effective immediately after the effective date in the case of

subdivision, combination or reclassification. Such adjustment shall be made

successively whenever any event referred to above shall occur. If such

dividend, distribution, subdivision, reclassification or combination is not so

made, the conversion privilege and the Conversion Rate then in effect shall be

readjusted to the conversion privilege and the Conversion Rate that would then

be in effect if such dividend, distribution, subdivision, reclassification or

combination had not been declared or made, but such readjustment shall not

affect the number of shares of Common Stock or other shares of Capital Stock

delivered upon any conversion prior to the date such readjustment is made. In

any case in which this Section 8.5 provides that an adjustment shall become

effective immediately after a record date for an event, the Company may defer

until the occurrence of such event (i) issuing to the holder of the Note

converted after such record date and before the occurrence of such event the

additional shares of Common Stock issuable upon such conversion by reason of

the adjustment required by such event over and above the Common Stock issuable

upon such conversion before giving effect to such adjustment, and (ii) paying

to such holder any amount in cash in lieu of any fractional share of Common

Stock.</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; If any of the following events

occurs, namely (i) any reclassification or change of outstanding shares of

Common Stock issuable upon conversion of the Note (other than a change in par

value, or from par value to no par value, or from no par value to par value, or

as a result of a subdivision or combination), (ii) any consolidation or merger of

the Company with another Person shall be effected as a result of which holders

of Common Stock issuable upon conversion of the Note shall be entitled to

receive stock, securities or other property or assets (including cash) with

respect to or in exchange for such Common Stock, or (iii) any sale or

conveyance of the properties and assets of the Company as, or substantially as,

an entirety to any other Person, then the Company or such successor or

purchasing Person, as the case may be, shall provide that the principal of the

Note then outstanding shall be convertible into the kind and amount of shares

of stock and other securities or property or assets (including cash) receivable

upon such reclassification, change, consolidation, merger, sale or conveyance by

a holder of the number of shares of Common Stock issuable upon conversion of

the Note immediately prior to such reclassification, change, consolidation,

merger, sale or conveyance. Such provisions shall provide for adjustments that

shall be as nearly equivalent as may be</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7</font></p>





<div align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></div>



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<p align="center" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">practicable

to the adjustments provided for in this subsection 8.5(b). The above provisions

of this subsection 8.5(b) shall similarly apply to successive

reclassifications, consolidations, mergers and sales.</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(c)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; If after an adjustment the holder of

the Note may, upon conversion of the Note, receive shares of two or more

classes of Capital Stock, the Company shall determine on a fair basis the

allocation of the adjusted Conversion Rate between the classes of Capital

Stock. After such allocation, the conversion privilege and the Conversion Rate

of each class of Capital Stock shall thereafter be subject to adjustment on

terms comparable to those applicable to Common Stock set forth in this Section

8.5.</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">8.6</font></b><font size="2" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <b><u><font style="font-weight:bold;">Adjustments to Number of Shares Issuable Upon

Conversion.</font></u></b></font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If on the date of a conversion there are one or more

Dilution Percentages in effect under Section 6 of the Termination Agreement

(i.e., there are one or more Dilution Percentages that became effective but

were not the subject of a readjustment pursuant to Section 6(c)(vii) of the

Termination Agreement), then adjustment(s) to the number of shares issuable

upon the conversion shall be made successively in the order in which the Dilution

Percentages then in effect became effective, in the manner described in the

following examples.</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; For

example, if $135,000 of the $270,000 principal balance of the Note was to be

converted at a Conversion Rate of $1.35 per share and if one Dilution Percentage

of 20% was in effect on the date of the conversion, then the number of shares

issuable upon the conversion without taking into account any adjustments

pursuant to this Section 8.6 (&#147;Basic Shares Number&#148;) would be 100,000 shares,

and the Basic Shares Number would be adjusted by adding to the Basic Shares

Number a number of a shares equal to the Dilution Percentage then in effect

multiplied by the Basic Shares Number (i.e., 20% multiplied by 100,000), so

that the adjusted number of shares to be issued upon the conversion would be

120,000 shares (i.e., 100,000 plus 20,000).</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; As a

further example, if $135,000 of the $270,000 principal balance of the Note was

to be converted at a Conversion Rate of $1.35 per share and a first Dilution

Percentage of 20% and a subsequent Dilution Percentage of 6.25% were in effect

on the date of the conversion, then the 120,000 shares calculated for the

Dilution Percentage of 20% in the example in Section&nbsp;8.6(a) would be

further adjusted for the 6.25% Dilution Percentage by adding to the 120,000

shares the product of the 120,000 shares multiplied by 6.25%, so that the

adjusted number of shares to be issued upon the conversion in this example

would be 127,500 shares (i.e., 120,000 plus 7,500).</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">9.</font></b><font size="2" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <b><u><font style="font-weight:bold;">Events of Default.</font></u></b></font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The occurrence of any one

of the following shall constitute an &#147;Event of Default&#148; hereunder:</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8</font></p>





<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></div>



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<p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; the failure of the Company to pay any

part of the principal on this Note when due, whether at stated maturity, by

acceleration, or otherwise, which such failure shall continue for a period of

ten days following such due date;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; the default by the Company in the

performance or observance in any material respect of any covenant, agreement or

condition contained in the Termination Agreement or this Note which default

shall continue for a period of 30 days following the date of delivery of a

notice by the holder of this Note to the Company that such default has occurred

and is continuing;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(c)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; the Company (i) applies for or

consents to the appointment of, or the taking of possession by, a receiver,

custodian, trustee or liquidator of itself or of all or a substantial part of

its property, (ii) makes a general assignment for the benefit of its creditors,

(iii) commence a voluntary case under any bankruptcy or similar law (as now or

hereafter in effect), (iv) files a petition seeking to take advantage of any

other law providing for the relief of debtors, (v) fails to controvert in a

timely manner, or acquiesce in writing to, any petition filed against it in an

involuntary case under any bankruptcy or similar law, or (vi) takes any action

under the laws of its jurisdiction of organization analogous to any of the

foregoing;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(d)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; a proceeding or case is commenced

against the Company in any court of competent jurisdiction, seeking (i) the

liquidation, reorganization, dissolution, winding up or composition or

readjustment of its debts, (ii) the appointment of a trustee, receiver,

custodian, liquidator or the like of it or of all of any substantial part of

its assets, or (iii) similar relief in respect of it, under any bankruptcy or

similar law and such proceeding or case shall continue undismissed, or unstayed

and in effect, for a period of 60 days; or any action under the laws or the

jurisdiction of organization of such entity analogous to any of the foregoing

shall be taken with respect to such entity and shall continue undismissed, or

unstayed and in effect, for a period of 60 days; or</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(e)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; all or substantially all of the assets

of the Company or any material portion thereof, are attached, seized, subject

to a writ of distress warrant, or levied upon, or comes into the possession of

any receiver, trustee, custodian or assignee for the benefit of creditors, and

the same is not vacated, stayed, dismissed or set aside within 30 days after

the occurrence thereof.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">10.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Remedies

Upon an Event of Default</u></font></b><u>.</u></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If any Event

of Default occurs and is continuing, the holder of this Note may send a notice

to the Company and, if any Senior Debt shall then be outstanding, a copy to the

holders of the Senior Debt, stating that such notice is a &#147;<u>Notice of Intent

to Accelerate</u>&#148; and declaring that the Maturity Date of this Note (if not

then due and payable) shall be accelerated as provided in the next sentence. If

at the time such notice is given, there is no Senior Debt outstanding, the

Maturity Date shall be the date such notice is given. If at the time such

Notice is given, there is Senior Debt outstanding, and the holders of the

Senior Debt have not otherwise agreed, the Maturity Date of this Note shall be

accelerated to the 180th day after such notice is given, provided that if such

Event of Default is cured or duly waived on or before such 180th day, such

notice and its consequences shall be deemed to be rescinded and annulled.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9</font></p>





<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></div>



<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">11.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Certain

Waivers</u></font></b><u>.</u></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company

hereby waives diligence, presentment, protest and demand and notice of protest

and demand, dishonor and nonpayment of this Note, and expressly agrees that

this Note, or any payment hereunder, may be extended from time to time and that

the holder hereof may accept security for this Note or release security for

this Note, all without in any way affecting the liability of the Company hereunder.</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">12.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Amendment</u></font></b><u>.</u></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The provisions of this

Note may not be changed, altered or modified except in a writing signed by the

Company and the holder of this Note.</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">13&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Transfer</u></font></b><u>.</u></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">This Note may not be

assigned by the holder without prior written consent of the Company.</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">14.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Applicable Law</u></font></b><u>.</u></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">This instrument and the

rights and obligations of all parties hereunder shall be governed by and

construed under the laws of the State of California without regard to the

conflicts of law principles of such state.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">15.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Waiver of Jury Trial</u></font></b><u>.</u></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company and the

holder of this Note each hereby irrevocably and unconditionally waives any and

all rights to trial by jury with respect to any legal proceeding arising out of

or relating to this Note or the Termination Agreement or any other instrument

or document delivered hereunder or any transaction contemplated thereby.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">16.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Notices</u></font></b><u>.</u></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10</font></p>





<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></div>



<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Any notice,

demand, request, waiver or other communication required or permitted to be

given under this Note shall be made in the manner set forth in the Termination

Agreement.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">IN WITNESS

WHEREOF, the Company has caused this Subordinated Convertible Promissory Note

to be signed as of the date first written above.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">

 <tr>

  <td width="51%" valign="top" style="padding:0in .7pt .7pt .7pt;width:51.5%;">

  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

  <td width="48%" colspan="2" valign="top" style="padding:0in .7pt .7pt .7pt;width:48.5%;">

  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">SSP SOLUTIONS, INC.,</font></p>

  </td>

 </tr>

 <tr>

  <td width="51%" valign="top" style="padding:0in .7pt .7pt .7pt;width:51.5%;">

  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

  <td width="48%" colspan="2" valign="top" style="padding:0in .7pt .7pt .7pt;width:48.5%;">

  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">a Delaware corporation</font></p>

  </td>

 </tr>

 <tr>

  <td width="51%" valign="top" style="padding:0in .7pt .7pt .7pt;width:51.5%;">

  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

  <td width="48%" colspan="2" valign="top" style="padding:0in .7pt .7pt .7pt;width:48.5%;">

  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="51%" valign="top" style="padding:0in .7pt .7pt .7pt;width:51.5%;">

  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

  <td width="48%" colspan="2" valign="top" style="padding:0in .7pt .7pt .7pt;width:48.5%;">

  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="51%" valign="top" style="padding:0in .7pt .7pt .7pt;width:51.5%;">

  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

  <td width="3%" valign="top" style="padding:0in .7pt .7pt .7pt;width:3.5%;">

  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By:</font></p>

  </td>

  <td width="45%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt .7pt .7pt;width:45.0%;">

  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="51%" valign="top" style="padding:0in .7pt .7pt .7pt;width:51.5%;">

  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

  <td width="3%" valign="top" style="padding:0in .7pt .7pt .7pt;width:3.5%;">

  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt 30.0pt;text-align:left;text-indent:-10.0pt;">&nbsp;</p>

  </td>

  <td width="45%" valign="top" style="padding:0in .7pt .7pt .7pt;width:45.02%;">

  <p align="left" style="margin:0in 0in .0001pt 10.0pt;text-align:left;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Richard M. Depew, President</font></p>

  </td>

 </tr>

 <tr>

  <td width="51%" valign="top" style="padding:0in .7pt .7pt .7pt;width:51.5%;">

  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

  <td width="48%" colspan="2" valign="top" style="padding:0in .7pt .7pt .7pt;width:48.5%;">

  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="51%" valign="top" style="padding:0in .7pt .7pt .7pt;width:51.5%;">

  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

  <td width="48%" colspan="2" valign="top" style="padding:0in .7pt .7pt .7pt;width:48.5%;">

  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="51%" valign="top" style="padding:0in .7pt .7pt .7pt;width:51.5%;">

  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

  <td width="3%" valign="top" style="padding:0in .7pt .7pt .7pt;width:3.5%;">

  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By:</font></p>

  </td>

  <td width="45%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt .7pt .7pt;width:45.0%;">

  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="51%" valign="top" style="padding:0in .7pt .7pt .7pt;width:51.5%;">

  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

  </td>

  <td width="3%" valign="top" style="padding:0in .7pt .7pt .7pt;width:3.5%;">

  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt .5in;text-align:left;text-indent:-.5in;">&nbsp;</p>

  </td>

  <td width="45%" valign="top" style="padding:0in .7pt .7pt .7pt;width:45.02%;">

  <p align="left" style="margin:0in 0in .0001pt 10.0pt;text-align:left;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Thomas E. Schiff, Chief Financial Officer</font></p>

  </td>

 </tr>

</table>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11</font></p>





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