THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER OF AN
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO
THE MAKER THAT THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF MAY BE SOLD, TRANSFERRED,  OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.

VISTAGEN THERAPEUTICS, INC.

Senior Secured Convertible Promissory Note

Dated: July 26, 2013
$250,000.00

 
For value received, VISTAGEN THERAPEUTICS, INC., a Nevada corporation with an
address of 384 Oyster Point Boulevard, No. 8, South San Francisco, California
94080 (the “Maker”), hereby promises to pay to the order of PLATINUM LONG TERM
GROWTH VII, LLC a Delaware limited liability company with an address of 152 West
57th Street, 4th Floor, New York, NY 10019 (together with its successors,
representatives, and permitted assigns, the “Holder”), in accordance with the
terms hereinafter provided, the principal amount of TWO HUNDRED–FIFTY THOUSAND
AND ZERO CENTS ($250,000.00), together with interest thereon.
 
The outstanding principal balance of and interest on this Note shall be due and
payable in shares of the Maker’s common stock, $0.001 par value (“Common
Stock”), subject to the provisions of Section 1.8 below, three (3) years from
the date of issuance hereof, or July 26, 2016 (the “Maturity Date”), or at such
earlier time as provided herein.
 
 
ARTICLE I - GENERAL TERMS

 
Section 1.1  
Interest

 
Beginning on the issuance date of this Note (the “Issuance Date”), the
outstanding principal balance of this Note shall bear interest, in arrears, at a
rate per annum equal to ten percent (10%), payable in full on the Maturity Date
or upon earlier acceleration hereof. Subject to the provisions of Section 1.8
below, interest shall be paid in shares of Common Stock.
 
Interest shall be computed on the basis of a 360-day year of twelve (12) 30-day
months, shall be payable for the actual number of days elapsed, shall compound
monthly, and shall accrue commencing on the Issuance Date.  Furthermore, upon
the occurrence of an Event of Default (as defined in Section 2.1 hereof), the
Maker will pay interest to the Holder, payable on demand, on the outstanding
principal balance of and unpaid interest on the Note from the date of the Event
of Default until such Event of Default is cured at the rate of the lesser of (i)
eighteen percent (18%) and (ii) the maximum applicable legal rate per annum (the
“Default Rate”).
 
To the extent it may lawfully do so, the Maker hereby agrees not to insist upon
or plead or in any manner whatsoever claim, and will resist any and all efforts
to be compelled to take the benefit or advantage of, usury laws wherever
enacted, now or at any time hereafter in force, in connection with any claim,
action or proceeding that may be brought by the Holder in order to enforce any
right or remedy under any Transaction Document; provided, that, notwithstanding
any provision to the contrary contained in any Transaction Document, it is
expressly agreed and provided that the total liability of the Maker under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum Rate”),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Maker may be obligated to pay under the Transaction
Documents exceed such Maximum Rate.  It is agreed that if the maximum contract
rate of interest allowed by law and applicable to the Transaction Documents is
increased or decreased by statute or any official governmental action subsequent
to the date hereof, the new maximum contract rate of interest allowed by law
will be the Maximum Rate applicable to the Transaction Documents from the
effective date forward, unless such application is precluded by applicable
law.  If under any circumstances whatsoever, interest in excess of the Maximum
Rate is paid by the Maker to the Holder with respect to indebtedness evidenced
by the Transaction Documents, such excess shall be applied by the Holder to the
unpaid principal balance of any such indebtedness or be refunded to the Maker,
the manner of handling such excess to be at the Holder’s election.

 
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Section 1.2  
Payment of Principal and Interest; Prepayment

 
The principal amount hereof shall be paid in full on the Maturity Date or, if
earlier, upon acceleration of this Note in accordance with the terms hereof or,
subject to the terms and conditions set forth in this Note, pre-paid upon the
election of the Maker. Subject to the provisions of Section 1.8 below, payments
of principal and interest shall be made in shares of Common Stock. Any amount of
principal repaid hereunder may not be re-borrowed.
 
Notwithstanding anything to the contrary contained herein, prepayment may only
be made in immediately available funds. The Maker may prepay the principal
amount of this Note in full or in part; provided, that, the Maker shall give the
Holder at least 10 Business Days’ prior written notice (the “Prepayment Notice
Period”) of such prepayment to the Holder; and provided, further, that any and
all such prepayments shall be at a price equal to the sum of: (A) the portion of
the outstanding principal amount of this Note being prepaid; (B) all accrued and
unpaid interest on such principal amount as of the date of such prepayment; and
(C) any and all fees due and payable hereunder as of the date of such
prepayment.   As a condition precedent to any such prepayment, the Maker shall
have honored all Conversion Notices delivered by the Holder during the
Prepayment Notice Period.
 
Section 1.3  
Security

 
The obligations of the Maker hereunder shall be secured by (1) a continuing
security interest in all assets of the Maker pursuant to the terms of an Amended
and Restated Security Agreement dated as of October 11, 2012 by and among the
Maker and the Holder (as amended, restated, supplemented or otherwise modified,
the “Security Agreement”), and (2) a continuing security interest in certain
assets of the VistaGen Therapeutics, Inc., a California corporation (“VistaGen
California”), pursuant to the terms of the Intellectual Property Security
Agreement by and between VistaGen California and the Holder (the “IP Security
Agreement”).
 
Section 1.4  
Payment on Non-Business Days

 
Whenever any payment to be made shall be due on a Saturday, Sunday or a public
holiday under the laws of the State of New York, such payment may be due on the
next succeeding business day and such next succeeding day shall be included in
the calculation of the amount of accrued interest payable on such date.
 
Section 1.5  
Transfer

 
This Note may be transferred or sold, subject to the provisions of Section 5.8
of this Note, or pledged, hypothecated or otherwise granted as security by the
Holder without the consent of the Maker.
 
Section 1.6  
Replacement.

 
Upon receipt of a duly executed, notarized and unsecured written statement from
the Holder with respect to the loss, theft or destruction of this Note (or any
replacement hereof), or, in the case of a mutilation of this Note, upon
surrender and cancellation of such Note, the Maker shall issue a new Note, of
like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated
Note.
 
Section 1.7  
Use of Proceeds.

 
The Maker shall use the proceeds of this Note to satisfy its working capital
obligations and to make such payments as are otherwise required in the ordinary
course of business.
 
Section 1.8  
Common Stock Payment Conditions

 
Payments of principal and interest hereunder may only be made in shares of
Common Stock upon satisfaction of the conditions specified in Section 1.8.1
below. If the conditions specified in Section 1.8.1 below have not been
satisfied with respect to any payment hereunder (including without limitation
any payment due upon acceleration hereof), then such payment shall be made in
immediately available funds via wire transfer to the Holder using the
instructions attached hereto as Exhibit A. No prepayment may be made in shares
of Common Stock.

 
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In connection with all payments permitted to be made hereunder in shares of
Common Stock, the Maker shall deliver to the Holder via DWAC (as defined below)
on the date each such payment is due such number of shares of duly authorized
and issued Common Stock as is equal to the dollar amount of such payment when
the shares of Common Stock delivered for such payment are valued at the lesser
of (i) the Conversion Price on such payment date, or (ii) the VWAP (as defined
in Section 5.13 below) of the Common Stock over the ten Trading-Day period
ending on the Trading Day immediately preceding the date of such payment (in
either event, the “Note Payment Value”); provided, however, the Note Payment
Value shall in no event be less than fifty percent (50%) of the VWAP of the
Common Stock over the ten Trading-Day period ending on the Trading Day
immediately preceding the date of such payment.
 
1.8.1 Conditions to Payment in Shares of Common Stock. No payment hereunder may
be made in shares of Common Stock unless all of the following conditions have
been satisfied:
 
1.8.1.1 no Event of Default or event or omission that, with the giving of notice
and/or the passage of time would constitute an Event of Default shall have
occurred since the date of original issuance of this Note;
 
1.8.1.2 the VWAP of the Common Stock over the ten-Trading-Day period ending on
the Trading Day immediately preceding the Maturity Date shall be at least $0.50;
 
1.8.1.3 the issuance of shares of Common Stock as payment hereunder would not
violate the applicable limitations set forth in Section 3.4 below; and
 
1.8.1.4 at all times during the twenty (20) Trading Days immediately prior to
the Maturity Date and through and including the date any shares of Common Stock
are issued to the Holder as payment hereunder, all of the Equity Conditions (as
defined in Section 5.13 below) shall be and remain satisfied.
 
To the extent that the conditions of this Section 1.8.1 are satisfied except
that the issuance of shares of Common Stock as payment hereunder would violate
the applicable limitations set forth in Section 3.4 hereof, the Maker may pay a
portion of amounts due and owing hereunder in shares of Common Stock to the
extent that the issuance of Common Stock to the Holder for such portion of such
payment would not violate the applicable limitations set forth in Section 3.4
hereof; provided, however, in the event the number of shares of Common Stock
issued as payment hereunder is insufficient to satisfy amounts due and owing
Maker hereunder due to the limitations set forth in Section 3.4 hereof, and
Maker is otherwise unable to pay the remaining amount due and payable Holder in
cash or other immediately available funds (the “Residual Amount”), the Maturity
Date with respect to the Residual Amount shall be extended for one year, and
this Note shall continue in full force and effect with respect to the Residual
Amount, and the failure of Maker to pay such Residual Amount on or before the
initial Maturity Date due to the limitations set forth in Section 3.4  hereof
shall not constitute an Event of Default under the terms of Section 2.1 below.
For the avoidance of doubt, however, upon and after the date that is one day
following any one-year extension of the Maturity Date as to any Residual Amount
hereunder, all amounts due and owing hereunder shall be due and payable
immediately in immediately available funds, the failure of the Maker to
immediately pay such amounts shall be an immediate Event of Default hereunder.
 
 
ARTICLE II - EVENTS OF DEFAULT;  REMEDIES

 
Section 2.1  
Events of Default.

 
The occurrence of any of the following events shall be an “Event of Default”
under this Note:
 
2.1.1 any default in the payment of (1) the principal amount hereunder when due,
and/or (2) interest on, or liquidated damages in respect of, this Note, as and
when the same shall become due and payable (whether on the Maturity Date or by
acceleration or otherwise); or
 
2.1.2 the Maker shall fail to observe or perform any other covenant or agreement
contained in this Note which failure is not cured, if possible to cure, within
ten (10) Business Days after notice of such default sent by the Holder; or
 
2.1.3 the suspension from listing, without subsequent listing on any one of, or
the failure of the Common Stock, to be listed on at least one of the OTC
Bulletin Board, the OTCQB, the OTCQX, the American Stock Exchange, the Nasdaq
National Market, the Nasdaq Capital Market or The New York Stock Exchange, Inc.
for a period of three (3) or more consecutive Trading Days; or
 
2.1.4 the Maker’s notice to the Holder, including by way of public announcement
or otherwise, at any time, of its inability to comply (including for any of the
reasons described in Section 3.7.1 hereof) or its intention not to comply with
proper requests for conversion of this Note into shares of Common Stock; or

 
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2.1.5 the Maker shall fail to (i) deliver within five (5) Business Days
following delivery of any Conversion Notice the shares of Common Stock upon
conversion of the Note or any interest accrued and unpaid, or (ii) make the
payment of any fees and/or liquidated damages under this Note, or the other
Transaction Documents; or
 
2.1.6 default by the Maker and/or VistaGen California or any of its
other  wholly-owned domestic subsidiaries (together, “Subsidiaries”), shall be
made in the performance or observance of any covenant, condition or agreement
contained in this Note (other than as set forth elsewhere in this Section 2.1)
or any other Transaction Document and such default is not fully cured within
five (5) Business Days after the Maker receives notice from the Holder of the
occurrence thereof; or
 
2.1.7 If (a) any material provision, in the reasonable opinion of the Holder, of
any Transaction Document shall at any time for any reason cease to be valid,
binding and enforceable against the Maker and/or any of its Subsidiaries; (b)
the validity, binding effect or enforceability of any Transaction Document
against any party other than the Holder shall be contested; or (c) any
Transaction Document shall be terminated, invalidated or set aside, or be
declared ineffective or inoperative or in any way cease to give or provide to
Holder the benefits purported to be created thereby.
 
2.1.8 any material representation or warranty made by the Maker and/or any of
its Subsidiaries herein, or in any Transaction Document shall prove to have been
false or incorrect or breached in a material respect on the date as of which
made; or
 
2.1.9 the Maker and/or any of its Subsidiaries shall (A) default in any payment
of any amount or amounts of principal of or interest on any Indebtedness (other
than the Indebtedness hereunder) the aggregate principal amount of which
Indebtedness is in excess of $20,000 or (B) default in the observance or
performance of any other agreement or condition relating to any Indebtedness or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder or
holders or beneficiary or beneficiaries of such Indebtedness to cause with the
giving of notice and/or the passage of time, if required, such Indebtedness to
become due prior to its stated maturity; or
 
2.1.10 the Maker or any of its Subsidiaries shall (i) apply for or consent 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
or assets, (ii) make a general assignment for the benefit of its creditors,
(iii) commence a voluntary case under the United States Bankruptcy Code (as now
or hereafter in effect) or under the comparable laws of any jurisdiction
(foreign or domestic), (iv) file a petition seeking to take advantage of any
bankruptcy, insolvency, moratorium, reorganization or other similar law
affecting the enforcement of creditors’ rights generally, (v) acquiesce in
writing to any petition filed against it in an involuntary case under United
States Bankruptcy Code (as now or hereafter in effect) or under the comparable
laws of any jurisdiction (foreign or domestic), (vi) issue a notice of
bankruptcy or winding down of its operations or issue a press release regarding
same, or (vii) take any action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing; or
 
2.1.11 a proceeding or case shall be commenced in respect of the Maker or any of
its Subsidiaries, without its application or consent, in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, moratorium,
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 or any substantial part of its assets in connection with the liquidation
or dissolution of the Maker or (iii) similar relief in respect of it under any
law providing for the relief of debtors, and such proceeding or case described
in clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in
effect, for a period of thirty (30) days or any order for relief shall be
entered in an involuntary case under United States Bankruptcy Code (as now or
hereafter in effect) or under the comparable laws of any jurisdiction (foreign
or domestic) against the Maker or action under the laws of any jurisdiction
(foreign or domestic) analogous to any of the foregoing shall be taken with
respect to the Maker and shall continue undismissed, or unstayed and in effect
for a period of thirty (30) days; or
 
2.1.12 the failure of the Maker to instruct its transfer agent to remove any
legends from shares of Common Stock eligible to be sold under Rule 144 of the
Securities Act and issue such unlegended certificates to the Holder within four
(4) Business Days of the Holder’s request so long as the Holder has provided
reasonable assurances and representations to the Maker and its legal counsel
that such shares of Common Stock can be sold pursuant to Rule 144; or
 
 
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2.1.13 One or more judgments for the payment of money in an aggregate amount in
excess of $100,000 shall be rendered against the Maker or any of its
Subsidiaries and the same shall remain undischarged for a period of thirty (30)
consecutive days during which execution shall not be effectively stayed, or any
action shall be legally taken by a judgment creditor to attach or levy upon any
assets of the Maker or any of its Subsidiaries to enforce any such judgment;
and/or
 
2.1.14 the occurrence of any Event of Default of the Maker and/or any of its
Subsidiaries under any other Transaction Document.
 
Section 2.2  
Remedies Upon An Event of Default.

 
If an Event of Default shall have occurred and shall be continuing, the Holder
of this Note may at any time at its option may: (a) either (i) declare the
entire unpaid principal balance of this Note, together with all interest accrued
hereon, due and payable, and thereupon, the same shall be accelerated and so due
and payable, without presentment, demand, protest, or notice, all of which are
hereby expressly unconditionally and irrevocably waived by the Maker, or (ii)
demand that the principal amount of this Note then outstanding and all accrued
and unpaid interest thereon shall be converted into shares of Common Stock at
the Conversion Price or the Default Conversion Price per share on the Trading
Day immediately preceding the date the Holder demands conversion hereunder; and
(b) exercise or otherwise enforce any one or more of the Holder’s rights,
powers, privileges, remedies and interests under this Note, the other
Transaction Documents or applicable law.  No course of delay on the part of the
Holder shall operate as a waiver thereof or otherwise prejudice the right of the
Holder.  No remedy conferred hereby shall be exclusive of any other remedy
referred to herein or now or hereafter available at law, in equity, by statute
or otherwise.
 
 
ARTICLE III - CONVERSION; ANTI-DILUTION; PREPAYMENT

 
Section 3.1  
Conversion

 
At any time and from time to time on or after the Issuance Date, this Note shall
be convertible (in whole or in part), at the option of the Holder (the
“Conversion Option”), into such number of fully paid and non-assessable shares
of Common Stock as is determined by dividing (x) that portion of the outstanding
principal balance plus any accrued but unpaid interest under this Note as of
such date that the Holder elects to convert by (y) the Conversion Price (as
defined in Section 3.2 hereof) then in effect on the date on which the Holder
e-mails, faxes or otherwise provides a notice of conversion (the “Conversion
Notice”), duly executed, to the Maker (the “Conversion Date”), provided,
however, that the Conversion Price shall be subject to adjustment as described
in Section 3.5 below.  The Holder shall deliver this Note to the Maker at such
time that this Note is fully converted.  With respect to partial conversions of
this Note, the Maker shall keep written records of the amount of this Note
converted as of each Conversion Date.
 
Section 3.2  
Conversion Price

 
The term “Conversion Price” shall mean $0.50, subject to adjustment under
Section 3.5 hereof.
 
Section 3.3  
Mechanics of Conversion

 
3.3.1 Not later than three (3) Trading Days after any Conversion Date, the Maker
or its designated transfer agent, as applicable, shall issue and deliver to the
Depository Trust Company (“DTC”) account on the Holder’s behalf via the Deposit
Withdrawal Agent Commission System (“DWAC”) as specified in the Conversion
Notice, registered in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder shall be entitled.  In the
alternative, not later than three (3) Trading Days after any Conversion Date,
the Maker shall deliver to the applicable Holder by express courier a
certificate or certificates which shall be free of restrictive legends and
trading restrictions representing the number of shares of Common Stock being
acquired upon the conversion of this Note (the “Delivery
Date”).  Notwithstanding the foregoing to the contrary, the Maker or its
transfer agent shall only be obligated to issue and deliver the shares to the
DTC on the Holder’s behalf via DWAC (or certificates free of restrictive
legends) if such conversion is in connection with a sale and the Holder has
complied with the applicable prospectus delivery requirements (as evidenced by
documentation furnished to and reasonably satisfactory to the Maker) or the
Holder may effect such sales pursuant to Rule 144 under the Securities Act.  If
in the case of any Conversion Notice such certificate or certificates are not
delivered to or as directed by the applicable Holder by the Delivery Date, the
Holder shall be entitled by written notice to the Maker at any time on or before
its receipt of such certificate or certificates thereafter, to rescind such
conversion, in which event the Maker shall immediately return this Note tendered
for conversion, whereupon the Maker and the Holder shall each be restored to
their respective positions immediately prior to the delivery of such notice of
revocation, except that any amounts described in Sections 3.3.2 and 3.3.3 shall
be payable through the date notice of rescission is given to the Maker.
 
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3.3.2 The Maker understands that a delay in the delivery of the shares of Common
Stock upon conversion of this Note beyond the Delivery Date could result in
economic loss to the Holder.  If the Maker fails to deliver to the Holder such
shares via DWAC (or, if applicable, certificates) by the Delivery Date, the
Maker shall pay to the Holder, in cash, an amount per Trading Day for each
Trading Day until such shares are delivered via DWAC or certificates are
delivered (if applicable), together with interest on such amount at a rate of
10% per annum, accruing until such amount and any accrued interest thereon is
paid in full, equal to the greater of (A) (i) 5% of the amount of this Note
requested to be converted for the first five (5) Trading Days after the Delivery
Date and (ii) 10% of the amount of this Note requested to be converted for each
Trading Day thereafter and (B) $2,000 per day (which amount shall be paid as
liquidated damages and not as a penalty).  Nothing herein shall limit the
Holder’s right to pursue actual damages for the Maker’s failure to deliver
certificates representing shares of Common Stock upon conversion within the
period specified herein and the Holder shall have the right to pursue all
remedies available to it at law or in equity (including, without limitation, a
decree of specific performance and/or injunctive relief).  Notwithstanding
anything to the contrary contained herein, the Holder shall be entitled to
withdraw a Conversion Notice, and upon such withdrawal the Maker shall only be
obligated to pay the liquidated damages accrued in accordance with this Section
3.3.2 through the date the Conversion Notice is withdrawn.
 
3.3.3 In addition to any other rights available to the Holder, if the Maker
fails to cause its transfer agent to transmit via DWAC or transmit to the Holder
a certificate or certificates representing the shares of Common Stock issuable
upon conversion of this Note on or before the Delivery Date, and if after such
date the Holder is required by its broker to purchase (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the shares of Common Stock issuable upon conversion of
this Note which the Holder anticipated receiving upon such exercise (a
“Buy-In”), then the Maker shall (1) pay in cash to the Holder the amount by
which (x) the Holder’s total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (y) the amount obtained
by multiplying (A) the number of shares of Common Stock issuable upon conversion
of this Note that the Maker was required to deliver to the Holder in connection
with the conversion at issue times (B) the price at which the sell order giving
rise to such purchase obligation was executed, and (2) at the option of the
Holder, either reinstate the portion of the Note and equivalent number of shares
of Common Stock for which such conversion was not honored or deliver to the
Holder the number of shares of Common Stock that would have been issued had the
Maker timely complied with its conversion and delivery obligations
hereunder.  For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of shares of Common Stock with an aggregate sale price giving rise to
such purchase obligation of $10,000, under clause (1) of the immediately
preceding sentence the Maker shall be required to pay the Holder $1,000. The
Holder shall provide the Maker written notice indicating the amounts payable to
the Holder in respect of the Buy-In, together with applicable confirmations and
other evidence reasonably requested by the Maker.  Nothing herein shall limit
the Holder’s right to pursue any other remedies available to it hereunder, at
law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Maker’s failure to timely deliver
certificates representing shares of Common Stock upon conversion of this Note as
required pursuant to the terms hereof.
 
Section 3.4  
Ownership Cap and Certain Conversion Restrictions

 
3.4.1 Notwithstanding anything to the contrary set forth in this Note, at no
time may the Holder convert all or a portion of this Note if the number of
shares of Common Stock to be issued pursuant to such conversion would exceed,
when aggregated with all other shares of Common Stock owned by the Holder at
such time, the number of shares of Common Stock which would result in the
Holder, together with its affiliates, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) more
than 4.9% of all of the Common Stock outstanding at such time; provided,
however, that upon the Holder providing the Maker with sixty-one (61) days’
notice (the “Waiver Notice”) that the Holder would like to waive this Section
3.4.1 with regard to any or all shares of Common Stock issuable upon conversion
of this Note, this Section 3.4.1 will be of no force or effect with regard to
all or a portion of the Note referenced in the Waiver Notice.

 
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3.4.2 Notwithstanding anything to the contrary set forth in this Note, at no
time may the Holder convert all or a portion of this Note if the number of
shares of Common Stock to be issued pursuant to such conversion, when aggregated
with all other shares of Common Stock owned by the Holder at such time, would
result in the Holder, together with its affiliates,  beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in excess of 9.9% of the then issued and outstanding shares of
Common Stock outstanding at such time (the “9.9% Threshold”); provided, however,
that upon the Holder providing the Maker with at least 61 days’ notice pursuant
to a Waiver Notice that the Holder would like to waive this Section 3.4.2 with
regard to any or all shares of Common Stock issuable upon conversion of this
Note, this Section 3.4.2 shall be of no force or effect with regard to all or a
portion of the Note referenced in the Waiver Notice.
 
Section 3.5  
Adjustment of Conversion Price

 
3.5.1 Adjustments. Until the Note has been paid in full or converted in full,
the Conversion Price shall be subject to adjustment from time to time as follows
(but shall not be increased, other than pursuant to Section 3.5.1.1 hereof):
 
3.5.1.1 Adjustments for Stock Splits and Combinations.  If the Maker shall at
any time or from time to time after the Issuance Date, effect a stock split of
the outstanding Common Stock, the applicable Conversion Price in effect
immediately prior to the stock split shall be proportionately decreased.  If the
Maker shall at any time or from time to time after the Issuance Date, combine
the outstanding shares of Common Stock, the applicable Conversion Price in
effect immediately prior to the combination shall be proportionately
increased.  Any adjustments under this Section 3.5.1.1 shall be effective at the
close of business on the date the stock split or combination occurs.
 
3.5.1.2 Adjustments for Certain Dividends and Distributions.  If the Maker shall
at any time or from time to time after the Issuance Date, make or issue or set a
record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in shares of Common Stock, then, and in
each event, the applicable Conversion Price in effect immediately prior to such
event shall be decreased as of the time of such issuance or, in the event such
record date shall have been fixed, as of the close of business on such record
date, by multiplying, the applicable Conversion Price then in effect by a
fraction: (x) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and (y) the denominator
of which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution.
 
3.5.1.3 Adjustment for Other Dividends and Distributions.  If the Maker shall at
any time or from time to time after the Issuance Date, make or issue or set a
record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in other than shares of Common Stock,
then, and in each event, an appropriate revision to the applicable Conversion
Price shall be made and provision shall be made (by adjustments of the
Conversion Price or otherwise) so that the holders of this Note shall receive
upon conversions thereof, in addition to the number of shares of Common Stock
receivable thereon, the number of securities of the Maker or other issuer (as
applicable) which they would have received had this Note been converted into
Common Stock on the date of such event and had thereafter, during the period
from the date of such event to and including the Conversion Date, retained such
securities (together with any distributions payable thereon during such period),
giving application to all adjustments called for during such period under this
Section 3.5.1.3 with respect to the rights of the Holder; provided, however,
that if such record date shall have been fixed and such dividend is not fully
paid or if such distribution is not fully made on the date fixed therefor, the
Conversion Price shall be adjusted pursuant to this paragraph as of the time of
actual payment of such dividends or distributions.
 
3.5.1.4 Adjustments for Reclassification, Exchange or Substitution.  If the
Common Stock issuable upon conversion of this Note at any time or from time to
time after the Issuance Date shall be changed to the same or different number of
shares of any class or classes of stock, whether by reclassification, exchange,
substitution or otherwise (other than by way of a stock split or combination of
shares or stock dividends provided for in Sections 3.5.1.1, 3.5.1.2 and 3.5.1.3,
or a reorganization, merger, consolidation, or sale of assets provided for in
Section 3.5.1.5), then, and in each event, an appropriate revision to the
Conversion Price shall be made and provisions shall be made (by adjustments of
the Conversion Price or otherwise) so that the Holder shall have the right
thereafter to convert this Note into the kind and amount of shares of stock and
other securities receivable upon reclassification, exchange, substitution or
other change, by holders of the number of shares of Common Stock into which such
Note might have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further adjustment as
provided herein.

 
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3.5.1.5 Adjustments for Reorganization, Merger, Consolidation or Sales of
Assets.  If at any time or from time to time after the Issuance Date there shall
be a capital reorganization of the Maker (other than by way of a stock split or
combination of shares or stock dividends or distributions provided for in
Sections 3.5.1.1, 3.5.1.2 and 3.5.1.3, or a reclassification, exchange or
substitution of shares provided for in Section 3.5.1.4), or a merger or
consolidation of the Maker with or into another corporation where the holders of
outstanding voting securities prior to such merger or consolidation do not own
over fifty percent (50%) of the outstanding voting securities of the merged or
consolidated entity, immediately after such merger or consolidation, or the sale
of all or substantially all of the Maker’s properties or assets to any other
person (an “Organic Change”), then as a part of such Organic Change, (A) if the
surviving entity in any such Organic Change is a public company that is
registered pursuant to the Securities Exchange Act of 1934, as amended, and its
common stock is listed or quoted on a national exchange or the OTC Bulletin
Board, an appropriate revision to the Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the Holder shall have the right thereafter to convert such Note into the
kind and amount of shares of stock and other securities or property of the Maker
or any successor corporation resulting from Organic Change, and (B) if the
surviving entity in any such Organic Change is not a public company that is
registered pursuant to the Securities Exchange Act of 1934, as amended, or its
common stock is not listed or quoted on a national exchange or the OTC Bulletin
Board, the Holder shall have the right to demand prepayment pursuant to Section
3.6.1 hereof.  In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 3.5.1.5 with respect to the rights
of the Holder after the Organic Change to the end that the provisions of this
Section 3.5.1.5 (including any adjustment in the applicable Conversion Price
then in effect and the number of shares of stock or other securities deliverable
upon conversion of this Note) shall be applied after that event in as nearly an
equivalent manner as may be practicable.
 
3.5.1.6 Adjustments for Issuance of Additional Shares of Common Stock.   In the
event that the Maker shall, at any time, or from time to time, issue or sell any
additional shares of common stock (otherwise than as provided in the foregoing
subsections 3.5.1.1 through 3.5.1.5 of this Section 3.5.1, or Permitted
Issuances, or pursuant to Common Stock Equivalents (hereafter defined) granted
or issued prior to the Issuance Date) (“Additional Shares of Common Stock”), at
a price per share less than the Conversion Price then in effect or without
consideration, then the Conversion Price upon each such issuance or sale shall
be reduced to a price equal to the consideration per share paid for such
Additional Shares of Common Stock.
 
3.5.1.7 Issuance of Common Stock Equivalents.  The provisions of this Section
3.5.1.7 shall apply if (a) the Maker, at any time after the Issuance Date, shall
issue any securities (other than Permitted Issuances) convertible into or
exchangeable for, directly or indirectly, Common Stock (“Convertible
Securities”), other than this Note, or (b) any rights or warrants or options to
purchase any such Common Stock or Convertible Securities (collectively, the
“Common Stock Equivalents”) shall be issued or sold.  If the price per share for
which Additional Shares of Common Stock may be issuable pursuant to any such
Common Stock Equivalent shall be less than the applicable Conversion Price then
in effect, or if, after any such issuance of Common Stock Equivalents, the price
per share for which Additional Shares of Common Stock may be issuable thereafter
is amended or adjusted, and such price as so amended or adjusted shall be less
than the applicable Conversion Price in effect at the time of such amendment or
adjustment, then the applicable Conversion Price upon each such issuance or
amendment shall be adjusted as provided in the first sentence of subsection
3.5.1.6.
 
3.5.1.8 Consideration for Stock.  In case any shares of Common Stock or any
Common Stock Equivalents shall be issued or sold:
 
3.5.1.8.1 in connection with any merger or consolidation in which the Maker is
the surviving corporation (other than any consolidation or merger in which the
previously outstanding shares of Common Stock of the Maker shall be changed to
or exchanged for the stock or other securities of another corporation), the
amount of consideration therefor shall be, deemed to be the fair value, as
determined reasonably and in good faith by the Board of Directors of the Maker,
of such portion of the assets and business of the non-surviving corporation as
such Board may determine to be attributable to such shares of Common Stock,
Convertible Securities, rights or warrants or options, as the case may be; or

 
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3.5.1.8.2 in the event of any consolidation or merger of the Maker in which the
Maker is not the surviving corporation or in which the previously outstanding
shares of Common Stock of the Maker shall be changed into or exchanged for the
stock or other securities of another corporation, or in the event of any sale of
all or substantially all of the assets of the Maker for stock or other
securities of any corporation, the Maker shall be deemed to have issued a number
of shares of its Common Stock for stock or securities or other property of the
other corporation computed on the basis of the actual exchange ratio on which
the transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or other
property of the other corporation.  If any such calculation results in
adjustment of the applicable Conversion Price, or the number of shares of Common
Stock issuable upon conversion of the Note, the determination of the applicable
Conversion Price or the number of shares of Common Stock issuable upon
conversion of the Note immediately prior to such merger, consolidation or sale,
shall be made after giving effect to such adjustment of the number of shares of
Common Stock issuable upon conversion of the Note.  In the event Common Stock is
issued with other shares or securities or other assets of the Maker for
consideration which covers both, the consideration computed as provided in this
Section 3.5.1.8 shall be allocated among such securities and assets as
determined in good faith by the Board of Directors of the Maker; or
 
3.5.1.8.3 for services or other non-cash consideration, the amount of
consideration therefor shall be deemed to be the par value of the Common Stock.
 
3.5.2 Record Date.  In case the Maker shall take record of the holders of its
Common Stock for the purpose of entitling them to subscribe for or purchase
Common Stock or Convertible Securities, then the date of the issue or sale of
the shares of Common Stock shall be deemed to be such record date.
 
3.5.3 Certain Issues Excepted.  Anything herein to the contrary notwithstanding,
the Maker shall not be required to make any adjustment to the Conversion Price
in connection with any of the transactions described in the definition of
Permitted Issuance (as set forth in the Purchase Agreement)..
 
3.5.4 No Impairment.  The Maker shall not, by amendment of its Articles or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Maker, but will at all times in good faith, assist
in the carrying out of all the provisions of this Section 3.5 and in the taking
of all such action as may be necessary or appropriate in order to protect the
Conversion Rights of the Holder against impairment.  In the event the Holder
shall elect to convert all or any portion of this Note as provided herein, the
Maker cannot refuse conversion based on any claim that the Holder or anyone
associated or affiliated with the Holder has been engaged in any violation of
law, violation of an agreement to which the Holder is a party or for any reason
whatsoever, unless, an injunction from a court, or notice, restraining and or
adjoining conversion of all or any portion of this Note shall have issued and
the Maker posts a surety bond for the benefit of the Holder in an amount equal
to one hundred thirty percent (130%) of the amount of the Note that the Holder
has elected to convert, which bond shall remain in effect until the completion
of arbitration/litigation of the dispute and the proceeds of which shall be
payable to the Holder (as liquidated damages) in the event it obtains judgment.
 
3.5.5 Certificates as to Adjustments.  Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of this Note pursuant to this Section 3.5, the Maker at
its expense shall promptly and, in no event more than 10 days following such
adjustment, compute such adjustment or readjustment in accordance with the terms
hereof and furnish to the Holder a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based.  The Maker shall, upon written request of the Holder, at
any time, furnish or cause to be furnished to the Holder a like certificate
setting forth such adjustments and readjustments, the applicable Conversion
Price in effect at the time, and the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon the conversion of this Note.  Notwithstanding the foregoing, the
Maker shall not be obligated to deliver a certificate unless such certificate
would reflect an increase or decrease of at least one percent (1%) of such
adjusted amount.
 
3.5.6 Issue Taxes.  The Maker shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of this Note
pursuant thereto; provided, however, that the Maker shall not be obligated to
pay any transfer taxes resulting from any transfer requested by the Holder in
connection with any such conversion.
 
 
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3.5.7 Fractional Shares.  No fractional shares of Common Stock shall be issued
upon conversion of this Note.  In lieu of any fractional shares to which the
Holder would otherwise be entitled, the Maker shall pay cash equal to the
product of such fraction multiplied by the average of the Closing Bid Prices of
the Common Stock for the five (5) consecutive Trading Days immediately preceding
the Conversion Date.
 
3.5.8 Reservation of Common Stock.  The Maker shall at all times when this Note
shall be outstanding, reserve and keep available out of its authorized but
unissued Common Stock, such number of shares of Common Stock as shall from time
to time be sufficient to effect the conversion of this Note in full and all
interest accrued thereon; provided, that, the number of shares of Common Stock
so reserved shall at no time be less than one hundred ten percent (110%) of the
number of shares of Common Stock for which this Note and all interest accrued
thereon are at any time convertible.  The Maker shall, from time to time in
accordance with the laws of its jurisdiction of formation, increase the
authorized number of shares of Common Stock if at any time the unissued number
of authorized shares shall not be sufficient to satisfy the Maker’s obligations
under this Section 3.5.8.
 
3.5.9 Regulatory Compliance.  If any shares of Common Stock to be reserved for
the purpose of conversion of this Note or any interest accrued thereon require
registration or listing with or approval of any governmental authority, stock
exchange or other regulatory body under any federal or state law or regulation
or otherwise before such shares may be validly issued or delivered upon
conversion, the Maker shall, at its sole cost and expense, in good faith and as
expeditiously as possible, endeavor to secure such registration, listing or
approval, as the case may be.
 
Section 3.6  
Prepayment

 
3.6.1 Prepayment Option Upon Major Transaction.  In addition to all other rights
of the Holder contained herein, simultaneous with the consummation of a Major
Transaction (as defined below), the Holder shall have the right, at the Holder’s
option, to require the Maker to prepay all or a portion of this Note in cash at
a price equal to the sum of (i) the greater of (A) one hundred percent (100%) of
the aggregate principal amount of this Note plus one hundred percent (100%) of
all accrued and unpaid interest, fees and other amounts and (B) in the event at
such time the Holder is unable to obtain the benefit of its conversion rights
through the conversion of this Note and resale of the shares of Common Stock
issuable upon conversion hereof in accordance with the terms of this Note and
the other Transaction Documents or the Equity Conditions are not satisfied with
respect to all shares of common stock issuable upon conversion of this Note, the
aggregate principal amount of this Note plus all accrued but unpaid interest
hereon, divided by the Conversion Price on (x) the date the Prepayment Price (as
defined below) is demanded or otherwise due or (y) the date the Major
Transaction Prepayment Price is paid in full, whichever is less, multiplied by
the VWAP on (x) the date the Major Transaction Prepayment Price is demanded or
otherwise due, and (y) the date the Major Transaction Prepayment Price is paid
in full, whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of this Note and the other Transaction
Documents (the “Major Transaction Prepayment Price”).
 
3.6.2 Prepayment Option Upon Triggering Event.  In addition to all other rights
of the Holder contained herein, after a Triggering Event (as defined below), the
Holder shall have the right, at the Holder’s option, to require the Maker to
prepay all or a portion of this Note in cash at a price equal to the sum of (i)
the greater of (A) one hundred percent (100%) of the aggregate principal amount
of this Note plus one hundred percent (100%) of all accrued and unpaid interest,
fees and other amounts and (B) the aggregate principal amount of this Note plus
all accrued but unpaid interest hereon, divided by the Conversion Price on (x)
the date the Prepayment Price (as defined below) is demanded or otherwise due or
(y) the date the Prepayment Price is paid in full, whichever is less, multiplied
by the VWAP on (x) the date the Prepayment Price is demanded or otherwise due,
and (y) the date the Prepayment Price is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in respect of
this Note and the other Transaction Documents (the “Triggering Event Prepayment
Price,” and, collectively with the Major Transaction Prepayment Price, the
“Prepayment Price”).
 
3.6.3 Major Transaction.  A “Major Transaction” shall be deemed to have occurred
at such time as any of the following events:
 
3.6.3.1 the consolidation, merger or other business combination of the Maker
with or into another Person (other than (A) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Maker or (B) a consolidation, merger or other business combination in which
holders of the Maker’s voting power immediately prior to the transaction
continue after the transaction to hold, directly or indirectly, the voting power
of the surviving entity or entities necessary to elect a majority of the members
of the board of directors (or their equivalent if other than a corporation) of
such entity or entities).

 
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3.6.3.2 the sale or transfer of more than fifty percent (50%) of the Maker’s
assets (based on the fair market value as determined in good faith by the
Maker’s Board of Directors) other than inventory in the ordinary course of
business in one or a related series of transactions; or
 
3.6.3.3 closing of a purchase, tender or exchange offer made to the holders of
more than fifty percent (50%) of the outstanding shares of Common Stock in which
more than fifty percent (50%) of the outstanding shares of Common Stock were
tendered and accepted; provided, however, a Major Transaction shall not be
deemed to have occurred in the event the Maker consummates a sale of more than
fifty percent (50%) of the outstanding shares of Common Stock, in one or more
transactions, Upon the closing by the Maker, on one or more transactions, of the
sale of equity securities to Autilion AG, its affiliates or nominees
(“Autilion”) (the “Autilion Financing”).
 
3.6.4 Triggering Event.  A “Triggering Event” shall be deemed to have occurred
at such time as any of the following events:
 
3.6.4.1 the suspension from listing, without subsequent listing on any one of,
or the failure of the Common Stock to be listed on at least one of the OTC
Bulletin Board, the OTCQB, the OTCQX, the American Stock Exchange, the Nasdaq
National Market, the Nasdaq Capital Market or The New York Stock Exchange, Inc.,
for a period of three (3) or more consecutive Trading Days;
 
3.6.4.2 the Maker’s notice to the Holder, including by way of public
announcement, at any time, of its inability to comply (including without
limitation for any of the reasons described in Section 3.7) or its intention not
to comply with proper requests for conversion of this Note into shares of Common
Stock; or
 
3.6.4.3 the Maker’s failure to comply with a Conversion Notice tendered in
accordance with the provisions of this Note within five (5) Business Days after
the receipt by the Maker of the Conversion Notice; or
 
3.6.4.4 the Maker deregisters its shares of Common Stock and as a result such
shares of Common Stock are no longer publicly traded; or
 
3.6.4.5 the Maker consummates a “going private” transaction and as a result the
Common Stock is no longer registered under Sections 12(b) or 12(g) of the
Exchange Act; or
 
3.6.4.6 the Maker shall fail to comply with Section 5.12.4 of this Note.
 
3.6.5 Mechanics of Prepayment at Option of Holder Upon Major Transaction.  No
sooner than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Major Transaction, but not prior to the public announcement of
such Major Transaction, the Maker shall deliver written notice thereof via
facsimile and overnight courier (“Notice of Major Transaction”) to the Holder of
this Note.  At any time after receipt of a Notice of Major Transaction (or, in
the event a Notice of Major Transaction is not delivered at least ten (10) days
prior to a Major Transaction, at any time within ten (10) days prior to a Major
Transaction), the Holder may require the Maker to prepay this Note, effective
immediately prior to or contemporaneous with the consummation of such Major
Transaction, by delivering written notice thereof via email and overnight
courier (“Notice of Prepayment at Option of Holder Upon Major Transaction”) to
the Maker, which Notice of Prepayment at Option of Holder Upon Major Transaction
shall indicate (i) the principal amount of this Note that the Holder is electing
to have prepaid and (ii) the applicable Major Transaction Prepayment Price, as
calculated pursuant to Section 3.6.1 above.
 
3.6.6 Mechanics of Prepayment at Option of Holder Upon Triggering Event.  Within
five (5) Business Day after the occurrence of a Triggering Event, the Maker
shall deliver written notice thereof via facsimile and overnight courier
(“Notice of Triggering Event”) to the Holder.  At any time after the earlier of
the Holder’s receipt of a Notice of Triggering Event and the Holder becomes
aware of a Triggering Event, the Holder may require the Maker to prepay this
Note by delivering written notice thereof via facsimile and overnight courier
(“Notice of Prepayment at Option of Holder Upon Triggering Event”) to the Maker,
which Notice of Prepayment at Option of Holder Upon Triggering Event shall
indicate (i) the amount of the Note that the Holder is electing to have prepaid
and (ii) the applicable Triggering Event Prepayment Price, as calculated
pursuant to Section 3.6.2 above.  The Holder shall only be permitted to require
the Maker to prepay this Note pursuant to Section 3.6 hereof for the greater of
a period of thirty (30) days after receipt by the Holder of a Notice of
Triggering Event or for so long as such Triggering Event is continuing.
 
 
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3.6.7 Payment of Prepayment Price.  Upon the Maker’s receipt of a Notice(s) of
Prepayment at Option of Holder Upon Triggering Event or a Notice(s) of
Prepayment at Option of Holder Upon Major Transaction from the Holder, the Maker
shall immediately notify the Holder of the Maker’s receipt of such Notice(s) of
Prepayment at Option of Holder Upon Triggering Event or Notice(s) of Prepayment
at Option of Holder Upon Major Transaction and the Holder that has sent such a
notice shall promptly submit to the Maker the Holder’s certificates representing
the Note which the Holder has elected to have prepaid.  The Maker shall deliver
the applicable Triggering Event Prepayment Price, in the case of a prepayment
pursuant to Section 3.6.6, to the Holder within five (5) Business Days after the
Maker’s receipt of a Notice of Prepayment at Option of Holder Upon Triggering
Event and, in the case of a prepayment pursuant to Section 3.6.5, the Maker
shall deliver the applicable Major Transaction Prepayment Price immediately
prior to or contemporaneous with the consummation of the Major Transaction;
provided, that the Holder’s original Note shall have been so delivered to the
Maker.  If the Maker shall fail to prepay this Note, in addition to any remedy
the Holder may have under this Note, and the Transaction Documents, the
applicable Prepayment Price payable in respect of this Note shall bear interest
at the lesser of (i) the Maximum Rate and (ii) two percent (2%) per month
(prorated for partial months) until paid in full.  Until the Maker pays such
unpaid applicable Prepayment Price in full to the Holder, the Holder shall have
the option (the “Void Optional Prepayment Option”) to, in lieu of prepayment,
require the Maker to promptly return this Note to the Holder under this Section
3.6 and for which the applicable Prepayment Price has not been paid, by sending
written notice thereof to the Maker via facsimile (the “Void Optional Prepayment
Notice”).  Upon the Maker’s receipt of such Void Optional Prepayment Notice(s)
and prior to payment of the full applicable Prepayment Price to the Holder, (i)
the Notice(s) of Prepayment at Option of Holder Upon Triggering Event or the
Notice(s) of Prepayment at Option of Holder Upon Major Transaction, as the case
may be, shall be null and void with respect to this Note and for which the
applicable Prepayment Price has not been paid, (ii) the Maker shall immediately
return the Note submitted to the Maker by the Holder for prepayment under this
Section 3.6.7 and for which the applicable Prepayment Price has not been paid
and (iii) the Conversion Price of such returned Note(s) shall be adjusted to the
lesser of (A) the Conversion Price as in effect on the date on which the Void
Optional Prepayment Notice(s) is delivered to the Maker and (B) the lowest
Closing Bid Price during the period beginning on the date on which the Notice(s)
of Prepayment of Option of Holder Upon Major Transaction or the Notice(s) of
Prepayment at Option of Holder Upon Triggering Event, as the case may be, is
delivered to the Maker and ending on the date on which the Void Optional
Prepayment Notice(s) is delivered to the Maker; provided, that, no adjustment
shall be made if such adjustment would result in an increase of the Conversion
Price then in effect.  The Holder’s delivery of a Void Optional Prepayment
Notice and exercise of its rights following such notice shall not affect the
Maker’s obligations to make any payments which have accrued prior to the date of
such notice.  Payments provided for in this Section 3.6 shall have priority to
payments to other stockholders in connection with a Major Transaction.
 
Section 3.7  
Inability to Fully Convert

 
3.7.1 Holder’s Option if Maker Cannot Fully Convert.  If, upon the Maker’s
receipt of a Conversion Notice, the Maker cannot or does not issue shares of
Common Stock issuable upon conversion of this Note for any reason, including,
without limitation, because the Maker (i) does not have a sufficient number of
shares of Common Stock authorized and available, or (ii) is otherwise prohibited
by applicable law or by the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Maker or any of its securities from issuing all of the
Common Stock which is to be issued to the Holder pursuant to a Conversion
Notice, then the Maker shall issue as many shares of Common Stock as it is able
to issue in accordance with the Holder’s Conversion Notice and, with respect to
the unconverted portion of this Note, the Holder, solely at Holder’s option and
in addition to the Holder’s other rights and remedies hereunder, may elect to
either:
 
3.7.1.1 require the Maker to prepay that portion of this Note for which the
Maker is unable to issue Common Stock in accordance with the Holder’s Conversion
Notice (the “Mandatory Prepayment”) at a price per share equal to the Triggering
Event Prepayment Price as of such Conversion Date (the “Mandatory Prepayment
Price”);
 
3.7.1.2 void its Conversion Notice and retain or have returned, as the case may
be, this Note that was to be converted pursuant to the Conversion Notice
(provided that the Holder’s voiding its Conversion Notice shall not affect the
Maker’s obligations to make any payments which have accrued prior to the date of
such notice); or
 
3.7.1.3 exercise its Buy-In rights pursuant to and in accordance with the terms
and provisions of Section 3.3.3 of this Note.

 
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3.7.2 Mechanics of Fulfilling Holder’s Election.  The Maker shall immediately
send via email to the Holder, upon receipt of a copy of a Conversion Notice from
the Holder which cannot be fully satisfied as described in Section 3.7.1 above,
a notice of the Maker’s inability to fully satisfy the Conversion Notice (the
“Inability to Fully Convert Notice”).  Such Inability to Fully Convert Notice
shall indicate (i) the reason why the Maker is unable to fully satisfy the
Holder’s Conversion Notice, (ii) the amount of this Note which cannot be
converted and (iii) the applicable Mandatory Prepayment Price.  The Holder shall
notify the Maker of its election pursuant to Section 3.7.1 above by delivering
written notice via facsimile to the Maker (“Notice in Response to Inability to
Convert”).
 
3.7.3 Payment of Prepayment Price.  If the Holder shall elect to have this Note
prepaid pursuant to Section 3.7.1.1 above, the Maker shall pay the Mandatory
Prepayment Price to the Holder within ten (10) days of the Maker’s receipt of
the Holder’s Notice in Response to Inability to Convert, provided that prior to
the Maker’s receipt of the Holder’s Notice in Response to Inability to Convert
the Maker has not delivered a notice to the Holder stating, to the satisfaction
of the Holder, that the event or condition resulting in the Mandatory Prepayment
has been cured and all Conversion Shares issuable to the Holder can and will be
delivered to the Holder in accordance with the terms of this Note.  If the Maker
shall fail to pay the applicable Mandatory Prepayment Price to the Holder on the
date that is one (1) Business Day following the Maker’s receipt of the Holder’s
Notice in Response to Inability to Convert (other than pursuant to a dispute as
to the determination of the arithmetic calculation of the Prepayment Price), in
addition to any remedy the Holder may have under this Note, and the Transaction
Documents, such unpaid amount shall bear interest at the lesser of (i) the
Maximum Rate and (ii) two percent (2%) per month (prorated for partial months)
until paid in full.  Until the full Mandatory Prepayment Price is paid in full
to the Holder, the Holder may (i) void the Mandatory Prepayment with respect to
that portion of the Note for which the full Mandatory Prepayment Price has not
been paid, (ii) receive back such Note, and (iii) require that the Conversion
Price of such returned Note be adjusted to the lesser of (A) the Conversion
Price as in effect on the date on which the Holder voided the Mandatory
Prepayment and (B) the lowest Closing Bid Price during the period beginning on
the Conversion Date and ending on the date the Holder voided the Mandatory
Prepayment.
 
Section 3.8  
No Rights as Shareholder

 
Nothing contained in this Note shall be construed as conferring upon the Holder,
prior to the conversion of this Note, the right to vote or to receive dividends
or to consent or to receive notice as a shareholder in respect of any meeting of
shareholders for the election of directors of the Maker or of any other matter,
or any other rights as a shareholder of the Maker.
 
 
ARTICLE IV - COVENANTS

 
For so long as this Note is outstanding:
 
Section 4.1  
No Liens

 
The Maker shall not, and shall not permit the Subsidiaries to, enter into,
create, incur, assume or suffer to exist any liens, security interests, charges,
claims or other encumbrances of any kind (collectively, “Liens”) on or with
respect to any of its of their assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom other than (i) “Permitted
Liens” as defined in the Purchase Agreement, with respect to the Maker, and (ii)
“Permitted Liens” as defined in the Negative Covenant Agreement, by and between
the Holder and the Subsidiaries, with respect to the Subsidiaries.
 
Section 4.2  
No Indebtedness

 
The Maker shall not, and shall not permit any of its Subsidiaries to, enter
into, create, incur, assume or suffer to exist any Indebtedness, other than (i)
“Permitted Indebtedness” as defined in the Note Exchange and Purchase Agreement,
dated as of October 11, 2012, as amended on November 14, 2012, January 31, 2013
and February 21, 2013, by and between the Maker and the Holder (“Purchase
Agreement”)), with respect to the Maker, and (ii) “Permitted Indebtedness” as
defined in the Negative Covenant Agreement, with respect to the Subsidiaries.
 
Section 4.3  
Compliance with Transaction Documents

 
The Maker shall, and shall cause its Subsidiaries to, comply with its
obligations under this Note and the other Transaction Documents.
 
 
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Section 4.4  
Compliance with Law

 
The Maker shall, and shall cause each of its Subsidiaries to, comply with law
and duly observe and conform in all material respects to all valid requirements
of governmental authorities relating to the conduct of its business or to its
properties or assets.
 
Section 4.5  
Transactions with Affiliates

 
The Maker shall not, and shall not permit any of its Subsidiaries to, engage in
any transactions with any officer, director, employee or any Affiliate of the
Maker, including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Maker, any entity in which
any officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner, in excess of $50,000 in the aggregate,
other than for the following in an amount not to exceed $50,000 in the
aggregate: (i) payment of reasonable salary for services actually rendered, as
approved by the Board of Directors of the Maker as fair in all respects to the
Maker, and (ii) reimbursement for expenses incurred on behalf of the Maker.
 
Section 4.6  
No Dividends

 
The Maker shall not, and shall not permit any of its Subsidiaries to, (i)
declare or pay any dividends or make any distributions to any holder(s) of
Common Stock or other equity security of the Maker or such Subsidiaries (other
than dividends and distributions from a Subsidiary to the Maker), (ii) purchase
or otherwise acquire for value, directly or indirectly, any shares or other
equity security of the Maker, (iii) form or create any subsidiary become a
partner in any partnership or joint venture, or make any acquisition of any
interest in any Person or acquire substantially all of the assets of any Person,
or (iv) transfer, assign, pledge, issue or otherwise permit any equity or other
ownership interests in the Subsidiaries to be beneficially owned or held by any
person other than the Maker.
 
Section 4.7  
No Merger or Sale of Assets

 
Without the consent of Holder, the Maker shall not, and shall not permit any
Domestic Subsidiary to, (i) merge or consolidate or sell or dispose of all its
assets or any substantial portion thereof, or (ii) in any way or manner alter
its organizational structure or effect a change of entity, unless, as a
condition of any such transaction:
 
4.7.1 With respect to any merger or consolidation involving the Maker: (i) no
Event of Default shall have occurred; (ii) the Maker shall be the surviving
entity in any such transaction; (iii) both before and after giving effect to
such transaction, the Maker and the Domestic Subsidiaries will be in compliance
with its and their obligations under the Transaction Documents (including
without limitation its and their obligation not to incur or permit to exist
Indebtedness); and (iv) if the holders of the Common Stock of the Maker before
such transaction, on a fully diluted basis, would hold fewer than fifty percent
(50%) of the number of shares of Common Stock of the Maker, on a fully diluted
basis, after the consummation of such transaction, then this Note shall be paid
in full in cash at the closing of such transaction unless the Holder otherwise
waives such requirement provided, however, notwithstanding the foregoing, the
Maker shall be entitled to consummate Autilion Financing without causing a
breach of this Section 4.7; and
 
4.7.2 With respect to any merger or consolidation involving any Domestic
Subsidiary: (i) no Event of Default shall have occurred; (ii) such Domestic
Subsidiary shall be the surviving entity in any such transaction; and (iii) both
before and after giving effect to such transaction, such Domestic Subsidiary and
the Maker will be in compliance with its and their obligations under the
Transaction Documents (including without limitation the obligations of the
California Subsidiary under the IP Security Agreement, and the obligations of
the Domestic Subsidiaries under the Negative Covenant Agreement).
 
 
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Section 4.8  
Payment of Taxes, Etc.

 
The Maker shall, and shall cause each of its Subsidiaries to, 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 Maker and the Subsidiaries, except for such
failures to pay that, individually or in the aggregate, have not had and would
not reasonably be expected to have a Material Adverse Effect; 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 Maker or such Subsidiaries shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Maker and such
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 therefor.
 
Section 4.9  
Corporate Existence

 
The Maker shall, and shall cause each of its Subsidiaries to, maintain in full
force and effect its corporate existence, rights and franchises and all licenses
and other rights to use property owned or possessed by it and reasonably deemed
to be necessary to the conduct of its business.
 
Section 4.10  
Investment Company Act

 
The Maker shall conduct its businesses in a manner so that it will not become
subject to the Investment Company Act of 1940, as amended.
 
Section 4.11  
Maintenance of Assets

 
The Maker shall, and shall cause its Subsidiaries to, keep its properties in
good repair, working order and condition, reasonable wear and tear excepted, and
from time to time make all necessary and proper repairs, renewals, replacements,
additions and improvements thereto.
 
Section 4.12  
Restriction on Dividends

 
The Maker shall not, and shall not permit any Subsidiary to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any Subsidiary to pay dividends or
distributions to the Maker, pay any indebtedness owed to the Maker or transfer
any properties or assets to the Maker.
 
Section 4.13  
No Investments

 
The Maker shall not, and shall not permit any Subsidiary to, make or suffer to
exist any Investments.
 
Section 4.14  
No Lien on IP

 
The Maker shall not, and the Maker shall not permit any of its subsidiaries to,
directly or indirectly, to encumber or allow any Liens on, any of its copyright
rights, copyright applications, copyright registrations and like protections in
each work of authorship and derivative work, whether published or unpublished,
any patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered or
not, and the goodwill of the business of the Maker and its Subsidiaries
connected with and symbolized thereby, know-how, operating manuals, trade secret
rights, rights to unpatented inventions, and any claims for damage by way of any
past, present, or future infringement of any of the foregoing, other than Liens
in favor of the Holder.
 
Section 4.15  
DTC Status

 
The Maker shall cause its Common Stock to be eligible for delivery to the Holder
via DWAC.
 
Section 4.16  
Legal Opinions

 
The Maker shall provide, at the Maker’s expense, such legal opinions in the
future as are appropriate and necessary for the issuance and resale of the
Common Stock issuable upon conversion of this Note pursuant to an effective
registration statement, Rule 144 under the Securities Act or an exemption from
registration.  In the event that such shares of Common Stock issuable upon
conversion of this Note are sold in a manner that complies with an exemption
from registration, the Maker shall promptly cause its counsel (at the Maker’s
expense) to issue to the Holder and the Maker’s transfer agent an opinion
permitting removal of the legend to permit sales of the shares of Common Stock
issuable upon conversion of this Note under Rule 144 of the Securities Act.
 
 
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Section 4.17  
Registration; Common Stock

 
The Maker shall cause its Common Stock to continue to be registered under
Section 12(b) of the Exchange Act and to comply in all respects with its
reporting and filing obligations under the Exchange Act.  The Maker shall not
take any action or file any document (whether or not permitted by the Securities
Act or the rules promulgated thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under the Exchange Act or Securities Act.  The Maker further covenants that it
will take such further action as the Holder may reasonably request, all to the
extent required from time to time to enable the Holder to sell the shares of
Common Stock issuable upon conversion of this Note without registration under
the Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act.  The Maker shall timely file all reports
required to be filed with the SEC pursuant to the Exchange Act, and the Maker
shall not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.
 
Section 4.18  
No New Subsidiaries

 
The Maker shall not, and shall not permit any subsidiary of the Maker to,
acquire or create any subsidiary.
 
 
ARTICLE V - MISCELLANEOUS

 
Section 5.1  
Notices

 
Any notice, demand, request, waiver or other communication required or permitted
to be given hereunder shall be in writing and shall be effective (a) upon hand
delivery, telecopy or facsimile at the address or number first set forth above
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur.  The Maker
will give written notice to the Holder at least ten (10) days prior to the date
on which the Maker takes a record (x) with respect to any dividend or
distribution upon the Common Stock, (y) with respect to any pro rata
subscription offer to holders of Common Stock or (z) for determining rights to
vote with respect to any Organic Change, dissolution, liquidation or winding-up
and in no event shall such notice be provided to the Holder prior to such
information being made known to the public.  The Maker will also give written
notice to the Holder at least ten (10) days prior to the date on which any
Organic Change, dissolution, liquidation or winding-up will take place and in no
event shall such notice be provided to the Holder prior to such information
being made known to the public.
 
Section 5.2  
Governing Law

 
This Note shall be governed by and construed in accordance with the internal
laws of the State of New York, without giving effect to any of the conflicts of
law principles which would result in the application of the substantive law of
another jurisdiction.  This Note shall not be interpreted or construed with any
presumption against the party causing this Note to be drafted.
 
Section 5.3  
Headings

 
Article and section headings in this Note are included herein for purposes of
convenience of reference only and shall not constitute a part of this Note for
any other purpose.
 
Section 5.4  
Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.

 
  The remedies provided in this Note shall be cumulative and in addition to all
other remedies available under this Note, at law or in equity (including,
without limitation, a decree of specific performance and/or other injunctive
relief), no remedy contained herein shall be deemed a waiver of compliance with
the provisions giving rise to such remedy and nothing herein shall limit a
holder’s right to pursue actual damages for any failure by the Maker to comply
with the terms of this Note.  Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the holder thereof and shall not, except as
expressly provided herein, be subject to any other obligation of the Maker (or
the performance thereof).  The Maker acknowledges that a breach by it of its
obligations hereunder will cause irreparable and material harm to the Holder and
that the remedy at law for any such breach may be inadequate. Therefore the
Maker agrees that, in the event of any such breach or threatened breach, the
Holder shall be entitled, in addition to all other available rights and
remedies, at law or in equity, to seek and obtain such equitable relief,
including but not limited to an injunction restraining any such breach or
threatened breach, without the necessity of showing economic loss and without
any bond or other security being required.

 
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Section 5.5  
Enforcement Expenses

 
The Maker agrees to pay all costs and expenses of enforcement of this Note,
including, without limitation, attorneys’ fees and expenses.
 
Section 5.6  
Binding Effect

 
The obligations of the Maker and the Holder set forth herein shall be binding
upon the successors and assigns of each such party, whether or not such
successors or assigns are permitted by the terms hereof.
 
Section 5.7  
Amendments

 
This Note may not be modified or amended in any manner except in writing
executed by the Maker and the Holder.
 
Section 5.8  
Compliance with Securities Laws

 
The Holder of this Note acknowledges that this Note is being acquired solely for
the Holder’s own account and not as a nominee for any other party, and for
investment, and that the Holder shall not offer, sell or otherwise dispose of
this Note except in compliance with applicable securities laws.  This Note and
any Note issued in substitution or replacement therefor shall be stamped or
imprinted with a legend in substantially the following form:
 
“THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL IN
THE FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE MAKER THAT THIS
NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE MAY BE
SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.”
 
Section 5.9  
Consent to Jurisdiction

 
Each of the Maker and the Holder (i) hereby irrevocably submits to the exclusive
jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New York
county for the purposes of any suit, action or proceeding arising out of or
relating to this Note and (ii) hereby waives, and agrees not to assert in any
such suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of such court, that the suit, action or proceeding is brought
in an inconvenient forum or that the venue of the suit, action or proceeding is
improper.  Each of the Maker and the Holder consents to process being served in
any such suit, action or proceeding by mailing a copy thereof to such party at
the address in effect for notices to it under the Purchase Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof.  Nothing in this Section 5.9 shall affect or limit any right to
serve process in any other manner permitted by law.  Each of the Maker and the
Holder hereby agree that the prevailing party in any suit, action or proceeding
arising out of or relating to this Note shall be entitled to reimbursement for
reasonable legal fees from the non-prevailing party.  The Maker acknowledges
that this Note constitutes an instrument for the payment of money only, and
consents and agrees that the Holder, at the Holder’s sole option, in the event
of a dispute by the Maker in the payment of any moneys due hereunder, shall have
the right to bring motion-action under New York CPLR Section 3213.
 
Section 5.10  
Parties in Interest

 
This Note shall be binding upon, inure to the benefit of and be enforceable by
the Maker, the Holder and their respective successors and permitted assigns.

 
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Section 5.11  
Failure or Indulgence Not Waiver

 
No failure or delay on the part of the Holder in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
 
Section 5.12  
Maker Waivers; Dispute Resolution

 
5.12.1 Except as otherwise specifically provided herein, the Maker and all
others that may become liable for all or any part of the obligations evidenced
by this Note, hereby waive presentment, demand, notice of nonpayment, protest
and all other demands’ and notices in connection with the delivery, acceptance,
performance and enforcement of this Note, and do hereby consent to any number of
renewals of extensions of the time or payment hereof and agree that any such
renewals or extensions may be made without notice to any such persons and
without affecting their liability herein and do further consent to the release
of any person liable hereon, all without affecting the liability of the other
persons, firms or Maker liable for the payment of this Note, AND DO HEREBY WAIVE
TRIAL BY JURY.
 
5.12.2 No delay or omission on the part of the Holder in exercising its rights
under this Note, or course of conduct relating hereto, shall operate as a waiver
of such rights or any other right of the Holder, nor shall any waiver by the
Holder of any such right or rights on any one occasion be deemed a waiver of the
same right or rights on any future occasion.
 
5.12.3 THE MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART
IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY
WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY
WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.
 
5.12.4 In the case of a dispute as to the determination of the Closing Bid Price
or the VWAP or the arithmetic calculation of the Conversion Price, any
adjustment to the Conversion Price, liquidated damages amount, interest or
dividend calculation, or any redemption price, redemption amount, adjusted
Conversion Price, or similar calculation, or as to whether a subsequent issuance
of securities is prohibited hereunder or would lead to an adjustment to the
Conversion Price, the Maker shall submit the disputed determinations or
arithmetic calculations via facsimile within two (2) Business Days of receipt,
or deemed receipt, of the Conversion Notice, any redemption notice, default
notice or other event giving rise to such dispute, as the case may be, to the
Holder. If the Holder and the Maker are unable to agree upon such determination
or calculation within two (2) Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then, at the Holder’s
election the Maker shall, within two (2) Business Days submit via facsimile (a)
the disputed determination of the Closing Price or the VWAP to an independent,
reputable investment bank selected by the Maker and approved by the Holder,
which approval shall not be unreasonably withheld, (b) the disputed arithmetic
calculation of the Conversion Price, adjusted Conversion Price or any redemption
price, redemption amount or default amount to the Maker’s independent, outside
accountant or (c) the disputed facts regarding whether a subsequent issuance of
securities is prohibited hereunder or would lead to an adjustment to the
Conversion Price (or any of the other above described facts not expressly
designated to the investment bank or accountant), to an attorney from a
nationally recognized outside law firm (having at least 100 attorneys and having
with no prior relationship with the Maker) selected by the Maker and approved by
the Holder).  The Maker, at the Maker’s expense, shall cause the investment
bank, the accountant, the law firm, or other expert, as the case may be, to
perform the determinations or calculations and notify the Maker and the Holder
of the results no later than five (5) Business Days from the time it receives
the disputed determinations or calculations. Such investment bank’s,
accountant’s or attorney’s determination or calculation, as the case may be,
shall be binding upon all parties absent demonstrable error.
 
Section 5.13  
Definitions

 
Capitalized terms used herein and not defined shall have the meanings set forth
in the Purchase Agreement.  For the purposes hereof, the following terms shall
have the following meanings:
 
 “Business Day” (whether or not capitalized) means any day banking transactions
can be conducted in New York City, New York, USA, and does not include any day
which is a federal or state holiday in such location.

 
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“Closing Bid Price” shall mean, on any particular date (i) the last trading
price per share of the Common Stock on such date on the OTC Bulletin Board or a
national securities exchange on which the Common Stock is then listed, or if
there is no such price on such date, then the last trading price on such
exchange or quotation system on the date nearest preceding such date, or (ii) if
the Common Stock is not listed then on the OTC Bulletin Board or any registered
national stock exchange, the last trading price for a share of Common Stock in
the over the counter market, as reported by the OTC Bulletin Board, the OTCQB,
the OTCQX or in the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at the
close of business on such date, or (iii) if the Common Stock is not then
reported by the OTC Bulletin Board or the National Quotation Bureau Incorporated
(or similar organization or agency succeeding to its functions of reporting
prices), then the average of the “Pink Sheet” quotes for the relevant conversion
period, as determined in good faith by the Holder, or (iv) if the Common Stock
is not then publicly traded the fair market value of a share of Common Stock as
determined by the Holder and reasonably acceptable to the Maker.
 
“Equity Conditions” shall mean, during the period in question, (i) the Maker
shall have duly honored all conversions and redemptions scheduled to occur or
occurring by virtue of one or more Conversion Notices of the Holder, if any,
(ii) all liquidated damages and other amounts owing to the Holder in respect of
this Note shall have been paid; (iii) (A) there is an effective Registration
Statement pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the shares issuable pursuant to the Transaction
Documents, whether by conversion or exercise, forced conversion, in lieu of cash
interest or otherwise (and the Maker believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future), or (B)
all of the shares of Common Stock issuable upon conversion of this Note may
immediately be sold pursuant to Rule 144 of the Securities Act without volume or
manner of sale limitations, (iv) the Common Stock is trading on the Trading
Market and all of the shares issuable pursuant to the Transaction Documents are
listed for trading on a Trading Market (and the Maker believes, in good faith,
that trading of the Common Stock on a Trading Market will continue uninterrupted
for the foreseeable future), (v) there is a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock for the issuance of all
of the shares issuable pursuant to the Transaction Documents, (vi) there is then
existing no Event of Default or event or omission which, with the passage of
time or the giving of notice, would constitute an Event of Default, (vii) the
issuance of the shares in question to the Holder would not violate the
applicable limitations set forth in Section 3.4 hereof, (viii) no public
announcement of a pending or proposed Major Transaction or Triggering Event has
occurred, and (ix) the average daily trading dollar volume of the Common Stock
for each Trading Day throughout such period exceeds $50,000.
 
“Indebtedness” shall have the meaning given to such term in the Purchase
Agreement.
 
“Investment” means, with respect to any Person, all investments in any other
Person, whether by way of extension of credit, loan, advance, purchase of stock
or other ownership interest, bonds, notes, debentures or other securities, or
otherwise, and whether existing on the date of this Agreement or thereafter
made, but such term shall not include the cash surrender value of life insurance
policies on the lives of officers or employees, excluding amounts due from
customers for services or products delivered or sold in the ordinary course of
business.
 
“Permitted Issuances” shall have the meaning given to such term in the Purchase
Agreement.
 
“Person” means an individual or a corporation, partnership, trust, incorporated
or unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind.
 
 “Trading Day” means (a) a day on which the Common Stock is traded on the OTC
Bulletin Board, or (b) if the Common Stock is not traded on the OTC Bulletin
Board, a day on which the Common Stock is quoted in the over the counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices); provided,
however, that in the event that the Common Stock is not listed or quoted as set
forth in (a) or (b) hereof, then Trading Day shall mean any day except Saturday,
Sunday and any day which shall be a legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
government action to close.
 
“Trading Market” means the Over the Counter Bulletin Board, the OTCQB, the
OTCQX, the New York Stock Exchange, the Nasdaq Capital Markets, the Nasdaq
Global Markets, the Nasdaq Global Select Market or the American Stock Exchange.

 
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“Transaction Documents” means and includes this Note, the Security Agreement and
the IP Security Agreement and all documents and instruments executed in
connection therewith, in each case as amended, restated, supplemented or
otherwise modified from time to time.
 
“VWAP” means, for any date, (i) the daily volume weighted average price of the
Common Stock for such date on the OTC Bulletin Board or another Trading Market
as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m.
Eastern Time to 4:02 p.m. Eastern Time); (ii) if the Common Stock is not then
listed or quoted on a Trading Market for which the daily volume weighted average
price of the Common Stock is available on Bloomberg L.P., or if prices for the
Common Stock are then reported in the “Pink Sheets” published by the Pink
Sheets, LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common Stock so
reported; or (iii) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good faith by
the Holder and reasonably acceptable to the Maker.
 

[signature page follows]

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

VISTAGEN THERAPEUTICS, INC.

By:  /s/ Shawn K. Singh
        Name: Shawn K. Singh
        Title:   Chief Executive Officer
 
 

 
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EXHIBIT A
WIRE INSTRUCTIONS

Payee: PLATINUM LONG TERM GROWTH VII, LLC

Sterling National Bank
New York, NY 10022
425 Park Ave

SWIFT: 
ABA:
 
Account Name:
Account Number:
STETUS33425
026007773
 
Platinum Long Term Growth VII, LLC
0370610295

                                

 
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FORM OF
NOTICE OF CONVERSION

(To be Executed by the Registered Holder in order to Convert the Note)

The undersigned hereby irrevocably elects to convert $________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of
Vistagen Therapeutics, Inc. (the “Maker”) according to the conditions hereof, as
of the date written below.
Date of Conversion _________________________________________________________

Applicable Conversion Price __________________________________________________

Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion: _________________________

Signature___________________________________________________________________
[Name]

Address:__________________________________________________________________
_______________________________________________________________________

 
 
-23-