ex4_2.htm


    
      

    

    EXHIBIT
4.2

     

    EXECUTION
COPY

    


     

    [FORM
OF SENIOR CONVERTIBLE NOTE]

     

    NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE
STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.  ANY TRANSFEREE OF THIS NOTE
SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND
17(a) HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND,
ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE
AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
NOTE.

     

    Arotech
Corporation

     

     

    Senior
Convertible Note

     

     

    
      	
              Issuance
      Date:  August 14, 2008

            	
              Original
      Principal Amount:

              U.S.$[4,450,000][300,000][250,000]

            


    

    


    FOR VALUE RECEIVED, Arotech
Corporation a Delaware corporation (the "Company"), hereby promises to
pay to the order of [HIGHBRIDGE INTERNATIONAL LLC][ CRANSHIRE CAPITAL
L.P.][IROQUOIS MASTER FUND LTD.] or registered assigns
("Holder") the amount
set out above as the Original Principal Amount (as reduced pursuant to the terms
hereof pursuant to redemption, conversion or otherwise, the "Principal") when due, whether
upon the Maturity Date (as defined below), on any Installment Date with respect
to the Installment Amount due on such Installment Date (each, as defined
herein), acceleration, redemption or otherwise (in each case in accordance with
the terms hereof) and to pay interest ("Interest") on any outstanding
Principal at a rate per annum equal to the Interest Rate (as defined below),
from the date set out above as the Issuance Date (the "Issuance Date") until the same becomes
due and payable, whether upon an Interest Date (as defined below), any
Installment Date, the Maturity Date, acceleration, conversion, redemption or
otherwise (in each case in accordance with the terms hereof).  This
Senior Convertible Note (including all Senior Convertible Notes issued in
exchange, transfer or replacement hereof, this "Note") is one of an issue of
Senior Convertible Notes (collectively, the "Notes" and such other Senior
Convertible Notes, the "Other Notes") issued pursuant to
Section 1(a) of the Securities Purchase Agreement (as defined
below).  Certain capitalized terms are defined in Section
30.

    

      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

     

    (1)           MATURITY.  On
each Installment Date, the Company shall pay to the Holder an amount equal to
the Installment Amount due on such Installment Date in accordance with Section
8.  On the Maturity Date, the Company shall pay to the Holder an
amount in cash representing all outstanding Principal, accrued and unpaid
Interest and accrued and unpaid Late Charges, if any, on such Principal and
Interest.  The "Maturity Date" shall be August 15,
2011, as may be extended at the option of the Holder (i) in the event that, and
for so long as, an Event of Default (as defined in Section 4(a)) shall have
occurred and be continuing on the Maturity Date (as may be extended pursuant to
this Section 1) or any event shall have occurred and be continuing on the
Maturity Date (as may be extended pursuant to this Section 1) that with the
passage of time and the failure to cure would result in an Event of Default and
(ii) through the date that is ten (10) Business Days after the consummation of a
Change of Control in the event that a Change of Control is publicly announced or
a Change of Control Notice (as defined in Section 5(b)) is delivered prior to
the Maturity Date.

     

    (2)           INTEREST; INTEREST
RATE.  Interest on this Note shall commence accruing on the
Issuance Date and shall be computed on the basis of a 360-day year comprised of
twelve (12) thirty (30) day months and shall be payable in arrears on each
February 15, May 15, August 15 and November 15 of each year (each, an "Interest Date") with the first Interest
Date being November 15, 2008.  Interest shall be payable on each
Interest Date, each Conversion Date (as defined below) and other applicable
circumstances in cash, unless such Interest is converted pursuant to Section
3(c) hereof.  Prior to the payment of Interest on an Interest Date,
Conversion Date or otherwise, Interest on this Note shall accrue at the Interest
Rate and be payable by way of inclusion of the Interest in the Conversion Amount
on each Conversion Date in accordance with Section 3(b)(i).  From and
after the occurrence of an Event of Default, the Interest Rate shall be
increased to fifteen percent (15.0%).  In the event that such Event of
Default is subsequently cured, the adjustment referred to in the preceding
sentence shall cease to be effective as of the date of such cure; provided that
the Interest as calculated at such increased rate during the continuance of such
Event of Default shall continue to apply to the extent relating to the days
after the occurrence of such Event of Default through and including the date of
cure of such Event of Default.

     

    (3)           CONVERSION OF
NOTES.  This Note shall be convertible into shares of common
stock of the Company, par value $0.01 per share (the "Common Stock"), on the terms
and conditions set forth in this Section 3.

     

    (a)           Conversion
Right.  Subject to the provisions of Section 3(e), at any time
or times on or after the Issuance Date, the Holder shall be entitled to convert
any portion of the outstanding and unpaid Conversion Amount (as defined below)
into fully paid and nonassessable shares of Common Stock in accordance with
Section 3(c), at the Conversion Rate (as defined below).  The Company
shall not issue any fraction of a share of Common Stock upon any
conversion.  If the issuance would result in the issuance of a
fraction of a share of Common Stock, the Company shall round such fraction of a
share of Common Stock up or down to the nearest whole share.  The
Company shall pay any and all taxes that may be payable with respect to the
issuance and delivery of Common Stock upon conversion of any Conversion
Amount.


    
      
         


      

      
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    (b)           Conversion
Rate.  The number of shares of Common Stock issuable upon
conversion of any Conversion Amount pursuant to Section 3(a) shall be determined
by dividing (x) such Conversion Amount by (y) the Conversion Price (the "Conversion
Rate").

     

    (i)           "Conversion Amount" means the
sum of (A) the portion of the Principal to be converted, redeemed or otherwise
with respect to which this determination is being made, (B) accrued and unpaid
Interest with respect to such Principal and (C) accrued and unpaid Late Charges
with respect to such Principal and Interest.

     

    (ii)          "Conversion Price" means, as of
any Conversion Date (as defined below) or other date of determination, two
dollars and twenty-five cents ($2.25), subject to further adjustment as provided
herein.

     

    
      	
               
      

            	
              (c)

            	
              Mechanics of
      Conversion.

            


    

     

    (i)           Optional
Conversion.  To convert any Conversion Amount into shares of
Common Stock on any date (a "Conversion Date"), the Holder
shall (A) transmit by facsimile or electronic mail (with a facsimile within 24
hours of such electronic mail) (or otherwise deliver), for receipt on or prior
to 11:59 p.m., New York Time, on such date, a copy of an executed notice of
conversion in the form attached hereto as Exhibit I (the "Conversion Notice") to the
Company and (B) if required by Section 3(c)(iii), surrender this Note to an
overnight courier service for delivery to the Company as soon as practicable on
or following such date (or an indemnification undertaking with respect to this
Note in the case of its loss, theft or destruction).  On or before the
first (1st)
Business Day following the date of receipt of a Conversion Notice, the Company
shall transmit by facsimile or electronic mail (with a facsimile within 24 hours
of such electronic mail) a notice confirming receipt of such Conversion Notice
to the Holder and the Company's transfer agent (the "Transfer
Agent").  On or before the second (2nd)
Business Day following the date of receipt of a Conversion Notice (the "Share Delivery Date"), the Company shall (1)
(X) provided the Transfer Agent is participating in the Depository Trust Company
("DTC") Fast Automated
Securities Transfer Program, credit such aggregate number of shares of Common
Stock to which the Holder shall be entitled to the Holder's or its designee's
balance account with DTC through its Deposit Withdrawal Agent Commission system
or (Y) if the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and deliver to the address as specified in
the Conversion Notice, a certificate, 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 and (2) if applicable, pay to the Holder in accordance with Section
3(d), an amount equal to the Make-Whole Amount.  If this Note is
physically surrendered for conversion as required by Section 3(c)(iii) and the
outstanding Principal of this Note is greater than the Principal portion of the
Conversion Amount being converted, then the Company shall as soon as practicable
and in no event later than three (3) Business Days after receipt of this Note
and at its own expense, issue and deliver to the holder a new Note (in
accordance with Section 18(d)) representing the outstanding Principal not
converted.  The Person or Persons entitled to receive the shares of
Common Stock issuable upon a conversion of this Note shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on the
Conversion Date.  In the event of a partial conversion of this Note
pursuant hereto, the Principal amount converted shall be deducted from the
Installment Amounts relating to the Installment Dates as set forth in the
Conversion Notice.


    
      
         


      

      
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    (ii)          Company's Failure to Timely
Convert.  If within three (3) Trading Days after the Company's
receipt of the facsimile or electronic mail copy of a Conversion Notice the
Company shall fail to issue and deliver a certificate to the Holder or credit
the Holder's balance account with DTC for the number of shares of Common Stock
to which the Holder is entitled upon such holder's conversion of any Conversion
Amount (a "Conversion
Failure"), and if on or after such Trading Day the Holder purchases (in
an open market transaction or otherwise) Common Stock to deliver in satisfaction
of a sale by the Holder of Common Stock issuable upon such conversion that the
Holder anticipated receiving from the Company (a "Buy-In"), then the Company
shall, within three (3) Trading Days after the Holder's request and in the
Holder's discretion, either (i) pay cash to the Holder in an amount equal to the
Holder's total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased (the "Buy-In Price"), at which point
the Company's obligation to deliver such certificate (and to issue such Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Common Stock and pay cash
to the Holder in an amount equal to the excess (if any) of the Buy-In Price over
the product of (A) such number of shares of Common Stock, times (B) the Closing
Bid Price on the Conversion Date.

     

    (iii)         Registration;
Book-Entry.  The Company shall maintain a register (the "Register") for the recordation
of the names and addresses of the holders of each Note and the principal amount
of the Notes held by such holders (the "Registered
Notes").  The entries in the Register shall be conclusive and
binding for all purposes absent manifest error.  The Company and the
holders of the Notes shall treat each Person whose name is recorded in the
Register as the owner of a Note for all purposes, including, without limitation,
the right to receive payments of Principal and Interest hereunder,
notwithstanding notice to the contrary.  A Registered Note may be
assigned or sold in whole or in part only by registration of such assignment or
sale on the Register.  Upon its receipt of a request to assign or sell
all or part of any Registered Note by a Holder, the Company shall record the
information contained therein in the Register and issue one or more new
Registered Notes in the same aggregate principal amount as the principal amount
of the surrendered Registered Note to the designated assignee or transferee
pursuant to Section 18.  Notwithstanding anything to the contrary set
forth herein, upon conversion of any portion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this Note
to the Company unless (A) the full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting physical
surrender and reissue of this Note.  The Holder and the Company shall
maintain records ("Records") showing the
Principal, Interest and Late Charges, if any, converted or paid and the dates of
such conversions or payments or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require physical
surrender of this Note upon conversion.  Within three (3) Trading Days
after each Share Delivery Date, the Company shall send the Holder a copy of its
Records showing the Principal and Interest converted or paid and the dates of
such conversions or payments as of the day following such Share Delivery Date;
failure of the Holder to object to the accuracy of the information contained in
such Records within two (2) Trading Days of receipt thereof will establish a
rebuttable presumption that such Records were accurate on the day following such
Share Delivery Date.  Any dispute as to the accuracy of any Records
will be resolved in accordance with Section 23.


    
      
         


      

      
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    (iv)         Pro Rata Conversion;
Disputes.  In the event that the Company receives a Conversion
Notice from more than one holder of Notes for the same Conversion Date and the
Company can convert some, but not all, of such portions of the Notes submitted
for conversion, the Company, subject to Section 3(e), shall convert from each
holder of Notes electing to have Notes converted on such date a pro rata amount
of such holder's portion of its Notes submitted for conversion based on the
principal amount of Notes submitted for conversion on such date by such holder
relative to the aggregate principal amount of all Notes submitted for conversion
on such date.  In the event of a dispute as to the number of shares of
Common Stock issuable to the Holder in connection with a conversion of this
Note, the Company shall issue to the Holder the number of shares of Common Stock
not in dispute and resolve such dispute in accordance with Section
23.

     

    
      	
               
      

            	
              (d)

            	
              Make-Whole
      Amount.

            


    

     

    (i)           General.  On
each applicable Share Delivery Date, the Company shall pay to the Holder of this
Note the Make-Whole Amount due on such date with respect to such Conversion
Amount by converting such Make-Whole Amount pursuant to Section 3(d)(ii) below,
provided that the Equity Conditions have been satisfied (or waived in writing by
the Holder except that the Holders may not waive any Equity Condition to the
extent such waiver would cause the Company to be in violation of the rules and
regulations of the Principal Market), in accordance with this Section 3(d) (a
"Company Make-Whole
Conversion"); provided, however, that the Company may, at its option
following an effective Make-Whole Election (as defined below) to the Holder, pay
the Make-Whole Amount by redeeming such Make-Whole Amount (a "Company Make-Whole
Redemption") or by any combination of a Company Make-Whole Conversion and
a Company Make-Whole Redemption so long as all of the outstanding applicable
Make-Whole Amount shall be converted and/or redeemed by the Company on the
applicable Share Delivery Date, subject to the provisions of this Section
3(d).  At any time after the Issuance Date, in the event that the
Company no longer desires to pay the Make-Whole Amount entirely as a Company
Make-Whole Conversion, the Company shall deliver a written notice to all holders
(each, a "Make-Whole
Election" and the date all of the holders receive such notice is referred
to as the "Make-Whole Election
Date") which Make-Whole Election shall (i) indicate the portion of the
applicable Make-Whole Amount that shall be converted pursuant to a Company
Make-Whole Conversion (such amount to be converted, the "Company Make-Whole Conversion
Amount") and the portion of the applicable Make-Whole Amount that the
Company elects to redeem, in whole or in part (such amount to be redeemed, the
"Company Make-Whole
Redemption Amount") and
(ii) if the Make-Whole Amount is to be paid, in whole or in part, pursuant to a
Company Make-Whole Conversion, certify that the Equity Conditions have been
satisfied as of the applicable Make-Whole Election Date and the Company
reasonably expects that the Equity Conditions will be satisfied as of the
Conversion Date.  Notwithstanding the foregoing, a Make-Whole Election
shall not be effective with respect to any conversions under this Note until the
twenty-fourth (24th)
Trading Day after the applicable Make-Whole Election Date.  If the
Company does not deliver a Make-Whole Election in accordance with this Section
3(d), then the Company shall be deemed to have delivered a Make-Whole Election
confirming a Company Make-Whole Conversion and shall be deemed to have certified
that the Equity Conditions in connection with any such conversion have been
satisfied.  The Company Make-Whole Conversion Amount shall be
converted in accordance with Section 3(d)(ii) and the Company Make-Whole
Redemption Amount shall be redeemed in accordance with Section
3(d)(iii).


    
      
         


      

      
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    (ii)   
      Mechanics of Company
Conversion.  Subject to Section 3(e), in the event of a Company
Make-Whole Conversion, then on the Share Delivery Date, the Company shall
deliver to the Holder's account with DTC such number of shares of Common Stock
(the "Initial Make-Whole
Shares," which for purposes of the Transaction Documents, shall be
considered Conversion Shares) equal to the quotient of (x) the Company
Make-Whole Conversion Amount with respect to the applicable Conversion Date
divided
by (y) the Initial Make-Whole Conversion Price.  In addition,
on the twenty-fourth (24th)
Trading Day following the applicable Conversion Date (the "Make-Whole Settlement Date"),
the Company shall deliver to the Holder's account with DTC an additional number
of shares of Common Stock equal to the Make-Whole Balance Shares (which for
purposes of the Transaction Documents shall be considered Conversion
Shares).  If there is an Equity Conditions Failure at any time during
the Additional Make-Whole Measuring Period, then, at the option of the Holder
designated in writing to the Company, the Holder may require the Company to pay,
by wire transfer of immediately available funds, an amount in cash equal to the
product of (x) the Make-Whole Balance Shares by (y) the greatest of, the Initial
Make-Whole Conversion Price, the Additional Make-Whole Conversion Price and the
Conversion Price.  If the Company fails to deliver the cash required
pursuant to the preceding sentence on or before the applicable Make-Whole
Settlement Date by payment of such amount on the applicable Make-Whole
Settlement Date, then the Holder shall have the rights set forth in Section
10(a) as if the Company failed to pay the applicable Company Make-Whole
Redemption Amount and all other rights under this Note (including, without
limitation, such failure constituting an Event of Default described in Section
4(a)(v)).

     

    (iii)         Mechanics of Company
Redemption.  If the Company elects a Company Make-Whole
Redemption in accordance with Section 3(d)(i), then the Company Make-Whole
Redemption Amount which is to be paid to the Holder on the applicable Share
Delivery Date shall be redeemed by the Company and the Company shall pay to the
Holder on such Share Delivery Date, by wire transfer of immediately available
funds, an amount in cash equal to 100% of the Company Make-Whole Redemption
Amount.  If the Company fails to redeem the Company Make-Whole
Redemption Amount on the applicable Make-Whole Settlement Date by payment of the
Company Make-Whole Redemption Amount on such date, then at the option of the
Holder designated in writing to the Company (any such designation, a "Conversion Notice" for
purposes of this Note), the Holder may require the Company to convert all or any
part of the Company Make-Whole Redemption Amount at the lowest of (A) the
Initial Make-Whole Conversion Price, (B) the Additional Make-Whole Conversion
Price, and (C) the Conversion Price.  Conversions required by this
Section 3(d)(iii) shall be made in accordance with the provisions of Section
3(c).  Notwithstanding anything to the contrary in this Section
3(d)(iii), but subject to Section 3(e), until the Company Make-Whole Redemption
Amount (together with any interest thereon) is paid in full, the Company
Make-Whole Redemption Amount (together with any interest thereon) may be
converted, in whole or in part, by the Holder into Common Stock pursuant to
Section 3.


    
      
         


      

      
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              (e)

            	
              Limitations on
      Conversions.

            


    

     

    (i)           Beneficial
Ownership.  The Company shall not effect any conversion of this
Note, and the Holder of this Note shall not have the right to convert any
portion of this Note pursuant to Section 3(a), to the extent that after giving
effect to such conversion, the Holder (together with the Holder's affiliates)
would beneficially own in excess of 4.99% (the "Maximum Percentage") of the
number of shares of Common Stock outstanding immediately after giving effect to
such conversion.  For purposes of the foregoing sentence, the number
of shares of Common Stock beneficially owned by the Holder and its affiliates
shall include the number of shares of Common Stock issuable upon conversion of
this Note with respect to which the determination of such sentence is being
made, but shall exclude the number of shares of Common Stock which would be
issuable upon (A) conversion of the remaining, nonconverted portion of this Note
beneficially owned by the Holder or any of its affiliates and (B) exercise or
conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any Other Notes) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its
affiliates.  Except as set forth in the preceding sentence, for
purposes of this Section 3(e)(i), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended.  For purposes of this Section 3(e)(i), in determining the
number of outstanding shares of Common Stock, the Holder may rely on the number
of outstanding shares of Common Stock as reflected in (x) the Company's most
recent Form 10-K, Form 10-Q or Form 8-K, as the case may be (y) a more recent
public announcement by the Company or (z) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock
outstanding.  For any reason at any time, upon the written or oral
request of the Holder, the Company shall within one (1) Business Day confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding.  In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Note, by the Holder or its affiliates
since the date as of which such number of outstanding shares of Common Stock was
reported.  By written notice to the Company, the Holder may increase
or decrease the Maximum Percentage to any other percentage not in excess of
9.99% specified in such notice; provided that (x) any such increase will not be
effective until the sixty-first (61st) day
after such notice is delivered to the Company, and (y) any such increase or
decrease will apply only to the Holder and not to any other holder of
Notes.  The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section 3(e)(i) to correct this paragraph (or any portion hereof) which may
be defective or inconsistent with the intended beneficial ownership limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation.

     

    (ii)          Principal Market
Regulation.  Unless and until the Stockholder Approval (as
defined in the Securities Purchase Agreement) has been obtained, the Company
shall not (A) be obligated to issue any shares of Common Stock upon conversion
of this Note and (B) issue any shares of Common Stock under this Note as payment
of principal or interest, if the issuance of such shares of Common Stock would
exceed the aggregate number of shares of Common Stock which the Company may
issue upon conversion of the Notes without breaching the Company's obligations
under the rules or regulations of the Principal Market (the "Exchange
Cap").  Until such Stockholder Approval is obtained, no
purchaser of the Notes pursuant to the Securities Purchase Agreement (the "Purchasers") shall be issued
in the aggregate, upon conversion of the Notes, shares of Common Stock (as
adjusted for stock splits, stock dividends, stock combinations and other similar
transactions) in an amount greater than the product of the Exchange Cap
multiplied by a fraction, the numerator of which is the principal amount of
Notes issued to the Purchasers pursuant to the Securities Purchase Agreement on
the Closing Date and the denominator of which is the aggregate principal amount
of all Notes issued to the Purchasers pursuant to the Securities Purchase
Agreement on the Closing Date (with respect to each Purchaser, the "Exchange Cap
Allocation").  In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser's Notes, the transferee shall be
allocated a pro rata portion of such Purchaser's Exchange Cap Allocation, and
the restrictions of the prior sentence shall apply to such transferee with
respect to the portion of the Exchange Cap Allocation allocated to such
transferee.  In the event that any holder of Notes shall convert all
of such holder's Notes into a number of shares of Common Stock which, in the
aggregate, is less than such holder's Exchange Cap Allocation, then the
difference between such holder's Exchange Cap Allocation and the number of
shares of Common Stock actually issued to such holder shall be allocated to the
respective Exchange Cap Allocations of the remaining holders of Notes on a pro
rata basis in proportion to the aggregate principal amount of the Notes then
held by each such holder.


    
      
         


      

      
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              (4)

            	
              RIGHTS UPON EVENT OF
      DEFAULT.

            


    

     

    (a)           Event of
Default.  Each of the following events shall constitute an
"Event of
Default":

     

    (i)          [reserved]

     

    (ii)         the
suspension from trading (other than a general suspension of trading of all
stocks on the Principal Market) or failure of the Common Stock to be listed on
the Principal Market or on an Eligible Market for a period of five (5)
consecutive Trading Days or for more than an aggregate of five (5) Trading Days
in any 365-day period;

     

    (iii)        the
Company's (A) failure to cure a Conversion Failure by delivery of the required
number of shares of Common Stock within ten (10) Trading Days after the
applicable Conversion Date or (B) notice, written or oral, to any holder of the
Notes, including by way of public announcement or through any of its agents, at
any time, of its intention not to comply with a request for conversion of any
Notes into shares of Common Stock that is tendered in accordance with the
provisions of the Notes;

     

    (iv)        [reserved]

     

    (v)         the
Company's failure to pay to the Holder any amount of Principal (including any
Installment Amount), Interest, Late Charges, Make-Whole Amount or other amounts
when and as due under this Note (including, without limitation, the Company's
failure to pay any redemption amounts hereunder) or any other Transaction
Document (as defined in the Securities Purchase Agreement) or any other
agreement, document, certificate or other instrument delivered in connection
with the transactions contemplated hereby and thereby to which the Holder is a
party, except, (i) in the case of a failure to pay Interest and/or Late Charges
when and as due, in which case only if such failure continues for a period of at
least five (5) Trading Days and (ii) in the case of a failure to pay in full the
amount of cash due pursuant to a Buy-In within seven (7) days after notice
thereof is delivered or a failure to pay liquidated damages due pursuant to the
Transaction Documents within seven (7) days of the date of the request for such
payments;


    
      
         


      

      
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    (vi)        the
Company or any Subsidiary defaults in any of its obligations under any other
debenture or any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced, any Indebtedness in
excess of $500,000, whether such Indebtedness now exists or is hereafter
created, and such default results in such Indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;

     

    (vii)       the
Company or any of its Subsidiaries, pursuant to or within the meaning of Title
11, U.S. Code, or any similar Federal, foreign or state law for the relief of
debtors (collectively, "Bankruptcy Law"), (A)
commences a voluntary case, (B) consents to the entry of an order for relief
against it in an involuntary case, (C) consents to the appointment of a
receiver, trustee, assignee, liquidator or similar official or such appointment
is not discharged or stayed within sixty (60) days (a "Custodian"), (D) makes a
general assignment for the benefit of its creditors or (E) admits in writing
that it is generally unable to pay its debts as they become due or any such
involuntary case is not dismissed within sixty (60) days of
commencement;

     

    (viii)      a
court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that (A) is for relief against the Company or any of its Subsidiaries in an
involuntary case, (B) appoints a Custodian of the Company or any of its
Subsidiaries or (C) orders the liquidation of the Company or any of its
Subsidiaries;

     

    (ix)         a
final judgment or judgments for the payment of money aggregating in excess of
$1,000,000 are rendered against the Company or any of its Subsidiaries and which
judgments are not, within sixty (60) days after the entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within sixty (60)
days after the expiration of such stay; provided, however, that any judgment
which is covered by insurance or an indemnity from a credit worthy party shall
not be included in calculating the $1,000,000 amount set forth above so long as
the Company provides the Holder a written statement from such insurer or
indemnity provider (which written statement shall be reasonably satisfactory to
the Holder) to the effect that such judgment is covered by insurance or an
indemnity and the Company will receive the proceeds of such insurance or
indemnity within thirty (30) days of the issuance of such judgment;

     

    (x)          other
than as specifically set forth in another clause of this Section 4(a), the
Company breaches any representation, warranty, covenant or other term or
condition of any Transaction Document; provided, however, that in the case of a
breach of a covenant which is curable, only if such breach continues for a
period of at least ten (10) calendar days after the date on which written notice
of such default is first given by the Holder or any holder of Other
Notes;


    
      
         


      

      
        - 9
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    (xi)         any
breach or failure to comply in (A) any material respect with Sections 8 or 9 of
this Note or (B) any respect with Section 14 of this Note or;

     

    (xii)        any
Event of Default (as defined in the Other Notes) occurs with respect to any
Other Notes.

     

    (b)           Redemption
Right.  Promptly after becoming aware of the occurrence of an
Event of Default with respect to this Note or any Other Note, the Company shall
deliver written notice thereof via facsimile and overnight courier (an "Event of Default Notice") to
the Holder.  At any time after the earlier of the Holder's receipt of
an Event of Default Notice and the Holder becoming aware of an Event of Default,
the Holder may require the Company to redeem all or any portion of this Note by
delivering written notice thereof (the "Event of Default Redemption
Notice") to the Company, which Event of Default Redemption Notice shall
indicate the Conversion Amount of this Note the Holder is electing to
redeem.  Each portion of this Note subject to redemption by the
Company pursuant to this Section 4(b) shall be redeemed by the Company at a
price equal to the greater of (i) the product of (x) the Conversion Amount to be
redeemed and (y) the Redemption Premium and (ii) the product of (A) the
Conversion Rate with respect to such Conversion Amount in effect at such time as
the Holder delivers an Event of Default Redemption Notice and (B) the greater of
(1) the Closing Sale Price of the Common Stock on the date immediately preceding
such Event of Default, (2) the Closing Sale Price of the Common Stock on the
date immediately after such Event of Default and (3) the Closing Sale Price of
the Common Stock on the date the Holder delivers the Event of Default Redemption
Notice (the "Event of
Default Redemption
Price").  Redemptions required by this Section 4(b) shall be
made in accordance with the provisions of Section 10.  In the event of
a partial redemption of the Note pursuant hereto, the Principal amount redeemed
shall be deducted from the Installment Amounts relating to the applicable
Installment Dates as set forth in the Event of Default Redemption
Notice.  To the extent redemptions required by this Section 4(b) are
deemed or determined by a court of competent jurisdiction to be prepayments of
the Note by the Company, such redemptions shall be deemed to be voluntary
prepayments.  The parties hereto agree that in the event of the
Company's redemption of any portion of the Note under this Section 4(b), the
Holder's damages would be uncertain and difficult to estimate because of the
parties' inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the
Holder.  Accordingly, any Redemption Premium due under this Section
4(b) is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder's actual loss of its investment opportunity and not as a
penalty.

     

    (5)           RIGHTS UPON FUNDAMENTAL
TRANSACTION AND CHANGE OF CONTROL.

     

    (a)           Assumption.  The
Company shall not enter into or be party to a Fundamental Transaction unless
(i)  the Successor Entity assumes in writing all of the obligations of
the Company under this Note and the other Transaction Documents in accordance
with the provisions of this Section 5(a) pursuant to written agreements in form
and substance satisfactory to the Required Holders and approved by the Required
Holders prior to such Fundamental Transaction, including agreements to deliver
to each holder of Notes in exchange for such Notes a security of the Successor
Entity evidenced by a written instrument substantially similar in form and
substance to the Notes, including, without limitation, having a principal amount
and interest rate equal to the principal amounts and the interest rates of the
Notes held by such holder and having similar ranking to the Notes, and
satisfactory to the Required Holders and (ii) the Successor Entity (including
its Parent Entity) is a publicly traded corporation whose common stock is quoted
on or listed for trading on an Eligible Market.  Upon the occurrence
of any Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Note referring to the "Company" shall refer
instead to the Successor Entity), and may exercise every right and power of the
Company and shall assume all of the obligations of the Company under this Note
with the same effect as if such Successor Entity had been named as the Company
herein.  Upon consummation of the Fundamental Transaction, the
Successor Entity shall deliver to the Holder confirmation that there shall be
issued upon conversion or redemption of this Note at any time after the
consummation of the Fundamental Transaction, in lieu of the shares of Common
Stock (or other securities, cash, assets or other property) issuable upon the
conversion or redemption of the Notes prior to such Fundamental Transaction,
such shares of publicly traded common stock (or its equivalent) of the Successor
Entity (including its Parent Entity), as adjusted in accordance with the
provisions of this Note.  The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion or redemption of
this Note.


    
      
         


      

      
        - 10
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    (b)           Redemption
Right.  No sooner than fifteen (15) days nor later than ten
(10) days prior to the consummation of a Change of Control, but not prior to the
public announcement of such Change of Control, the Company shall deliver written
notice thereof via facsimile and overnight courier to the Holder (a "Change of Control Notice").  At any
time during the period beginning after the Holder's receipt of a Change of
Control Notice and ending on the date of the consummation of such Change of
Control (or, in the event a Change of Control Notice is not delivered at least
ten (10) days prior to a Change of Control, at any time on or after the date
which is ten (10) days prior to a Change of Control and ending ten (10) days
after the consummation of such Change of Control), the Holder may require the
Company to redeem all or any portion of this Note by delivering written notice
thereof ("Change of Control
Redemption Notice") to the Company, which Change of Control Redemption
Notice shall indicate the Conversion Amount the Holder is electing to
redeem.  The portion of this Note subject to redemption pursuant to
this Section 5 shall be redeemed by the Company at a price equal to the greater
of (i) the product of (x) the Conversion Amount being redeemed and (y) the
quotient determined by dividing (A) the Closing Sale Price of the Common Stock
immediately following the public announcement of such proposed Change of Control
by (B) the Conversion Price and (ii) 125% of the Conversion Amount plus accrued
and unpaid Interest thereon being redeemed (the "Change of Control Redemption
Price").  Redemptions required by this Section 5 shall be made
in accordance with the provisions of Section 10 and shall have priority to
payments to shareholders in connection with a Change of
Control.  Notwithstanding anything to the contrary in this Section 5,
but subject to Section 3(e), until the Change of Control Redemption Price
(together with any interest thereon) is paid in full, the Conversion Amount
submitted for redemption under this Section 5(b) may be converted, in whole or
in part, by the Holder into Common Stock pursuant to Section 3.  In
the event of a partial redemption of this Note pursuant hereto, the Principal
amount redeemed shall be deducted from the Installment Amounts relating to the
applicable Installment Dates as set forth in the Change of Control Redemption
Notice.  The parties hereto agree that in the event of the Company's
redemption of any portion of the Note under this Section 5(b), the Holder's
damages would be uncertain and difficult to estimate because of the parties'
inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the
Holder.  Accordingly, any Change of Control redemption premium due
under this Section 5(b) is intended by the parties to be, and shall be deemed, a
reasonable estimate of the Holder's actual loss of its investment opportunity
and not as a penalty.


    
      
         


      

      
        - 11
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    (6)           RIGHTS UPON ISSUANCE OF
PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

     

    (a)           Purchase
Rights.  If at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase
Rights"), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete conversion of this Note (without taking into
account any limitations or restrictions on the convertibility of this Note)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.

     

    (b)           Other Corporate
Events.  In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a "Corporate
Event"), the Company shall make appropriate provision to insure that the
Holder will thereafter have the right to receive upon a conversion of this Note,
(i) in addition to the shares of Common Stock receivable upon such conversion,
such securities or other assets to which the Holder would have been
entitled  to receive or retain with respect to such shares of Common
Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in lieu
of the shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common Stock in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note initially been issued
with conversion rights for the form of such consideration (as opposed to shares
of Common Stock) at a conversion rate for such consideration commensurate with
the Conversion Rate.  Provision made pursuant to the preceding
sentence shall be in a form and substance satisfactory to the Required
Holders.  The provisions of this Section shall apply similarly and
equally to successive Corporate Events and shall be applied without regard to
any limitations on the conversion or redemption of this Note.

     

    (7)           RIGHTS UPON ISSUANCE OF
OTHER SECURITIES.

     

    (a)           Adjustment of Conversion
Price upon Issuance of Common Stock.  If and whenever on or
after the Subscription Date and on or prior to the two (2) year anniversary of
the Initial Effective Date (as defined in the Registration Rights Agreement),
the Company issues or sells, or in accordance with this Section 7(a) is deemed
to have issued or sold, any shares of Common Stock (including the issuance or
sale of shares of Common Stock owned or held by or for the account of the
Company, but excluding shares of Common Stock issued or sold or deemed to have
been issued or sold by the Company in connection with any Excluded Security) for
a consideration per share (the "Applicable Price") less than a
price equal to the Conversion Price in effect immediately prior to such issue or
sale (the foregoing a "Dilutive
Issuance"), then immediately after such Dilutive Issuance the Conversion
Price then in effect shall be reduced to the Applicable Price with respect to a
portion of the Principal amount of this Note, with the portion of the Principal
amount that is subject to the adjusted Conversion Price to be determined by
multiplying (i) the then outstanding Principal amount of this Note whose
Conversion Price is greater than the Applicable Price by (ii) the Adjustment
Fraction.  The adjustment of the Conversion Price under this Section
7(a) allows for multiple Conversion Prices to be applicable under this
Note.  Further adjustments shall be made successively for successive
Dilutive Issuances with adjustments to the Conversion Price affecting portions
of the Note with the highest Conversion Price first and then successively to the
portions of the Note with the lowest Conversion Price.  For purposes
of example only, if the then current Conversion Price is $2.50 and the
outstanding Principal is $5,000,000 and the Company issues 1,000,000 shares of
Common Stock at a price of $1.50, then the adjusted Conversion Price of $1.50
will be applied with respect to 50% of the Principal amount of this Note such
that $2,500,000 of the Note will have an adjusted Conversion Price of $1.50 and
the Conversion Price will not be adjusted with respect to the remaining
$2,500,000 of the Note.  If there is a subsequent Dilutive Issuance
where the Company issues 1,000,000 shares of Common Stock at a price of $2.00,
then the adjusted Conversion Price of $2.00 will be applied to all of the
Principal amount with the Conversion Price of $2.50 so that $2,500,000 of the
Note will have an adjusted Conversion Price of $2.00 and $2,500,000 of the Note
will have an adjusted Conversion Price of $1.50.  If there is a third
Dilutive Issuance where the Company issues 333,333 shares of Common Stock at a
price of $1.00, since the $1.00 is lower than each of the existing portions of
the Principal, then the formula will be applied to portion with the higher
Conversion Price first so that the Principal amount that will get the Conversion
Price adjustment to $1.00 will be $666,666 of the $2,500,000 of the Note that
has a Conversion Price of $2.00, such that after such third Dilutive Issuance
(A) $666,666 of the Note will have a Conversion Price of $1.00, (B) $1,833,333
of the Note will have a Conversion Price of $2.00, and (C) $2,500,000 of the
Note will have a Conversion Price of $1.50.  For purposes of
determining the adjusted Conversion Price under this Section 7(a), the following
shall be applicable:


    
      
         


      

      
        - 12
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    (i)           Issuance of
Options.  If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or exchange or
exercise of any Convertible Securities issuable upon exercise of such Option is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the granting or sale of such Option for such price per share.  For
purposes of this Section 7(a)(i), the "lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Option or upon
conversion or exchange or exercise of any Convertible Securities issuable upon
exercise of such Option" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon granting or sale of the Option, upon exercise of
the Option and upon conversion or exchange or exercise of any Convertible
Security issuable upon exercise of such Option.  No further adjustment
of the Conversion Price shall be made upon the actual issuance of such share of
Common Stock or of such Convertible Securities upon the exercise of such Options
or upon the actual issuance of such Common Stock upon conversion or exchange or
exercise of such Convertible Securities.


    
      
         


      

      
        - 13
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    (ii)          Issuance of Convertible
Securities.  If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon such conversion or exchange or exercise thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance or sale of such Convertible Securities for such price per
share.  For the purposes of this Section 7(a)(ii), the "lowest price
per share for which one share of Common Stock is issuable upon such conversion
or exchange or exercise" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the issuance or sale of the Convertible Security
and upon the conversion or exchange or exercise of such Convertible
Security.  No further adjustment of the Conversion Price shall be made
upon the actual issuance of such share of Common Stock upon conversion or
exchange or exercise of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Conversion Price had been or are to be made pursuant to
other provisions of this Section 7(a), no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.

     

    (iii)         Change in Option Price or
Rate of Conversion.  If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion, exchange or exercise of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable or
exercisable for Common Stock changes at any time, the Conversion Price in effect
at the time of such change shall be adjusted to the Conversion Price which would
have been in effect at such time had such Options or Convertible Securities
provided for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold.  For purposes of this Section 7(a)(iii), if the terms of any
Option or Convertible Security that was outstanding as of the Subscription Date
are changed in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such change.  No adjustment shall be made if such
adjustment would result in an increase of the Conversion Price then in
effect.

     

    (iv)         Calculation of Consideration
Received.  In case any Option is issued in connection with the
issue or sale of other securities of the Company, together comprising one
integrated transaction in which no specific consideration is allocated to such
Options by the parties thereto, (x) the Options will be deemed to have been
issued for a value determined by use of the Black Scholes Option Pricing Model
(the "Option Value") and
(y) the other securities issued or sold in such integrated transaction shall be
deemed to have been issued for the difference of (I) the aggregate consideration
received by the Company, less (II) the Option Value.  If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the gross amount received by the Company therefor.  If any
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company will be the fair value of such consideration, except
where such consideration consists of securities, in which case the amount of
consideration received by the Company will be the Closing Sale Price of such
securities on the date of receipt.  If any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be.  The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the Required
Holders.  If such parties are unable to reach agreement within ten
(10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair
value of such consideration will be determined within five (5) Business Days
after the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders.  The determination
of such appraiser shall be deemed binding upon all parties absent manifest error
and the fees and expenses of such appraiser shall be borne by the
Company.


    
      
         


      

      
        - 14
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    (v)          Record
Date.  If the Company takes a record of the holders of Common
Stock for the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities or
(B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.

     

    (b)           Adjustment of Conversion
Price upon Subdivision or Combination of Common Stock.  If the
Company at any time on or after the Subscription Date subdivides (by any stock
dividend, stock split, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced.  If the Company at any time on or after the
Subscription Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior to such
combination will be proportionately increased.

     

    (c)           Other
Events.  If any event occurs of the type contemplated by the
provisions of this Section 7 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Holder under this Note; provided that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 7.


    
      
         


      

      
        - 15
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    (d)           Voluntary
Decrease.  The Company may at any time during the term of the
Notes reduce the then current Conversion Price for any portion of the Notes (on
a pro rata basis) to any amount and for any period of time deemed appropriate by
the Board of Directors.

     

    (8)           COMPANY INSTALLMENT
CONVERSION OR REDEMPTION.

     

    (a)           General.  On
each applicable Installment Date, the Company shall pay to the Holder of this
Note the Installment Amount due on such date by converting such Installment
Amount, provided that the Equity Conditions have been satisfied (or waived in
writing by the Holder except that the Holders may not waive any Equity Condition
to the extent such waiver would cause the Company to be in violation of the
rules and regulations of the Principal Market), in accordance with this Section
8 (a "Company
Conversion"); provided, however, that the Company may, at its option
following notice to the Holder as set forth below, pay the Installment Amount by
redeeming such Installment Amount in cash (a "Company Installment
Redemption") or by any combination of a Company Conversion and a Company
Installment Redemption so long as all of the outstanding applicable Installment
Amount shall be converted and/or redeemed by the Company on the applicable
Installment Date, subject to the provisions of this Section 8.  On the
date which is the twenty-fourth (24th)
Trading Day prior to each Installment Date (each, an "Installment Notice Due Date"),
the Company shall deliver written notice (each, a "Company Installment Notice"
and the date all of the holders receive such notice is referred to as to "Company Installment Notice
Date"), to each holder which Company Installment Notice shall (i) either
(A) confirm that the applicable Installment Amount of such holder’s Note shall
be converted in whole pursuant to a Company Conversion (such amount to be
converted, the "Company
Conversion Amount") or (B) (1) state that the Company elects to redeem,
in whole or in part, the applicable Installment Amount pursuant to a Company
Installment Redemption and (2) specify the portion which the Company elects to
redeem pursuant to a Company Installment Redemption (such amount to be redeemed,
the "Company Installment
Redemption Amount") and
the portion, if any, that the Company elects to convert pursuant to a Company
Conversion (such amount also a "Company Conversion Amount")
which amounts, when added, together must equal the applicable Installment Amount
and (ii) if the Installment Amount is to be paid, in whole or in part, pursuant
to a Company Conversion, certify that the Equity Conditions have been satisfied
as of the date of the Company Installment Notice.  Each Company
Installment Notice shall be irrevocable.  If the Company does not
timely deliver a Company Installment Notice in accordance with this Section 8,
then the Company shall be deemed to have delivered an irrevocable Company
Installment Notice confirming a Company Conversion and shall be deemed to have
certified that the Equity Conditions in connection with any such conversion have
been satisfied.  Except as expressly provided in this Section 8(a),
the Company shall convert and/or redeem the applicable Installment Amount of
this Note pursuant to this Section 8 and the corresponding Installment Amounts
of the Other Notes pursuant to the corresponding provisions of the Other Notes
in the same ratio of the Installment Amount being redeemed and converted
hereunder.  The Company Conversion Amount (whether set forth in the
Company Installment Notice or by operation of this Section 8) shall be converted
in accordance with Section 8(b) and the Company Redemption Amount shall be
redeemed in accordance with Section 8(c).


    
      
         


      

      
        - 16
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    (b)           Mechanics of Company
Conversion.  Subject to Section 3(e), if the Company delivers a
Company Installment Notice and confirms, or is deemed to have confirmed, in
whole or in part, a Company Conversion in accordance with Section 8(a), then no
later than two (2) Trading Days after delivery of a Company Installment Notice
setting forth a Company Conversion Amount, the Company shall deliver to the
Holder's account with DTC such number of shares of Common Stock (the "Pre-Installment Conversion
Shares") equal to the quotient of (x) such Company Conversion Amount
divided by (y) the Company Pre-Installment Conversion Price.  On the
applicable Installment Date, the Company shall deliver to the Holder's account
with DTC an additional number of shares of Common Stock equal to the Installment
Balance Conversion Shares; provided that the Equity Conditions have been
satisfied (or waived in writing by the Holder) on such Installment
Date.  If the Equity Conditions are not satisfied (or waived in
writing by the Holder) on such Installment Date, then at the option of the
Holder designated in writing to the Company, the Holder may require the Company
to do any one or more of the following: (i) the Company shall redeem all or any
part designated by the Holder of the unconverted Company Conversion Amount (such
designated amount is referred to as the "First Redemption Amount") on
such Installment Date and the Company shall pay to the Holder on such
Installment Date, by wire transfer of immediately available funds, an amount in
cash equal to 125% of such First Redemption Amount, and/or (ii) the Company
Conversion shall be null and void with respect to all or any part designated by
the Holder of the unconverted Company Conversion Amount and the Holder shall be
entitled to all the rights of a holder of this Note with respect to such amount
of the Company Conversion Amount; provided, however, that the Conversion Price
for such unconverted Company Conversion Amount shall thereafter be adjusted to
equal the lesser of (A) the Company Conversion Price as in effect on the date on
which the Holder voided the Company Conversion and (B) the Company Conversion
Price as in effect on the date on which the Holder delivers a Conversion Notice
relating thereto.  If the Company fails to redeem any First Redemption
Amount on or before the applicable Installment Date by payment of such amount on
the applicable Installment Date, then the Holder shall have the rights set forth
in Section 10(a) as if the Company failed to pay the applicable Company
Installment Redemption Price and all other rights under this Note (including,
without limitation, such failure constituting an Event of Default described in
Section 4(a)(v)).  Notwithstanding anything to the contrary in this
Section 8(b), but subject to Section 3(e), until the Company delivers Common
Stock representing the Company Conversion Amount to the Holder, the Company
Conversion Amount may be converted by the Holder into Common Stock pursuant to
Section 3.  In the event that the Holder elects to convert the Company
Conversion Amount prior to the applicable Installment Date as set forth in the
immediately preceding sentence, the Company Conversion Amount so converted shall
be deducted from the Installment Amounts relating to the applicable Installment
Dates as set forth in the applicable Conversion Notice.

     

    (c)           Mechanics of Company
Redemption.  If the Company elects a Company Redemption in
accordance with Section 8(a), then the Company Redemption Amount which is to be
paid to the Holder on the applicable Installment Date shall be redeemed by the
Company and the Company shall pay to the Holder on such Installment Date, by
wire transfer of immediately available funds, an amount in cash (the "Company Installment Redemption
Price") equal to 100% of the Company Installment Redemption
Amount.  If the Company fails to redeem the Company Installment
Redemption Amount on the applicable Installment Date by payment of the Company
Installment Redemption Price on such date, then at the option of the Holder
designated in writing to the Company (any such designation, a "Conversion Notice" for
purposes of this Note), the Holder may require the Company to convert all or any
part of the Company Redemption Amount at the Company Conversion
Price.  Conversions required by this Section 8(c) shall be made in
accordance with the provisions of Section 3(c).  Notwithstanding
anything to the contrary in this Section 8(c), but subject to Section 3(e),
until the Company Installment Redemption Price (together with any interest
thereon) is paid in full, the Company Installment Redemption Amount (together
with any interest thereon) may be converted, in whole or in part, by the Holder
into Common Stock pursuant to Section 3.  In the event the Holder
elects to convert all or any portion of the Company Redemption Amount prior to
the applicable Installment Date as set forth in the immediately preceding
sentence, the Company Redemption Amount so converted shall be deducted from the
Installment Amounts relating to the applicable Installment Dates as set forth in
the applicable Conversion Notice.


    
      
         


      

      
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    (d)           Pro Rata
Requirement.  If the Company elects to cause a Company
Conversion or Company Installment Redemption pursuant to Section 8, then it must
simultaneously take the same action with respect to the Other
Notes.  If the Company elects to cause a Company Conversion or Company
Installment Redemption pursuant to this Section 8 (or similar provisions under
the Other Notes) with respect to less than all of the principal amount of the
Notes then outstanding, then the Company shall require redemption of a Principal
amount from the Holder and each holder of the Other Notes equal to the product
of i) the aggregate principal amount of Notes which the Company has elected to
cause to be redeemed pursuant to Section 8, multiplied by ii) the fraction, the
numerator of which is the sum of the initial principal amount of Notes purchased
by such holder (or the ultimate holder of a Note transferred as set forth below
with an allocation among such Notes as set forth below) and the denominator of
which is the initial principal amounts of Notes purchased by all holders (or the
ultimate holder of a Note transferred as set forth below with an allocation
among such Notes as set forth below) holding outstanding Notes (such fraction
with respect to each holder is referred to as its "Redemption Allocation
Percentage", and such amount with respect to each holder is referred to
as its "Pro Rata Redemption
Amount"); provided that in the event that the initial holder of any Notes
has sold or otherwise transferred any of such holder's Notes, the transferee
shall be allocated a pro rata portion of such transferring holder's Redemption
Allocation Percentage and Pro Rata Redemption Amount; and provided further, that
in the event any holder's Pro Rata Redemption Amount exceeds the outstanding
principal amount of such holder's Note, any excess redemption amount shall be
applied to the principal amount of all remaining Notes on a pro rata basis
pursuant to this subsection (b).

     

    (9)           OPTIONAL REDEMPTION BY
COMPANY.

     

    (a)           Optional Redemption by the
Company.  At any time after the Issuance Date, the Company
shall have the right, in its sole discretion, to redeem all or any portion of
the Note (a "Company Optional
Redemption").  In order for the Company to exercise the Company
Optional Redemption, the Company shall deliver written notice by confirmed
facsimile and overnight courier to all, but not less than all, of the holders of
the Notes (the "Company
Optional Redemption Notice" and the date such notice is delivered to all
the holders is referred to as the "Company Optional Redemption Notice
Date") no later than twenty (20) Trading Days prior to the Company
Optional Redemption Date (as hereafter defined) which shall (w) state the date
on which the Company Optional Redemption shall occur (such date, the "Company Optional Redemption
Date"), (x) describe the redemption rights provided in this Section 9,
(y) set forth the Optional Redemption Price, and (z) state the aggregate
Principal of the Notes which the Company has elected to be subject to such
Company Optional Redemption from all of the holders of the Notes pursuant to
this Section 9(b) (and analogous provisions under the Other Notes) plus accrued
and unpaid Interest thereon (the "Company Optional Redemption
Amount").  The portion of this Note subject to redemption
pursuant to this Section 9(a) shall be redeemed by the Company in cash at a
price (the "Optional Redemption
Price") equal to 115% of the sum of (x) the Conversion Amount being
redeemed and (y) any accrued and unpaid Interest on the Conversion
Amount.  The Company Optional Redemption Notice shall be
irrevocable.  Notwithstanding anything to the contrary in this Section
9, but subject to Section 3(e), until the Holder receives the Optional
Redemption Price, the Conversion Amount reflected in such Optional Redemption
Notice may be converted, in whole or in part, by the Holder into Common Stock
pursuant to Section 3 (and any such conversions shall be deemed to be a
withdrawal of the Company Optional Redemption Notice to the extent of such
conversion), and any such conversion shall reduce the Conversion Amount
reflected in such Optional Redemption Notice.  The Company Redemption
Amount which is to be paid to the Holder on the applicable Company Optional
Redemption Date shall be redeemed by the Company, and the Company shall pay to
the Holder on such Company Optional Redemption Date by wire transfer of
immediately available funds, the Optional Redemption Price.


    
      
         


      

      
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    (b)           Pro Rata Redemption
Requirement.  If the Company elects to cause a Company Optional
Redemption pursuant to Section 9, then it must simultaneously take the same
action with respect to the Other Notes.  If the Company elects to
cause a Company Optional Redemption pursuant to this Section 9 (or similar
provisions under the Other Notes) with respect to less than all of the principal
amount of the Notes then outstanding, then the Company shall require redemption
of a Principal amount from the Holder and each holder of the Other Notes equal
to the product of iii) the aggregate principal amount of Notes which the Company
has elected to cause to be redeemed pursuant to Section 9, multiplied by iv)
such holder's Redemption Allocation Percentage; provided that in the event that
the initial holder of any Notes has sold or otherwise transferred any of such
holder's Notes, the transferee shall be allocated a pro rata portion of such
transferring holder's Redemption Allocation Percentage and Pro Rata Redemption
Amount; and provided further, that in the event any holder's Pro Rata Redemption
Amount exceeds the outstanding principal amount of such holder's Note, any
excess redemption amount shall be applied to the principal amount of all
remaining Notes on a pro rata basis pursuant to this subsection
(b).

     

    (c)           Redemptions
Generally.  Any redemptions made pursuant to this Section 9
shall be made in accordance with Section 10.  No later than one (1)
Trading Day following any Company Optional Redemption Date, the Company shall
file a Current Report on Form 8-K describing the terms of such Company Optional
Redemption Date. To the extent redemptions required by this Section 9 are deemed
or determined by a court of competent jurisdiction to be prepayments of the Note
by the Company, such redemptions shall be deemed to be voluntary
prepayments.


    
      
         


      

      
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    (10)          REDEMPTIONS.

     

    (a)           Mechanics.  The
Company shall deliver the applicable Event of Default Redemption Price to the
Holder within five (5) Business Days after the Company's receipt of the Holder's
Event of Default Redemption Notice.  If the Holder has submitted a
Change of Control Redemption Notice in accordance with Section 5(b), the Company
shall deliver the applicable Change of Control Redemption Price to the Holder
concurrently with the consummation of such Change of Control if such notice is
received prior to the consummation of such Change of Control and within five (5)
Business Days after the Company's receipt of such notice
otherwise.  In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to be issued
and delivered to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal which has not been
redeemed.  In the event that the Company does not pay the Redemption
Price to the Holder within the time period required, at any time thereafter and
until the Company pays such unpaid Redemption Price in full, the Holder shall
have the option, in lieu of redemption, to require the Company to promptly
return to the Holder all or any portion of this Note representing the Conversion
Amount that was submitted for redemption and for which the applicable Redemption
Price has not been paid.  Upon the Company's receipt of such notice,
(x) the Redemption Notice shall be null and void with respect to such Conversion
Amount and (y) the Company shall immediately return this Note, or issue a new
Note (in accordance with Section 18(d)) to the Holder representing such
Conversion Amount.

     

    (b)           Redemption by Other
Holders.  Upon the Company's receipt of notice from any of the
holders of the Other Notes for redemption or repayment as a result of an event
or occurrence substantially similar to the events or occurrences described in
Section 4(b) or Section 5(b) (each, an "Other Redemption Notice"), the
Company shall immediately forward to each Holder by facsimile a copy of such
notice.  If the Company receives a Redemption Notice and one or more
Other Redemption Notices, during the period beginning on and including the date
which is three (3) Business Days prior to the Company's receipt of the Holder's
Redemption Notice and ending on and including the date which is three (3)
Business Days after the Company's receipt of the Holder's Redemption Notice and
the Company is unable to redeem all principal, interest and other amounts
designated in such Redemption Notice and such Other Redemption Notices received
during such seven (7) Business Day period, then the Company shall redeem a pro
rata amount from each holder of the Notes (including the Holder) based on the
principal amount of the Notes submitted for redemption pursuant to such
Redemption Notice and such Other Redemption Notices received by the Company
during such seven Business Day period.

     

    (11)           RESERVATION OF AUTHORIZED
SHARES.

     

    (a)           Reservation.  The
Company initially shall reserve out of its authorized and unissued Common Stock
a number of shares of Common Stock for each of the Notes equal to 130% of the
Conversion Rate with respect to the Conversion Amount of each such Note as of
the Issuance Date.  So long
as any of the Notes are outstanding, the Company shall take all action necessary
to reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Principal and
Make-Whole Amounts and amortization of the Notes, 130% of the number of shares
of Common Stock as shall from time to time be necessary to effect the conversion
of all of the Notes then outstanding and the maximum number of shares of Common
Stock issuable as a Make-Whole Amount upon conversion of all outstanding Notes;
provided that at no time shall the number of shares of Common Stock so reserved
be less than the number of shares required to be reserved by the previous
sentence (without regard to any limitations on conversions) (the "Required Reserve
Amount").  The initial number of shares of Common Stock
reserved for conversions of the Notes and each increase in the number of shares
so reserved shall be allocated pro rata among the holders of the Notes based on
the principal amount of the Notes held by each holder at the Closing (as defined
in the Securities Purchase Agreement) or increase in the number of reserved
shares, as the case may be (the "Authorized Share
Allocation").  In the event that a holder shall sell or
otherwise transfer any of such holder's Notes, each transferee shall be
allocated a pro rata portion of such holder's Authorized Share
Allocation.  Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.


    
      
         


      

      
        - 20
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    (b)           Insufficient Authorized
Shares.  If at any time while any of the Notes remain
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon conversion of the Notes at least a number of shares of Common
Stock equal to the Required Reserve Amount (an "Authorized Share Failure"),
then the Company shall immediately take all reasonable best action necessary to
increase the Company's authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the Required Reserve Amount for the Notes then
outstanding.  Without limiting the generality of the foregoing
sentence, as soon as practicable after the date of the occurrence of an
Authorized Share Failure, but in no event later than sixty (60) days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting of
its shareholders for the approval of an increase in the number of authorized
shares of Common Stock.  In connection with such meeting, the Company
shall provide each shareholder with a proxy statement and shall use its best
efforts to solicit its shareholders' approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
shareholders that they approve such proposal.

     

    (12)           RESTRICTION ON REDEMPTION
AND CASH DIVIDENDS.  Until all of the Notes have been
converted, redeemed or otherwise satisfied in accordance with their terms, the
Company shall not, directly or indirectly, redeem, repurchase or declare or pay
any cash dividend or distribution on its capital stock without the prior express
written consent of the Required Holders.

     

    (13)           VOTING
RIGHTS.  The Holder shall have no voting rights as the holder
of this Note, except as required by law, including but not limited to the
General Corporate Law of the State of Delaware, and as expressly provided in
this Note.

     

    (14)           COVENANTS.

     

    (a)           Rank.  All
payments due under this Note (i) shall rank pari passu with all Other
Notes, and (ii) shall be senior to all other Indebtedness of the Company other
than Indebtedness described in clauses (ii), (iii), (iv), (v) and (vi) of the
definition of Permitted Indebtedness.


    
      
         


      

      
        - 21
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    (b)           Restricted
Actions.  The Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, take (or agree to
take) any Restricted Action.

     

    (15)           PARTICIPATION.  The
Holder, as the holder of this Note, shall be entitled to such dividends paid and
distributions made to the holders of Common Stock to the same extent as if the
Holder had converted this Note into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and
distributions.  Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common
Stock

     

    (16)           VOTE TO ISSUE, OR CHANGE THE
TERMS OF, NOTES.  The affirmative vote at a meeting duly called
for such purpose or the written consent without a meeting of the Required
Holders shall be required for any change, amendment or waiver to this Note or
the Other Notes.  No consideration shall be offered or paid to any
holder of Notes to amend or consent to a waiver or modification of the Notes
unless the same consideration also is offered to all of the holders of Notes who
agree to such amendment, waiver or modification.

     

    (17)           TRANSFER.  This
Note and any shares of Common Stock issued upon conversion of this Note may be
offered, sold, assigned or transferred by the Holder without the consent of the
Company, subject only to applicable law and the provisions of Section 2(g) of
the Securities Purchase Agreement.

     

    (18)           REISSUANCE OF THIS
NOTE.

     

    (a)           Transfer.  If
this Note is to be transferred, the Holder shall surrender this Note to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of the Holder a new Note (in accordance with Section 18(d)), registered as the
Holder may request, representing the outstanding Principal being transferred by
the Holder and, if less then the entire outstanding Principal is being
transferred, a new Note (in accordance with Section 18(d)) to the Holder
representing the outstanding Principal not being transferred.  The
Holder and any assignee, by acceptance of this Note, acknowledge and agree that,
by reason of the provisions of Section 3(c)(iii) and this Section 18(a),
following conversion or redemption of any portion of this Note, the outstanding
Principal represented by this Note may be less than the Principal stated on the
face of this Note.

     

    (b)           Lost, Stolen or Mutilated
Note.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with
Section 18(d)) representing the outstanding Principal.

     

    (c)           Note Exchangeable for
Different Denominations.  This Note is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new
Note or Notes (in accordance with Section 18(d) and in principal amounts of at
least $100,000) representing in the aggregate the outstanding Principal of this
Note, and each such new Note will represent such portion of such outstanding
Principal as is designated by the Holder at the time of such
surrender.

     

    
      
        
        

      

      
        - 22
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    (d)           Issuance of New
Notes.  Whenever the Company is required to issue a new Note
pursuant to the terms of this Note, such new Note (i) shall be of like tenor
with this Note, (ii) shall represent, as indicated on the face of such new Note,
the Principal remaining outstanding (or in the case of a new Note being issued
pursuant to Section 18(a) or Section 18(c), the Principal designated by the
Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent unpaid accrued
Interest and Late Charges, if any, on the Principal and Interest of this Note,
from the Issuance Date.

     

    (19)           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 and the other Transaction Documents at law or
in equity (including a decree of specific performance and/or other injunctive
relief), and nothing herein shall limit the Holder's right to pursue actual and
consequential damages for any failure by the Company 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 and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof).  The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate.  The Company
therefore agrees that, in the event of any such breach or threatened breach, the
Holder shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.

     

    (20)           PAYMENT OF COLLECTION,
ENFORCEMENT AND OTHER COSTS.  If (a) this Note is placed in the
hands of an attorney for collection or enforcement or is collected or enforced
through any legal proceeding or the Holder otherwise takes action to collect
amounts due under this Note or to enforce the provisions of this Note or (b)
there occurs any bankruptcy, reorganization, receivership of the Company or
other proceedings affecting Company creditors' rights and involving a claim
under this Note, then the Company shall pay the out-of-pocket costs incurred by
the Holder for such collection, enforcement or action or in connection with such
bankruptcy, reorganization, receivership or other proceeding, including, but not
limited to, reasonable attorneys' fees and disbursements.

     

    (21)           CONSTRUCTION;
HEADINGS.  This Note shall be deemed to be jointly drafted by
the Company and all the Purchasers (as defined in the Securities Purchase
Agreement) and shall not be construed against any person as the drafter
hereof.  The headings of this Note are for convenience of reference
and shall not form part of, or affect the interpretation of, this
Note.


    
      
         


      

      
        - 23
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    (22)           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.

     

    (23)           DISPUTE
RESOLUTION.  In the case of a dispute as to the determination
of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
or the arithmetic calculation of the Conversion Rate, the Conversion Price or
any Redemption Price, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within one (1) Business Day of receipt of
the Conversion Notice or Redemption Notice or other event giving rise to such
dispute, as the case may be, to the Holder.  If the Holder and the
Company are unable to agree upon such determination or calculation within one
(1) Business Day of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Company shall, within one (1) Business Day
submit via facsimile (a) the disputed determination of the Closing Bid Price,
the Closing Sale Price or the Weighted Average Price to an independent,
reputable investment bank selected by the Company and approved by the Holder or
(b) the disputed arithmetic calculation of the Conversion Rate, Conversion Price
or the Redemption Price to the Company's independent, outside
accountant.  The Company, at the Company's expense, shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company 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 or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.

     

    (24)           NOTICES; PAYMENTS;
TAXES.

     

    (a)           Notices.  Whenever
notice is required to be given under this Note, unless otherwise provided
herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement.  The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Note, including
in reasonable detail a description of such action and the reason
therefore.  Without limiting the generality of the foregoing, the
Company will give written notice to the Holder (i) immediately upon any
adjustment of the Conversion Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least ten (10) days
prior to the date on which the Company closes its books or takes a record (A)
with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any pro rata subscription offer to holders of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to the Holder.

     

    (b)           Payments.  Whenever
any payment of cash is to be made by the Company to any Person pursuant to this
Note, such payment shall be made in lawful money of the United States of America
by wire transfer of immediately available funds by providing the Company with
prior written notice setting out such request and the Holder's wire transfer
instructions; provided that the Holder may elect to receive a payment via a
check drawn on the account of the Company and sent via overnight courier service
to the Holder at such address as previously provided to the Company in writing
(which address, in the case of each of the Purchasers, shall initially be as set
forth on the Schedule of Buyers attached to the Securities Purchase
Agreement).  Whenever any amount expressed to be due or payable by the
terms of this Note is due or payable on any day which is not a Business Day, the
same shall instead be due or payable on the next succeeding day which is a
Business Day and, in the case of any Interest Date which is not the date on
which this Note is paid in full, the extension of the due date thereof shall not
be taken into account for purposes of determining the amount of Interest due on
such date.  Any amount of Principal or other amounts due under the
Transaction Documents which is not paid when due shall result in a late charge
being incurred and payable by the Company in an amount equal to interest on such
amount at the rate of eighteen percent (18%) per annum from the date such amount
was due until the same is paid in full ("Late
Charge").


    
      
         


      

      
        - 24
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    (c)           Taxes.  v) Any and all payments by
the Company hereunder, including any amounts received on a conversion or
redemption of the Note and any amounts on account of interest or deemed
interest, shall be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding taxes imposed on net income
or franchise taxes of the Holder by the jurisdiction in which such person is
organized or has its principal office (all such non-excluded taxes, levies,
imposts, deductions, charges withholdings and liabilities, collectively or
individually, "Taxes").  If the
Company shall be required to deduct any Taxes from or in respect of any sum
payable hereunder to the Holder, (i) except as required by law the sum payable
shall be increased by the amount (an "additional amount") necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this Section 24(c)) the Holder shall receive an
amount equal to the sum it would have received had no such deductions been made,
(ii) the Company shall make such deductions and (iii) the Company shall pay the
full amount deducted to the relevant governmental authority in accordance with
applicable law.

     

    (ii)          In
addition, the Company agrees to pay to the relevant governmental authority in
accordance with applicable law any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies that arise from
any payment made hereunder or from the execution, delivery or registration of,
or otherwise with respect to, this Note ("Other Taxes").  The
Company shall deliver to the Holder official receipts, if any, in respect of any
Taxes or Other Taxes payable hereunder promptly after payment of such Taxes or
Other Taxes or other evidence of payment reasonably acceptable to the
Holder.

     

    (iii)         The
obligations of the Company under this Section 24(c) shall survive the
termination of this Note and the payment of the Note and all other amounts
payable hereunder.

     

    (25)          CANCELLATION.  After
all Principal, accrued Interest and other amounts at any time owed on this Note
has been paid in full, this Note shall automatically be deemed canceled, shall
be surrendered to the Company for cancellation and shall not be
reissued.

     

    (26)          WAIVER OF
NOTICE.  To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
and the Securities Purchase Agreement.


    
      
         


      

      
        - 25
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    (27)          GOVERNING LAW; JURISDICTION;
JURY.  This Note shall be construed and enforced in
accor­dance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York.  The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law.  The Company hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address as provided in
Section 24 hereof and agrees that such service shall constitute good and
sufficient service of process and notice thereof.  Nothing contained
herein shall be deemed or operate to preclude the Holder from bringing suit or
taking other legal action against the Company in any other jurisdiction to
collect on the Company's obligations to the Holder, or to enforce a judgment or
other court ruling in favor of the Holder.  EACH OF THE COMPANY AND THE HOLDER HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED
HEREBY.

     

    (28)          SEVERABILITY. If any
provision of this Note is prohibited by law or otherwise determined to be
invalid or unenforceable by a court of competent jurisdiction, the provision
that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable,
and the invalidity or unenforceability of such provision shall not affect the
validity of the remaining provisions of this Note so long as this Note as so
modified continues to express, without material change, the original intentions
of the parties as to the subject matter hereof and the prohibited nature,
invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties.  The parties will endeavor in good faith
negotiations to replace the prohibited, invalid or unenforceable provision(s)
with a valid provision(s), the effect of which comes as close as possible to
that of the prohibited, invalid or unenforceable provision(s).

     

    (29)          NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Certificate of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, 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 of this Note, and will at all
times in good faith carry out all of the provisions of this Note and take all
action as may be required to protect the rights of the Holder of this
Note.


    
      
         


      

      
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    (30)          CERTAIN
DEFINITIONS.  For purposes of this Note, the following terms
shall have the following meanings:

     

    (a)           "Additional Make-Whole Conversion
Price" means, as of any date of determination, that price which shall be
the lower of (i) the price computed as 92% of the arithmetic average of the
Designated Prices and (ii) the applicable Conversion Price.  All such
determinations to be appropriately adjusted for any stock split, stock dividend,
stock combination or other similar transaction that proportionately decreases or
increases the Common Stock during such Additional Make-Whole Measuring
Period.

     

    (b)           "Adjustment Fraction" means a
fraction, the numerator of which is the number of shares of Common Stock issued
or issuable in the Dilutive Issuance and the denominator of which is the number
of shares of Common Stock issuable upon conversion of the Principal amount whose
then current Conversion Price is greater than the Applicable Price.

     

    (c)           "Affiliate" means any Person
that, directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a Person, as such terms are used
in and construed under Rule 144 under the Securities Act.

     

    (d)           "Approved Stock Plan" means any
employee benefit plan which has been approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to any
employee, officer, director or consultant for services provided to the
Company.

     

    (e)           "Bloomberg" means Bloomberg
Financial Markets.

     

    (f)           "Business Day" means any day
other than Saturday, Sunday or other day on which commercial banks in The City
of New York are authorized or required by law or executive order to remain
closed.

     

    (g)           "Change of Control" means any
Fundamental Transaction other than (A) any reorganization, recapitalization or
reclassification of the Common Stock in which holders of the Company's voting
power immediately prior to such reorganization, recapitalization or
reclassification continue after such reorganization, recapitalization or
reclassification to hold publicly traded securities and, 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, or (B) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.

     

    (h)           "Closing Bid Price" and "Closing Sale Price" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the
Holder.  If the Company and the Holder are unable to agree upon the
fair market value of such security, then such dispute shall be resolved pursuant
to Section 23.  All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination, reclassification or
other similar transaction during the applicable calculation
period.


    
      
         


      

      
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    (i)         
  "Closing
Date" shall have the meaning set forth in the Securities Purchase
Agreement, which date is the date the Company initially issued Notes pursuant to
the terms of the Securities Purchase Agreement.

     

    (j)        
   "Common Stock
Deemed Outstanding" means, at any given time, the number of shares of
Common Stock actually outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii)
hereof regardless of whether the Options or Convertible Securities are actually
exercisable at such time, but excluding any Common Stock owned or held by or for
the account of the Company or issuable upon conversion of the
Notes.

     

    (k)           "Company Conversion Price"
means the lowest of (i) the Company Pre-Installment Conversion Price, (ii) the
Company Post-Installment Conversion Price and (iii) the Conversion
Price.

     

    (l)        
   "Company
Post-Installment Conversion Price" means, as of any date of
determination, that price which shall be the lower of (i) the price computed as
92% of the arithmetic average of the Designated Prices and (ii) the applicable
Conversion Price.  All such determinations to be appropriately
adjusted for any stock split, stock dividend, stock combination or other similar
transaction that proportionately decreases or increases the Common Stock during
such Company Post-Installment Conversion Measuring Period.

     

    (m)          "Company Pre-Installment Conversion
Price" means, as of any date of determination, that price which shall be
the lower of (i) the price computed as 92% of the arithmetic average of the
Designated Prices and (ii) the applicable Conversion Price.  All such
determinations to be appropriately adjusted for any stock split, stock dividend,
stock combination or other similar transaction that proportionately decreases or
increases the Common Stock during such Company Pre-Installment Conversion
Measuring Period.

     

    (n)           "Contingent Obligation" means,
as to any Person, any direct or indirect liability or guaranty, contingent or
otherwise, of that Person with respect to any indebtedness, lease, dividend or
other obligation of another Person if the primary purpose or intent of the
Person incurring such liability, or the primary effect thereof, is to provide
assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such liability will be protected (in whole or in part)
against loss with respect thereto.


    
      
         


      

      
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    (o)           "Convertible Securities" means
any stock or securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for Common Stock.

     

    (p)           "Conversion Share Ratio" means
as to any applicable Installment Date, the quotient of (x) the number of
Pre-Installment Conversion Shares delivered in connection with such Installment
Date divided by (y) the number of Post-Installment Conversion Shares applicable
to such Installment Date.

     

    (q)           "Conversion Shares" means the
number of shares of Common Stock issued or issuable pursuant to this Note,
including, without limitation, the Make-Whole Shares and Installment Conversion
Shares.

     

    (r)      
     "Designated Prices" means, (i)
with respect to any Additional Make-Whole Conversion Price, each of the Weighted
Average Price of the Common Stock of each of the seventeen (17) Trading Days
selected by the Holder during the twenty (20) consecutive Trading Day period
beginning on the third (3rd) Trading Day immediately following the Conversion
Date (the "Additional
Make-Whole Measuring Period"), (ii) with respect to any Initial
Make-Whole Conversion Price, each of the Weighted Average Prices of the Common
Stock for each of the seventeen (17) Trading Days selected by the Holder during
the twenty (20) consecutive Trading Day period ending two (2) Trading Days prior
to the applicable Conversion Date (the "Initial Make-Whole Measuring
Period"), (iii) with respect to any Company Post-Installment Conversion
Price, each of the Weighted Average Prices of the Common Stock for each of the
seventeen (17) Trading Days selected by the Holder during the twenty (20)
consecutive Trading Day period ending two (2) Trading Days prior to the
applicable Installment Date (each, a "Company Post-Installment Conversion
Measuring Period"), and (iv) respect to any Company Pre-Installment
Conversion Price, each of the Weighted Average Prices of the Common Stock for
each of the seventeen (17) Trading Days selected by the Holder during the twenty
(20) consecutive Trading Day period ending twenty-four (24) Trading Days prior
to the applicable Installment Date (each, a "Company Pre-Installment Conversion
Measuring Period"); provided, that the seventeen (17) Trading Days
selected by the Holder shall be designated in a written notice to the Company
prior to the Trading Day immediately following the end of the applicable
measuring period; and provided, further, that in the event that the Holder fails
to deliver the written notice as provided hereunder, the Holder shall be deemed
to have delivered the written notice selecting the Weighted Average Prices
corresponding to the lowest seventeen (17) Trading Days in the applicable
measuring period.

     

    (s)           "Distribution" means, with
respect to any Person, the declaration or payment of any dividends by such
Person, or the purchase, redemption, retirement or other acquisition for value
of any of its capital stock or other equity now or hereafter outstanding, or the
making of any distribution of assets to its stockholders as such whether in
cash, assets or in obligations of such Person, or the allocation or other
setting apart of any sum for the payment of any dividend or distribution on, or
for the purchase, redemption, retirement or other acquisition of any shares of
its capital stock, or the making of any other distribution by reduction of
capital or otherwise in respect of any shares of its capital
stock.


    
      
         


      

      
        - 29
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    (t)           "Eligible Market" means the
Principal Market, The New York Stock Exchange, Inc., the American Stock
Exchange, The NASDAQ Capital Market, The NASDAQ Global Select Market or the OTC
Bulletin Board.

     

    (u)           "Equity Conditions"
means:  (i) on each day during the period beginning twenty (20)
Trading Days prior to the applicable date of determination and ending on and
including the applicable date of determination (each, an "Equity Conditions Measuring
Period"), either (x) the Registration Statement filed pursuant to the
Registration Rights Agreement shall be effective and available for the resale of
all Registrable Securities required to be covered thereby in accordance with the
terms of the Registration Rights Agreement and no Event (as defined in the
Registration Rights Agreement) shall have occurred and be continuing or (y) all
shares of Common Stock issuable upon conversion of the Notes shall be eligible
for sale without restriction and without the need for registration under any
applicable federal or state securities laws; (ii) on each day during the Equity
Conditions Measuring Period, the Common Stock is designated for quotation on an
Eligible Market and shall not have been suspended from trading on such exchange
or market (other than suspensions of not more than two days and occurring prior
to the applicable date of determination due to business announcements by the
Company) nor shall delisting or suspension by such exchange or market been
threatened or pending either (A) in writing by such exchange or market (other
than a notice from the Principal Market to the effect that the common stock does
not satisfy Nasdaq Marketplace Rule 4310(c)(4) (the "Minimum Bid Price Rule"), and
that in accordance with the rules of the Principal Market, the Company will be
provided 180 calendar days to regain compliance with the Minimum Bid Price Rule
or be delisted from the Principal Market) or (B) by falling below the minimum
listing maintenance requirements of all such Eligible Markets; (iii) during the
one (1) year period ending on and including the date immediately preceding the
applicable date of determination, the Company shall have delivered Conversion
Shares upon conversion of the Notes to the holders on a timely basis as set
forth in Section 3(c)(ii) hereof (and analogous provisions under the Other
Notes); (iv) any applicable shares of Common Stock to be issued in connection
with the event requiring determination may be issued in full without violating
Section 3(e) hereof and the rules or regulations of the Principal Market; (v)
during the Equity Conditions Measuring Period, the Company shall not have failed
to timely make any payments within five (5) Business Days of when such payment
is due pursuant to any Transaction Document; (vi) during the Equity Conditions
Measuring Period, there shall not have occurred either (A) the public
announcement of a pending, proposed or intended Fundamental Transaction which
has not been abandoned, terminated or consummated or (B) an Event of Default or
an event that with the passage of time or giving of notice would constitute an
Event of Default; (vii) the Company shall have no knowledge of any fact that
would cause (x) the Registration Statements required pursuant to the
Registration Rights Agreement not to be effective and available for the resale
of all remaining Registrable Securities in accordance with the terms of the
Registration Rights Agreement or (y) any shares of Common Stock issuable upon
conversion of the Notes not to be eligible for sale without restriction pursuant
to Rule 144 and any applicable federal and state securities laws; (viii) the
Stockholder Approval (as defined in the Securities Purchase Agreement) shall
have been obtained; and (ix) the Company otherwise shall have been in material
compliance with and shall not have materially breached any provision, covenant,
representation or warranty of any Transaction Document.


    
      
         


      

      
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    (v)           "Equity Conditions Failure"
means that (i) on any day during the period commencing twenty (20) Trading Days
prior to the applicable Company Installment Notice Date through the applicable
Installment Date or (ii) on any day during the period commencing ten (10)
Trading Days prior to the applicable Conversion Date through the applicable
Make-Whole Settlement Date, the Equity Conditions have not been satisfied (or
waived in writing by the Holder).

     

    (w)          "Excluded Securities" means any
Common Stock issued or issuable: (i) in connection with any Approved Stock Plan;
(ii) as Conversion Shares; (iii) upon conversion of any Options or Convertible
Securities which are outstanding on the day immediately preceding the
Subscription Date, provided that the terms of such Options or Convertible
Securities are not amended, modified or changed on or after the Subscription
Date (other than pursuant to the terms of such Options or Convertible Securities
as in existence on the Subscription Date), (iv) in connection with a strategic
partnership or a joint venture, the primary purpose of which is not to raise
equity capital, and (v) as consideration to the sellers (whether through an
acquisition of stock or a merger of any business, assets or technologies) of any
business, assets or technologies that are strategic to the Company and the
primary purpose of which is not to raise equity capital.

     

    (x)           "Fundamental Transaction" means
that the Company shall, directly or indirectly, in one or more related
transactions, (i) consolidate or merge with or into (whether or not the Company
is the surviving corporation) another Person or Persons, or (ii) sell, assign,
transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company to another Person, or (iii) allow another
Person to make a purchase, tender or exchange offer that is accepted by the
holders of more than 50% of the outstanding shares of Voting Stock (not
including any shares of Voting Stock held by the Person or Persons making or
party to, or associated or affiliated with the Persons making or party to, such
purchase, tender or exchange offer), or (iv) consummate a stock purchase
agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Voting Stock (not including any shares of Voting Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), or (v) reorganize, recapitalize or
reclassify its Common Stock or (vi) any "person" or "group" (as these terms are
used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall
become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 50% of the aggregate Voting Stock of the
Company.

     

    (y)           "GAAP" means United States
generally accepted accounting principles, consistently applied.

     

    (z)           "Indebtedness" of any Person
means, without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services, (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) off-balance sheet liabilities retained in
connection with asset securitization programs, synthetic leases, sale and
leaseback transactions or other similar obligations arising with respect to any
other transaction which is the functional equivalent of or takes the place of
borrowing but which does not constitute a liability on the consolidated balance
sheet of such Person and its subsidiaries, and (H) all indebtedness referred to
in clauses (A) through (G) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in any property or assets (including accounts and contract
rights) owned by any Person, even though the Person which owns such assets or
property has not assumed or become liable for the payment of such indebtedness,
and (I) all Contingent Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (A) through (H)
above.


    
      
         


      

      
        - 31
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    (aa)         "Initial Make-Whole Conversion
Price" means, as of any date of determination, that price which shall be
the lower of (i) the price computed as 92% of the arithmetic average of the
Designated Prices and (ii) the applicable Conversion Price.  All such
determinations to be appropriately adjusted for any stock split, stock dividend,
stock combination or other similar transaction that proportionately decreases or
increases the Common Stock during such Initial Make-Whole Measuring
Period.

     

    (bb)        "Installment Amount" means,
with respect to any Installment Date, the lesser of (i) 1/11th of the
Original Principal Amount of this Note and (ii) the Principal amount outstanding
under this Note as of such Installment Date, as any such Installment Amount may
be reduced pursuant to the terms of this Note, whether upon conversion,
redemption or otherwise.

     

    (cc)         "Installment Balance Conversion
Shares" means, for any Installment Date, a number of shares of Common
Stock equal to (i) the Post-Installment Conversion Shares for such date minus
(ii) the amount of any Pre-Installment Conversion Shares delivered before or on
such date; provided that in the event that the amount of Pre-Installment
Conversion Shares exceeds the Post-Installment Conversion Shares for such date,
the Installment Balance Conversion Shares shall equal zero (0).

     

    (dd)        "Installment Date" means each
of the following dates: February 15, 2009, May 15, 2009, August 15, 2009,
November 15, 2009, February 15, 2010, May 15, 2010, August 15, 2010, November
15, 2010, February 15, 2011, May 15, 2011 and August 15, 2011.


    
      
         


      

      
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    (ee)         "Installment Period" means the
period from the Installment Notice Due Date until the applicable Installment
Date.

     

    (ff)          "Interest Rate" means ten percent
(10.0%) per annum, subject to adjustment as set forth in Section 2.

     

    (gg)        "Lien" means any mortgage,
lien, pledge, charge, security interest or other encumbrance.

     

    (hh)        "Make-Whole Amount" means, as
to any Conversion Amount being converted pursuant to Section 3 hereof, an amount
equal to the amount of Interest that, but for the applicable conversion, would
have been paid to the Holder on such Conversion Amount from the applicable
Conversion Date with respect to such Conversion Amount through the Maturity
Date; provided, however, that in no event will the Make-Whole Amount exceed an
amount of Interest in excess of twenty-one (21) months of Interest on such
Conversion Amount.

     

    (ii)           "Make-Whole Balance Shares"
means, for any Make-Whole Settlement Date, a number of shares of Common Stock
equal to (i) the Post-Conversion Make-Whole Shares for such date minus
(ii) the amount of any Initial Make-Whole Shares delivered on the applicable
Share Delivery Date; provided that in the event that the amount of Initial
Make-Whole Shares exceeds the Post-Conversion Make-Whole Shares for such date,
the Make-Whole Balance Shares shall equal zero (0).

     

    (jj)           "Make-Whole Shares" means the
Initial Make-Whole Shares and the Make-Whole Balance Shares.

     

    (kk)         "Options" means any rights,
warrants or options to subscribe for or purchase Common Stock or Convertible
Securities.

     

    (ll)           "Parent Entity" of a Person
means an entity that, directly or indirectly, controls the applicable Person and
whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.

     

    (mm)       "Permitted Indebtedness" means
(i) Indebtedness incurred by the Company that is made expressly subordinate in
right of payment to the Indebtedness evidenced by this Note, as reflected in a
written agreement acceptable to the Required Holders and approved by the
Required Holders in writing, and which Indebtedness does not provide at any time
for (1) the payment, prepayment, repayment, repurchase or defeasance, directly
or indirectly, of any principal or premium, if any, thereon until ninety-one
(91) days after the Maturity Date or later and (2) total interest and fees at a
rate in excess of ten percent (10.0%) per annum, (ii) Indebtedness secured by
Permitted Liens, (iii) Indebtedness to trade creditors incurred in the ordinary
course of business consistent with past practice and not outstanding for more
than 120 days after the date such payable was created, (iv) extensions,
refinancings and renewals of any items described in clauses (i) through (iii)
hereof, provided that the principal amount is not increased or the terms
modified to impose more burdensome terms upon the Company or its Subsidiary, as
the case may be, (v) the Indebtedness incurred under the Senior Credit Facility
and (vi) the Letter of Credit (as defined in the Securities Purchase
Agreement).


    
      
         


      

      
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    (nn)        "Permitted Liens" means (i) any
Lien for taxes not yet due or delinquent or being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of
business by operation of law with respect to a liability that is not yet due or
delinquent, (iii) any Lien created by operation of law, such as materialmen's
liens, mechanics' liens and other similar liens, arising in the ordinary course
of business with respect to a liability that is not yet due or delinquent or
that are being contested in good faith by appropriate proceedings, (iv) Liens
securing the Company's obligations under the Senior Credit Facility, (v) Liens
(A) upon or in any equipment acquired or held by the Company or any of its
Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition or lease of such
equipment, or (B) existing on such equipment at the time of its acquisition,
provided that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such equipment, (vi) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clause (iv) or (v) above, provided
that any extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the Indebtedness
being extended, renewed or refinanced does not increase, (vii) leases or
subleases and licenses and sublicenses granted to others in the ordinary course
of the Company's business, not interfering in any material respect with the
business of the Company and its Subsidiaries taken as a whole, and (viii) Liens
in favor of customs and revenue authorities arising as a matter of law to secure
payments of custom duties in connection with the importation of
goods.

     

    (oo)        "Person" means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity  and a
government or any department or agency thereof.

     

    (pp)        "Post-Conversion Make-Whole
Shares" with respect to any conversion, means a number of shares of
Common Stock equal to the applicable Company Make-Whole Conversion Amount for
such Conversion Date divided
by the Additional Make-Whole Conversion Price (without taking into
account the delivery of any Initial Make-Whole Shares).

     

    (qq)        "Post-Installment Conversion
Shares" means, for any Installment Date, that number of shares of Common
Stock equal to the applicable Company Conversion Amount for such Installment
Date divided
by the Company Post-Installment Conversion Price (without taking into
account the delivery of any Pre-Installment Conversion Shares).

     

    (rr)          "Principal Market" means The
NASDAQ Global Market.

     

    (ss)    
    "Redemption Notice" means each of the
Event of Default Redemption Notice, the Change of Control Redemption Notice, any
Company Installment Notice electing a Company Installment Redemption, any
Company Optional Redemption Notice electing a Company Optional Redemption and
any Make-Whole Election electing a Company Make-Whole Redemption (collectively
the "Redemption
Notices").


    
      
         


      

      
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    (tt)           "Redemption Premium" means (i)
in the case of the Events of Default described in Section 4(a)(i) - (vi) and
(ix) - (xii), 125% or (ii) in the case of the Events of Default described in
Section 4(a)(vii) - (viii), 100%.

     

    (uu)         "Redemption Price" means each
of the Event of Default Redemption Price, the Change of Control Redemption
Price, the Company Installment Redemption Price, the Company Optional Redemption
Price and the Company Make-Whole Redemption Amount (collectively, the "Redemption
Prices").

     

    (vv)         "Registration Rights Agreement"
means that certain registration rights agreement between the Company and the
initial holders of the Notes relating to, among other things, the registration
of the resale of the Common Stock issuable upon conversion of the
Notes.

     

    (ww)       "Required Holders" means the
holders of Notes representing at least a majority of the aggregate principal
amount of the Notes then outstanding.

     

    (xx)          "Restricted Actions" means any
of the following actions:

     

    (i)           incur
or guarantee, assume or suffer to exist any Indebtedness, other than (A) the
Indebtedness evidenced by this Note and the Other Notes and (B) Permitted
Indebtedness;

     

    (ii)          allow
or suffer to exist any Lien upon or in any property or assets (including
accounts and contract rights) owned by the Company or any of its Subsidiaries
other than Permitted Liens;

     

    (iii)         create,
incur, assume or suffer to exist any obligation as lessee for the rental or hire
of any Property, except (A) leases existing on the Issuance Date, and any
extensions, supplements, replacements or renewals thereof and (B) leases not to
exceed $50,000 in the aggregate;

     

    (iv)         redeem,
defease, repurchase, repay or make any payments in respect of, by the payment of
cash or cash equivalents (in whole or in part, whether by way of open market
purchases, tender offers, private transactions or otherwise), all or any portion
of any Permitted Indebtedness, whether by way of payment in respect of principal
of (or premium, if any) or interest on, such Indebtedness if at the time such
payment is due or is otherwise made or, after giving effect to such payment, an
event constituting, or that with the passage of time and without being cured
would constitute, an Event of Default has occurred and is
continuing;

     

    (v)          make
any loan or advance to any Person (other than travel advances to employees
incurred in the ordinary course of business) or any purchase or other
acquisition of any capital stock, assets, obligations or other securities of any
Person, or any capital contribution to, investment in, or other acquisition of
any interest in, any Person;


    
      
         


      

      
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    (vi)        make
any Distribution, except that any Subsidiary may make Distributions to the
Company or any other Person who wholly owns such Subsidiary;

     

    (vii)       enter
into any agreement with respect to any of the foregoing provisions (i) through
(vi).

     

    (yy)         "SEC" means the United States
Securities and Exchange Commission.

     

    (zz)          "Securities Purchase Agreement"
means that certain securities purchase agreement dated as of the Subscription
Date by and among the Company and the initial holders of the Notes pursuant to
which the Company issued the Notes.

     

    (aaa)       "Senior Credit Facility" means
Indebtedness in favor of a commercial bank in the business of lending money;
provided, however, that the aggregate Indebtedness incurred hereunder shall not
exceed $15,000,000 outstanding at any time and any increases to an existing
Senior Credit Facility or new Senior Credit Facility shall be on terms and in
form substantially similar to the Company’s existing Senior Credit
Facility.

     

    (bbb)      "Subscription Date" means
August 14, 2008

     

    (ccc)       "Subsidiary" means, in respect
of any Person, (a) any corporation, association or other business entity of
which 50% or more of the total voting power of shares of capital stock or other
equity interest entitled (without regard to the occurrence of any contingency)
to vote in the election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by such Person or one or more
of the other subsidiaries of that Person (or a combination thereof) and (b) any
partnership (i) the sole general partner or managing general partner of which is
such Person or a subsidiary of such Person or (ii) the only general partners of
which are (a) such Person or (b) one or more subsidiaries of such Person (or any
combination thereof).

     

    (ddd)      "Successor Entity" means the
Person, which may be the Company, formed by, resulting from or surviving any
Fundamental Transaction or the Person with which such Fundamental Transaction
shall have been made, provided that if such Person is not a publicly traded
entity whose common stock or equivalent equity security is quoted or listed for
trading on an Eligible Market, Successor Entity shall mean such Person's Parent
Entity.

     

    (eee)       "Trading Day" means any day on
which the Common Stock is traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is
then traded; provided that "Trading Day" shall not include any day on which the
Common Stock is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York
Time).


    
      
         


      

      
        - 36
-

        
          

        

      

      
         


      

    


    (fff)         "Voting Stock" of a Person
means capital stock of such Person of the class or classes pursuant to which the
holders thereof have the general voting power to elect, or the general power to
appoint, at least a majority of the board of directors, managers or trustees of
such Person (irrespective of whether or not at the time capital stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).

     

    (ggg)      "Weighted Average Price" means,
for any security as of any date, the dollar volume-weighted average price for
such security on the Principal Market during the period beginning at 9:30:01
a.m., New York Time (or such other time as the Principal Market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York
Time (or such other time as the Principal Market publicly announces is the
official close of trading) as reported by Bloomberg through its "Volume at
Price" functions, or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York Time (or such other time as such market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York
Time (or such other time as such market publicly announces is the official close
of trading) as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by Pink Sheets
LLC (formerly the National Quotation Bureau, Inc.).  If the Weighted
Average Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Weighted Average Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
Holder.  If the Company and the Holder are unable to agree upon the
fair market value of such security, then such dispute shall be resolved pursuant
to Section 23.  All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination, reclassification or
other similar transaction during the applicable calculation period.

     

    (31)           DISCLOSURE. Upon
receipt or delivery by the Company of any notice in accordance with the terms of
this Note, unless the Company has in good faith determined that the matters
relating to such notice do not constitute material, nonpublic information
relating to the Company or its Subsidiaries, the Company shall within one (1)
Business Day after any such receipt or delivery publicly disclose such material,
nonpublic information on a Current Report on Form 8-K or
otherwise.  In the event that the Company believes that a notice
contains material, nonpublic information relating to the Company or its
Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the
Holder shall be allowed to presume that all matters relating to such notice do
not constitute material, nonpublic information relating to the Company or its
Subsidiaries.

     

    [Signature
Page Follows]


    
      
         


      

      
        - 37
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    IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the
Issuance Date set out above.

     

    
    

     

    
      	 	
              AROTECH
      CORPORATION

            
	 	 	 
	 	 	 
	 	By:	 
	 	 	
              Name:

            
	 	 	
              Title:

            


    

    

      
        
           


        

        
          
          

          
            

          

        

        
           


        

      

    

     

    EXHIBIT
I

     

    AROTECH
CORPORATION

    CONVERSATION
NOTICE

     

    Reference
is made to the Senior Convertible Note (the "Note") issued to the
undersigned by Arotech Corporation (the "Company").  In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into shares of Common Stock par value $0.01 per share (the "Common Stock"), as of the date
specified below.

     

     

    
      	
              Date
      of Conversion:

            	 
      


    

     

    
      	
              Aggregate Conversion Amount to be converted:

            	 
      


    

     

    
      	
              Installment Amount to be reduced:

            	 
      


    

     

    
      	
              Please
      confirm the following information:

            


    

     

    
      	
              Conversion
      Price:

            	 
      


    

     

    
      	
              Number
      of shares of Common Stock to be issued:

            	 
      


    

     

    
      	
              With
      respect to any Make-Whole Shares, select the 17

              Trading
      Days that shall be used to calculate the Initial

              Make-Whole
      Conversion Price:

            	
               

            
	 


    

     

    
      Notwithstanding
anything to the contrary contained herein, this Conversion Notice shall
constitute a representation by the Holder of the Note submitting this Conversion
Notice that, after giving effect to the conversion provided for in this
Conversion Notice, such Holder (together with its affiliates) will not have
beneficial ownership (together with the beneficial ownership of such Person's
affiliates) of a number of shares of Common Stock which exceeds the maximum
percentage of the total outstanding shares of Common Stock as determined
pursuant to the provisions of Section 3(e) of the Note.

       

      Please
issue the Common Stock into which the Note is being converted in the following
name and to the following address:

    

     

    
      	
              Issue
      to:

            	 
      
	 
      	 
      
	 	 
	 
      	 
      
	 	 


    

     

    
      	
              Facsimile
      Number:

            	 
      


    

     

    
      	
              Authorization:

            	 
      


    

     

    
      	
              By:

            	 
      


    

     

    
      	
              Title:

            	 
      


    

     

    
      	
              Dated:

            	 
      


    

     

    
      	
              Account
      Number:

            	 
      


    

    
       (if
electronic book entry transfer)

    

     

    
      	
              Transaction
      Code Number:

            	 
      


    

    
       (if
electronic book entry transfer)

    


    
      
         


      

      
        - 39
-

        
          

        

      

      
         


      

    


    ACKNOWLEDGMENT

     

    The
Company hereby acknowledges this Conversion Notice and hereby directs American
Stock Transfer and Trust Company to issue the above indicated number of shares
of Common Stock in accordance with the Transfer Agent Instructions dated
_______________, 2008 from the Company and acknowledged and agreed to by
American Stock Transfer and Trust Company.

     

    


    
      	
               

            	
              AROTECH
      CORPORATION

            
	 	 	 
	 	 	 
	
                                                                             

            	By: 	 
	
               

            	 	Name:
	
               

            	 	
              Title: