Exhibit 4.3


    Exhibit
      4.3

     

    

      EXHIBIT
        A

      


      NEITHER
        THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
        HAVE
        BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
        COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
        THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
        MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
        STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
        FROM,
        OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
        SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
        EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
        THE
        SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
        AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED
        IN
        CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
        SECURITIES.

      


      Original
        Issue Date: December __, 2006

      Original
        Conversion Price (subject to adjustment herein): $1.54

      


      $________

      


      


      ORIGINAL
        ISSUE DISCOUNT 6% SENIOR CONVERTIBLE DEBENTURE

      DUE
        DECEMBER 31, 2008

      


      This
        ORIGINAL ISSUE DISCOUNT 6% SENIOR CONVERTIBLE DEBENTURE is one of a series
        of
        duly authorized and validly issued Original Issue Discount 6% Senior Convertible
        Debentures of Telanetix, Inc., a Delaware corporation (the “Company”),
        having its principal place of business at 6197 Cornerstone Court E, Suite
        108,
        San Diego, California 92121, designated as its Original Issue Discount 6%
        Senior
        Convertible Debenture due December 31, 2008 (this debenture, the “Debenture”
and,
        collectively with the other such series of debentures, the “Debentures”).

      


      FOR
        VALUE
        RECEIVED, the Company promises to pay to ________ or its registered assigns
        (the
“Holder”),
        or
        shall have paid pursuant to the terms hereunder, the principal sum of
        $_______________ on December 31, 2008 (the “Maturity
        Date”)
        or
        such earlier date as this Debenture is required or permitted to be repaid
        as
        provided hereunder, and to pay interest to the Holder on the aggregate
        unconverted and then outstanding principal amount of this Debenture in
        accordance with the provisions hereof. This Debenture is subject to the
        following additional provisions:

      


      Section
        1. Definitions.
        For the
        purposes hereof, in addition to the terms defined elsewhere in this Debenture,
        (a) capitalized terms not otherwise defined herein shall have the meanings
        set
        forth in the Purchase Agreement and (b) the following terms shall have the
        following meanings:

      


      “Alternate
        Consideration”
shall
        have the meaning set forth in Section 5(e).

      


      “Bankruptcy
        Event”
means
        any of the following events: (a) the Company or any Significant Subsidiary
        (as
        such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences
        a case
        or other proceeding under any bankruptcy, reorganization, arrangement,
        adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
        or
        similar law of any jurisdiction relating to the Company or any Significant
        Subsidiary thereof; (b) there is commenced against the Company or any
        Significant Subsidiary thereof any such case or proceeding that is not dismissed
        within 60 days after commencement; (c) the Company or any Significant Subsidiary
        thereof is adjudicated insolvent or bankrupt or any order of relief or other
        order approving any such case or proceeding is entered; (d) the Company or
        any
        Significant Subsidiary thereof suffers any appointment of any custodian or
        the
        like for it or any substantial part of its property that is not discharged
        or
        stayed within 60 calendar days after such appointment; (e) the Company or
        any
        Significant Subsidiary thereof makes a general assignment for the benefit
        of
        creditors; (f) the Company or any Significant Subsidiary thereof calls a
        meeting
        of its creditors with a view to arranging a composition, adjustment or
        restructuring of its debts; or (g) the Company or any Significant Subsidiary
        thereof, by any act or failure to act, expressly indicates its consent to,
        approval of or acquiescence in any of the foregoing or takes any corporate
        or
        other action for the purpose of effecting any of the foregoing.

      


      “Base
        Conversion Price”
shall
        have the meaning set forth in Section 5(b).

      


      “Business
        Day”
means
        any day except Saturday, Sunday, any day which shall be a federal legal holiday
        in the United States or any day on which banking institutions in the State
        of
        New York are authorized or required by law or other governmental action to
        close.

      


      “Buy-In”
shall
        have the meaning set forth in Section 4(d)(v).

      


      “Change
        of Control Transaction”
means
        the occurrence after the date hereof of any of (i) an acquisition after the
        date
        hereof by an individual or legal entity or “group” (as described in Rule
        13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
        through legal or beneficial ownership of capital stock of the Company, by
        contract or otherwise) of in excess of 33% of the voting securities of the
        Company (other than by means of conversion or exercise of the Debentures
        and the
        Securities issued together with the Debentures), or (ii) the Company merges
        into
        or consolidates with any other Person, or any Person merges into or consolidates
        with the Company and, after giving effect to such transaction, the stockholders
        of the Company immediately prior to such transaction own less than 50% of
        the
        aggregate voting power of the Company or the successor entity of such
        transaction, or (iii) the Company sells or transfers all or substantially
        all of
        its assets to another Person and the stockholders of the Company immediately
        prior to such transaction own less than 50% of the aggregate voting power
        of the
        acquiring entity immediately after the transaction, or (iv) a replacement
        at one
        time or within a three year period of more than one-half of the members of
        the
        Company’s board of directors which is not approved by a majority of those
        individuals who are members of the board of directors on the date hereof
        (or by
        those individuals who are serving as members of the board of directors on
        any
        date whose nomination to the board of directors was approved by a majority
        of
        the members of the board of directors who are members on the date hereof),
        or
        (v) the execution by the Company of an agreement to which the Company is
        a party
        or by which it is bound, providing for any of the events set forth in clauses
        (i) through (iv) above.

      


      “Closing
        Price”
means
        on any particular date (a) the last reported closing bid price per share of
        Common Stock on such date on the Trading Market (as reported by Bloomberg
        L.P.
        at 4:15 p.m. (New York City time)), or (b) if there is no such price on such
        date, then the closing bid price on the Trading Market on the date nearest
        preceding such date (as reported by Bloomberg L.P. at 4:15 p.m. (New York
        City
        time)), or (c)  if the Common Stock is not then listed or quoted on the
        Trading Market and if prices for the Common Stock are then reported in the
“pink
        sheets” published by Pink Sheets LLC (or a similar organization or agency
        succeeding to its functions of reporting prices), the most recent bid price
        per
        share of the Common Stock so reported, or (d) if the shares of Common Stock
        are not then publicly traded the fair market value of a share of Common Stock
        as
        determined by an appraiser selected in good faith by the Purchasers of a
        majority in interest of the Shares then outstanding.

      


      “Common
        Stock”
means
        the common stock, par value $0.0001 per share, of the Company and stock of
        any
        other class of securities into which such securities may hereafter be
        reclassified or changed into.

      


      “Conversion
        Date”
shall
        have the meaning set forth in Section 4(a).

      


      “Conversion
        Price”
shall
        have the meaning set forth in Section 4(b).

      


      “Conversion
        Shares”
means,
        collectively, the shares of Common Stock issuable upon conversion of this
        Debenture in accordance with the terms hereof.

      


      “Current
        Ratio”
means
        the current assets of the Company divided by the current liabilities of the
        Company, each as determined according to GAAP.

      


      “Debenture
        Register”
shall
        have the meaning set forth in Section 2(c).

      


      “Dilutive
        Issuance”
shall
        have the meaning set forth in Section 5(b).

      


      “Dilutive
        Issuance Notice”
shall
        have the meaning set forth in Section 5(b).

      


      “Effectiveness
        Period”
shall
        have the meaning set forth in the Registration Rights Agreement. 

      


      “Equity
        Conditions”
means,
        during the period in question, (i)
        the
        Company shall have duly honored all conversions and redemptions scheduled
        to
        occur or occurring by virtue of one or more Notices of Conversion of the
        Holder,
        if any, (ii) the Company shall have paid all liquidated damages and other
        amounts owing to the Holder in respect of this Debenture, (iii)
        there is an effective Registration Statement pursuant to which the Holder
        is
        permitted to utilize the prospectus thereunder to resell all of the shares
        issuable pursuant to the Transaction Documents (and the Company believes,
        in
        good faith, that such effectiveness will continue uninterrupted for the
        foreseeable future), (iv) after the payment by the Company of the Interest
        Share
        Amount or the Monthly Redemption Share Amount, as applicable, there are a
        sufficient number of shares of Common Stock registered on the effective
        Registration Statement to permit the conversion of the then outstanding
        Principal Amount of this Debenture and the exercise of all then outstanding
        Warrants issued to the holder of this Debenture, (v) the Common Stock is
        trading
        on a Trading Market and all of the shares issuable pursuant to the Transaction
        Documents are listed or quoted for trading on such Trading Market (and the
        Company believes, in good faith, that trading of the Common Stock on a Trading
        Market will continue uninterrupted for the foreseeable future), (vi) there
        is a
        sufficient number of authorized but unissued and otherwise unreserved shares
        of
        Common Stock for the issuance of all of the shares issuable pursuant to the
        Transaction Documents, (vii) there is no existing Event of Default or no
        existing event which, with the passage of time or the giving of notice, would
        constitute an Event of Default, (viii) the issuance of the shares in question
        (or, in the case of an Optional Redemption or Monthly Redemption, the shares
        issuable upon conversion in full of the Optional Redemption Amount or Monthly
        Redemption Amount) to
        the
        Holder would not violate the limitations set forth in Section 4(c) herein,
        (ix)
        there has been no public announcement of a pending or proposed Fundamental
        Transaction or Change of Control Transaction that has not been consummated,
        (x)
        the Holder is not in possession of any information provided by the Company
        that
        constitutes, or may constitute, material non-public information and (xi)
        for a
        period of 20 consecutive Trading Days prior to the applicable date in question,
        the daily dollar trading volume for the Common Stock on the principal Trading
        Market exceeds $75,000 per Trading Day (subject to adjustment for forward
        and
        reverse stock splits and the like) (based on the total shares traded and
        the
        VWAP on the applicable day), provided that the requirement set forth in this
        clause (xi) shall not apply in connection with Section 6(a) herein.

      


      “Event
        of Default”
shall
        have the meaning set forth in Section 8.

      


      “Exchange
        Act”
means
        the Securities Exchange Act of 1934, as amended, and the rules and regulations
        promulgated thereunder.

      


        “Forced
        Conversion”
shall
        have the meaning set forth in Section 6(d).

      


      “Forced
        Conversion Date”
shall
        have the meaning set forth in Section 6(d).

      


      “Forced
        Conversion Notice”
shall
        have the meaning set forth in Section 6(d).

      


      “Forced
        Conversion Notice Date”
shall
        have the meaning set forth in Section 6(d).

      


      “Fundamental
        Transaction”
shall
        have the meaning set forth in Section 5(e).

       

      “Interest
        Conversion Rate”
means
        the
        lesser of (a) the Conversion Price or (b) 85%
        of
        the lesser of (i) the average of the VWAPs for the 10 consecutive Trading
        Days
        ending on the Trading Day that is immediately prior to the applicable Interest
        Payment Date or (ii) the average of the VWAPs for the 10 consecutive Trading
        Days ending on the Trading Day that is immediately prior to the date the
        applicable Interest Conversion Shares are issued and delivered if after the
        Interest Payment Date.

      


      “Interest
        Conversion Shares”
shall
        have the meaning set forth in Section 2(a).

      


      “Interest
        Notice Period”
shall
        have the meaning set forth in Section 2(a).

       

      “Interest
        Payment Date”
shall
        have the meaning set forth in Section 2(a).

      


      “Interest
        Share Amount”
shall
        have the meaning set forth in Section 2(a).

      


      “Late
        Fees”
shall
        have the meaning set forth in Section 2(d).

      


      “Mandatory
        Default Amount”
means
        the sum of (i) the greater of (A) 130% of the outstanding principal amount
        of
        this Debenture, plus all accrued and unpaid interest hereon, or (B) the
        outstanding principal amount of this Debenture, plus all accrued and unpaid
        interest hereon, divided by the Conversion Price on the date the Mandatory
        Default Amount is either (a) demanded (if demand or notice is required to
        create
        an Event of Default) or otherwise due or (b) paid in full, whichever has
        a lower
        Conversion Price, multiplied by the VWAP on the date the Mandatory Default
        Amount is either (x) demanded or otherwise due or (y) paid in full, whichever
        has a higher VWAP, and (ii) all other amounts, costs, expenses and liquidated
        damages due in respect of this Debenture.

      


      “Monthly
        Conversion Period”
shall
        have the meaning set forth in Section 6(b) hereof.

       

      “Monthly
        Conversion Price”
shall
        have the meaning set forth in Section 6(b) hereof. 

       

      “Monthly
        Redemption”
means
        the redemption of this Debenture pursuant to Section 6(b) hereof. 

       

      “Monthly
        Redemption Amount”
means,
        as to a Monthly Redemption, $___,1 
        1/18 of the Principal Amount of this Debenture on the Original Issue
        Date.
        plus
        accrued but unpaid interest, liquidated damages and any other amounts then
        owing
        to such Holder in respect of this Debenture.

      


      “Monthly
        Redemption Date”
means
        July 1, 2006 and each monthly anniversary of such date until the full redemption
        of this Debenture. 

      


      “Monthly
        Redemption Notice”
shall
        have the meaning set forth in Section 6(b) hereof. 

       

      “Monthly
        Redemption Share Amount”
shall
        have the meaning set forth in Section 6(b) hereof. 

      


      “New
        York Courts”
shall
        have the meaning set forth in Section 9(d).

      


      “Notice
        of Conversion”
shall
        have the meaning set forth in Section 4(a).

      


      “Optional
        Redemption”
shall
        have the meaning set forth in Section 6(a).

      


      “Optional
        Redemption Amount”
means
        the sum of (i) 120% of the then outstanding Principal Amount of the Debenture,
        (ii) accrued but unpaid interest and (iii) all liquidated damages and other
        amounts due in respect of the Debenture.

      


      “Optional
        Redemption Date”
shall
        have the meaning set forth in Section 6(a).

      


      “Optional
        Redemption Notice”
shall
        have the meaning set forth in Section 6(a).

      


      “Optional
        Redemption Notice Date”
shall
        have the meaning set forth in Section 6(a).

      


      “Original
        Issue Date”
means
        the date of the first issuance of the Debentures, regardless of any transfers
        of
        any Debenture and regardless of the number of instruments which may be issued
        to
        evidence such Debentures.

      


      “Permitted
        Indebtedness”
        means (a) the
        Indebtedness existing on the Original Issue Date and set forth on Schedule
        3.1(aa)
        attached
        to the Purchase Agreement, (b) lease obligations and purchase money indebtedness
        of up to $150,000, in the aggregate, incurred in connection with the acquisition
        of capital assets and lease obligations with respect to newly acquired or
        leased
        assets, (c) indebtedness to a national- or state-chartered bank under a credit
        facility, provided that such credit facility (i) may only be collateralized
        by
        accounts receivable and inventory and (ii) must be principally applied by
        the
        Company to acquiring or paying for inventory in connection with a purchase
        order
        and (d) indebtedness that (i) is expressly subordinate to the Debentures
        pursuant to a written subordination agreement with the Purchasers that is
        acceptable to each Purchaser in its sole and absolute discretion and (ii)
        matures at a date later than the Maturity Date.

      


      “Permitted
        Lien”
means
        the individual and collective reference to the following: (a) Liens for taxes,
        assessments and other governmental charges or levies not yet due or Liens
        for
        taxes, assessments and other governmental charges or levies being contested
        in
        good faith and by appropriate proceedings for which adequate reserves (in
        the
        good faith judgment of the management of the Company) have been established
        in
        accordance with GAAP; (b) Liens imposed by law which were incurred in the
        ordinary course of the Company’s business, such as carriers’, warehousemen’s and
        mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
        the ordinary course of the Company’s business, and which (x) do not individually
        or in the aggregate materially detract from the value of such property or
        assets
        or materially impair the use thereof in the operation of the business of
        the
        Company and its consolidated Subsidiaries or (y) are being contested in good
        faith by appropriate proceedings, which proceedings have the effect of
        preventing for the foreseeable future the forfeiture or sale of the property
        or
        asset subject to such Lien; (c) Liens incurred in connection with Permitted
        Indebtedness under clause (a) thereunder; and (d) Liens incurred in connection
        with Permitted Indebtedness under clause (b) thereunder, provided that such
        Liens are not secured by assets of the Company or its Subsidiaries other
        than
        the assets so acquired or leased.

       

      “Person”
means
        an individual or corporation, partnership, trust, incorporated or unincorporated
        association, joint venture, limited liability company, joint stock company,
        government (or an agency or subdivision thereof) or other entity of any
        kind.

      


      “Pre-Redemption
        Conversion Shares”
shall
        have the meaning set forth in Section 6(b) hereof. 

      


      “Purchase
        Agreement”
means
        the Securities Purchase Agreement, dated as of December 28, 2006, among the
        Company and the original Holders, as amended, modified or supplemented from
        time
        to time in accordance with its terms.

      


      “Registration
        Rights Agreement”
means
        the Registration Rights Agreement, dated as of the date of the Purchase
        Agreement, among the Company and the original Holders, as amended, modified
        or
        supplemented from time to time in accordance with its terms.

      


      “Registration
        Statement”
means
        a
        registration statement that registers the resale of all Conversion Shares
        and
        Interest Conversion Shares of the Holder, names such Holder as a “selling
        stockholder” therein, and meets the requirements of the Registration Rights
        Agreement.

      


      “Securities
        Act”
means
        the Securities Act of 1933, as amended, and the rules and regulations
        promulgated thereunder.

      


      “Share
        Delivery Date”
shall
        have the meaning set forth in Section 4(d).

      


      “Subsidiary”
shall
        have the meaning set forth in the Purchase Agreement.

      


      “Threshold
        Period”
shall
        have the meaning set forth in Section 6(d). 

      


      “Trading
        Day”
means
        a
        day on which the principal Trading Market is open for business.

      


      “Trading
        Market”
means
        the following markets or exchanges on which the Common Stock is listed or
        quoted
        for trading on the date in question: the American Stock Exchange; the Nasdaq
        Capital Market; the Nasdaq Global Market; the Nasdaq Global Select Market;
        the
        New York Stock Exchange; or the OTC Bulletin Board.

      


      “Transaction
        Documents”
shall
        have the meaning set forth in the Purchase Agreement.

      


      “VWAP”
means,
        for any date, the price determined by the first of the following clauses
        that
        applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
        the daily volume weighted average price of the Common Stock for such date
        (or
        the nearest preceding date) on the Trading Market on which the Common Stock
        is
        then listed or quoted for trading as reported by Bloomberg L.P. (based on
        a
        Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
        time); (b)  if the OTC Bulletin Board is not a Trading Market, the volume
        weighted average price of the Common Stock for such date (or the nearest
        preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not
        then
        quoted for trading on the OTC Bulletin Board and if prices for the Common
        Stock
        are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a
        similar organization or agency succeeding to its functions of reporting prices),
        the most recent bid price per share of the Common Stock so reported; or
        (d) in all other cases, the fair market value of a share of Common Stock as
        determined by an independent appraiser selected in good faith by the Holder
        and
        reasonably acceptable to the Company.

      


      Section
        2. Interest.

       

      a)  Payment
        of Interest in Cash or Kind.
        The
        Company shall pay interest to the Holder on the aggregate unconverted and
        then
        outstanding Principal Amount of this Debenture at the rate of 6% per annum,
        payable quarterly on December 1, April 1, July 1 and October 1, commencing
        on
        April 1, 2007, on each Monthly Redemption Date (as to that Principal Amount
        then
        being redeemed), on each Conversion Date (as to that Principal Amount then
        being
        converted), on each Optional Redemption Date (as to that Principal Amount
        then
        being redeemed) and on the Maturity Date (each such date, an “Interest
        Payment Date”)
        (if
        any Interest Payment Date is not a Business Day, then the applicable payment
        shall be due on the next succeeding Business Day), in cash or duly authorized,
        validly issued, fully paid and non-assessable shares of Common Stock at the
        Interest Conversion Rate (the dollar amount to be paid in shares of Common
        Stock, the “Interest
        Share Amount”)
        or a
        combination thereof; provided,
        however,
        that
        payment in shares of Common Stock may only occur if (i) all of the Equity
        Conditions have been met (unless waived by the Holder in writing) during
        the 20
        Trading Days immediately prior to the applicable Interest Payment Date (the
        “Interest
        Notice Period”)
        and
        through and including the date such shares of Common Stock are issued to
        the
        Holder, (ii) the Company shall have given the Holder notice in accordance
        with
        the notice requirements set forth below and (iii) as to such Interest Payment
        Date, not less than 2 Trading Days prior to such Interest Payment Date, the
        Company shall have delivered to the Holder’s account with The Depository Trust
        Company a number of shares of Common Stock to be applied against such Interest
        Share Amount equal to the quotient of (x) the applicable Interest Share Amount
        divided by (y) the then Conversion Price (the “Interest
        Conversion Shares”).
        

       

      b)  Company’s
        Election to Pay Interest in Kind.
        Subject
        to the terms and conditions herein, the decision whether to pay interest
        hereunder in cash, shares of Common Stock or a combination thereof shall
        be at
        the discretion of the Company. Prior to the commencement of any Interest
        Notice
        Period, the Company shall deliver to the Holder a written notice of its election
        to pay interest hereunder on the applicable Interest Payment Date either
        in
        cash, shares of Common Stock or a combination thereof and the Interest Share
        Amount as to the applicable Interest Payment Date, provided that the Company
        may
        indicate in such notice that the election contained in such notice shall
        apply
        to future Interest Payment Dates until revised by a subsequent notice. During
        any Interest Notice Period, the Company’s election (whether specific to an
        Interest Payment Date or continuous) shall be irrevocable as to such Interest
        Payment Date. Subject to the aforementioned conditions, failure to timely
        deliver such written notice to the Holder shall be deemed an election by
        the
        Company to pay the interest on such Interest Payment Date in cash. At any
        time
        the Company delivers a notice to the Holder of its election to pay the interest
        in shares of Common Stock, the Company shall timely file a prospectus supplement
        pursuant to Rule 424 disclosing such election. The aggregate number of shares
        of
        Common Stock otherwise issuable to the Holder on an Interest Payment Date
        shall
        be reduced by the number of Interest Conversion Shares previously issued
        to the
        Holder in connection with such Interest Payment Date.

      


      c)  Interest
        Calculations.
        Interest shall be calculated on the basis of a 360-day year, consisting of
        twelve 30 calendar day periods, and shall accrue daily commencing on the
        Original Issue Date until payment in full of the principal sum, together
        with
        all accrued and unpaid interest, liquidated damages and other amounts which
        may
        become due hereunder, has been made. Payment of interest in shares of Common
        Stock (other than the Interest Conversion Shares issued prior to an Interest
        Notice Period) shall otherwise occur pursuant to Section 4(d)(ii) herein
        and,
        solely for purposes of the payment of interest in shares, the Interest Payment
        Date shall be deemed the Conversion Date. Interest shall cease to accrue
        with
        respect to any principal amount converted, provided that the Company actually
        delivers the Conversion Shares within the time period required by Section
        4(d)(ii) herein. Interest hereunder will be paid to the Person in whose name
        this Debenture is registered on the records of the Company regarding
        registration and transfers of this Debenture (the “Debenture
        Register”).
        Except as otherwise provided herein, if at any time the Company pays interest
        partially in cash and partially in shares of Common Stock to the holders
        of the
        Debentures, then such payment of cash shall be distributed ratably among
        the
        holders of the then-outstanding Debentures based on their (or their
        predecessor’s) initial purchases of Debentures pursuant to the Purchase
        Agreement.

      


      d)  Late
        Fee.
        All
        overdue accrued and unpaid interest to be paid hereunder shall entail a late
        fee
        at an interest rate equal to the lesser of 18% per annum or the maximum rate
        permitted by applicable law (“Late
        Fees”)
        which
        shall accrue daily from the date such interest is due hereunder through and
        including the date of payment in full. Notwithstanding anything to the contrary
        contained herein, if on any Interest Payment Date the Company has elected
        to pay
        accrued interest in the form of Common Stock but the Company is not permitted
        to
        pay accrued interest in Common Stock because it fails to satisfy the conditions
        for payment in Common Stock set forth in Section 2(a) herein, then, at
        the
        option of the Holder, the
        Company, in lieu of delivering either
        shares
        of
        Common Stock pursuant to this Section 2 or
        paying
        the regularly scheduled interest payment in cash, shall deliver, within three
        Trading Days of each applicable Interest Payment Date, an amount in cash
        equal
        to the product of (x) the number of shares of Common Stock otherwise deliverable
        to the Holder in connection with the payment of interest due on such Interest
        Payment Date multiplied by (y) the highest VWAP during the period commencing
        on
        the Interest Payment Date and ending on the Trading Day prior to the date
        such
        payment is made. If any Interest Conversion Shares are issued to the Holder
        in
        connection with an Interest Payment Date and are not applied against an Interest
        Share Amount, then the Holder shall promptly return such excess shares to
        the
        Company.

       

      e)  Prepayment.
        Except
        as otherwise set forth in this Debenture, the Company may not prepay any
        portion
        of the principal amount of this Debenture without the prior written consent
        of
        the Holder. 

      


      Section
        3.  Registration
        of Transfers and Exchanges.
        

       

      a)  Different
        Denominations.
        This
        Debenture is exchangeable for an equal aggregate principal amount of Debentures
        of different authorized denominations, as requested by the Holder surrendering
        the same. No service charge will be payable for such registration of transfer
        or
        exchange.

       

      b)  Investment
        Representations.
        This
        Debenture has been issued subject to certain investment representations of
        the
        original Holder set forth in the Purchase Agreement and may be transferred
        or
        exchanged only in compliance with the Purchase Agreement and applicable federal
        and state securities laws and regulations. 

      


      c)  Reliance
        on Debenture Register.
        Prior
        to due presentment for transfer to the Company of this Debenture, the Company
        and any agent of the Company may treat the Person in whose name this Debenture
        is duly registered on the Debenture Register as the owner hereof for the
        purpose
        of receiving payment as herein provided and for all other purposes, whether
        or
        not this Debenture is overdue, and neither the Company nor any such agent
        shall
        be affected by notice to the contrary.

      


      Section
        4.  Conversion.

       

      a)  Voluntary
        Conversion.
        At any
        time after the Original Issue Date until this Debenture is no longer
        outstanding, this Debenture shall be convertible, in whole or in part, into
        shares of Common Stock at the option of the Holder, at any time and from
        time to
        time (subject to the conversion limitations set forth in Section 4(c)
        hereof). The Holder shall effect conversions by delivering to the Company
        a
        Notice of Conversion, the form of which is attached hereto as Annex
        A
        (a
“Notice
        of Conversion”),
        specifying therein the Principal Amount of this Debenture to be converted
        and
        the date on which such conversion shall be effected (such date, the
“Conversion
        Date”).
        If no
        Conversion Date is specified in a Notice of Conversion, the Conversion Date
        shall be the date that such Notice of Conversion is deemed delivered hereunder.
        To effect conversions hereunder, the Holder shall not be required to physically
        surrender this Debenture to the Company unless the entire Principal Amount
        of
        this Debenture, plus all accrued and unpaid interest thereon, has been so
        converted. Conversions hereunder shall have the effect of lowering the
        outstanding principal amount of this Debenture in an amount equal to the
        applicable conversion. The Holder and the Company shall maintain records
        showing
        the Principal Amount(s) converted and the date of such conversion(s). The
        Company may deliver an objection to any Notice of Conversion within 1 Business
        Day of delivery of such Notice of Conversion. In the event of any dispute
        or
        discrepancy, the records of the Holder shall be controlling and determinative
        in
        the absence of manifest error. The
        Holder, and any assignee by acceptance of this Debenture, acknowledge and
        agree
        that, by reason of the provisions of this paragraph, following conversion
        of a
        portion of this Debenture, the unpaid and unconverted Principal Amount of
        this
        Debenture may be less than the amount stated on the face
        hereof.

       

      b)  Conversion
        Price.
        The
        conversion price in effect on any Conversion Date shall be equal to $1.54, subject
        to adjustment herein (the “Conversion
        Price”).

      


      c)  Holder’s
        Restriction on Conversion.
        The
        Company shall not effect any conversion of this Debenture, and a Holder shall
        not have the right to convert any portion of this Debenture, to the extent
        that
        after giving effect to the conversion set forth on the applicable Notice
        of
        Conversion, such Holder (together with such Holder’s Affiliates, and any other
        person or entity acting as a group together with such Holder or any of such
        Holder’s Affiliates) would beneficially own in excess of the Beneficial
        Ownership Limitation (as defined below).  For purposes of the foregoing
        sentence, the number of shares of Common Stock beneficially owned by such
        Holder
        and its Affiliates shall include the number of shares of Common Stock issuable
        upon conversion of this Debenture with respect to which such determination
        is
        being made, but shall exclude the number of shares of Common Stock which
        are
        issuable upon (A) conversion of the remaining, unconverted principal amount
        of
        this Debenture beneficially owned by such Holder or any of its Affiliates
        and
        (B) exercise or conversion of the unexercised or unconverted portion of any
        other securities of the Company subject to a limitation on conversion or
        exercise analogous to the limitation contained herein (including, without
        limitation, any other Debentures or the Warrants) beneficially owned by such
        Holder or any of its Affiliates.  Except as set forth in the preceding
        sentence, for purposes of this Section 4(c), beneficial ownership shall be
        calculated in accordance with Section 13(d) of the Exchange Act and the rules
        and regulations promulgated thereunder. To the extent that the limitation
        contained in this Section 4(c) applies, the determination of whether this
        Debenture is convertible (in relation to other securities owned by such Holder
        together with any Affiliates) and of which principal amount of this Debenture
        is
        convertible shall be in the sole discretion of such Holder, and the submission
        of a Notice of Conversion shall be deemed to be such Holder’s determination of
        whether this Debenture may be converted (in relation to other securities
        owned
        by such Holder together with any Affiliates) and which principal amount of
        this
        Debenture is convertible, in each case subject to such aggregate percentage
        limitations. To ensure compliance with this restriction, each Holder will
        be
        deemed to represent to the Company each time it delivers a Notice of Conversion
        that such Notice of Conversion has not violated the restrictions set forth
        in
        this paragraph and the Company shall have no obligation to verify or confirm
        the
        accuracy of such determination. In
        addition, a determination as to any group status as contemplated above shall
        be
        determined in accordance with Section 13(d) of the Exchange Act and
        the
        rules and regulations promulgated thereunder. For
        purposes of this Section 4(c), in determining the number of outstanding shares
        of Common Stock, a Holder may rely on the number of outstanding shares of
        Common
        Stock as stated in the most recent of the following: (A) the Company’s most
        recent Form 10-QSB or Form 10-KSB, as the case may be; (B) a more recent
        public
        announcement by the Company; or (C) a more recent notice by the Company or
        the
        Company’s transfer agent setting forth the number of shares of Common Stock
        outstanding.  Upon the written or oral request of a Holder, the Company
        shall within two Trading Days confirm orally and in writing to such 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
        Debenture, by such Holder or its Affiliates since the date as of which such
        number of outstanding shares of Common Stock was reported. The “Beneficial
        Ownership Limitation”
shall
        be 4.99% of the number of shares of the Common Stock outstanding immediately
        after giving effect to the issuance of shares of Common Stock issuable upon
        conversion of this Debenture held by the Holder. The Beneficial Ownership
        Limitation provisions of this Section 4(c) may be waived by such Holder,
        at the
        election of such Holder, upon not less than 61 days’ prior notice to the
        Company, to change the Beneficial Ownership Limitation to 9.99% of the number
        of
        shares of the Common Stock outstanding immediately after giving effect to
        the
        issuance of shares of Common Stock upon conversion of this Debenture held
        by the
        Holder and the provisions of this Section 4(c) shall continue to apply. Upon
        such a change by a Holder of the Beneficial Ownership Limitation from such
        4.99%
        limitation to such 9.99% limitation, the Beneficial Ownership Limitation
        may not
        be further waived by such Holder. The provisions of this paragraph shall
        be
        construed and implemented in a manner otherwise than in strict conformity
        with
        the terms of this Section 4(c) 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.
        The
        limitations contained in this paragraph shall apply to a successor holder
        of
this
        Debenture.

       

      	d)  	
              Mechanics
                of Conversion.

            


       

      i.  Conversion
        Shares Issuable Upon Conversion of Principal Amount.
        The
        number of shares of Common Stock issuable upon a conversion hereunder shall
        be
        determined by the quotient obtained by dividing (x) the outstanding Principal
        Amount of this Debenture to be converted by (y) the Conversion
        Price.

      i.  

      

        

        
          1

        

      


      


      ii.  Delivery
        of Certificate Upon Conversion.
        Not
        later than three Trading Days after each Conversion Date (the “Share
        Delivery Date”),
        the
        Company shall deliver, or cause to be delivered, to the Holder (A) a certificate
        or certificates representing the Conversion Shares which, on or after the
        Effective Date, shall be free of restrictive legends and trading restrictions
        (other than those which may then be required by the Purchase Agreement)
        representing the number of shares of Common Stock being acquired upon the
        conversion of this Debenture (including, if the Company has given continuous
        notice pursuant to Section 2(b) for payment of interest in shares of Common
        Stock at least 20 Trading Days prior to the date on which the Conversion
        Notice
        is delivered to the Company, shares of Common Stock representing the payment
        of
        accrued interest otherwise determined pursuant to Section 2(a) but assuming
        that
        the Interest Payment Period is the 20 Trading Days period immediately prior
        to
        the date on which the Conversion Notice is delivered to the Company and
        excluding for such issuance the condition that the Company deliver Interest
        Conversion Shares as to such interest payment) and (B) a bank check in the
        amount of accrued and unpaid interest (if the Company has elected or is required
        to pay accrued interest in cash). On or after the Effective Date, the Company
        shall use its best efforts to deliver any certificate or certificates required
        to be delivered by the Company under this Section 4 electronically through
        the
        Depository Trust Company or another established clearing corporation performing
        similar functions. 

       

      iii.  Failure
        to Deliver Certificates.
        If in
        the case of any Notice of Conversion such certificate or certificates are
        not
        delivered to or as directed by the applicable Holder by the third Trading
        Day
        after the Conversion Date, the Holder shall be entitled to elect by written
        notice to the Company at any time on or before its receipt of such certificate
        or certificates, to rescind such Conversion, in which event the Company shall
        promptly return to the Holder any original Debenture delivered to the Company
        and the Holder shall promptly return the Common Stock certificates representing
        the Principal Amount of this Debenture tendered for conversion to the Company.
        

       

      iv.  Obligation
        Absolute; Partial Liquidated Damages.
        The
        Company’s obligations to issue and deliver the Conversion Shares upon conversion
        of this Debenture in accordance with the terms hereof are absolute and
        unconditional, irrespective of any action or inaction by the Holder to enforce
        the same, any waiver or consent with respect to any provision hereof, the
        recovery of any judgment against any Person or any action to enforce the
        same,
        or any setoff, counterclaim, recoupment, limitation or termination, or any
        breach or alleged breach by the Holder or any other Person of any obligation
        to
        the Company or any violation or alleged violation of law by the Holder or
        any
        other Person, and irrespective of any other circumstance which might otherwise
        limit such obligation of the Company to the Holder in connection with the
        issuance of such Conversion Shares; provided,
        however,
        that
        such delivery shall not operate as a waiver by the Company of any such action
        the Company may have against the Holder. In the event the Holder of this
        Debenture shall elect to convert any or all of the outstanding principal
        amount
        hereof, the Company may not refuse conversion based on any claim that the
        Holder
        or anyone associated or affiliated with the Holder has been engaged in any
        violation of law, agreement or for any other reason, unless an injunction
        from a
        court, on notice to Holder, restraining and or enjoining conversion of all
        or
        part of this Debenture shall have been sought and obtained. In the absence
        of
        such injunction, the Company shall issue Conversion Shares or, if applicable,
        cash, upon a properly noticed conversion. If the Company fails for any reason
        to
        deliver to the Holder such certificate or certificates pursuant to Section
        4(d)(ii) by the third Trading Day after the Conversion Date, the Company
        shall
        pay to such Holder, in cash, as liquidated damages and not as a penalty,
        for
        each $1000 of principal amount being converted, $10 per Trading Day (increasing
        to $20 per Trading Day on the fifth Trading Day after such liquidated damages
        begin to accrue) for each Trading Day after such third Trading Day until
        such
        certificates are delivered. Nothing herein shall limit a Holder’s right to
        pursue actual damages or declare an Event of Default pursuant to Section
        8
        hereof for the Company’s failure to deliver Conversion Shares within the period
        specified herein and such Holder shall have the right to pursue all remedies
        available to it hereunder, at law or in equity including, without limitation,
        a
        decree of specific performance and/or injunctive relief. The exercise of
        any
        such rights shall not prohibit the Holder from seeking to enforce damages
        pursuant to any other Section hereof or under applicable law.

       

      v.  Compensation
        for Buy-In on Failure to Timely Deliver Certificates Upon
        Conversion.
        In
        addition to any other rights available to the Holder, if the Company fails
        for
        any reason to deliver to the Holder such certificate or certificates by the
        Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share
        Delivery Date the Holder is required by its brokerage firm to purchase (in
        an
        open market transaction or otherwise), or the Holder’s brokerage firm otherwise
        purchases, shares of Common Stock to deliver in satisfaction of a sale by
        such
        Holder of the Conversion Shares which the Holder was entitled to receive
        upon
        the conversion relating to such Share Delivery Date (a “Buy-In”),
        then
        the Company shall (A) pay in cash to the Holder (in addition to any other
        remedies available to or elected by the Holder) the amount by which (x) the
        Holder’s total purchase price (including any brokerage commissions) for the
        Common Stock so purchased exceeds (y) the product of (1) the aggregate number
        of
        shares of Common Stock that such Holder was entitled to receive from the
        conversion at issue multiplied by (2) the actual sale price at which the
        sell
        order giving rise to such purchase obligation was executed (including any
        brokerage commissions) and (B) at the option of the Holder, either reissue
        (if
        surrendered) this Debenture in a principal amount equal to the principal
        amount
        of the attempted conversion or deliver to the Holder the number of shares
        of
        Common Stock that would have been issued if the Company had timely complied
        with
        its delivery requirements under Section 4(d)(ii). For example, if the Holder
        purchases Common Stock having a total purchase price of $11,000 to cover
        a
        Buy-In with respect to an attempted conversion of this Debenture with respect
        to
        which the actual sale price of the Conversion Shares (including any brokerage
        commissions) giving rise to such purchase obligation was a total of $10,000
        under clause (A) of the immediately preceding sentence, the Company shall
        be
        required to pay the Holder $1,000. The Holder shall provide the Company written
        notice indicating the amounts payable to the Holder in respect of the Buy-In
        and, upon request of the Company, evidence of the amount of such loss. Nothing
        herein shall limit a Holder’s right to pursue any other remedies available to it
        hereunder, at law or in equity including, without limitation, a decree of
        specific performance and/or injunctive relief with respect to the Company’s
        failure to timely deliver certificates representing shares of Common Stock
        upon
        conversion of this Debenture as required pursuant to the terms
        hereof.

       

      vi.  Reservation
        of Shares Issuable Upon Conversion.
        The
        Company covenants that it will at all times reserve and keep available out
        of
        its authorized and unissued shares of Common Stock for the sole purpose of
        issuance upon conversion of this Debenture and payment of interest on this
        Debenture, each as herein provided, free from preemptive rights or any other
        actual contingent purchase rights of Persons other than the Holder (and the
        other holders of the Debentures), not less than such aggregate number of
        shares
        of the Common Stock as shall (subject to the terms and conditions set forth
        in
        the Purchase Agreement) be issuable (taking into account the adjustments
        and
        restrictions of Section 5) upon the conversion of the outstanding principal
        amount of this Debenture and payment of interest hereunder. The Company
        covenants that all shares of Common Stock that shall be so issuable shall,
        upon
        issue, be duly authorized, validly issued, fully paid and nonassessable and,
        if
        the Registration Statement is then effective under the Securities Act, shall
        be
        registered for public sale in accordance with such Registration
        Statement.

      


      vii.  Fractional
        Shares.
        Upon a
        conversion hereunder the Company shall not be required to issue stock
        certificates representing fractions of shares of Common Stock, but may if
        otherwise permitted, make a cash payment in respect of any final fraction
        of a
        share based on the VWAP at such time. If the Company elects not, or is unable,
        to make such a cash payment, the Holder shall be entitled to receive, in
        lieu of
        the final fraction of a share, 1 whole share of Common Stock.

      


      viii.  Transfer
        Taxes.
        The
        issuance of certificates for shares of the Common Stock on conversion of
        this
        Debenture shall be made without charge to the Holder hereof for any documentary
        stamp or similar taxes that may be payable in respect of the issue or delivery
        of such certificates, provided that the Company shall not be required to
        pay any
        tax that may be payable in respect of any transfer involved in the issuance
        and
        delivery of any such certificate upon conversion in a name other than that
        of
        the Holder of this Debenture so converted and the Company shall not be required
        to issue or deliver such certificates unless or until the person or persons
        requesting the issuance thereof shall have paid to the Company the amount
        of
        such tax or shall have established to the satisfaction of the Company that
        such
        tax has been paid.

      


      Section
        5. Certain
        Adjustments.

       

      a)  Stock
        Dividends and Stock Splits.
        If the
        Company, at any time while this Debenture is outstanding: (A) pays a stock
        dividend or otherwise makes a distribution or distributions payable in shares
        of
        Common Stock on shares of Common Stock or any Common Stock Equivalents (which,
        for avoidance of doubt, shall not include any shares of Common Stock issued
        by
        the Company upon conversion of, or payment of interest on, the Debentures);
        (B)
        subdivides outstanding shares of Common Stock into a larger number of shares;
        (C) combines (including by way of a reverse stock split) outstanding shares
        of
        Common Stock into a smaller number of shares; or (D) issues, in the event
        of a
        reclassification of shares of the Common Stock, any shares of capital stock
        of
        the Company, then the Conversion Price shall be multiplied by a fraction
        of
        which the numerator shall be the number of shares of Common Stock (excluding
        any
        treasury shares of the Company) outstanding immediately before such event
        and of
        which the denominator shall be the number of shares of Common Stock outstanding
        immediately after such event. Any adjustment made pursuant to this Section
        shall
        become effective immediately after the record date for the determination
        of
        stockholders entitled to receive such dividend or distribution and shall
        become
        effective immediately after the effective date in the case of a subdivision,
        combination or re-classification.

       

      b)  Subsequent
        Equity Sales.
        If, at
        any time while this Debenture is outstanding, the Company or any Subsidiary,
        as
        applicable, sells or grants any option to purchase or sells or grants any
        right
        to reprice, or otherwise disposes of or issues (or announces any sale, grant
        or
        any option to purchase or other disposition), any Common Stock or Common
        Stock
        Equivalents entitling any Person to acquire shares of Common Stock at an
        effective price per share that is lower than the then Conversion Price (such
        lower price, the “Base
        Conversion Price”
and
        such issuances, collectively, a “Dilutive
        Issuance”)
        (if
        the holder of the Common Stock or Common Stock Equivalents so issued shall
        at
        any time, whether by operation of purchase price adjustments, reset provisions,
        floating conversion, exercise or exchange prices or otherwise, or due to
        warrants, options or rights per share which are issued in connection with
        such
        issuance, be entitled to receive shares of Common Stock at an effective price
        per share that is lower than the Conversion Price, such issuance shall be
        deemed
        to have occurred for less than the Conversion Price on such date of the Dilutive
        Issuance), then the Conversion Price shall be reduced to equal the Base
        Conversion Price. Such adjustment shall be made whenever such Common Stock
        or
        Common Stock Equivalents are issued. Notwithstanding
        the foregoing, no adjustment will be made under this Section 5(b) in respect
        of
        an Exempt Issuance.
        The
        Company shall notify the Holder in writing, no later than 1 Business Day
        following the issuance of any Common Stock or Common Stock Equivalents subject
        to this Section 5(b), indicating therein the applicable issuance price, or
        applicable reset price, exchange price, conversion price and other pricing
        terms
        (such notice, the “Dilutive
        Issuance Notice”).
        For
        purposes of clarification, whether or not the Company provides a Dilutive
        Issuance Notice pursuant to this Section 5(b), upon the occurrence of any
        Dilutive Issuance, the Holder is entitled to receive a number of Conversion
        Shares based upon the Base Conversion Price on or after the date of such
        Dilutive Issuance, regardless of whether the Holder accurately refers to
        the
        Base Conversion Price in the Notice of Conversion.

       

      c)  Subsequent
        Rights Offerings.
        If the
        Company, at any time while the Debenture is outstanding, shall issue rights,
        options or warrants to all holders of Common Stock (and not to Holders)
        entitling them to subscribe for or purchase shares of Common Stock at a price
        per share that is lower than the VWAP on the record date referenced below,
        then
        the Conversion Price shall be multiplied by a fraction of which the denominator
        shall be the number of shares of the Common Stock outstanding on the date
        of
        issuance of such rights or warrants plus the number of additional shares
        of
        Common Stock offered for subscription or purchase, and of which the numerator
        shall be the number of shares of the Common Stock outstanding on the date
        of
        issuance of such rights or warrants plus the number of shares which the
        aggregate offering price of the total number of shares so offered (assuming
        delivery to the Company in full of all consideration payable upon exercise
        of
        such rights, options or warrants) would purchase at such VWAP. Such adjustment
        shall be made whenever such rights or warrants are issued, and shall become
        effective immediately after the record date for the determination of
        stockholders entitled to receive such rights, options or warrants. 

       

      d)  Pro
        Rata Distributions.
        If the
        Company, at any time while this Debenture is outstanding, distributes to
        all
        holders of Common Stock (and not to the Holders) evidences of its indebtedness
        or assets (including cash and cash dividends) or rights or warrants to subscribe
        for or purchase any security (other than the Common Stock, which shall be
        subject to Section 5(b)), then in each such case the Conversion Price shall
        be
        adjusted by multiplying such Conversion Price in effect immediately prior
        to the
        record date fixed for determination of stockholders entitled to receive such
        distribution by a fraction of which the denominator shall be the VWAP determined
        as of the record date mentioned above, and of which the numerator shall be
        such
        VWAP on such record date less the then fair market value at such record date
        of
        the portion of such assets or evidence of indebtedness so distributed applicable
        to 1 outstanding share of the Common Stock as determined by the Board of
        Directors of the Company in good faith. In either case the adjustments shall
        be
        described in a statement delivered to the Holder describing the portion of
        assets or evidences of indebtedness so distributed or such subscription rights
        applicable to 1 share of Common Stock. Such adjustment shall be made whenever
        any such distribution is made and shall become effective immediately after
        the
        record date mentioned above.

       

      e)  Fundamental
        Transaction.
        If, at
        any time while this Debenture is outstanding, (A) the Company effects any
        merger
        or consolidation of the Company with or into another Person, (B) the Company
        effects any sale of all or substantially all of its assets in one transaction
        or
        a series of related transactions, (C) any tender offer or exchange offer
        (whether by the Company or another Person) is completed pursuant to which
        holders of Common Stock are permitted to tender or exchange their shares
        for
        other securities, cash or property, or (D) the Company effects any
        reclassification of the Common Stock or any compulsory share exchange pursuant
        to which the Common Stock is effectively converted into or exchanged for
        other
        securities, cash or property (in any such case, a “Fundamental
        Transaction”),
        then,
        upon any subsequent conversion of this Debenture, the Holder shall have the
        right to receive, for each Conversion Share that would have been issuable
        upon
        such conversion immediately prior to the occurrence of such Fundamental
        Transaction, the same kind and amount of securities, cash or property as
        it
        would have been entitled to receive upon the occurrence of such Fundamental
        Transaction if it had been, immediately prior to such Fundamental Transaction,
        the holder of 1 share of Common Stock (the “Alternate
        Consideration”).
        For
        purposes of any such conversion, the determination of the Conversion Price
        shall
        be appropriately adjusted to apply to such Alternate Consideration based
        on the
        amount of Alternate Consideration issuable in respect of 1 share of Common
        Stock
        in such Fundamental Transaction, and the Company shall apportion the Conversion
        Price among the Alternate Consideration in a reasonable manner reflecting
        the
        relative value of any different components of the Alternate Consideration.
        If
        holders of Common Stock are given any choice as to the securities, cash or
        property to be received in a Fundamental Transaction, then the Holder shall
        be
        given the same choice as to the Alternate Consideration it receives upon
        any
        conversion of this Debenture following such Fundamental Transaction. To the
        extent necessary to effectuate the foregoing provisions, any successor to
        the
        Company or surviving entity in such Fundamental Transaction shall issue to
        the
        Holder a new debenture consistent with the foregoing provisions and evidencing
        the Holder’s right to convert such debenture into Alternate Consideration. The
        terms of any agreement pursuant to which a Fundamental Transaction is effected
        shall include terms requiring any such successor or surviving entity to comply
        with the provisions of this Section 5(e) and insuring that this Debenture
        (or
        any such replacement security) will be similarly adjusted upon any subsequent
        transaction analogous to a Fundamental Transaction.

       

      f)  Calculations.
        All
        calculations under this Section 5 shall be made to the nearest cent or the
        nearest 1/100th of a share, as the case may be. For purposes of this Section
        5,
        the number of shares of Common Stock deemed to be issued and outstanding
        as of a
        given date shall be the sum of the number of shares of Common Stock (excluding
        any treasury shares of the Company) issued and outstanding.

      


      g)  Notice
        to the Holder.

      


      i.  Adjustment
        to Conversion Price.
        Whenever the Conversion Price is adjusted pursuant to any provision of this
        Section 5, the Company shall promptly mail to each Holder a notice setting
        forth
        the Conversion Price after such adjustment and setting forth a brief statement
        of the facts requiring such adjustment. 

       

      ii.  Notice
        to Allow Conversion by Holder.
        If (A)
        the Company shall declare a dividend (or any other distribution in whatever
        form) on the Common Stock, (B) the Company shall declare a special nonrecurring
        cash dividend on or a redemption of the Common Stock, (C) the Company shall
        authorize the granting to all holders of the Common Stock of rights or warrants
        to subscribe for or purchase any shares of capital stock of any class or
        of any
        rights, (D) the approval of any stockholders of the Company shall be required
        in
        connection with any reclassification of the Common Stock, any consolidation
        or
        merger to which the Company is a party, any sale or transfer of all or
        substantially all of the assets of the Company, of any compulsory share exchange
        whereby the Common Stock is converted into other securities, cash or property
        or
        (E) the
        Company shall authorize the voluntary or involuntary dissolution, liquidation
        or
        winding up of the affairs of the Company, then, in each case, the Company
        shall
        cause to be filed at each office or agency maintained for the purpose of
        conversion of this Debenture, and shall cause to be delivered
        to the Holder at its last address as it shall appear upon the Debenture
        Register, at least 20 calendar days prior to the applicable record or effective
        date hereinafter specified, a notice stating (x)
        the
        date on which a record is to be taken for the purpose of such dividend,
        distribution, redemption, rights or warrants, or if a record is not to be
        taken,
        the date as of which the holders of the Common Stock of record to be entitled
        to
        such dividend, distributions, redemption, rights or warrants are to be
        determined or (y) the date on which such reclassification, consolidation,
        merger, sale, transfer or share exchange is expected to become effective
        or
        close, and the date as of which it is expected that holders of the Common
        Stock
        of record shall be entitled to exchange their shares of the Common Stock
        for
        securities, cash or other property deliverable upon such reclassification,
        consolidation, merger, sale, transfer or share exchange, provided that the
        failure to deliver such notice or any defect therein or in the delivery thereof
        shall not affect the validity of the corporate action required to be specified
        in such notice. The Holder is entitled to convert this Debenture during the
        20-day period commencing on the date of such notice through the effective
        date
        of the event triggering such notice. 

       

      Section
        6. Redemption
        and Forced Conversion.

      


      a)  Optional
        Redemption at Election of Company.
        Subject
        to the provisions of this Section 6, at any time after the Effective Date,
        the
        Company may deliver a notice to the Holder (an “Optional
        Redemption Notice”
and
        the
        date such notice is deemed delivered hereunder, the “Optional
        Redemption Notice Date”)
        of its
        irrevocable election to redeem some or all of the then outstanding Principal
        Amount of this Debenture for cash in an amount equal to the Optional Redemption
        Amount on the 10th
        Trading
        Day following the Optional Redemption Notice Date (such date, the “Optional
        Redemption Date”
and
        such redemption, the “Optional
        Redemption”).
        The
        Optional Redemption Amount is payable in full on the Optional Redemption
        Date.
        The Company may only effect an Optional Redemption if each of the Equity
        Conditions shall have been met (unless waived in writing by the Holder) on
        each
        Trading Day during the period commencing on the Optional Redemption Notice
        Date
        through to the Optional Redemption Date and
        through and including the date payment of the Optional Redemption Amount
        is
        actually made in full.
        If any
        of the Equity Conditions shall cease to be satisfied at any time during the
        10
        Trading Day period, then the Holder may elect to nullify the Optional Redemption
        Notice by notice to the Company within 3 Trading Days after the first day
        on
        which any such Equity Condition has not been met (provided that if, by a
        provision of the Transaction Documents, the Company is obligated to notify
        the
        Holder of the non-existence of an Equity Condition, such notice period shall
        be
        extended to the third Trading Day after proper notice from the Company) in
        which
        case the Optional Redemption Notice shall be null and void, ab initio.
        The
        Company covenants and agrees that it will honor all Notices of Conversion
        tendered from the time of delivery of the Optional Redemption Notice through
        the
        date all amounts owing thereon are due and paid in full.

      


      b)  Monthly
        Redemption.
        On each
        Monthly Redemption Date, the Company shall redeem the Monthly Redemption
        Amount
        (the “Monthly
        Redemption”).
        The
        Monthly Redemption Amount payable on each Monthly Redemption Date shall be
        paid
        in cash; provided,
        however,
        as to
        any Monthly Redemption and upon 10 Trading Days’ prior written irrevocable
        notice (the “Monthly
        Redemption Notice”),
        in
        lieu of a cash redemption payment, the Company may elect to pay all or part
        of a
        Monthly Redemption Amount in Conversion Shares (such dollar amount to be
        paid on
        a Monthly Redemption Date in Conversion Shares, the “Monthly
        Redemption Share Amount”)
        based
        on a conversion price equal to the lesser of (i) the then Conversion Price
        and
        (ii) 85% of the average of the VWAPs for the 10 consecutive Trading Days
        ending
        on the Trading Day that is immediately prior to the applicable Monthly
        Redemption Date (subject to adjustment for any stock dividend, stock split,
        stock combination or other similar event affecting the Common Stock during
        such
        10 Trading Day Period) (the price calculated during the 10 Trading Day period
        immediately prior to the Monthly Redemption Date, the “Monthly
        Conversion Price”
and
        such 10 Trading Day period, the “Monthly
        Conversion Period”);
        provided,
        further,
        that
        the Company may not pay the Monthly Redemption Amount in Conversion Shares
        unless (y) from the date the Holder receives the duly delivered Monthly
        Redemption Notice through and until the date such Monthly Redemption is paid
        in
        full, the Equity Conditions have been satisfied, unless waived in writing
        by the
        Holder, and (z) as to such Monthly Redemption, not less than 2 Trading Days
        prior to such Monthly Redemption Date), the Company shall have delivered
        to the
        Holder’s account with The Depository Trust Company a number of shares of Common
        Stock to be applied against such Monthly Redemption Share Amount equal to
        the
        quotient of (x) the applicable Monthly Redemption Share Amount divided by
        (y)
        the then Conversion Price (the “Pre-Redemption
        Conversion Shares”).
        The
        Holder may convert, pursuant to Section 4(a), any Principal Amount of this
        Debenture subject to a Monthly Redemption at any time prior to the date that
        the
        Monthly Redemption Amount, plus accrued but unpaid interest, liquidated damages
        and any other amounts then owing to the Holder, are due and paid in full.
        Unless
        otherwise indicated by the Holder in the applicable Notice of Conversion,
        any
        Principal Amount of this Debenture converted during the applicable Monthly
        Conversion Period until the date the Monthly Redemption Amount is paid in
        full
        shall be first applied to the Principal Amount subject to the Monthly Redemption
        Amount payable in cash and then to the Monthly Redemption Share Amount. Any
        Principal Amount of this Debenture converted during the applicable Monthly
        Conversion Period in excess of the Monthly Redemption Amount shall be applied
        against the last Principal Amount of this Debenture scheduled to be redeemed
        hereunder, in reverse time order from the Maturity Date; provided,
        however,
        if any
        such conversion is applied against such Monthly Redemption Amount, the
        Pre-Redemption Conversion Shares, if any were issued in connection with such
        Monthly Redemption or were not already applied to such conversions, shall
        be
        first applied against such conversion. The Company covenants and agrees that
        it
        will honor all Notice of Conversions tendered up until such amounts are paid
        in
        full. The Company’s determination to pay a Monthly Redemption in cash, shares of
        Common Stock or a combination thereof shall be applied ratably to all of
        the
        holders of the then outstanding Debentures based on their (or their
        predecessor’s) initial purchases of Debentures pursuant to the Purchase
        Agreement. At any time the Company delivers a notice to the Holder of its
        election to pay the Monthly Redemption Amount in shares of Common Stock,
        the
        Company shall file a prospectus supplement pursuant to Rule 424 disclosing
        such
        election.

      


      c)  Redemption
        Procedure.
        The
        payment of cash or issuance of Common Stock, as applicable, pursuant to an
        Optional Redemption or Monthly Redemption shall be payable on the Optional
        Redemption Date or Monthly Redemption Date. If any portion of the payment
        pursuant to an Optional Redemption or Monthly Redemption shall not be paid
        by
        the Company by the applicable due date, interest shall accrue thereon at
        an
        interest rate equal to the lesser of 18% per annum or the maximum rate permitted
        by applicable law until such amount is paid in full. Notwithstanding anything
        herein contained to the contrary, if any portion of the Optional Redemption
        Amount or Monthly Redemption Amount remains unpaid after such date, the Holder
        may elect, by written notice to the Company given at any time thereafter,
        to
        return such portion of the Optional Redemption Amount or Monthly Redemption
        Amount as has been paid and invalidate such Optional Redemption or Monthly
        Redemption, ab initio,
        and,
        with respect to the Company’s failure to honor the Optional Redemption, the
        Company shall have no further right to exercise such Optional Redemption.
        Notwithstanding anything to the contrary in this Section 6, the Company’s
        determination to redeem in cash or its elections under Section 6(b) shall
        be
        applied ratably among the Holders of Debentures.
        The
        Holder may elect to convert the outstanding principal amount of the Debenture
        pursuant to Section 4 prior to actual payment in cash for any redemption
        under
        this Section 6 by the delivery of a Notice of Conversion to the
        Company.

       

      d)  Forced
        Conversion.
        Notwithstanding anything herein to the contrary, if after the Effective Date,
        the VWAP for any 20 Trading Days in any 30 consecutive Trading Days, which
        30
        Trading Day period shall have commenced only after the Effective Date (such
        30
        Trading Day period, the “Threshold
        Period”),
        exceeds 200% of the then-applicable Conversion Price (subject to adjustment
        for
        reverse and forward stock splits, stock dividends, stock combinations and
        other
        similar transactions of the Common Stock that occur after the Original Issue
        Date), the Company may, within 3 Trading Days after the end of any such
        Threshold Period, deliver a written notice to the Holder (a “Forced
        Conversion Notice”
and
        the
        date such notice is delivered to the Holder, the “Forced
        Conversion Notice Date”)
        to
        cause the Holder to convert all or part of the then outstanding Principal
        Amount
        of this Debenture plus, if so specified in the Forced Conversion Notice,
        accrued
        but unpaid interest, liquidated damages and other amounts owing to the Holder
        under this Debenture, it being agreed that the “Conversion Date” for purposes of
        Section 4 shall be deemed to occur on the third Trading Day following the
        Forced
        Conversion Notice Date (such third Trading Day, the “Forced
        Conversion Date”).
        The
        Company may not deliver a Forced Conversion Notice, and any Forced Conversion
        Notice delivered by the Company shall not be effective, unless all of the
        Equity
        Conditions are met (unless waived in writing by the Holder) on each Trading
        Day
        occurring during the applicable Threshold Period through and including the
        later
        of the Forced Conversion Date and the Trading Day after the date such Conversion
        Shares pursuant to such conversion are delivered to the Holder. Any Forced
        Conversion shall be applied ratably to all Holders based on their initial
        purchases of Debentures pursuant to the Purchase Agreement, provided that
        any
        voluntary conversions by a Holder shall be applied against such Holder’s
pro rata
        allocation, thereby decreasing the aggregate amount forcibly converted hereunder
        if only a portion of this Debenture is forcibly converted. For purposes of
        clarification, a Forced Conversion shall be subject to all of the provisions
        of
        Section 4, including, without limitation, the provision requiring payment
        of
        liquidated damages and limitations on conversions.

      


      Section
        7. Negative
        Covenants.
        As long
        as any portion of this Debenture remains outstanding, unless the holders
        of at
        least 75% in Principal Amount of the then outstanding Debentures shall have
        otherwise given prior written consent, the Company shall not, and shall not
        permit any of its subsidiaries (whether or not a Subsidiary on the Original
        Issue Date) to, directly or indirectly:

       

      a)  other
        than Permitted Indebtedness, enter into, create, incur, assume, guarantee
        or
        suffer to exist any indebtedness for borrowed money of any kind, including
        but
        not limited to, a guarantee, on or with respect to any of its property or
        assets
        now owned or hereafter acquired or any interest therein or any income or
        profits
        therefrom; provided,
        however,
        that
        the prohibition on indebtedness set forth in this Section 7(a) shall not
        apply
        if, subsequent to such indebtedness, the Current Ratio shall equal or exceed
        1.0;

       

      b)  other
        than Permitted Liens, enter into, create, incur, assume or suffer to exist
        any
        Liens of any kind, on or with respect to any of its property or assets now
        owned
        or hereafter acquired or any interest therein or any income or profits
        therefrom;

      


      c)  amend
        its
        charter documents, including, without limitation, the certificate of
        incorporation and bylaws, in any manner that materially and adversely affects
        any rights of the Holder;

      


      d)  repay,
        repurchase or offer to repay, repurchase or otherwise acquire more than a
        de minimis
        number
        of shares of its Common Stock or Common Stock Equivalents other than as to
        (a)
        the Conversion Shares or Warrant Shares as permitted or required under the
        Transaction Documents and (b) repurchases of Common Stock or Common Stock
        Equivalents of departing officers and directors of the Company, provided
        that
        such repurchases shall not exceed an aggregate of $100,000 for all officers
        and
        directors during the term of this Debenture; 

      


      e)  pay
        cash
        dividends or distributions on any equity securities of the Company;

      


      f)  enter
        into any transaction with any Affiliate of the Company which would be required
        to be disclosed in any public filing with the Commission, unless such
        transaction is made on an arm’s-length basis and expressly approved by a
        majority of the disinterested directors of the Company (even if less than
        a
        quorum otherwise required for board approval); or

      


      g)  enter
        into any agreement with respect to any of the foregoing.

       

      Section
        8. Events
        of Default.
        

      


      a)  “Event
        of Default”
means,
        wherever used herein, any of the following events (whatever the reason for
        such
        event and whether such event shall be voluntary or involuntary or effected
        by
        operation of law or pursuant to any judgment, decree or order of any court,
        or
        any order, rule or regulation of any administrative or governmental
        body):

      


      i.  any
        default in the payment of (A) the Principal Amount of any Debenture or (B)
        interest, liquidated damages and other amounts owing to a Holder on any
        Debenture, as and when the same shall become due and payable (whether on
        a
        Conversion Date or the Maturity Date or by acceleration or otherwise) which
        default is not cured within 3 Trading Days;

       

      ii.  the
        Company shall fail to observe or perform any other covenant or agreement
        contained in the Debentures (other than a breach by the Company of its
        obligations to deliver shares of Common Stock to the Holder upon conversion,
        which breach is addressed in clause (xi) below) which failure is not cured,
        if
        possible to cure, within the earlier to occur
        of
(A)
        10
Trading
        Days after notice of such failure sent by the Holder or by any other
        Holder
        and (B)
        20 Trading Days after the Company has become or should have become aware
        of such
        failure;

      


      iii.  a
        default
        or event of default (subject to any grace or cure period provided in the
        applicable agreement, document or instrument) shall occur under (A) any of
        the
        Transaction Documents or (B) any other material agreement, lease, document
        or
        instrument to which the Company or any Subsidiary is obligated (and not covered
        by clause (vi) below);

      


      iv.  any
        representation
        or warranty made in this Debenture, any other Transaction Documents, any
        written
        statement pursuant hereto or thereto or any other report, financial statement
        or
        certificate made or delivered to the Holder or any other Holder shall
        be
        untrue or incorrect in any material respect as of the date when made or deemed
        made;

      


      v.  the
        Company or any Significant Subsidiary shall be subject to a Bankruptcy
        Event;

       

      vi.  the
        Company or any Subsidiary shall default on any of its obligations under 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 for borrowed money or money
        due
        under any long term leasing or factoring arrangement that (a) involves an
        obligation greater than $150,000, whether such indebtedness now exists or
        shall
        hereafter be created, and (b) 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
        Common Stock shall not be eligible for listing or quotation for trading on
        a
        Trading Market and shall not be eligible to resume listing or quotation for
        trading thereon within five Trading Days;

      


      viii.  the
        Company shall be a party to any Change of Control Transaction or Fundamental
        Transaction or shall agree to sell or dispose of all or in excess of 50%
        of its
        assets in one transaction or a series of related transactions (whether or
        not
        such sale would constitute a Change of Control Transaction);

      


      ix.  a
        Registration Statement shall not have been declared effective by the Commission
        on or prior to the 180th calendar
        day after the Closing Date; 

      


      x.  if,
        during the Effectiveness Period (as defined in the Registration Rights
        Agreement), either (a) the effectiveness of the Registration Statement lapses
        for any reason or (b) the Holder shall not be permitted to resell Registrable
        Securities (as defined in the Registration Rights Agreement) under the
        Registration Statement for a period of more than 20 consecutive Trading Days
        or
        45 non-consecutive Trading Days (or, in the event that the Company suspends
        effectiveness of the Registration Statement in connection with a corporate
        development that, in the good faith judgment of the board of directors of
        the
        Company, requires suspension under the Securities Act, 75 non-consecutive
        Trading Days) during any 12 month period; provided,
        however,
        that
        (A) if the Company
        is negotiating a merger, consolidation, acquisition or sale of all or
        substantially all of its assets or a similar transaction and, in the written
        opinion of counsel to the Company, the Registration Statement would be required
        to be amended to include information concerning such pending transaction(s)
        or
        the parties thereto which information is not available or may not be publicly
        disclosed at the time, the Company shall be permitted an additional 10
        consecutive Trading Days during any 12 month period pursuant to this Section
        8(a)(x) and (B) in the event that the Commission elects to review any
        post-effective amendment to a Registration Statement, the Company shall be
        permitted 45 Trading Days during any 12 month period pursuant to this Section
        8(a)(x);

      


      xi.  the
        Company shall fail for any reason to deliver certificates to a Holder prior
        to
        the fifth Trading Day after a Conversion Date or any Forced Conversion Date
        pursuant to Section 4(d) or the Company shall provide at any time notice
        to the
        Holder, including by way of public announcement, of the Company’s intention to
        not honor requests for conversions of any Debentures in accordance with the
        terms hereof; or

      


      xii.  any
        monetary judgment, writ or similar final process shall be entered or filed
        against the Company, any Subsidiary or any of their respective property or
        other
        assets for more than $150,000, and such judgment, writ or similar final process
        shall remain unvacated, unbonded or unstayed for a period of 45 calendar
        days.

      



      


      b)  Remedies
        Upon Event of Default.
        If any
        Event of Default occurs, the outstanding principal amount of this Debenture,
        plus accrued but unpaid interest, liquidated damages and other amounts owing
        in
        respect thereof through the date of acceleration, shall become, at the Holder’s
        election, immediately due and payable in cash at the Mandatory Default Amount.
        Commencing 5 days after the occurrence of any Event of Default that results
        in
        the eventual acceleration of this Debenture, the interest rate on this Debenture
        shall accrue at an interest rate equal to the lesser of 18% per annum or
        the
        maximum rate permitted under applicable law. Upon the payment in full of
        the
        Mandatory Default Amount, the Holder shall promptly surrender this Debenture
        to
        or as directed by the Company. In connection with such acceleration described
        herein, the Holder need not provide, and the Company hereby waives, any
        presentment, demand, protest or other notice of any kind, and the Holder
        may
        immediately and without expiration of any grace period enforce any and all
        of
        its rights and remedies hereunder and all other remedies available to it
        under
        applicable law. Such acceleration may be rescinded and annulled by Holder
        at any
        time prior to payment hereunder and the Holder shall have all rights as a
        holder
        of the Debenture until such time, if any, as the Holder receives full payment
        pursuant to this Section 8(b). No such rescission or annulment shall affect
        any
        subsequent Event of Default or impair any right consequent thereon.

      



      


      Section
        9. Miscellaneous.
        


       

      a)  Notices.
        Any and
        all notices or other communications or deliveries to be provided by the Holder
        hereunder, including, without limitation, any Notice of Conversion, shall
        be in
        writing and delivered personally, by facsimile, or sent by a nationally
        recognized overnight courier service, addressed to the Company, at the address
        set forth above, facsimile number _________,
        Attention:
        ____________ or
        such
        other facsimile number or address as the Company may specify for such purpose
        by
        notice to the Holder delivered in accordance with this Section 9. Any and
        all
        notices or other communications or deliveries to be provided by the Company
        hereunder shall be in writing and delivered personally, by facsimile, or
        sent by
        a nationally recognized overnight courier service addressed to each Holder
        at
        the facsimile number or address of such Holder appearing on the books of
        the
        Company, or if no such facsimile number or address appears, at the principal
        place of business of the Holder. Any notice or other communication or deliveries
        hereunder shall be deemed given and effective on the earliest of (i) the
        date of
        transmission, if such notice or communication is delivered via facsimile
        at the
        facsimile number specified in this Section 9 prior to 5:30 p.m. (New York
        City
        time), (ii) the date immediately following the date of transmission, if such
        notice or communication is delivered via facsimile at the facsimile number
        specified in this Section 9 between 5:30 p.m. (New York City time) and 11:59
        p.m. (New York City time) on any date, (iii) the second Business Day following
        the date of mailing, if sent by nationally recognized overnight courier service,
        or (iv) upon actual receipt by the party to whom such notice is required
        to be
        given.

       

      b)  Absolute
        Obligation.
        Except
        as expressly provided herein, no provision of this Debenture shall alter
        or
        impair the obligation of the Company, which is absolute and unconditional,
        to
        pay the principal of, liquidated damages and accrued interest, as applicable,
        on
        this Debenture at the time, place, and rate, and in the coin or currency,
        herein
        prescribed. This Debenture is a direct debt obligation of the Company. This
        Debenture ranks pari passu
        with all
        other Debentures now or hereafter issued under the terms set forth
        herein. 

       

      c)  Lost
        or Mutilated Debenture.
        If this
        Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
        execute and deliver, in exchange and substitution for and upon cancellation
        of a
        mutilated Debenture, or in lieu of or in substitution for a lost, stolen
        or
        destroyed Debenture, a new Debenture for the principal amount of this Debenture
        so mutilated, lost, stolen or destroyed, but only upon receipt of evidence
        of
        such loss, theft or destruction of such Debenture, and of the ownership hereof,
        reasonably satisfactory to the Company.

      


      d)  Governing
        Law.
        All
        questions concerning the construction, validity, enforcement and interpretation
        of this Debenture shall be governed by and construed and enforced in accordance
        with the internal laws of the State of New York, without regard to the
        principles of conflict of laws thereof. Each party agrees that all legal
        proceedings concerning the interpretation, enforcement and defense of the
        transactions contemplated by any of the Transaction Documents (whether brought
        against a party hereto or its respective Affiliates, directors, officers,
        shareholders, employees or agents) shall be commenced in the state and federal
        courts sitting in the City of New York, Borough of Manhattan (the “New
        York Courts”).
        Each
        party hereto hereby irrevocably submits to the exclusive jurisdiction of
        the New
        York Courts for the adjudication of any dispute hereunder or in connection
        herewith or with any transaction contemplated hereby or discussed herein
        (including with respect to the enforcement of any of the Transaction Documents),
        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
        such New York Courts, or such New York Courts are improper or inconvenient
        venue
        for such proceeding. Each party 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 via registered or certified mail or
        overnight delivery (with evidence of delivery) to such party at the address
        in
        effect for notices to it under this Debenture and agrees that such service
        shall
        constitute good and sufficient service of process and notice thereof. Nothing
        contained herein shall be deemed to limit in any way any right to serve process
        in any other manner permitted by applicable law. Each party hereto hereby
        irrevocably waives, to the fullest extent permitted by applicable law, any
        and
        all right to trial by jury in any legal proceeding arising out of or relating
        to
        this Debenture or the transactions contemplated hereby. If either party shall
        commence an action or proceeding to enforce any provisions of this Debenture,
        then the prevailing party in such action or proceeding shall be reimbursed
        by
        the other party for its attorneys fees and other costs and expenses incurred
        in
        the investigation, preparation and prosecution of such action or
        proceeding.

       

      e)  Waiver.
        Any
        waiver by the Company or the Holder of a breach of any provision of this
        Debenture shall not operate as or be construed to be a waiver of any other
        breach of such provision or of any breach of any other provision of this
        Debenture. The failure of the Company or the Holder to insist upon strict
        adherence to any term of this Debenture on one or more occasions shall not
        be
        considered a waiver or deprive that party of the right thereafter to insist
        upon
        strict adherence to that term or any other term of this Debenture. Any waiver
        by
        the Company or the Holder must be in writing.

       

      f)  Severability.
        If any
        provision of this Debenture is invalid, illegal or unenforceable, the balance
        of
        this Debenture shall remain in effect, and if any provision is inapplicable
        to
        any Person or circumstance, it shall nevertheless remain applicable to all
        other
        Persons and circumstances. If it shall be found that any interest or other
        amount deemed interest due hereunder violates the applicable law governing
        usury, the applicable rate of interest due hereunder shall automatically
        be
        lowered to equal the maximum rate of interest permitted under applicable
        law.
        The Company covenants (to the extent that it may lawfully do so) that it
        shall
        not at any time insist upon, plead, or in any manner whatsoever claim or
        take
        the benefit or advantage of, any stay, extension or usury law or other law
        which
        would prohibit or forgive the Company from paying all or any portion of the
        principal of or interest on this Debenture as contemplated herein, wherever
        enacted, now or at any time hereafter in force, or which may affect the
        covenants or the performance of this indenture, and the Company (to the extent
        it may lawfully do so) hereby expressly waives all benefits or advantage
        of any
        such law, and covenants that it will not, by resort to any such law, hinder,
        delay or impeded the execution of any power herein granted to the Holder,
        but
        will suffer and permit the execution of every such as though no such law
        has
        been enacted.

       

      g)  Next
        Business Day.
        Whenever any payment or other obligation hereunder shall be due on a day
        other
        than a Business Day, such payment shall be made on the next succeeding Business
        Day.

      


      h)  Headings.
        The
        headings contained herein are for convenience only, do not constitute a part
        of
        this Debenture and shall not be deemed to limit or affect any of the provisions
        hereof.

      


      i)  Assumption. 
        Any successor to the Company or any surviving entity in a Fundamental
        Transaction shall (i) assume, prior to such Fundamental Transaction, all
        of the
        obligations of the Company under this Debenture and the other Transaction
        Documents pursuant to written agreements in form and substance satisfactory
        to
        the Holder (such approval not to be unreasonably withheld or delayed) and
        (ii)
        issue to the Holder a new debenture of such successor entity evidenced by
        a
        written instrument substantially similar in form and substance to this
        Debenture, including, without limitation, having a principal amount and interest
        rate equal to the principal amount and the interest rate of this Debenture
        and
        having similar ranking to this Debenture, which shall be satisfactory to
        the
        Holder (any such approval not to be unreasonably withheld or delayed).  The
        provisions of this Section 9(i) shall apply similarly and equally to successive
        Fundamental Transactions and shall be applied without regard to any limitations
        of this Debenture.

      


      *********************


      IN
        WITNESS WHEREOF, the Company has caused this Debenture to be duly executed
        by a
        duly authorized officer as of the date first above indicated.

      


      


      
        	
                TELANETIX,
                  INC.

                 

              
	
                By:__________________________________________

                Name:

                Title:

              


      

      



      
        
           

        

        
           

          
            

          

        

        
           

        

      


      ANNEX
        A

      


      NOTICE
        OF CONVERSION

       

      


      The
        undersigned hereby elects to convert Principal Amount under the Original
        Issue
        Discount 6% Senior Convertible Debenture due December 31, 2008 of Telanetix,
        Inc., a Delaware corporation (the “Company”),
        into
        shares of common stock, par value $0.001 per share (the “Common
        Stock”),
        of
        the Company according to the conditions hereof, as of the date written below.
        If
        shares of Common Stock are to be issued in the name of a person other than
        the
        undersigned, the undersigned will pay all transfer taxes payable with respect
        thereto and is delivering herewith such certificates and opinions as reasonably
        requested by the Company in accordance therewith. No fee will be charged
        to the
        holder for any conversion, except for such transfer taxes, if any.

      


      By
        the
        delivery of this Notice of Conversion the undersigned represents and warrants
        to
        the Company that its ownership of the Common Stock does not exceed the amounts
        specified under Section 4 of this Debenture, as determined in accordance
        with
        Section 13(d) of the Exchange Act.

      


      The
        undersigned agrees to comply with the prospectus delivery requirements under
        the
        applicable securities laws in connection with any transfer of the aforesaid
        shares of Common Stock. 

      


      Conversion
        calculations:   

      Date
        to
        Effect Conversion:

      


      Principal
        Amount of Debenture to be Converted:

      


      Payment
        of Interest in Common Stock __ yes __ no

      If
        yes,
        $_____ of Interest Accrued on Account of Conversion at Issue.

      Number
        of
        shares of Common Stock to be issued:

      Signature:

      Name:

      Address:

      



      
        
           

        

        
           

          
            

          

        

        
           

        

      


      Schedule
        1

      CONVERSION
        SCHEDULE

      


      The
        Original Issue Discount 6% Senior Convertible Debentures due on December
        31,
        2008 in the aggregate Principal Amount of $____________ are issued by Telanetix,
        Inc., a Delaware corporation. This Conversion Schedule reflects conversions
        made
        under Section 4 of the above referenced Debenture.

      


      Dated:
        

      


      


      
        	
                 

                Date
                  of Conversion

                (or
                  for first entry, Original Issue Date)

              	
                 

                Amount
                  of Conversion

              	
                 

                Aggregate
                  Principal Amount Remaining Subsequent to Conversion

                (or
                  original Principal Amount)

              	
                 

                Company
                  Attest