Unassociated Document


    
      THE
        SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
        THE
        SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES MAY NOT BE SOLD,
        TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
        FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
        AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT
        REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE
        144
        OR REGULATION S UNDER SAID ACT.

       

      CALLABLE
        SECURED CONVERTIBLE NOTE

       

      Murray,
        Utah

       

      August
        18, 2005$[________]

       

      FOR
        VALUE RECEIVED,
        GRANT LIFE SCIENCES, INC.,
        a
        Nevada corporation (hereinafter called the “Borrower”),
        hereby promises to pay to the order of [________] or registered assigns (the
        “Holder”)
        the
        sum of $[________], on August 18, 2008 (the “Maturity
        Date”),
        and
        to pay interest on the unpaid principal balance hereof at the rate of ten
        percent (10%) (the “Interest
        Rate”)
        per
        annum from August 18, 2005 (the “Issue
        Date”)
        until
        the same becomes due and payable, whether at maturity or upon acceleration
        or by
        prepayment or otherwise. Any amount of principal or interest on this Note
        which
        is not paid when due shall bear interest at the rate of fifteen percent (15%)
        per annum from the due date thereof until the same is paid (“Default
        Interest”).
        Interest shall commence accruing on the Issue Date, shall be computed on
        the
        basis of a 365-day year and the actual number of days elapsed and shall be
        payable quarterly provided that no interest shall be due and payable for
        any
        month in which the Trading Price (as such term is defined below) is greater
        than
        $.325 for each Trading Day (as such term is defined below) of the month.
        All
        payments due hereunder (to the extent not converted into common stock, $.001
        par
        value per share (the “Common
        Stock”)
        in
        accordance with the terms hereof) shall be made in lawful money of the United
        States of America provided that interest due and payable for the first eight
        (8)
        months following the Issue Date shall be paid on the date hereof. All payments
        shall be made at such address as the Holder shall hereafter give to the Borrower
        by written notice made in accordance with the provisions of this Note. Whenever
        any amount expressed to be due by the terms of this Note is due on any day
        which
        is not a business day, the same shall instead be due on the next succeeding
        day
        which is a business day and, in the case of any interest payment date which
        is
        not the date on which this Note is paid in full, the extension of the due
        date
        thereof shall not be taken into account for purposes of determining the amount
        of interest due on such date. As used in this Note, the term “business day”
        shall mean any day other than a Saturday, Sunday or a day on which commercial
        banks in the city of New York, New York are authorized or required by law
        or
        executive order to remain closed. Each capitalized term used herein, and
        not
        otherwise defined, shall have the meaning ascribed thereto in that certain
        Securities Purchase Agreement, dated June 14, 2005, pursuant to which this
        Note
        was originally issued (the “Purchase
        Agreement”).

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      This
        Note
        is free from all taxes, liens, claims and encumbrances with respect to the
        issue
        thereof and shall not be subject to preemptive rights or other similar rights
        of
        shareholders of the Borrower and will not impose personal liability upon
        the
        holder thereof. The obligations of the Borrower under this Note shall be
        secured
        by that certain Security Agreement and Intellectual Property Security Agreement,
        each dated June 14, 2005 by and between the Borrower and the
        Holder.

       

      The
        following terms shall apply to this Note:

       

      ARTICLE
        I. CONVERSION
        RIGHTS

       

      1.1  Conversion
        Right.
        The
        Holder shall have the right from time to time, and at any time on or prior
        to
        the earlier of (i) the Maturity Date and (ii) the date of payment of the
        Default
        Amount (as defined in Article III) pursuant to Section 1.6(a) or Article
        III,
        the Optional Prepayment Amount (as defined in Section 5.1 or any payments
        pursuant to Section 1.7, each in respect of the remaining outstanding principal
        amount of this Note to convert all or any part of the outstanding and unpaid
        principal amount of this Note into fully paid and non-assessable shares of
        Common Stock, as such Common Stock exists on the Issue Date, or any shares
        of
        capital stock or other securities of the Borrower into which such Common
        Stock
        shall hereafter be changed or reclassified at the conversion price (the
“Conversion
        Price”)
        determined as provided herein (a “Conversion”);
        provided,
        however,
        that in
        no event shall the Holder be entitled to convert any portion of this Note
        in
        excess of that portion of this Note upon conversion of which the sum of (1)
        the
        number of shares of Common Stock beneficially owned by the Holder and its
        affiliates (other than shares of Common Stock which may be deemed beneficially
        owned through the ownership of the unconverted portion of the Notes or the
        unexercised or unconverted portion of any other security of the Borrower
        (including, without limitation, the warrants issued by the Borrower pursuant
        to
        the Purchase Agreement) subject to a limitation on conversion or exercise
        analogous to the limitations contained herein) and (2) the number of shares
        of
        Common Stock issuable upon the conversion of the portion of this Note with
        respect to which the determination of this proviso is being made, would result
        in beneficial ownership by the Holder and its affiliates of more than 4.99%
        of
        the outstanding shares of Common Stock and provided further
        that the
        Holder shall not be entitled to convert any portion of this Note during any
        month immediately succeeding a Determination Date on which the Borrower
        exercises its prepayment option pursuant to Section 5.2 of this Note. For
        purposes of the proviso to the immediately preceding sentence, beneficial
        ownership shall be determined in accordance with Section 13(d) of the Securities
        Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except
        as
        otherwise provided in clause (1) of such proviso. The number of shares of
        Common
        Stock to be issued upon each conversion of this Note shall be determined
        by
        dividing the Conversion Amount (as defined below) by the applicable Conversion
        Price then in effect on the date specified in the notice of conversion, in
        the
        form attached hereto as Exhibit A (the “Notice
        of Conversion”),
        delivered to the Borrower by the Holder in accordance with Section 1.4 below;
        provided that the Notice of Conversion is submitted by facsimile (or by other
        means resulting in, or reasonably expected to result in, notice) to the Borrower
        before 6:00 p.m., New York, New York time on such conversion date (the
“Conversion
        Date”).
        The
        term “Conversion
        Amount”
        means,
        with respect to any conversion of this Note, the sum of (1) the principal
        amount
        of this Note to be converted in such conversion plus
        (2)
        accrued and unpaid interest, if any, on such principal amount at the interest
        rates provided in this Note to the Conversion Date plus
        (3)
        Default Interest, if any, on the amounts referred to in the immediately
        preceding clauses (1) and/or (2) plus
        (4) at
        the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and
        1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights
        Agreement, dated as of June 14, 2005, executed in connection with the initial
        issuance of this Note and the other Notes issued on the Issue Date (the
“Registration
        Rights Agreement”).
        The
        term “Determination
        Date”means
        the
        last business day of each month after the Issue Date.

       

      
        
           

        

        
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      1.2  Conversion
        Price.

       

      (a)  Calculation
        of Conversion Price.
        The
        Conversion Price shall be the lesser of (i) the Variable Conversion Price
        (as
        defined herein) and (ii) the Fixed Conversion Price (as defined herein)
        (subject, in each case, to equitable adjustments for stock splits, stock
        dividends or rights offerings by the Borrower relating to the Borrower’s
        securities or the securities of any subsidiary of the Borrower, combinations,
        recapitalization, reclassifications, extraordinary distributions and similar
        events). The “Variable
        Conversion Price”
        shall
        mean the Applicable Percentage (as defined herein) multiplied by the Market
        Price (as defined herein). “Market
        Price”
        means
        the average of the lowest three (3) Trading Prices (as defined below) for
        the
        Common Stock during the twenty (20) Trading Day period ending one Trading
        Day
        prior to the date the Conversion Notice is sent by the Holder to the Borrower
        via facsimile (the “Conversion
        Date”).
        “Trading
        Price”
        means,
        for any security as of any date, the intraday trading price on the
        Over-the-Counter Bulletin Board (the “OTCBB”)
        as
        reported by a reliable reporting service mutually acceptable to and hereafter
        designated by Holders of a majority in interest of the Notes and the Borrower
        or, if the OTCBB is not the principal trading market for such security, the
        intraday trading price of such security on the principal securities exchange
        or
        trading market where such security is listed or traded or, if no intraday
        trading price of such security is available in any of the foregoing manners,
        the
        average of the intraday trading prices of any market makers for such security
        that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If
        the Trading Price cannot be calculated for such security on such date in
        the
        manner provided above, the Trading Price shall be the fair market value as
        mutually determined by the Borrower and the holders of a majority in interest
        of
        the Notes being converted for which the calculation of the Trading Price
        is
        required in order to determine the Conversion Price of such Notes. “Trading
        Day”
        shall
        mean any day on which the Common Stock is traded for any period on the OTCBB,
        or
        on the principal securities exchange or other securities market on which
        the
        Common Stock is then being traded. “Applicable
        Percentage”
        shall
        mean 50.0%. The “Fixed
        Conversion Price”
        shall
        mean $.40.

       

      (b)  Conversion
        Price During Major Announcements.
        Notwithstanding
        anything contained in Section 1.2(a) to the contrary, in the event the Borrower
        (i) makes a public announcement that it intends to consolidate or merge with
        any
        other corporation (other than a merger in which the Borrower is the surviving
        or
        continuing corporation and its capital stock is unchanged) or sell or transfer
        all or substantially all of the assets of the Borrower or (ii) any person,
        group
        or entity (including the Borrower) publicly announces a tender offer to purchase
        50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the
        date of the announcement referred to in clause (i) or (ii) is hereinafter
        referred to as the “Announcement
        Date”),
        then
        the Conversion Price shall, effective upon the Announcement Date and continuing
        through the Adjusted Conversion Price Termination Date (as defined below),
        be
        equal to the lower of (x) the Conversion Price which would have been applicable
        for a Conversion occurring on the Announcement Date and (y) the Conversion
        Price
        that would otherwise be in effect. From and after the Adjusted Conversion
        Price
        Termination Date, the Conversion Price shall be determined as set forth in
        this
        Section 1.2(a). For purposes hereof, “Adjusted
        Conversion Price Termination Date”
        shall
        mean, with respect to any proposed transaction or tender offer (or takeover
        scheme) for which a public announcement as contemplated by this Section 1.2(b)
        has been made, the date upon which the Borrower (in the case of clause (i)
        above) or the person, group or entity (in the case of clause (ii) above)
        consummates or publicly announces the termination or abandonment of the proposed
        transaction or tender offer (or takeover scheme) which caused this Section
        1.2(b) to become operative.

       

      
        
           

        

        
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      1.3  Authorized
        Shares.
        The
        Borrower covenants that during the period the conversion right exists, the
        Borrower will reserve from its authorized and unissued Common Stock a sufficient
        number of shares, free from preemptive rights, to provide for the issuance
        of
        Common Stock upon the full conversion of this Note and the other Notes issued
        pursuant to the Purchase Agreement. The Borrower is required at all times
        to
        have authorized and reserved two times the number of shares that is actually
        issuable upon full conversion of the Notes (based on the Conversion Price
        of the
        Notes or the Exercise Price of the Warrants in effect from time to time)
        (the
“Reserved
        Amount”).
        The
        Reserved Amount shall be increased from time to time in accordance with the
        Borrower’s obligations pursuant to Section 4(h) of the Purchase Agreement. The
        Borrower represents that upon issuance, such shares will be duly and validly
        issued, fully paid and non-assessable. In addition, if the Borrower shall
        issue
        any securities or make any change to its capital structure which would change
        the number of shares of Common Stock into which the Notes shall be convertible
        at the then current Conversion Price, the Borrower shall at the same time
        make
        proper provision so that thereafter there shall be a sufficient number of
        shares
        of Common Stock authorized and reserved, free from preemptive rights, for
        conversion of the outstanding Notes. The Borrower (i) acknowledges that it
        has
        irrevocably instructed its transfer agent to issue certificates for the Common
        Stock issuable upon conversion of this Note, and (ii) agrees that
        its
        issuance of this Note shall constitute full authority to its officers and
        agents
        who are charged with the duty of executing stock certificates to execute
        and
        issue the necessary certificates for shares of Common Stock in accordance
        with
        the terms and conditions of this Note.

       

      If,
        at
        any time a Holder of this Note submits a Notice of Conversion, and the Borrower
        does not have sufficient authorized but unissued shares of Common Stock
        available to effect such conversion in accordance with the provisions of
        this
        Article I (a “Conversion
        Default”),
        subject to Section 4.8, the Borrower shall issue to the Holder all of the
        shares
        of Common Stock which are then available to effect such conversion. The portion
        of this Note which the Holder included in its Conversion Notice and which
        exceeds the amount which is then convertible into available shares of Common
        Stock (the “Excess
        Amount”)
        shall,
        notwithstanding anything to the contrary contained herein, not be convertible
        into Common Stock in accordance with the terms hereof until (and at the Holder’s
        option at any time after) the date additional shares of Common Stock are
        authorized by the Borrower to permit such conversion, at which time the
        Conversion Price in respect thereof shall be the lesser of (i) the Conversion
        Price on the Conversion Default Date (as defined below) and (ii) the Conversion
        Price on the Conversion Date thereafter elected by the Holder in respect
        thereof. In addition, the Borrower shall pay to the Holder payments
        (“Conversion
        Default Payments”)
        for a
        Conversion Default in the amount of (x) the sum
        of
        (1) the
        then outstanding principal amount of this Note plus
        (2)
        accrued and unpaid interest on the unpaid principal amount of this Note through
        the Authorization Date (as defined below) plus
        (3)
        Default Interest, if any, on the amounts referred to in clauses (1) and/or
        (2),
multiplied
        by
        (y) .24,
multiplied
        by
        (z)
        (N/365), where N = the number of days from the day the holder submits a Notice
        of Conversion giving rise to a Conversion Default (the “Conversion
        Default Date”)
        to the
        date (the “Authorization
        Date”)
        that
        the Borrower authorizes a sufficient number of shares of Common Stock to
        effect
        conversion of the full outstanding principal balance of this Note. The Borrower
        shall use its best efforts to authorize a sufficient number of shares of
        Common
        Stock as soon as practicable following the earlier of (i) such time that
        the
        Holder notifies the Borrower or that the Borrower otherwise becomes aware
        that
        there are or likely will be insufficient authorized and unissued shares to
        allow
        full conversion thereof and (ii) a Conversion Default. The Borrower shall
        send
        notice to the Holder of the authorization of additional shares of Common
        Stock,
        the Authorization Date and the amount of Holder’s accrued Conversion Default
        Payments. The accrued Conversion Default Payments for each calendar month
        shall
        be paid in cash or shall be convertible into Common Stock (at such time as
        there
        are sufficient authorized shares of Common Stock) at the applicable Conversion
        Price, at the Borrower’s option, as follows:

       

      
        
           

        

        
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      (a)  In
        the
        event Holder elects to take such payment in cash, cash payment shall be made
        to
        Holder by the fifth (5th)
        day of
        the month following the month in which it has accrued; and

       

      (b)  In
        the
        event Holder elects to take such payment in Common Stock, the Holder may
        convert
        such payment amount into Common Stock at the Conversion Price (as in effect
        at
        the time of conversion) at any time after the fifth day of the month following
        the month in which it has accrued in accordance with the terms of this Article
        I
        (so long as there is then a sufficient number of authorized shares of Common
        Stock).

       

      The
        Holder’s election shall be made in writing to the Borrower at any time prior to
        6:00 p.m., New York, New York time, on the third day of the month following
        the
        month in which Conversion Default payments have accrued. If no election is
        made,
        the Holder shall be deemed to have elected to receive cash. Nothing herein
        shall
        limit the Holder’s right to pursue actual damages (to the extent in excess of
        the Conversion Default Payments) for the Borrower’s failure to maintain a
        sufficient number of authorized shares of Common Stock, and each holder shall
        have the right to pursue all remedies available at law or in equity (including
        degree of specific performance and/or injunctive relief).

       

      1.4  Method
        of Conversion.

       

      (a)  Mechanics
        of Conversion.
        Subject
        to Section 1.1, this Note may be converted by the Holder in whole or in part
        at
        any time from time to time after the Issue Date, by (A) submitting
        to the
        Borrower a Notice of Conversion (by facsimile or other reasonable means of
        communication dispatched on the Conversion Date prior to 6:00 p.m., New York,
        New York time) and (B) subject to Section 1.4(b), surrendering this
        Note at
        the principal office of the Borrower. 

       

      
        
           

        

        
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      (b)  Surrender
        of Note Upon Conversion.
        Notwithstanding
        anything to the contrary set forth herein, upon conversion of this Note in
        accordance with the terms hereof, the Holder shall not be required to physically
        surrender this Note to the Borrower unless the entire unpaid principal amount
        of
        this Note is so converted. The Holder and the Borrower shall maintain records
        showing the principal amount so converted and the dates of such conversions
        or
        shall use such other method, reasonably satisfactory to the Holder and the
        Borrower, so as not to require physical surrender of this Note upon each
        such
        conversion. In the event of any dispute or discrepancy, such records of the
        Borrower shall be controlling and determinative in the absence of manifest
        error. Notwithstanding the foregoing, if any portion of this Note is converted
        as aforesaid, the Holder may not transfer this Note unless the Holder first
        physically surrenders this Note to the Borrower, whereupon the Borrower will
        forthwith issue and deliver upon the order of the Holder a new Note of like
        tenor, registered as the Holder (upon payment by the Holder of any applicable
        transfer taxes) may request, representing in the aggregate the remaining
        unpaid
        principal amount of this Note. The Holder and any assignee, by acceptance
        of
        this Note, acknowledge and agree that, by reason of the provisions of this
        paragraph, following conversion of a portion of this Note, the unpaid and
        unconverted principal amount of this Note represented by this Note may be
        less
        than the amount stated on the face hereof.

       

      (c)  Payment
        of Taxes.
        The
        Borrower shall not be required to pay any tax which may be payable in respect
        of
        any transfer involved in the issue and delivery of shares of Common Stock
        or
        other securities or property on conversion of this Note in a name other than
        that of the Holder (or in street name), and the Borrower shall not be required
        to issue or deliver any such shares or other securities or property unless
        and
        until the person or persons (other than the Holder or the custodian in whose
        street name such shares are to be held for the Holder’s account) requesting the
        issuance thereof shall have paid to the Borrower the amount of any such tax
        or
        shall have established to the satisfaction of the Borrower that such tax
        has
        been paid.

       

      (d)  Delivery
        of Common Stock Upon Conversion.
        Upon
        receipt by the Borrower from the Holder of a facsimile transmission (or other
        reasonable means of communication) of a Notice of Conversion meeting the
        requirements for conversion as provided in this Section 1.4, the Borrower
        shall
        issue and deliver or cause to be issued and delivered to or upon the order
        of
        the Holder certificates for the Common Stock issuable upon such conversion
        within two (2) business days after such receipt (and, solely in the case
        of
        conversion of the entire unpaid principal amount hereof, surrender of this
        Note)
        (such second business day being hereinafter referred to as the “Deadline”)
        in
        accordance with the terms hereof and the Purchase Agreement (including, without
        limitation, in accordance with the requirements of Section 2(g) of the Purchase
        Agreement that certificates for shares of Common Stock issued on or after
        the
        effective date of the Registration Statement upon conversion of this Note
        shall
        not bear any restrictive legend).

       

      
        
           

        

        
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      (e)  Obligation
        of Borrower to Deliver Common Stock.
        Upon
        receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed
        to
        be the holder of record of the Common Stock issuable upon such conversion,
        the
        outstanding principal amount and the amount of accrued and unpaid interest
        on
        this Note shall be reduced to reflect such conversion, and, unless the Borrower
        defaults on its obligations under this Article I, all rights with respect
        to the
        portion of this Note being so converted shall forthwith terminate except
        the
        right to receive the Common Stock or other securities, cash or other assets,
        as
        herein provided, on such conversion. If the Holder shall have given a Notice
        of
        Conversion as provided herein, the Borrower’s obligation to issue and deliver
        the certificates for Common Stock shall be absolute and unconditional,
        irrespective of the absence of any action by the Holder to enforce the same,
        any
        waiver or consent with respect to any provision thereof, the recovery of
        any
        judgment against any person or any action to enforce the same, any failure
        or
        delay in the enforcement of any other obligation of the Borrower to the holder
        of record, or any setoff, counterclaim, recoupment, limitation or termination,
        or any breach or alleged breach by the Holder of any obligation to the Borrower,
        and irrespective of any other circumstance which might otherwise limit such
        obligation of the Borrower to the Holder in connection with such conversion.
        The
        Conversion Date specified in the Notice of Conversion shall be the Conversion
        Date so long as the Notice of Conversion is received by the Borrower before
        6:00
        p.m., New York, New York time, on such date.

       

      (f)  Delivery
        of Common Stock by Electronic Transfer.
        In
        lieu
        of delivering physical certificates representing the Common Stock issuable
        upon
        conversion, provided the Borrower’s transfer agent is participating in the
        Depository Trust Company (“DTC”)
        Fast
        Automated Securities Transfer (“FAST”)
        program, upon request of the Holder and its compliance with the provisions
        contained in Section 1.1 and in this Section 1.4, the Borrower shall use
        its
        best efforts to cause its transfer agent to electronically transmit the Common
        Stock issuable upon conversion to the Holder by crediting the account of
        Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission
        (“DWAC”)
        system.

       

      (g)  Failure
        to Deliver Common Stock Prior to Deadline.
        Without
        in any way limiting the Holder’s right to pursue other remedies, including
        actual damages and/or equitable relief, the parties agree that if delivery
        of
        the Common Stock issuable upon conversion of this Note is more than two (2)
        business days after the Deadline (other than a failure due to the circumstances
        described in Section 1.3 above, which failure shall be governed by such Section)
        the Borrower shall pay to the Holder $2,000 per day in cash, for each day
        beyond
        the Deadline that the Borrower fails to deliver such Common Stock. Such cash
        amount shall be paid to Holder by the fifth day of the month following the
        month
        in which it has accrued or, at the option of the Holder (by written notice
        to
        the Borrower by the first day of the month following the month in which it
        has
        accrued), shall be added to the principal amount of this Note, in which event
        interest shall accrue thereon in accordance with the terms of this Note and
        such
        additional principal amount shall be convertible into Common Stock in accordance
        with the terms of this Note.

       

      1.5  Concerning
        the Shares.
        The
        shares of Common Stock issuable upon conversion of this Note may not be sold
        or
        transferred unless (i) such shares are sold pursuant to an effective
        registration statement under the Act or (ii) the Borrower or its transfer
        agent
        shall have been furnished with an opinion of counsel (which opinion shall
        be in
        form, substance and scope customary for opinions of counsel in comparable
        transactions) to the effect that the shares to be sold or transferred may
        be
        sold or transferred pursuant to an exemption from such registration or
        (iii) such shares are sold or transferred pursuant to Rule 144 under
        the
        Act (or a successor rule) (“Rule
        144”)
        or
        (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of
        the Borrower who agrees to sell or otherwise transfer the shares only in
        accordance with this Section 1.5 and who is an Accredited Investor (as defined
        in the Purchase Agreement). Except as otherwise provided in the Purchase
        Agreement (and subject to the removal provisions set forth below), until
        such
        time as the shares of Common Stock issuable upon conversion of this Note
        have
        been registered under the Act as contemplated by the Registration Rights
        Agreement or otherwise may be sold pursuant to Rule 144 without any restriction
        as to the number of securities as of a particular date that can then be
        immediately sold, each certificate for shares of Common Stock issuable upon
        conversion of this Note that has not been so included in an effective
        registration statement or that has not been sold pursuant to an effective
        registration statement or an exemption that permits removal of the legend,
        shall
        bear a legend substantially in the following form, as appropriate:

       

      
        
           

        

        
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      “THE
        SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
        THE
        SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED
        OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
        SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND
        SCOPE
        CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION
        IS NOT REQUIRED UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION
        S
        UNDER SAID ACT.”

       

      The
        legend set forth above shall be removed and the Borrower shall issue to the
        Holder a new certificate therefor free of any transfer legend if (i) the
        Borrower or its transfer agent shall have received an opinion of counsel,
        in
        form, substance and scope customary for opinions of counsel in comparable
        transactions, to the effect that a public sale or transfer of such Common
        Stock
        may be made without registration under the Act and the shares are so sold
        or
        transferred, (ii) such Holder provides the Borrower or its transfer agent
        with
        reasonable assurances that the Common Stock issuable upon conversion of this
        Note (to the extent such securities are deemed to have been acquired on the
        same
        date) can be sold pursuant to Rule 144 or (iii) in the case of the Common
        Stock
        issuable upon conversion of this Note, such security is registered for sale
        by
        the Holder under an effective registration statement filed under the Act
        or
        otherwise may be sold pursuant to Rule 144 without any restriction as to
        the
        number of securities as of a particular date that can then be immediately
        sold.
        Nothing in this Note shall (i) limit the Borrower’s obligation under the
        Registration Rights Agreement or (ii) affect in any way the Holder’s obligations
        to comply with applicable prospectus delivery requirements upon the resale
        of
        the securities referred to herein.

       

      1.6  Effect
        of Certain Events.

       

      (a)  Effect
        of Merger, Consolidation, Etc.
        At the
        option of the Holder, the sale, conveyance or disposition of all or
        substantially all of the assets of the Borrower, the effectuation by the
        Borrower of a transaction or series of related transactions in which more
        than
        50% of the voting power of the Borrower is disposed of, or the consolidation,
        merger or other business combination of the Borrower with or into any other
        Person (as defined below) or Persons when the Borrower is not the survivor
        shall
        either: (i) be deemed to be an Event of Default (as defined in Article III)
        pursuant to which the Borrower shall be required to pay to the Holder upon
        the
        consummation of and as a condition to such transaction an amount equal to
        the
        Default Amount (as defined in Article III) or (ii) be treated pursuant to
        Section 1.6(b) hereof. “Person”
        shall
        mean any individual, corporation, limited liability company, partnership,
        association, trust or other entity or organization.

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      (b)  Adjustment
        Due to Merger, Consolidation, Etc.
        If,
        at
        any time when this Note is issued and outstanding and prior to conversion
        of all
        of the Notes, there shall be any merger, consolidation, exchange of shares,
        recapitalization, reorganization, or other similar event, as a result of
        which
        shares of Common Stock of the Borrower shall be changed into the same or
        a
        different number of shares of another class or classes of stock or securities
        of
        the Borrower or another entity, or in case of any sale or conveyance of all
        or
        substantially all of the assets of the Borrower other than in connection
        with a
        plan of complete liquidation of the Borrower, then the Holder of this Note
        shall
        thereafter have the right to receive upon conversion of this Note, upon the
        basis and upon the terms and conditions specified herein and in lieu of the
        shares of Common Stock immediately theretofore issuable upon conversion,
        such
        stock, securities or assets which the Holder would have been entitled to
        receive
        in such transaction had this Note been converted in full immediately prior
        to
        such transaction (without regard to any limitations on conversion set forth
        herein), and in any such case appropriate provisions shall be made with respect
        to the rights and interests of the Holder of this Note to the end that the
        provisions hereof (including, without limitation, provisions for adjustment
        of
        the Conversion Price and of the number of shares issuable upon conversion
        of the
        Note) shall thereafter be applicable, as nearly as may be practicable in
        relation to any securities or assets thereafter deliverable upon the conversion
        hereof. The Borrower shall not effect any transaction described in this Section
        1.6(b) unless (a) it first gives, to the extent practicable, thirty (30)
        days
        prior written notice (but in any event at least fifteen (15) days prior written
        notice) of the record date of the special meeting of shareholders to approve,
        or
        if there is no such record date, the consummation of, such merger,
        consolidation, exchange of shares, recapitalization, reorganization or other
        similar event or sale of assets (during which time the Holder shall be entitled
        to convert this Note) and (b) the resulting successor or acquiring entity
        (if
        not the Borrower) assumes by written instrument the obligations of this Section
        1.6(b). The above provisions shall similarly apply to successive consolidations,
        mergers, sales, transfers or share exchanges.

       

      (c)  Adjustment
        Due to Distribution.
        If
        the
        Borrower shall declare or make any distribution of its assets (or rights
        to
        acquire its assets) to holders of Common Stock as a dividend, stock repurchase,
        by way of return of capital or otherwise (including any dividend or distribution
        to the Borrower’s shareholders in cash or shares (or rights to acquire shares)
        of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”),
        then
        the Holder of this Note shall be entitled, upon any conversion of this Note
        after the date of record for determining shareholders entitled to such
        Distribution, to receive the amount of such assets which would have been
        payable
        to the Holder with respect to the shares of Common Stock issuable upon such
        conversion had such Holder been the holder of such shares of Common Stock
        on the
        record date for the determination of shareholders entitled to such
        Distribution.

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      (d)  Adjustment
        Due to Dilutive Issuance.
        If, at
        any time when any Notes are issued and outstanding, the Borrower issues or
        sells, or in accordance with this Section 1.6(d) hereof is deemed to have
        issued
        or sold, any shares of Common Stock for no consideration or for a consideration
        per share (before deduction of reasonable expenses or commissions or
        underwriting discounts or allowances in connection therewith) less than the
        Fixed Conversion Price in effect on the date of such issuance (or deemed
        issuance) of such shares of Common Stock (a “Dilutive
        Issuance”),
        then
        immediately upon the Dilutive Issuance, the Fixed Conversion Price will be
        reduced to the amount of the consideration per share received by the Borrower
        in
        such Dilutive Issuance; provided
        that
        only one adjustment will be made for each Dilutive Issuance.

       

      The
        Borrower shall be deemed to have issued or sold shares of Common Stock if
        the
        Borrower in any manner issues or grants any warrants, rights or options (not
        including employee stock option plans), whether or not immediately exercisable,
        to subscribe for or to purchase Common Stock or other securities convertible
        into or exchangeable for Common Stock (“Convertible
        Securities”)
        (such
        warrants, rights and options to purchase Common Stock or Convertible Securities
        are hereinafter referred to as “Options”)
        and
        the price per share for which Common Stock is issuable upon the exercise
        of such
        Options is less than the Fixed Conversion Price then in effect, then the
        Fixed
        Conversion Price shall be equal to such price per share. For purposes of
        the
        preceding sentence, the “price per share for which Common Stock is issuable upon
        the exercise of such Options” is determined by dividing (i) the total amount, if
        any, received or receivable by the Borrower as consideration for the issuance
        or
        granting of all such Options, plus the minimum aggregate amount of additional
        consideration, if any, payable to the Borrower upon the exercise of all such
        Options, plus, in the case of Convertible Securities issuable upon the exercise
        of such Options, the minimum aggregate amount of additional consideration
        payable upon the conversion or exchange thereof at the time such Convertible
        Securities first become convertible or exchangeable, by (ii) the maximum
        total
        number of shares of Common Stock issuable upon the exercise of all such Options
        (assuming full conversion of Convertible Securities, if applicable). No further
        adjustment to the Conversion Price will be made upon the actual issuance
        of such
        Common Stock upon the exercise of such Options or upon the conversion or
        exchange of Convertible Securities issuable upon exercise of such
        Options.

       

      Additionally,
        the Borrower shall be deemed to have issued or sold shares of Common Stock
        if
        the Borrower in any manner issues or sells any Convertible Securities, whether
        or not immediately convertible (other than where the same are issuable upon
        the
        exercise of Options), and the price per share for which Common Stock is issuable
        upon such conversion or exchange is less than the Fixed Conversion Price
        then in
        effect, then the Fixed Conversion Price shall be equal to such price per
        share.
        For the purposes of the preceding sentence, the “price per share for which
        Common Stock is issuable upon such conversion or exchange” is determined by
        dividing (i) the total amount, if any, received or receivable by the Borrower
        as
        consideration for the issuance or sale of all such Convertible Securities,
        plus
        the minimum aggregate amount of additional consideration, if any, payable
        to the
        Borrower upon the conversion or exchange thereof at the time such Convertible
        Securities first become convertible or exchangeable, by (ii) the maximum
        total
        number of shares of Common Stock issuable upon the conversion or exchange
        of all
        such Convertible Securities. No further adjustment to the Fixed Conversion
        Price
        will be made upon the actual issuance of such Common Stock upon conversion
        or
        exchange of such Convertible Securities.

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      (e)  Purchase
        Rights.
        If,
        at
        any time when any Notes are issued and outstanding, the Borrower issues any
        convertible securities or rights to purchase stock, warrants, securities
        or
        other property (the “Purchase
        Rights”)
        pro
        rata to the record holders of any class of Common Stock, then the Holder
        of this
        Note will be entitled to acquire, upon the terms applicable to such Purchase
        Rights, the aggregate Purchase Rights which such Holder could have acquired
        if
        such Holder had held the number of shares of Common Stock acquirable upon
        complete conversion of this Note (without regard to any limitations on
        conversion contained herein) immediately before the date on which a record
        is
        taken for the grant, issuance or sale of such Purchase Rights or, if no such
        record is taken, the date as of which the record holders of Common Stock
        are to
        be determined for the grant, issue or sale of such Purchase Rights.

       

      (f)  Notice
        of Adjustments.
        Upon
        the
        occurrence of each adjustment or readjustment of the Conversion Price as
        a
        result of the events described in this Section 1.6, the Borrower, at its
        expense, shall promptly compute such adjustment or readjustment and prepare
        and
        furnish to the Holder of a certificate setting forth such adjustment or
        readjustment and showing in detail the facts upon which such adjustment or
        readjustment is based. The Borrower shall, upon the written request at any
        time
        of the Holder, furnish to such Holder a like certificate setting forth (i)
        such
        adjustment or readjustment, (ii) the Conversion Price at the time in effect
        and
        (iii) the number of shares of Common Stock and the amount, if any, of other
        securities or property which at the time would be received upon conversion
        of
        the Note.

       

      1.7  Trading
        Market Limitations.
        Unless
        permitted by the applicable rules and regulations of the principal securities
        market on which the Common Stock is then listed or traded, in no event shall
        the
        Borrower issue upon conversion of or otherwise pursuant to this Note and
        the
        other Notes issued pursuant to the Purchase Agreement more than the maximum
        number of shares of Common Stock that the Borrower can issue pursuant to
        any
        rule of the principal United States securities market on which the Common
        Stock
        is then traded (the “Maximum
        Share Amount”),
        which
        shall be 19.99% of the total shares outstanding on the Closing Date (as defined
        in the Purchase Agreement), subject to equitable adjustment from time to
        time
        for stock splits, stock dividends, combinations, capital reorganizations
        and
        similar events relating to the Common Stock occurring after the date hereof.
        Once the Maximum Share Amount has been issued (the date of which is hereinafter
        referred to as the “Maximum
        Conversion Date”),
        if
        the Borrower fails to eliminate any prohibitions under applicable law or
        the
        rules or regulations of any stock exchange, interdealer quotation system
        or
        other self-regulatory organization with jurisdiction over the Borrower or
        any of
        its securities on the Borrower’s ability to issue shares of Common Stock in
        excess of the Maximum Share Amount (a “Trading
        Market Prepayment Event”),
        in
        lieu of any further right to convert this Note, and in full satisfaction
        of the
        Borrower’s obligations under this Note, the Borrower shall pay to the Holder,
        within fifteen (15) business days of the Maximum Conversion Date (the
“Trading
        Market Prepayment Date”),
        an
        amount equal to 130% times
        the
sum
        of (a)
        the then outstanding principal amount of this Note immediately following
        the
        Maximum Conversion Date, plus
        (b)
        accrued and unpaid interest on the unpaid principal amount of this Note to
        the
        Trading Market Prepayment Date, plus
        (c)
        Default Interest, if any, on the amounts referred to in clause (a) and/or
        (b)
        above, plus
        (d) any
        optional amounts that may be added thereto at the Maximum Conversion Date
        by the
        Holder in accordance with the terms hereof (the then outstanding principal
        amount of this Note immediately following the Maximum Conversion Date,
plus
        the
        amounts referred to in clauses (b), (c) and (d) above shall collectively
        be
        referred to as the “Remaining
        Convertible Amount”).
        With
        respect to each Holder of Notes, the Maximum Share Amount shall refer to
        such
        Holder’s pro rata
        share
        thereof determined in accordance with Section 4.8 below. In the event that
        the
        sum of (x) the aggregate number of shares of Common Stock issued upon conversion
        of this Note and the other Notes issued pursuant to the Purchase Agreement
        plus
        (y) the
        aggregate number of shares of Common Stock that remain issuable upon conversion
        of this Note and the other Notes issued pursuant to the Purchase Agreement,
        represents at least one hundred percent (100%) of the Maximum Share Amount
        (the
“Triggering
        Event”),
        the
        Borrower will use its best efforts to seek and obtain Shareholder Approval
        (or
        obtain such other relief as will allow conversions hereunder in excess of
        the
        Maximum Share Amount) as soon as practicable following the Triggering Event
        and
        before the Maximum Conversion Date. As used herein, “Shareholder
        Approval”
        means
        approval by the shareholders of the Borrower to authorize the issuance of
        the
        full number of shares of Common Stock which would be issuable upon full
        conversion of the then outstanding Notes but for the Maximum Share
        Amount.

       

      
        
           

        

        
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      1.8  Status
        as Shareholder.
        Upon
        submission of a Notice of Conversion by a Holder, (i) the shares covered
        thereby
        (other than the shares, if any, which cannot be issued because their issuance
        would exceed such Holder’s allocated portion of the Reserved Amount or Maximum
        Share Amount) shall be deemed converted into shares of Common Stock and (ii)
        the
        Holder’s rights as a Holder of such converted portion of this Note shall cease
        and terminate, excepting only the right to receive certificates for such
        shares
        of Common Stock and to any remedies provided herein or otherwise available
        at
        law or in equity to such Holder because of a failure by the Borrower to comply
        with the terms of this Note. Notwithstanding the foregoing, if a Holder has
        not
        received certificates for all shares of Common Stock prior to the tenth (10th)
        business day after the expiration of the Deadline with respect to a conversion
        of any portion of this Note for any reason, then (unless the Holder otherwise
        elects to retain its status as a holder of Common Stock by so notifying the
        Borrower) the Holder shall regain the rights of a Holder of this Note with
        respect to such unconverted portions of this Note and the Borrower shall,
        as
        soon as practicable, return such unconverted Note to the Holder or, if the
        Note
        has not been surrendered, adjust its records to reflect that such portion
        of
        this Note has not been converted. In all cases, the Holder shall retain all
        of
        its rights and remedies (including, without limitation, (i) the right to
        receive
        Conversion Default Payments pursuant to Section 1.3 to the extent required
        thereby for such Conversion Default and any subsequent Conversion Default
        and
        (ii) the right to have the Conversion Price with respect to subsequent
        conversions determined in accordance with Section 1.3) for the Borrower’s
        failure to convert this Note.

       

      ARTICLE
        II. CERTAIN
        COVENANTS

       

      2.1  Distributions
        on Capital Stock.
        So long
        as the Borrower shall have any obligation under this Note, the Borrower shall
        not without the Holder’s written consent (a) pay, declare or set apart for such
        payment, any dividend or other distribution (whether in cash, property or
        other
        securities) on shares of capital stock other than dividends on shares of
        Common
        Stock solely in the form of additional shares of Common Stock or (b) directly
        or
        indirectly or through any subsidiary make any other payment or distribution
        in
        respect of its capital stock except for distributions pursuant to any
        shareholders’ rights plan which is approved by a majority of the Borrower’s
        disinterested directors.

       

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      2.2  Restriction
        on Stock Repurchases.
        So long
        as the Borrower shall have any obligation under this Note, the Borrower shall
        not without the Holder’s written consent redeem, repurchase or otherwise acquire
        (whether for cash or in exchange for property or other securities or otherwise)
        in any one transaction or series of related transactions any shares of capital
        stock of the Borrower or any warrants, rights or options to purchase or acquire
        any such shares.

       

      2.3  Borrowings.
        So long
        as the Borrower shall have any obligation under this Note, the Borrower shall
        not, without the Holder’s written consent, create, incur, assume or suffer to
        exist any liability for borrowed money, except (a) borrowings in existence
        or
        committed on the date hereof and of which the Borrower has informed Holder
        in
        writing prior to the date hereof, (b) indebtedness to trade creditors or
        financial institutions incurred in the ordinary course of business or (c)
        borrowings, the proceeds of which shall be used to repay this Note.

       

      2.4  Sale
        of Assets.
        So long
        as the Borrower shall have any obligation under this Note, the Borrower shall
        not, without the Holder’s written consent, sell, lease or otherwise dispose of
        any significant portion of its assets outside the ordinary course of business.
        Any consent to the disposition of any assets may be conditioned on a specified
        use of the proceeds of disposition.

       

      2.5  Advances
        and Loans.
        So long
        as the Borrower shall have any obligation under this Note, the Borrower shall
        not, without the Holder’s written consent, lend money, give credit or make
        advances to any person, firm, joint venture or corporation, including, without
        limitation, officers, directors, employees, subsidiaries and affiliates of
        the
        Borrower, except loans, credits or advances (a) in existence or committed
        on the
        date hereof and which the Borrower has informed Holder in writing prior to
        the
        date hereof, (b) made in the ordinary course of business or (c) not in excess
        of
        $50,000.

       

      2.6  Contingent
        Liabilities.
        So long
        as the Borrower shall have any obligation under this Note, the Borrower shall
        not, without the Holder’s written consent, which shall not be unreasonably
        withheld, assume, guarantee, endorse, contingently agree to purchase or
        otherwise become liable upon the obligation of any person, firm, partnership,
        joint venture or corporation, except by the endorsement of negotiable
        instruments for deposit or collection and except assumptions, guarantees,
        endorsements and contingencies (a) in existence or committed on the date
        hereof
        and which the Borrower has informed Holder in writing prior to the date hereof,
        and (b) similar transactions in the ordinary course of business. 

       

      ARTICLE
        III. EVENTS
        OF DEFAULT

       

      If
        any of
        the following events of default (each, an “Event
        of Default”)
        shall
        occur:

       

      3.1  Failure
        to Pay Principal or Interest.
        The
        Borrower fails to pay the principal hereof or interest thereon when due on
        this
        Note, whether at maturity, upon a Trading Market Prepayment Event pursuant
        to
        Section 1.7, upon acceleration or otherwise;

       

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      3.2  Conversion
        and the Shares.
        The
        Borrower fails to issue shares of Common Stock to the Holder (or announces
        or
        threatens that it will not honor its obligation to do so) upon exercise by
        the
        Holder of the conversion rights of the Holder in accordance with the terms
        of
        this Note (for a period of at least sixty (60) days, if such failure is solely
        as a result of the circumstances governed by Section 1.3 and the Borrower
        is
        using its best efforts to authorize a sufficient number of shares of Common
        Stock as soon as practicable), fails to transfer or cause its transfer agent
        to
        transfer (electronically or in certificated form) any certificate for shares
        of
        Common Stock issued to the Holder upon conversion of or otherwise pursuant
        to
        this Note as and when required by this Note or the Registration Rights
        Agreement, or fails to remove any restrictive legend (or to withdraw any
        stop
        transfer instructions in respect thereof) on any certificate for any shares
        of
        Common Stock issued to the Holder upon conversion of or otherwise pursuant
        to
        this Note as and when required by this Note or the Registration Rights Agreement
        (or makes any announcement, statement or threat that it does not intend to
        honor
        the obligations described in this paragraph) and any such failure shall continue
        uncured (or any announcement, statement or threat not to honor its obligations
        shall not be rescinded in writing) for ten (10) days after the Borrower shall
        have been notified thereof in writing by the Holder;

       

      3.3  Failure
        to Timely File Registration or Effect Registration.
        The
        Borrower fails to file the Registration Statement within sixty (60) days
        following the Closing Date (as defined in the Purchase Agreement) or obtain
        effectiveness with the Securities and Exchange Commission of the Registration
        Statement within one hundred thirty-five (135) days following the Closing
        Date
        (as defined in the Purchase Agreement) or such Registration Statement lapses
        in
        effect (or sales cannot otherwise be made thereunder effective, whether by
        reason of the Borrower’s failure to amend or supplement the prospectus included
        therein in accordance with the Registration Rights Agreement or otherwise)
        for
        more than ten (10) consecutive days or twenty (20) days in any twelve month
        period after the Registration Statement becomes effective;

       

      3.4  Breach
        of Covenants.
        The
        Borrower breaches any material covenant or other material term or condition
        contained in Sections 1.3, 1.6 or 1.7 of this Note, or Sections 4(c), 4(e),
        4(h), 4(i), 4(j) or 5 of the Purchase Agreement and such breach continues
        for a
        period of ten (10) days after written notice thereof to the Borrower from
        the
        Holder;

       

      3.5  Breach
        of Representations and Warranties.
        Any
        representation or warranty of the Borrower made herein or in any agreement,
        statement or certificate given in writing pursuant hereto or in connection
        herewith (including, without limitation, the Purchase Agreement and the
        Registration Rights Agreement), shall be false or misleading in any material
        respect when made and the breach of which has (or with the passage of time
        will
        have) a material adverse effect on the rights of the Holder with respect
        to this
        Note, the Purchase Agreement or the Registration Rights Agreement;

       

      3.6  Receiver
        or Trustee.
        The
        Borrower or any subsidiary of the Borrower shall make an assignment for the
        benefit of creditors, or apply for or consent to the appointment of a receiver
        or trustee for it or for a substantial part of its property or business,
        or such
        a receiver or trustee shall otherwise be appointed;

       

      
        
           

        

        
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      3.7  Judgments.
        Any
        money judgment, writ or similar process shall be entered or filed against
        the
        Borrower or any subsidiary of the Borrower or any of its property or other
        assets for more than $50,000, and shall remain unvacated, unbonded or unstayed
        for a period of twenty (20) days unless otherwise consented to by the Holder,
        which consent will not be unreasonably withheld;

       

      3.8  Bankruptcy.
        Bankruptcy, insolvency, reorganization or liquidation proceedings or other
        proceedings for relief under any bankruptcy law or any law for the relief
        of
        debtors shall be instituted by or against the Borrower or any subsidiary
        of the
        Borrower;

       

      3.9  Delisting
        of Common Stock.
        The
        Borrower shall fail to maintain the listing of the Common Stock on at least
        one
        of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market,
        the Nasdaq SmallCap Market, the New York Stock Exchange, or the American
        Stock
        Exchange; or

       

      3.10  Default
        Under Other Notes.
        An Event
        of Default has occurred and is continuing under any of the other Notes issued
        pursuant to the Purchase Agreement,

       

      then,
        upon the occurrence and during the continuation of any Event of Default
        specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
        of the Holders of a majority of the aggregate principal amount of the
        outstanding Notes issued pursuant to the Purchase Agreement exercisable through
        the delivery of written notice to the Borrower by such Holders (the
“Default
        Notice”),
        which
        such Event of Default continues for a period of ten (10) days after receipt
        of
        the Default Notice, and upon the occurrence of an Event of Default specified
        in
        Section 3.6 or 3.8, the Notes shall become immediately due and payable and
        the
        Borrower shall pay to the Holder, in full satisfaction of its obligations
        hereunder, an amount equal to the greater of (i) 130% times
        the
sum
        of (w)
        the then outstanding principal amount of this Note plus
        (x)
        accrued and unpaid interest on the unpaid principal amount of this Note to
        the
        date of payment (the “Mandatory
        Prepayment Date”)
        plus
        (y)
        Default Interest, if any, on the amounts referred to in clauses (w) and/or
        (x)
plus
        (z) any
        amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
        pursuant to Section 2(c) of the Registration Rights Agreement (the then
        outstanding principal amount of this Note to the date of payment plus
        the
        amounts referred to in clauses (x), (y) and (z) shall collectively be known
        as
        the “Default
        Sum”)
        or
        (ii) the “parity value” of the Default Sum to be prepaid, where parity value
        means (a) the highest number of shares of Common Stock issuable upon conversion
        of or otherwise pursuant to such Default Sum in accordance with Article I,
        treating the Trading Day immediately preceding the Mandatory Prepayment Date
        as
        the “Conversion Date” for purposes of determining the lowest applicable
        Conversion Price, unless the Default Event arises as a result of a breach
        in
        respect of a specific Conversion Date in which case such Conversion Date
        shall
        be the Conversion Date), multiplied
        by
        (b) the
        highest Closing Price for the Common Stock during the period beginning on
        the
        date of first occurrence of the Event of Default and ending one day prior
        to the
        Mandatory Prepayment Date (the “Default
        Amount”)
        and
        all other amounts payable hereunder shall immediately become due and payable,
        all without demand, presentment or notice, all of which hereby are expressly
        waived, together with all costs, including, without limitation, legal fees
        and
        expenses, of collection, and the Holder shall be entitled to exercise all
        other
        rights and remedies available at law or in equity. If the Borrower fails
        to pay
        the Default Amount within five (5) business days of written notice that such
        amount is due and payable, then the Holder shall have the right at any time,
        so
        long as the Borrower remains in default (and so long and to the extent that
        there are sufficient authorized shares), to require the Borrower, upon written
        notice, to immediately issue, in lieu of the Default Amount, the number of
        shares of Common Stock of the Borrower equal to the Default Amount divided
        by
        the Conversion Price then in effect.

       

      
        
           

        

        
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      ARTICLE
        IV. MISCELLANEOUS

       

      4.1  Failure
        or Indulgence Not Waiver.
        No
        failure or delay on the part of the Holder in the exercise of any power,
        right
        or privilege hereunder shall operate as a waiver thereof, nor shall any single
        or partial exercise of any such power, right or privilege preclude other
        or
        further exercise thereof or of any other right, power or privileges. All
        rights
        and remedies existing hereunder are cumulative to, and not exclusive of,
        any
        rights or remedies otherwise available.

       

      4.2  Notices.
        Any
        notice herein required or permitted to be given shall be in writing and may
        be
        personally served or delivered by courier or sent by United States mail and
        shall be deemed to have been given upon receipt if personally served (which
        shall include telephone line facsimile transmission) or sent by courier or
        three
        (3) days after being deposited in the United States mail, certified, with
        postage pre-paid and properly addressed, if sent by mail. For the purposes
        hereof, the address of the Holder shall be as shown on the records of the
        Borrower; and the address of the Borrower shall be 64 East Winchester, Suite
        205, Murray, UT 84107, facsimile number: (801)
        261-3954. Both the Holder and the Borrower may change the address for service
        by
        service of written notice to the other as herein provided.

       

      4.3  Amendments.
        This
        Note and any provision hereof may only be amended by an instrument in writing
        signed by the Borrower and the Holder. The term “Note” and all reference
        thereto, as used throughout this instrument, shall mean this instrument (and
        the
        other Notes issued pursuant to the Purchase Agreement) as originally executed,
        or if later amended or supplemented, then as so amended or
        supplemented.

       

      4.4  Assignability.
        This
        Note shall be binding upon the Borrower and its successors and assigns, and
        shall inure to be the benefit of the Holder and its successors and assigns.
        Each
        transferee of this Note must be an “accredited investor” (as defined in Rule
        501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary,
        this Note may be pledged as collateral in connection with a bona fide
        margin
        account or other lending arrangement.

       

      4.5  Cost
        of Collection.
        If
        default is made in the payment of this Note, the Borrower shall pay the Holder
        hereof costs of collection, including reasonable attorneys’ fees.

       

      4.6  Governing
        Law.
        THIS
        NOTE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
        LAWS OF
        THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
        WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
        THE
        BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES
        FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE
        ARISING
        UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE
        TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE
        THE
        DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING.
        BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY
        FIRST
        CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS
        UPON
        THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER
        PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH
        PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR
        PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS
        BY
        SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES
        NOT
        PREVAIL IN ANY DISPUTE ARISING UNDER THIS NOTE SHALL BE RESPONSIBLE FOR ALL
        FEES
        AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN
        CONNECTION WITH SUCH DISPUTE.

       

      
        
           

        

        
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      4.7  Certain
        Amounts.
        Whenever
        pursuant to this Note the Borrower is required to pay an amount in excess
        of the
        outstanding principal amount (or the portion thereof required to be paid
        at that
        time) plus accrued and unpaid interest plus Default Interest on such interest,
        the Borrower and the Holder agree that the actual damages to the Holder from
        the
        receipt of cash payment on this Note may be difficult to determine and the
        amount to be so paid by the Borrower represents stipulated damages and not
        a
        penalty and is intended to compensate the Holder in part for loss of the
        opportunity to convert this Note and to earn a return from the sale of shares
        of
        Common Stock acquired upon conversion of this Note at a price in excess of
        the
        price paid for such shares pursuant to this Note. The Borrower and the Holder
        hereby agree that such amount of stipulated damages is not plainly
        disproportionate to the possible loss to the Holder from the receipt of a
        cash
        payment without the opportunity to convert this Note into shares of Common
        Stock.

       

      4.8  Allocations
        of Maximum Share Amount and Reserved Amount.
        The
        Maximum Share Amount and Reserved Amount shall be allocated pro rata among
        the
        Holders of Notes based on the principal amount of such Notes issued to each
        Holder. Each increase to the Maximum Share Amount and Reserved Amount shall
        be
        allocated pro rata among the Holders of Notes based on the principal amount
        of
        such Notes held by each Holder at the time of the increase in the Maximum
        Share
        Amount or Reserved Amount. In the event a Holder shall sell or otherwise
        transfer any of such Holder’s Notes, each transferee shall be allocated a pro
        rata portion of such transferor’s Maximum Share Amount and Reserved Amount. Any
        portion of the Maximum Share Amount or Reserved Amount which remains allocated
        to any person or entity which does not hold any Notes shall be allocated
        to the
        remaining Holders of Notes, pro rata based on the principal amount of such
        Notes
        then held by such Holders.

       

      4.9  Damages
        Shares.
        The
        shares of Common Stock that may be issuable to the Holder pursuant to Sections
        1.3 and 1.4(g) hereof and pursuant to Section 2(c) of the Registration Rights
        Agreement (“Damages
        Shares”)
        shall
        be treated as Common Stock issuable upon conversion of this Note for all
        purposes hereof and shall be subject to all of the limitations and afforded
        all
        of the rights of the other shares of Common Stock issuable hereunder, including
        without limitation, the right to be included in the Registration Statement
        filed
        pursuant to the Registration Rights Agreement. For purposes of calculating
        interest payable on the outstanding principal amount hereof, except as otherwise
        provided herein, amounts convertible into Damages Shares (“Damages
        Amounts”)
        shall
        not bear interest but must be converted prior to the conversion of any
        outstanding principal amount hereof, until the outstanding Damages Amounts
        is
        zero.

       

      
        
           

        

        
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      4.10  Denominations.
        At the
        request of the Holder, upon surrender of this Note, the Borrower shall promptly
        issue new Notes in the aggregate outstanding principal amount hereof, in
        the
        form hereof, in such denominations of at least $50,000 as the Holder shall
        request.

       

      4.11  Purchase
        Agreement.
        By its
        acceptance of this Note, each Holder agrees to be bound by the applicable
        terms
        of the Purchase Agreement.

       

      4.12  Notice
        of Corporate Events.
        Except
        as otherwise provided below, the Holder of this Note shall have no rights
        as a
        Holder of Common Stock unless and only to the extent that it converts this
        Note
        into Common Stock. The Borrower shall provide the Holder with prior notification
        of any meeting of the Borrower’s shareholders (and copies of proxy materials and
        other information sent to shareholders). In the event of any taking by the
        Borrower of a record of its shareholders for the purpose of determining
        shareholders who are entitled to receive payment of any dividend or other
        distribution, any right to subscribe for, purchase or otherwise acquire
        (including by way of merger, consolidation, reclassification or
        recapitalization) any share of any class or any other securities or property,
        or
        to receive any other right, or for the purpose of determining shareholders
        who
        are entitled to vote in connection with any proposed sale, lease or conveyance
        of all or substantially all of the assets of the Borrower or any proposed
        liquidation, dissolution or winding up of the Borrower, the Borrower shall
        mail
        a notice to the Holder, at least twenty (20) days prior to the record date
        specified therein (or thirty (30) days prior to the consummation of the
        transaction or event, whichever is earlier), of the date on which any such
        record is to be taken for the purpose of such dividend, distribution, right
        or
        other event, and a brief statement regarding the amount and character of
        such
        dividend, distribution, right or other event to the extent known at such
        time.
        The Borrower shall make a public announcement of any event requiring
        notification to the Holder hereunder substantially simultaneously with the
        notification to the Holder in accordance with the terms of this Section
        4.12.

       

      4.13  Remedies.
        The
        Borrower acknowledges that a breach by it of its obligations hereunder will
        cause irreparable harm to the Holder, by vitiating the intent and purpose
        of the
        transaction contemplated hereby. Accordingly, the Borrower acknowledges that
        the
        remedy at law for a breach of its obligations under this Note will be inadequate
        and agrees, in the event of a breach or threatened breach by the Borrower
        of the
        provisions of this Note, that the Holder shall be entitled, in addition to
        all
        other available remedies at law or in equity, and in addition to the penalties
        assessable herein, to an injunction or injunctions restraining, preventing
        or
        curing any breach of this Note and to enforce specifically the terms and
        provisions thereof, without the necessity of showing economic loss and without
        any bond or other security being required.

       

      
        
           

        

        
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      ARTICLE
        V. CALL
        OPTION

       

      5.1  Call
        Option.
        Notwithstanding anything to the contrary contained in this Article V, so
        long as
(i) no
        Event of Default or Trading Market Prepayment Event shall have occurred and
        be
        continuing, (ii) the
        Borrower has a sufficient number of authorized shares of Common Stock reserved
        for issuance upon full conversion of the Notes, then at any time after the
        Issue
        Date, and (iii) the
        Common Stock is trading at or below $.40 per share, the Borrower shall have
        the
        right, exercisable on not less than ten (10) Trading Days prior written notice
        to the Holders of the Notes (which notice may not be sent to the Holders
        of the
        Notes until the Borrower is permitted to prepay the Notes pursuant to this
        Section 5.1), to prepay all of the outstanding Notes in accordance with this
        Section 5.1. Any notice of prepayment hereunder (an “Optional
        Prepayment”)
        shall
        be delivered to the Holders of the Notes at their registered addresses appearing
        on the books and records of the Borrower and shall state (1) that the Borrower
        is exercising its right to prepay all of the Notes issued on the Issue Date
        and
        (2) the date of prepayment (the “Optional
        Prepayment Notice”).
        On
        the date fixed for prepayment (the “Optional
        Prepayment Date”),
        the
        Borrower shall make payment of the Optional Prepayment Amount (as defined
        below)
        to or upon the order of the Holders as specified by the Holders in writing
        to
        the Borrower at least one (1) business day prior to the Optional Prepayment
        Date. If the Borrower exercises its right to prepay the Notes, the Borrower
        shall make payment to the holders of an amount in cash (the “Optional
        Prepayment Amount”)
        equal
        to either (i) 125% (for prepayments occurring within thirty (30) days
        of
        the Issue Date), (ii) 135% for prepayments occurring between thirty-one
        (31) and sixty (60) days of the Issue Date, or (iii) 150% (for prepayments
        occurring after the sixtieth (60th)
        day
        following the Issue Date), multiplied by the sum of (w) the then outstanding
        principal amount of this Note plus
        (x) accrued and unpaid interest on the unpaid principal amount of
        this Note
        to the Optional Prepayment Date plus
        (y)
        Default Interest, if any, on the amounts referred to in clauses (w) and (x)
        plus
        (z) any
        amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
        pursuant to Section 2(c) of the Registration Rights Agreement (the then
        outstanding principal amount of this Note to the date of payment plus
        the
        amounts referred to in clauses (x), (y) and (z) shall collectively be known
        as
        the “Optional
        Prepayment Sum”).
        Notwithstanding notice of an Optional Prepayment, the Holders shall at all
        times
        prior to the Optional Prepayment Date maintain the right to convert all or
        any
        portion of the Notes in accordance with Article I and any portion of Notes
        so
        converted after receipt of an Optional Prepayment Notice and prior to the
        Optional Prepayment Date set forth in such notice and payment of the aggregate
        Optional Prepayment Amount shall be deducted from the principal amount of
        Notes
        which are otherwise subject to prepayment pursuant to such notice. If the
        Borrower delivers an Optional Prepayment Notice and fails to pay the Optional
        Prepayment Amount due to the Holders of the Notes within two (2) business
        days
        following the Optional Prepayment Date, the Borrower shall forever forfeit
        its
        right to redeem the Notes pursuant to this Section 5.1.

       

      5.2  Partial
        Call Option.
        Notwithstanding anything to the contrary contained in this Article V, in
        the
        event that the Average Daily Price of the Common Stock, as reported by the
        Reporting Service, for each day of the month ending on any Determination
        Date is
        below the Initial Market Price, the Borrower may, at its option, prepay a
        portion of the outstanding principal amount of the Notes equal to the principal
        amount hereof divided by thirty-six (36) plus one month’s interest. The term
“Initial
        Market Price”
        means
        shall mean the volume weighted average price of the Common Stock for the
        five
        (5) Trading Days immediately preceding the Closing which is $.26. The term
        “Reporting
        Service”
        means a
        reliable reporting service mutually acceptable to and hereinafter designated
        by
        the Holder.

       

      
        
           

        

        
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      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK]

       

      
        
           

        

        
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      IN
        WITNESS WHEREOF,
        Borrower has caused this Note to be signed in its name by its duly authorized
        officer this 18th
        day of
        August, 2005.

       

      


      
        	 	 	 
	 	GRANT
                LIFE SCIENCES, INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
                

                Donald
                  Rutherford

                Chief
                  Financial Officer

              
	 	 


      

       

      
        
           

        

        
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      NOTICE
        OF CONVERSION

      (To
        be
        Executed by the Registered Holder

      in
        order
        to Convert the Notes)

       

      The
        undersigned hereby irrevocably elects to convert $__________ principal amount
        of
        the Note (defined below) into shares of common stock, par value $.001 per
        share
        (“Common
        Stock”),
        of
        Grant Life Sciences, Inc., a Nevada corporation (the “Borrower”)
        according to the conditions of the convertible Notes of the Borrower dated
        as of
        August 18, 2005 (the “Notes”),
        as of
        the date written below. If securities 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. No fee
        will
        be charged to the Holder for any conversion, except for transfer taxes, if
        any.
        A copy of each Note is attached hereto (or evidence of loss, theft or
        destruction thereof).

       

      The
        Borrower shall electronically transmit the Common Stock issuable pursuant
        to
        this Notice of Conversion to the account of the undersigned or its nominee
        with
        DTC through its Deposit Withdrawal Agent Commission system (“DWAC
        Transfer”).

       

      Name
        of
        DTC Prime
        Broker:________________________________________________________________

      Account
        Number:_______________________________________________________________________

       

      In
        lieu
        of receiving shares of Common Stock issuable pursuant to this Notice of
        Conversion by way of a DWAC Transfer, the undersigned hereby requests that
        the
        Borrower issue a certificate or certificates for the number of shares of
        Common
        Stock set forth below (which numbers are based on the Holder’s calculation
        attached hereto) in the name(s) specified immediately below or, if additional
        space is necessary, on an attachment hereto:

       

      Name:________________________________________________________________________________

      Address:______________________________________________________________________________

       

      The
        undersigned represents and warrants that all offers and sales by the undersigned
        of the securities issuable to the undersigned upon conversion of the Notes
        shall
        be made pursuant to registration of the securities under the Securities Act
        of
        1933, as amended (the “Act”),
        or
        pursuant to an exemption from registration under the Act.

       

      Date
        of
        Conversion:___________________________

      Applicable
        Conversion Price:____________________

      Number
        of
        Shares of Common Stock to be Issued Pursuant to

      Conversion
        of the Notes:______________

      Signature:___________________________________

      Name:______________________________________

      Address:____________________________________

       

      
        
           

        

        
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      The
        Borrower shall issue and deliver shares of Common Stock to an overnight courier
        not later than three business days following receipt of the original Note(s)
        to
        be converted, and shall make payments pursuant to the Notes for the number
        of
        business days such issuance and delivery is late.

       

      
        
           

        

          23