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Unassociated Document

    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: March 10, 2006

    

    $250,000.00

    

    

    7%
      CONVERTIBLE DEBENTURE

    DUE
      MARCH 10, 2008

    

    THIS
      7%
      CONVERTIBLE DEBENTURE is one of a series of duly authorized and issued 7%
      Convertible Debentures of Aprecia Inc., a Delaware corporation, having a
      principal place of business at c/o 1065
      Avenue of Americas, New York, NY 10018, Fax:
      (212) 930-9725 (the “Company”),
      designated as its 7% Convertible Debenture, due March 10, 2008 (the
“Debenture(s)”).

    

    FOR
      VALUE
      RECEIVED, the Company promises to pay to ALPHA CAPITAL AKTIENGESELLSCHAFT,
      or
      its registered assigns (the “Holder”),
      or
      shall have paid pursuant to the terms hereunder, the principal sum of
      $250,000.00 by March 10, 2008, or such earlier date as the Debentures are
      required or permitted to be repaid as provided hereunder (the “Maturity
      Date”),
      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.
      All
      payments shall be made by certified check to the address of the Holder as
      provided in Section 9(a) or by wire transfer of immediately available funds
      pursuant to instructions as may be provided from time to time by Holder. 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 have the meanings given
      to
      such terms 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(d).

    

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

    

    “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 40% of the voting securities of the
      Company, 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 40% of the aggregate voting power of the Company
      or the successor entity of such transaction, or (iii) the Company sells or
      transfers its assets, as an entirety or substantially as an entirety, to another
      Person and the stockholders of the Company immediately prior to such transaction
      own less than 40% of the aggregate voting power of the acquiring entity
      immediately after the transaction, (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 above in (i) or
      (iv).

    

    “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
      the shares of Common Stock issuable upon conversion of Debentures, sometimes
      referred to as the Underlying Shares, as defined in the Purchase
      Agreement.

    

    “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).

    

    “Equity
      Conditions”
shall
      mean, 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 Notice of Conversions of the Holder,
      if any, (ii) all liquidated damages and other amounts owing to the Holder in
      respect of the Debentures shall have been paid; (iii)
      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, (iv) there is then existing no Event of Default
      or
      event which, with the passage of time or the giving of notice, would constitute
      an Event of Default, (v) if after the date hereof the Company becomes subject
      to
      the reporting requirements of the Exchange Act, the issuance of the shares
      in
      question (or, in the case of a redemption, the shares issuable upon conversion
      in full of the redemption amount) to the Holder would not violate the
      limitations set forth in Section 4(c) and (vi) no public announcement of a
      pending or proposed Fundamental Transaction, Change of Control Transaction
      or
      acquisition transaction has occurred, which transaction has not been
      consummated, excluding transaction which have been publicly announced and
      subsequently abandoned.

     

    
      
        
        

      

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

    

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

     

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

    

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

    

    “Mandatory
      Prepayment Amount”
for
      any
      Debentures shall equal the sum of (i) the greater of: (A) 120% of the principal
      amount of Debentures to be prepaid, plus all accrued and unpaid interest
      thereon, or (B) the principal amount of Debentures to be prepaid, plus all
      other
      accrued and unpaid interest hereon, divided by the Conversion Price on (x)
      the
      date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the
      date the Mandatory Prepayment Amount is paid in full, whichever is less,
      multiplied by the VWAP on (x) the date the Mandatory Prepayment Amount is
      demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is
      paid in full, whichever is greater, and (ii) all other amounts, costs, expenses
      and liquidated damages due in respect of such Debentures.

    

    “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 Amount”
shall
      mean the sum of (i) 100% of the principal amount of the Debenture then
      outstanding, (ii) accrued but unpaid interest and (iii) all liquidated damages
      and other amounts due in respect of the Debenture.

    

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

    

    “Permitted
      Debt”
means
      trade payables and indebtedness consisting of capitalized lease obligations
      and
      purchase money indebtedness incurred in connection with acquisition of capital
      assets and obligations under sale-leaseback arrangements with respect to newly
      acquired or leased assets.

     

    
      
        
        

      

      
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    “Permitted
      Lien”
mean
      (a) Liens with respect to the payment of taxes or governmental charges in all
      cases which are not yet due or which are subject to a good faith contest; (b)
      any Liens incurred in connection with Permitted Debt provided that such liens
      are not secured by assets of the Company or its Subsidiaries other than the
      assets so acquired or leased; and (c) statutory Liens of landlords or equipment
      lessors against any property of the Company or its Subsidiaries existing as
      of
      the date of the Purchase Agreement in favor of suppliers, mechanics, carriers,
      materialmen, warehousemen or workmen.

     

    “Purchase
      Agreement”
means
      the Securities Purchase Agreement, dated at or about March ___, 2006, to which
      the Company and the original Holder are parties, as amended, modified or
      supplemented from time to time in accordance with its terms.

    

    “Trading
      Market”
means,
      as applicable, 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 New York Stock Exchange, the Nasdaq National Market, the Nasdaq
      SmallCap Market or the OTC Bulletin Board.

     

    Section
      2. Interest.

     

    a)  Payment
      of Interest.
      The
      Company shall pay interest to the Holder on the aggregate unconverted and then
      outstanding principal amount of this Debenture at the rate of 7% per annum,
      payable semi-annually on June 30, and December 31, beginning on the first such
      date after the Original Issue Date, on each Conversion Date (as to that
      principal amount then being converted), on each Optional Redemption Date (as
      to
      that principal amount being redeemed) and on the Maturity Date (except that,
      if
      any such date is not a Business Day, then such payment shall be due on the
      next
      succeeding Business Day) (each such date, an “Interest
      Payment Date”),
      in
      cash.

     

    b)  Interest
      Calculations.
      Interest shall be calculated on the basis of a 360-day year 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 and other amounts
      which may become due hereunder, has been made. Interest shall cease to accrue
      with respect to any principal amount converted, provided that the Company in
      fact delivers the Conversion Shares within the time period required by Section
      4(d)(ii). 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 Debentures (the “Debenture
      Register”).
      

     

    c)  Late
      Fee.
      All
      overdue accrued and unpaid principal and interest to be paid hereunder shall
      entail a late fee at the rate of 18% per annum (or such lower maximum amount
      of
      interest permitted to be charged under applicable law) (“Late
      Fees”)
      which
      will accrue daily, from the date such principal and interest are due hereunder
      through and including the date of payment. 

     

    
      
        
        

      

      
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    d)  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 made 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 to the Company for transfer 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 into shares of Common Stock
      at
      the option of the Holder, in whole or in part at any time and from time to
      time
      (subject to the limitations on conversion set forth in Section 4(c)
      hereof). The Holder shall effect conversions by delivering to the Company the
      form of Notice of Conversion attached hereto as Annex
      A
      (a
“Notice
      of Conversion”),
      specifying therein the principal amount of Debentures to be converted and the
      date on which such conversion is to be effected (a “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 provided hereunder. To
      effect conversions hereunder, the Holder shall not be required to physically
      surrender Debentures 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 converted and the date of such conversions. The Company shall
      deliver any objection to any Notice of Conversion within 2 Business Days of
      receipt of such notice. 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.

     

    
      
        
        

      

      
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    b)  Conversion
      Price.
      The
      conversion price (the “Conversion
      Price”)
      in
      effect on any Conversion Date shall be equal to $0.12, as same may be adjusted
      as described in the Transaction Documents.

    

    c)  Conversion
      Limitations;
      Holder’s
      Restriction on Conversion.
      At any
      time after the Common Stock is registered under Section 12 of the Exchange
      Act,
      the Company shall not effect any conversion of this Debenture, and the Holder
      shall not have the right to convert any portion of this Debenture, pursuant
      to
      Section 4(a) or otherwise, to the extent that after giving effect to such
      conversion, the Holder (together with the Holder’s affiliates), as set forth on
      the applicable Notice of Conversion, would beneficially own in excess of 4.99%
      of the number of shares of the Common Stock outstanding immediately after giving
      effect to such conversion.  For purposes of the foregoing sentence, the
      number of shares of Common Stock beneficially owned by the Holder and its
      affiliates shall include the number of shares of Common Stock issuable upon
      conversion of this Debenture with respect to which the determination of such
      sentence is being made, but shall exclude the number of shares of Common Stock
      which would be issuable upon (A) conversion of the remaining, nonconverted
      portion of this Debenture beneficially owned by the Holder or any of its
      affiliates and (B) exercise or conversion of the unexercised or nonconverted
      portion of any other securities of the Company (including, without limitation,
      any other Debentures or the Warrants) subject to a limitation on conversion
      or
      exercise analogous to the limitation contained herein beneficially owned by
      the
      Holder or any of its affiliates.  Except as set forth in the preceding
      sentence, for purposes of this Section 4(c), beneficial ownership shall be
      calculated in accordance with Section 13(d) of the Exchange Act. To the extent
      that the limitation contained in this section applies, the determination of
      whether this Debenture is convertible (in relation to other securities owned
      by
      the Holder) and of which a portion of this Debenture is convertible shall be
      in
      the sole discretion of such Holder. To ensure compliance with this restriction,
      the 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. For purposes
      of this Section 4(c), in determining the number of outstanding shares of Common
      Stock, the Holder may rely on the number of outstanding shares of Common Stock
      as reflected in (x) Schedule
      3.1(g)
      to the
      Purchase Agreement, (y) a more recent public announcement by the Company or
      (z)
      any other 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 the Holder, the Company shall within two Business Days confirm orally
      and in writing to the Holder the number of shares of Common Stock then
      outstanding.  In any case, the number of outstanding shares of Common Stock
      shall be determined after giving effect to the conversion or exercise of
      securities of the Company, including this Debenture, by the Holder or its
      affiliates since the date as of which such number of outstanding shares of
      Common Stock was reported. The provisions of this Section 4(c) may be waived
      by
      the Holder, at the election of the Holder, upon not less than 61 days’ prior
      notice to the Company, and the provisions of this Section 4(c) shall continue
      to
      apply until such 61st day (or such later date, as determined by the Holder,
      as
      may be specified in such notice of waiver).

     

    
      
        
        

      

      
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    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. 

     

    ii.  Delivery
      of Certificate Upon Conversion.
      Not
      later than three Business Days after any Conversion Date, the Company will
      deliver or cause to be delivered to the Holder (A) a certificate or certificates
      representing the Conversion Shares which shall be free of restrictive legends
      and trading restrictions (other than those required by the Purchase Agreement)
      representing the number of shares of Common Stock being acquired upon the
      conversion of Debentures and (B) a bank check in the amount of accrued and
      unpaid interest. The Company shall, if available and if allowed under applicable
      securities laws, use its best efforts to deliver any certificate or certificates
      required to be delivered by the Company under this Section electronically
      through the Depository Trust Corporation 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 Business
      Day
      after a Conversion Date, the Holder shall be entitled by written notice to
      the
      Company at any time on or before its receipt of such certificate or certificates
      thereafter, to rescind such conversion, in which event the Company shall
      immediately return the certificates representing the principal amount of
      Debentures tendered for conversion. 

     

    iv.  Obligation
      Absolute; Partial Liquidated Damages.
      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 Business 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 Business Day (increasing to $20 per Business Day after 10
      Business Days after such damages begin to accrue) for each Business Day after
      such fifth Business Day until such certificates are delivered. 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,
      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 a 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
      any
      one 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, restraining and or enjoining conversion of all or part of this
      Debenture shall have been sought and obtained and the Company posts a surety
      bond for the benefit of the Holder in the amount of 150% of the principal amount
      of this Debenture outstanding, which is subject to the injunction, which bond
      shall remain in effect until the completion of arbitration/litigation of the
      dispute and the proceeds of which shall be payable to such Holder to the extent
      it obtains judgment. In the absence of an injunction precluding the same, the
      Company shall issue Conversion Shares or, if applicable, cash, upon a properly
      noticed conversion. Nothing herein shall limit a Holder’s right to pursue actual
      damages or declare an Event of Default pursuant to Section 8 herein 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 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.

     

    
      
        
        

      

      
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    v.  Compensation
      for Buy-In on Failure to Timely Deliver Certificates Upon
      Conversion.
      In
      addition to any other rights available to the Holder and only if after the
      Original Issue Date the Company becomes subject to the reporting requirements
      of
      the Exchange Act, 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
      Business Day after the Conversion Date, and if after such third Business Day
      the
      Holder is required by its brokerage firm to purchase (in an open market
      transaction or otherwise) Common Stock to deliver in satisfaction of a sale
      by
      such Holder of the Conversion Shares which the Holder anticipated receiving
      upon
      such conversion (a “Buy-In”),
      then
      the Company shall (A) pay in cash to the Holder (in addition to any remedies
      available to or elected by the Holder) the amount by which (x) the Holder’s
      total purchase price (including brokerage commissions, if any) for the Common
      Stock so purchased exceeds (y) the product of (1) the aggregate number of shares
      of Common Stock that such Holder anticipated receiving from the conversion
      at
      issue multiplied by (2) the actual sale price of the Common Stock at the time
      of
      the sale (including brokerage commissions, if any) giving rise to such purchase
      obligation and (B) at the option of the Holder, either reissue Debentures in
      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 had the Company 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 Debentures with respect to which the actual sale price of the
      Conversion Shares at the time of the sale (including brokerage commissions,
      if
      any) 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.
      Notwithstanding anything contained herein to the contrary, if a Holder requires
      the Company to make payment in respect of a Buy-In for the failure to timely
      deliver certificates hereunder and the Company timely pays in full such payment,
      the Company shall not be required to pay such Holder liquidated damages under
      Section 4(d)(iv) in respect of the certificates resulting in such
      Buy-In.

     

    
      
        
        

      

      
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    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 solely for the purpose of
      issuance upon conversion of the Debentures, 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 number of shares of the Common Stock as shall (subject to any additional
      requirements of the Company as to reservation of such shares 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 the Debentures. The Company covenants that all shares of Common Stock
      that shall be so issuable shall, upon issue, be duly and validly authorized,
      issued and fully paid, nonassessable and, if the Registration Statement is
      then
      effective under the Securities Act, 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 the 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, one 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 certificate, 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 such Debentures 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.

     

    
      
        
        

      

      
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    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 on shares of its
      Common Stock or any other equity or equity equivalent securities payable in
      shares of Common Stock (which, for avoidance of doubt, shall not include any
      shares of Common Stock issued by the Company pursuant to this Debenture,
      including as interest thereon), (B) subdivides outstanding shares of Common
      Stock into a larger number of shares, (C) combines (including by way of reverse
      stock split) outstanding shares of Common Stock into a smaller number of shares,
      or (D) issues by 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 treasury shares, if any) 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 the
      Company or any Subsidiary thereof, as applicable, at any time while this
      Debenture is outstanding, shall sell, grant any option to purchase or offer,
      sell or grant any right to reprice its securities, or otherwise dispose of
      or
      issue any Common Stock or Common Stock Equivalents entitling any Person to
      acquire shares of Common Stock, at an effective price per share less than the
      then Conversion Price (such lower price, the "BASE CONVERSION PRICE" and such
      issuances collectively, a "DILUTIVE ISSUANCE"), as adjusted hereunder (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 is issued in connection with such
      issuance, be entitled to receive shares of Common Stock at an effective price
      per share which is less 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 the
      Business Day following the issuance of any Common Stock or Common Stock
      Equivalents subject to this section, indicating therein the applicable issuance
      price, or of 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,
      after the date of such Dilutive Issuance the Holder is entitled to receive
      a
      number of Conversion Shares based upon the Base Conversion Price regardless
      of
      whether the Holder accurately refers to the Base Conversion Price in the Notice
      of Conversion.

     

    
      
        
        

      

      
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    c) Pro
      Rata Distributions.
      If the
      Company, at any time while this Debenture is outstanding, shall distribute
      to
      all holders of Common Stock (and not to the holders of the Debenture) evidences
      of its indebtedness or assets (including cash and cash dividends) or rights
      or
      warrants to subscribe for or purchase any security, 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 one outstanding share of the Common
      Stock as determined by the Board of Directors in good faith. In either case
      the
      adjustments shall be described in a statement provided to the Holder of the
      portion of assets or evidences of indebtedness so distributed or such
      subscription rights applicable to one 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.

    

    d) 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 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 one 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 one 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 he foregoing provisions, any successor to the Company or surviving
      entity in such Fundamental Transaction shall (i) assume in writing all of the
      obligations of the Company under thisDebenture 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) prior
      to
      such Fundamental Transaction and (ii) to 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 amounts and the
      interest rates of the Debentures held by the Holder and having similar ranking
      to the Debenture, and satisfactory to the Holder (any such approval not to
      be
      unreasonably withheld or delayed). The provisions of this Section shall apply
      similarly and equally to successive Fundamental Transactions and shall be
      applied without regard to any limitations on the conversion or redemption of
      this Debenture. 

     

    
      
        
        

      

      
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    e) 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
      treasury shares, if any) issued and outstanding.

    

    Section
      6. Notice
      To The Holder.

    

    i.     
      Adjustment
      To Conversion Price.
      Whenever the Conversion Price is adjusted pursuant to 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. If the Company issues a variable rate security, despite the
      prohibition thereon in the Purchase Agreement, the Company shall be deemed
      to
      have issued Common Stock or Common Stock Equivalents at the lowest possible
      conversion or exercise price at which such securities may be converted or
      exercised in the case of a Variable Rate Transaction (as defined in the Purchase
      Agreement).

     

    
      
        
        

      

      
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    ii. Notice
      To Allow Conversion By Holder.
      If (A)
      the Company shall declare a dividend (or any other distribution) 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 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; (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 mailed to the Holder at its last addresses
      as
      it shall appear upon the stock books of the Company, at least 10 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 mail such notice or any defect therein or in the mailing 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
      10-day period commencing the date of such notice to the effective date of the
      event triggering such notice.

    

    Section
      7. Negative
      Covenants.
      So long
      as any portion of this Debenture is outstanding, the Company will not and will
      not permit any of its Subsidiaries to directly or indirectly:

     

    
      
        
        

      

      
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    a)  except
      with the prior written consent of the Holder, 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 that is senior to, or pari passu
      with, in
      any respect, the Company’s obligations hereunder;

     

    b)  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, other than Permitted
      Liens;

    

    c)  amend
      its
      certificate of incorporation, bylaws or other charter documents so as to
      adversely affect 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
      the
      Conversion Shares to the extent permitted or required under the Transaction
      Documents or as otherwise permitted by the Transaction Documents; 

    

    e)  enter
      into any agreement with respect to any of the foregoing;
      or

    

    f)  pay
      cash
      dividends on any equity securities of the Company.

     

    Section
      8. Events
      of Default.
      

    

    a)  “Event
      of Default”,
      wherever used herein, means any one of the following events (whatever the reason
      and whether it 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 (including Late Fees) on, or liquidated damages in respect of, 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, solely in the case of an interest payment or other default under clause
      (B) above, is not cured, within 3 Business Days;

     

    ii.  the
      Company shall fail to observe or perform any other covenant or agreement
      contained in this Debenture (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 (viii) below) which failure is not cured,
      if
      possible to cure, within the earlier to occur of (A) 10 Business Days after
      notice of such default sent by the Holder or by any other Holder and (B)15
      Business Days after the Company shall become or should have become aware of
      such
      failure;

     

    
      
        
        

      

      
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    iii.  a
      default
      or event of default (subject to any grace or cure period provided for in the
      applicable agreement, document or instrument) shall occur under (A) any of
      the
      Transaction Documents other than the Debentures, or (B) any other material
      agreement, lease, document or instrument to which the Company or any Subsidiary
      is bound;

    

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

    

    v.  (i)
      the
      Company or any of its Subsidiaries shall commence, or there shall be commenced
      against the Company or any such Subsidiary, a case under any applicable
      bankruptcy or insolvency laws as now or hereafter in effect or any successor
      thereto, or the Company or any Subsidiary commences any other proceeding under
      any reorganization, arrangement, adjustment of debt, relief of debtors,
      dissolution, insolvency or liquidation or similar law of any jurisdiction
      whether now or hereafter in effect relating to the Company or any Subsidiary
      thereof or (ii) there is commenced against the Company or any Subsidiary thereof
      any such bankruptcy, insolvency or other proceeding which remains undismissed
      for a period of 45 days; or (iii) the Company or any Subsidiary thereof is
      adjudicated by a court of competent jurisdiction insolvent or bankrupt; or
      any
      order of relief or other order approving any such case or proceeding is entered;
      or (iv) the Company or any Subsidiary thereof suffers any appointment of any
      custodian or the like for it or any substantial part of its property which
      continues undischarged or unstayed for a period of 45 days; or (v) the Company
      or any Subsidiary thereof makes a general assignment for the benefit of
      creditors; or (vi) the Company shall fail to pay, or shall state that it is
      unable to pay, or shall be unable to pay, its debts generally as they become
      due; or (vii) the Company or any Subsidiary thereof shall call a meeting of
      its
      creditors with a view to arranging a composition, adjustment or restructuring
      of
      its debts; or (viii) the Company or any Subsidiary thereof shall by any act
      or
      failure to act expressly indicate its consent to, approval of or acquiescence
      in
      any of the foregoing; or (ix) any corporate or other action is taken by the
      Company or any Subsidiary thereof for the purpose of effecting any of the
      foregoing;

     

    vi.  the
      Company or any Subsidiary shall default in 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 of the Company in an amount
      exceeding $50,000, whether such indebtedness now exists or shall hereafter
      be
      created and such default shall result in such indebtedness becoming or being
      declared due and payable prior to the date on which it would otherwise become
      due and payable; 

     

    
      
        
        

      

      
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    vii.  the
      Company shall be a party to any Change of Control Transaction or Fundamental
      Transaction, shall agree to sell or dispose of all or in excess of 45% of its
      assets in one or more transactions (whether or not such sale would constitute
      a
      Change of Control Transaction) or shall redeem or repurchase more than a de
      minimis number of its outstanding shares of Common Stock or other equity
      securities of the Company (other than redemptions of Conversion Shares and
      repurchases of shares of Common Stock or other equity securities of departing
      officers and directors of the Company; provided such repurchases shall not
      exceed $50,000, in the aggregate, for all officers and directors during the
      term
      of this Debenture); or

    

    viii.  the
      Company shall fail for any reason to deliver certificates to a Holder prior
      to
      the 7th
      Business
      Day after a Conversion Date pursuant to and in accordance with Section 4(d)
      or
      the Company shall provide notice to the Holder, including by way of public
      announcement, at any time, of its intention not to comply with requests for
      conversions of any Debentures in accordance with the terms hereof.

     

    b)  Remedies
      Upon Event of Default.
      If any
      Event of Default occurs, the full principal amount of this Debenture, together
      with interest and other amounts owing in respect thereof, to the date of
      acceleration shall become, at the Holder’s election, immediately due and payable
      in cash. The aggregate amount payable upon an Event of Default shall be equal
      to
      the Mandatory Prepayment Amount. Commencing 15 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 the rate of 18% per annum,
      or such lower maximum amount of interest permitted to be charged under
      applicable law. All Debentures for which the full Mandatory Prepayment Amount
      hereunder shall have been paid in accordance herewith shall promptly be
      surrendered to or as directed by the Company. 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 declaration may be rescinded
      and annulled by Holder at any time prior to payment hereunder and the Holder
      shall have all rights as a Debenture holder until such time, if any, as the
      full
      payment under this Section shall have been received by it. No such rescission
      or
      annulment shall affect any subsequent Event of Default or impair any right
      consequent thereon.

     

    
      
        
        

      

      
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    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, sent by a nationally recognized
      overnight courier service, addressed to the Company, at the address set forth
      above, facsimile number: (212) 930-9725,
      Attn:
      Marc Ross, Esq., or such other address or facsimile number as the Company may
      specify for such purposes by notice to the Holders delivered in accordance
      with
      this Section. 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, sent by a nationally recognized overnight courier service
      addressed to each Holder at the facsimile telephone number or address of such
      Holder appearing on the books of the Company, or if no such facsimile telephone
      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 telephone number
      specified in this Section prior to 5:30 p.m. (New York City time), (ii) the
      date
      after the date of transmission, if such notice or communication is delivered
      via
      facsimile at the facsimile telephone number specified in this Section later
      than
      5:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New
      York
      City time) on such 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, interest and liquidated damages (if any) 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,
      and indemnity, if requested, all 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 conflicts of law thereof. Each party agrees that all legal
      proceedings concerning the interpretations, 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
      any such court, 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 manner permitted by 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 with the investigation,
      preparation and prosecution of such action or proceeding.

     

    
      
        
        

      

      
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    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
      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 applicable laws governing usury,
      the applicable rate of interest due hereunder shall automatically be lowered
      to
      equal the maximum permitted rate of interest. 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.

     

    
      
        
        

      

      
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    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.

    

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

    
      
        
        

      

      
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    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.

     

    
      	 	
              APRECIA
                INC.

               

            
	 	By:	
              /s/Isidore
                Sobkowski

              Name:
                Isidore Sobkowski

              Title:
                Pres and CEO

            

    

    

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    ANNEX
      A

    

    NOTICE
      OF CONVERSION

     

    The
      undersigned hereby elects to convert principal under the 7% Convertible
      Debenture of Aprecia Inc., a Delaware corporation (the “Company”),
      due
      on March ___, 2008, into shares of common stock, par value $0.0001 per share
      (the “Common
      Stock”),
      of
      the Company according to the conditions hereof, as of the date written below.
      If
      shares 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
      determined in accordance with Section 13(d) of the Exchange Act, specified
      under
      Section 4 of this Debenture.

    

    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 Debentures 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:

    

    
      
        
        

      

      
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    Schedule
      1

    

    CONVERSION
      SCHEDULE

    

    The
      7%
      Convertible Debentures due on March ___, 2008, in the aggregate principal amount
      of $____________ issued by Aprecia Inc., a __________ 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

            
	 	 	 	 
	 	 	 	 
	
               

            	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 

    

    
 

    
      
        
        

      

      
        22Unassociated Document

      EXHIBIT
      B 

    

    REGISTRATION
      RIGHTS AGREEMENT

    

    This
      Registration Rights Agreement (this “Agreement”)
      is
      made and entered into as of March 10, 2006, among Aprecia Inc., a Delaware
      corporation (the “Company”),
      and
      the purchasers signatory hereto (each such purchaser is a “Purchaser”
and
      collectively, the “Purchasers”).

    

    This
      Agreement is made pursuant to the Securities Purchase Agreement, dated at or
      about the date hereof among the Company and the Purchasers (the “Purchase
      Agreement”).

    

    The
      Company and the Purchasers hereby agree as follows:

    

    1. Definitions

    

    Capitalized
      terms used and not otherwise defined herein that are defined in the Purchase
      Agreement shall have the meanings given such terms in the Purchase
      Agreement.
      As used
      in this Agreement, the following terms shall have the following
      meanings:

    

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

    

    “Effectiveness
      Date”
means,
      with respect to the initial Registration Statement required to be filed
      hereunder, the 150th
      calendar
      day following the date hereof and, with respect to any additional Registration
      Statements which may be required pursuant to Section 3(c), the 90th
      calendar
      day following the date on which the Company first knows, or reasonably should
      have known, that such additional Registration Statement is required hereunder;
      provided,
      however,
      in the
      event the Company is notified by the Commission that one of the above
      Registration Statements will not be reviewed or is no longer subject to further
      review and comments, the Effectiveness Date as to such Registration Statement
      shall be the fifth Trading Day following the date on which the Company is so
      notified if such date precedes the dates required above.

    

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

    

    “Event”
shall
      have the meaning set forth in Section 2(b).

    

    “Event
      Date”
shall
      have the meaning set forth in Section 2(b).

    

    “Filing
      Date”
means,
      with respect to the initial Registration Statement required hereunder, the
      90th
      calendar
      day following the date hereof and, with respect to any additional Registration
      Statements which may be required pursuant to Section 3(c), the 30th
      day
      following the date on which the Company first knows, or reasonably should have
      known that such additional Registration Statement is required
      hereunder.

    

    “Holder”
or
      “Holders”
means
      the holder or holders, as the case may be, from time to time of Registrable
      Securities.

    

    “Indemnified
      Party”
shall
      have the meaning set forth in Section 5(c).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    “Indemnifying
      Party”
shall
      have the meaning set forth in Section 5(c).

    

    “Losses”
shall
      have the meaning set forth in Section 5(a).

    

    “Plan
      of Distribution”
shall
      have the meaning set forth in Section 2(a). 

    

    “Proceeding”
means
      an action, claim, suit, investigation or proceeding (including, without
      limitation, an investigation or partial proceeding, such as a deposition),
      whether commenced or threatened.

    

    “Prospectus”
means
      the prospectus included in a Registration Statement (including, without
      limitation, a prospectus that includes any information previously omitted from
      a
      prospectus filed as part of an effective registration statement in reliance
      upon
      Rule 430A promulgated under the Securities Act), as amended or supplemented
      by
      any prospectus supplement, with respect to the terms of the offering of any
      portion of the Registrable Securities covered by a Registration Statement,
      and
      all other amendments and supplements to the Prospectus, including post-effective
      amendments, and all material incorporated by reference or deemed to be
      incorporated by reference in such Prospectus.

    

    “Registrable
      Securities”
means
      (i) all of the Underlying Shares, (ii) any securities issued or issuable upon
      any stock split, dividend or other distribution, recapitalization or similar
      event with respect to the foregoing, (iii) any additional shares issuable in
      connection with any anti-dilution provisions in the Transaction
      documents(without giving effect to any limitations on exercise set forth in
      the
      Debenture), (iv) shares issuable to Palladium Capital, upon exercise of a common
      stock purchase warrant issuable in connection with the sale of the Debentures
      as
      a part of the compensation payable to Palladium Capital, and (v) shares issuable
      in connection with a proposed private placement of shares of common stock of
      the
      Company not to exceed $50,000 in gross proceeds at a per share price of not
      less
      than $0.12. 

    

    “Registration
      Statement”
means
      the registration statements required to be filed hereunder and any additional
      registration statements contemplated by Section 3(c), including (in each case)
      the Prospectus, amendments and supplements to such registration statement or
      Prospectus, including pre- and post-effective amendments, all exhibits thereto,
      and all material incorporated by reference or deemed to be incorporated by
      reference in such registration statement.

    

    “Rule
      415”
means
      Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same purpose and
      effect as such Rule.

    

    “Rule
      424”
means
      Rule 424 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same purpose and
      effect as such Rule.

    

    “Selling
      Shareholder Questionnaire”
shall
      have the meaning set forth in Section 3(a).

     

    
      
        
        

      

      
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    2.
       Shelf
      Registration

    

    (a)  On
      or
      prior to each Filing Date, the Company shall prepare and file with the
      Commission a “Shelf” Registration Statement covering the resale of 200% of the
      Registrable Securities and such shares as set forth in Schedule 6(b) on such
      Filing Date for an offering to be made on a continuous basis pursuant to Rule
      415. The Registration Statement shall be on Form SB-2 (except if the Company
      is
      not then eligible to register for resale the Registrable Securities on Form
      SB-2, in which case such registration shall be on another appropriate form
      in
      accordance herewith) and shall contain (unless otherwise directed by the
      Holders) substantially the “Plan
      of Distribution”
      attached hereto as Annex
      A.
      Subject
      to the terms of this Agreement, the Company shall use its best efforts to cause
      a Registration Statement to be declared effective under the Securities Act
      as
      promptly as possible after the filing thereof, but in any event prior to the
      applicable Effectiveness Date, and shall use its best efforts to keep such
      Registration Statement continuously effective under the Securities Act until
      all
      Registrable Securities covered by such Registration Statement have been sold
      or
      may be sold without volume restrictions pursuant to Rule 144(k) as determined
      by
      the counsel to the Company pursuant to a written opinion letter to such effect,
      addressed and acceptable to the Company’s transfer agent and the affected
      Holders (the “Effectiveness
      Period”).
      The
      Company shall telephonically request effectiveness of a Registration Statement
      as of 5:00 pm Eastern Time on a Trading Day. The Company shall immediately
      notify the Holders via facsimile of the effectiveness of a Registration
      Statement on the same Trading Day that the Company telephonically confirms
      effectiveness with the Commission, which shall be the date requested for
      effectiveness of a Registration Statement. The Company shall, by 9:30 am Eastern
      Time on the Trading Day after the Effective Date (as defined in the Purchase
      Agreement), file a Form 424(b)(5) with the Commission. Failure to so notify
      the
      Holder within 1 Trading Day of such notification shall be deemed an Event under
      Section 2(b).

     

    (b)  If:
      (i) a
      Registration Statement is not filed on or prior to its Filing Date (if the
      Company files a Registration Statement without affording the Holders the
      opportunity to review and comment on the same as required by Section 3(a),
      the
      Company shall not be deemed to have satisfied this clause (i)), or (ii) the
      Company fails to file with the Commission a request for acceleration in
      accordance with Rule 461 promulgated under the Securities Act, within three
      Trading Days of the date that the Company is notified (orally or in writing,
      whichever is earlier) by the Commission that a Registration Statement will
      not
      be “reviewed,” or not subject to further review, or (iii) prior to its
      Effectiveness Date, the Company fails to file a pre-effective amendment and
      otherwise respond in writing to comments made by the Commission in respect
      of
      such Registration Statement within 15 calendar days after the receipt of
      comments by or notice from the Commission that such amendment is required in
      order for a Registration Statement to be declared effective, or (iv) a
      Registration Statement filed or required to be filed hereunder is not declared
      effective by the Commission by its Effectiveness Date, or (v) after the
      Effectiveness Date, a Registration Statement ceases for any reason to remain
      continuously effective as to all Registrable Securities for which it is required
      to be effective, or the Holders are not permitted to utilize the Prospectus
      therein to resell such Registrable Securities for 10 consecutive calendar days
      but no more than an aggregate of 15 calendar days during any 12-month period
      (which need not be consecutive Trading Days) (any such failure or breach being
      referred to as an “Event”,
      and
      for purposes of clause (i) or (iv) the date on which such Event occurs, or
      for
      purposes of clause (ii) the date on which such five Trading Day period is
      exceeded, or for purposes of clause (iii) the date which such 10 calendar day
      period is exceeded, or for purposes of clause (v) the date on which such 10
      or
      15 calendar day period, as applicable, is exceeded being referred to as
“Event
      Date”),
      then
      in addition to any other rights the Holders may have hereunder or under
      applicable law, on each such Event Date and on each monthly anniversary of
      each
      such Event Date (if the applicable Event shall not have been cured by such
      date)
      until the applicable Event is cured, the Company shall pay to each Holder an
      amount in cash, as partial liquidated damages and not as a penalty, equal to
      2%
      of the aggregate purchase price paid by such Holder pursuant to the Purchase
      Agreement for any Registrable Securities then held by such Holder. If the
      Company fails to pay any partial liquidated damages pursuant to this Section
      in
      full within seven days after the date payable, the Company will pay interest
      thereon at a rate of 18% per annum (or such lesser maximum amount that is
      permitted to be paid by applicable law) to the Holder, accruing daily from
      the
      date such partial liquidated damages are due until such amounts, plus all such
      interest thereon, are paid in full. The partial liquidated damages pursuant
      to
      the terms hereof shall apply on a daily pro-rata basis for any portion of a
      month prior to the cure of an Event.

     

    
      
        
        

      

      
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    3.
       Registration
      Procedures.

    

    In
      connection with the Company’s registration obligations hereunder, the Company
      shall:

    

    (a)  Not
      less
      than three Trading Days prior to the filing of each Registration Statement
      or
      any related Prospectus or any amendment or supplement thereto (including any
      document that would be incorporated or deemed to be incorporated therein by
      reference), the Company shall, (i) furnish to each Holder copies of all such
      documents proposed to be filed, which documents (other than those incorporated
      or deemed to be incorporated by reference) will be subject to the review of
      such
      Holders, and (ii) cause its officers and directors, counsel and independent
      certified public accountants to respond to such inquiries as shall be necessary,
      in the reasonable opinion of respective counsel to conduct a reasonable
      investigation within the meaning of the Securities Act. The Company shall not
      file a Registration Statement or any such Prospectus or any amendments or
      supplements thereto to which the Holders of a majority of the Registrable
      Securities shall reasonably object in good faith, provided that, the Company
      is
      notified of such objection in writing no later than three Trading Days after
      the
      Holders have been so furnished copies of such documents. Each Holder agrees
      to
      furnish to the Company a completed Questionnaire in the form attached to this
      Agreement as Annex B (a “Selling
      Shareholder Questionnaire”)
      not
      less than two Trading Days prior to the Filing Date or by the end of the fourth
      Trading Day following the date on which such Holder receives draft materials
      in
      accordance with this Section. 

    

    (b)  (i)
      Prepare and file with the Commission such amendments, including post-effective
      amendments, to a Registration Statement and the Prospectus used in connection
      therewith as may be necessary to keep a Registration Statement continuously
      effective as to the applicable Registrable Securities for the Effectiveness
      Period and prepare and file with the Commission such additional Registration
      Statements in order to register for resale under the Securities Act all of
      the
      Registrable Securities; (ii) cause the related Prospectus to be amended or
      supplemented by any required Prospectus supplement (subject to the terms of
      this
      Agreement), and as so supplemented or amended to be filed pursuant to Rule
      424;
      (iii) respond as promptly as reasonably possible to any comments received from
      the Commission with respect to a Registration Statement or any amendment thereto
      and as promptly as reasonably possible provide the Holders true and complete
      copies of all correspondence from and to the Commission relating to a
      Registration Statement; and (iv) comply in all material respects with the
      provisions of the Securities Act and the Exchange Act with respect to the
      disposition of all Registrable Securities covered by a Registration Statement
      during the applicable period in accordance (subject to the terms of this
      Agreement) with the intended methods of disposition by the Holders thereof
      set
      forth in such Registration Statement as so amended or in such Prospectus as
      so
      supplemented.

     

    
      
        
        

      

      
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    (c)  If
      during
      the Effectiveness Period, the number of Registrable Securities at any time
      exceeds 75% of the number of shares of Common Stock then registered in a
      Registration Statement, then the Company shall file as soon as reasonably
      practicable but in any case prior to the applicable Filing Date, an additional
      Registration Statement covering the resale by the Holders of not less than
      150%
      of the number of such Registrable Securities.

    

    (d)  Notify
      the Holders of Registrable Securities to be sold (which notice shall, pursuant
      to clauses (ii) through (vi) hereof, be accompanied by an instruction to suspend
      the use of the Prospectus until the requisite changes have been made) as
      promptly as reasonably possible (and, in the case of (i)(A) below, not less
      than
      five Trading Days prior to such filing) and (if requested by any such Person)
      confirm such notice in writing no later than one Trading Day following the
      day
      (i)(A) when a Prospectus or any Prospectus supplement or post-effective
      amendment to a Registration Statement is proposed to be filed; (B) when the
      Commission notifies the Company whether there will be a “review” of such
      Registration Statement and whenever the Commission comments in writing on such
      Registration Statement (the Company shall provide true and complete copies
      thereof and all written responses thereto to each of the Holders); and (C)
      with
      respect to a Registration Statement or any post-effective amendment, when the
      same has become effective; (ii) of any request by the Commission or any other
      Federal or state governmental authority for amendments or supplements to a
      Registration Statement or Prospectus or for additional information; (iii) of
      the
      issuance by the Commission or any other federal or state governmental authority
      of any stop order suspending the effectiveness of a Registration Statement
      covering any or all of the Registrable Securities or the initiation of any
      Proceedings for that purpose; (iv) of the receipt by the Company of any
      notification with respect to the suspension of the qualification or exemption
      from qualification of any of the Registrable Securities for sale in any
      jurisdiction, or the initiation or threatening of any Proceeding for such
      purpose; (v) of the occurrence of any event or passage of time that makes the
      financial statements included in a Registration Statement ineligible for
      inclusion therein or any statement made in a Registration Statement or
      Prospectus or any document incorporated or deemed to be incorporated therein
      by
      reference untrue in any material respect or that requires any revisions to
      a
      Registration Statement, Prospectus or other documents so that, in the case
      of a
      Registration Statement or the Prospectus, as the case may be, it will not
      contain any untrue statement of a material fact or omit to state any material
      fact required to be stated therein or necessary to make the statements therein,
      in light of the circumstances under which they were made, not misleading; and
      (vi) the occurrence or existence of any pending corporate development with
      respect to the Company that the Company believes may be material and that,
      in
      the determination of the Company, makes it not in the best interest of the
      Company to allow continued availability of a Registration Statement or
      Prospectus; provided that any and all of such information shall remain
      confidential to each Holder until such information otherwise becomes public,
      unless disclosure by a Holder is required by law; provided,
      further,
      notwithstanding each Holder’s agreement to keep such information confidential,
      the Holders make no acknowledgement that any such information is material,
      non-public information.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    
 

    (e)  Use
      its
      best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
      of
      (i) any order suspending the effectiveness of a Registration Statement, or
      (ii)
      any suspension of the qualification (or exemption from qualification) of any
      of
      the Registrable Securities for sale in any jurisdiction, at the earliest
      practicable moment.

    

    (f)  Furnish
      to each Holder, without charge, at least one conformed copy of each such
      Registration Statement and each amendment thereto, including financial
      statements and schedules, all documents incorporated or deemed to be
      incorporated therein by reference to the extent requested by such Person, and
      all exhibits to the extent requested by such Person (including those previously
      furnished or incorporated by reference) promptly after the filing of such
      documents with the Commission.

    

    (g)  Promptly
      deliver to each Holder, without charge, as many copies of the Prospectus or
      Prospectuses (including each form of prospectus) and each amendment or
      supplement thereto as such Persons may reasonably request in connection with
      resales by the Holder of Registrable Securities. Subject to the terms of this
      Agreement, the Company hereby consents to the use of such Prospectus and each
      amendment or supplement thereto by each of the selling Holders in connection
      with the offering and sale of the Registrable Securities covered by such
      Prospectus and any amendment or supplement thereto, except after the giving
      on
      any notice pursuant to Section 3(d).

    

    (h)  If
      NASDR
      Rule 2710 requires any broker-dealer to make a filing prior to executing a
      sale
      by a Holder, the Company shall (i) make an Issuer Filing with the NASDR, Inc.
      Corporate Financing Department pursuant to NASDR Rule 2710(b)(10)(A)(i), (ii)
      respond within five Trading Days to any comments received from NASDR in
      connection therewith, (iii) and pay the filing fee required in connection
      therewith.

    

    (i)  Prior
      to
      any resale of Registrable Securities by a Holder, use its commercially
      reasonable efforts to register or qualify or cooperate with the selling Holders
      in connection with the registration or qualification (or exemption from the
      Registration or qualification) of such Registrable Securities for the resale
      by
      the Holder under the securities or Blue Sky laws of such jurisdictions within
      the United States as any Holder reasonably requests in writing, to keep each
      registration or qualification (or exemption therefrom) effective during the
      Effectiveness Period and to do any and all other acts or things reasonably
      necessary to enable the disposition in such jurisdictions of the Registrable
      Securities covered by each Registration Statement; provided, that the Company
      shall not be required to qualify generally to do business in any jurisdiction
      where it is not then so qualified, subject the Company to any material tax
      in
      any such jurisdiction where it is not then so subject or file a general consent
      to service of process in any such jurisdiction.

    

    (j)  If
      requested by the Holders, cooperate with the Holders to facilitate the timely
      preparation and delivery of certificates representing Registrable Securities
      to
      be delivered to a transferee pursuant to a Registration Statement, which
      certificates shall be free, to the extent permitted by the Purchase Agreement,
      of all restrictive legends, and to enable such Registrable Securities to be
      in
      such denominations and registered in such names as any such Holders may
      request.

     

    
      
        
        

      

      
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    (k)  Upon
      the
      occurrence of any event contemplated by this Section 3, as promptly as
      reasonably possible under the circumstances taking into account the Company’s
      good faith assessment of any adverse consequences to the Company and its
      stockholders of the premature disclosure of such event, prepare a supplement
      or
      amendment, including a post-effective amendment, to a Registration Statement
      or
      a supplement to the related Prospectus or any document incorporated or deemed
      to
      be incorporated therein by reference, and file any other required document
      so
      that, as thereafter delivered, neither a Registration Statement nor such
      Prospectus will contain an untrue statement of a material fact or omit to state
      a material fact required to be stated therein or necessary to make the
      statements therein, in light of the circumstances under which they were made,
      not misleading. If
      the
      Company notifies the Holders in accordance with clauses (ii) through (vi) of
      Section 3(d) above to suspend the use of any Prospectus until the requisite
      changes to such Prospectus have been made, then the Holders shall suspend use
      of
      such Prospectus. The Company will use its best efforts to ensure that the use
      of
      the Prospectus may be resumed as promptly as is practicable. The Company shall
      be entitled to exercise its right under this Section 3(k) to suspend the
      availability of a Registration Statement and Prospectus, subject to the payment
      of partial liquidated damages pursuant to Section 2(b), for a period not to
      exceed 60 days (which need not be consecutive days) in any 12 month
      period.

    

    (l)  Comply
      with all applicable rules and regulations of the Commission.

    

    (m)  The
      Company may require each selling Holder to furnish to the Company a certified
      statement as to the number of shares of Common Stock beneficially owned by
      such
      Holder and, if required by the Commission, the person thereof that has voting
      and dispositive control over the Shares. During any periods that the Company
      is
      unable to meet its obligations hereunder with respect to the registration of
      the
      Registrable Securities solely because any Holder fails to furnish such
      information within three Trading Days of the Company’s request, any liquidated
      damages that are accruing at such time as to such Holder only shall be tolled
      and any Event that may otherwise occur solely because of such delay shall be
      suspended as to such Holder only, until such information is delivered to the
      Company.

    
 

    
      	
              4.

            	
              Registration
                Expenses.
                All fees and expenses incident to the performance of or compliance
                with
                this Agreement by the Company shall be borne by the Company whether
                or not
                any Registrable Securities are sold pursuant to a Registration Statement.
                The fees and expenses referred to in the foregoing sentence shall
                include,
                without limitation, (i) all registration and filing fees (including,
                without limitation, fees and expenses (A) with respect to filings
                required
                to be made with the Trading Market on which the Common Stock is then
                listed for trading, (B) in compliance with applicable state securities
                or
                Blue Sky laws reasonably agreed to by the Company in writing (including,
                without limitation, fees and disbursements of counsel for the Company
                in
                connection with Blue Sky qualifications or exemptions of the Registrable
                Securities and determination of the eligibility of the Registrable
                Securities for investment under the laws of such jurisdictions as
                requested by the Holders) and (C) if not previously paid by the Company
                in
                connection with an Issuer Filing, with respect to any filing that
                may be
                required to be made by any broker through which a Holder intends
                to make
                sales of Registrable Securities with NASD Regulation, Inc. pursuant
                to the
                NASD Rule 2710, so long as the broker is receiving no more than a
                customary brokerage commission in connection with such sale, (ii)
                printing
                expenses (including, without limitation, expenses of printing certificates
                for Registrable Securities and of printing prospectuses if the printing
                of
                prospectuses is reasonably requested by the holders of a majority
                of the
                Registrable Securities included in a Registration Statement), (iii)
                messenger, telephone and delivery expenses, (iv) fees and disbursements
                of
                counsel for the Company, (v) Securities Act liability insurance,
                if the
                Company so desires such insurance, and (vi) fees and expenses of
                all other
                Persons retained by the Company in connection with the consummation
                of the
                transactions contemplated by this Agreement. In addition, the Company
                shall be responsible for all of its internal expenses incurred in
                connection with the consummation of the transactions contemplated
                by this
                Agreement (including, without limitation, all salaries and expenses
                of its
                officers and employees performing legal or accounting duties), the
                expense
                of any annual audit and the fees and expenses incurred in connection
                with
                the listing of the Registrable Securities on any securities exchange
                as
                required hereunder. In no event shall the Company be responsible
                for any
                broker or similar commissions or, except to the extent provided for
                in the
                Transaction Documents, any legal fees or other costs of the
                Holders.

            

    

     

    
      
        
        

      

      
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    5. 
Indemnification

    

    (a)  Indemnification
      by the Company.
      The
      Company shall, notwithstanding any termination of this Agreement, indemnify
      and
      hold harmless each Holder, the officers, directors, agents, brokers (including
      brokers who offer and sell Registrable Securities as principal as a result
      of a
      pledge or any failure to perform under a margin call of Common Stock),
      investment advisors and employees of each of them, each Person who controls
      any
      such Holder (within the meaning of Section 15 of the Securities Act or Section
      20 of the Exchange Act) and the officers, directors, agents and employees of
      each such controlling Person, to the fullest extent permitted by applicable
      law,
      from and against any and all losses, claims, damages, liabilities, costs
      (including, without limitation, reasonable attorneys’ fees) and expenses
      (collectively, “Losses”),
      as
      incurred, arising out of or relating to any untrue or alleged untrue statement
      of a material fact contained in a Registration Statement, any Prospectus or
      any
      form of prospectus or in any amendment or supplement thereto or in any
      preliminary prospectus, or arising out of or relating to any omission or alleged
      omission of a material fact required to be stated therein or necessary to make
      the statements therein (in the case of any Prospectus or form of prospectus
      or
      supplement thereto, in light of the circumstances under which they were made)
      not misleading, except to the extent, but only to the extent, that (i) such
      untrue statements or omissions are based solely upon information regarding
      such
      Holder furnished in writing to the Company by such Holder expressly for use
      therein, or to the extent that such information relates to such Holder or such
      Holder’s proposed method of distribution of Registrable Securities and was
      reviewed and expressly approved in writing by such Holder expressly for use
      in a
      Registration Statement, such Prospectus or such form of Prospectus or in any
      amendment or supplement thereto (it being understood that the Holder has
      approved Annex A hereto for this purpose) or (ii) in the case of an occurrence
      of an event of the type specified in Section 3(d)(ii)-(vi), the use by such
      Holder of an outdated or defective Prospectus after the Company has notified
      such Holder in writing that the Prospectus is outdated or defective and prior
      to
      the receipt by such Holder of the Advice contemplated in Section 6(d). The
      Company shall notify the Holders promptly of the institution, threat or
      assertion of any Proceeding arising from or in connection with the transactions
      contemplated by this Agreement of which the Company is aware.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    
 

    (b)  Indemnification
      by Holders.
      Each
      Holder shall, severally and not jointly, indemnify and hold harmless the
      Company, its directors, officers, agents and employees, each Person who controls
      the Company (within the meaning of Section 15 of the Securities Act and Section
      20 of the Exchange Act), and the directors, officers, agents or employees of
      such controlling Persons, to the fullest extent permitted by applicable law,
      from and against all Losses, as incurred, to the extent arising out of or based
      solely upon: (x) such Holder’s failure to comply with the prospectus delivery
      requirements of the Securities Act or (y) any untrue or alleged untrue statement
      of a material fact contained in any Registration Statement, any Prospectus,
      or
      any form of prospectus, or in any amendment or supplement thereto or in any
      preliminary prospectus, or arising out of or relating to any omission or alleged
      omission of a material fact required to be stated therein or necessary to make
      the statements therein not misleading (i) to the extent, but only to the extent,
      that such untrue statement or omission is contained in any information so
      furnished in writing by such Holder to the Company specifically for inclusion
      in
      such Registration Statement or such Prospectus or (ii) to the extent that (1)
      such untrue statements or omissions are based solely upon information regarding
      such Holder furnished in writing to the Company by such Holder expressly for
      use
      therein, or to the extent that such information relates to such Holder or such
      Holder’s proposed method of distribution of Registrable Securities and was
      reviewed and expressly approved in writing by such Holder expressly for use
      in a
      Registration Statement (it being understood that the Holder has approved Annex
      A
      hereto for this purpose), such Prospectus or such form of Prospectus or in
      any
      amendment or supplement thereto or (2) in the case of an occurrence of an event
      of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of an
      outdated or defective Prospectus after the Company has notified such Holder
      in
      writing that the Prospectus is outdated or defective and prior to the receipt
      by
      such Holder of the Advice contemplated in Section 6(d). In no event shall the
      liability of any selling Holder hereunder be greater in amount than the dollar
      amount of the net proceeds received by such Holder upon the sale of the
      Registrable Securities giving rise to such indemnification
      obligation.

    

    (c)  Conduct
      of Indemnification Proceedings.
      If any
      Proceeding shall be brought or asserted against any Person entitled to indemnity
      hereunder (an “Indemnified
      Party”),
      such
      Indemnified Party shall promptly notify the Person from whom indemnity is sought
      (the “Indemnifying
      Party”)
      in
      writing, and the Indemnifying Party shall have the right to assume the defense
      thereof, including the employment of counsel reasonably satisfactory to the
      Indemnified Party and the payment of all fees and expenses incurred in
      connection with defense thereof; provided, that the failure of any Indemnified
      Party to give such notice shall not relieve the Indemnifying Party of its
      obligations or liabilities pursuant to this Agreement, except (and only) to
      the
      extent that it shall be finally determined by a court of competent jurisdiction
      (which determination is not subject to appeal or further review) that such
      failure shall have prejudiced the Indemnifying Party.

    

    An
      Indemnified Party shall have the right to employ separate counsel in any such
      Proceeding and to participate in the defense thereof, but the fees and expenses
      of such counsel shall be at the expense of such Indemnified Party or Parties
      unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
      expenses; (2) the Indemnifying Party shall have failed promptly to assume the
      defense of such Proceeding and to employ counsel reasonably satisfactory to
      such
      Indemnified Party in any such Proceeding; or (3) the named parties to any such
      Proceeding (including any impleaded parties) include both such Indemnified
      Party
      and the Indemnifying Party, and such Indemnified Party shall reasonably believe
      that a material conflict of interest is likely to exist if the same counsel
      were
      to represent such Indemnified Party and the Indemnifying Party (in which case,
      if such Indemnified Party notifies the Indemnifying Party in writing that it
      elects to employ separate counsel at the expense of the Indemnifying Party,
      the
      Indemnifying Party shall not have the right to assume the defense thereof and
      the reasonable fees and expenses of one separate counsel shall be at the expense
      of the Indemnifying Party). The Indemnifying Party shall not be liable for
      any
      settlement of any such Proceeding effected without its written consent, which
      consent shall not be unreasonably withheld. No Indemnifying Party shall, without
      the prior written consent of the Indemnified Party, effect any settlement of
      any
      pending Proceeding in respect of which any Indemnified Party is a party, unless
      such settlement includes an unconditional release of such Indemnified Party
      from
      all liability on claims that are the subject matter of such
      Proceeding.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    
 

    Subject
      to the terms of this Agreement, all reasonable fees and expenses of the
      Indemnified Party (including reasonable fees and expenses to the extent incurred
      in connection with investigating or preparing to defend such Proceeding in
      a
      manner not inconsistent with this Section) shall be paid to the Indemnified
      Party, as incurred, within ten Trading Days of written notice thereof to the
      Indemnifying Party; provided, that the Indemnified Party shall promptly
      reimburse the Indemnifying Party for that portion of such fees and expenses
      applicable to such actions for which such Indemnified Party is not entitled
      to
      indemnification hereunder, determined based upon the relative faults of the
      parties.

    

    (d)  Contribution.
      If the
      indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
      Party or insufficient to hold an Indemnified Party harmless for any Losses,
      then
      each Indemnifying Party shall contribute to the amount paid or payable by such
      Indemnified Party, in such proportion as is appropriate to reflect the relative
      fault of the Indemnifying Party and Indemnified Party in connection with the
      actions, statements or omissions that resulted in such Losses as well as any
      other relevant equitable considerations. The relative fault of such Indemnifying
      Party and Indemnified Party shall be determined by reference to, among other
      things, whether any action in question, including any untrue or alleged untrue
      statement of a material fact or omission or alleged omission of a material
      fact,
      has been taken or made by, or relates to information supplied by, such
      Indemnifying Party or Indemnified Party, and the parties’ relative intent,
      knowledge, access to information and opportunity to correct or prevent such
      action, statement or omission. The amount paid or payable by a party as a result
      of any Losses shall be deemed to include, subject to the limitations set forth
      in this Agreement, any reasonable attorneys’ or other reasonable fees or
      expenses incurred by such party in connection with any Proceeding to the extent
      such party would have been indemnified for such fees or expenses if the
      indemnification provided for in this Section was available to such party in
      accordance with its terms.

    

    The
      parties hereto agree that it would not be just and equitable if contribution
      pursuant to this Section 5(d) were determined by pro rata allocation or by
      any
      other method of allocation that does not take into account the equitable
      considerations referred to in the immediately preceding paragraph.
      Notwithstanding the provisions of this Section 5(d), no Holder shall be required
      to contribute, in the aggregate, any amount in excess of the amount by which
      the
      proceeds actually received by such Holder from the sale of the Registrable
      Securities subject to the Proceeding exceeds the amount of any damages that
      such
      Holder has otherwise been required to pay by reason of such untrue or alleged
      untrue statement or omission or alleged omission, except in the case of fraud
      by
      such Holder.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    
 

    The
      indemnity and contribution agreements contained in this Section are in addition
      to any liability that the Indemnifying Parties may have to the Indemnified
      Parties.

    

    6. Miscellaneous

    

    (a)  Remedies.
      In the
      event of a breach by the Company or by a Holder, of any of their obligations
      under this Agreement, each Holder or the Company, as the case may be, in
      addition to being entitled to exercise all rights granted by law and under
      this
      Agreement, including recovery of damages, will be entitled to specific
      performance of its rights under this Agreement. The Company and each Holder
      agree that monetary damages would not provide adequate compensation for any
      losses incurred by reason of a breach by it of any of the provisions of this
      Agreement and hereby further agrees that, in the event of any action for
      specific performance in respect of such breach, it shall waive the defense
      that
      a remedy at law would be adequate.

    

    (b)  No
      Piggyback on Registrations.
      Except
      as set forth on Schedule
      6(b)
      attached
      hereto, neither the Company nor any of its security holders (other than the
      Holders in such capacity pursuant hereto) may include securities of the Company
      in the initial Registration Statement other than the Registrable Securities.
      Except as set forth on Schedule 6(b) attached hereto, no Person has any right
      to
      cause the Company to effect the registration under the Securities Act of any
      securities of the Company. The Company shall not file any other registration
      statements until the initial Registration Statement required hereunder is
      declared effective by the Commission.

    

    (c)  Compliance.
      Each
      Holder covenants and agrees that it will comply with the prospectus delivery
      requirements of the Securities Act as applicable to it in connection with sales
      of Registrable Securities pursuant to a Registration Statement.

    

    (d)  Discontinued
      Disposition.
      Each
      Holder agrees by its acquisition of such Registrable Securities that, upon
      receipt of a notice from the Company of the occurrence of any event of the
      kind
      described in Section 3(d), such Holder will forthwith discontinue disposition
      of
      such Registrable Securities under a Registration Statement until such Holder’s
      receipt of the copies of the supplemented Prospectus and/or amended Registration
      Statement, or until it is advised in writing (the “Advice”)
      by the
      Company that the use of the applicable Prospectus may be resumed, and, in either
      case, has received copies of any additional or supplemental filings that are
      incorporated or deemed to be incorporated by reference in such Prospectus or
      Registration Statement. The Company will use its best efforts to ensure that
      the
      use of the Prospectus may be resumed as promptly as it practicable. The Company
      agrees and acknowledges that any periods during which the Holder is required
      to
      discontinue the disposition of the Registrable Securities hereunder shall be
      subject to the provisions of Section 2(b).

    

    (e)  Piggy-Back
      Registrations.
      If at
      any time during the Effectiveness Period there is not an effective Registration
      Statement covering all of the Registrable Securities and the Company shall
      determine to prepare and file with the Commission a registration statement
      relating to an offering for its own account or the account of others under
      the
      Securities Act of any of its equity securities, other than on Form S-4 or Form
      S-8 (each as promulgated under the Securities Act) or their then equivalents
      relating to equity securities to be issued solely in connection with any
      acquisition of any entity or business or equity securities issuable in
      connection with the stock option or other employee benefit plans, then the
      Company shall send to each Holder a written notice of such determination and,
      if
      within fifteen days after the date of such notice, any such Holder shall so
      request in writing, the Company shall include in such registration statement
      all
      or any part of such Registrable Securities such Holder requests to be
      registered; provided,
      however,
      that,
      the Company shall not be required to register any Registrable Securities
      pursuant to this Section 6(e) that are eligible for resale pursuant to Rule
      144(k) promulgated under the Securities Act or that are the subject of a then
      effective Registration Statement.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    
 

    (f)  Amendments
      and Waivers.
      The
      provisions of this Agreement, including the provisions of this sentence, may
      not
      be amended, modified or supplemented, and waivers or consents to departures
      from
      the provisions hereof may not be given, unless the same shall be in writing
      and
      signed by the Company and each Holder of the then outstanding Registrable
      Securities. Notwithstanding the foregoing, a waiver or consent to depart from
      the provisions hereof with respect to a matter that relates exclusively to
      the
      rights of Holders and that does not directly or indirectly affect the rights
      of
      other Holders may be given by Holders of all of the Registrable Securities
      to
      which such waiver or consent relates; provided,
      however,
      that
      the provisions of this sentence may not be amended, modified, or supplemented
      except in accordance with the provisions of the immediately preceding sentence.
      

    

    (g)  Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be delivered as set forth in the Purchase Agreement.
      

    

    (h)  Successors
      and Assigns.
      This
      Agreement shall inure to the benefit of and be binding upon the successors
      and
      permitted assigns of each of the parties and shall inure to the benefit of
      each
      Holder. The Company may not assign its rights or obligations hereunder without
      the prior written consent of all of the Holders of the then-outstanding
      Registrable Securities. Each Holder may assign their respective rights hereunder
      in the manner and to the Persons as permitted under the Purchase
      Agreement.

    

    (i)  No
      Inconsistent Agreements.
      Neither
      the Company nor any of its subsidiaries has entered, as of the date hereof,
      nor
      shall the Company or any of its subsidiaries, on or after the date of this
      Agreement, enter into any agreement with respect to its securities, that would
      have the effect of impairing the rights granted to the Holders in this Agreement
      or otherwise conflicts with the provisions hereof. Except as set forth on
Schedule
      6(i),
      neither
      the Company nor any of its subsidiaries has previously entered into any
      agreement granting any registration rights with respect to any of its securities
      to any Person that have not been satisfied in full.

    

    (j)  Execution
      and Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which when
      so
      executed shall be deemed to be an original and, all of which taken together
      shall constitute one and the same Agreement. In the event that any signature
      is
      delivered by facsimile transmission, such signature shall create a valid binding
      obligation of the party executing (or on whose behalf such signature is
      executed) the same with the same force and effect as if such facsimile signature
      were the original thereof.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    
 

    (k)  Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be determined with the provisions of the Purchase
      Agreement.

    

    (l)  Cumulative
      Remedies.
      The
      remedies provided herein are cumulative and not exclusive of any remedies
      provided by law.

    

    (m)  Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, illegal, void or unenforceable, the
      remainder of the terms, provisions, covenants and restrictions set forth herein
      shall remain in full force and effect and shall in no way be affected, impaired
      or invalidated, and the parties hereto shall use their commercially reasonable
      efforts to find and employ an alternative means to achieve the same or
      substantially the same result as that contemplated by such term, provision,
      covenant or restriction. It is hereby stipulated and declared to be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

    

    (n)  Headings.
      The
      headings in this Agreement are for convenience of reference only and shall
      not
      limit or otherwise affect the meaning hereof.

    

    (o)  Independent
      Nature of Holders’ Obligations and Rights.
      The
      obligations of each Holder hereunder are several and not joint with the
      obligations of any other Holder hereunder, and no Holder shall be responsible
      in
      any way for the performance of the obligations of any other Holder hereunder.
      Nothing contained herein or in any other agreement or document delivered at
      any
      closing, and no action taken by any Holder pursuant hereto or thereto, shall
      be
      deemed to constitute the Holders as a partnership, an association, a joint
      venture or any other kind of entity, or create a presumption that the Holders
      are in any way acting in concert with respect to such obligations or the
      transactions contemplated by this Agreement. Each Holder shall be entitled
      to
      protect and enforce its rights, including without limitation the rights arising
      out of this Agreement, and it shall not be necessary for any other Holder to
      be
      joined as an additional party in any proceeding for such purpose.

    

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

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
      as
      of the date first written above.

    

    
      	 	
              APRECIA
                INC.

               

            
	 	By:	
              /s/Isidore
                Sobkowski

              Name:
                Isidore Sobkowski

              Title:
                Pres and CEO

            

    

         

    

    

    [SIGNATURE
      PAGE OF HOLDERS FOLLOWS]

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    [SIGNATURE
      PAGE OF HOLDERS TO APRECIA INC. RRA]

     

    Name
      of
      Holder: ALPHA CAPITAL AKTIENGESELLSCHAFT

    

    Signature
      of Authorized Signatory of Holder:
      /s/Konrad Ackerman

    

    Name
      of
      Authorized Signatory: Konrad Ackerman

    

    Title
      of
      Authorized Signatory:
      ______________________________________________________

     

    

    

    [SIGNATURE
      PAGES CONTINUE]

    

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    [SIGNATURE
      PAGE OF HOLDERS TO APRECIA INC. RRA]

     

    Name
      of
      Holder: DOUBLE U MASTER FUND L.P.

    

    Signature
      of Authorized Signatory of Holder:
      /s/Carl
      Jacobsohn and John Elliot

    

    Name
      of
      Authorized Signatory: Carl Jacobsohn and John Elliot

    

    Title
      of
      Authorized Signatory:
      ______________________________________________________

     

    

    

    [SIGNATURE
      PAGES CONTINUE]

    

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    [SIGNATURE
      PAGE OF HOLDERS TO APRECIA INC. RRA]

     

    Name
      of
      Holder: TOBANNA ENTERPRISES CORP.

    

    Signature
      of Authorized Signatory of Holder:
      /s/David Rosenbaum

    

    Name
      of
      Authorized Signatory: David Rosenbaum

    

    Title
      of
      Authorized Signatory:
      ______________________________________________________

     

    

    

    [SIGNATURE
      PAGES CONTINUE]

    

    
      
        
        

      

      
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    [SIGNATURE
      PAGE OF HOLDERS TO APRECIA INC. RRA]

     

    Name
      of
      Holder: CMS CAPITAL

    

    Signature
      of Authorized Signatory of Holder:
      /s/M.
      Lipskin

    

    Name
      of
      Authorized Signatory: /s/M. Lipskin

    

    Title
      of
      Authorized Signatory:
      ______________________________________________________

     

    
      
        
        

      

      
        18

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