Document:

Exhibit 4.1

EXHIBIT A

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

Original Issue
Date:   November         ,
2006

Original Conversion Price
(subject to adjustment herein): $0.55

$                                

6%
CONVERTIBLE DEBENTURE

DUE
NOVEMBER          , 2008

THIS DEBENTURE is one of a series of duly authorized and issued 6% Convertible Debentures of Xenomics, Inc., a Florida corporation, having a principal place of business at 420 Lexington Avenue, Suite 1701, New York, NY 10170 (the “Company”), designated as its 6% Convertible Debenture, due November        , 2008 (this debenture, the “Debenture” and collectively with the other such series of debentures, the “Debentures”).

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

Section 1.                                            Definitions. 
For the purposes hereof, in addition to the terms defined elsewhere in
this Debenture: (a) capitalized terms not otherwise defined herein have the 

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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).

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

“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 60% 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 60% of the
aggregate voting power of the acquiring entity immediately after the
transaction, (iv) a replacement at one time or within a two 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) through (iv).

“Common Stock”
means the common stock, par value $.0001 per share, of the Company and stock of
any other class of securities into which such securities may hereafter have
been reclassified or changed into.

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

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

“Conversion
Shares” means the shares of Common Stock issuable upon conversion of this
Debenture or as payment of interest in accordance with the terms.

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

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

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

“Effectiveness
Period” shall have the meaning given to such term in the Registration
Rights Agreement.

“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
this Debenture shall have been paid, (iii) there is an effective Registration
Statement pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the shares issuable pursuant to the Transaction
Documents (and the Company believes, in good faith, that such effectiveness
will continue uninterrupted for the foreseeable future), (iv) the Common Stock
is trading on the Trading Market and all of the shares issuable pursuant to the
Transaction Documents are listed for trading on a Trading Market (and the
Company believes, in good faith, that trading of the Common Stock on a Trading
Market will continue uninterrupted for the foreseeable future), (v) there is a
sufficient number of authorized but unissued and otherwise unreserved shares of
Common Stock for the issuance of all of the shares issuable pursuant to the
Transaction Documents, (vi) there is then existing no Event of Default or event
which, with the passage of time or the giving of notice, would constitute an
Event of Default, (vii) the issuance of the shares in question to the Holder
would not violate the limitations set forth in Section 4(c), (viii) no public
announcement of a pending or proposed Fundamental Transaction, Change of
Control Transaction or acquisition transaction has occurred that has not been
consummated and (ix) for a period of 20 consecutive Trading Days prior to the
applicable date in question, the daily trading volume for the Common Stock on
the Trading Market exceeds 100,000 shares per Trading Day (subject to
adjustment for forward and reverse stock splits and the like) in the case of a
Forced Conversion pursuant to Section 8.

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

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

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

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

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

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

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

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

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

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

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

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

“Mandatory
Default Amount”  shall equal the sum
of (i) the greater of: (A) 130% of the principal amount of this Debenture to be
prepaid, plus all accrued and unpaid interest thereon, or (B) the principal
amount of this Debenture to be prepaid, plus all other accrued and unpaid
interest hereon, divided by the Conversion Price on (x) the date the Mandatory
Default Amount is demanded or otherwise due or (y) the date the Mandatory
Default Amount is paid in full, whichever is less, multiplied by the average of
the 15 VWAPs immediately prior to (x) the date the Mandatory Default Amount is
demanded or otherwise due or (y) the date the Mandatory Default Amount is paid
in full, whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of this Debenture.

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

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

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

“Optional
Redemption Amount” shall mean the sum of (i) 120% of that portion of the
principal amount of the Debenture being redeemed pursuant to Section 6(a), (ii)
accrued but unpaid interest on such portion and (iii) all liquidated damages
and other amounts due in respect of the Debenture.

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

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

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

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“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
Indebtedness” shall mean (a) the Indebtedness existing on the Original
Issue Date and set forth on Schedule 3.1(gg) attached to the Purchase
Agreement, (b) lease obligations and purchase money Indebtedness of up to
$100,000, in the aggregate, incurred in connection with the acquisition of
capital assets and lease obligations with respect to newly acquired or leased
assets, (c) Indebtedness incurred pursuant to the Transaction Documents, (d)
unsecured accounts payable incurred in the ordinary course of business, (e)
indebtedness with respect to taxes, governmental changes or levies which are
being contested in good faith, provided that adequate reserves are maintained
on the books of the Company or Subsidiaries, as the case may be, in accordance
with GAAP and (f) up to $1,000,000 of additional Indebtedness
incurred by the Company in connection with raising capital for the acquisition
of another entity (by merger, consolidation, the acquisition of all or
substantially of the assets of such entity or similar transaction), provided
that in the case of (b) and (c) above, such Indebtedness does not mature or
require payments of principal prior to the Maturity Date and is made expressly
subordinate in right of payment to the Indebtedness evidenced by this
Debenture, as reflected in a written agreement reasonably acceptable to, and
approved by, the Purchasers in writing.

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

 “Person” means a corporation, an
association, a partnership, organization, a business, an individual, a
government or political subdivision thereof or a governmental agency.

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“Purchase
Agreement” means the Securities Purchase Agreement, dated as of November          ,
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.

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

“Registration
Statement” means a registration statement meeting the requirements set
forth in the Registration Rights Agreement, covering among other things the
resale of the Conversion Shares and naming the Holder as a “selling stockholder”
thereunder.

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

“Subsidiary”
shall have the meaning given to such term in the Purchase Agreement.

“Threshold
Period” shall have the meaning given to such term in Section 6(c).

“Trading Day”
means a day on which the Common Stock is traded on a Trading Market.

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

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

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

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Section 2.                                            Interest.

a)                                      Payment
of Interest in Cash or Kind. The Company shall pay interest to the Holder
on the aggregate unconverted and then outstanding principal amount of this
Debenture at the rate of 6% per annum, payable semiannually on April 1 and
November 1, beginning on November 1, 2007, 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 or duly authorized, fully paid and non-assessable shares of Common
Stock at the Interest Conversion Rate, or a combination thereof (the amount to
be paid in shares, the “Interest Share Amount”); provided, however,
payment in shares of Common Stock may only occur if during the 20 Trading Days
immediately prior to the applicable Interest Payment Date (the “Interest
Notice Period”) and through and including the date such shares of Common
Stock are issued to the Holder all of the Equity Conditions, unless waived by
the Holder in writing, have been met and the Company shall have given the
Holder notice in accordance with the notice requirements set forth below.

b)                                     Company’s
Election to Pay Interest in Kind. 
Subject to the terms and conditions herein, the decision whether to pay
interest hereunder in shares of Common Stock or cash shall be at the sole
discretion of the Company.  Prior to the
commencement of an Interest Notice Period, the Company shall provide the Holder
with written notice of its election to pay interest hereunder on the applicable
Interest Payment Date either in cash, shares of Common Stock or a combination
thereof (the Company may indicate in such notice that the election contained in
such notice shall continue for later periods until revised) and the Interest
Share Amount as to the applicable Interest Payment Date.  During any Interest Notice Period, the
Company’s election (whether specific to an Interest Payment Date or continuous)
shall be irrevocable as to such Interest Payment Date.  Subject to the aforementioned conditions,
failure to timely provide such written notice shall be deemed an election by
the Company to pay the interest on such Interest Payment Date in cash.  At any time the Company delivers a notice to
the Holder of its election to pay the interest in shares of Common Stock, the
Company shall file a prospectus supplement pursuant to Rule 424 disclosing such
election.

c)                                      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.  Payment of interest in shares of Common Stock
shall otherwise occur pursuant to Section 4(d)(ii) and only for purposes of the
payment of interest in shares, the Interest Payment Date shall be deemed the
Conversion Date.  Interest shall cease to
accrue with respect to any principal amount converted, provided that the Company
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 this Debenture
(the “Debenture Register”). Except as otherwise provided herein, if at
any time the Company pays interest partially in cash and

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partially in
shares of Common Stock to the holders of the Debentures, then such payment
shall be distributed ratably among the holders of the Debentures based on their
(or their predecessor’s initial purchases of Debentures pursuant to the
Purchase Agreement.

d)                                     Late
Fee.  All overdue accrued and unpaid
interest to be paid hereunder shall entail a late fee at 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 interest is due hereunder through and including the date of payment.
Notwithstanding anything to the contrary contained herein, if on any Interest
Payment Date the Company has elected to pay interest in Common Stock and is not
able to pay accrued interest in the form of Common Stock because it does not
then satisfy the conditions for payment in the form of Common Stock set forth
above, then, at the option of the Holder, the Company, in lieu of (and in full
satisfaction of) delivering either shares of Common Stock pursuant to this
Section 2 or paying the regularly scheduled cash interest payment, shall
deliver, within three Trading Days of each applicable Interest Payment Date, an
amount in cash equal to the product of the number of shares of Common Stock
otherwise deliverable to the Holder in connection with the payment of interest
due on such Interest Payment Date and the highest VWAP during the period
commencing on the Interest Payment Date and ending on the Trading Day prior to
the date such payment is made.

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

Section 3.                                            Registration
of Transfers and Exchanges.

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

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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 this Debenture 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.  Once
delivered, the Notice of Conversion shall be irrevocable, unless provided
otherwise by the Company in its sole discretion or as provided in Section
4(d)(iii).  To effect conversions
hereunder, the Holder shall not be required to physically surrender this
Debenture to the Company unless the entire principal amount of this Debenture
plus all accrued and unpaid interest thereon has been so converted. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of
this Debenture in an amount equal to the applicable conversion.  The Holder and the Company shall maintain
records showing the principal amount converted and the date of such
conversions.  The Company shall deliver
any objection to any Notice of Conversion within 1 Business Day 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.

b)                                     Conversion
Price.  The conversion price in
effect on any Conversion Date shall be equal to $0.55 (subject to adjustment
herein)(the “Conversion Price”).

c)                                      Conversion
Limitations. The Company shall not effect any conversion of this Debenture,
and a Holder shall not have the right to convert any portion of this Debenture
to the extent that after giving effect to such conversion, such Holder
(together with such Holder’s affiliates, and any other person or entity acting
as a group together with such Holder or any of such Holder’s affiliates), as
set forth on the applicable Notice of Conversion, would beneficially own in
excess of the Beneficial Ownership Limitation (as defined below).  For
purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by such Holder and its affiliates shall include the number
of shares of Common Stock issuable upon conversion of this Debenture with
respect to which 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 principal amount of this Debenture
beneficially owned by such 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 such Holder 

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or any of its
affiliates.  Except as set forth in the preceding sentence, for purposes
of this Section 4(c), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder.  To the extent
that the limitation contained in this Section 4(c) applies, the determination
of whether this Debenture is convertible (in relation to other securities owned
by such Holder together with any affiliates) and of which amounts of this
Debenture are convertible shall be in the sole discretion of such Holder, and
the submission of a Notice of Conversion shall be deemed to be such Holder’s
determination of whether this Debenture may be converted (in relation to other
securities owned by such Holder) and which amounts of this Debenture are
convertible, in each case subject to such aggregate percentage limitations. To
ensure compliance with this restriction, each Holder will be deemed to
represent to the Company each time it delivers a Notice of Conversion that such
Notice of Conversion has not violated the restrictions set forth in this
paragraph and the Company shall have no obligation to verify or confirm the
accuracy of such determination.  In
addition, a determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder.  
For purposes of this Section 4(c), in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in the most recent of the
following: (A) the Company’s most recent Form 10-QSB or Form 10-KSB, as the
case may be, (B) a more recent public announcement by the Company or (C) 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 request of
a Holder, the Company shall within two Trading Days confirm in writing to such
Holder the number of shares of Common Stock then outstanding.  In any
case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the Company,
including this Debenture, by such Holder or its affiliates since the date as of
which such number of outstanding shares of Common Stock was reported. The
Company, in refraining from or taking actions under this Section 4(c), may rely
solely upon filings made by the Holder under Section 13(d) of the Exchange Act
or written representation of the Holder as to its beneficial ownership.  The “Beneficial Ownership Limitation” shall
be 4.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable upon
conversion of this Debenture held by the Holder.  The Beneficial Ownership Limitation
provisions of this Section 4(c) may be waived by such Holder, at the election
of such Holder, upon not less than 61 days’ prior notice to the Company to
change the Beneficial Ownership Limitation to 9.99% of the number of shares of
the Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock upon conversion of this Debenture held by the Holder,
and the provisions of this Section 4(c) shall continue to apply.  Upon such a change by a Holder of the
Beneficial Ownership Limitation from such 4.99% limitation to such 9.99%
limitation, the Beneficial Ownership Limitation may not be waived by such
Holder.  The provisions of this paragraph
shall be implemented in a manner otherwise than in strict conformity with the
terms of this Section 4(c) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Beneficial Ownership
Limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such 

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limitation. The
limitations contained in this paragraph shall apply to a successor holder of
this Debenture.

d)                                     Mechanics
of Conversion

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

ii.                                       Delivery
of Certificate Upon Conversion. Not later than three Trading 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 this Debenture (including,
if the Company has given continuous notice pursuant to Section 2(b) for payment
of interest in shares of Common Stock at least 20 Trading Days prior to the
date on which the Conversion Notice is delivered to the Company, shares of
Common Stock representing the payment of accrued interest otherwise determined
pursuant to Section 2(a) but assuming that the Interest Payment Period is the
20 Trading Days period immediately prior to the date on which the Conversion
Notice is delivered to the Company and (B) a bank check in the amount of
accrued and unpaid interest (to the extent the Company is paying to pay accrued
interest in cash). The Company shall, if available and if allowed under
applicable securities laws, use its reasonable 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 Trading 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
this Debenture 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 Trading
Day after the Conversion Date, the Company shall pay to such Holder, in cash,
as liquidated damages and not as a penalty, for each $1000 of principal amount
being converted, $10 per Trading Day (increasing to $20 per Trading Day after 5
Trading Days after such damages begin to accrue) for each Trading Day after
such third Trading Day until such

 11
 

 

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 the
Holder of this Debenture shall elect to convert any or all of the outstanding
principal amount hereof, the Company may not refuse conversion based on any
claim that the Holder or 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.

v.                                      Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In
addition to any other rights available to the Holder, if the Company fails for
any reason to deliver to the Holder such certificate or certificates pursuant
to Section 4(d)(ii) by the third Trading Day after the Conversion Date, and if
after such third Trading 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

 12

 

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 (if surrendered)
this Debenture in a principal amount equal to the principal amount of the
attempted conversion or deliver to the Holder the number of shares of Common
Stock that would have been issued 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 this Debenture 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 proof indicating the amounts payable to the
Holder in respect of the Buy-In.

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 this
Debenture and payment of interest on this Debenture, each as herein provided,
free from preemptive rights or any other actual contingent purchase rights of
persons other than the Holder (and the other holders of the Debentures), not
less than such number of shares of the Common Stock as shall (subject to the
terms and conditions set forth in the Purchase Agreement) be issuable (taking
into account the adjustments and restrictions of Section 5) upon the conversion
of the outstanding principal amount of this Debenture and payment of interest
hereunder.  The Company covenants that
all shares of Common Stock that shall be so issuable shall, upon issue, be duly
and validly authorized, issued and fully paid, nonassessable.

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
this Debenture so converted and the Company shall not be required to issue or
deliver such certificates unless or until

 13
 

 

the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.

Section 5.                                            Certain
Adjustments.

a)                                      Stock
Dividends and Stock Splits.  If the
Company, at any time while this Debenture is outstanding: (A) pays a stock
dividend or otherwise makes a distribution or distributions 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.

i.                                          If
the Company or any Subsidiary thereof, as applicable, at any time while this
Debenture is outstanding, shall sell, grant any option to purchase, 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.

ii.                                       The
Company or any Subsidiary there, as applicable, at any time while this
Debenture is outstanding, shall offer, sell, grant any option to purchase or
offer, sell or grant any right to reprice its securities, or otherwise dispose
of or issue (or announce any offer, sale, grant or any option to purchase or
other

 14
 

 

disposition) 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 VWAP on either the
Trading Day immediately prior to the date agreements for such issuance are
entered into or the date such issuance is consummated, whichever results in a
higher VWAP, but more than the then effective Conversion Price (which is
addressed in 5(b)(i) above) (such lower price, the “Market Base Conversion
Price” and such issuances collectively, a “Market 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 Market Dilutive Issuance) then the Conversion Price shall be
reduced to a price determined by multiplying the then effective Conversion
Price by a fraction, the numerator of which is the number of shares of Common
Stock issued and outstanding immediately prior to the Market Dilutive Issuance
plus the number of shares of Common Stock which the aggregate offering price
for such Market Dilutive Issuance would purchase at the then Market Base
Conversion Price, and the denominator of which shall be the sum of the number
of shares of Common Stock issued and outstanding immediately prior to the
Market Dilutive Issuance plus the number of shares of Common Stock so issued or
issuable in connection with the Market Dilutive Issuance

iii.                                    Such
adjustments under this Section 5(b) 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),
immediately after the occurrence of any Dilutive Issuance or Market Dilutive
Issuance, after the date of such Dilutive Issuance or Market Dilutive Issuance
the Holder is entitled to receive a number of Conversion Shares based upon the
Base Conversion Price or the price determined pursuant to 5(b)(ii), as
applicable, regardless of whether the Holder accurately refers to the Base
Conversion Price or the price determined pursuant to 5(b)(ii) in the Notice of
Conversion.

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 

 15
 

 

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 the foregoing provisions, any successor to the Company
or surviving entity in such Fundamental Transaction shall issue to the Holder a
new debenture consistent with the foregoing provisions and evidencing the
Holder’s right to convert such debenture into Alternate Consideration. The
terms of any agreement pursuant to which a Fundamental Transaction is effected
shall include terms requiring any such successor or surviving entity to comply
with the provisions of this paragraph (d) 

 16
 

 

and insuring that
this Debenture (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction.

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.

f)                                        Notice
to the Holder.

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

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
20 calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of the Common
Stock of record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of which it is expected
that holders of the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other property deliverable
upon such

 17
 

 

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 20-day period commencing the date of such
notice to the effective date of the event triggering such notice.

Section 6.                                            Redemption
and Forced Conversion.

a)                                      Optional Redemption at Election of
Company.  Subject to the provisions of this Section 6,
at any time after the later of (i) the 12-month anniversary of the Original
Issue Date and (ii) the Effective Date, the Company may deliver a notice to the
Holder (an “Optional Redemption Notice” and the date such notice is
deemed delivered hereunder, the “Optional Redemption Notice Date”) of
its irrevocable election to redeem the then outstanding Debentures, in whole or
in part, for an amount, in cash, equal to the Optional Redemption Amount on the
10th Trading Day following the Optional Redemption
Notice Date (such date, the “Optional Redemption Date” and such
redemption, the “Optional Redemption”). 
The Optional Redemption Amount is due in full on the Optional Redemption
Date.  The Company may only effect an
Optional Redemption if during the period commencing on the Optional Redemption
Notice Date through to the Optional Redemption Date and through and including
the date such shares of Common Stock are issued to the Holder, each of the Equity
Conditions shall have been met.  If any
of the Equity Conditions shall cease to be satisfied at any time during the
required period, then the Holder may elect to nullify the Optional Redemption
Notice by notice to the Company within 3 Trading Days after the first day on
which any such Equity Condition has not been met (provided that if, by a
provision of the Transaction Documents, the Company is obligated to notify the
Holder of the non-existence of an Equity Condition, such notice period shall be
extended to the third Trading Day after proper notice from the Company) in
which case the Optional Redemption Notice shall be null and void, ab  initio.  The Company covenants and agrees that it will
honor all Notices of Conversion tendered from the time of delivery of the
Optional Redemption Notice through the date the Optional Redemption Amount is
paid in full.

b)                                     Redemption
Procedure.  The payment of cash pursuant to an Optional
Redemption shall be made on the Optional Redemption Date.  If any portion of the cash payment for an
Optional Redemption shall not be paid by the Company by the respective due
date, interest shall accrue thereon at the rate of 18% per annum (or the
maximum rate permitted by applicable law, whichever is less) until the payment
of the Optional Redemption Amount is paid in full.  Alternatively, if any portion of the Optional
Redemption Amount remains unpaid more than five Trading Days after such date,
the Holders subject to such redemption may elect, by written notice to the
Company given at any time thereafter, to invalidate ab  initio
such redemption, notwithstanding anything herein contained to the contrary, and
the Company shall have no further right to exercise an Optional Redemption with
respect to this Debenture. 
Notwithstanding anything to the contrary in this Section 6, the Company’s
determination to redeem in cash or its elections under Section 6(b) shall be
applied among the Holders of Debentures ratably. The Holder

 18
 

 

may elect to
convert the outstanding principal amount of the Debenture pursuant to Section 4
prior to actual payment in cash for any redemption under this Section 6 by fax
delivery of a Notice of Conversion to the Company.

c)                                      Forced Conversion. Notwithstanding anything herein to the
contrary, if after the Effective Date, each of the VWAPs for any 20 consecutive
Trading Days (such period commencing only after the Effective Date, such period
the “Threshold Period”)) exceeds 200% of the then effective Conversion
Price, the Company may, within 1 Trading Day of the end of any such period,
deliver a notice to the Holder (a “Forced Conversion Notice” and the
date such notice is received by the Holder, the “Forced Conversion Notice
Date”) to cause the Holder to convert, at the Company’s sole discretion,
all or part of the then outstanding principal amount of Debentures pursuant to
Section 4, it being understood that the “Conversion Date” for purposes of
Section 4 shall be deemed to occur on the thirtieth Trading Day following the
Forced Conversion Notice Date (such thirtieth Trading Day being referred to as
the “Forced Conversion Date”). 
The Company may not deliver a Forced Conversion Notice, and any Forced
Conversion Notice delivered by the Corporation shall not be effective, unless
all of the Equity Conditions are met on each Trading Day occurring during the
10 Trading Days immediately prior to the applicable Threshold Period, during
the applicable Threshold Period and from the end of the Threshold Period
through and including the later of the Forced Conversion Date and the date such
Conversion Shares pursuant to such conversion are delivered to the Holder.  Any Forced Conversion shall be applied
ratably to all Holders based on their initial purchases of Debentures pursuant
to the Purchase Agreement.  For purposes
of clarification, a Forced Conversion shall be subject to all of the provisions
of Section 4, including, without limitation, the provision requiring payment of
liquidated damages and limitations on conversions.

Section 7.                                            Negative
Covenants. 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 without the prior written consent of the holders of at least 51% of
the principal amount of Debentures then outstanding:

a)                                      other
than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
suffer to exist any indebtedness for borrowed money of any kind, including but
not limited to, a guarantee, on or with respect to any of its property or
assets now owned or hereafter acquired or any interest therein or any income or
profits therefrom;

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

c)                                      amend
its certificate of incorporation, bylaws or other charter documents so as to
materially and 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 Common Stock or Common Stock Equivalents 

 19
 

 

other than (i) as
to the Conversion Shares to the extent permitted or required under the
Transaction Documents, (ii) as otherwise permitted by the Transaction Documents
or (iii) shares of Common Stock held by former employees of the Company which
the Company is entitled to repurchased from such employees pursuant to the
contractual rights relating to their termination of employment but not to
exceed $50,000 in any 12 month period; 

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

f)                                        pay
cash dividends or distributions on any equity securities of the Company, except
for any cash dividends paid on the Company’s Series A Convertible Preferred
Stock.

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 is not cured within 3 Trading Days
after written notice from the Holder;

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

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, 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 shall be untrue or incorrect in any material
respect as of the date when made or deemed made;

 20

 

v.             (i) the Company or any of its
Subsidiaries shall commence a case, as debtor, 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 a case against the Company or any Subsidiary
thereof, in a court of competent jurisdiction, under any applicable bankruptcy
or insolvency laws, as now or hereafter in effect or any successor thereto
which remains undismissed for a period of 60 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
60 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 in writing 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 (other than under any of the Transaction Documents)
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 $100,000, 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, and all applicable cure periods with respect
thereto shall have expired;

vii.           the Common Stock shall not be
eligible for quotation on or quoted for trading on a Trading Market for at
least five consecutive Trading Days (other than as a result of events that
affect the Trading Market in general);

viii.          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 33% of its assets in one or more transactions
(whether or not such sale 

 21
 

 

would constitute a Change
of Control Transaction), unless such sale or disposition is conditioned upon
the waiver of this provision by the holders of 66% of the outstanding principal
amount of the Debentures, 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 that such repurchases shall not exceed
$200,000, in the aggregate, for all officers, directors and employees during
any 12 month period);

ix.

x.

xi.            or

xii.           any monetary judgment, writ or
similar final process shall be entered or filed against the Company, any
Subsidiary or any of their respective property or other assets for than
$100,000, and shall remain unvacated, unbonded or unstayed for a period of 45
calendar days.

b)            Remedies Upon Event of Default.
If any Event of Default occurs, the 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 Default
Amount.  Commencing 5 days after the occurrence
of any Event of Default that results in the eventual acceleration of this
Debenture, the interest rate on this Debenture shall accrue at the rate of 18%
per annum, or such lower maximum amount of interest permitted to be charged
under applicable law.  Concurrently with
the payment in full of the Mandatory Default Amount the Holder shall surrender
this Debenture 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 election 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.

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

 22
 

 

set forth above,
facsimile number (212) 297-1888, Attn: CFO or
such other address or facsimile number as the Company may specify for such
purposes by notice to the Holder 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 

 23
 

 

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.

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.

 24
 

 

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

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

i)              Assumption.  Any
successor to the Company or surviving entity in a Fundamental Transaction shall
(i) assume in writing all of the obligations of the Company under this
Debenture and the other Transaction Documents pursuant to written agreements in
form and substance satisfactory to the Holder (such approval not to be
unreasonably withheld or delayed) 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 this Debenture, and
satisfactory to the Holder (any such approval not to be unreasonably withheld
or delayed).  The provisions of this Section 9(i) shall apply similarly
and equally to successive Fundamental Transactions and shall be applied without
regard to any limitations of this Debenture.

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

 25
 

 

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.

	
   

  	
  XENOMICS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Frederick
  Larcombe 

  
	
   

  	
   

  	
  Title:Chief
  Financial Officer

  

 

 26
 

 

ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal
under the 6% Convertible Debenture of Xenomics, Inc., a Florida corporation
(the “Company”), due on November       , 2008 into shares of common stock,
par value $.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
Debenture to be Converted:

Payment
of Interest in Common Stock o
yes  o
no

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

Number of shares of
Common Stock to be issued:

Signature:

Name:

Address:

 27
 

 

Schedule 1

CONVERSION SCHEDULE

The 6% Convertible Debentures due on
November       , 2008 in the aggregate principal
amount of $                
issued by Xenomics, Inc.  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

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 28Exhibit 4.2

EXHIBIT D

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH
THIS SECURITY IS EXERCISABLE 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 EXERCISE OF THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.

COMMON STOCK PURCHASE WARRANT

To Purchase                        
Shares of Common Stock of

XENOMICS,
INC.

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”)
certifies that, for value received,                             
(the “Holder”), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time
on or after the date hereof (the “Initial Exercise Date”) and on or
prior to the close of business on November       ,
2012 (the “Termination Date”) but not thereafter, to subscribe for and
purchase from Xenomics, Inc., a Florida corporation (the “Company”), up
to                
shares (the “Warrant Shares”) of Common Stock, par value $.0001 per
share, of the Company (the “Common Stock”).  The purchase price of one share of Common
Stock under this Warrant shall be equal to the Exercise Price, as defined in
Section 2(b).

Section 1.                                            Definitions.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth
in that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated November        , 2006, among the
Company and the purchasers signatory thereto.

Section
2.                                            Exercise.

a)                                      Exercise
of Warrant.  Exercise of the purchase
rights represented by this Warrant may be made, in whole or in part, at any
time or times on or after the Initial Exercise Date and on or before the
Termination Date by delivery to the Company of a 

 1
 

 

duly executed facsimile copy of the Notice of Exercise Form annexed hereto
(or such other office or agency of the Company as it may designate by notice in
writing to the registered Holder at the address of such Holder appearing on the
books of the Company); provided, however, within 5 Trading Days
of the date said Notice of Exercise is delivered to the Company, if this
Warrant is exercised in full, the Holder shall have surrendered this Warrant to
the Company and the Company shall have received payment of the aggregate
Exercise Price of the shares thereby purchased by wire transfer or cashier’s
check drawn on a United States bank. 
Notwithstanding anything herein to the contrary, the Holder shall not be
required to physically surrender this Warrant to the Company until the Holder
has purchased all of the Warrant Shares available hereunder and the Warrant has
been exercised in full.  Partial
exercises of this Warrant resulting in purchases of a portion of the total
number of Warrant Shares available hereunder shall have the effect of lowering
the outstanding number of Warrant Shares purchasable hereunder in an amount
equal to the applicable number of Warrant Shares purchased.  The Holder and the Company shall maintain
records showing the number of Warrant Shares purchased and the date of such
purchases.  The Company shall deliver any
objection to any Notice of Exercise Form within 1 Business Day 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 Warrant, acknowledge and agree that, by reason of the provisions
of this paragraph, following the purchase of a portion of the Warrant Shares
hereunder, the number of Warrant Shares available for purchase hereunder at any
given time may be less than the amount stated on the face hereof.

b)                                     Exercise Price.  The exercise price of the Common Stock under
this Warrant shall be $0.70, subject
to adjustment hereunder (the “Exercise Price”).

c)                                      Cashless
Exercise.  If at any time after one
year from the date of issuance of this Warrant there is no effective
Registration Statement registering, or no current prospectus available for, the
resale of the Warrant Shares by the Holder, then this Warrant may also be
exercised at such time by means of a “cashless exercise” in which the Holder
shall be entitled to receive a certificate for the number of Warrant Shares
equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the VWAP on the Trading Day immediately
preceding the date of such election;

(B) =  the
Exercise Price of this Warrant, as adjusted; and

(X) = the number of Warrant Shares issuable upon
exercise of this Warrant in accordance with the terms of this Warrant by means
of a cash exercise rather than a cashless exercise.

Notwithstanding anything herein to the contrary, on
the Termination Date, this Warrant shall be automatically exercised via
cashless exercise pursuant to this Section 2(c).

 2
 

 

d)                                     Exercise
Limitations.  The Company shall not
effect any exercise of this Warrant, and a Holder shall not have the right to
exercise any portion of this Warrant, pursuant to Section 2(c) or otherwise, to
the extent that after giving effect to such issuance after exercise, such
Holder (together with such Holder’s affiliates, and any other person or entity
acting as a group together with such Holder or any of such Holder’s
affiliates), as set forth on the applicable Notice of Exercise, would
beneficially own in excess of the Beneficial Ownership Limitation (as defined
below).  For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by such Holder and its affiliates shall include
the number of shares of Common Stock issuable upon exercise of this Warrant
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) exercise of the remaining, nonexercised portion of this Warrant
beneficially owned by such 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 Warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by such Holder or any of its
affiliates.  Except as set forth in the preceding sentence, for purposes
of this Section 2(d), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder, it being acknowledged by a Holder that the Company is
not representing to such Holder that such calculation is in compliance with
Section 13(d) of the Exchange Act and such Holder is solely responsible for any
schedules required to be filed in accordance therewith.   To the extent that the limitation contained
in this Section 2(d) applies, the determination of whether this Warrant is
exercisable (in relation to other securities owned by such Holder) and of which
a portion of this Warrant is exercisable shall be in the sole discretion of a
Holder, and the submission of a Notice of Exercise shall be deemed to be each
Holder’s determination of whether this Warrant is exercisable (in relation to
other securities owned by such Holder) and of which portion of this Warrant is
exercisable, in each case subject to such aggregate percentage limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such
determination.   In addition, a
determination as to any group status as contemplated above shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder.  For
purposes of this Section 2(d), in determining the number of outstanding shares
of Common Stock, a Holder may rely on the number of outstanding shares of
Common Stock as reflected in (x) the Company’s most recent Form 10-QSB or Form
10-KSB, as the case may be, (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 a Holder, the Company shall within two Trading Days
confirm orally and in writing to such Holder the number of shares of Common
Stock then outstanding.  In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Warrant, by such Holder
or its affiliates since the date as of which such number of outstanding shares
of Common Stock was reported.  The “Beneficial
Ownership Limitation” shall be 4.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to the issuance of shares of
Common Stock issuable upon 

 3
 

 

exercise of this Warrant.  The
Beneficial Ownership Limitation provisions of this Section 2(d) may be waived
by such Holder, at the election of such Holder, upon not less than 61 days’
prior notice to the Company to change the Beneficial Ownership Limitation to
9.99% of the number of shares of the Common Stock outstanding immediately after
giving effect to the issuance of shares of Common Stock upon exercise of this
Warrant, and the provisions of this Section 2(d) shall continue to apply.  Upon such a change by a Holder of the
Beneficial Ownership Limitation from such 4.99% limitation to such 9.99%
limitation, the Beneficial Ownership Limitation may not be waived by such
Holder.  The provisions of this paragraph
shall be implemented in a manner otherwise than in strict conformity with the
terms of this Section 2(d) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Beneficial Ownership
Limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such limitation. The limitations contained
in this paragraph shall apply to a successor holder of this Warrant.

e)                                      Mechanics
of Exercise.

i.                  Authorization
of Warrant Shares.  The Company
covenants that all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges in respect of
the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).

ii.               Delivery
of Certificates Upon Exercise. 
Certificates for shares purchased hereunder shall be transmitted by the
transfer agent of the Company to the Holder by crediting the account of the
Holder’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission (“DWAC”) system if the Company is a
participant in such system, and otherwise by physical delivery to the address
specified by the Holder in the Notice of Exercise within 3 Trading Days from
the delivery to the Company of the Notice of Exercise Form, surrender of this
Warrant (if required) and payment of the aggregate Exercise Price as set forth
above (“Warrant Share Delivery Date”). 
This Warrant shall be deemed to have been exercised on the date the
Exercise Price is received by the Company. 
The Warrant Shares shall be deemed to have been issued, and Holder or
any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Warrant has been exercised by payment to the Company of the Exercise Price and
all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vii)
prior to the issuance of such shares, have been paid.

iii.            Delivery
of New Warrants Upon Exercise.  If
this Warrant shall have been exercised in part, the Company shall, at the
request of a Holder and upon surrender of this Warrant certificate, at the time
of 

 4
 

 

delivery of the certificate or certificates representing Warrant
Shares, deliver to Holder a new Warrant evidencing the rights of Holder to
purchase the unpurchased Warrant Shares called for by this Warrant, which new
Warrant shall in all other respects be identical with this Warrant.

iv.           Rescission
Rights.  If the Company fails to
cause its transfer agent to transmit to the Holder a certificate or
certificates representing the Warrant Shares pursuant to this Section 2(e)(iv)
by the Warrant Share Delivery Date, then the Holder will have the right to
rescind such exercise.

v.              Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Exercise.  In addition to any other rights available to
the Holder, if the Company fails to cause its transfer agent to transmit to the
Holder a certificate or certificates representing the Warrant Shares pursuant
to an exercise on or before the Warrant Share Delivery Date, and if after such
date the Holder is required by its broker to purchase (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of
a sale by the Holder of the Warrant Shares which the Holder anticipated
receiving upon such exercise (a “Buy-In”), then the Company shall (1)
pay in cash to the Holder the amount by which (x) the Holder’s total purchase
price (including brokerage commissions, if any) for the shares of Common Stock
so purchased exceeds (y) the amount obtained by multiplying (A) the number of
Warrant Shares that the Company was required to deliver to the Holder in
connection with the exercise at issue times (B) the price at which the sell
order giving rise to such purchase obligation was executed, and (2) at the
option of the Holder, either reinstate the portion of the Warrant and
equivalent number of Warrant Shares for which such exercise was not honored or
deliver to the Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its exercise and delivery
obligations hereunder.  For example, if
the Holder purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted exercise of shares of Common Stock
with an aggregate sale price giving rise to such purchase obligation of
$10,000, under clause (1) of the immediately preceding sentence the 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, together with applicable confirmations and other evidence
reasonably requested by the Company. 
Nothing herein shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the
Company’s failure to timely deliver certificates representing shares of Common
Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 5
 

 

vi.           No
Fractional Shares or Scrip.  No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant.  As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Exercise Price.

vii.        Charges,
Taxes and Expenses.  Issuance of
certificates for Warrant Shares shall be made without charge to the Holder for
any issue or transfer tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses shall be paid by
the Company, and such certificates shall be issued in the name of the Holder or
in such name or names as may be directed by the Holder; provided, however,
that in the event certificates for Warrant Shares are to be issued in a name
other than the name of the Holder, this Warrant when surrendered for exercise
shall be accompanied by the Assignment Form attached hereto duly executed by
the Holder; and the Company may require, as a condition thereto, the payment of
a sum sufficient to reimburse it for any transfer tax incidental thereto.

viii.     Closing
of Books.  The Company will not close
its stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.

Section
3.                                            Certain Adjustments.

a)                                      Stock
Dividends and Splits. If the Company, at any time while this Warrant is
outstanding: (A) pays a stock dividend or otherwise make 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 Warrant), (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 in each case the Exercise 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 and the number of shares
issuable upon exercise of this Warrant shall be proportionately adjusted.  Any adjustment made pursuant to this Section
3(a) 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.

 6
 

 

b)                                     Subsequent
Equity Sales.

i.                                          If
the Company or any Subsidiary thereof, as applicable, at any time while this
Warrant is outstanding, shall offer, sell, grant any option to purchase or
offer, sell or grant any right to reprice its securities, or otherwise dispose
of or issue (or announce any offer, sale, grant or any option to purchase or
other disposition) any Common Stock or Common Stock Equivalents entitling any
Person to acquire shares of Common Stock, at an effective price per share less
than the then Exercise Price (such lower price, the “Base Share 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 Exercise Price, such
issuance shall be deemed to have occurred for less than the Exercise Price on
such date of the Dilutive Issuance), then the Exercise Price shall be reduced
and only reduced to equal the Base Share Price and the number of Warrant Shares
issuable hereunder shall be increased such that the aggregate Exercise Price
payable hereunder, after taking into account the decrease in the Exercise
Price, shall be equal to the aggregate Exercise Price prior to such adjustment.

ii.                                       If
the Company or any Subsidiary there, as applicable, at any time while this
Warrant is outstanding, shall offer, sell, grant any option to purchase or
offer, sell or grant any right to reprice its securities, or otherwise dispose
of or issue (or announce any offer, sale, grant or any option to purchase or
other disposition) any Common Stock or Common Stock Equivalents entitling any
Person to acquire shares of Common Stock, at an effective price per share less
than the VWAP on either the Trading Day immediately prior to the date
agreements for such issuance are entered into or the date such issuance is
consummated, whichever results in a higher VWAP, but more than the then
effective Exercise Price (which is addressed in 3(b)(i) above) (such lower
price, the “Market Base Price” and such issuances collectively, a “Market
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 Exercise Price, such issuance shall be deemed to have occurred for
less than the Exercise Price on such date of the Market Dilutive Issuance) then
the Exercise Price shall be reduced to a price determined by multiplying the
then effective Exercise Price by a fraction, the numerator of which is the
number of shares of Common Stock issued and outstanding immediately prior to
the Market Dilutive Issuance plus the number of shares of Common Stock which
the aggregate offering price for such Market Dilutive Issuance would purchase
at the then Market Base Price, and the denominator of which shall be the sum of
the number of shares of Common Stock issued and outstanding immediately prior
to the Market Dilutive Issuance plus the

 7
 

 

number of shares of Common Stock so issued or issuable
in connection with the Market Dilutive Issuance and the number of Warrant
Shares issuable hereunder shall be increased such that the aggregate Exercise
Price payable hereunder, after taking into account the decrease in the Exercise
Price, shall be equal to the aggregate Exercise Price prior to such
adjustment..

iii.                                    Such
adjustments shall be made whenever such Common Stock or Common Stock
Equivalents are issued.  Notwithstanding
the foregoing, no adjustments shall be made, paid or issued under this Section
3(b) in respect of an Exempt Issuance. 
The Company shall notify the Holder in writing, no later than the
Trading 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 3(b),
upon the occurrence of any Dilutive Issuance or Market Dilutive Issuance, as
applicable, after the date of such Dilutive Issuance or Market Dilutive Issuance,
as applicable, the Holder is entitled to receive a number of Warrant Shares
based upon the Base Share Price or the price determined pursuant to 3(b)(ii),
as applicable, regardless of whether the Holder accurately refers to the Base
Share Price or such price determined pursuant to 3(b)(ii) in the Notice of
Exercise.

c)                                      Pro
Rata Distributions.  If the Company,
at any time prior to the Termination Date, shall distribute to all holders of
Common Stock (and not to Holders of the Warrants) evidences of its indebtedness
or assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security other than the Common Stock (which shall
be subject to Section 3(b)), then in each such case the Exercise Price shall be
adjusted by multiplying the Exercise 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 per share 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 Warrant 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 

 8
 

 

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 exercise of this Warrant, the Holder shall have the right to
receive, for each Warrant Share that would have been issuable upon such
exercise immediately prior to the occurrence of such Fundamental Transaction,
at the option of the Holder, (a) upon exercise of this Warrant, the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and any additional consideration
(the “Alternate Consideration”) receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of
assets by a Holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such event or (b) if the Company is
acquired in an all cash transaction, cash equal to the value of this Warrant as
determined in accordance with the Black-Scholes option pricing formula.  For purposes of any such exercise, the
determination of the Exercise 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 Exercise 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 exercise of this Warrant following such
Fundamental Transaction.  To the extent
necessary to effectuate the foregoing provisions, any successor to the Company
or surviving entity in such Fundamental Transaction shall issue to the Holder a
new warrant consistent with the foregoing provisions and evidencing the Holder’s
right to exercise such warrant into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is effected shall include
terms requiring any such successor or surviving entity to comply with the
provisions of this Section 3(d) and insuring that this Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.

e)                                      Calculations.
All calculations under this Section 3 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 3,
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.

f)                                        Voluntary
Adjustment By Company. The Company may at any time during the term of this
Warrant reduce the then current Exercise Price to any amount and for any period
of time deemed appropriate by the Board of Directors of the Company.

g)                                     Notice
to Holders.

i.                  Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to this
Section 3, the Company shall promptly mail to 

 9
 

 

each Holder a notice setting forth the Exercise 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).

ii.               Notice
to Allow Exercise 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 mailed to the Holder at its last
address as it shall appear upon the Warrant Register of the Company, at least
20 calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of the Common
Stock of record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of which it is expected
that holders of the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided that the failure to 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 exercise this Warrant during the 20-day period
commencing on the date of such notice to the effective date of the event
triggering such notice.

Section
4.                                            Transfer of Warrant.

a)                                      Transferability.  Subject to compliance with any applicable
securities laws and the conditions set forth in Sections 5(a) and 4(d) hereof
and to the provisions of 

 10
 

 

Section 4.1 of the Purchase Agreement, this Warrant and all rights
hereunder are transferable, in whole or in part, upon surrender of this Warrant
at the principal office of the Company, together with a written assignment of
this Warrant substantially in the form attached hereto duly executed by the
Holder or its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer. 
Upon such surrender and, if required, such payment, the Company shall
execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denomination or denominations specified in such instrument
of assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be
cancelled.  A Warrant, if properly
assigned, may be exercised by a new holder for the purchase of Warrant Shares
without having a new Warrant issued.

b)                                     New
Warrants. This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as
to any transfer which may be involved in such division or combination, the
Company shall execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such notice.

c)                                      Warrant
Register. The Company shall register this Warrant, upon records to be
maintained by the Company for that purpose (the “Warrant Register”), in
the name of the record Holder hereof from time to time.  The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution to the Holder, and for all other purposes,
absent actual notice to the contrary.

d)                                     Transfer
Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant
shall not be registered pursuant to an effective registration statement under
the Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such transfer (i) that the
Holder or transferee of this Warrant, as the case may be, furnish to the
Company a written opinion of counsel (which opinion shall be in form, substance
and scope customary for opinions of counsel in comparable transactions) to the
effect that such transfer may be made without registration under the Securities
Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be
an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7),
or (a)(8) promulgated under the Securities Act or a qualified institutional
buyer as defined in Rule 144A(a) under the Securities Act.

Section
5.                                            Miscellaneous.

a)                                      Title
to Warrant.  Prior to the Termination
Date and subject to compliance with applicable laws and Section 4 of this
Warrant, this Warrant and all rights hereunder are transferable, in whole or in
part, at the office or agency of the Company by the Holder in person or by duly
authorized attorney, upon surrender of this Warrant together with the

 11

 

Assignment Form annexed hereto properly endorsed.  The transferee shall sign an investment
letter in form and substance reasonably satisfactory to the Company.

b)                                     No
Rights as Shareholder Until Exercise. 
This Warrant does not entitle the Holder to any voting rights or other
rights as a shareholder of the Company prior to the exercise hereof.  Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a cashless exercise),
the Warrant Shares so purchased shall be and be deemed to be issued to such
Holder as the record owner of such shares as of the close of business on the
later of the date of such surrender or payment.

c)                                      Loss,
Theft, Destruction or Mutilation of Warrant. The Company covenants that
upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it (which, in the case of the
Warrant, shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of such Warrant or stock certificate.

d)                                     Saturdays,
Sundays, Holidays, etc.  If the last
or appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or legal holiday.

e)                                      Authorized
Shares.

The Company
covenants that during the period the Warrant is outstanding, it will reserve
from its authorized and unissued Common Stock a sufficient number of shares to
provide for the issuance of the Warrant Shares upon the exercise of any
purchase rights under this Warrant.  The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable
action as may be necessary to assure that such Warrant Shares may be issued as
provided herein without violation of any applicable law or regulation, or of
any requirements of the Trading Market upon which the Common Stock may be
listed.

Except and to the
extent as waived or consented to by the Holder, the Company shall not by any
action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such actions as may be necessary or

 12
 

 

appropriate to
protect the rights of Holder as set forth in this Warrant against
impairment.  Without limiting the
generality of the foregoing, the Company will (a) not increase the par value of
any Warrant Shares above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares upon the exercise of
this Warrant, and (c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.

Before taking any
action which would result in an adjustment in the number of Warrant Shares for
which this Warrant is exercisable or in the Exercise Price, the Company shall
obtain all such authorizations or exemptions thereof, or consents thereto, as
may be necessary from any public regulatory body or bodies having jurisdiction
thereof.

f)                                        Jurisdiction.
All questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.

g)                                     Restrictions.  The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.

h)                                     Nonwaiver
and Expenses.  No course of dealing
or any delay or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right or otherwise prejudice Holder’s rights,
powers or remedies, notwithstanding the fact that all rights hereunder
terminate on the Termination Date.  If
the Company willfully and knowingly fails to comply with any provision of this
Warrant, which results in any material damages to the Holder, the Company shall
pay to Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys’ fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts
due pursuant hereto or in otherwise enforcing any of its rights, powers or
remedies hereunder.

i)                                         Notices.  Any notice, request or other document
required or permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the Purchase
Agreement.

j)                                         Limitation
of Liability.  No provision hereof,
in the absence of any affirmative action by Holder to exercise this Warrant or
purchase Warrant Shares, and no enumeration herein of the rights or privileges
of Holder, shall give rise to any liability of Holder for the purchase price of
any Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.

 13
 

 

k)                                      Remedies.  Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive the defense
in any action for specific performance that a remedy at law would be adequate.

l)                                         Successors
and Assigns.  Subject to applicable
securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended
to be for the benefit of all Holders from time to time of this Warrant and
shall be enforceable by any such Holder or holder of Warrant Shares.

m)                                   Amendment.  This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holders of not less than 90% of the Warrants then outstanding.

n)                                     Severability.  Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.

o)                                     Headings.  The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.

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

 14
 

 

IN WITNESS WHEREOF, the Company has caused this
Warrant to be executed by its officer thereunto duly authorized.

Dated:  November           ,
2006

	
   

  	
  XENOMICS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:  Frederick Larcombe

  
	
   

  	
   

  	
  Title:    Chief Financial Officer

  

 

 15

 

NOTICE OF EXERCISE

TO:                            XENOMICS, INC.

(1)          The
undersigned hereby elects to purchase             
Warrant Shares of the Company pursuant to the terms of the attached Warrant
(only if exercised in full), and tenders herewith payment of the exercise price
in full, together with all applicable transfer taxes, if any.

(2)          Payment
shall take the form of (check applicable box):

o
in lawful money of the United States; or

o
the cancellation of such number of Warrant Shares as is necessary, in
accordance with the formula set forth in subsection 2(c), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)          Please issue a
certificate or certificates representing said Warrant Shares in the name of the
undersigned or in such other name as is specified below:

The
Warrant Shares shall be delivered to the following:

(4)  Accredited
Investor.  The undersigned is an “accredited
investor” as defined in Regulation D or not a “U.S. Person” as defined in
Regulation S, each as promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

	
  Name of Investing Entity:

  	
   

  
	
  Signature
  of Authorized Signatory of Investing Entity:

  	
   

  
	
  Name of
  Authorized Signatory:

  	
   

  
	
  Title of
  Authorized Signatory:

  	
   

  
	
  Date: 

  	
   

  
						

 

 

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information. 

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, the foregoing Warrant and all
rights evidenced thereby are hereby assigned to

                                                                                                 
whose address is

                                                                                                                                 .

                                                                                                                                  

Dated:                           ,
               

	
   

  	
  Holder’s Signature:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Holder’s
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature
  Guaranteed: 

  	
   

  	
   

  
						

 

NOTE:  The signature to this Assignment Form must
correspond with the name as it appears on the face of the Warrant, without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank or trust company.  Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.

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