Document:

Exhibit 10.3

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

ADVANCED CELL TECHNOLOGY, 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 the five year anniversary of the Initial
Exercise Date (the “Termination Date”) but not thereafter, to subscribe
for and purchase from Advanced Cell Technology, Inc., a Delaware corporation
(the “Company”), up to              
shares (the “Warrant Shares”) of Common Stock, par value $0.001 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 August 30, 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 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);

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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 $0.3168,
subject to adjustment hereunder (the “Initial 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).

d)            Exercise
Limitations; Holder’s Restrictions. 
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 

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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
4.99% of the number of shares of the Common Stock outstanding immediately after
giving effect to such issuance.  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)(i), 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 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, and the provisions of this Section 2(d)
shall continue to apply until such 61st day (or such later date, as determined by such
Holder, as may be specified in such notice of waiver).  The
provisions of this paragraph shall be implemented in a manner otherwise than in
strict 

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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 4.99% beneficial ownership limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to such 4.99% limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Warrant. The holders of
Common Stock of the Company shall be third party beneficiaries of this Section
2(d) and the Company may not waive this Section 2(d) without the consent of
holders of a majority of its Common Stock.

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
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.

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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.

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.

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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.

b)            Subsequent Equity
Sales. 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 

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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.  Such adjustment 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,
after the date of such Dilutive Issuance the Holder is entitled to receive a
number of Warrant Shares based upon the Base Share Price regardless of whether
the Holder accurately refers to the Base Share Price 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 or property, or (D) the Company effects any
reclassification of the Common Stock or any 

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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 each Holder a notice setting
forth the Exercise Price after such adjustment 

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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 Section 4.1 of the Purchase Agreement, this Warrant
and all rights hereunder are 

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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 

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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 

 11
 

 

 

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.

 12
 

 

 

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
Holder.

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.

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

 13
 

 

 

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

Dated:  August     , 2006

 

	
  

  	
  ADVANCED
  CELL TECHNOLOGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

 14
 

 

 

NOTICE OF EXERCISE

TO:         ADVANCED CELL
TECHNOLOGY, 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):

[  ] in lawful
money of the United States; or

[ ] 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 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: 

 

 15

 

 

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.Exhibit 10.4

 

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: August       , 2006

Original Conversion Price (subject to adjustment herein): $0.288

$                               

AMORTIZING
CONVERTIBLE DEBENTURE

THIS AMORTIZING DEBENTURE is one of a series of duly authorized and issued Amortizing Convertible Debentures of Advanced Cell Technology, Inc., a Delaware corporation, having a principal place of business at                                                       (the “Company”), designated as its Amortizing Convertible Debenture (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 August        ,
2009, or such earlier date as this Debenture is required or permitted to
be repaid as provided hereunder (the “Maturity Date”).  This Debenture is subject to the following
additional provisions:

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

 1
 

 

“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 33% 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 66% 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 66% of the aggregate voting power of
the acquiring entity immediately after the transaction, (iv) a replacement at
one time or within a three year period of more than one-half of the members of
the Company’s board of directors which is not approved by a majority of those
individuals who are members of the board of directors on the date hereof (or by
those individuals who are serving as members of the board of directors on any
date whose nomination to the board of directors was approved by a majority of
the members of the board of directors who are members on the date hereof), or (v)
the execution by the Company of an agreement to which the Company  is a party or by which it is bound, providing
for any of the events set forth above in (i) or (iv).

“Common Stock”
means the common stock, par value $0.001 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 in accordance with the terms.

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

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

 2
 

 

“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 is not aware of any information that would cause it
to believe such use would be interrupted), (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 is not
aware of any information that would cause it to believe trading would be
interrupted), (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, (vii) the issuance of the shares in question (or,
in the case of a redemption, the shares issuable upon conversion in full of the
redemption amount) to the Holder would not violate the limitation set forth in Section
4(c) and (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.

“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.

“Exempt
Redemptions” means redemption of shares by the Company solely as a result
of a redemption of a de minimus number of shares from employees, officers or
directors of the Company pursuant to termination of employment or resolution of
employment disputes with any such Persons, which issuances are approved by the
Board of Directors.

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

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

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

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

 3
 

 

“Mandatory
Default Amount”  shall equal the sum
of (i) the greater of: (A) 120% of the principal amount of this Debenture to be
prepaid, or (B) the principal amount of this Debenture to be prepaid, 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 Closing 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 greater, and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of this
Debenture.

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

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

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

 “Monthly Redemption Amount” shall mean,
as to a Monthly Redemption, $          (1).

“Monthly
Redemption Date” means the 1st of each month, commencing on February      ,
2007 and ending upon the full redemption of this Debenture.

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

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

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

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

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

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

“Optional
Redemption Amount” shall mean the sum of (i) 100% of the principal amount
of the Debenture then outstanding and (ii) all liquidated damages and other
amounts due in respect of the Debenture.

(1)      1/30th of
the original Principal Amount of this Debenture.

 4
 

 

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

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

“Original Issue
Date” 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” means trade payables, indebtedness consisting of capitalized
lease obligations and purchase money indebtedness incurred in connection with
acquisition of capital assets and obligations under sale-leaseback arrangements
with respect to newly acquired or leased assets; provided, however,
that in each case such obligations are not secured by liens on any assets of
the Company or its Subsidiaries existing as of the date of the Purchase
Agreement and may only be secured by the assets so acquired or leased
thereafter.

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

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

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

“Purchase
Agreement” means the Securities Purchase Agreement, dated as of August 30, 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.

 5
 

 

“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(d).

“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.

Section 2.               Interest and Prepayment.  No regularly scheduled interest payments
shall be made on this Debenture. 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.

 6
 

 

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.  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 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 $0.288 (subject to adjustment herein)(the
“Conversion Price”).

c)             Holder’s Restriction on
Conversion.  The Company shall not
effect any conversion of this Debenture, and the Holder shall not have the
right to convert any portion of this Debenture, pursuant to Section 4(a) or
otherwise, to the extent that after giving effect to such conversion, the
Holder (together with the Holder’s affiliates), as set forth on the applicable
Notice of Conversion, would beneficially own in excess of 4.99% of the number
of shares of the Common Stock outstanding immediately after giving effect to
such conversion.  For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by the Holder and its affiliates
shall include the number of shares of Common Stock issuable upon conversion of
this Debenture with respect to which the determination of such sentence is
being made, but shall exclude the number of shares of Common Stock which would
be issuable upon (A) conversion of the remaining, nonconverted portion of this
Debenture beneficially owned by the Holder or any of its affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other Debentures
or the Warrants) subject to a limitation on conversion or exercise analogous to
the limitation contained herein beneficially owned by the Holder or any of its
affiliates.  Except as set forth in the preceding sentence, for purposes
of this Section 4(c)(ii), 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 applies, the determination of
whether this

 7
 

 

Debenture is
convertible (in relation to other securities owned by the Holder) and of which
a portion of this Debenture is convertible shall be in the sole discretion of
such Holder. To ensure compliance with this restriction, the Holder will be
deemed to represent to the Company each time it delivers a Notice of Conversion
that such Notice of Conversion has not violated the restrictions set forth in
this paragraph and the Company shall have no obligation to verify or confirm
the accuracy of such determination.  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)(ii),
in determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (x)
the Company’s most recent Form 10-Q or Form 10-K, as the case may be, (y) a
more recent public announcement by the Company or (z) any other notice by the
Company or the Company’s Transfer Agent setting forth the number of shares of
Common Stock outstanding.  Upon the written or oral request of the Holder,
the Company shall within two Trading Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding.  In any
case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the Company,
including this Debenture, by the Holder or its affiliates since the date as of
which such number of outstanding shares of Common Stock was reported.  The provisions of this Section 4(c) may be
waived by the Holder, at the election of the Holder, upon not less than 61 days’
prior notice to the Company, and the provisions of this Section 4(c) shall
continue to apply until such 61st day (or such later date, as determined by the
Holder, as may be specified in such notice of waiver).  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 4.99% beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such 4.99% limitation. The limitations
contained in this paragraph shall apply to a successor holder of this
Debenture. The holders of Common Stock of the Company shall be third party
beneficiaries of this Section 4(c) and the Company may not waive this Section
4(c) without the consent of holders of a majority of its Common Stock.

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 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

 8
 

 

shares of Common
Stock being acquired upon the conversion of this Debenture. The Company shall,
if available and if allowed under applicable securities laws, use its best
efforts to deliver any certificate or certificates required to be delivered by
the Company under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions.

iii.            Failure to Deliver Certificates.  If in the case of any Notice of Conversion
such certificate or certificates are not delivered to or as directed by the
applicable Holder by the third 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 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

 9
 

 

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 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 notice indicating the amounts payable to the
Holder in respect of the Buy-In. 
Notwithstanding anything contained herein to the contrary, if a Holder
requires the Company to make payment in respect of a Buy-In for the failure to
timely deliver certificates hereunder and the Company timely pays in full such
payment, the Company shall not be required to pay such Holder liquidated
damages under Section 4(d)(iv) in respect of the certificates resulting in such
Buy-In.

 10
 

 

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, 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.  The Company covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and, if the Registration
Statement is then effective under the Securities Act, registered for public
sale in accordance with such Registration Statement.

vii.           Fractional Shares. Upon a
conversion hereunder the Company shall not be required to issue stock
certificates representing fractions of shares of the Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share based on the Closing Price 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 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), (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

 11
 

 

Common Stock any
shares of capital stock of the Company, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. 
Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or re-classification.

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

c)         Pro Rata Distributions. If the
Company, at any time while this Debenture is outstanding, shall distribute to
all holders of Common Stock (and not to the holders of the Debenture) evidences
of its indebtedness or assets (including cash and cash dividends) or rights or
warrants to subscribe for or purchase any security, then in each such case the Conversion
Price shall be adjusted by multiplying such Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to

 12
 

 

receive such
distribution by a fraction of which the denominator shall be the Closing Price
determined as of the record date mentioned above, and of which the numerator
shall be such Closing Price 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) and insuring that this Debenture (or
any such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.

 13
 

 

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 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

 14
 

 

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 the Company may deliver a
notice to the Holder (an “Optional Redemption Notice” and the date such
notice is deemed delivered hereunder, the “Optional Redemption Notice Date”)
of its irrevocable election to redeem some or all of the then outstanding
Debentures, 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 Optional Redemption Amount is paid 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 Notice of Conversions tendered from the time of
delivery of the Optional Redemption Notice through the date all amounts owing
thereon are due and paid in full.

b)            Monthly
Redemption.  On each Monthly
Redemption Date, the Company shall redeem the Monthly Redemption Amount, the
sum of all liquidated damages and any other amounts then owing to such Holder
in respect of this Debenture (the “Monthly Redemption”). The Monthly
Redemption Amount due on each Monthly Redemption Date shall be paid in cash; provided,
however, as to any Monthly Redemption and upon 20 Trading Days’ prior
written irrevocable notice (the “Monthly Redemption Notice” and the 20
Trading Day period immediately following the Monthly Redemption Notice, the “Monthly
Redemption Period”), in lieu of a cash redemption payment the Company may
elect to pay all or part of a Monthly Redemption Amount in Conversion Shares
(such dollar amount to be paid on a Monthly Redemption Date in Conversion
Shares, the “Monthly Redemption Share Amount”) based on a conversion
price equal to the lesser of (i) the then Conversion Price and (ii) 85% of the
average of the 10 Closing Prices immediately prior to the applicable Monthly
Redemption Date (subject to adjustment for any stock dividend, stock split,
stock combination or other similar event affecting the Common Stock during such
10 Trading Day period) (the price calculated during the 10

 15
 

 

Trading
Day period immediately prior to the Monthly Redemption Date, the “Monthly
Conversion Price” and such period, the “Monthly Conversion Period”);
provided, further, that the Company may not pay the Monthly
Redemption Amount in Conversion Shares unless, (y) from the date the Holder
receives the duly delivered Monthly Redemption Notice through and until the
date such Monthly Redemption is paid in full, the Equity Conditions and
Corporate Milestones, unless waived in writing by the Holder, have been
satisfied and (z) as to such Monthly Redemption, prior to such Monthly
Redemption Period (but not more than 5 Trading Days prior to the commencement
of the Monthly Redemption Period), the Company shall have delivered to the
Holder’s account with The Depository Trust Company a number of shares of Common
Stock to be applied against such Monthly Redemption Share Amount equal to the
quotient of (x) the applicable Monthly Redemption Share Amount divided by (y)
the then Conversion Price (the “Pre-Redemption Conversion Shares”).  The Holder may convert, pursuant to Section
4(a), any principal amount of this Debenture subject to a Monthly Redemption at
any time prior to the date that the Monthly Redemption Amount and all amounts
owing thereon are due and paid in full. 
Unless otherwise indicated by the Holder in the applicable Notice of
Conversion, any principal amount of this Debenture converted during the applicable
Monthly Redemption Period until the date the Monthly Redemption Amount is paid in
full shall be first applied to the principal amount subject to the Monthly
Redemption Amount payable in cash and then to the Monthly Redemption Share
Amount.  Any principal amount of this
Debenture converted during the applicable Monthly Redemption Period in excess
of the Monthly Redemption Amount shall be applied against the last principal amount
of this Debenture scheduled to be redeemed hereunder, in reverse time order
from the Maturity Date; provided, however, if any such conversion
is applied to such Monthly Redemption Amount, the Pre-Redemption Conversion
Shares, if any were issued in connection with such Monthly Redemption or were
not already applied to such conversions, shall be first applied against such
conversion.  The Company covenants and
agrees that it will honor all Notice of Conversions tendered up until such
amounts are paid in full.  The Company’s
determination to pay a Monthly Redemption in cash, shares of Common Stock or a
combination thereof shall be applied ratably to all of the holders of the
Debentures based on their (or their predecessor’s) initial purchases of
Debentures pursuant to the Purchase Agreement. 
At any time the Company delivers a notice to the Holder of its election
to pay the Monthly Redemption Amount in shares of Common Stock, the Company
shall file a prospectus supplement pursuant to Rule 424 disclosing such
election.

c)             Redemption
Procedure.  The payment of cash pursuant to the Monthly
Redemption or an Optional Redemption shall be made on the Monthly Redemption
Date or the Optional Redemption Date, as applicable.  If any portion of the cash payment for a Monthly
Redemption or an Optional Redemption, as applicable 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 Monthly Redemption Amount or the Optional
Redemption Amount, as applicable, plus all amounts owing thereon is paid in
full.  Alternatively, if any portion of
the Monthly Redemption Amount or the Optional Redemption Amount, as applicable,

 16
 

 

remains unpaid 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, with respect the failure to honor the Optional Redemption as applicable,
the Company shall have no further right to exercise such Optional
Redemption.  Notwithstanding anything to
the contrary in this Section 6, the Company’s determination to redeem in cash
or its elections under Section 6(b) shall be applied among the Holders of
Debentures ratably. The Holder may elect to convert the outstanding principal
amount of the Debenture pursuant to Section 4 prior to actual payment in cash
for any redemption under this Section 6 by fax delivery of a Notice of
Conversion to the Company.

d)            Forced Conversion. Notwithstanding anything herein to the
contrary, if after the Effective Date, (i) each of the Closing Prices for any 20
consecutive Trading Days (such period commencing only after the Effective Date,
such period the “Threshold Period”)) exceeds the then Conversion Price
by 200% (subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common Stock
that occur after the Original Issue Date) or (ii) the Company consummates a
bona fide firm commitment public underwritten offering of the Common Stock by a
nationally recognized investment bank of its Common Stock for an offering price
that is equal to or exceeds the then Conversion Price by 200%, the Company may,
within 1 Trading Day of the end of any such period or offering, 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 immediately convert all or part of the then outstanding
principal amount of Debentures pursuant to Section 4.  The Company may only effect a Forced
Conversion Notice if all of the Equity Conditions and Corporate Milestones are
met through the applicable Threshold Period (or public offering period) until
the date of the applicable Forced Conversion and through and including the date
such shares of Common Stock are issued 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:

a)             except for 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)            except for 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;

 17
 

 

c)             amend its articles 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 its Common Stock or Common Stock Equivalents other than as to the Conversion
Shares to the extent permitted or required under the Transaction Documents or
as otherwise permitted by the Transaction Documents;

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

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

Section 8.             Events of Default.

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

i.              any default in the payment of (A)
the principal amount of any Debenture, or (B) other fees owing on any Debenture,
or liquidated damages in respect of, any Debenture, as and when the same shall
become due and payable (whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise) which default, solely in the case of defaults under
clause (B) above, is not cured, within 3 Trading Days;

ii.             the Company shall 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) 5 Trading Days after notice of such
default sent by the Holder or by any other Holder and (B)10 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

 18
 

 

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

v.             (i) the Company or any of its
Subsidiaries shall commence 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, 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 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; provided, however, in the event the Company
calls a meeting with the Holders to discuss any of the foregoing, such event
shall not be deemed a “Bankruptcy Event”;

vi.            the Company or any Subsidiary shall
default in any of its obligations under any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or evidenced any
indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement of the Company in an amount exceeding $150,000, 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;

vii.           the Common Stock shall not be
eligible for quotation on or quoted for trading on a Trading Market and shall
not again be eligible for and quoted or listed for trading thereon within five
Trading Days;

 19
 

 

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 would constitute a Change of Control Transaction) or
shall, other than an Exempt Redemption, redeem or repurchase more than a de
minimis number of its outstanding shares of Common Stock or other equity
securities of the Company (other than redemptions of Conversion Shares and
repurchases of shares of Common Stock or other equity securities of departing
officers and directors of the Company; provided such repurchases shall not exceed
$100,000, in the aggregate, for all officers and directors during the term of
this Debenture);

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

x.             if, during the Effectiveness Period
(as defined in the Registration Rights Agreement), the effectiveness of the
Registration Statement lapses for any reason or the Holder shall not be
permitted to resell Registrable Securities (as defined in the Registration
Rights Agreement) under the Registration Statement, in either case, for more
than 30 consecutive Trading Days or 60 non-consecutive Trading Days during any
12 month period; provided, however, that in the event that the
Company is negotiating a merger, consolidation, acquisition or sale of all or
substantially all of its assets or a similar transaction and in the written
opinion of counsel to the Company, the Registration Statement, would be
required to be amended to include information concerning such transactions or
the parties thereto that is not available or may not be publicly disclosed at
the time, the Company shall be permitted an additional 10 consecutive Trading Days
during any 12 month period relating to such an event; or

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

b)            Remedies Upon Event of Default.
If any Event of Default occurs, the full principal amount of this Debenture,
together with 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.  Upon the payment
in full of the Mandatory Default Amount on this entire Debenture the Holder shall
promptly surrender this Debenture to or as directed by the Company.  The Holder need not provide

 20
 

 

and the Company
hereby waives any presentment, demand, protest or other notice of any kind, and
the Holder may immediately and without expiration of any grace period enforce
any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law. 
Such declaration may be rescinded and annulled by Holder at any time
prior to payment hereunder and the Holder shall have all rights as a Debenture
holder until such time, if any, as the full payment under this Section shall
have been received by it.  No such
rescission or annulment shall affect any subsequent Event of Default or impair any
right consequent thereon.

Section 9.             Miscellaneous.

a)             Notices.  Any and all notices or other communications
or deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at the address set forth above, facsimile
number                          , Attn:                                                                                    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, 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

 21
 

 

Debenture so
mutilated, lost, stolen or destroyed but only upon receipt of evidence of such
loss, theft or destruction of such Debenture, and of the ownership hereof, and
indemnity, if requested, all reasonably satisfactory to the Company.

d)            Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced in the state and federal courts sitting
in the City of New York, Borough of Manhattan (the “New York Courts”).  Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York Courts for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or
such New York Courts are improper or inconvenient venue for such
proceeding.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Debenture
and agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by applicable law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Debenture or
the transactions contemplated hereby. If either party shall commence an action or
proceeding to enforce any provisions of this Debenture, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its attorneys fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.

e)             Waiver.  Other than Section 7, 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

 22
 

 

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.

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.

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

 23
 

 

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.

 

 

	
  

  	
  ADVANCED
  CELL TECHNOLOGY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 24
 

 

ANNEX A

NOTICE
OF CONVERSION

The undersigned hereby elects to convert principal under
the Amortizing Convertible
Debenture of Advanced Cell Technology,
Inc., a Delaware corporation
(the “Company”) into
shares of common stock, par value $0.001
per share (the “Common Stock”), of the Company according to the
conditions hereof, as of the date written below.  If shares 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:

Number of shares of
Common Stock to be issued:

Signature:

Name:

Address:

 25
 

 

 

Schedule
1

CONVERSION
SCHEDULE

The Amortizing Convertible Debentures in
the aggregate principal amount of $                  
issued by Advanced Cell Technology,
Inc.  This Conversion Schedule
reflects conversions made under Section 4 of the above referenced Debenture.

Dated: August        ,
2006

	
  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

  	
   

  
	
               

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
               

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
               

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
               

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
               

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 26

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