Document:

Exhibit 10.3

EXHIBIT C

NEITHER THIS SECURITY NOR THE SECURITIES FOR 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

ADVANCED
CELL TECHNOLOGY, INC.

	
  Warrant Shares:    

  	
  Initial Exercise Date: August        ,
  2007

  

 

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.  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       , 2007, 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 

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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 the Holder
appearing on the books of the Company); and, within 3 Trading Days of the date
said Notice of Exercise is delivered to the Company, 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, in which case, the Holder shall surrender this Warrant
to the Company for cancellation within 3 Trading Days of the date the final
Notice of Exercise is delivered to the Company. 
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 per share of the Common
Stock under this Warrant shall be $0.38, subject
to adjustment hereunder (the “Exercise Price”).

c)                                      Cashless
Exercise.  If at any time after the
completion of the then-applicable holding period required by Rule 144, or any
successor provision then in effect, which would allow “tacking” of the holding
period of this Warrant and the Warrant Shares pursuant to the SEC Manual of
Publicly Available Telephone Interpretations or other Commission rule or
guidance, there is no effective Registration Statement registering, or no
current prospectus available for, the resale of the Warrant Shares by the
Holder at a time when such Registration Statement is required to be effective
pursuant to the Registration Rights Agreement, 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

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(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)                                     Holder’s
Restrictions.  The Company shall not
effect any exercise of this Warrant, and a Holder shall not have the right to
exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to
the extent that after giving effect to such issuance after exercise as set
forth on the applicable Notice of Exercise, the Holder (together with the
Holder’s Affiliates, and any other person or entity acting as a group together
with the Holder or any of the Holder’s Affiliates), would beneficially own in
excess of the Beneficial Ownership Limitation (as defined below).  For
purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its Affiliates shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with respect to
which such determination 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 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  Common Stock
Equivalents) 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 2(d), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder, it being acknowledged by the Holder that the Company is
not representing to the Holder that such calculation is in compliance with
Section 13(d) of the Exchange Act and the 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 the Holder together with
any Affiliates) and of which portion of this Warrant is exercisable shall be in
the sole discretion of the Holder, and the submission of a Notice of Exercise
shall be deemed to be the Holder’s determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder together with
any Affiliates) and of which portion of this Warrant is exercisable, in each
case subject the Beneficial Ownership 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 

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

e)                                      Mechanics
of Exercise.

i.                  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 there is an effective Registration Statement
permitting the resale of the Warrant Shares by the Holder, 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 (or by cashless exercise, if permitted) and all
taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vi)
prior to the issuance of such shares, have been paid. If the Company fails for
any reason to deliver to the Holder certificates evidencing the Warrant Shares 

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subject to a Notice of Exercise by the Warrant Share Delivery Date, the
Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty,
for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP
of the Common Stock on the date of the applicable Notice of Exercise), $10 per
Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after
such liquidated damages begin to accrue) for each Trading Day after such
Warrant Share Delivery Date until such certificates are delivered.

ii.               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.

iii.            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)(i)
by the Warrant Share Delivery Date, then the Holder will have the right to
rescind such exercise.

iv.           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) or the Holder’s brokerage firm otherwise purchases, 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 

 5
 

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 and, upon request of the Company, evidence of
the amount of such loss.  Nothing herein
shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.

v.              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 at its election, either pay a cash adjustment
in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole share.

vi.           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.

vii.        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
upon exercise of 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 

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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 such that the aggregate Exercise
Price of this Warrant shall remain unchanged. 
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 sell or grant any option to
purchase, or sell or grant any right to reprice, 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”) (if the holder of
the Common Stock or Common Stock Equivalents so issued shall at any time,
whether by operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to warrants,
options or rights per share which are issued in connection with such issuance,
be entitled to receive shares of Common Stock at an effective price per share
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 3(b),
indicating therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice the “Dilutive
Issuance Notice”).  For purposes of
clarification, whether or not the Company provides a Dilutive Issuance Notice
pursuant to this Section 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)                                      Subsequent
Rights Offerings.  If the Company, at
any time while the Warrant is outstanding, shall issue rights, options or
warrants to all holders of Common Stock (and not to Holders) entitling them to
subscribe for or purchase shares of Common Stock at a price per share less than
the VWAP at the record date mentioned below, then the Exercise Price shall be
multiplied by a fraction, of which the denominator shall be the 

 7
 

number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered (assuming
receipt by the Company in full of all consideration payable upon exercise of
such rights, options or warrants) would purchase at such VWAP.  Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights, options or warrants.

d)                                     Pro
Rata Distributions.  If the Company,
at any time while this Warrant is outstanding, 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.

e)                                      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 compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (each “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,
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 as a result of
such 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. 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 

 8
 

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(e) and insuring that this Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction. Notwithstanding anything to
the contrary, in the event of a Fundamental Transaction that is (1) an all cash
transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the
Securities Exchange Act of 1934, as amended, or (3) a Fundamental Transaction
involving a person or entity not traded on a national securities exchange, the
Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market,
the Company or any successor entity shall pay at the Holder’s option,
exercisable at any time concurrently with or within 30 days after the
consummation of the Fundamental Transaction, an amount of cash equal to the
value of this Warrant as determined in accordance with the Black Scholes Option
Pricing Model obtained from the “OV” function on Bloomberg L.P. using (i) a
price per share of Common Stock equal to the VWAP of the Common Stock for the
Trading Day immediately preceding the date of consummation of the
applicable  Fundamental Transaction, (ii)
a risk-free interest rate corresponding to the U.S. Treasury rate for a period
equal to the remaining term of this Warrant as of the date of consummation of
the applicable Fundamental Transaction and (iii) an expected volatility equal
to the 100 day volatility obtained from the “HVT” function on Bloomberg L.P.
determined as of the Trading Day immediately following the public announcement
of the applicable Fundamental Transaction.

f)                                        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.

g)                                     Notice
to Holder.

i.                  Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any
provision of this Section 3, the Company shall promptly mail to the Holder a
notice setting forth the Exercise Price after such adjustment and setting forth
a brief statement of the facts requiring such adjustment. If the Company enters
into a Variable Rate Transaction (as defined in the Purchase Agreement),
despite the prohibition thereon in 

 9
 

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.

ii.               Notice
to Allow Exercise by Holder. If (A) the Company shall declare a dividend
(or any other distribution in whatever form) on the Common Stock; (B) the
Company shall declare a special nonrecurring cash dividend on or a redemption
of the Common Stock; (C) the Company shall authorize the granting to all
holders of the Common Stock 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 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 Section 4(d) hereof and to the
provisions of Section 4.1 of the Purchase Agreement, this Warrant and all
rights hereunder (including, without limitation, any registration rights) are
transferable, in whole or in part, upon surrender of this Warrant at the
principal office of the Company or its designated agent, together with a written
assignment of this Warrant substantially in the form attached hereto duly 

 10
 

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.
All Warrants issued on transfers or exchanges shall be dated the original Issue
Date and shall be identical with this Warrant except as to the number of
Warrant Shares issuable pursuant thereto.

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, 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 reasonably 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 

 11
 

Company by the Holder in person or by duly authorized attorney, upon
surrender of this Warrant together with the 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 as set
forth in Section 2(e)(i).

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 not be a Business Day, then such action may be
taken or such right may be exercised on the next succeeding Business Day.

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.  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 created by the Company
in respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue).

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 

 12
 

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
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 to
purchase Warrant Shares, and no 

 13
 

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.

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 and not to
assert 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 the Holder or holder of Warrant Shares.

m)                                   Amendment.  This Warrant may be modified or amended or
any provision 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.

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

 14
 

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

	
  

  	
  ADVANCED CELL TECHNOLOGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 15

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):

o
in lawful money of the United States; or

o
[if permitted] 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 DWAC Account Number or by
physical delivery of a certificate to:

(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:

  	
   

  
						

 

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, [         ]
all of or [               ]
shares of 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       , 2007

Original Conversion Price
(subject to adjustment herein): $0.34

$                               

AMORTIZING
SENIOR SECURED CONVERTIBLE DEBENTURE

THIS AMORTIZING DEBENTURE is one of a series of duly authorized and issued Amortizing Senior Secured Convertible Debentures of Advanced Cell Technology, Inc., a Delaware corporation, having a principal place of business at  Alameda, California (the “Company”), designated as its Amortizing Senior Secured 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” and all holders of the
Debentures, collectively the “Holders”), or shall have paid pursuant to
the terms hereunder, the principal sum of $                      
by August           ,
2010, 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 shall 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(e).

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

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

 2
 

“Deferred
Conversion Price” shall mean the redemption of this Debenture pursuant to
Section 6(b)(ii) hereof.

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

 “Deferred Redemption Amount” shall
mean, as to a Deferred Redemption, the applicable Monthly Redemption Amount.

“Deferred
Redemption Date” means (i) for cash, the date the Holder requests the
Deferred Redemption and (ii) for Conversion Shares, the 5th Trading Day following the Deferred Redemption
Notice Date.

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

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

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

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

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

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

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

“Equity
Conditions” shall mean, during the period in question, (i) the Company
shall have duly honored all conversions and redemptions scheduled to occur or
occurring by virtue of one or more Notice of Conversions of the Holder, if any,
(ii) all liquidated damages and other amounts owing to the Holder in respect of
this Debenture shall have been paid; (iii) either (A) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares in question, or issuable
pursuant to the portion of this Debenture in question (and the Company is not
aware of any information that would cause it to believe such use would be
interrupted), or (B) the shares in question, or the shares issuable pursuant to
the portion of this Debenture in question, may be immediately resold pursuant
to Rule 144,  (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 

 3
 

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), (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, (ix) except as required
by the terms of the Transaction Documents, the Holder is not in possession of
any information provided by the Company that constitutes, or may constitute,
material non-public information and (x) in a period of 20 consecutive Trading
Days prior to the applicable date in question, the average daily trading volume
for the Common Stock on the principal Trading Market exceeds 200,000 shares.

“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(e).

“Mandatory
Default Amount”  shall equal the sum
of (i) the greater of: (A) 120% of the principal amount of this Debenture to be
prepaid plus 100% of the accrued and unpaid interest hereon, 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.

 4
 

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

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

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

 “Monthly Redemption Amount” shall mean,
as to a Monthly Redemption, an amount determined by dividing the principal
amount of this Note outstanding on the Original Issue Date by the number of
calendar months from the first Monthly Redemption Date until the Maturity Date,
plus accrued but unpaid interest, liquidated damages and any other amounts then
owing to the Holder in respect of this Debenture.

“Monthly
Redemption Date” means the 1st Trading Day of each month, commencing on the
earlier of (i) September 1, 2008, (ii) the first such date immediately
following the Effective Date of the initial Registration Statement but in no
event prior to February 1, 2008 and (iii) the first such date immediately
following the date that the Conversion Shares may be sold by the Holder
pursuant to Rule 144 (or its successor Rule) without volume or manner
restrictions but in no event prior to February 1, 2008 and ending upon the full
redemption of this Debenture.

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

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

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

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

 5
 

“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; (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; and (d) Liens created under the Security Agreement.

“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)(i)
hereof.

“Purchase
Agreement” means the Securities Purchase Agreement, dated as of August   , 2007, 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.

 6
 

“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.

 7
 

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 $0.34 (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, to the extent that
after giving effect to the conversion set forth on the applicable Notice of
Conversion, the Holder (together with the Holder’s Affiliates, and any other
person or entity acting as a group together with the Holder or any of the
Holder’s Affiliates) would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below).  For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by the Holder
and its Affiliates shall include the number of shares of Common Stock issuable
upon conversion of this Debenture with respect to which such determination is
being made, but shall exclude the number of shares of Common Stock which are
issuable upon (A) conversion of the remaining, unconverted principal amount of
this Debenture beneficially owned by the Holder or any of its Affiliates and
(B) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company  subject
to a limitation on conversion or exercise analogous to the limitation contained
herein (including, without limitation, any other Debentures or the Warrants)
beneficially owned by 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 

 8
 

the limitation
contained in this Section 4(c)(ii) applies, the determination of whether this
Debenture is convertible (in relation to other securities owned by the Holder
together with any Affiliates) and of which principal amount of this Debenture
is convertible shall be in the sole discretion of the Holder, and the
submission of a Notice of Conversion shall be deemed to be the Holder’s
determination of whether this Debenture may be converted (in relation to other
securities owned by the Holder together with any Affiliates) and which
principal amount of this Debenture is convertible, in each case subject to the
Beneficial Ownership Limitation. 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 stated in the most recent of the following: (A) the Company’s most recent
Form 10-QSB or Form 10-KSB, as the case may be; (B) a more recent public
announcement by the Company; or (C) a more recent notice by the Company or the
Company’s transfer agent setting forth the number of shares of Common Stock
outstanding.  Upon the written or oral request of 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 “Beneficial
Ownership Limitation” shall be 4.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon conversion of this Debenture held by the Holder.  The Beneficial Ownership Limitation
provisions of this Section 4(c)(ii) may be waived by the Holder, at the
election of the Holder, upon not less than 61 days’ prior notice to the
Company, to change the Beneficial Ownership Limitation to 9.99% of the number
of shares of the Common Stock outstanding immediately after giving effect to
the issuance of shares of Common Stock upon conversion of this Debenture held
by the Holder and the provisions of this Section 4(c)(ii) shall continue to
apply.  Upon such a change by the Holder
of the Beneficial Ownership Limitation from such 4.99% limitation to such 9.99%
limitation, the Beneficial Ownership Limitation may not be further waived by
the Holder.  The provisions of this
paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 4(c)(ii) to correct this
paragraph (or any portion hereof) which may be defective or inconsistent with
the intended Beneficial Ownership Limitation herein contained or to make
changes or supplements necessary or desirable to properly give effect to such
limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Debenture.

 9
 

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 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 the 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 

 10
 

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 the Holder to the extent it obtains judgment.  In the absence of an injunction precluding
the same, the Company shall issue Conversion Shares or, if applicable, cash,
upon a properly noticed conversion. 
Nothing herein shall limit the 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 the 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 the 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 the 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 

 11
 

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 the 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 the Holder liquidated damages
under Section 4(d)(iv) in respect of the certificates resulting in such Buy-In.

vi.                                   Reservation
of Shares Issuable Upon Conversion. The Company covenants that it will at
all times reserve and keep available out of its authorized and unissued shares
of Common Stock solely for the purpose of issuance upon conversion of this
Debenture, 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.

 12
 

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 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 

 13
 

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

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

e)                          Fundamental
Transaction. If, at any time while this Debenture is outstanding, (A) the
Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its
assets in one 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 

 14
 

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.

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

g)                         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).

 15
 

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 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

 16

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 Notices 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.

i.                                          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
the 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) 80% 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 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, 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 lesser of (1) the then
Conversion Price and (2) the Monthly Conversion Price assuming for such
purposes that the Monthly Conversion Period ends 5 Trading Days prior to the 

 17
 

actual Monthly Redemption
Period  (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.

 

ii.                                       Notwithstanding
anything to the contrary in Section 6(b)(i), the Holder shall have the right to
defer up to 3 Monthly Redemptions (whether in cash or shares) in any 12 month
period until a future date determined at the Holder’s sole discretion (each a “Deferred
Redemption”). In the event the Holder elects to receive a cash Deferred
Redemption, such Deferred Redemption shall be payable pursuant to the
procedures for payment under a Monthly Redemption in Section 6(b)(i) on the
Deferred Redemption Date. In the event the Holder elects to receive a share
Deferred Redemption, the Holder shall provide the Company at least 5 days’
prior written notice (the “Deferred Redemption Notice” and such date,
the “Deferred Redemption Notice Date”) of its election to receive
payment of such Deferred Redemption (such shares, the “Deferred Redemption
Share Amount”) which shall be based on a conversion price equal to 80% of
the average of the 10 Closing Prices immediately prior to the Deferred
Redemption Notice Date (subject to adjustment for any stock dividend, stock
split, stock combination or other similar event affecting the Common Stock
during such 10 Trading Day period) (the price calculated during the 10 Trading
Day period immediately prior to the Deferred Redemption Date, the “Deferred
Conversion Price” and such period, the “Deferred Redemption Period”).
The Holder may convert, pursuant to 

 18
 

Section 4(a), any
principal amount of this Debenture subject to a Deferred Redemption at any time
prior to the date that the Deferred 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 a Deferred Redemption Period until
the date the Deferred Redemption Amount is paid in full shall be first applied
to the principal amount subject to the Deferred Redemption Amount payable in
cash and then to the Deferred Redemption Share Amount.  Any principal amount of this Debenture
converted during the applicable Deferred Redemption Period in excess of the
Deferred 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 Deferred Redemption Amount, the Deferred Redemption
Conversion Shares, if any were issued in connection with such Deferred
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.  At any time a Holder delivers a Deferred
Redemption Notice, 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, an Optional Redemption or a Deferred Redemption, shall be made on
the Monthly Redemption Date, the Optional Redemption Date or the Deferred
Redemption Date, as applicable.  If any
portion of the cash payment for a Monthly Redemption, an Optional Redemption or
a Deferred 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, the Optional Redemption Amount or the
Deferred Redemption Amount, as applicable, plus all amounts owing thereon is
paid in full.  Alternatively, if any
portion of the Monthly Redemption Amount, the Optional Redemption Amount or the
Deferred Redemption Amount, as applicable, remains unpaid after such date, the
Holder 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 

 19
 

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 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, unless
the Holders of at least 67% of the principal amount of Debentures then
outstanding give prior written consent, 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;

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 transaction with any Affiliate of the Company which would be required
to be disclosed in any public filing with the Commission, unless such
transaction is made on an arm’s-length basis and expressly approved by a
majority of the 

 20
 

disinterested
directors of the Company (even if less than a quorum otherwise required for
board approval);

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

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

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 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 

 21
 

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 to trigger this Event of Default;

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;

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 

 22
 

(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;

xi.                                     the Company shall fail for any reason to
deliver certificates to the 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;

xii.                                  William Caldwell is terminated as chief
executive officer of the Company; or

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

b)                                     Remedies
Upon Event of Default. If any Event of Default occurs, the 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 

 23
 

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 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 the 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.

 24
 

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

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

e)                                      Amendments
and Waivers.  This Debenture, or any
provisions hereof, may be modified or amended or the provisions hereof waived
with the prior written consent of the Company and the Holder.  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 

 25
 

or deprive that
party of the right thereafter to insist upon strict adherence to that term or
any other term of this Debenture.

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

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.

j)                                         Secured
Obligation.  The obligations of the
Company under this Debenture are secured by all assets of the Company and each
Subsidiary pursuant to the 

 26
 

Security
Agreement, dated as of August     , 2007, between the
Company, [the Subsidiaries of the Company and the Secured Parties (as defined
therein).

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

 27
 

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:

  

 

 28
 

ANNEX A

NOTICE OF CONVERSION

The
undersigned hereby elects to convert principal under the Amortizing Senior Secured 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:

 29
 

Schedule 1

CONVERSION SCHEDULE

The Amortizing Senior Secured 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        ,
2007

	
  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

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 30

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