Document:

EXHIBIT 10.14

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

                     CALLABLE SECURED CONVERTIBLE NOTE

Irvine, California
May 23, 2005                                                       $277,600

     FOR VALUE RECEIVED, CALBATECH, INC., a Nevada corporation
(hereinafter called the "Borrower"), hereby promises to pay to the
order of AJW Qualified Partners, LLC or registered assigns (the
"Holder") the sum of $277,600, on May 23, 2008 (the "Maturity Date"),
and to pay interest on the unpaid principal balance hereof at the
rate of ten percent (10%) (the "Interest Rate") per annum from May
23, 2005 (the "Issue Date") until the same becomes due and payable,
whether at maturity or upon acceleration or by prepayment or
otherwise.  Any amount of principal or interest on this Note which is
not paid when due shall bear interest at the rate of fifteen percent
(15%) per annum from the due date thereof until the same is paid
("Default Interest").  Interest shall commence accruing on the Issue
Date, shall be computed on the basis of a 365-day year and the actual
number of days elapsed and shall be payable quarterly provided that
no interest shall be due and payable for any month in which the
Trading Price (as such term is defined below) is greater than
$.205875 for each Trading Day (as such term is defined below) of the
month. All payments due hereunder (to the extent not converted into
common stock, $.001 par value per share (the "Common Stock") in
accordance with the terms hereof) shall be made in lawful money of
the United States of America provided that interest due and payable
for the first eight (8) months following the Issue Date shall be paid
on the date hereof.  All payments shall be made at such address as
the Holder shall hereafter give to the Borrower by written notice
made in accordance with the provisions of this Note.  Whenever any
amount expressed to be due by the terms of this Note is due on any
day which is not a business day, the same shall instead be due on the
next succeeding day which is a business day and, in the case of any
interest payment date which is not the date on which this Note is
paid in full, the extension of the due date thereof shall not be
taken into account for purposes of determining the amount of interest
due on such date.  As used in this Note, the term "business day"
shall mean any day other than a Saturday, Sunday or a day on which
commercial banks in the city of New York, New York are authorized or
required by law or executive order to remain closed.  Each
capitalized term used herein, and not otherwise defined, shall have
the meaning ascribed thereto in that certain Securities Purchase
Agreement, dated May 23, 2005, pursuant to which this Note was
originally issued (the "Purchase Agreement").

     This Note is free from all taxes, liens, claims and encumbrances
with respect to the issue thereof and shall not be subject to
preemptive rights or other similar rights of shareholders of the
Borrower and will not impose personal liability upon the holder
thereof.  The obligations of the Borrower under this Note shall be
secured by that certain Security Agreement and Intellectual Property
Security Agreement, each dated May 23, 2005 by and between the
Borrower and the Holder.

     The following terms shall apply to this Note:

                        ARTICLE I. CONVERSION RIGHTS

     1.1  Conversion Right.  The Holder shall have the right
from time to time, and at any time on or prior to the earlier of (i)
the Maturity Date and (ii) the date of payment of the Default Amount
(as defined in Article III) pursuant to Section 1.6(a) or Article
III, the Optional Prepayment Amount (as defined in Section 5.1 or any
payments pursuant to Section 1.7, each in respect of the remaining
outstanding principal amount of this Note to convert all or any part
of the outstanding and unpaid principal amount of this Note into
fully paid and non-assessable shares of Common Stock, as such Common
Stock exists on the Issue Date, or any shares of capital stock or
other securities of the Borrower into which such Common Stock shall
hereafter be changed or reclassified at the conversion price  (the
"Conversion Price") determined as provided herein (a "Conversion");
provided, however, that in no event shall the Holder be entitled to
convert any portion of this Note in excess of that portion of this
Note upon conversion of which the sum of (1) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unconverted portion of the Notes
or the unexercised or unconverted portion of any other security of
the Borrower (including, without limitation, the warrants issued by
the Borrower pursuant to the Purchase Agreement) subject to a
limitation on conversion or exercise analogous to the limitations
contained herein) and (2) the number of shares of Common Stock
issuable upon the conversion of the portion of this Note with respect
to which the determination of this proviso is being made, would
result in beneficial ownership by the Holder and its affiliates of
more than 4.99% of the outstanding shares of Common Stock and
provided further that the Holder shall not be entitled to convert any
portion of this Note during any month immediately succeeding a
Determination Date on which the Borrower exercises its prepayment
option pursuant to Section 5.2 of this Note.  For purposes of the
proviso to the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulations 13D-G
thereunder, except as otherwise provided in clause (1) of such
proviso.  The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing the
Conversion Amount (as defined below) by the applicable Conversion
Price then in effect on the date specified in the notice of
conversion, in the form attached hereto as Exhibit A (the "Notice of
Conversion"), delivered to the Borrower by the Holder in accordance
with Section 1.4 below; provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or reasonably
expected to result in, notice) to the Borrower before 6:00 p.m., New
York, New York time on such conversion date (the "Conversion Date").
The term "Conversion Amount" means, with respect to any conversion of
this Note, the sum of (1) the principal amount of this Note to be
converted in such conversion plus (2) accrued and unpaid interest, if
any, on such principal amount at the interest rates provided in this
Note to the Conversion Date plus (3) Default Interest, if any, on the
amounts referred to in the immediately preceding clauses (1) and/or
(2) plus (4) at the Holder's option, any amounts owed to the Holder
pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section
2(c) of that certain Registration Rights Agreement, dated as of May
23, 2005, executed in connection with the initial issuance of this
Note and the other Notes issued on the Issue Date (the "Registration
Rights Agreement").  The term "Determination Date" means the last
business day of each month after the Issue Date.

     1.2  Conversion Price.

        (a)  Calculation of Conversion Price.  The Conversion
Price shall be the lesser of (i) the Variable Conversion Price (as
defined herein) and (ii) the Fixed Conversion Price (as defined
herein) (subject, in each case, to equitable adjustments for stock
splits, stock dividends or rights offerings by the Borrower relating
to the Borrower's securities or the securities of any subsidiary of
the Borrower, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events).  The "Variable
Conversion Price" shall mean the Applicable Percentage (as defined
herein) multiplied by the Market Price (as defined herein).  "Market
Price" means the average of the lowest three (3) Trading Prices (as
defined below) for the Common Stock during the twenty (20) Trading
Day period ending one Trading Day prior to the date the Conversion
Notice is sent by the Holder to the Borrower via facsimile (the
"Conversion Date").  "Trading Price" means, for any security as of
any date, the intraday trading price on the Over-the-Counter Bulletin
Board (the "OTCBB") as reported by a reliable reporting service
("Reporting Service")mutually acceptable to Borrower and Holder and
hereafter designated by Holders of a majority in interest of the
Notes and the Borrower or, if the OTCBB is not the principal trading
market for such security, the intraday trading price of such security
on the principal securities exchange or trading market where such
security is listed or traded or, if no intraday trading price of such
security is available in any of the foregoing manners, the average of
the intraday trading prices of any market makers for such security
that are listed in the "pink sheets" by the National Quotation
Bureau, Inc.  If the Trading Price cannot be calculated for such
security on such date in the manner provided above, the Trading Price
shall be the fair market value as mutually determined by the Borrower
and the holders of a majority in interest of the Notes being
converted for which the calculation of the Trading Price is required
in order to determine the Conversion Price of such Notes.  "Trading
Day" shall mean any day on which the Common Stock is traded for any
period on the OTCBB, or on the principal securities exchange or other
securities market on which the Common Stock is then being traded.
"Applicable Percentage" shall mean 50.0%.  The "Fixed Conversion
Price" shall mean $.14.

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

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

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

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

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

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

     1.4  Method of Conversion.

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

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

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

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

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

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

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

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

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

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

     1.6  Effect of Certain Events.

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

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

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

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

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

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

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

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

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

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

                    ARTICLE II. CERTAIN COVENANTS

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

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

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

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

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

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

                       ARTICLE III. EVENTS OF DEFAULT

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

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

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

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

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

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

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

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

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

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

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

                        ARTICLE IV. MISCELLANEOUS

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

     4.2  Notices.  Any notice herein required or permitted to
be given shall be in writing and may be personally served or
delivered by courier or sent by United States mail and shall be
deemed to have been given upon receipt if personally served (which
shall include telephone line facsimile transmission) or sent by
courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if
sent by mail.  For the purposes hereof, the address of the Holder
shall be as shown on the records of the Borrower; and the address of
the Borrower shall be 15375 Barranca Parkway, Suite I-101, Irvine, CA
92618, facsimile number: (949) 450-9954.  Both the Holder and the
Borrower may change the address for service by service of written
notice to the other as herein provided.

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

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

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

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

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

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

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

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

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

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

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

                         ARTICLE V. CALL OPTION

     5.1  Call Option.  Notwithstanding anything to the contrary
contained in this Article V, so long as (i) no Event of Default or
Trading Market Prepayment Event shall have occurred and be
continuing, (ii) the Borrower has a sufficient number of authorized
shares of Common Stock reserved for issuance upon full conversion of
the Notes, then at any time after the Issue Date, and (iii) the
Common Stock is trading at or below $.15 per share, the Borrower
shall have the right, exercisable on not less than ten (10) Trading
Days prior written notice to the Holders of the Notes (which notice
may not be sent to the Holders of the Notes until the Borrower is
permitted to prepay the Notes pursuant to this Section 5.1), to
prepay all of the outstanding Notes in accordance with this Section
5.1.  Any notice of prepayment hereunder (an "Optional Prepayment")
shall be delivered to the Holders of the Notes at their registered
addresses appearing on the books and records of the Borrower and
shall state (1) that the Borrower is exercising its right to prepay
all of the Notes issued on the Issue Date and (2) the date of
prepayment (the "Optional Prepayment Notice").  On the date fixed for
prepayment (the "Optional Prepayment Date"), the Borrower shall make
payment of the Optional Prepayment Amount (as defined below) to or
upon the order of the Holders as specified by the Holders in writing
to the Borrower at least one (1) business day prior to the Optional
Prepayment Date.  If the Borrower exercises its right to prepay the
Notes, the Borrower shall make payment to the holders of an amount in
cash (the "Optional Prepayment Amount") equal to either (i) 125% (for
prepayments occurring within thirty (30) days of the Issue
Date), (ii) 135% for prepayments occurring between thirty-one (31)
and sixty  (60) days of the Issue Date, or (iii) 150% (for
prepayments occurring after the sixtieth (60th) day following the
Issue Date), multiplied by the sum of (w) the then outstanding
principal amount of this Note plus (x) accrued and unpaid interest on
the unpaid principal amount of this Note to the Optional Prepayment
Date plus (y) Default Interest, if any, on the amounts referred to in
clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant
to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the
Registration Rights Agreement (the then outstanding principal amount
of this Note to the date of payment plus the amounts referred to in
clauses (x), (y) and (z) shall collectively be known as the "Optional
Prepayment Sum"). Notwithstanding notice of an Optional Prepayment,
the Holders shall at all times prior to the Optional Prepayment Date
maintain the right to convert all or any portion of the Notes in
accordance with Article I and any portion of Notes so converted after
receipt of an Optional Prepayment Notice and prior to the Optional
Prepayment Date set forth in such notice and payment of the aggregate
Optional Prepayment Amount shall be deducted from the principal
amount of Notes which are otherwise subject to prepayment pursuant to
such notice.  If the Borrower delivers an Optional Prepayment Notice
and fails to pay the Optional Prepayment Amount due to the Holders of
the Notes within two (2) business days following the Optional
Prepayment Date, the Borrower shall forever forfeit its right to
redeem the Notes pursuant to this Section 5.1.

     5.2  Partial Call Option.  Notwithstanding anything to the
contrary contained in this Article V, in the event that the Average
Daily Price of the Common Stock, as reported by the Reporting
Service, for each day of the month ending on any Determination Date
is below the Initial Market Price, the Borrower may, at its option,
prepay a portion of the outstanding principal amount of the Notes
equal to the principal amount hereof divided by thirty-six (36) plus
one month's interest.  The term "Initial Market Price" means shall
mean the volume weighted average price of the Common Stock for the
five (5) Trading Days immediately preceding the Closing which is $.1647.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

     IN WITNESS WHEREOF, Borrower has caused this Note to be
signed in its name by its duly authorized officer this 23rd day of
May, 2005.

CALBATECH, INC.

By:  _____________________________
     James DeOlden
     Chief Executive Officer

                                     EXHIBIT A
                                NOTICE OF CONVERSION
 (To be Executed by the Registered Holder in order to Convert the Notes)

     The undersigned hereby irrevocably elects to convert
$__________ principal amount of the Note (defined below) into shares
of common stock, par value $.001 per share ("Common Stock"), of
Calbatech, Inc., a Nevada corporation (the "Borrower") according to
the conditions of the convertible Notes of the Borrower dated as of
May 23, 2005 (the "Notes"), as of the date written below.  If
securities are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates.  No fee
will be charged to the Holder for any conversion, except for transfer
taxes, if any.  A copy of each Note is attached hereto (or evidence
of loss, theft or destruction thereof).

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

Name of DTC Prime Broker:
Account Number:

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

Name:
Address:

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

Date of Conversion:___________________________
Applicable Conversion Price:____________________
Number of Shares of Common Stock to be Issued Pursuant to
Conversion of the Notes:______________
Signature:___________________________________
Name:______________________________________
Address:____________________________________

     The Borrower shall issue and deliver shares of Common Stock to an
overnight courier not later than three business days following
receipt of the original Note(s) to be converted, and shall make
payments pursuant to the Notes for the number of business days such
issuance and delivery is late.EXHIBIT 10.15

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

                     CALLABLE SECURED CONVERTIBLE NOTE

Irvine, California
May 23, 2005                                                           $14,400

     FOR VALUE RECEIVED, CALBATECH, INC., a Nevada corporation
(hereinafter called the "Borrower"), hereby promises to pay to the
order of New Millennium Capital Partners II, LLC or registered
assigns (the "Holder") the sum of $14,400, on May 23, 2008 (the
"Maturity Date"), and to pay interest on the unpaid principal balance
hereof at the rate of ten percent (10%) (the "Interest Rate") per
annum from May 23, 2005 (the "Issue Date") until the same becomes due
and payable, whether at maturity or upon acceleration or by
prepayment or otherwise.  Any amount of principal or interest on this
Note which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date thereof until the
same is paid ("Default Interest").  Interest shall commence accruing
on the Issue Date, shall be computed on the basis of a 365-day year
and the actual number of days elapsed and shall be payable quarterly
provided that no interest shall be due and payable for any month in
which the Trading Price (as such term is defined below) is greater
than $.205875 for each Trading Day (as such term is defined below) of
the month. All payments due hereunder (to the extent not converted
into common stock, $.001 par value per share (the "Common Stock") in
accordance with the terms hereof) shall be made in lawful money of
the United States of America provided that interest due and payable
for the first eight (8) months following the Issue Date shall be paid
on the date hereof.  All payments shall be made at such address as
the Holder shall hereafter give to the Borrower by written notice
made in accordance with the provisions of this Note.  Whenever any
amount expressed to be due by the terms of this Note is due on any
day which is not a business day, the same shall instead be due on the
next succeeding day which is a business day and, in the case of any
interest payment date which is not the date on which this Note is
paid in full, the extension of the due date thereof shall not be
taken into account for purposes of determining the amount of interest
due on such date.  As used in this Note, the term "business day"
shall mean any day other than a Saturday, Sunday or a day on which
commercial banks in the city of New York, New York are authorized or
required by law or executive order to remain closed.  Each
capitalized term used herein, and not otherwise defined, shall have
the meaning ascribed thereto in that certain Securities Purchase
Agreement, dated May 23, 2005, pursuant to which this Note was
originally issued (the "Purchase Agreement").

     This Note is free from all taxes, liens, claims and encumbrances
with respect to the issue thereof and shall not be subject to
preemptive rights or other similar rights of shareholders of the
Borrower and will not impose personal liability upon the holder
thereof.  The obligations of the Borrower under this Note shall be
secured by that certain Security Agreement and Intellectual Property
Security Agreement, each dated May 23, 2005 by and between the
Borrower and the Holder.

     The following terms shall apply to this Note:

                        ARTICLE I. CONVERSION RIGHTS

     1.1  Conversion Right.  The Holder shall have the right
from time to time, and at any time on or prior to the earlier of (i)
the Maturity Date and (ii) the date of payment of the Default Amount
(as defined in Article III) pursuant to Section 1.6(a) or Article
III, the Optional Prepayment Amount (as defined in Section 5.1 or any
payments pursuant to Section 1.7, each in respect of the remaining
outstanding principal amount of this Note to convert all or any part
of the outstanding and unpaid principal amount of this Note into
fully paid and non-assessable shares of Common Stock, as such Common
Stock exists on the Issue Date, or any shares of capital stock or
other securities of the Borrower into which such Common Stock shall
hereafter be changed or reclassified at the conversion price  (the
"Conversion Price") determined as provided herein (a "Conversion");
provided, however, that in no event shall the Holder be entitled to
convert any portion of this Note in excess of that portion of this
Note upon conversion of which the sum of (1) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unconverted portion of the Notes
or the unexercised or unconverted portion of any other security of
the Borrower (including, without limitation, the warrants issued by
the Borrower pursuant to the Purchase Agreement) subject to a
limitation on conversion or exercise analogous to the limitations
contained herein) and (2) the number of shares of Common Stock
issuable upon the conversion of the portion of this Note with respect
to which the determination of this proviso is being made, would
result in beneficial ownership by the Holder and its affiliates of
more than 4.99% of the outstanding shares of Common Stock and
provided further that the Holder shall not be entitled to convert any
portion of this Note during any month immediately succeeding a
Determination Date on which the Borrower exercises its prepayment
option pursuant to Section 5.2 of this Note.  For purposes of the
proviso to the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulations 13D-G
thereunder, except as otherwise provided in clause (1) of such
proviso.  The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing the
Conversion Amount (as defined below) by the applicable Conversion
Price then in effect on the date specified in the notice of
conversion, in the form attached hereto as Exhibit A (the "Notice of
Conversion"), delivered to the Borrower by the Holder in accordance
with Section 1.4 below; provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or reasonably
expected to result in, notice) to the Borrower before 6:00 p.m., New
York, New York time on such conversion date (the "Conversion Date").
The term "Conversion Amount" means, with respect to any conversion of
this Note, the sum of (1) the principal amount of this Note to be
converted in such conversion plus (2) accrued and unpaid interest, if
any, on such principal amount at the interest rates provided in this
Note to the Conversion Date plus (3) Default Interest, if any, on the
amounts referred to in the immediately preceding clauses (1) and/or
(2) plus (4) at the Holder's option, any amounts owed to the Holder
pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section
2(c) of that certain Registration Rights Agreement, dated as of May
23, 2005, executed in connection with the initial issuance of this
Note and the other Notes issued on the Issue Date (the "Registration
Rights Agreement").  The term "Determination Date" means the last
business day of each month after the Issue Date.

     1.2  Conversion Price.

        (a)  Calculation of Conversion Price.  The Conversion
Price shall be the lesser of (i) the Variable Conversion Price (as
defined herein) and (ii) the Fixed Conversion Price (as defined
herein) (subject, in each case, to equitable adjustments for stock
splits, stock dividends or rights offerings by the Borrower relating
to the Borrower's securities or the securities of any subsidiary of
the Borrower, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events).  The "Variable
Conversion Price" shall mean the Applicable Percentage (as defined
herein) multiplied by the Market Price (as defined herein).  "Market
Price" means the average of the lowest three (3) Trading Prices (as
defined below) for the Common Stock during the twenty (20) Trading
Day period ending one Trading Day prior to the date the Conversion
Notice is sent by the Holder to the Borrower via facsimile (the
"Conversion Date").  "Trading Price" means, for any security as of
any date, the intraday trading price on the Over-the-Counter Bulletin
Board (the "OTCBB") as reported by a reliable reporting service
("Reporting Service")mutually acceptable to Borrower and Holder and
hereafter designated by Holders of a majority in interest of the
Notes and the Borrower or, if the OTCBB is not the principal trading
market for such security, the intraday trading price of such security
on the principal securities exchange or trading market where such
security is listed or traded or, if no intraday trading price of such
security is available in any of the foregoing manners, the average of
the intraday trading prices of any market makers for such security
that are listed in the "pink sheets" by the National Quotation
Bureau, Inc.  If the Trading Price cannot be calculated for such
security on such date in the manner provided above, the Trading Price
shall be the fair market value as mutually determined by the Borrower
and the holders of a majority in interest of the Notes being
converted for which the calculation of the Trading Price is required
in order to determine the Conversion Price of such Notes.  "Trading
Day" shall mean any day on which the Common Stock is traded for any
period on the OTCBB, or on the principal securities exchange or other
securities market on which the Common Stock is then being traded.
"Applicable Percentage" shall mean 50.0%.  The "Fixed Conversion
Price" shall mean $.14.

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

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

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

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

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

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

     1.4  Method of Conversion.

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

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

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

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

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

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

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

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

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

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

     1.6  Effect of Certain Events.

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

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

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

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

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

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

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

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

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

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

                    ARTICLE II. CERTAIN COVENANTS

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

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

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

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

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

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

                     ARTICLE III. EVENTS OF DEFAULT

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

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

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

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

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

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

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

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

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

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

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

                       ARTICLE IV. MISCELLANEOUS

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

     4.2  Notices.  Any notice herein required or permitted to
be given shall be in writing and may be personally served or
delivered by courier or sent by United States mail and shall be
deemed to have been given upon receipt if personally served (which
shall include telephone line facsimile transmission) or sent by
courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if
sent by mail.  For the purposes hereof, the address of the Holder
shall be as shown on the records of the Borrower; and the address of
the Borrower shall be 15375 Barranca Parkway, Suite I-101, Irvine, CA
92618, facsimile number: (949) 450-9954.  Both the Holder and the
Borrower may change the address for service by service of written
notice to the other as herein provided.

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

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

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

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

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

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

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

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

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

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

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

                         ARTICLE V. CALL OPTION

     5.1  Call Option.  Notwithstanding anything to the contrary
contained in this Article V, so long as (i) no Event of Default or
Trading Market Prepayment Event shall have occurred and be
continuing, (ii) the Borrower has a sufficient number of authorized
shares of Common Stock reserved for issuance upon full conversion of
the Notes, then at any time after the Issue Date, and (iii) the
Common Stock is trading at or below $.15 per share, the Borrower
shall have the right, exercisable on not less than ten (10) Trading
Days prior written notice to the Holders of the Notes (which notice
may not be sent to the Holders of the Notes until the Borrower is
permitted to prepay the Notes pursuant to this Section 5.1), to
prepay all of the outstanding Notes in accordance with this Section
5.1.  Any notice of prepayment hereunder (an "Optional Prepayment")
shall be delivered to the Holders of the Notes at their registered
addresses appearing on the books and records of the Borrower and
shall state (1) that the Borrower is exercising its right to prepay
all of the Notes issued on the Issue Date and (2) the date of
prepayment (the "Optional Prepayment Notice").  On the date fixed for
prepayment (the "Optional Prepayment Date"), the Borrower shall make
payment of the Optional Prepayment Amount (as defined below) to or
upon the order of the Holders as specified by the Holders in writing
to the Borrower at least one (1) business day prior to the Optional
Prepayment Date.  If the Borrower exercises its right to prepay the
Notes, the Borrower shall make payment to the holders of an amount in
cash (the "Optional Prepayment Amount") equal to either (i) 125% (for
prepayments occurring within thirty (30) days of the Issue
Date), (ii) 135% for prepayments occurring between thirty-one (31)
and sixty  (60) days of the Issue Date, or (iii) 150% (for
prepayments occurring after the sixtieth (60th) day following the
Issue Date), multiplied by the sum of (w) the then outstanding
principal amount of this Note plus (x) accrued and unpaid interest on
the unpaid principal amount of this Note to the Optional Prepayment
Date plus (y) Default Interest, if any, on the amounts referred to in
clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant
to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the
Registration Rights Agreement (the then outstanding principal amount
of this Note to the date of payment plus the amounts referred to in
clauses (x), (y) and (z) shall collectively be known as the "Optional
Prepayment Sum"). Notwithstanding notice of an Optional Prepayment,
the Holders shall at all times prior to the Optional Prepayment Date
maintain the right to convert all or any portion of the Notes in
accordance with Article I and any portion of Notes so converted after
receipt of an Optional Prepayment Notice and prior to the Optional
Prepayment Date set forth in such notice and payment of the aggregate
Optional Prepayment Amount shall be deducted from the principal
amount of Notes which are otherwise subject to prepayment pursuant to
such notice.  If the Borrower delivers an Optional Prepayment Notice
and fails to pay the Optional Prepayment Amount due to the Holders of
the Notes within two (2) business days following the Optional
Prepayment Date, the Borrower shall forever forfeit its right to
redeem the Notes pursuant to this Section 5.1.

     5.2  Partial Call Option.  Notwithstanding anything to the
contrary contained in this Article V, in the event that the Average
Daily Price of the Common Stock, as reported by the Reporting
Service, for each day of the month ending on any Determination Date
is below the Initial Market Price, the Borrower may, at its option,
prepay a portion of the outstanding principal amount of the Notes
equal to the principal amount hereof divided by thirty-six (36) plus
one month's interest.  The term "Initial Market Price" means shall
mean the volume weighted average price of the Common Stock for the
five (5) Trading Days immediately preceding the Closing which is $.1647.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

     IN WITNESS WHEREOF, Borrower has caused this Note to be
signed in its name by its duly authorized officer this 23rd day of
May, 2005.

CALBATECH, INC.

By:  _____________________________
     James DeOlden
     Chief Executive Officer

                                  EXHIBIT A
                             NOTICE OF CONVERSION
   (To be Executed by the Registered Holder in order to Convert the Notes)

     The undersigned hereby irrevocably elects to convert
$__________ principal amount of the Note (defined below) into shares
of common stock, par value $.001 per share ("Common Stock"), of
Calbatech, Inc., a Nevada corporation (the "Borrower") according to
the conditions of the convertible Notes of the Borrower dated as of
May 23, 2005 (the "Notes"), as of the date written below.  If
securities are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates.  No fee
will be charged to the Holder for any conversion, except for transfer
taxes, if any.  A copy of each Note is attached hereto (or evidence
of loss, theft or destruction thereof).

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

Name of DTC Prime Broker:
Account Number:

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

Name:
Address:

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

Date of Conversion:___________________________
Applicable Conversion Price:____________________
Number of Shares of Common Stock to be Issued Pursuant to
Conversion of the Notes:______________
Signature:___________________________________
Name:______________________________________
Address:____________________________________

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

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