Document:

Unassociated Document

    
      

       

      Exhibit
4.2

       

      THIS NOTE
AND ANY COMMON STOCK ISSUABLE UPON THE CONVERSION OF THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS (THE “STATE ACTS”), AND MAY NOT BE OFFERED,
SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.

       

      

       

      Z
TRIM HOLDINGS, INC.

       

      8%
CONVERTIBLE SENIOR SECURED NOTE

      DUE
[24 Months from Issuance]

       

      

       

      Date:
_________,
2008                                                                                                                       $_________

      For value
received, Z TRIM HOLDINGS, INC., an Illinois corporation (the “Company”), hereby
promises to pay to the order of [INVESTOR], a __________
(together with its successors and permitted assigns, the “Holder”), in
accordance with the terms hereinafter provided, the principal amount of
_______________ ($___________) (the “Principal
Amount”).  The Company is issuing this convertible senior
secured note (this “Note” and,
collectively with all other notes issued in connection with the Offering
Memorandum, the “Notes”) to the Holder pursuant
to the Subscription Agreement (the “Subscription
Agreement”) executed
and delivered in connection with the Offering Memorandum (the “Private
Offering”).  As used herein, the term “Issuance Date” means
_________, 2008.

       

      The
Company hereby promises to pay to the order of the Holder the Principal Amount
in United States Dollars in immediately available funds to the Holder at the
address of the Holder as set forth in the Security Agreement (as defined below),
or at such other place as the Holder may designate from time to time in writing
to the Company, on [24 months
from issuance] (the “Maturity Date”) or
such earlier date as the Holder elects, with interest to the Holder on the
aggregate unconverted and then outstanding Principal Amount in accordance with
the provisions hereof.  All interest payments under or pursuant to
this Note shall be made in Common Shares (as defined below) pursuant to Section
1.1 hereof.

       

      This Note
is secured by a Security Agreement dated the date hereof (the “Security
Agreement”) among
the Company and Holder in favor of the Holder covering certain collateral (the
“Collateral”), all
as more particularly described and provided therein, and is entitled to the
benefits thereof.  The Security Agreement, the Uniform Commercial Code
financing statements on form UCC-1 filed in connection with the Security
Agreement and any and all other documents executed and delivered by the Company
to the Holder under which the Holder is granted Liens on assets of the Company
are collectively referred to as the “Security
Documents.”

      

      ARTICLE
I THE NOTE

       

      Section
1.1                                Interest.  Interest
on the Principal Amount of this Note shall commence accruing on the Issuance
Date and shall accrue daily at a rate of eight percent (8%) per annum (the
“Interest
Rate”) until payment in full of the Principal Amount and all accrued and
unpaid interest and other amounts which may become due hereunder have been
made.  Interest shall be computed on the basis of a 365-day year and
actual days elapsed.  Accrued interest on the Principal Amount of this
Note (the “Interest
Amount”) shall either be payable to the Holder, on the Maturity Date or
quarterly at the Holder’s option in shares of common stock of the Company, par
value $0.0005 per share (the “Common
Shares”).  The number of Common Shares to be issued to the
Holder shall be equal to the result obtained by dividing (x) the Interest Amount
by (y) the Conversion Price (as defined in Section 3.2(a)
below).  Payment of the Interest Amount in Common Shares shall occur
pursuant to Section 3.3.

       

       

      
        
           

        

        
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      Section
1.2                                Ranking and
Covenants.

       

      (a)           Except
as set forth on Schedule 1 attached
hereto, no indebtedness of the Company or any subsidiary of the Company is
senior to this Note in right of payment, whether with respect to interest,
damages or upon liquidation or dissolution or otherwise.  Until this
Note is fully paid and discharged in full, the Company shall not, and shall not
permit any subsidiary of the Company to, directly or indirectly, incur any
indebtedness for borrowed money (excluding accounts payable incurred in the
ordinary course of business) unless such indebtedness is expressly subordinated
to this Note pursuant to a written subordination agreement acceptable in form,
scope and substance to the Holder in its sole and absolute
discretion.  Notwithstanding the foregoing, the Company may enter into
an additional $__________ offering of 8% convertible senior secured notes (the
“Additional
Offering”) on substantially similar terms and conditions as this Note,
except that such notes shall be convertible for Common Shares at the lower of
$.50 per share or the volume weighted average price of the Common Shares on the
primary trading market on which the Common Shares are listed or quoted, for the
ten (10) trading day period ending on October 1, 2008.  The Notes and
any note issued by the Company pursuant to the Additional Offering shall rank
pari passu with the Company’s obligations under this Note and may be secured
equally and ratably by Liens, on or with respect to any of the Company’s
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom and shall have the benefit, to the full extent
that and with such priority as the obligations under this Note.

       

      (b) Except
for Permitted Liens (as defined in Section 6.14 below) and Liens granted in
connection with the Additional Offering, until this Note is fully paid and
discharged in full, the Company shall not, and shall not permit any subsidiary
of the Company to, directly or indirectly, incur any Lien (as defined in Section
6.14 below) on or with respect to any of the Collateral now owned or hereafter
acquired, or any interest therein or any income or profits therefrom, without
the prior written consent of the Holder.

       

      (c) Until
this Note is fully paid and discharged in full, the Company shall not, and shall
not permit any subsidiary of the Company to, directly or indirectly, without the
prior written consent of the Holder, redeem, purchase or otherwise acquire any
of the Company’s capital stock or set aside any monies for such a redemption,
purchase or other acquisition.

       

      (d) The
Company shall perform any and all acts and execute any and all documents
(including, without limitation, the execution, amendment or supplementation of
any financing statement and continuation statement) for filing under the
provisions of the Uniform Commercial Code (the “UCC”), and the rules
and regulations thereunder, or any other statute, rule or regulation of any
applicable jurisdiction which are necessary at the request of the Holder or its
counsel in order to maintain in favor of the Holder of the Note, a valid and
perfected Lien on and security interest in the Collateral.

       

      Section
1.3                                  Payment on Non-Business
Days. Whenever any payment to be made shall be due on a Saturday, Sunday
or a public holiday under the laws of the State of Illinois, such payment may be
due on the next succeeding business day and such next succeeding day shall be
included in the calculation of the Interest Amount on such date.

       

      Section
1.4                                  Transfers. This Note
may not be sold, transferred or otherwise disposed of by the Holder to any
Person without the express written consent of the Company, which consent shall
not be unreasonably withheld.

       

      Section
1.5                                  Replacement. Upon
receipt of a duly executed and notarized written statement from the Holder with
respect to the loss, theft or destruction of this Note (or any replacement
hereof) and a standard indemnity reasonably satisfactory to the Company, or, in
the case of a mutilation of this Note, upon surrender and cancellation of such
Note, the Company shall issue a new Note, of like tenor and amount, in lieu of
such lost, stolen, destroyed or mutilated Note.  The Holder hereby
unconditionally agrees to indemnify and hold harmless the Company against any
claims, loss, liabilities, damages and expenses that may arise directly or
indirectly on account of the actual or alleged loss, mutilation, theft or
destruction of the original Note or the issuance of a new Note in exchange for
said Note.

      

      
        
           

        

        
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      ARTICLE
II

       

      EVENTS
OF DEFAULT; REMEDIES

       

      Section
2.1                                  Events of Default.
The occurrence of any of the following events shall be an “Event of
Default” under
this Note:

       

      (a) Any
default in the payment of (i) the Principal Amount or (ii) Interest Amount on,
or liquidated damages in respect of, any Note, in each case free of any claim of
subordination, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise) which
default, solely in the case of a default under clause (ii) above, is not cured
within five Trading Days;

       

      (b) the
Company’s notice to the Holder, including by way of public announcement, at any
time, of its inability to comply or its intention not to comply with proper
requests for conversion of this Note into Common Shares; or

       

      (c) the
Company shall fail for any reason to deliver certificates to a Holder prior to
the fifth Trading Day after a Conversion Date pursuant to and in accordance with
Section 3.3 or the Company shall provide notice to the Holder, including by way
of public announcement, at any time, of its intention not to comply with the
requests for conversion of any Notes in accordance with the terms hereof;
or

       

      (d) default
shall be made in the performance or observance of (i) any covenant,
condition or agreement contained in this Note or any of the other Transaction
Documents (other than a breach by the Company of its obligations to deliver
Common Shares to the Holder upon conversion which breach is addressed in clause
(c) above) which failure is not cured within the earlier to occur of (A) five
(5) Trading Days after the Holder delivers written notice to the Company of the
occurrence thereof or (B) ten (10) Trading Days after the Company shall
become or should have become aware of such failure;

       

      (e) a default
or event of default (subject to any grace or cure period provided for in the
applicable agreement, document or instrument) shall occur under (i) any of the
Transaction Documents other than the Notes, or (ii) any other material
agreement, lease, document or instrument to which the Company or any subsidiary
is bound, which default, solely in the case of a default under (ii) above, is
not cured, within 10 Trading Days;

       

      (f) any
representation or warranty made by the Company herein or in the Security
Documents, the Registration Rights Agreement, or any other Transaction Document
or other report, financial statement or certificate made or delivered to the
Holder or other holder of Notes shall prove to have been false or incorrect or
breached in a material respect on the date as of which made; or

       

      (g) the
Company or any subsidiary shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or liquidator
of itself or of all or a substantial part of its property or assets,
(ii) make a general assignment for the benefit of its creditors,
(iii) commence a voluntary case under the United States Bankruptcy Code (as
now or hereafter in effect) or under the comparable laws of any jurisdiction
(foreign or domestic), (iv) file a petition seeking to take advantage of
any bankruptcy, insolvency, moratorium, reorganization or other similar law
affecting the enforcement of creditors’ rights generally, (v) acquiesce in
writing to any petition filed against it in an involuntary case under United
States Bankruptcy Code (as now or hereafter in effect) or under the comparable
laws of any jurisdiction (foreign or domestic), (vi) issue a notice of
bankruptcy or winding down of its operations or issue a press release regarding
same, (vii) fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due, (viii) call a meeting of
its creditors with a view to arranging a composition, adjustment or
restructuring of its debts, (ix) by any act or failure to act expressly indicate
its consent to, approval of or acquiescence in any of the foregoing, or (x) take
any corporate or other action for the purpose of effecting any of the
foregoing;

       

       

      
        
           

        

        
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      (h)           a
proceeding or case shall be commenced in respect of the Company or any
subsidiary, without its application or consent, in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, moratorium,
dissolution, winding up, or composition or readjustment of its debts,
(ii) the appointment of a trustee, receiver, custodian, liquidator or the
like of it or of all or any substantial part of its assets in connection with
its liquidation or dissolution or (iii) similar relief in respect of it
under any law providing for the relief of debtors, and such proceeding or case
described in clause (i), (ii) or (iii) shall continue undismissed, or unstayed
and in effect, for a period of thirty (30) days or any order for relief shall be
entered in an involuntary case under United States Bankruptcy Code (as now or
hereafter in effect) or under the comparable laws of any jurisdiction (foreign
or domestic) against the Company or any subsidiary or action under the laws of
any jurisdiction (foreign or domestic) analogous to any of the foregoing shall
be taken with respect to the Company or any subsidiary and shall continue
undismissed, or unstayed and in effect for a period of thirty (30)
days;

       

      (i)           the
Company or any subsidiary shall default in any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there
may be secured or evidenced any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement of the Company in an amount
exceeding $50,000, whether such indebtedness now exists or shall hereafter be
created and such default shall result in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;

       

      (j)           the
Common Shares shall not be eligible for quotation on or quoted for trading on a
trading market and shall not again be eligible for and quoted or listed for
trading thereon within five Trading Days;

       

      (k)           the
Company shall redeem or repurchase more than a de minimis number of its
outstanding Common Shares or other equity securities of the Company (other than
redemptions of Conversion Shares and repurchases of Common Shares or other
equity securities of departing officers and directors of the Company; provided
that such repurchases shall not exceed $50,000, in the aggregate, for all
officers and directors during the term of this Note;

       

      (l)           the
effectiveness of the applicable Registration Statement required to be maintained
effective pursuant to the terms of the Registration Rights Agreement lapses for
any reason (including, without limitation, the issuance of a stop order) or is
unavailable to the Holder for sale of such Holder’s Registrable Securities (as
defined in the Registration Rights Agreement) in accordance with the terms of
the Registration Rights Agreement, and such lapse or unavailability continues
for a period of five (5) consecutive Trading Days or for more than an aggregate
of ten (10) Trading Days in any 365-day period (other than days during an
Allowed Delay (as defined in the Registration Rights Agreement);

       

      (m)           any
change in the composition, form of business association or ownership of the
Company, without Holder’s prior consent;

       

      (n)           if
the Company ceases conducting its operations as currently in effect as of the
date hereof;

       

      (o)           the
Company shall fail for any reason to pay in full the amount of cash due pursuant
to a Buy-In within five Trading Days after notice therefore is delivered
hereunder or shall fail to pay all amounts owed on account of an Event of
Default within five days of the due date.

       

       

      
        
           

        

        
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      Section
2.2                                           Remedies Upon An Event of
Default. If an Event of Default shall have occurred and shall be
continuing, the Holder of this Note may at any time at its option:

       

      (a) demand
that the principal amount of this Note then outstanding shall be converted into
shares of Common Stock at the Conversion Price (as defined in Section 3.2(a)
below) then in effect; or declare immediately due and payable the full Principal
Amount of this Note, together with the Interest Amount and other amounts owing
in respect thereof, in cash, which aggregate amount payable upon an Event of
Default shall be equal to the Mandatory Repayment amount, defined below; provided, however, that upon
the occurrence of an Event of Default described in paragraphs (g) and (h) of
Section 2.1, the outstanding principal balance and accrued interest hereunder
shall be automatically due and payable.  Commencing five (5) days
after the occurrence of any Event of Default that results in the eventual
acceleration of this Note, the Interest Rate shall accrue at a rate of 18% per
annum, or such lower maximum amount of interest permitted to be charged under
applicable law.  All Notes for which the full Mandatory Repayment
amount hereunder shall have been paid in accordance herewith shall promptly be
surrendered to or as directed by the Company.  The Holder need not
provide and the Company hereby waives any presentment, demand, protest or other
notice of any kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law.   Such
declaration may be rescinded and annulled by Holder at any time prior to payment
hereunder and the Holder shall have all rights as a Note holder until such time,
if any, as the full payment under this Section shall have been received by
it.  No such rescission or annulment shall affect any subsequent Event
of Default or impair any right consequent thereon.

       

      (b)           exercise
or otherwise enforce any one or more of the Holder’s rights, powers, privileges,
remedies and interests under this Note, the Security Agreement, or applicable
law.

       

      In
connection with the Holder’s exercise of any of its remedies hereunder, the
Company shall use its reasonable best efforts to cooperate with the Holder to
the end that the Holder’s rights hereunder will be effectuated.

       

      ARTICLE
III

       

      CONVERSION;
ANTIDILUTION

       

      Section
3.1                                Conversion.  At
any time on or after the Issuance Date, at the request of the Holder (the “Conversion
Election”), this Note shall be convertible, in whole or in part, into
such number of fully paid and non-assessable Common Shares as is determined by
dividing (x) the outstanding Principal Amount and the Interest Amount then
accrued hereon by (y) the Conversion Price (as defined in Section 3.2(a)
hereof) then in effect (the “Conversion Rate”);
provided, however, that
the Conversion Price, defined below, shall be subject to adjustment as described
in Section 3.4 of this Note.  The Holder shall effect a Conversion
Election by delivering to the Company the form of Notice of Conversion attached
hereto as Exhibit
B (a “Notice of
Conversion”), specifying therein the principal amount of Notes to be
converted and the date on which such conversion is to be effected (a “Conversion
Date”).  If no Conversion Date is specified, in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion
is provided hereunder.  To effect Conversion Elections hereunder, the
Holder shall not be required to physically surrender Notes to the company unless
the entire Principal Amount of this Note plus the Interest Amount thereon shall
have been so converted.  Conversions hereunder shall have the effect
of lowering the outstanding Principal Amount in an amount equal to the
applicable conversion.  The Holder and the Company shall maintain
records showing the Principal Amount converted and the date of such
conversions.  The Company shall deliver any objection to any Notice of
Conversion within three (3) Trading Days of receipt of such Notice of
Conversion.  In the event of any dispute or discrepancy, the records
of the Holder shall be controlling and determinative in the absence of manifest
error.  The Holder and any assignee, by acceptance of this 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 may be less than the amount stated on the face
hereof.  However, at the Company’s request, the Holder shall surrender
the Note to the Company within five (5) Trading Days following such request so
that a new Note reflecting the correct Principal Amount may be issued to
Holder.

       

       

      
        
           

        

        
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      Section
3.2Conversion
Price.

       

       

      (a) The term
“Conversion
Price” shall
mean $0.26, subject to adjustment under Section 3.4
hereof.  References herein to the Conversion Price mean the Conversion
Price as from time to time adjusted pursuant to the provisions of Section 3.4
and in effect on the applicable date.

       

      (b) The term
“Conversion
Shares” shall
mean such Common Shares issuable upon conversion of this Note.

       

      Section
3.3                                  Mechanics of
Conversion.  Not later than five (5) Trading Days after each
Conversion Date (the last day of each such period, a “Delivery Date”), the
Company or its designated transfer agent, as applicable, shall issue and deliver
to the Depository Trust Company (“DTC”) account on the
Holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) as specified in the
Conversion Election, registered in the name of the Holder or its designee, for
the number of Common Shares to which the Holder shall be
entitled.  Notwithstanding the foregoing, in the alternative, not
later than the Delivery Date, the Company shall deliver to the applicable Holder
by express courier a certificate or certificates representing the number of
Conversion Shares being acquired upon the conversion of this
Note.  If, in the case of any Conversion Election such DWAC transfer
or certificate or certificates are not delivered to or as directed by the
applicable Holder by the Delivery Date, the Holder shall be entitled by written
notice to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return this Note tendered for conversion, whereupon
the Company and the Holder shall each be restored to their respective positions
immediately prior to the delivery of such Conversion Election.

       

      Section
3.4                                  Adjustment of Conversion
Price.

       

      (a)           The
Conversion Price shall be subject to adjustment from time to time as
follows:

       

      (i) Adjustments for Stock Splits
and Combinations. If the Company shall at any time or from time to time
after the Issuance Date, effect a stock split of the outstanding Common Shares,
the applicable Conversion Price in effect immediately prior to the stock split
shall be proportionately decreased.  If the Company shall at any time
or from time to time after the Issuance Date, combine the outstanding shares of
Common Stock, the applicable Conversion Price in effect immediately prior to the
combination shall be proportionately increased.  Any adjustments under
this Section 3.4(a)(i) shall be effective at the close of business on the date
the stock split or combination occurs.

       

      (ii) Adjustments for Certain
Dividends and Distributions. If the Company shall at any time or from
time to time after the Issuance Date make or issue or set a record date for the
determination of holders of Common Shares entitled to receive a dividend or
other distribution payable in Common Shares, then, and in each event, the
applicable Conversion Price in effect immediately prior to such event shall be
decreased as of the time of such issuance or, in the event such record date
shall have been fixed, as of the close of business on such record date, by
multiplying the applicable Conversion Price then in effect by a
fraction:

       

      (A) the
numerator of which shall be the total number of Common Shares issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date; and

       

      (B) the
denominator of which shall be the total number of Common Shares issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of Common Shares issuable in
payment of such dividend or distribution.

       

      (iii) Adjustments for
Reclassification, Exchange or Substitution. If the Common Shares issuable
upon conversion of this Note at any time or from time to time after the Issuance
Date shall be changed to the same or different number of shares of any class or
classes of stock, whether by reclassification, exchange, substitution or
otherwise (other than by way of a stock split or combination of shares or stock
dividends provided for in clauses (i) and (ii) of Section 3.4(a), or a
reorganization, merger, consolidation, or sale of assets provided for in Section
3.4(a)(iv)), then, and in each event, an appropriate revision to the Conversion
Price shall be made and provisions shall be made (by adjustments of the
Conversion Price or otherwise) so that the Holder shall have the right
thereafter to convert this Note into the kind and amount of shares of stock and
other securities receivable upon reclassification, exchange, substitution or
other change, by holders of the number of Common Shares into which such Note
might have been converted immediately prior to such reclassification, exchange,
substitution or other change, all subject to further adjustment as provided
herein.

       

       

       

      
        
           

        

        
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      (iv) Adjustments for
Reorganization, Merger, Consolidation or Sales of Assets. If at any time
or from time to time after the Issuance Date there shall be a capital
reorganization of the Company (other than by way of a stock split or combination
of shares or stock dividends or distributions provided for in clauses (i) and
(ii) of Section 3.4(a), or a reclassification, exchange or substitution provided
for in Section 3.4(a)(iii)), or a merger or consolidation of the Company with or
into another corporation where the holders of outstanding voting securities of
the Company prior to such merger or consolidation do not own over fifty percent
(50%) of the outstanding voting securities of the merged or consolidated entity,
immediately after such merger or consolidation, or any Asset Sale (an “Organic Change”),
then as a part of such Organic Change, (A) if the surviving entity in any
such Organic Change is a public company that is registered pursuant to the
Securities Exchange Act of 1934, as amended, and its common stock is listed or
quoted on a national exchange or the OTC Bulletin Board, an appropriate revision
to the Conversion Price shall be made and provision shall be made (by
adjustments of the Conversion Price) so that the Holder shall have the right
thereafter to convert such Note into the kind and amount of shares of stock and
other securities or property of the Company or any successor corporation as it
would have received as a result of such Organic Change if it had converted this
Note into Common Shares immediately prior to such Organic Change, and
(B) if the surviving entity in any such Organic Change is not a public
company that is registered pursuant to the Securities Exchange Act of 1934, as
amended, or its common stock is not listed or quoted on a national securities
exchange or the OTC Bulletin Board, the Holder shall have the right to demand
repayment of the then outstanding aggregate Principal Amount at 115% of the
Principal Amount thereof (“Mandatory
Repayment”).  The Company shall give the Holder at least twenty
(20) day’s prior written notice of any Organic Change, during which time the
Holder shall have the right to convert any portion of the Note into Common
Shares.  In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 3.4(a)(iv) with respect to the
rights of the Holder after the Organic Change to the end that the provisions of
this Section 3.4(a)(iv) (including any adjustment in the applicable Conversion
Price then in effect and the number of shares of stock or other securities
deliverable upon conversion of this Note) shall be applied after that event in
as nearly an equivalent manner as may be practicable.

       

      (v) Certain
Issuances.  In the event that the Company sells or issues
Common Shares after the Issuance Date at a price less than the Conversion Price
in effect immediately prior to such sale or issuance, then the Conversion Price
shall be reduced immediately thereafter so that it shall equal the price at
which such Conversion Shares are sold or issued, as applicable.

       

      (vi) Options, Rights, Warrants
and Convertible and Exchangeable Securities.  In case the
Company shall at any time after the Issuance Date issue options, rights or
warrants to subscribe for Common Shares, or issue any securities convertible
into or exchangeable for Common Shares, for a consideration per share less than
the Conversion Price in effect immediately prior to the issuance of such
options, rights, warrants or such convertible or exchangeable securities, or
without consideration, the Conversion Price in effect immediately prior to the
issuance of such options, rights, warrants or such convertible or exchangeable
securities, as the case may be, shall be reduced to the price established for
such options, rights, warrants or convertible or exchangeable securities that
entitle the holders thereof to receive a Common Share.

       

       

      
        
           

        

        
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      (b) Obligation Absolute; Partial
Liquidated Damages.  The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 3.4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the Holder against
impairment.  If the Company fails for any reason to deliver to the
Holder any certificate or certificates required pursuant to Section 3.3 by the
fifth Trading Day after the Conversion Date, the Company shall pay to such
Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of
Principal Amount being converted, $5 per Trading Day (increasing to $10 per
Trading Day after five Trading Days after such damages begin to accrue) for each
Trading Day after such fifth Trading Day until such certificates are
delivered.  The Company’s obligations to issue and deliver the
Conversion Shares upon conversion of this Note in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by
the Holder to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other Person
of any obligation to the Company or any violation or alleged violation of law by
the Holder or any other Person, and irrespective of any other circumstance which
might otherwise limit such obligation of the Company to the Holder in connection
with the issuance of Conversion Shares.  In the event a Holder shall
elect to convert any or all of the outstanding Principal Amount hereof, the
Company may not refuse conversion based on any claim that such Holder or anyone
associated or affiliated with such Holder has been engaged in any violation of
law, violation of an agreement to which such Holder is a party or for any reason
whatsoever, unless, an injunction from a court, or notice, restraining and
adjoining conversion of all or part of said Notes shall have issued and the
Company posts a surety bond for the benefit of such Holder in an amount equal to
one hundred fifty percent (150%) of the amount of the Principal Amount of the
Notes that the Holder has elected to convert, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Holder (as liquidated damages) in the event it
obtains judgment.  In the absence of an injunction precluding the
same, the Company shall issue Conversion Shares or, if applicable, cash or other
property as required hereunder.  Nothing herein shall limit a Holder’s
right to pursue actual damages or declare an Event of Default pursuant to
Section 2 herein for the Company’s failure to deliver Conversion Shares within
the period specified herein and such Holder shall have the right to pursue all
remedies available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.  Likewise,
nothing herein shall prohibit the Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.

       

      (c) Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Conversion.  In
addition to any other rights available to the Holder, if the Company fails for
any reason to deliver to the Holder any certificate or certificates required
pursuant to Section 3.3 by the fifth Trading Day after the Conversion Date, and
if after such fifth Trading Day the Holder is required by its brokerage firm to
purchase (in an open market transaction or otherwise) Common Shares to deliver
in satisfaction of a sale by such Holder of the Conversion Shares which the
Holder anticipated receiving upon such conversion (a “Buy-In”), then the
Company shall (i) pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which (x) the Holder’s
total purchase price (including brokerage commissions, if any) for the Common
Shares so purchased exceeds (y) the product of (1) the aggregate number of
Common shares that such Holder anticipated receiving from the conversion at
issue multiplied by (2) the actual sale price of the Common Shares at the time
of the sale (including brokerage commissions, if any) giving rise to such
purchase obligation and (ii) at the option of the Holder, either reissue Notes
in principal amount equal to the principal amount of the attempted conversion or
deliver to the Holder the number of Common Shares that would have been issued
had the Company timely complied with its delivery requirements under Section
3.3.

       

       

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

       

      (d) Certificates as to
Adjustments. Upon occurrence of each adjustment or readjustment of the
Conversion Price or number of Common Shares issuable upon conversion of this
Note pursuant to this Section 3.4, the Company at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to the Holder a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based.  The Company shall, upon written request of the
Holder, at any time, furnish or cause to be furnished to the Holder a like
certificate setting forth such adjustments and readjustments, the applicable
Conversion Price in effect at the time, and the number of Common Shares and the
amount, if any, of other securities or property which at the time would be
received upon the conversion of this Note.  Notwithstanding the
foregoing, the Company shall not be obligated to deliver a certificate unless
such certificate would reflect an increase or decrease of at least one percent
(1%) of such adjusted amount.

       

      (e)           Issue Taxes. The
Company shall pay any and all issue and other taxes, excluding federal, state or
local income taxes, that may be payable in respect of any issue or delivery of
Common Shares on conversion of this Note pursuant thereto; provided, however, that the
Company shall not be obligated to pay any transfer taxes resulting from any
transfer requested by the Holder in connection with any such
conversion.

       

      (f)           Fractional Shares. No
fractional shares of Common Shares shall be issued upon conversion of this
Note.  In lieu of any fractional shares to which the Holder would
otherwise be entitled, the Company shall pay in cash any remainder resulting
from after the number of whole Common Shares is determined as a result of any
conversion.  If the Company elects not, or is unable, to make such a
cash payment, the Holder shall be entitled to receive, in lieu of the final
fraction of a Common Share, one whole Common Share.

       

      (g)           Reservation of Common
Shares. The Company shall at all times when this Note shall be
outstanding, reserve and keep available out of its authorized but unissued
Common Shares, solely for the purpose of issuance upon conversion of the Notes
and payment of the Interest Amount on the Notes, each as herein provided, free
from preemptive rights or any other actual contingent purchase rights of persons
other than the Holders, not less than such number of Common Shares as shall from
time to time be sufficient to effect the conversion of this Note, taking into
account the adjustments and restrictions of Section 3.4.  The Company
shall, from time to time in accordance with Illinois law, increase the
authorized number of Common Shares if at any time the unissued number of
authorized Common Shares shall not be sufficient to satisfy the Company’s
obligations under this Section 3.4(g).  The Company covenants that all
Common Shares that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and, if the Registration
Statement is then effective under the Securities Act, registered for public sale
in accordance with the Registration Statement.

       

      (h)           Regulatory
Compliance. If any Common Shares to be reserved for the purpose of
conversion of this Note require registration or listing with or approval of any
governmental authority, stock exchange or other regulatory body under any
federal or state law or regulation or otherwise before such shares may be
validly issued or delivered upon conversion, the Company shall, at its sole cost
and expense, in good faith and as expeditiously as possible, endeavor to secure
such registration, listing or approval, as the case may be.

       

      Section
3.5                                  No Rights as
Stockholder. Nothing contained in this Note shall be construed as
conferring upon the Holder, prior to the conversion of this Note, the right to
vote or to receive dividends or to consent or to receive notice as a stockholder
in respect of any meeting of stockholders for the election of directors of the
Company or of any other matter, or any other rights as a stockholder of the
Company.

       

      Section
3.6                                  Calculations.                                           All
calculations under this ARTICLE III shall be made to the nearest cent or the
nearest 1/100th of a
Common Share, as the case may be.  The number of Common Shares
outstanding at any given time shall not include the Common Shares owned by or
held by or for the account of the Company, and the description of any such
Common Shares shall be considered on issue or sale of Common
Shares.  For purposes of this ARTICLE III, the number of Common Shares
deemed to be issued and outstanding as of a given date shall be the sum of the
number of Common Shares (excluding treasury shares, if any) issued and
outstanding.

       

       

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

       

      ARTICLE
IV

       

      NEGATIVE
COVENANTS

       

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

       

      (a)           Consistent
with Section 1.2, enter into, create, incur, assume or suffer to exist any
indebtedness or Liens of any kind, on or with respect to any of its property or
assets or Collateral now owned or hereafter acquired or any interest therein or
any income or profits therefrom that is senior to, subordinated to or pari passu
with, in any respect, the Company’s obligations under the Notes other than
obligations under the Additional Offering;

       

      (b)           Consistent
with Section 1.2, repay, repurchase or offer to repay, repurchase, make any
payment in respect of or otherwise acquire any of its Common Shares or other
equity securities;

       

      (c)           authorize
or approve any reverse stock split of the Company Shares;

       

      (d)           amend
its certificate of incorporation, bylaws or charter documents so as to adversely
affect any rights of the Holder; provided that reincorporating the Company in
Delaware and eliminating cumulative voting rights for directors shall not be
deemed a violation of this covenant;

       

      (e)           create
or acquire any subsidiary after the date hereof unless (i) such subsidiary is a
wholly-owned subsidiary of the Company and (ii) such subsidiary becomes party to
the Security Documents (either by executing a counterpart thereof or an
assumption or joinder agreement in respect thereof) and, to the extent required
by the Holder, satisfied each condition of this Agreement as if such subsidiary
were a subsidiary on the Issuance Date;

       

      (f)           make
any capital expenditure in an amount greater than $1,500,000;

       

      (g)           engage
in any transactions with any officer, director, employee or any affiliate of the
Company, including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of $10,000
other than (i) for payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii) for
other employee benefits, including stock option agreements under any stock
option plan of the Company;

       

      (h)           consummate
any Organic Change without the prior consent of Holder; or

       

      (i)           enter
into any agreement with respect to any of the foregoing.

       

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

       

       

      ARTICLE
V

       

      AFFIRMATIVE
COVENANTS

       

      Section
5.                                Affirmative
Covenants.  The Company shall adhere to and use the proceeds
received of the sale of the Notes solely for the purposes set forth in the Use
of Proceeds schedule attached hereto as Schedule
3.

       

      ARTICLE
VI

       

      MISCELLANEOUS

       

      Section
6.1Notices.

       

      (a)           Any
notice, demand, request, waiver or other communication required or permitted to
be given hereunder, including, without limitation, any Notice of Conversion,
shall be in writing and shall be delivered personally, by facsimile, or sent by
a nationally recognized overnight courier service, addressed to the Company at
the address set forth above, facsimile number (847) 549-6028, Attn: Steven J.
Cohen, or such other address or facsimile number as the Company may specify for
such purposes by notice to the Holders delivered in accordance with this
Section.  Any and all notices or other communications or deliveries to
be provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, or sent by a nationally recognized overnight courier
service addressed to each Holder at the facsimile number or address of such
Holder appearing on the books and records of the Company, or if no such
facsimile number or address appears, at the principal place of business of the
Holder.  Any notice or other communication or deliveries hereunder
shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 5:30 p.m. (New York City
time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section later than 5:30 p.m. (New York City time) on any date and earlier
than 11:59 p.m. (New York City time) on such date (iii) the second Trading Day
following the date of mailing, if sent by nationally recognized overnight
courier services, or (iv) upon actual receipt by the party to whom such notice
is required to be given.

      

       

      (b)            The
Company will give written notice to the Holder at least twenty (20) days prior
to the date on which the Company takes a record (i) with respect to any
dividend or distribution upon the Common Shares, (ii) with respect to any
pro rata subscription offer to holders of Common Shares or (z) for
determining rights to vote with respect to any Organic Change, dissolution,
liquidation or winding-up but in no event shall such notice be provided to the
Holder prior to such information being made known to the public.  The
Company also will give written notice to the Holder at least twenty (20) days
prior to the date on which any Organic Change, dissolution, liquidation or
winding-up will take place but in no event shall such notice be provided to the
Holder prior to such information being made known to the public.  The
Holder is entitled to convert Notes during the 20-day period commencing the date
of such notice to the effective date of the event triggering such
notice.

       

      Section
6.2                                Governing Law; Consent to
Jurisdiction. The parties acknowledge and agree that any claim,
controversy, dispute or action relating in any way to this agreement or the
subject matter of this agreement shall be governed solely by the laws of the
State of Delaware, without regard to any conflict of laws
doctrines.  The parties irrevocably consent to being served with legal
process issued from the state and federal courts located in Delaware and
irrevocably consent to the exclusive personal jurisdiction of the federal and
state courts situated in the State of Delaware.  The parties
irrevocably waive any objections to the personal jurisdiction of these
courts.  Said courts shall have sole and exclusive jurisdiction over
any and all claims, controversies, disputes and actions which in any way relate
to this Note or the subject matter of this agreement.  The parties
also irrevocably waive any objections that these courts constitute an
oppressive, unfair, or inconvenient forum and agree not to seek to change venue
on these grounds or any other grounds.  Nothing in this Section 6.2
shall affect or limit any right to serve process in any other manner permitted
by law.

       

      Section
6.3                                Absolute
Obligation.  Except as expressly provided herein, no provision
of this Note shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the Principal Amount, the Interest Amount,
and liquidated damages, if any, on this Note at the time, place, and rate, and
in the coin or currency, herein prescribed.  This Note is a direct
debt obligation of the Company.  This Note ranks pari passu with all
other Notes now or hereinafter issued under the terms set forth
herein.

       

       

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

       

       

      Section
6.4                                Security
Interest.  This note is a direct debt obligation of the Company
and, pursuant to the Security Agreement, is secured by a first priority
perfected security interest in all of the assets of the Company for the benefit
of the Holders.

       

      Section
6.5                                Headings. Article and
section headings in this Note are included herein for purposes of convenience of
reference only and shall not constitute a part of this Note for any other
purpose.

       

      Section
6.6                                  Remedies, Characterizations,
Other Obligations, Breaches and Injunctive Relief. The remedies provided
in this Note shall be cumulative and in addition to all other remedies available
under this Note, at law or in equity (including, without limitation, a decree of
specific performance and/or other injunctive relief), no remedy contained herein
shall be deemed a waiver of compliance with the provisions giving rise to such
remedy and nothing herein shall limit a Holder’s right to pursue actual damages
for any failure by the Company to comply with the terms of this
Note.  Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder hereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof).  The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable and material harm to the Holder
and that the remedy at law for any such breach may be
inadequate.  Therefore the Company agrees that, in the event of any
such breach or threatened breach, the Holder shall be entitled, in addition to
all other available rights and remedies, at law or in equity, to seek and obtain
such equitable relief, including but not limited to an injunction restraining
any such breach or threatened breach, without the necessity of showing economic
loss and without any bond or other security being required.

       

      

       

      Section
6.7                                Enforcement Expenses.
The Company agrees to pay all reasonable costs and expenses of the Holder
incurred as a result of enforcement of this Note, including, without limitation,
reasonable attorneys’ fees and expenses.

       

      Section
6.8                                Binding Effect. The
obligations of the Company and the Holder set forth herein shall be binding upon
the successors and assigns of each such party, whether or not such successors or
assigns are permitted by the terms hereof.

       

      Section
6.9                                  Amendments. This Note
may not be modified or amended in any manner except in writing executed by the
Company and the Holder.

       

      Section
6.10                                  Compliance with Securities
Laws. The Holder of this Note acknowledges that this Note is being
acquired solely for the Holder’s own account and not as a nominee for any other
party, and for investment and not with a view to the distribution hereof. This
Note and any Note issued in substitution or replacement therefor shall be
stamped or imprinted with a legend in substantially the following
form:

       

      “THIS
NOTE AND ANY COMMON STOCK ISSUABLE UPON THE CONVERSION OF THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS (THE “STATE ACTS”), AND MAY NOT BE OFFERED,
SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHICATED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.”

       

      

      Section
6.11                                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
privilege, nor shall any waiver by the Holder of any such right or rights on any
one occasion be deemed a waiver of the same right or rights on any future
occasion.

       

       

       

       

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

       

       

       

      Section
6.12                                Company’s
Waivers.

       

      (a)           Except
as otherwise specifically provided herein, the Company and all others that may
become liable for all or any part of the obligations evidenced by this Note,
hereby waive presentment, demand, notice of nonpayment, protest and all other
demands’ and notices in connection with the delivery, acceptance, performance
and enforcement of this Note, and do hereby consent to any number of renewals of
extensions of the time or payment hereof and agree that any such renewals or
extensions may be made without notice to any such persons and without affecting
their liability herein and do further consent to the release of any person
liable hereon, all without affecting the liability of the other persons, firms
or Company liable for the payment of this Note, AND DO HEREBY WAIVE TRIAL BY
JURY.

       

      (b)           THE
COMPANY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A
COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY
WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY
WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.

       

      Section
6.13                                Seniority.  This
Note is senior in right of payment to any and all other indebtedness of the
Company.

       

      Section
6.14                                Definitions. For the
purposes hereof, the following term shall have the following
meaning:

       

      “Asset Sale” means (i)
in one or more transactions, the sale, lease, conveyance or other disposition of
any assets or rights other than in the ordinary course of business, and (ii) the
sale of debt or equity interests in any of the Company’s
subsidiaries.

       

      “Lien” means any mortgage,
charge, pledge, lien (statutory or other), security interest, hypothecation,
assignment for security, claim or preference or priority or other encumbrance
upon or with respect to any property of any kind.  A Person shall be
deemed to own subject to a Lien any property which such Person has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.

       

      “Offering Memorandum”
means that certain Confidential Private Placement Memorandum of the Company,
dated __________, 2008.

       

      “Permitted Liens” shall
have the meaning given such term in the Security Agreement. “Person” shall have the meaning
given such term in the Security Agreement.

      “Registration Rights
Agreement” shall mean that Registration Rights Agreement of even date
herewith, between the Company and the Holder.

      

      “Trading Day” means
(a) a day on which the Common Shares are traded on the OTC Bulletin Board,
or (b) if the Common Shares are not traded on the OTC Bulletin Board, a day
on which the Common Shares are quoted in the over-the-counter market as reported
by the Pink Sheets LLC (or any similar organization or agency succeeding its
functions of reporting prices); provided, however, that in
the event that the Common Shares are not listed or quoted as set forth in (a) or
(b) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of Delaware are authorized or required by law or other government action
to close.

      

      “Transaction
Documents” means the offering documents entered into in connection with
the Private Offering by the Company of Units to be placed by ________ as
placement agent, which offering documents include, without limitation, the
Subscription Agreement, the Security Documents, the Registration Rights
Agreement, and the Notes and warrants issued in connection with the Private
Offering.

       

       

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

       

       

      Section
6.15                                Usury. All agreements
between the Company and the Holder are hereby expressly limited to provide that
in no contingency or event whatsoever, whether by reason of acceleration of
maturity of the indebtedness evidenced hereby or otherwise, shall the amount
paid or agreed to be paid to the Holder for the use, forbearance or detention of
the indebtedness evidenced hereby exceed the maximum amount which the Holder is
permitted to receive under applicable law.  If, from any circumstances
whatsoever, fulfillment of any provision hereof, at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then, ipso facto, the obligation to be fulfilled shall
automatically be reduced to the limit of such validity, and if from any
circumstance the Holder shall ever receive as interest an amount which would
exceed the highest lawful rate, such amount which would be excessive interest
shall be applied to the reduction of the principal balance of any of the
Company’s obligations to the Holder, and not to the payment of interest
hereunder.  To the extent permitted by applicable law, all sums paid
or agreed to be paid for the use, forbearance or detention of the indebtedness
evidenced by this Note shall be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full, to the end
that the rate or amount of interest on account of such indebtedness does not
exceed any applicable usury ceiling.

       

      As used
herein, the term “applicable law” shall mean all applicable provisions of
constitutions, statutes, laws, rules and regulations in effect as of the date
hereof, provided, however, that in the event there is a change in such
applicable law which results in a higher permissible rate of interest, then this
Note shall be governed by such new law as of its effective date.  This
provision shall control every other provision of all agreements between the
Company and the Holder.

       

      

       

      

       

      [Signatures
on Next Page]

       

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

       

      

       

      IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the
Issuance Date set out above.

       

      
        
          	 	Z
      TRIM HOLDINGS, INC.	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

        

      

       

       

       

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

      

       

      

      EXHIBIT
A

       

      WIRE
INSTRUCTIONS

       

      Payee: ________________________________________________________                                      

       

      Bank:
_________________________________________________________

       

      Address:_______________________________________________________

       

      Bank
No.:______________________________________________________

       

      Account
No.:____________________________________________________

       

      Account
Name:__________________________________________________

      

      

      
        
           

        

        
          16

          
            

          

        

        
           

        

      

       

      EXHIBIT
B

       

      

       

      FORM
OF NOTICE OF CONVERSION INTO SHARES OF COMMON STOCK

       

      (To be
Executed by the Registered Holder in order to Convert the Note into Common
Shares)

       

      The
undersigned hereby irrevocably elects to convert $_____ of the principal amount
of the above Note into Common Shares of Z TRIM HOLDINGS, INC. (the “Company”) according
to the conditions hereof, as of the date written below.

       

      Date of
Conversion:_______________________________________________________________

       

      Applicable
Conversion
Price:_________________________________________________________

       

      Signature:_______________________________________________________________________

       

      [Print
Name]:____________________________________________________________________

       

      Address: _______________________________________________________________________                                                                                                                    

       

      

       

      
 

       

      17ex43.htm

    Exhibit
4.3

    

    THE
SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED BY THE HOLDER HEREOF FOR ITS
OWN ACCOUNT FOR INVESTMENT WITH NO INTENTION OF MAKING OR CAUSING TO BE MADE A
PUBLIC DISTRIBUTION OF ALL OR ANY PORTION THEREOF.  SUCH SECURITIES
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED,
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.

    

    

    No.
____ __________, 2008

    

    

    Z
TRIM HOLDINGS, INC.

    FORM
OF WARRANT TO PURCHASE COMMON STOCK

    

    Void
after ___________, [2013]

    

    

    Z
Trim Holdings, Inc., an Illinois corporation (the “Company”), hereby
certifies that, for value received, ______________________ (including any
successors and assigns, “Holder”), is
entitled, subject to the terms set forth below, to purchase from the Company at
any time or from time to time during the Exercise Period, defined below, and
prior to 5:00 PM Central time, on ________, [2012] (the “Expiration Date”),
fully paid and nonassessable shares of Common Stock (the “Warrant Shares”)
under the terms set forth herein.

    

    This Warrant is issued pursuant to that
certain Subscription Agreement dated _______________, 2008 by and between the
Company and the Holder (the “Subscription
Agreement”) that was executed and delivered in connection with that
certain Confidential Private Placement Memorandum of the Company dated ________,
2008 (the “Private
Offering”).

    

    1. Number of Warrant Shares;
Exercise Price.  This Warrant shall evidence the right of the
Holder to purchase up to
[         ] Warrant Shares at an
exercise price per Warrant Share of $____per share (the “Exercise Price”),
subject to adjustment as provided in Section 6 below.

    

    2. Definitions.  As
used herein the following terms, unless the context otherwise requires, have the
following respective meanings:

    

    (a) The term
“Common Stock”
shall mean the common stock, par value $.00005 per share, of the
Company.

    

    (b) The term
“Company” shall
include any company which shall succeed to or assume the obligations of the
Company hereunder.

    

    (c) The term
“Corporate
Transaction” shall mean (i) a sale, lease transfer or conveyance of all
or substantially all of the assets of the Company; (ii) a consolidation of the
Company with, or merger of the Company with or into, another corporation or
other business entity in which the stockholders of the Company immediately prior
to such consolidation or merger own less than 50% of the voting power of the
surviving entity immediately after such consolidation or merger; or (iii) any
transaction or series of related transactions to which the Company is a party in
which in excess of 50% of the Company’s voting power is transferred, excluding
any consolidation or merger effected exclusively to change the domicile of the
Company.

    (d) The term
“Stock” shall
mean (i) Common Stock or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value.

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    
 

    3. Exercise Date;
Expiration.  Subject to the terms hereof, this Warrant may be
exercised by the Holder at any time or from time to time before the Expiration
Date (the “Exercise
Period”).

    

    4. Exercise of Warrant; Partial
Exercise.  This Warrant may be exercised in full by the Holder
by surrender of this Warrant, together with the Holder’s duly executed form of
subscription attached hereto as Exhibit A, to the
Company at its principal office, accompanied by payment, in cash or by certified
or official bank check payable to the order of the Company, of the aggregate
exercise price (as determined above) of the number of Warrant Shares to be
purchased hereunder.  The exercise of this Warrant pursuant to this
Section 4 shall be deemed to have been effected immediately prior to the close
of business on the business day on which this Warrant is surrendered to the
Company as provided in this Section 4, and at such time the person in whose name
any certificate for Warrant Shares shall be issuable upon such exercise shall be
deemed to be the record holder of such Warrant Shares for all
purposes.  As soon as practicable after the exercise of this Warrant,
the Company at its expense will cause to be issued in the name of and delivered
to the Holder, or as the Holder may direct, a certificate or certificates for
the number of fully paid and nonassessable full shares of Warrant Shares to
which the Holder shall be entitled on such exercise, together with cash, in lieu
of any fraction of a share, equal to such fraction of the current fair market
value of one full Warrant Share as determined in good faith by the Board of
Directors, and, if applicable, a new warrant evidencing the balance of the
shares remaining subject to the Warrant.

    

    5. Net
Issuance.

    

    (a) Cashless
Exercise.  Only in the event that there is not in effect on or
before the 6-month anniversary of the date of this Warrant a registration
statement with the SEC covering the Warrant Shares, in addition to and without
limiting the rights of the Holder under the terms of this Warrant, the Holder
shall have the right to convert this Warrant (the “Conversion Right”)
into Warrant Shares as provided in this Section 5 at any time or from time to
time beginning on the 6-month anniversary of the date of this Warrant and ending
at the expiration of the Exercise Period.  Upon exercise of the
Conversion Right with respect to shares subject to the Warrant (the “Converted Warrant
Shares”), the Company shall deliver to the Holder (without payment by the
Holder of any exercise price or any cash or other consideration) that number of
fully paid and nonassessable Warrant Shares computed using the following
formula:

    

    X = Y (A -
B)

                              A

    

    Where:                                X
=           the number of
Warrant Shares to be delivered to the Holder;

    

    Y
=           the number of
Converted Warrant Shares;

    

    A
=           the fair
market value of one Warrant Share on the Conversion Date (as defined below);
and

    

    B
=           the Exercise
Price (as adjusted on the Conversion Date).

    

    No
fractional shares shall be issuable upon exercise of the Conversion Right, and
if the number of shares to be issued determined in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the Holder an
amount in cash equal to the fair market value of the resulting fractional share
on the Conversion Date (as defined below).  Shares issued pursuant to
the Conversion Right shall be treated as if they were issued upon the exercise
of the Warrant.

    

    (b) Method of
Exercise.  The Conversion Right may be exercised by the Holder
by the surrender of the Warrant at the principal office of the Company together
with a written statement specifying that the Holder thereby intends to exercise
the Conversion Right and indicating the total number of shares under the Warrant
that the Holder is exercising through the Conversion Right.  Such
conversion shall be effective upon receipt by the Company of the Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the “Conversion
Date”).  Certificates for the shares issuable upon exercise of
the Conversion Right shall be delivered to the Holder promptly following the
Conversion Date.

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
 

    (c) Determination of Fair Market
Value.  For purposes of this Section 5, fair market value of a
Warrant Share on the Conversion Date shall be determined as
follows:

    

    (i) If this
Warrant is to be exercised contingent upon and effective immediately prior to
the initial public offering of the Company’s Common Stock pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(an “Initial Public
Offering”), the fair market value of a Warrant Share shall be deemed to
be equal to the price per share to the public of the shares of Common Stock sold
in the Initial Public Offering as set forth on the front cover of the final
prospectus relating to the Initial Public Offering;

    

    (ii) If the
Common Stock is traded on a stock exchange or the Nasdaq Stock Market (or a
similar national quotation system), the fair market value of a Warrant Share
shall be deemed to be the average of the closing selling prices of the Common
Stock on the stock exchange or system determined by the Board to be the primary
market for the Common Stock over the ten (10) trading day period ending on the
date prior to the Conversion Date, as such prices are officially quoted in the
composite tape of transactions on such exchange or system;

    

    (iii) If the
Common Stock is traded over-the-counter, the fair market value of a Warrant
Share shall be deemed to be the average of the closing bid prices (or, if such
information is available, the closing selling prices) of the Common Stock over
the ten (10) trading day period ending on the date prior to the Conversion Date,
as such prices are reported by the National Association of Securities Dealers
through its NASDAQ system or any successor system ; and

    

    (iv) If there
is no public market for the Common Stock, then the fair market value of a
Warrant Share shall be determined by the Board of Directors of the Company in
good faith and, upon request of the Holder, the Board (or a representative
thereof) shall, as promptly as reasonably practicable but in any event not later
than 15 days after such request, notify the Holder of the Fair Market Value per
share of Common Stock.

    

    6. Adjustments to Conversion
Price and Number of Warrant Shares.  For the purposes of this
Section 6, the term Exercise Price shall mean the Exercise Price per share set
forth on the first page of this Warrant as adjusted from time to time pursuant
to the provisions of this Section 6.  The number and kind of Warrant
Shares (or any shares of stock or other securities which may be) issuable upon
the exercise of this Warrant and the Exercise Price hereunder shall be subject
to adjustment from time to time upon the happening of certain events, as
follows:

    

    (a) Splits and Subdivisions.  In
the event the Company should at any time or from time to time fix a record date
for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of the holders of Common Stock entitled to
receive a dividend or other distribution payable in additional shares of Common
Stock or other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional shares of Common Stock
(hereinafter referred to as the “Common Stock Equivalents”)
without payment of any consideration by such holder for the additional shares of
Common Stock or Common Stock Equivalents, then, as of such record date (or the
date of such distribution, split or subdivision if no record date is fixed), the
Exercise Price shall be appropriately decreased and the number of Warrant Shares
for which this Warrant is exercisable shall be appropriately increased in
proportion to such increase of outstanding shares.

    

    (b) Combination of
Shares.  If the number of shares of Common Stock outstanding at
any time after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, the Exercise Price shall be appropriately increased and
the number of Warrant Shares for which this Warrant is exercisable shall be
appropriately decreased in proportion to such decrease in outstanding
shares.

    

    (c) Reclassification or
Reorganization.  If the Warrant Shares issuable upon the
exercise of this Warrant shall be changed into the same or different number of
shares of any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a split, subdivision or stock dividend
provided for in Section 6(a) above or a combination of shares provided for in
Section 6(b) above, or a reorganization, merger or consolidation provided for in
Section 6(d) below, then and in each such event the Holder shall be entitled to
receive upon the exercise of this Warrant the kind and amount of shares of stock
and other securities and property receivable upon such reorganization,
reclassification or other change, to which a holder of the number of Warrant
Shares issuable upon the exercise of this Warrant would have received if this
Warrant had been exercised immediately prior to such reorganization,
reclassification or other change, all subject to further adjustment as provided
herein.

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    
 

    (d) Merger or
Consolidation.  If at any time or from time to time there shall
be a capital reclassification or reorganization of the Warrant Shares or a
Corporate Transaction (other than a subdivision, combination, reclassification
or exchange of shares provided for elsewhere in this Section 6) of the Company,
then as a part of such reorganization or Corporate Transaction, adequate
provision shall be made so that the Holder shall thereafter be entitled to
receive upon the exercise of this Warrant, the number of shares of stock or
other securities or property of the Company, resulting from such reorganization,
recapitalization or Corporate Transaction to which a holder of the number of
Warrant Shares issuable upon the exercise of this Warrant would have received if
this Warrant had been exercised immediately prior to such reorganization or
Corporate Transaction.  In any such case, the Company will make
appropriate provision to insure that the provisions of this Section 6(d) hereof
will thereafter be applicable as nearly as may be in relation to any shares of
stock or securities thereafter deliverable upon the exercise of this
Warrant. The
Company shall not effect any such Corporate Transaction unless prior to or
simultaneously with the consummation thereof the successor corporation (if other
than the Company) resulting from such Corporate Transaction or the corporation
purchasing or acquiring such assets or other appropriate corporation or entity
shall assume the obligation to deliver to the Holder, at the last address of the
Holder appearing on the books of the Company, such shares of stock, securities
or assets as, in accordance with the foregoing provisions, the Holder may be
entitled to purchase, and the other obligations under this
Warrant.  The provisions of this Section 6(d) shall similarly apply to
successive reorganizations, reclassifications, or Corporate
Transactions.

    

    (e) Computation of Adjusted
Exercise Price.  In the event that the Company sells or issues
shares of Stock at a price less than the Exercise Price in effect immediately
prior to such sale or issuance, then the Exercise Price shall be reduced
immediately thereafter so that it shall equal the price at which such shares of
Stock are sold or issued, as applicable.

    

    (f) Options, Rights, Warrants
and Convertible and Exchangeable Securities.  Subject to
Section 6(h) hereof, in case the Company shall at any time after the date hereof
issue options, rights or warrants to subscribe for shares of Stock, or issue any
securities convertible into or exchangeable for shares of Stock, for a
consideration per share less than the Exercise Price in effect immediately prior
to the issuance of such options, rights, warrants or such convertible or
exchangeable securities, or without consideration, the Exercise Price in effect
immediately prior to the issuance of such options, rights, warrants or such
convertible or exchangeable securities, as the case may be, shall be reduced to
the price established for such options, rights, warrants or convertible or
exchangeable securities that entitle the holders thereof to receive a share of
Stock.

    

    (g) Adjustment in Number of
Warrant Shares.  Upon each adjustment of the Exercise Price
pursuant to the provisions of this Section 6, the number of Warrant Shares
issuable upon the exercise of this Warrant shall be adjusted to the nearest full
amount by multiplying a number equal to the Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Shares issuable upon exercise
of the Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.

    

    (h) No Adjustment of Exercise
Price in Certain Cases.  No adjustment of the Exercise Price
shall be made:

    

    (i)           Upon
issuance or sale of this Warrant or Warrant Shares, or the other warrants and
warrant shares issued in connection herewith pursuant to the Subscription
Agreement, or shares of Common Stock issuable upon exercise of other options,
warrants and convertible securities outstanding as of the date hereof,
including, without limitation, those that are being issued in connection with
the closing of the Private Offering.

     

    (ii)           Upon
the issuance or sale of any shares of capital stock, or the grant of options
exercisable therefor, issued or issuable after the date of this Warrant, to
directors, officers, employees, advisers and consultants of the Company or any
subsidiary pursuant to any incentive or non-qualified stock option plan or
agreement, stock purchase plan or agreement, stock restriction agreement or
restricted stock plan, employee stock ownership plan (ESOP), consulting
agreement, stock appreciation right (SAR), stock depreciation right (SDR), bonus
stock arrangement, or such other similar compensatory options, issuances,
arrangements, agreements or plans approved by the Board of Directors of the
Company.

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (iii)           Upon
the issuance of any shares of capital stock or the grant of warrants or options
(or the exercise thereof) as consideration for mergers, acquisitions, strategic
alliances and other commercial transactions, other than in connection with a
financing transaction.

    

    (iv)           If
the amount of said adjustment shall be less than one cent ($0.01) per security
issuable upon exercise of this Warrant; provided, however, that in such
case any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustment so carried forward,
shall amount to at least one cent ($0.01) per security issuable upon exercise of
this Warrant.

    

    (i) Notice of Record Dates;
Adjustments.  In the event of an Initial Public Offering or a
Corporate Transaction, the Company shall provide to the Holder twenty (20) days
advance written notice of such Initial Public Offering or Corporate
Transaction.  The Company shall promptly notify the Holder in writing
of each adjustment or readjustment of the Exercise Price hereunder and the
number of Warrant Shares issuable upon the exercise of this
Warrant.  Such notice shall state the adjustment or readjustment and
show in reasonable detail the facts on which that adjustment or readjustment is
based.

    

    7. Registration
Rights.  The Company hereby agrees that the Holder shall be
entitled, with respect to all Warrant Shares issued upon the exercise of this
Warrant, to the registration rights set forth in the Registration Rights
Agreement, dated as of [__________], 2008, by and among the Company, the Holder
and the investors in the Private Offering, as may be amended or supplemented
from time to time, the terms of which are hereby incorporated by this reference,
with the same force and effect as if specifically set forth herein.

    

    8. Replacement of
Warrants.  On receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of such Warrant, the Company at its expense will execute and
deliver to the Holder, in lieu thereof, a new Warrant of like
tenor.

    

    9. No Rights or Liability as a
Stockholder.  This Warrant does not entitle the Holder hereof
to any voting rights or other rights as a stockholder of the
Company.  No provisions hereof, in the absence of affirmative action
by the Holder to purchase Warrant Shares, and no enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder as a stockholder of the Company.

    

    10. Miscellaneous.

    

    (a) Transfer of Warrant;
Permitted Designees.  The Holder agrees not to make any
disposition of this Warrant, the Warrant Shares or any rights hereunder without
the prior written consent of the Company.  Any such permitted transfer
must be made by the Holder in person or by duly authorized attorney, upon
delivery of this Warrant and the form of assignment attached hereto as Exhibit B to any such
permitted transferee.  As a condition precedent to such transfer, the
transferee shall sign an investment letter in form and substance satisfactory to
the Company.  Subject to the foregoing, the provisions of this Warrant
shall inure to the benefit of and be binding upon any successor to the Company
and shall extend to any holder hereof. Notwithstanding anything contained
herein, the Company shall, upon written instructions to be delivered to the
Company within fifteen (15) business days following the date hereof, transfer
all or a portion of this Warrant to officers, directors, employees and other
registered agents or associated persons of the Holder (collectively, “Permitted Designees”)
in accordance with this Section 10; provided, however, the Company shall not be
required to issue such Warrants to any person who is not an “accredited
investor” within the meaning of Regulation D promulgated under the Securities
Act of 1933, as amended, and provided, further, such transfer must be in
compliance with applicable Federal and state securities laws.  Each
Permitted Designee shall be required to execute fully and completely the
Investor Representation Letter in the form attached hereto as Exhibit C prior to
the issuance of the Warrant to such person.

    

    (b) Titles and
Subtitles.  The titles and subtitles used in this Warrant are
for convenience only and are not to be considered in construing or interpreting
this Warrant.

    

    (c) Notices.  Any
notice required or permitted to be given to a party pursuant to the provisions
of this Warrant shall be in writing and shall be effective and deemed given to
such party under this Warrant on the earliest of the following: (i) the date of
personal delivery; (ii) two (2) business days after transmission by facsimile,
addressed to the other party at its facsimile number, with confirmation of
transmission; (iii) four (4) business days after deposit with a return receipt
express courier for United States deliveries; or (iv) five (5) business days
after deposit in the United States mail by registered or certified mail (return
receipt requested) for United States deliveries.  All notices not
delivered personally or by facsimile will be sent with postage and/or other
charges prepaid and properly addressed to such party at the address set forth on
the signature page hereto, or at such other address as such party may designate
by ten (10) days advance written notice to the other party
hereto.  Notices to the Company will be marked “Attention: Chief
Financial Officer.”

     

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    
 

    (d) Attorneys’
Fees.  If any action at law or in equity is necessary to
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to reasonable attorneys’ fees, costs and disbursements in addition to
any other relief to which such party may be entitled.

    

    (e) Amendments and
Waivers.  Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively) with the written
consent of the Holder and the Company.  Any amendment or waiver
effected in accordance with this Section 10(e) shall be binding upon the Holder
of this Warrant (and of any securities into which this Warrant is convertible),
each future holder of all such securities, and the Company.

    

    (f) Severability.  If
one or more provisions of this Warrant are held to be unenforceable under
applicable law, such provision shall be excluded from this Warrant and the
balance of the Warrant shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.

    

    (g) Governing
Law.  This Warrant shall be governed by and construed and
enforced in accordance with the laws of the State of Illinois, without giving
effect to its conflicts of laws principles.

    

    (h) Counterparts.  This
Warrant may be executed in any number of counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.

    

    [REMAINDER
OF THIS PAGE INTENTIONALLY LEFT BLANK]

     

     

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

     

     

    In
Witness Whereof, the Company has caused this Warrant to be executed by
its duly authorized officer as of the date first written above.

    

    
      
        	 	Z TRIM HOLDINGS,
      INC.,	 
	 	 	an
      Illinois corporation	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name:
      Steven J. Cohen 	 
	 	 	Title:
      Chief Executive Officer	 
	 	 	Address:   1011
      Campus Drive Mundelein, IL 60060	 

      

     

     

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

                            

     

    

    

    

    

    

    

    EXHIBIT
A

    

    FORM OF
SUBSCRIPTION

    

    (To be
signed only on exercise of Warrant)

    

    

    

    To:           Z-TRIM
HOLDINGS, INC.

    

    The undersigned, pursuant to the
provisions set forth in the attached Warrant, hereby irrevocably elects to (a)
purchase _____ shares of the Common Stock covered by such Warrant and herewith
makes payment of $ _________, representing the full purchase price for such
shares at the price per share provided for in such Warrant, or (b) exercise such
Warrant for _______ shares purchasable under the Warrant pursuant to the Net
Issue Exercise provisions of Section 5 of such Warrant.

    

    Please issue a certificate or
certificates representing ________ shares in the name of the undersigned or in
such other name or names as are specified below:

     

    

     

    
      	 	 	 
	 	
               (Name)

            	 
	 	 	 
	 	 	 
	 	 	 
	 	
               (Address)

            	 

    

     

     

     

    

    

     

    

    The undersigned represents that the
aforesaid shares are being acquired for the account of the undersigned for
investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of
distributing or reselling such shares, all except as in compliance with
applicable securities laws.

    

    
       

      
        	 	 
	 	(Signature
      must conform in all respects to name of the Holder as specified on the
      face of the Warrant)
	 	 
	 	 
	 	(Print
    Name)
	 	 
	 	 
	 	(Address)
	 	 
	 	 

      

       

    

    

    

     

    Dated: ____________________                                                     

    

     

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    
 

    EXHIBIT
B

    

    FORM OF
ASSIGNMENT

     

    (To
assign the foregoing Warrant, execute this form and supply required
information.  Do not use this form to purchase shares.)

     

    For Value
Received, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to:

    
    

     

    
      	Name:	 
	 	
              (Please
      Print)

            
	Address:	 
	 	
              (Please
      Print)

            

    

     

    

    Dated:  __________,
20__

    

    Holder’s

    Signature:  ___________________________                                                                                   

    

    Holder’s

    Address:   
___________________________                                                                                    

     

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

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

     

     

    EXHIBIT
C

    

    FORM OF INVESTOR
REPRESENTATION LETTER

    

    DATE

    

    Z Trim
Holdings, Inc.

    1011
Campus Drive

    Mundelein,
IL 60060

    

    Gentlemen:

    

    In
connection with my receipt of warrants (“Warrants”) to purchase the number of
shares of common stock referred to below, I hereby represent, warrant and
covenant as follows:

    

    
      	
               
      

            	
              1.   Check
      each one which is applicable:

            

    

    

    
      	
                  

            	
              I
      am an “accredited investor” within the meaning of Regulation D promulgated
      under the Securities Act of 1933 (the
“Act”);

            

    

    

    
      	
                  

            	
              I
      have such knowledge and experience in financial, tax, and business matters
      so as to utilize information made available to me in order to evaluate the
      merits and risks of an investment decision with respect
      thereto;

            

    

    

    
      	
              2.
      

            	
              I
      have had the opportunity to ask questions and receive and review such
      answers and information concerning Z Trim Holdings, Inc. (the “Issuer”) as
      I have deemed pertinent;

            

    

    

    
      	
              3.
      

            	
              I
      am not relying on the Issuer or ________ respecting the tax and other
      economic considerations of an investment in the
  Issuer;

            

    

    

    
      	
              4.
      

            	
              I
      am acquiring the Warrants and the underlying securities related thereto
      solely for my own account for investment and not with a view to resale or
      distribution.  I acknowledge that neither the Warrants nor the
      underlying securities have been registered under the Act and may not be
      resold except pursuant to an effective registration statement thereunder
      or an exemption therefrom;

            

    

    

    

    _______________________

    Name:

    

    Holder of
Warrants to purchase _____           
shares of common stock of Z Trim Holdings, Inc. pursuant to the terms of the
Common Stock Purchase Warrant of even date herewith

    
 

     

    10

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