Document:

Unassociated Document

    THIS
NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.

     

    GENTA
INCORPORATED

     

    Form of
Senior Secured Convertible Promissory Note

    due March
9, 2013

    
      	
              D
      Note No. _____

            	
              $___________

            

    

    Dated:
March 9, 2010

     

    For value
received, GENTA INCORPORATED, a Delaware corporation (the “Maker”), hereby
promises to pay to the order of _______________________ (together with its
successors and representatives, the “Holder”), in
accordance with the terms hereinafter provided, the principal amount of
________________________ ($______________), together with interest
thereon.

     

    All
payments under or pursuant to this Senior Secured Convertible Promissory Note
(this “Note”)
shall be made in United States Dollars in immediately available funds to the
Holder at the address of the Holder first set forth above or at such other place
as the Holder may designate from time to time in writing to the Maker or by wire
transfer of funds to the Holder’s account, instructions for which are attached
hereto as Exhibit
A.  The outstanding principal balance of this Note shall be due
and payable on March 9, 2013 (the “Maturity Date”) or at
such earlier time as provided herein.

     

    ARTICLE
1

     

    1.1          Purchase Agreement.
This Note has been executed and delivered pursuant to the Securities Purchase
Agreement, dated as of March 5, 2010 (as the same may be amended from time to
time, the “Purchase
Agreement”), by and among the Maker and the purchasers listed on Exhibit
A thereto.  Capitalized terms used and not otherwise defined herein
shall have the meanings set forth for such terms in the Purchase
Agreement.  This Note is one of the D Notes issued by the Maker
pursuant to the Purchase Agreement.  Pursuant to the Purchase
Agreement, the Maker is also issuing other D Notes, B Notes, C Notes and, upon
exercise of the Debt Warrants issued pursuant to the Purchase Agreement, E
Notes.  Collectively, the B Notes, C Notes, D Notes and E Notes other
than this Note are referred to herein as the “Other Notes”, and the
Other Notes and this Note are referred to herein as the “Notes”.  The
Purchasers of the Notes under the Purchase Agreement other than the Holder are
referred to herein as the “Other Holders” and
the Other Holders and the Holder are collectively referred to herein as the
“Holders”.

     

    
      
        
        

      

      
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    1.2          Interest. Beginning
on the issuance date of this Note (the “Issuance Date”), the
outstanding principal balance of this Note shall bear interest, in arrears, at a
rate per annum equal to twelve percent (12.00%), payable semi-annually on March
9 and September 9 of each year (each, an “Interest Payment
Date”) commencing September 9, 2010, or earlier upon conversion,
redemption or prepayment of this Note.  Interest shall be paid, at the
option of the Maker, in: (A) cash, or (B) through the issuance of separate
senior unsecured convertible promissory notes in substantially the same form of
the B Notes to the Holder in the principal amount equal to the accrued interest
as of the applicable Interest Payment Date or date of such earlier conversion,
redemption or prepayment of this Note; provided, however, payment of interest in
cash may only occur if the date of such payment is later than the first date
that is twelve months after the Closing Date.  Interest shall be
computed on the basis of a 360-day year of twelve (12) thirty- (30) day months
and shall accrue commencing on the Issuance Date.  Furthermore, upon
the occurrence of an Event of Default (as defined in Section 2.1 hereof), the
Maker will pay interest to the Holder in cash, payable on demand, on the
outstanding principal balance of and unpaid interest on the Note from the date
of the Event of Default until such Event of Default is cured at the rate of the
lesser of twenty percent (20%) and the maximum applicable legal rate per
annum.

     

    1.3          Payment of Principal;
Prepayment.

     

    (a)           The
principal amount hereof and all accrued and unpaid interest hereon shall be paid
in full in cash on the Maturity Date or, if earlier, upon acceleration or
redemption of this Note in accordance with the terms herein.

     

    (b)           This
Note may be prepaid in whole or in part, in the Maker’s sole discretion, if on
or between the dates of January 15, 2011 and January 31, 2011, the Maker reports
in a Form 8-K filed with the United States Securities Exchange Commission that
it has met the Prepayment Condition (as defined below).  The
Prepayment Condition shall be that, as of December 31, 2010, the Maker’s cash
and cash equivalents balance (not including the cash pledged as collateral for
this Note) was equal to or greater than $7,000,000 and that the Maker’s working
capital, calculated in accordance with United States generally accepted
accounting principles (except not including the cash pledged as collateral for
this Note and not including deferred compensation recorded through and as of
December 31, 2010), was equal to or greater than $5,000,000.  Any such
prepayment shall occur on the date that is fifteen (15) days following the
filing of such Form 8-K.  Except as set forth in this section, the
Maker may not prepay any portion of the principal amount of this Note without
the prior written consent of the Holder, which may be withheld in the Holder’s
sole and absolute discretion.  Any amount of principal repaid
hereunder may not be reborrowed.

     

    (c)           The
Maker shall have the obligation, upon the written request of Holders holding at
least two-thirds of the principal amount of the then outstanding D Notes, to
redeem this Note and all D Notes in their entirety by paying to the Holders
within ten (10) calendar days thereof in cash the then-outstanding principal
amount of such D Notes plus accrued and unpaid interest through the date of such
redemption (the “Put
Option”).  Any such notice shall be effective only if delivered
to the Maker on or after January 15, 2011.  The Put Option shall
terminate in the event that the entire security interest securing all of the D
Notes is terminated in its entirety.  If the Put Option is thus
terminated, then on or at any time after the two year anniversary of the
Issuance Date, the Holder shall have the individual right, at such Holder’s
option and upon ten calendar (10) days prior written notice to the Maker, to
require the Maker to redeem this Note by paying to the Holder in cash the
then-outstanding principal amount of this Note plus accrued and unpaid interest
through the date of such redemption.

     

    
      
        
        

      

      
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    1.4          Payment on Non-Trading
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 New York, such payment may be
due on the next succeeding Trading Day and such next succeeding day shall be
included in the calculation of the amount of accrued interest payable on such
date.

     

    1.5          Transfer. This Note
may be transferred or sold, subject to the provisions of Section 5.8 of this
Note, or pledged, hypothecated or otherwise granted as security by the
Holder.

     

    1.6          Replacement. Upon
receipt of a duly executed, notarized and unsecured written statement from the
Holder with respect to the loss, theft or destruction of this Note (or any
replacement hereof) and a standard indemnity, or, in the case of a mutilation of
this Note, upon surrender and cancellation of such Note, the Maker shall issue a
new Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or
mutilated Note.

     

    1.7          Use of Proceeds. The
Maker shall use the proceeds of this Note as set forth in the Purchase
Agreement.

     

    1.8          Senior Status of
Note.  The obligations of the Maker under the D Notes shall be
senior to the obligations of the Maker under the B Notes, the C Notes and the E
Notes to the extent of the collateral securing the D Notes.  The
obligations of the Maker under the D Notes shall otherwise be pari-passu with the
obligations of the Maker under the B Notes, the C Notes and the E Notes and
pari-passu with: (i)
the 8% Unsecured Subordinated Convertible Promissory Notes issued by the Maker
pursuant to that certain Securities Purchase Agreement dated as of September 4,
2009 (the “September
2009 Notes”); (ii) the 8% Unsecured Subordinated Convertible Promissory
Notes issued by the Maker pursuant to that certain Securities Purchase Agreement
dated as of July 7, 2009 and amended as of August 6, 2009 and August 24, 2009
(the “July 2009
Notes”); (iii) the 8% Senior Secured Convertible Promissory Notes issued
by the Maker pursuant to that certain Securities Purchase Agreement dated as of
April 2, 2009 (the “April 2009 Notes”);
and (iv) the 15% Senior Secured Convertible Promissory Notes issued by the Maker
pursuant to that certain Securities Purchase Agreement dated as of June 5, 2008
(the “June 2008
Notes” and together with the September 2009 Notes, the July 2009 Notes
and the April 2009 Notes, the “Prior Notes”) and
senior in time and right of payment to all other Indebtedness of the
Maker.  Upon any Liquidation Event, the Holder will be entitled to
receive, before any distribution or payment is made upon, or set apart with
respect to, any Indebtedness of the Maker or any class of capital stock of the
Maker, an amount equal to the principal amount plus all accrued and unpaid
interest thereon. For purposes of this Note, “Liquidation Event”
means a liquidation pursuant to a filing of a petition for bankruptcy under
applicable law or any other insolvency or debtor’s relief, an assignment for the
benefit of creditors, or a voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Maker.

     

    
      
        
        

      

      
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    1.9          Secured
Note.  The full amount of this Note is secured by the
Collateral identified and described as security therefor in the Security
Agreement dated as of March 9, 2010 (the “Security Agreement”) by and between
the Maker and Tang Capital Partners, L.P., as agent (“Agent”) for the benefit of
the Purchasers set forth in the Purchase Agreement.

     

    ARTICLE
2

     

    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 (1) the principal amount hereunder or under any Other
Note when due, or (2) interest on, or liquidated damages in respect of, this
Note or any Other Note, as and when the same shall become due and payable
(whether on the Maturity Date or by acceleration or otherwise); or

     

    (b)           the
Maker shall fail to observe or perform any other covenant, condition or
agreement contained in this Note or any Other Note which failure is not cured,
if possible to cure, within three (3) Trading Days after notice of such default
sent by the Holder or by any Other Holder; or

     

    (c)           the
failure of the Common Stock to be listed on a Trading Market for a period of
twenty (20) consecutive Trading Days; or

     

    (d)           the
Maker’s notice to the Holder, including by way of public announcement, at any
time, of its inability to comply (including for any of the reasons described in
Section 3.7(a) hereof) or its intention not to comply with proper requests for
conversion of this Note into shares of Common Stock; or

     

    (e)           the
Maker shall fail to (i) timely deliver the shares of Common Stock as and when
required herein, (ii) make the payment of any fees and/or liquidated damages
under this Note, the Purchase Agreement or the other Transaction Documents,
which failure is not remedied within three (3) Trading Days after the incurrence
thereof; or

     

    (f)           default
shall be made in the performance or observance of any material covenant,
condition or agreement contained in the Purchase Agreement or any other
Transaction Document that is not covered by any other provisions of this Section
2.1 and such default is not fully cured within seven (7) Trading Days after the
Maker receives notice from the Holder of the occurrence thereof; or

     

    (g)          at
any time following the consummation of the Reverse Stock Split Maker shall fail
to have a sufficient number of shares of Common Stock authorized, reserved and
available for issuance to satisfy the potential conversion in full (disregarding
for this purpose any and all limitations of any kind on such conversion) of this
Note and each Other Note (including the Notes issuable in payment of interest on
all outstanding Notes and the Notes issuable upon exercise of the Debt
Warrants); or

     

    
      
        
        

      

      
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    (h)          any
material representation or warranty made by the Maker or any of its Subsidiaries
herein or in the Purchase Agreement, the Notes or any other Transaction Document
shall prove to have been false or incorrect or breached in a material respect on
the date as of which made; or

     

    (i)           the
Maker shall, or shall announce an intention to, consider, pursue or consummate a
Change of Control (as defined below), or a Change of Control shall be
consummated, or Maker shall negotiate, consider, propose or enter into any
agreement, understanding or arrangement with respect to any Change of
Control.  A “Change of Control”
shall mean:

     

    (i)           the
consolidation, merger or other business combination of the Maker with or into
another Person (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Maker or
(B) a consolidation, merger or other business combination in which holders of
the Maker’s voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities); or

     

    (ii)           the
sale, transfer disposition or exclusive license of more than fifty percent (50%)
of the Maker’s intellectual property or assets (based on the fair market value
as determined in good faith by the Holders) other than inventory in the ordinary
course of business in one or a related series of transactions, except for any
such transaction described in this clause (ii) that has been approved in writing
by the holders of at least 66 2/3% of the combined principal amount of the then
outstanding Notes; or

     

    (iii)           closing
of a purchase, tender or exchange offer made to the holders of more than fifty
percent (50%) of the outstanding shares of Common Stock in which more than fifty
percent (50%) of the outstanding shares of Common Stock were tendered and
accepted; or

     

    (j)           the
Maker or any of its Subsidiaries shall (A) default in any payment of any amount
or amounts of principal of or interest on any Indebtedness (other than the
Indebtedness hereunder or under the Other Notes), the aggregate principal amount
of which Indebtedness is in excess of $250,000 or (B) default in the observance
or performance of any other agreement or condition relating to any such
Indebtedness or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, or to permit the
holder or holders or beneficiary or beneficiaries of such Indebtedness to cause
with the giving of notice if required, such Indebtedness to become due prior to
its stated maturity; or

     

    
      
        
        

      

      
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    (k)          the
Maker or any of its Subsidiaries 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, or (vii) take
any action under the laws of any jurisdiction (foreign or domestic) analogous to
any of the foregoing; or

     

    (l)           a
proceeding or case shall be commenced in respect of the Maker or any of its
Subsidiaries, 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 the liquidation
or dissolution of the Maker or any of its Subsidiaries 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 Maker or any of its
Subsidiaries or action under the laws of any jurisdiction (foreign or domestic)
analogous to any of the foregoing shall be taken with respect to the Maker or
any of its Subsidiaries and shall continue undismissed, or unstayed and in
effect for a period of sixty (60) days; or

     

    (m)          the
failure of the Maker to instruct its transfer agent to remove any legends from
shares of Common Stock and issue such unlegended certificates to the Holder
within three (3) Trading Days of the Holder’s request so long as the Holder has
provided reasonable assurances to the Maker that such shares of Common Stock can
be sold pursuant to Rule 144; or

     

    (n)           the
occurrence of an Event of Default under any of the Other Notes or any of the
Prior Notes; or

     

    (o)           the
Maker deregisters its shares of Common Stock and as a result such shares of
Common Stock are no longer publicly traded; or

     

    (p)           the
Maker consummates a “going private” transaction and as a result the Common Stock
is no longer registered under Sections 12(b) or 12(g) of the Exchange Act;
or

     

    (q)           there
shall be any SEC or judicial stop trade order or trading suspension stop-order
or any restriction in place with the transfer agent for the Common Stock
restricting the trading of such Common Stock; or

     

    (r)           the
occurrence of a Material Adverse Effect in respect of the Maker or any of its
Subsidiaries taken as a whole; or

     

    (s)           the
Maker shall, as payment of interest hereon, issue invalid Notes.

     

    
      
        
        

      

      
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    2.2          Remedies Upon An Event of
Default.  Upon the occurrence of any Event of Default, the
Maker shall, as promptly as possible but in any event within one (1) Trading Day
of the occurrence of such Event of Default, notify the Holder of the occurrence
of such Event of Default, describing the event or factual situation giving rise
to the Event of Default and specifying the relevant subsection or subsections of
Section 2.1 hereof under which such Event of Default has occurred.  If
an Event of Default shall have occurred and shall be continuing, the Agent, at
any time prior to the full release of the security interest in the Collateral,
and thereafter, the Holder of this Note, may at any time at its option declare
the entire unpaid principal balance of this Note, together with all interest
accrued hereon, due and payable, and thereupon, the same shall be accelerated
and so due and payable, without presentment, demand, protest, or notice, all of
which are hereby expressly unconditionally and irrevocably waived by the Maker;
provided, however, that
upon the occurrence of an Event of Default described above, the Agent, at any
time prior to the full release of the security interest in the Collateral, and
thereafter, the Holder, in each case in its sole and absolute discretion, may
(a) demand the redemption of this Note pursuant to Section 3.6(a) hereof, (b)
demand that the principal amount of this Note then outstanding and all accrued
and unpaid interest thereon shall be converted into shares of Common Stock at
the Conversion Price per share on the Trading Day immediately preceding the date
the Holder demands conversion pursuant to this clause, or (c) exercise or
otherwise enforce any one or more of the Holder’s rights, powers, privileges,
remedies and interests under this Note, the Purchase Agreement, the other
Transaction Documents or applicable law.  No course of delay on the
part of the Agent or Holder shall operate as a waiver thereof or otherwise
prejudice the rights of the Agent or Holder.  No remedy conferred
hereby shall be exclusive of any other remedy referred to herein or now or
hereafter available at law, in equity, by statute or otherwise.  Prior
to the full release of the security interest in the Collateral, all payments
received by Holder in respect of the Collateral shall be received in trust for
the benefit of the Agent for the benefit of all Holders of D Notes, shall be
segregated from other funds of Holder, and shall be forthwith paid over to the
Agent in the same form as so received (with any necessary
endorsement).

     

    ARTICLE
3

     

    3.1          Conversion.

     

    (a)           Voluntary
Conversion.  (A) At any time and from time to time on or after
the date that is six (6) months following the Issuance Date and (B) at any time
and from time to time on or after the Trading Day immediately preceding the
Maturity Date, and, in the case of conversions pursuant to the preceding clause
(A), subject to Section 3.1(c) hereof, this Note shall be convertible (in whole
or in part), at the option of the Holder, into such number of fully paid and
non-assessable shares of Common Stock as is determined by dividing (x) that
portion of the outstanding principal balance and accrued and unpaid interest on
the portion of the outstanding principal balance that the Holder elects to
convert by (y) the Conversion Price (as defined in Section 3.2 hereof) then in
effect on the date on which the Holder faxes a notice of conversion (the “Conversion Notice”),
duly executed, to the Maker (facsimile number (908) 464-1705, Attn.: Raymond P.
Warrell, Jr., M.D.) (the “Voluntary Conversion
Date”). The Holder shall deliver this Note to the Maker at the address
designated in the Purchase Agreement at such time that this Note is fully
converted. With respect to partial conversions of this Note, the Maker shall
keep written records of the amount of this Note converted as of each Conversion
Date.

     

    
      
        
        

      

      
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    (b)           Mandatory Conversion.
On any Mandatory Conversion Date (as defined below), subject to Section 3.4
hereof, the Maker may cause all or any portion of the Notes to convert into a
number of fully paid and nonassessable shares of Common Stock equal to the
quotient of (i) the outstanding principal and accrued and unpaid interest on the
Notes to be converted divided by (ii) the Conversion Price in effect on the
Mandatory Conversion Date by providing five (5) Trading Days prior written
notice (the “Mandatory
Conversion Notice”) of such Mandatory Conversion Date.  Any
such conversion shall be made pro-rata amongst all Holders of Notes. As used
herein, a “Mandatory
Conversion Date” shall be a date, any time after the Issuance Date, on
which the VWCP (as defined in Section 5.13(j)) for the ten (10) consecutive
Trading Day period ending on the Trading Day immediately prior to the date on
which the Mandatory Conversion Notice is delivered equals or exceeds $0.25 (as
appropriately adjusted for stock splits, stock dividends, reorganizations,
recapitalizations, stock combinations and the like); provided, that on each
Trading Day during the period beginning on the first day of such ten (10)
consecutive Trading Day period and ending on the date of the delivery of such
shares of the Common Stock issuable upon such mandatory conversion (A) the
Equity Conditions shall have been satisfied and (B) the Common Stock shall have
been Tradable.  The Mandatory Conversion Date and the Voluntary
Conversion Date collectively are referred to in this Note as the “Conversion
Date.”  The Company shall publicly disclose the delivery of the
Mandatory Conversion Notice pursuant to this paragraph in a Form 8-K within one
Trading Day of the date on which it delivers written notice to the Holders of
the Notes.  If and only if: (A) the Maker shall have delivered the
Mandatory Conversion Notice and shall have made the Form 8-K disclosure required
by the preceding sentence with respect to a Mandatory Conversion Date and (B)
this Note is not fully converted into shares of Common Stock on the applicable
Mandatory Conversion Date as a result of the limitations set forth in Section
3.4 hereof, then, until the Notes have been completely converted into shares of
Common Stock and only for so long as the shares of Common Stock issuable upon
conversion of this Note remain Tradable: (x) at the end of each five (5) Trading
Day period following such Mandatory Conversion Date (the fifth Trading Day of
such Period, the “Automatic Conversion
Date”), all outstanding principal and accrued and unpaid interest on the
Notes as of the end of such five (5) Trading Day period shall convert into
shares of Common Stock without any further action on the part of the Holder or
Maker (subject to Section 3.4 hereof but without any recalculation of the
criteria for determination of a Mandatory Conversion Date) and (y) the Holder
shall, subject to compliance with all applicable state and federal securities
laws, within fifteen (15) Trading Days of such Mandatory Conversion Date or
Automatic Conversion Date, as applicable, sell the shares of Common Stock issued
to such Holder upon the conversion of this Note on such Mandatory Conversion
Date or Automatic Conversion Date, as applicable; provided that the Holder
shall not be required to sell any more shares of Common Stock than would be
required to permit the entire conversion of the remaining portion of this Note
on the next Automatic Conversion Date.

     

    (c)           Conversion
Limitations.  Each Holder hereby agrees that such Holder will
not convert this Note pursuant to clause (A) of Section 3.1(a) on any day to the
extent that, together with all prior conversions under this Note, the total
amount of this Note (rounded to the nearest $0.01) that has been converted
exceeds the product (rounded to the nearest $0.01) of (A) 25% of the principal
amount of this Note on the Issuance Date multiplied by (B) the number of whole
or partial Weeks since December 3, 2010.  “Week” means a
consecutive seven (7) calendar day period.

     

    
      
        
        

      

      
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    3.2          Conversion
Price.  The term “Conversion Price”
shall mean $0.01.

     

    3.3          Mechanics of
Conversion.

     

    (a)           Not
later than three (3) Trading Days after any Conversion Date (the “Delivery Date”), the
Maker 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 Notice, registered in the name of the Holder or its designee,
the number of shares of Common Stock to which the Holder is entitled, free from
any restrictive legend.  If in the case of any Conversion Notice such
shares 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 Maker at
any time on or before its receipt of such shares, to rescind such conversion, in
which event the Maker shall immediately return this Note tendered for
conversion, whereupon the Maker and the Holder shall each be restored to their
respective positions immediately prior to the delivery of such notice of
revocation, except that any amounts described in Sections 3.3(b) and (c) hereof
shall be payable through the date notice of rescission is given to the
Maker.

     

    (b)           The
Maker understands that a delay in the delivery of the shares of Common Stock
upon conversion of this Note beyond the Delivery Date could result in economic
loss to the Holder.  If the Maker fails to deliver to the Holder such
shares via DWAC by the Delivery Date, the Maker shall pay to such Holder, in
cash, an amount per Trading Day for each Trading Day until such shares are
delivered via DWAC, together with interest on such amount at a rate of 15% per
annum, accruing until such amount and any accrued interest thereon is paid in
full, equal to the greater of (A) (i) 1% of the aggregate principal amount of
the Notes requested to be converted for each of the first five (5) Trading Days
after the Delivery Date and (ii) 2% of the aggregate principal amount of the
Notes requested to be converted for each Trading Day thereafter and (B) $2,000
per day (which amount shall be paid as liquidated damages and not as a
penalty).  Nothing herein shall limit a Holder’s right to pursue
actual damages for the Maker’s failure to deliver certificates representing
shares of Common Stock upon conversion 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).  Notwithstanding anything to the contrary
contained herein, the Holder shall be entitled to withdraw a Conversion Notice,
and upon such withdrawal the Maker shall only be obligated to pay the liquidated
damages accrued in accordance with this Section 3.3(b) through the date the
Conversion Notice is withdrawn.

     

    
      
        
        

      

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

     

    3.4          Ownership
Cap.  Notwithstanding anything to the contrary set forth in
Section 3 of this Note: (i) at no time may the Company issue to Holder shares of
Common Stock, and (ii) at no time may the Holder convert any portion of this
Note into shares of Common Stock, if the number of shares of Common Stock to be
issued pursuant to such issuance or conversion would exceed, when aggregated
with all other shares of Common Stock owned by the Holder at such time and all
shares of Common Stock that the Holder is then the beneficial owner of (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder), the number of shares of Common Stock that would result in the
Holder beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act and the rules thereunder) more than 9.999% of the then issued
and outstanding shares of Common Stock.

     

    3.5          Adjustment of Conversion
Price.

     

    (a)           Until
the Note has been paid in full or converted in full, the Conversion Price shall
be subject to adjustment from time to time as follows (but shall not be
increased, other than pursuant to Section 3.5(a)(i) hereof):

     

    (i)           Adjustments for Stock Splits
and Combinations.  If the Maker shall at any time or from time
to time after the Closing Date (but whether before or after the Issuance Date)
effect a split of the outstanding Common Stock, the applicable Conversion Price
in effect immediately prior to the stock split shall be proportionately
decreased.  If the Maker shall at any time or from time to time after
the Closing Date (but whether before or 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 3.5(a)(i) shall be
effective at the close of business on the date the stock split or combination
occurs.

     

    
      
        
        

      

      
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    (ii)          Adjustments for Certain
Dividends and Distributions.  If the Maker shall at any time or
from time to time after the Closing Date (but whether before or after the
Issuance Date) make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in shares of Common Stock, 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:

     

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

     

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

     

    (iii)         Adjustment for Other
Dividends and Distributions.  If the Maker shall at any time or
from time to time after the Closing Date (but whether before or after the
Issuance Date) make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in other than shares of Common Stock, then, and in each event, an
appropriate revision to the applicable Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the Holder of this Note shall receive upon conversions thereof, in addition
to the number of shares of Common Stock receivable thereon, the number of
securities of the Maker or other issuer (as applicable) or other property that
it would have received had this Note been converted into Common Stock on the
date of such event and had thereafter, during the period from the date of such
event to and including the Conversion Date, retained such securities (together
with any distributions payable thereon during such period) or assets, giving
application to all adjustments called for during such period under this Section
3.5(a)(iii) with respect to the rights of the holders of this Note and the Other
Notes; provided,
however, that if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be adjusted pursuant to this paragraph as
of the time of actual payment of such dividends or distributions.

     

    (iv)          Adjustments for
Reclassification, Exchange or Substitution.  If the Common
Stock at any time or from time to time after the Closing Date (but whether
before or after the Issuance Date) shall be changed to the same or different
number of shares or other securities of any class or classes of stock or other
property, 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 Sections 3.5(a)(i), (ii) and (iii) hereof, or a reorganization,
merger, consolidation, or sale of assets provided for in Section 3.5(a)(v)
hereof), 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 or
other securities or other property receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common Stock
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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    (v)           Adjustments for Issuance of
Additional Shares of Common Stock.  In the event the Maker
shall at any time or from time to time after the Closing Date (but whether
before or after the Issuance Date) issue or sell any additional shares of Common
Stock  (“Additional Shares of Common
Stock”) (otherwise than as provided in the foregoing subsections (i)
through (v) of this Section 3.5(a) or pursuant to Common Stock Equivalents
(hereafter defined) granted or issued prior to the Closing Date), at an
effective price per share less than the Conversion Price then in effect or
without consideration, then the Conversion Price upon each such issuance shall
be reduced to a price equal to the consideration per share paid for such
Additional Shares of Common Stock.  For purposes of clarification, the
amount of consideration received for such Additional Shares of Common Stock
shall not include the value of any additional securities or other rights
received in connection with such issuance of Additional Shares of Common Stock
(ie. warrants, rights of first refusal or other similar rights).

     

    (vi)          Issuance, Amendment or
Adjustment of Common Stock Equivalents.  If (A) the Maker, at
any time after the Closing Date (but whether before or after the Issuance Date),
shall issue any securities convertible into or exercisable or exchangeable for,
directly or indirectly, Common Stock (“Convertible
Securities”), other than the Notes and the Other Notes, or any rights or
warrants or options to purchase any such Common Stock or Convertible Securities
(collectively with the Convertible Securities the “Common Stock
Equivalents”) and the price per share for which shares of Common Stock
may be issuable pursuant to any such Common Stock Equivalent shall be less than
the applicable Conversion Price then in effect, or (B) the price per share for
which shares of Common Stock may be issuable under any Common Stock Equivalents
(including, without limitation, the B Notes, C Notes, D Notes and E Notes and
regardless of when such Common Stock Equivalents were issued) is amended or
adjusted, pursuant to the terms of such Common Stock Equivalents or otherwise,
and such price as so amended or adjusted shall be less than the applicable
Conversion Price in effect at the time of such amendment or adjustment, then, in
each such case (A) or (B), the applicable Conversion Price upon each such
issuance or amendment or adjustment shall be adjusted as provided in subsection
(vi) of this Section 3.5(a) as if the maximum number of shares of Common Stock
issuable upon conversion, exercise or exchange of such Common Stock Equivalents
had been issued on the date of such issuance or amendment or
adjustment.

     

    (vii)    
    Consideration for
Stock.  In case any shares of Common Stock or any Common Stock
Equivalents shall be issued or sold:

     

    (1)           in
connection with any merger or consolidation in which the Maker is the surviving
corporation (other than any consolidation or merger in which the previously
outstanding shares of Common Stock of the Maker shall be changed to or exchanged
for the stock or other securities of another corporation), the amount of
consideration therefor shall be, deemed to be the fair value, as determined
reasonably and in good faith by the Board of Directors of the Maker and approved
by holders of at least 66 2/3% of the combined principal amount of the then
outstanding Notes, of such portion of the assets and business of the
nonsurviving corporation as such Board may determine to be attributable to such
shares of Common Stock, Convertible Securities, rights or warrants or options,
as the case may be; or

     

    
      
        
        

      

      
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    (2)           in
the event of any consolidation or merger of the Maker in which the Maker is not
the surviving corporation or in which the previously outstanding shares of
Common Stock of the Maker shall be changed into or exchanged for the stock or
other securities of another corporation or other property, or in the event of
any sale of all or substantially all of the assets of the Maker for stock or
other securities or other property of any corporation, the Maker shall be deemed
to have issued shares of its Common Stock, at a price per share equal to the
valuation of the Maker’s Common Stock based on the actual exchange ratio on
which the transaction was predicated, as applicable, and the fair market value
on the date of such transaction of all such stock or securities or other
property of the other corporation. If any such calculation results in adjustment
of the applicable Conversion Price, or the number of shares of Common Stock
issuable upon conversion of the Notes, the determination of the applicable
Conversion Price or the number of shares of Common Stock issuable upon
conversion of the Notes immediately prior to such merger, consolidation or sale,
shall be made after giving effect to such adjustment of the number of shares of
Common Stock issuable upon conversion of the Notes. In the event Common Stock is
issued with other shares or securities or other assets of the Maker for
consideration which covers both, the consideration computed as provided in this
Section 3.5(a)(viii) shall be allocated among such securities and assets as
determined in good faith by the Board of Directors of the Maker, and approved by
the holders of at least 66 2/3% of the combined principal amount of the then
outstanding Notes.

     

    (viii)       Adjustment for December
10-Day VWCP.  If the VWCP for the ten (10) consecutive Trading
Day period ending on the last Trading Day prior to December 31, 2010 (the “December 10-Day
VWCP”) is less than $0.10 (as adjusted for the Reverse Stock Split and
any other stock splits, combinations, recapitalizations or the like), then the
Conversion Price shall be reduced to a price equal to ten percent (10%) of the
December 10-Day VWCP.  The Holder hereby agrees that during the period
of time in which the December 10-Day VWCP is calculated as provided above, the
Holder will not engage in any short sales of the Maker’s Common
Stock.  In addition, the Maker hereby agrees that it will not issue
any press releases or file any periodic reports on Form 8-K under the Exchange
Act, except where required by law, during the period of time in which the
December 10-Day VWCP is being calculated.

     

    (b)           Record Date. In case
the Maker shall take record of the holders of its Common Stock for the purpose
of entitling them to subscribe for or purchase Common Stock or Convertible
Securities, then the date of the issue or sale of the shares of Common Stock
shall be deemed to be such record date.

     

    (c)           Certain Issues
Excepted. Anything herein to the contrary notwithstanding, the Maker
shall not be required to make any adjustment to the Conversion Price in
connection with any of the transactions described in clauses (i), (ii) and (iv)
of  Section 3.17(b) of the Purchase Agreement.

     

    
      
        
        

      

      
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    (d)           No Impairment. The
Maker 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 Maker, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3.5 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. In the event a Holder shall
elect to convert any Notes as provided herein, the Maker cannot refuse
conversion based on any claim that such Holder or any one 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 or adjoining
conversion of all or of said Notes shall have issued and the Maker 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 Notes 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.

     

    (e)           Certificates as to
Adjustments. Upon occurrence of each adjustment or readjustment of the
Conversion Price or number of shares of Common Stock issuable upon conversion of
this Note pursuant to this Section 3.5, the Maker 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 Maker 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 shares of Common Stock 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
Maker 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.

     

    (f)           Issue Taxes. The
Maker 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
shares of Common Stock on conversion of this Note pursuant
thereto;  provided,
however, that the Maker shall not be obligated to pay any transfer taxes
resulting from any transfer requested by the Holder in connection with any such
conversion.

     

    (g)           Fractional Shares. No
fractional shares of Common Stock shall be issued upon conversion of this Note.
In lieu of any fractional shares to which the Holder would otherwise be
entitled, the Maker shall pay cash equal to the product of such fraction
multiplied by the VWCP for the five (5) consecutive Trading Day period
immediately preceding, but not including, the Conversion Date.

     

    (h)           Reservation of Common
Stock.  The Maker shall at all times after the date that is one
day prior to the first day on which the October 10-Day VWCP (as defined in the B
Note) is being calculated and while this Note shall be outstanding, reserve and
keep available out of its authorized but unissued Common Stock, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of this Note and all interest accrued thereon (disregarding for this
purpose any and all limitations of any kind on such conversion).  The
Maker shall, from time to time in accordance with the Delaware General
Corporation Law, increase the authorized number of shares of Common Stock or
take other effective action if at any time the unissued number of authorized
shares shall not be sufficient to satisfy the Maker’s obligations under this
Section 3.5(h).

     

    
      
        
        

      

      
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    (i)           Regulatory
Compliance. If any shares of Common Stock to be reserved for the purpose
of conversion of this Note or any interest accrued thereon 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 Maker
shall, at its sole cost and expense, in good faith and as expeditiously as
possible, secure such registration, listing or approval, as the case may
be.

     

    (j)           Effect of Events Prior to
the Issuance Date.  If the Issuance Date of this Note is after
the Closing Date, then, if the Conversion Price or any other right of the Holder
of this Note would have been adjusted or modified by operation of any provision
of this Note had this Note been issued on the Closing Date, such adjustment or
modification shall be deemed to apply to this Note as of the Issuance Date as if
this Note had been issued on the Closing Date.

     

    3.6          Prepayment.

     

    (a)           Prepayment Upon an Event of
Default.  Notwithstanding anything to the contrary contained
herein, upon the occurrence of an Event of Default, the Agent, at any time prior
to the full release of the security interest in the Collateral, and thereafter,
the Holder, shall have the right, at the Holder’s option to require the Maker to
prepay all or a portion of this Note in cash at a price equal to the sum of (i)
the greater of (A) one hundred percent (100%) of the aggregate principal amount
of this Note plus all accrued and unpaid interest and (B) (I) the aggregate
principal amount of this Note plus all accrued but unpaid interest hereon,
divided by (II) the Conversion Price on (x) the date the Prepayment Price (as
defined below) is demanded or otherwise due or (y) the date the Prepayment Price
is paid in full, whichever is less, multiplied by (III) the Daily Closing Price
on (1) the date the Prepayment Price is demanded or otherwise due, or (2) the
date the Prepayment Price is paid in full, or (3) the date immediately prior to
the occurrence of such Event of Default, whichever is greatest, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of this
Note and the other Transaction Documents (the “Prepayment
Price”).

     

    (b)           Mechanics of Prepayment at
Option of Holder in Connection with a Change of Control.  No
sooner than fifteen (15) days prior to nor later than ten (10) days prior to the
consummation of a Change of Control, but not prior to the public announcement of
such Change of Control, the Maker shall deliver written notice thereof via
facsimile and overnight courier (“Notice of Change of
Control”) to the Holder of this Note and to each Other Holder of the
Other Notes.  At any time after receipt of a Notice of Change of
Control (or, in the event a Notice of Change of Control is not delivered at
least ten (10) days prior to a Change of Control, at any time within ten (10)
days prior to a Change of Control), any holder of the Notes then outstanding may
require the Maker to prepay, effective immediately prior to the consummation of
such Change of Control, all of the holder’s Notes then outstanding by delivering
written notice thereof via facsimile and overnight courier (“Notice of Prepayment at
Option of Holder Upon Change of Control”) to the Maker, which Notice of
Prepayment at Option of Holder Upon Change of Control shall indicate (i) the
principal amount of the Notes that such holder is electing to have prepaid and
(ii) the applicable Prepayment Price, as calculated pursuant to Section 3.6(a)
above. In the event the Maker receives a Notice of Prepayment at Option of
Holder Upon Change of Control from more than one Holder of the Notes and the
Maker can prepay some, but not all, of the Notes pursuant to this Section 3.6,
the Maker shall prepay from each Holder of the Notes electing to have its Notes
prepaid at such time an amount equal to such Holder’s pro-rata amount (based on
the principal amount of the Notes held by such Holder relative to the principal
amount of the Notes outstanding) of all the Notes being prepaid at such
time.

     

    
      
        
        

      

      
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    (c)           Mechanics of Prepayment at
Option of Holder Upon Other Event of Default.  Within one (1)
Trading Day after the occurrence of an Event of Default other than a Change of
Control, the Maker shall deliver written notice thereof via facsimile and
overnight courier (“Notice of Event of
Default”) to each Holder of the Notes. At any time after the earlier of a
Holder’s receipt of a Notice of Event of Default and such Holder becoming aware
of an Event of Default, any Holder of this Note may require the Maker to prepay
all (but not less than all) of the Notes held by such Holder by delivering
written notice thereof via facsimile and overnight courier (“Notice of Prepayment at
Option of Holder Upon Event of Default”) to the Maker, which Notice of
Prepayment at Option of Holder Upon Event of Default shall indicate the
applicable Prepayment Price, as calculated pursuant to Section 3.6(a) above. In
the event the Maker receives a Notice of Prepayment at Option of Holder Upon
Event of Default from more than one Holder of the Notes and the Maker can prepay
some, but not all, of the Notes pursuant to this Section 3.6, the Maker shall
prepay from each Holder of the Notes electing to have its Notes prepaid at such
time an amount equal to such Holder’s pro-rata amount (based on the principal
amount of the Notes held by such Holder relative to the principal amount of the
Notes outstanding) of all the Notes being prepaid at such time.

     

    
      
        
        

      

      
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    (d)           Payment of Prepayment
Price. Upon the Maker’s receipt of a Notice(s) of Prepayment at Option of
Holder Upon Event of Default or a Notice(s) of Prepayment at Option of Holder
Upon Change of Control from any Holder of the Notes, the Maker shall immediately
notify each holder of the Notes by facsimile of the Maker’s receipt of such
Notice(s) of Prepayment at Option of Holder Upon Event of Default or Notice(s)
of Prepayment at Option of Holder Upon Change of Control and each holder which
has sent such a notice shall promptly submit to the Maker such holder’s original
Notes that are to be prepaid. The Maker shall deliver the applicable Prepayment
Price, in the case of a prepayment pursuant to Section 3.6(c) hereof, to such
holder within five (5) Trading Days after the Maker’s receipt of a Notice of
Prepayment at Option of Holder Upon Event of Default and, in the case of a
prepayment pursuant to Section 3.6(b) hereof, the Maker shall deliver the
applicable Prepayment Price immediately prior to the consummation of the Change
of Control; provided that a holder’s original Note shall have been so delivered
to the Maker; provided further that if the Maker is unable to prepay all of the
Notes to be prepaid, the Maker shall prepay an amount from each holder of the
Notes being prepaid equal to such holder’s pro-rata amount (based on the number
of Notes held by such holder relative to the number of Notes outstanding) of all
Notes being prepaid.  If the Maker shall fail to prepay all of the
Notes submitted for prepayment (including as a result of a dispute as to the
calculation of the Prepayment Price), in addition to any remedy such holder of
the Notes may have under this Note and the Purchase Agreement, the applicable
Prepayment Price payable in respect of such Notes not prepaid shall bear
interest at the rate of two percent (2%) per month (prorated for partial months)
until paid in full. Until the Maker pays such unpaid applicable Prepayment Price
in full to a holder of the Notes submitted for prepayment, such holder shall
have the option to, in lieu of prepayment, require the Maker to promptly return
to such holder(s) all of the Notes that were submitted for prepayment by such
holder(s) under this Section 3.6 and for which the applicable Prepayment Price
has not been paid, by sending written notice thereof to the Maker via facsimile
(the “Void Optional
Prepayment Notice”).  Maker shall promptly send a copy of such
Void Optional Prepayment Notice to each of the Other Holders. Upon the Maker’s
receipt of such Void Optional Prepayment Notice(s) and prior to payment of the
full applicable Prepayment Price to such holder, (i) the Notice(s) of Prepayment
at Option of Holder Upon Event of Default or the Notice(s) of Prepayment at
Option of Holder Upon Change of Control, as the case may be, shall be null and
void with respect to those Notes submitted for prepayment and for which the
applicable Prepayment Price has not been paid, (ii) the Maker shall immediately
return any Notes submitted to the Maker by each holder for prepayment under this
Section 3.6(d) and for which the applicable Prepayment Price has not been paid
and (iii) the Conversion Price of such returned Notes shall be adjusted to the
lesser of (A) the Conversion Price as in effect on the date on which the Void
Optional Prepayment Notice(s) is delivered to the Maker and (B) the lowest Daily
Closing Price during the period beginning on the date on which the Notice(s) of
Prepayment of Option of Holder Upon Change of Control or the Notice(s) of
Prepayment at Option of Holder Upon Event of Default, as the case may be, is
delivered to the Maker and ending on the date on which the Void Optional
Prepayment Notice(s) is delivered to the Maker; provided  that no
adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect.  A holder’s delivery of a Void
Optional Prepayment Notice and exercise of its rights following such notice
shall not affect the Maker’s obligations to make any payments which have accrued
prior to the date of such notice. Payments provided for in this Section 3.6
shall have priority to payments to other creditors and stockholders in
connection with a Change of Control.

     

    3.7          Inability to Fully
Convert.

     

    (a)           Holder’s Option if Maker
Cannot Fully Convert. If, upon the Maker’s receipt of a Conversion
Notice, the Maker cannot issue shares of Common Stock for any reason, including,
without limitation, because the Maker (x) does not have a sufficient number of
shares of Common Stock authorized and available or (y) is otherwise prohibited
by applicable law or by the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Maker or any of its securities from issuing all of the
Common Stock which is to be issued to the Holder pursuant to a Conversion
Notice, then the Maker shall issue as many shares of Common Stock as it is able
to issue in accordance with the Holder’s Conversion Notice and, with respect to
the unconverted portion of this Note, the Holder, solely at Holder’s option, can
elect to:

     

    (i)           require
the Maker to prepay that portion of this Note for which the Maker is unable to
issue Common Stock in accordance with the Holder’s Conversion Notice (the “Mandatory
Prepayment”) at a price equal to the Prepayment Price as of such
Conversion Date (the “Mandatory Prepayment
Price”);

     

    (ii)          void
its Conversion Notice and retain or have returned, as the case may be, this Note
that was to be converted pursuant to the Conversion Notice (provided that the
Holder’s voiding its Conversion Notice shall not effect the Maker’s obligations
to make any payments which have accrued prior to the date of such notice);
or

     

    
      
        
        

      

      
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    (iii)        exercise
its Buy-In rights pursuant to and in accordance with the terms and provisions of
Section 3.3(c) of this Note.

     

    (b)           Mechanics of Fulfilling
Holder’s Election. The Maker shall immediately send via facsimile to the
Holder and to each of the Other Holders, upon receipt of a facsimile copy of a
Conversion Notice from the Holder, which cannot be fully satisfied as described
in Section 3.7(a) above, a notice of the Maker’s inability to fully satisfy the
Conversion Notice (the “Inability to Fully Convert
Notice”). Such Inability to Fully Convert Notice shall indicate (i) the
reason why the Maker is unable to fully satisfy such holder’s Conversion Notice,
(ii) the amount of this Note which cannot be converted and (iii) the applicable
Mandatory Prepayment Price. The Holder shall notify the Maker of its election
pursuant to Section 3.7(a) above by delivering written notice via facsimile to
the Maker (“Notice in
Response to Inability to Convert”). Maker shall promptly deliver a copy
of such Notice in Response to Inability to Convert to each of the Other
Holders.

     

    (c)           Payment of Prepayment
Price. If the Holder shall elect to have its Notes prepaid pursuant to
Section 3.7(a)(i) above, the Maker shall pay the Mandatory Prepayment Price to
the Holder within three (3) days of the Maker’s receipt of the Holder’s Notice
in Response to Inability to Convert;  provided  that prior
to the Maker’s receipt of the Holder’s Notice in Response to Inability to
Convert the Maker has not delivered a notice to the Holder stating, to the
satisfaction of the Holder, that the event or condition resulting in the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms of
this Note.  If the Maker shall fail to pay the applicable Mandatory
Prepayment Price to the Holder on the date that is one (1) Trading Day following
the Maker’s receipt of the Holder’s Notice in Response to Inability to Convert
(including as a result of a dispute as to the determination of the calculation
of the Prepayment Price), in addition to any remedy the Holder may have under
this Note and the Purchase Agreement, such unpaid amount shall bear interest at
the rate of two percent (2%) per month (prorated for partial months) until paid
in full. Until the full Mandatory Prepayment Price is paid in full to the
Holder, the Holder may (i) void the Mandatory Prepayment with respect to that
portion of the Note for which the full Mandatory Prepayment Price has not been
paid, (ii) receive back such Note, and (iii) require that the Conversion Price
of such returned Note be adjusted to the lesser of (A) the Conversion Price as
in effect on the date on which the Holder voided the Mandatory Prepayment and
(B) the lowest Daily Closing Price during the period beginning on the Conversion
Date and ending on the date the Holder voided the Mandatory
Prepayment.

     

    (d)           Pro-rata Conversion and
Prepayment. In the event the Maker receives a Conversion Notice from more
than one holder of the Notes on the same day and the Maker can convert and
prepay some, but not all, of the Notes pursuant to this Section 3.7, the Maker
shall convert and prepay from each holder of the Notes electing to have its
Notes converted and prepaid at such time an amount equal to such holder’s
pro-rata amount (based on the principal amount of the Notes held by such holder
relative to the principal amount of the Notes and Other Notes outstanding) of
all the Notes being converted and prepaid at such time.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (e)           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
Maker or of any other matter, or any other rights as a stockholder of the
Maker.

     

    ARTICLE
4

     

    4.1          Covenants. For so
long as any Note is outstanding, without the prior written consent of the
holders of at least 66 2/3% of the combined principal amount of the then
outstanding Notes:

     

    (a)           Compliance with Transaction
Documents. The Maker shall, and shall cause its Subsidiaries to, comply
with its obligations under this Note, the Other Notes and the other Transaction
Documents.

     

    (b)           Payment of Taxes,
Etc. The Maker shall, and shall cause each of its Subsidiaries to,
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Maker and the
Subsidiaries, except for such failures to pay that, individually or in the
aggregate, have not had and would not reasonably be expected to have a Material
Adverse Effect; provided, however , that any such tax, assessment, charge or
levy need not be paid if the validity thereof shall currently be contested in
good faith by appropriate proceedings and if the Maker or such Subsidiaries
shall have set aside on its books adequate reserves with respect thereto, and
provided, further, that the Maker and such Subsidiaries will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefor.

     

    (c)           Corporate Existence.
The Maker shall, and shall cause each of its Subsidiaries to, maintain in full
force and effect its corporate existence, rights and franchises and all licenses
and other rights to use property owned or possessed by it and reasonably deemed
to be necessary to the conduct of its business.

     

    (d)           Investment Company
Act. The Maker shall conduct its businesses in a manner so that it will
not become subject to the Investment Company Act of 1940, as
amended.

     

    (e)           Sale of Collateral;
Liens.  From the date hereof until the full release of the
security interest in the Collateral, (i) Maker shall not sell, lease, transfer
or otherwise dispose of any of the Collateral, or attempt or contract to do so,
and (ii) Maker shall not, directly or indirectly, create, permit or suffer to
exist, and shall defend the Collateral against and take such other action as is
necessary to remove, any lien, security interest or other encumbrance on the
Collateral.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    ARTICLE
5

     

    5.1          Notices. Any notice,
demand, request, waiver or other communication required or permitted to be given
hereunder shall be in writing and shall be effective (a) upon hand delivery,
telecopy or facsimile at the address or number designated in the Purchase
Agreement (if delivered on a Trading Day during normal business hours where such
notice is to be received), or the first Trading Day following such delivery (if
delivered other than on a Trading Day during normal business hours where such
notice is to be received) or (b) on the second Trading Day following the date of
mailing by express courier service, fully prepaid, addressed to such address, or
upon actual receipt of such mailing, whichever shall first occur. The Maker will
give written notice to the Holder at least ten (10) days prior to the date on
which the Maker takes a record (x) with respect to any dividend or distribution
upon the Common Stock, (y) with respect to any pro rata subscription offer to
holders of Common Stock or (z) for determining rights to vote with respect to
any Change of Control, dissolution, liquidation or winding-up and in no event
shall such notice be provided to such holder prior to such information being
made known to the public. The Maker will also give written notice to the Holder
at least ten (10) days prior to the date on which any Change of Control,
dissolution, liquidation or winding-up will take place and in no event shall
such notice be provided to the Holder prior to such information being made known
to the public. The Maker shall promptly notify the Holder of this Note of any
notices sent or received, or any actions taken with respect to the Other
Notes.

     

    5.2          Governing Law. This
Note shall be governed by and construed in accordance with the internal laws of
the State of New York, without giving effect to any of the conflicts of law
principles which would result in the application of the substantive law of
another jurisdiction. This Note shall not be interpreted or construed with any
presumption against the party causing this Note to be drafted.

     

    5.3          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.

     

    5.4          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 Maker 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
thereof and shall not, except as expressly provided herein, be subject to any
other obligation of the Maker (or the performance thereof). The Maker
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 would be inadequate. Therefore the Maker 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
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.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    5.5          Enforcement Expenses.
The Maker agrees to pay all costs and expenses of enforcement of this Note,
including, without limitation, reasonable attorneys’ fees and
expenses.

     

    5.6          Binding
Effect.  The obligations of the Maker 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
herein.

     

    5.7          Amendments.  No
provision of the D Notes may be modified or amended on behalf of all of the
Holders holding D Notes other than by a written instrument signed by the Maker
and the holders of at least 66 2/3% of the combined principal amount of the then
outstanding D Notes; provided
that if any of the rights of the Holder under this Note are materially
diminished by such waiver or amendment in a manner that is not similar in all
material respects to the affect on the rights or obligations of Other Holders
holding D Notes under the D Notes, then such waiver or amendment shall not be
effective with respect to the Holder without the written consent of the
Holder.  The Holder acknowledges that any amendment or modification
made in compliance with this Section 5.7 shall be binding on all Holders of the
D Notes, including, without limitation, an amendment or modification that has an
adverse effect on any or all Holders.  Notwithstanding the foregoing,
nothing provided in this Section 5.7 shall limit the Holder’s right to waive or
amend any provision of this Note on its own behalf.  No consideration
shall be offered or paid to any Holder of D Notes to amend or waive or modify
any provision of the D Notes unless the same consideration is also offered to
all of the Holders holding D Notes on the date of such amendment, waiver or
modification, on a pro rata basis based upon the principal amount of the D Notes
purchased by each such Holder on the Closing Date.  This provision
constitutes a separate right granted to each Holder by the Maker and shall not
in any way be construed as the Holders of D Notes acting in concert or as a
group with respect to the purchase disposition or voting of Securities or
otherwise.

     

    5.8          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 that the Holder shall not offer, sell or
otherwise dispose of this Note in violation of securities laws. 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 THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
SUCH STATE SECURITIES LAWS.”

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    5.9          Consent to
Jurisdiction. Each of the Maker and the Holder (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court
sitting in the Southern District of New York and the courts of the State of New
York located in New York county for the purposes of any suit, action or
proceeding arising out of or relating to this Note and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Maker and the Holder
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under the Purchase Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing in this Section
5.9 shall affect or limit any right to serve process in any other manner
permitted by law. Each of the Maker and the Holder hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to
this Note shall be entitled to reimbursement for reasonable legal fees from the
non-prevailing party.

     

    5.10      
 Parties in
Interest. This Note shall be binding upon, inure to the benefit of and be
enforceable by the Maker, the Holder and their respective successors and
permitted assigns.

     

    5.11      
 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.

     

    5.12        Maker Waivers; Dispute
Resolution. Except as otherwise specifically provided herein, the Maker
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 Maker liable for the payment of this Note, AND DO
HEREBY WAIVE TRIAL BY JURY.

     

    (a)           No
delay or omission on the part of the Holder in exercising its rights under this
Note, or course of conduct relating hereto, shall operate as a waiver of such
rights or any other right of the Holder, 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.

     

    (b)           THE
MAKER 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.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    (c)           In
the case of a dispute as to the determination of the Daily Closing Price or the
VWCP or the arithmetic calculation of the Conversion Price, any adjustment to
the Conversion Price, liquidated damages amount, interest or dividend
calculation, or any redemption price, redemption amount, adjusted Conversion
Price, or similar calculation, or as to whether a subsequent issuance of
securities is prohibited hereunder or would lead to an adjustment to the
Conversion Price, the Maker shall submit the disputed determinations or
arithmetic calculations via facsimile within two (2) Trading Days of receipt, or
deemed receipt, of the Conversion Notice, any redemption notice, default notice
or other event giving rise to such dispute, as the case may be, to the
Holder.  If the Holder and the Maker are unable to agree upon such
determination or calculation within two (2) Trading Days of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Maker shall, within two (2) Trading Days submit via facsimile (a) the disputed
determination of the Daily Closing Price or the VWCP to an independent,
reputable investment bank selected by the Maker and approved by the Holder,
which approval shall not be unreasonably withheld, (b) the disputed arithmetic
calculation of the Conversion Price, adjusted Conversion Price or any redemption
price, redemption amount or default amount to the Maker’s independent, outside
accountant or (c) the disputed facts regarding whether a subsequent issuance of
securities is prohibited hereunder or would lead to an adjustment to the
Conversion Price (or any of the other above described facts not expressly
designated to the investment bank or accountant), to an expert attorney from a
nationally recognized outside law firm (having at least one hundred (100)
attorneys and having with no prior relationship with the Maker) selected by the
Maker and approved by the Lead Purchaser (as defined in the Purchase Agreement).
The Maker, at the Maker’s expense, shall cause the investment bank, the
accountant, the law firm, or other expert, as the case may be, to perform the
determinations or calculations and notify the Maker and the Holder of the
results no later than five (5) Trading Days from the time it receives the
disputed determinations or calculations. Such investment bank’s, accountant’s or
attorney’s determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.

     

    5.13        Definitions.
Capitalized terms used herein and not defined shall have the meanings set forth
in the Purchase Agreement.  For the purposes hereof, the following
terms shall have the following meanings:

     

    (a)           “Affiliate” means any
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with another Person. A Person shall be deemed to be
“controlled by” any other Person if such other Person possesses, directly or
indirectly, power (a) to vote ten percent (10%) or more of the securities (on a
fully diluted basis) having ordinary voting power for the election of directors
or managing general partners; or (b) to direct or cause the direction of the
management and policies of such Person whether by contract or
otherwise.

     

    (b)           “Daily Closing Price”
shall mean, on any particular date (i) the last trading price per share of the
Common Stock on such date during regular trading hours on the principal Trading
Market on which the Common Stock is then listed, or if there is no such price on
such date, then the last trading price during regular trading hours on such
Trading Market on the date nearest preceding such date, or (ii) if the Common
Stock is not listed then on a Trading Market, the last trading price for a share
of Common Stock in the over-the-counter market during regular trading hours, as
reported in the National Quotation Bureau Incorporated or similar organization
or agency succeeding to its functions of reporting prices at the close of
business on such date, or (iii) if the Common Stock is not then reported by the
National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), then the average of the “Pink
Sheet” quotes on such date, as determined in good faith by the Holder, or (iv)
if the Common Stock is not then publicly traded, the fair market value of a
share of Common Stock as determined by the Holder and reasonably acceptable to
the Maker.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    (c)           “Equity Conditions”
shall mean, during the period in question, (i) the Maker shall have duly honored
all conversions and redemptions scheduled to occur or occurring by virtue of one
or more Conversion Notices of the Holder, if any, (ii) all liquidated damages
and other amounts owing to the Holder in respect of this Note shall have been
paid; (iii) the Common Stock is trading on a Trading Market and all of the
shares issuable pursuant to the Transaction Documents are eligible for trading
on a Trading Market (and the Maker believes, in good faith, that trading of the
Common Stock on a Trading Market will continue uninterrupted for the foreseeable
future), (iv) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the
shares then issuable pursuant to the Transaction Documents (disregarding any
limitations on issuance or conversion contained in such documents), (v) there is
then existing no Event of Default or event which, with the passage of time or
the giving of notice, would constitute an Event of Default,  and(vi)
no public announcement of a pending or proposed Change of Control has
occurred.

     

    (d)           “Indebtedness” means
(a) all obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations in respect of letters of credit, bankers acceptances, current swap
agreements, interest rate hedging agreements, interest rate swaps, or other
financial products, (c) all capital lease obligations that exceed $50,000 in the
aggregate in any fiscal year, (d) all obligations or liabilities secured by a
lien or encumbrance on any asset of the Maker, irrespective of whether such
obligation or liability is assumed, (e) all obligations for the deferred
purchase price of assets, together with trade debt and other accounts payable
that exceed $50,000 in the aggregate in any fiscal year, (f) all synthetic
leases, (g) any obligation guaranteeing or intended to guarantee (whether
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse) any of the foregoing obligations of any other person, (h) trade debt
and (i) endorsements for collection or deposit.

     

    (e)           “Investment” means,
with respect to any Person, all investments in any other Person, whether by way
of extension of credit, loan, advance, purchase of stock or other ownership
interest (other than ownership interests in such Person), bonds, notes,
debentures or other securities, or otherwise, and whether existing on the
Issuance Date or thereafter made, but such term shall not include the cash
surrender value of life insurance policies on the lives of officers or
employees, excluding amounts due from customers for services or products
delivered or sold in the ordinary course of business.

     

    (f)           “Person” means an
individual or a corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or political subdivision thereof) or other entity of
any kind.

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    (g)           “Tradable” with
respect to any shares of Common Stock as of any time means that as of such time
(i) such shares shall be held, or eligible to be held, in an account on behalf
of the Holder at the DTC, (ii) there shall be no SEC or judicial stop trade
order or trading suspension stop-order or any restriction in place with the
transfer agent for the Common Stock with restricting the trading of such Common
Stock and (iii) such shares shall be then eligible under all applicable federal
and state securities laws for immediate resale to the public without volume,
manner of sale, holding period, prospectus delivery, filing, registration,
qualification or other limitations, requirements or restrictions.

     

    (h)           “Trading Day” means
(a) a day on which the Common Stock is traded on a Trading Market, or (b) if the
Common Stock is not traded on a Trading Market, a day on which the Common Stock
is quoted in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices);  provided, however , that in the event
that the Common Stock is 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
New York are authorized or required by law or other government action to
close.

     

    (i)           “Trading Market” means
the OTC Bulletin Board, the NASDAQ Global Select Market, the NASDAQ Global
Market, the NASDAQ Capital Market, the New York Stock Exchange (“NYSE”) or the NYSE
Amex, or any successor markets thereto.

     

    (j)           “VWCP” means, for any
specified period of consecutive Trading Days, the quotient of: (i) the sum of
the individual products, calculated for each Trading Day within such period, of
(A) the Daily Closing Price for such Trading Day in such specified period
multiplied by (B) the trading volume for the Common Stock for such Trading Day
in such specified period as reported by the Trading Market, National Quotation
Bureau Incorporated or other reporting organization or agency, as applicable,
and (ii) the total aggregate trading volume for the Common Stock for all Trading
Days in such specified period, as reported by the Trading Market, National
Quotation Bureau Incorporated or other reporting organization or agency, as
applicable.

     

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

     

    
      
        
          	 
      	
                  GENTA
      INCORPORATED

                
	 
      	 
      
	
                  Date:

                	
                  By:

                	 
      
	 
      	 
      	
                  Title

                

        

      

    

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
A

    

    WIRE
INSTRUCTIONS

     

    
      
        Payee:                                                                                                             
         

         

        Bank:                                                                                                                  
     

         

        Address:                                                   
                        
                                    
 

         

                                                                                                                                         

      

      
        
Bank
No.:                                                                          
            
                        

         

        Account
No.:                                                                    
        
                   
         

         

        Account
Name:                                                         
                                  
      
   

      

    

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    FORM
OF

     

    NOTICE
OF CONVERSION

     

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

     

    The
undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of Genta
Incorporated (the “Maker”) according to
the conditions hereof, as of the date written below.

     

    Date of
Conversion                                      
                                                                                                                                 

     

    Applicable
Conversion Price                                                                                                                                                         

     

    Number of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the Date of Conversion: _________________________

     

    
      
        	
                Signature

              	 
      
	 
      	
                  [Name]

              
	 	 
	
                Address:

              	 
      
	 	 
	 
      	 
      

      

       

    

    
      
        
        

      

      
        27THIS
NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.

     

    GENTA
INCORPORATED

     

    Form of
Senior Unsecured Convertible Promissory Note

    due March
9, 2013

    
      	
              E
      Note No. _____

            	
              $___________

            

    

    Dated:
March  9, 2010

     

    For value
received, GENTA INCORPORATED, a Delaware corporation (the “Maker”), hereby
promises to pay to the order of _______________________ (together with its
successors and representatives, the “Holder”), in
accordance with the terms hereinafter provided, the principal amount of
________________________ ($______________), together with interest
thereon.

     

    All
payments under or pursuant to this Senior Unsecured Convertible Promissory Note
(this “Note”)
shall be made in United States Dollars in immediately available funds to the
Holder at the address of the Holder first set forth above or at such other place
as the Holder may designate from time to time in writing to the Maker or by wire
transfer of funds to the Holder’s account, instructions for which are attached
hereto as Exhibit
A.  The outstanding principal balance of this Note shall be due
and payable on March 9, 2013 (the “Maturity Date”) or at
such earlier time as provided herein.

     

    ARTICLE
1

     

    1.1           Purchase Agreement.
This Note has been executed and delivered pursuant to the exercise of a Senior
Unsecured Convertible Promissory Note Purchase Warrant, dated as of March 9,
2010 (a “Debt
Warrant”), which was issued pursuant to that certain Securities Purchase
Agreement, dated as of March 5, 2010 (as the same may be amended from time to
time, the “Purchase
Agreement”), by and among the Maker and the purchasers listed on Exhibit
A thereto.  Capitalized terms used and not otherwise defined herein
shall have the meanings set forth for such terms in the Purchase
Agreement.  This Note is one of the E Notes issued by the Maker upon
exercise of the Debt Warrants.  Pursuant to the Purchase Agreement,
the Maker is also issuing B Notes, C Notes, D Notes and, upon exercise of the
Debt Warrants issued pursuant to the Purchase Agreement, other E
Notes.  Collectively, the B Notes, C Notes, D Notes and E Notes other
than this Note are referred to herein as the “Other Notes”, and the
Other Notes and this Note are referred to herein as the “Notes”.  The
Purchasers of the Notes under the Purchase Agreement other than the Holder are
referred to herein as the “Other Holders” and
the Other Holders and the Holder are collectively referred to herein as the
“Holders”.

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    1.2           Interest. Beginning
on the issuance date of this Note (the “Issuance Date”), the
outstanding principal balance of this Note shall bear interest, in arrears, at a
rate per annum equal to twelve percent (12.00%), payable semi-annually on March
9 and September 9 of each year (each, an “Interest Payment
Date”) commencing September 9, 2010, or earlier upon conversion,
redemption or prepayment of this Note.  Interest shall be paid, at the
option of the Maker, in: (A) cash, or (B) through the issuance of separate
senior unsecured convertible promissory notes in substantially the same form as
this Note to the Holder in the principal amount equal to the accrued interest as
of the applicable Interest Payment Date or date of such earlier conversion,
redemption or prepayment of this Note; provided, however, payment of interest in
cash may only occur if the date of such payment is later than the first date
that is twelve months after the Closing Date.  Interest shall be
computed on the basis of a 360-day year of twelve (12) thirty (30) day months
and shall accrue commencing on the Issuance Date.  Furthermore, upon
the occurrence of an Event of Default (as defined in Section 2.1 hereof), the
Maker will pay interest to the Holder in cash, payable on demand, on the
outstanding principal balance of and unpaid interest on the Note from the date
of the Event of Default until such Event of Default is cured at the rate of the
lesser of twenty percent (20%) and the maximum applicable legal rate per
annum.

     

    1.3           Payment of Principal; No
Prepayment. The principal amount hereof and all accrued and unpaid
interest hereon shall be paid in full in cash on the Maturity Date or, if
earlier, upon acceleration or redemption of this Note in accordance with the
terms hereof.  Notwithstanding the foregoing, at any time after the
two year anniversary of the Issuance Date, the Holder shall have the right, at
the Holder’s option and upon ten (10) days prior written notice to the Maker, to
require the Maker to redeem this Note by paying to the Holder in cash, the
then-outstanding principal amount of this Note plus accrued and unpaid interest
through the date of such redemption. Any amount of principal repaid hereunder
may not be reborrowed.  The Maker may not prepay any portion of the
principal amount of this Note without the prior written consent of the Holder,
which may be withheld in the Holder’s sole and absolute discretion.

     

    1.4           Payment on Non-Trading
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 New York, such payment may be
due on the next succeeding Trading Day and such next succeeding day shall be
included in the calculation of the amount of accrued interest payable on such
date.

     

    1.5           Transfer. This Note
may be transferred or sold, subject to the provisions of Section 5.8 of this
Note, or pledged, hypothecated or otherwise granted as security by the
Holder.

     

    1.6           Replacement. Upon
receipt of a duly executed, notarized and unsecured written statement from the
Holder with respect to the loss, theft or destruction of this Note (or any
replacement hereof) and a standard indemnity, or, in the case of a mutilation of
this Note, upon surrender and cancellation of such Note, the Maker shall issue a
new Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or
mutilated Note.

     

    1.7           Use of Proceeds. The
Maker shall use the proceeds of this Note as set forth in the Purchase
Agreement.

    
      
         

      

      
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    1.8          Senior Status of
Note. The obligations of the Maker under the E Notes shall be subordinate
to the D Notes to the extent of the collateral securing the D
Notes.  The obligations of the Maker under the E Notes shall otherwise
be pari-passu with the
obligations of the Maker under the B Notes, the C Notes and the D Notes and
pari-passu with: (i)
the 8% Unsecured Subordinated Convertible Promissory Notes issued by the Maker
pursuant to that certain Securities Purchase Agreement dated as of September 4,
2009 (the “September
2009 Notes”); (ii) the 8% Unsecured Subordinated Convertible Promissory
Notes issued by the Maker pursuant to that certain Securities Purchase Agreement
dated as of July 7, 2009 and amended as of August 6, 2009 and August 24, 2009
(the “July 2009
Notes”); (iii) the 8% Senior Secured Convertible Promissory Notes issued
by the Maker pursuant to that certain Securities Purchase Agreement dated as of
April 2, 2009 (the “April 2009 Notes”);
and (iv) the 15% Senior Secured Convertible Promissory Notes issued by the Maker
pursuant to that certain Securities Purchase Agreement dated as of June 5, 2008
(the “June 2008
Notes” and together with the September 2009 Notes, the July 2009 Notes
and the April 2009 Notes, the “Prior Notes”) and
senior in time and right of payment to all other Indebtedness of the
Maker.  Upon any Liquidation Event, the Holder will be entitled to
receive, before any distribution or payment is made upon, or set apart with
respect to, any Indebtedness of the Maker other than Indebtedness represented by
the D Notes to the extent of the collateral securing the D Notes, or any class
of capital stock of the Maker, an amount equal to the principal amount plus all
accrued and unpaid interest thereon. For purposes of this Note, “Liquidation Event”
means a liquidation pursuant to a filing of a petition for bankruptcy under
applicable law or any other insolvency or debtor’s relief, an assignment for the
benefit of creditors, or a voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Maker.

     

    ARTICLE
2

     

    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 (1) the principal amount hereunder or under any Other
Note when due, or (2) interest on, or liquidated damages in respect of, this
Note or any Other Note, as and when the same shall become due and payable
(whether on the Maturity Date or by acceleration or otherwise); or

     

     (b)           the
Maker shall fail to observe or perform any other covenant, condition or
agreement contained in this Note or any Other Note, which failure is not cured,
if possible to cure, within three (3) Trading Days after notice of such default
sent by the Holder or by any Other Holder; or

     

     (c)           the
failure of the Common Stock to be listed on a Trading Market for a period of
twenty (20) consecutive Trading Days; or

     

     (d)           the
Maker’s notice to the Holder, including by way of public announcement, at any
time, of its inability to comply (including for any of the reasons described in
Section 3.7(a) hereof) or its intention not to comply with proper requests for
conversion of this Note into shares of Common Stock; or

     

    
      
         

      

      
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     (e)          the
Maker shall fail to (i) timely deliver the shares of Common Stock as and when
required herein, (ii) make the payment of any fees and/or liquidated damages
under this Note, the Purchase Agreement or the other Transaction Documents,
which failure is not remedied within three (3) Trading Days after the incurrence
thereof; or

     

     (f)          default
shall be made in the performance or observance of any material covenant,
condition or agreement contained in the Purchase Agreement or any other
Transaction Document that is not covered by any other provisions of this Section
2.1 and such default is not fully cured within seven (7) Trading Days after the
Maker receives notice from the Holder of the occurrence thereof; or

     

     (g)         at
any time following the consummation of the Reverse Stock Split Maker shall fail
to have a sufficient number of shares of Common Stock authorized, reserved and
available for issuance to satisfy the potential conversion in full (disregarding
for this purpose any and all limitations of any kind on such conversion) of this
Note and each Other Note (including the Notes issuable in payment of interest on
all outstanding Notes and the Notes issuable upon exercise of the Debt
Warrants); or

     

     (h)         any
material representation or warranty made by the Maker or any of its Subsidiaries
herein or in the Purchase Agreement, the Notes or any other Transaction Document
shall prove to have been false or incorrect or breached in a material respect on
the date as of which made; or

     

     (i)          the
Maker shall, or shall announce an intention to, consider, pursue or consummate a
Change of Control (as defined below), or a Change of Control shall be
consummated, or Maker shall negotiate, consider, propose or enter into any
agreement, understanding or arrangement with respect to any Change of
Control.  A “Change of Control”
shall mean:

     

    (i)           the
consolidation, merger or other business combination of the Maker with or into
another Person (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Maker or
(B) a consolidation, merger or other business combination in which holders of
the Maker’s voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities); or

     

    (ii)         the
sale, transfer disposition or exclusive license of more than fifty percent (50%)
of the Maker’s intellectual property or assets (based on the fair market value
as determined in good faith by the Holders) other than inventory in the ordinary
course of business in one or a related series of transactions; except for any
such transaction described in this clause (ii) that has been approved in writing
by the holders of at least 66 2/3% of the combined principal amount of the then
outstanding Notes; or

     

    (iii)        closing
of a purchase, tender or exchange offer made to the holders of more than fifty
percent (50%) of the outstanding shares of Common Stock in which more than fifty
percent (50%) of the outstanding shares of Common Stock were tendered and
accepted; or

    
      
         

      

      
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     (j)           the
Maker or any of its Subsidiaries shall (A) default in any payment of any amount
or amounts of principal of or interest on any Indebtedness (other than the
Indebtedness hereunder or under the Other Notes), the aggregate principal amount
of which Indebtedness is in excess of $250,000 or (B) default in the observance
or performance of any other agreement or condition relating to any such
Indebtedness or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, or to permit the
holder or holders or beneficiary or beneficiaries of such Indebtedness to cause
with the giving of notice if required, such Indebtedness to become due prior to
its stated maturity; or

     

     (k)         the
Maker or any of its Subsidiaries 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, or (vii) take
any action under the laws of any jurisdiction (foreign or domestic) analogous to
any of the foregoing; or

     

     (l)           a
proceeding or case shall be commenced in respect of the Maker or any of its
Subsidiaries, 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 the liquidation
or dissolution of the Maker or any of its Subsidiaries 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 Maker or any of its
Subsidiaries or action under the laws of any jurisdiction (foreign or domestic)
analogous to any of the foregoing shall be taken with respect to the Maker or
any of its Subsidiaries and shall continue undismissed, or unstayed and in
effect for a period of sixty (60) days; or

     

     (m)         the
failure of the Maker to instruct its transfer agent to remove any legends from
shares of Common Stock and issue such unlegended certificates to the Holder
within three (3) Trading Days of the Holder’s request so long as the Holder has
provided reasonable assurances to the Maker that such shares of Common Stock can
be sold pursuant to Rule 144; or

    
      
         

      

      
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     (n)          the
occurrence of an Event of Default under any of the Other Notes or any of the
Prior Notes; or

     

     (o)          the
Maker deregisters its shares of Common Stock and as a result such shares of
Common Stock are no longer publicly traded; or

     

     (p)          the
Maker consummates a “going private” transaction and as a result the Common Stock
is no longer registered under Sections 12(b) or 12(g) of the Exchange Act;
or

     

     (q)          there
shall be any SEC or judicial stop trade order or trading suspension stop-order
or any restriction in place with the transfer agent for the Common Stock
restricting the trading of such Common Stock; or

     

     (r)          the
occurrence of a Material Adverse Effect in respect of the Maker or any of its
Subsidiaries taken as a whole; or

     

     (s)          the
Maker shall, as payment of interest hereon, issue invalid Notes.

     

    2.2          Remedies Upon An Event of
Default.  Upon the occurrence of any Event of Default, the
Maker shall, as promptly as possible but in any event within one (1) Trading Day
of the occurrence of such Event of Default, notify the Holder of the occurrence
of such Event of Default, describing the event or factual situation giving rise
to the Event of Default and specifying the relevant subsection or subsections of
Section 2.1 hereof under which such Event of Default has occurred. If an Event
of Default shall have occurred and shall be continuing, the Holder of this Note
may at any time at its option declare the entire unpaid principal balance of
this Note, together with all interest accrued hereon, due and payable, and
thereupon, the same shall be accelerated and so due and payable, without
presentment, demand, protest, or notice, all of which are hereby expressly
unconditionally and irrevocably waived by the Maker; provided, however, that upon
the occurrence of an Event of Default described above, the Holder, in its sole
and absolute discretion, may (a) demand the redemption of this Note pursuant to
Section 3.6(a) hereof, (b) demand that the principal amount of this Note then
outstanding and all accrued and unpaid interest thereon shall be converted into
shares of Common Stock at the Conversion Price per share on the Trading Day
immediately preceding the date the Holder demands conversion pursuant to this
clause, or (c) exercise or otherwise enforce any one or more of the Holder’s
rights, powers, privileges, remedies and interests under this Note, the Purchase
Agreement, the other Transaction Documents or applicable law.  No
course of delay on the part of the Holder shall operate as a waiver thereof or
otherwise prejudice the right of the Holder.  No remedy conferred
hereby shall be exclusive of any other remedy referred to herein or now or
hereafter available at law, in equity, by statute or otherwise.

    
      
         

      

      
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    ARTICLE
3

     

    3.1         Conversion.

     

    (a)           Voluntary
Conversion.  (A) At any time and from time to time on or after
the date that is six (6) months following the Issuance Date and (B) at any time
and from time to time on or after the Trading Day immediately preceding the
Maturity Date, and, in the case of conversions pursuant to the preceding clause
(A), subject to Section 3.1(c) hereof, this Note shall be convertible (in whole
or in part), at the option of the Holder, into such number of fully paid and
non-assessable shares of Common Stock as is determined by dividing (x) that
portion of the outstanding principal balance and accrued and unpaid interest on
the portion of the outstanding principal balance that the Holder elects to
convert by (y) the Conversion Price (as defined in Section 3.2 hereof) then in
effect on the date on which the Holder faxes a notice of conversion (the “Conversion Notice”),
duly executed, to the Maker (facsimile number (908) 464-1705, Attn.: Raymond P.
Warrell, Jr., M.D.) (the “Voluntary Conversion
Date”). The Holder shall deliver this Note to the Maker at the address
designated in the Purchase Agreement at such time that this Note is fully
converted. With respect to partial conversions of this Note, the Maker shall
keep written records of the amount of this Note converted as of each Conversion
Date.

     

     (b)          Mandatory Conversion.
On any Mandatory Conversion Date (as defined below), subject to Section 3.4
hereof, the Maker may cause all or any portion of the Notes to convert into a
number of fully paid and nonassessable shares of Common Stock equal to the
quotient of (i) the outstanding principal and accrued and unpaid interest on the
Notes to be converted divided by (ii) the Conversion Price in effect on the
Mandatory Conversion Date, by providing five (5) Trading Days prior written
notice (the “Mandatory
Conversion Notice”) of such Mandatory Conversion Date.  Any
such conversion shall be made pro-rata amongst all Holders of
Notes.  As used herein, a “Mandatory Conversion
Date” shall be a date, any time after the Issuance Date, on which the
VWCP (as defined in Section 5.13(j)) for the ten (10) consecutive Trading Day
period ending on the Trading Day immediately prior to the date on which the
Mandatory Conversion Notice is delivered equals or exceeds $0.25 (as
appropriately adjusted for stock splits, stock dividends, reorganizations,
recapitalizations, stock combinations and the like); provided, that on each
Trading Day during the period beginning on the first day of such ten (10)
consecutive Trading Day period and ending on the date of the delivery of such
shares of the Common Stock issuable upon such mandatory conversion (A) the
Equity Conditions shall have been satisfied and (B) the Common Stock shall have
been Tradable.  The Mandatory Conversion Date and the Voluntary
Conversion Date collectively are referred to in this Note as the “Conversion
Date.”  The Company shall publicly disclose delivery of the
Mandatory Conversion Notice pursuant to this paragraph in a Form 8-K within one
Trading Day of the date on which it delivers written notice to the Holders of
the Notes.  If and only if: (A) the Maker shall have delivered the
Mandatory Conversion Notice and shall have made the Form 8-K disclosure required
by the preceding sentence with respect to a Mandatory Conversion Date and (B)
this Note is not fully converted into shares of Common Stock on the applicable
Mandatory Conversion Date as a result of the limitations set forth in Section
3.4 hereof, then, until the Notes have been completely converted into shares of
Common Stock and only for so long as the shares of Common Stock issuable upon
conversion of this Note remain Tradable: (x) at the end of each five (5) Trading
Day period following such Mandatory Conversion Date (the fifth Trading Day of
such Period, the “Automatic Conversion
Date”), all outstanding principal and accrued and unpaid interest on the
Notes as of the end of such five (5) Trading Day period shall convert into
shares of Common Stock without any further action on the part of the Holder or
Maker (subject to Section 3.4 hereof but without any recalculation of the
criteria for determination of a Mandatory Conversion Date) and (y) the Holder
shall, subject to compliance with all applicable state and federal securities
laws, within fifteen (15) Trading Days of such Mandatory Conversion Date or
Automatic Conversion Date, as applicable, sell the shares of Common Stock issued
to such Holder upon the conversion of this Note on such Mandatory Conversion
Date or Automatic Conversion Date, as applicable; provided that the Holder
shall not be required to sell any more shares of Common Stock than would be
required to permit the entire conversion of the remaining portion of this Note
on the next Automatic Conversion Date.

    
      
         

      

      
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     (c)          Conversion
Limitations.  Each Holder hereby agrees that such Holder will
not convert this Note pursuant to clause (A) of Section 3.1(a) on any day to the
extent that, together with all prior conversions under this Note, the total
amount of this Note that has been converted (rounded to the nearest $0.01)
exceeds the product (rounded to the nearest $0.01) of (A) 10.0% of the principal
amount of this Note on the Issuance Date multiplied by (B) the number of whole
or partial Weeks elapsed since February 15, 2011.  “Week” means a
consecutive seven (7) calendar day period.

     

    3.2          Conversion
Price.  The term “Conversion Price”
shall mean $0.01.

     

    3.3          Mechanics of
Conversion.

     

     (a)          Not
later than three (3) Trading Days after any Conversion Date (the “Delivery Date”), the
Maker 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 Notice, registered in the name of the Holder or its designee,
the number of shares of Common Stock to which the Holder is entitled, free from
any restrictive legend.  If in the case of any Conversion Notice such
shares 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 Maker at
any time on or before its receipt of such shares, to rescind such conversion, in
which event the Maker shall immediately return this Note tendered for
conversion, whereupon the Maker and the Holder shall each be restored to their
respective positions immediately prior to the delivery of such notice of
revocation, except that any amounts described in Sections 3.3(b) and (c) hereof
shall be payable through the date notice of rescission is given to the
Maker.

     

     (b)          The
Maker understands that a delay in the delivery of the shares of Common Stock
upon conversion of this Note beyond the Delivery Date could result in economic
loss to the Holder.  If the Maker fails to deliver to the Holder such
shares via DWAC by the Delivery Date, the Maker shall pay to such Holder, in
cash, an amount per Trading Day for each Trading Day until such shares are
delivered via DWAC, together with interest on such amount at a rate of 15% per
annum, accruing until such amount and any accrued interest thereon is paid in
full, equal to the greater of (A) (i) 1% of the aggregate principal amount of
the Notes requested to be converted for each of the first five (5) Trading Days
after the Delivery Date and (ii) 2% of the aggregate principal amount of the
Notes requested to be converted for each Trading Day thereafter and (B) $2,000
per day (which amount shall be paid as liquidated damages and not as a
penalty).  Nothing herein shall limit a Holder’s right to pursue
actual damages for the Maker’s failure to deliver certificates representing
shares of Common Stock upon conversion 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).  Notwithstanding anything to the contrary
contained herein, the Holder shall be entitled to withdraw a Conversion Notice,
and upon such withdrawal the Maker shall only be obligated to pay the liquidated
damages accrued in accordance with this Section 3.3(b) through the date the
Conversion Notice is withdrawn.

    
      
         

      

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

     

    3.4          Ownership
Cap.  Notwithstanding anything to the contrary set forth in
Section 3 of this Note: (i) at no time may the Company issue to Holder shares of
Common Stock, and (ii) at no time may the Holder convert any portion of this
Note into shares of Common Stock, if the number of shares of Common Stock to be
issued pursuant to such issuance or conversion would exceed, when aggregated
with all other shares of Common Stock owned by the Holder at such time and all
shares of Common Stock that the Holder is then the beneficial owner of (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder), the number of shares of Common Stock that would result in the
Holder beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act and the rules thereunder) more than 9.999% of the then issued
and outstanding shares of Common Stock.

     

    3.5          Adjustment of Conversion
Price.

     

     (a)          Until
the Note has been paid in full or converted in full, the Conversion Price shall
be subject to adjustment from time to time as follows (but shall not be
increased, other than pursuant to Section 3.5(a)(i) hereof):

    
      
         

      

      
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    (i)           Adjustments for Stock Splits
and Combinations.  If the Maker shall at any time or from time
to time after the Closing Date (but whether before or after the Issuance Date)
effect a split of the outstanding Common Stock, the applicable Conversion Price
in effect immediately prior to the stock split shall be proportionately
decreased.  If the Maker shall at any time or from time to time after
the Closing Date (but whether before or 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 3.5(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 Maker shall at any time or
from time to time after the Closing Date (but whether before or after the
Issuance Date) make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in shares of Common Stock, 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:

     

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

     

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

     

    (iii)        Adjustment for Other
Dividends and Distributions.  If the Maker shall at any time or
from time to time after the Closing Date (but whether before or after the
Issuance Date) make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in other than shares of Common Stock, then, and in each event, an
appropriate revision to the applicable Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the Holder of this Note shall receive upon conversions thereof, in addition
to the number of shares of Common Stock receivable thereon, the number of
securities of the Maker or other issuer (as applicable) or other property that
it would have received had this Note been converted into Common Stock on the
date of such event and had thereafter, during the period from the date of such
event to and including the Conversion Date, retained such securities (together
with any distributions payable thereon during such period) or assets, giving
application to all adjustments called for during such period under this Section
3.5(a)(iii) with respect to the rights of the holders of this Note and the Other
Notes; provided,
however, that if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be adjusted pursuant to this paragraph as
of the time of actual payment of such dividends or
distributions.

    
      
         

      

      
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    (iv)         Adjustments for
Reclassification, Exchange or Substitution.  If the Common
Stock at any time or from time to time after the Closing Date (but whether
before or after the Issuance Date) shall be changed to the same or different
number of shares or other securities of any class or classes of stock or other
property, 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 Sections 3.5(a)(i), (ii) and (iii) hereof, or a reorganization,
merger, consolidation, or sale of assets provided for in Section 3.5(a)(v)
hereof), 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 or
other securities or other property receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common Stock
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.

     

    (v)           Adjustments for Issuance of
Additional Shares of Common Stock.  In the event the Maker
shall at any time or from time to time after the Closing Date (but whether
before or after the Issuance Date) issue or sell any additional shares of Common
Stock (“Additional
Shares of Common Stock”) (otherwise than as provided in the foregoing
subsections (i) through (v) of this Section 3.5(a) or pursuant to Common Stock
Equivalents (hereafter defined) granted or issued prior to the Closing Date), at
an effective price per share less than the Conversion Price then in effect or
without consideration, then the Conversion Price upon each such issuance shall
be reduced to a price equal to the consideration per share paid for such
Additional Shares of Common Stock.  For purposes of clarification, the
amount of consideration received for such Additional Shares of Common Stock
shall not include the value of any additional securities or other rights
received in connection with such issuance of Additional Shares of Common Stock
(ie. warrants, rights of first refusal or other similar rights).

     

    (vi)         Issuance, Amendment or
Adjustment of Common Stock Equivalents.  If (A) the Maker, at
any time after the Closing Date (but whether before or after the Issuance Date),
shall issue any securities convertible into or exercisable or exchangeable for,
directly or indirectly, Common Stock (“Convertible
Securities”), other than the Notes and the Other Notes, or any rights or
warrants or options to purchase any such Common Stock or Convertible Securities
(collectively with the Convertible Securities the “Common Stock
Equivalents”) and the price per share for which shares of Common Stock
may be issuable pursuant to any such Common Stock Equivalent shall be less than
the applicable Conversion Price then in effect, or (B) the price per share for
which shares of Common Stock may be issuable under any Common Stock Equivalents
(including the B Notes, C Notes, D Notes and E Notes and regardless of when such
Common Stock Equivalents were issued) is amended or adjusted, pursuant to the
terms of such Common Stock Equivalents or otherwise, and such price as so
amended or adjusted shall be less than the applicable Conversion Price in effect
at the time of such amendment or adjustment, then, in each such case (A) or (B),
the applicable Conversion Price upon each such issuance or amendment or
adjustment shall be adjusted as provided in subsection (vi) of this Section
3.5(a) as if the maximum number of shares of Common Stock issuable upon
conversion, exercise or exchange of such Common Stock Equivalents had been
issued on the date of such issuance or amendment or adjustment.

    
      
         

      

      
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    (vii)        Consideration for
Stock.  In case any shares of Common Stock or any Common Stock
Equivalents shall be issued or sold:

     

    (1)           in
connection with any merger or consolidation in which the Maker is the surviving
corporation (other than any consolidation or merger in which the previously
outstanding shares of Common Stock of the Maker shall be changed to or exchanged
for the stock or other securities of another corporation), the amount of
consideration therefor shall be, deemed to be the fair value, as determined
reasonably and in good faith by the Board of Directors of the Maker and approved
by holders of at least 66 2/3% of the combined principal amount of the then
outstanding Notes, of such portion of the assets and business of the
nonsurviving corporation as such Board may determine to be attributable to such
shares of Common Stock, Convertible Securities, rights or warrants or options,
as the case may be; or

     

    (2)           in
the event of any consolidation or merger of the Maker in which the Maker is not
the surviving corporation or in which the previously outstanding shares of
Common Stock of the Maker shall be changed into or exchanged for the stock or
other securities of another corporation or other property, or in the event of
any sale of all or substantially all of the assets of the Maker for stock or
other securities or other property of any corporation, the Maker shall be deemed
to have issued shares of its Common Stock, at a price per share equal to the
valuation of the Maker’s Common Stock based on the actual exchange ratio on
which the transaction was predicated, as applicable, and the fair market value
on the date of such transaction of all such stock or securities or other
property of the other corporation. If any such calculation results in adjustment
of the applicable Conversion Price, or the number of shares of Common Stock
issuable upon conversion of the Notes, the determination of the applicable
Conversion Price or the number of shares of Common Stock issuable upon
conversion of the Notes immediately prior to such merger, consolidation or sale,
shall be made after giving effect to such adjustment of the number of shares of
Common Stock issuable upon conversion of the Notes. In the event Common Stock is
issued with other shares or securities or other assets of the Maker for
consideration which covers both, the consideration computed as provided in this
Section 3.5(a)(viii) shall be allocated among such securities and assets as
determined in good faith by the Board of Directors of the Maker, and approved by
the holders of at least 66 2/3% of the combined principal amount of the then
outstanding Notes.

     

    (viii)       Adjustment for October
10-Day VWCP.  If, on the Adjustment Date (as defined below),
the VWCP for the ten (10) consecutive Trading Day period ending on the last
Trading Day prior to the Adjustment Date (the “October 10-Day VWCP”)
is less than $0.10 (as adjusted for the Reverse Stock Split and any other stock
splits, combinations, recapitalizations or the like), then the Conversion Price
shall be reduced to a price equal to ten percent (10%) of the October 10-Day
VWCP.  The Holder hereby agrees that during the period of time in
which the October 10-Day VWCP is calculated as provided above, the Holder will
not: (i) engage in any short sales of the Maker’s Common Stock; and (ii) shall
not sell any of the Maker’s Common Stock other than the shares of Common Stock
issued upon conversion of the B Notes in compliance with the B Notes or upon
conversion of the C Notes in compliance with the C Notes.  In
addition, the Maker hereby agrees that it will not issue any press releases or
file any periodic reports on Form 8-K under the Exchange Act, except where
required by law, during the period of time in which the October 10-Day VWCP is
being calculated.  As used herein, the “Adjustment Date” is
the date that is the later of (A) seven months after the Closing Date and (B)
the eleventh Trading Day following the effective date of the Reverse Stock
Split.

    
      
         

      

      
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     (b)          Record Date. In case
the Maker shall take record of the holders of its Common Stock for the purpose
of entitling them to subscribe for or purchase Common Stock or Convertible
Securities, then the date of the issue or sale of the shares of Common Stock
shall be deemed to be such record date.

     

     (c)          Certain Issues
Excepted. Anything herein to the contrary notwithstanding, the Maker
shall not be required to make any adjustment to the Conversion Price in
connection with any of the transactions described in clauses (i), (ii) and (iv)
of Section 3.17(b) of the Purchase Agreement.

     

     (d)          No Impairment. The
Maker 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 Maker, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3.5 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. In the event a Holder shall
elect to convert any Notes as provided herein, the Maker cannot refuse
conversion based on any claim that such Holder or any one 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 or adjoining
conversion of all or of said Notes shall have issued and the Maker 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 Notes 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.

     

     (e)          Certificates as to
Adjustments. Upon occurrence of each adjustment or readjustment of the
Conversion Price or number of shares of Common Stock issuable upon conversion of
this Note pursuant to this Section 3.5, the Maker 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 Maker 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 shares of Common Stock 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
Maker 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.

     

     (f)           Issue Taxes. The
Maker 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
shares of Common Stock on conversion of this Note pursuant
thereto;  provided,
however, that the Maker shall not be obligated to pay any transfer taxes
resulting from any transfer requested by the Holder in connection with any such
conversion.

    
      
         

      

      
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     (g)          Fractional Shares. No
fractional shares of Common Stock shall be issued upon conversion of this Note.
In lieu of any fractional shares to which the Holder would otherwise be
entitled, the Maker shall pay cash equal to the product of such fraction
multiplied by the VWCP for the five (5) consecutive Trading Day period
immediately preceding, but not including, the Conversion Date.

     

     (h)          Reservation of Common
Stock.  The Maker shall at all times after the date that is one
day prior to the first day on which the October 10-Day VWCP is being calculated
and while this Note shall be outstanding, reserve and keep available out of its
authorized but unissued Common Stock, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of this Note and
all interest accrued thereon (disregarding for this purpose any and all
limitations of any kind on such conversion).  The Maker shall, from
time to time in accordance with the Delaware General Corporation Law, increase
the authorized number of shares of Common Stock or take other effective action
if at any time the unissued number of authorized shares shall not be sufficient
to satisfy the Maker’s obligations under this Section 3.5(h).

     

     (i)           Regulatory
Compliance. If any shares of Common Stock to be reserved for the purpose
of conversion of this Note or any interest accrued thereon 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 Maker
shall, at its sole cost and expense, in good faith and as expeditiously as
possible, secure such registration, listing or approval, as the case may
be.

     

     (j)           Effect of Events Prior to
the Issuance Date.  If the Issuance Date of this Note is after
the Closing Date, then, if the Conversion Price or any other right of the Holder
of this Note would have been adjusted or modified by operation of any provision
of this Note had this Note been issued on the Closing Date, such adjustment or
modification shall be deemed to apply to this Note as of the Issuance Date as if
this Note had been issued on the Closing Date.

     

    3.6          Prepayment.

     

     (a)          Prepayment Upon an Event of
Default.  Notwithstanding anything to the contrary contained
herein, upon the occurrence of an Event of Default the Holder shall have the
right, at the Holder’s option, to require the Maker to prepay all or a portion
of this Note in cash at a price equal to the sum of (i) the greater of (A) one
hundred percent (100%) of the aggregate principal amount of this Note plus all
accrued and unpaid interest and (B) (I) the aggregate principal amount of this
Note plus all accrued but unpaid interest hereon, divided by (II) the Conversion
Price on (x) the date the Prepayment Price (as defined below) is demanded or
otherwise due or (y) the date the Prepayment Price is paid in full, whichever is
less, multiplied by (III) the Daily Closing Price on (1) the date the Prepayment
Price is demanded or otherwise due, or (2) the date the Prepayment Price is paid
in full, or (3) the date immediately prior to the occurrence of such Event of
Default, whichever is greatest, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of this Note and the other Transaction
Documents (the “Prepayment
Price”).

    
      
         

      

      
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     (b)          Mechanics of Prepayment at
Option of Holder in Connection with a Change of Control.  No
sooner than fifteen (15) days prior to nor later than ten (10) days prior to the
consummation of a Change of Control, but not prior to the public announcement of
such Change of Control, the Maker shall deliver written notice thereof via
facsimile and overnight courier (“Notice of Change of
Control”) to the Holder of this Note and to each Other Holder of the
Other Notes.  At any time after receipt of a Notice of Change of
Control (or, in the event a Notice of Change of Control is not delivered at
least ten (10) days prior to a Change of Control, at any time within ten (10)
days prior to a Change of Control), any holder of the Notes then outstanding may
require the Maker to prepay, effective immediately prior to the consummation of
such Change of Control, all of the holder’s Notes then outstanding by delivering
written notice thereof via facsimile and overnight courier (“Notice of Prepayment at
Option of Holder Upon Change of Control”) to the Maker, which Notice of
Prepayment at Option of Holder Upon Change of Control shall indicate (i) the
principal amount of the Notes that such holder is electing to have prepaid and
(ii) the applicable Prepayment Price, as calculated pursuant to Section 3.6(a)
above. In the event the Maker receives a Notice of Prepayment at Option of
Holder Upon Change of Control from more than one Holder of the Notes and the
Maker can prepay some, but not all, of the Notes pursuant to this Section 3.6,
the Maker shall prepay from each Holder of the Notes electing to have its Notes
prepaid at such time an amount equal to such Holder’s pro-rata amount (based on
the principal amount of the Notes held by such Holder relative to the principal
amount of the Notes outstanding) of all the Notes being prepaid at such
time.

     

     (c)          Mechanics of Prepayment at
Option of Holder Upon Other Event of Default.  Within one (1)
Trading Day after the occurrence of an Event of Default other than a Change of
Control, the Maker shall deliver written notice thereof via facsimile and
overnight courier (“Notice of Event of
Default”) to each Holder of the Notes. At any time after the earlier of a
Holder’s receipt of a Notice of Event of Default and such Holder becoming aware
of an Event of Default, any Holder of this Note may require the Maker to prepay
all (but not less than all) of the Notes held by such Holder by delivering
written notice thereof via facsimile and overnight courier (“Notice of Prepayment at
Option of Holder Upon Event of Default”) to the Maker, which Notice of
Prepayment at Option of Holder Upon Event of Default shall indicate the
applicable Prepayment Price, as calculated pursuant to Section 3.6(a) above. In
the event the Maker receives a Notice of Prepayment at Option of Holder Upon
Event of Default from more than one Holder of the Notes and the Maker can prepay
some, but not all, of the Notes pursuant to this Section 3.6, the Maker shall
prepay from each Holder of the Notes electing to have its Notes prepaid at such
time an amount equal to such Holder’s pro-rata amount (based on the principal
amount of the Notes held by such Holder relative to the principal amount of the
Notes outstanding) of all the Notes being prepaid at such time.

    
      
         

      

      
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     (d)          Payment of Prepayment
Price. Upon the Maker’s receipt of a Notice(s) of Prepayment at Option of
Holder Upon Event of Default or a Notice(s) of Prepayment at Option of Holder
Upon Change of Control from any Holder of the Notes, the Maker shall immediately
notify each holder of the Notes by facsimile of the Maker’s receipt of such
Notice(s) of Prepayment at Option of Holder Upon Event of Default or Notice(s)
of Prepayment at Option of Holder Upon Change of Control and each holder which
has sent such a notice shall promptly submit to the Maker such holder’s original
Notes that are to be prepaid. The Maker shall deliver the applicable Prepayment
Price, in the case of a prepayment pursuant to Section 3.6(c) hereof, to such
holder within five (5) Trading Days after the Maker’s receipt of a Notice of
Prepayment at Option of Holder Upon Event of Default and, in the case of a
prepayment pursuant to Section 3.6(b) hereof, the Maker shall deliver the
applicable Prepayment Price immediately prior to the consummation of the Change
of Control; provided that a holder’s original Note shall have been so delivered
to the Maker; provided further that if the Maker is unable to prepay all of the
Notes to be prepaid, the Maker shall prepay an amount from each holder of the
Notes being prepaid equal to such holder’s pro-rata amount (based on the number
of Notes held by such holder relative to the number of Notes outstanding) of all
Notes being prepaid.  If the Maker shall fail to prepay all of the
Notes submitted for prepayment (including as a result of a dispute as to the
calculation of the Prepayment Price), in addition to any remedy such holder of
the Notes may have under this Note and the Purchase Agreement, the applicable
Prepayment Price payable in respect of such Notes not prepaid shall bear
interest at the rate of two percent (2%) per month (prorated for partial months)
until paid in full. Until the Maker pays such unpaid applicable Prepayment Price
in full to a holder of the Notes submitted for prepayment, such holder shall
have the option to, in lieu of prepayment, require the Maker to promptly return
to such holder(s) all of the Notes that were submitted for prepayment by such
holder(s) under this Section 3.6 and for which the applicable Prepayment Price
has not been paid, by sending written notice thereof to the Maker via facsimile
(the “Void Optional
Prepayment Notice”).  Maker shall promptly send a copy of such
Void Optional Prepayment Notice to each of the Other Holders. Upon the Maker’s
receipt of such Void Optional Prepayment Notice(s) and prior to payment of the
full applicable Prepayment Price to such holder, (i) the Notice(s) of Prepayment
at Option of Holder Upon Event of Default or the Notice(s) of Prepayment at
Option of Holder Upon Change of Control, as the case may be, shall be null and
void with respect to those Notes submitted for prepayment and for which the
applicable Prepayment Price has not been paid, (ii) the Maker shall immediately
return any Notes submitted to the Maker by each holder for prepayment under this
Section 3.6(d) and for which the applicable Prepayment Price has not been paid
and (iii) the Conversion Price of such returned Notes shall be adjusted to the
lesser of (A) the Conversion Price as in effect on the date on which the Void
Optional Prepayment Notice(s) is delivered to the Maker and (B) the lowest Daily
Closing Price during the period beginning on the date on which the Notice(s) of
Prepayment of Option of Holder Upon Change of Control or the Notice(s) of
Prepayment at Option of Holder Upon Event of Default, as the case may be, is
delivered to the Maker and ending on the date on which the Void Optional
Prepayment Notice(s) is delivered to the Maker; provided  that no
adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect.  A holder’s delivery of a Void
Optional Prepayment Notice and exercise of its rights following such notice
shall not affect the Maker’s obligations to make any payments which have accrued
prior to the date of such notice. Payments provided for in this Section 3.6
shall have priority to payments to other creditors and stockholders in
connection with a Change of Control.

    
      
         

      

      
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    3.7          Inability to Fully
Convert.

     

     (a)          Holder’s Option if Maker
Cannot Fully Convert. If, upon the Maker’s receipt of a Conversion
Notice, the Maker cannot issue shares of Common Stock for any reason, including,
without limitation, because the Maker (x) does not have a sufficient number of
shares of Common Stock authorized and available or (y) is otherwise prohibited
by applicable law or by the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Maker or any of its securities from issuing all of the
Common Stock which is to be issued to the Holder pursuant to a Conversion
Notice, then the Maker shall issue as many shares of Common Stock as it is able
to issue in accordance with the Holder’s Conversion Notice and, with respect to
the unconverted portion of this Note, the Holder, solely at Holder’s option, can
elect to:

     

     (i)          require
the Maker to prepay that portion of this Note for which the Maker is unable to
issue Common Stock in accordance with the Holder’s Conversion Notice (the “Mandatory
Prepayment”) at a price equal to the Prepayment Price as of such
Conversion Date (the “Mandatory Prepayment
Price”);

     

     (ii)         void
its Conversion Notice and retain or have returned, as the case may be, this Note
that was to be converted pursuant to the Conversion Notice (provided that the
Holder’s voiding its Conversion Notice shall not effect the Maker’s obligations
to make any payments which have accrued prior to the date of such notice);
or

     

     (iii)       exercise
its Buy-In rights pursuant to and in accordance with the terms and provisions of
Section 3.3(c) of this Note.

     

     (b)          Mechanics of Fulfilling
Holder’s Election. The Maker shall immediately send via facsimile to the
Holder and to each of the Other Holders, upon receipt of a facsimile copy of a
Conversion Notice from the Holder, which cannot be fully satisfied as described
in Section 3.7(a) above, a notice of the Maker’s inability to fully satisfy the
Conversion Notice (the “Inability to Fully Convert
Notice”). Such Inability to Fully Convert Notice shall indicate (i) the
reason why the Maker is unable to fully satisfy such holder’s Conversion Notice,
(ii) the amount of this Note which cannot be converted and (iii) the applicable
Mandatory Prepayment Price. The Holder shall notify the Maker of its election
pursuant to Section 3.7(a) above by delivering written notice via facsimile to
the Maker (“Notice in
Response to Inability to Convert”). Maker shall promptly deliver a copy
of such Notice in Response to Inability to Convert to each of the Other
Holders.

     

    (c)           Payment of Prepayment
Price. If the Holder shall elect to have its Notes prepaid pursuant to
Section 3.7(a)(i) above, the Maker shall pay the Mandatory Prepayment Price to
the Holder within three (3) days of the Maker’s receipt of the Holder’s Notice
in Response to Inability to Convert;  provided  that prior
to the Maker’s receipt of the Holder’s Notice in Response to Inability to
Convert the Maker has not delivered a notice to the Holder stating, to the
satisfaction of the Holder, that the event or condition resulting in the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms of
this Note.  If the Maker shall fail to pay the applicable Mandatory
Prepayment Price to the Holder on the date that is one (1) Trading Day following
the Maker’s receipt of the Holder’s Notice in Response to Inability to Convert
(including as a result of a dispute as to the determination of the calculation
of the Prepayment Price), in addition to any remedy the Holder may have under
this Note and the Purchase Agreement, such unpaid amount shall bear interest at
the rate of two percent (2%) per month (prorated for partial months) until paid
in full. Until the full Mandatory Prepayment Price is paid in full to the
Holder, the Holder may (i) void the Mandatory Prepayment with respect to that
portion of the Note for which the full Mandatory Prepayment Price has not been
paid, (ii) receive back such Note, and (iii) require that the Conversion Price
of such returned Note be adjusted to the lesser of (A) the Conversion Price as
in effect on the date on which the Holder voided the Mandatory Prepayment and
(B) the lowest Daily Closing Price during the period beginning on the Conversion
Date and ending on the date the Holder voided the Mandatory
Prepayment.

    
      
         

      

      
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     (d)          Pro-rata Conversion and
Prepayment. In the event the Maker receives a Conversion Notice from more
than one holder of the Notes on the same day and the Maker can convert and
prepay some, but not all, of the Notes pursuant to this Section 3.7, the Maker
shall convert and prepay from each holder of the Notes electing to have its
Notes converted and prepaid at such time an amount equal to such holder’s
pro-rata amount (based on the principal amount of the Notes held by such holder
relative to the principal amount of the Notes and Other Notes outstanding) of
all the Notes being converted and prepaid at such time.

     

     (e)          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
Maker or of any other matter, or any other rights as a stockholder of the
Maker.

     

    ARTICLE
4

     

    4.1  
       Covenants. For so
long as any Note is outstanding, without the prior written consent of the
holders of at least 66 2/3% of the combined principal amount of the then
outstanding Notes:

     

     (a)          Compliance with Transaction
Documents. The Maker shall, and shall cause its Subsidiaries to, comply
with its obligations under this Note, the Other Notes and the other Transaction
Documents.

     

     (b)          Payment of Taxes,
Etc. The Maker shall, and shall cause each of its Subsidiaries to,
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Maker and the
Subsidiaries, except for such failures to pay that, individually or in the
aggregate, have not had and would not reasonably be expected to have a Material
Adverse Effect; provided, however , that any such tax, assessment, charge or
levy need not be paid if the validity thereof shall currently be contested in
good faith by appropriate proceedings and if the Maker or such Subsidiaries
shall have set aside on its books adequate reserves with respect thereto, and
provided, further, that the Maker and such Subsidiaries will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security
therefor.

    
      
         

      

      
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     (c)          Corporate Existence.
The Maker shall, and shall cause each of its Subsidiaries to, maintain in full
force and effect its corporate existence, rights and franchises and all licenses
and other rights to use property owned or possessed by it and reasonably deemed
to be necessary to the conduct of its business.

     

     (d)          Investment Company
Act. The Maker shall conduct its businesses in a manner so that it will
not become subject to the Investment Company Act of 1940, as
amended.

     

    ARTICLE
5

     

    5.1           Notices. Any notice,
demand, request, waiver or other communication required or permitted to be given
hereunder shall be in writing and shall be effective (a) upon hand delivery,
telecopy or facsimile at the address or number designated in the Purchase
Agreement (if delivered on a Trading Day during normal business hours where such
notice is to be received), or the first Trading Day following such delivery (if
delivered other than on a Trading Day during normal business hours where such
notice is to be received) or (b) on the second Trading Day following the date of
mailing by express courier service, fully prepaid, addressed to such address, or
upon actual receipt of such mailing, whichever shall first occur. The Maker will
give written notice to the Holder at least ten (10) days prior to the date on
which the Maker takes a record (x) with respect to any dividend or distribution
upon the Common Stock, (y) with respect to any pro rata subscription offer to
holders of Common Stock or (z) for determining rights to vote with respect to
any Change of Control, dissolution, liquidation or winding-up and in no event
shall such notice be provided to such holder prior to such information being
made known to the public. The Maker will also give written notice to the Holder
at least ten (10) days prior to the date on which any Change of Control,
dissolution, liquidation or winding-up will take place and in no event shall
such notice be provided to the Holder prior to such information being made known
to the public. The Maker shall promptly notify the Holder of this Note of any
notices sent or received, or any actions taken with respect to the Other
Notes.

     

    5.2           Governing Law. This
Note shall be governed by and construed in accordance with the internal laws of
the State of New York, without giving effect to any of the conflicts of law
principles which would result in the application of the substantive law of
another jurisdiction. This Note shall not be interpreted or construed with any
presumption against the party causing this Note to be drafted.

     

    5.3           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.

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    5.4           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 Maker 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
thereof and shall not, except as expressly provided herein, be subject to any
other obligation of the Maker (or the performance thereof). The Maker
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 would be inadequate. Therefore the Maker 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
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.

     

    5.5           Enforcement Expenses.
The Maker agrees to pay all costs and expenses of enforcement of this Note,
including, without limitation, reasonable attorneys’ fees and
expenses.

     

    5.6           Binding
Effect.  The obligations of the Maker 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
herein.

     

    5.7           Amendments.  No
provision of the E Notes may be modified or amended on behalf of all of the
Holders holding E Notes other than by a written instrument signed by the Maker
and the holders of at least 66 2/3% of the combined principal amount of the then
outstanding E Notes; provided that if any of the
rights of the Holder under this Note are materially diminished by such waiver or
amendment in a manner that is not similar in all material respects to the affect
on the rights or obligations of Other Holders holding E Notes under the E Notes,
then such waiver or amendment shall not be effective with respect to the Holder
without the written consent of the Holder.  The Holder acknowledges
that any amendment or modification made in compliance with this Section 5.7
shall be binding on all Holders of the E Notes, including, without limitation,
an amendment or modification that has an adverse effect on any or all
Holders.  Notwithstanding the foregoing, nothing provided in this
Section 5.7 shall limit the Holder’s right to waive or amend any provision of
this Note on its own behalf.  No consideration shall be offered or
paid to any Holder of E Notes to amend or waive or modify any provision of the E
Notes unless the same consideration is also offered to all of the Holders
holding E Notes on the date of such amendment, waiver or modification, on a pro
rata basis based upon the principal amount of the E Notes purchased by each such
Holder on the Closing Date.  This provision constitutes a separate
right granted to each Holder by the Maker and shall not in any way be construed
as the Holders of E Notes acting in concert or as a group with respect to the
purchase disposition or voting of Securities or otherwise.

     

    5.8           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 that the Holder shall not offer, sell or
otherwise dispose of this Note in violation of securities laws. This Note and
any Note issued in substitution or replacement therefor shall be stamped or
imprinted with a legend in substantially the following form:

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    “THIS
NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
SUCH STATE SECURITIES LAWS.”

    

    5.9           Consent to
Jurisdiction. Each of the Maker and the Holder (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court
sitting in the Southern District of New York and the courts of the State of New
York located in New York county for the purposes of any suit, action or
proceeding arising out of or relating to this Note and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Maker and the Holder
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under the Purchase Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing in this Section
5.9 shall affect or limit any right to serve process in any other manner
permitted by law. Each of the Maker and the Holder hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to
this Note shall be entitled to reimbursement for reasonable legal fees from the
non-prevailing party.

     

    5.10         Parties in Interest.
This Note shall be binding upon, inure to the benefit of and be enforceable by
the Maker, the Holder and their respective successors and permitted
assigns.

     

    5.11         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.

     

    5.12         Maker Waivers; Dispute
Resolution. Except as otherwise specifically provided herein, the Maker
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 Maker liable for the payment of this Note, AND DO
HEREBY WAIVE TRIAL BY JURY.

     

     (a)          No
delay or omission on the part of the Holder in exercising its rights under this
Note, or course of conduct relating hereto, shall operate as a waiver of such
rights or any other right of the Holder, 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.

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

     (b)          THE
MAKER 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.

     

     (c)          In
the case of a dispute as to the determination of the Daily Closing Price or the
VWCP or the arithmetic calculation of the Conversion Price, any adjustment to
the Conversion Price, liquidated damages amount, interest or dividend
calculation, or any redemption price, redemption amount, adjusted Conversion
Price, or similar calculation, or as to whether a subsequent issuance of
securities is prohibited hereunder or would lead to an adjustment to the
Conversion Price, the Maker shall submit the disputed determinations or
arithmetic calculations via facsimile within two (2) Trading Days of receipt, or
deemed receipt, of the Conversion Notice, any redemption notice, default notice
or other event giving rise to such dispute, as the case may be, to the
Holder.  If the Holder and the Maker are unable to agree upon such
determination or calculation within two (2) Trading Days of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Maker shall, within two (2) Trading Days submit via facsimile (a) the disputed
determination of the Daily Closing Price or the VWCP to an independent,
reputable investment bank selected by the Maker and approved by the Holder,
which approval shall not be unreasonably withheld, (b) the disputed arithmetic
calculation of the Conversion Price, adjusted Conversion Price or any redemption
price, redemption amount or default amount to the Maker’s independent, outside
accountant or (c) the disputed facts regarding whether a subsequent issuance of
securities is prohibited hereunder or would lead to an adjustment to the
Conversion Price (or any of the other above described facts not expressly
designated to the investment bank or accountant), to an expert attorney from a
nationally recognized outside law firm (having at least one hundred (100)
attorneys and having with no prior relationship with the Maker) selected by the
Maker and approved by the Lead Purchaser (as defined in the Purchase Agreement).
The Maker, at the Maker’s expense, shall cause the investment bank, the
accountant, the law firm, or other expert, as the case may be, to perform the
determinations or calculations and notify the Maker and the Holder of the
results no later than five (5) Trading Days from the time it receives the
disputed determinations or calculations. Such investment bank’s, accountant’s or
attorney’s determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.

     

    5.13       Definitions.
Capitalized terms used herein and not defined shall have the meanings set forth
in the Purchase Agreement.  For the purposes hereof, the following
terms shall have the following meanings:

     

     (a)          “Affiliate” means any
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with another Person. A Person shall be deemed to be
“controlled by” any other Person if such other Person possesses, directly or
indirectly, power (a) to vote ten percent (10%) or more of the securities (on a
fully diluted basis) having ordinary voting power for the election of directors
or managing general partners; or (b) to direct or cause the direction of the
management and policies of such Person whether by contract or
otherwise.

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

     (b)          “Daily Closing Price”
shall mean, on any particular date (i) the last trading price per share of the
Common Stock on such date during regular trading hours on the principal Trading
Market on which the Common Stock is then listed, or if there is no such price on
such date, then the last trading price during regular trading hours on such
Trading Market on the date nearest preceding such date, or (ii) if the Common
Stock is not listed then on a Trading Market, the last trading price for a share
of Common Stock in the over-the-counter market during regular trading hours, as
reported in the National Quotation Bureau Incorporated or similar organization
or agency succeeding to its functions of reporting prices at the close of
business on such date, or (iii) if the Common Stock is not then reported by the
National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), then the average of the “Pink
Sheet” quotes on such date, as determined in good faith by the Holder, or (iv)
if the Common Stock is not then publicly traded, the fair market value of a
share of Common Stock as determined by the Holder and reasonably acceptable to
the Maker.

     

     (c)          “Equity Conditions”
shall mean, during the period in question, (i) the Maker shall have duly honored
all conversions and redemptions scheduled to occur or occurring by virtue of one
or more Conversion Notices of the Holder, if any, (ii) all liquidated damages
and other amounts owing to the Holder in respect of this Note shall have been
paid; (iii) the Common Stock is trading on a Trading Market and all of the
shares issuable pursuant to the Transaction Documents are eligible for trading
on a Trading Market (and the Maker believes, in good faith, that trading of the
Common Stock on a Trading Market will continue uninterrupted for the foreseeable
future), (iv) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the
shares then issuable pursuant to the Transaction Documents (disregarding any
limitations on issuance or conversion contained in such documents), (v) there is
then existing no Event of Default or event which, with the passage of time or
the giving of notice, would constitute an Event of Default, and (vi) no public
announcement of a pending or proposed Change of Control has
occurred.

     

     (d)          “Indebtedness” means
(a) all obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations in respect of letters of credit, bankers acceptances, current swap
agreements, interest rate hedging agreements, interest rate swaps, or other
financial products, (c) all capital lease obligations that exceed $50,000 in the
aggregate in any fiscal year, (d) all obligations or liabilities secured by a
lien or encumbrance on any asset of the Maker, irrespective of whether such
obligation or liability is assumed, (e) all obligations for the deferred
purchase price of assets, together with trade debt and other accounts payable
that exceed $50,000 in the aggregate in any fiscal year, (f) all synthetic
leases, (g) any obligation guaranteeing or intended to guarantee (whether
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse) any of the foregoing obligations of any other person, (h) trade debt
and (i) endorsements for collection or deposit.

     

     (e)          “Investment” means,
with respect to any Person, all investments in any other Person, whether by way
of extension of credit, loan, advance, purchase of stock or other ownership
interest (other than ownership interests in such Person), bonds, notes,
debentures or other securities, or otherwise, and whether existing on the
Issuance Date or thereafter made, but such term shall not include the cash
surrender value of life insurance policies on the lives of officers or
employees, excluding amounts due from customers for services or products
delivered or sold in the ordinary course of business.

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

     (f)           “Person” means an
individual or a corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or political subdivision thereof) or other entity of
any kind.

     

     (g)          “Tradable” with
respect to any shares of Common Stock as of any time means that as of such time
(i) such shares shall be held, or eligible to be held, in an account on behalf
of the Holder at the DTC, (ii) there shall be no SEC or judicial stop trade
order or trading suspension stop-order or any restriction in place with the
transfer agent for the Common Stock with restricting the trading of such Common
Stock and (iii) such shares shall be then eligible under all applicable federal
and state securities laws for immediate resale to the public without volume,
manner of sale, holding period, prospectus delivery, filing, registration,
qualification or other limitations, requirements or restrictions.

     

     (h)          “Trading Day” means
(a) a day on which the Common Stock is traded on a Trading Market, or (b) if the
Common Stock is not traded on a Trading Market, a day on which the Common Stock
is quoted in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices);  provided, however , that in the event
that the Common Stock is 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
New York are authorized or required by law or other government action to
close.

     

     (i)           “Trading Market” means
the OTC Bulletin Board, the NASDAQ Global Select Market, the NASDAQ Global
Market, the NASDAQ Capital Market, the New York Stock Exchange (“NYSE”) or the NYSE
Amex, or any successor markets thereto.

     

     (j)           “VWCP” means, for any
specified period of consecutive Trading Days, the quotient of: (i) the sum of
the individual products, calculated for each Trading Day within such period, of
(A) the Daily Closing Price for such Trading Day in such specified period
multiplied by (B) the trading volume for the Common Stock for such Trading Day
in such specified period as reported by the Trading Market, National Quotation
Bureau Incorporated or other reporting organization or agency, as applicable,
and (ii) the total aggregate trading volume for the Common Stock for all Trading
Days in such specified period, as reported by the Trading Market, National
Quotation Bureau Incorporated or other reporting organization or agency, as
applicable.

     

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

     

    
      
        
          	 
      	
                  GENTA
      INCORPORATED

                
	 
      	 
      
	
                  Date:

                	
                  By: 

                	 
      
	 
      	 
      	
                  Title

                

        

      

    

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    EXHIBIT
A

    

    WIRE
INSTRUCTIONS

     

    
      
        
          	
                  Payee: 

                	 
      

        

      

    

    

    
      
        
          	
                  Bank: 

                	 
      

        

      

    

    

    
      
        
          
            
              
                
                  	
                          Address: 

                        	 
      
	 	 
	 
      	 
      

                

              

            

          

        

      

    

    

    
      
        
          
            	
                    Bank No.: 

                  	 
      

          

        

      

    

    

    
      
        
          	
                  Account No.: 

                	 
      

        

      

    

    

    
      
        
          	
                  Account Name: 

                	 
      

        

      

    

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    FORM
OF

     

    NOTICE
OF CONVERSION

     

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

     

    The
undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of Genta
Incorporated (the “Maker”) according to
the conditions hereof, as of the date written below.

     

    
      
        
          	
                  Date of Conversion 

                	 
      

        

      

    

    

    
      
        
          	
                  Applicable Conversion Price 

                	 
      

        

      

    

    

     

    Number of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the Date of Conversion: _________________________

     

    
      
        
          	
                  Signature 

                	 
      
	 
      	
                  [Name]

                

        

      

    

    

    
      
        
          
            	
                    Address: 

                  	 
      
	 
      	 
      
	 
      	 
      

          

        

      

    

     

    
      
         

      

      
        26

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