Document:

SECURITIES
      PURCHASE AGREEMENT 

     

    This
      SECURITIES
      PURCHASE AGREEMENT
      (the
“Agreement”),
      dated
      as of March 31, 2008, is by and among Generex Biotechnology Corporation, a
      Delaware corporation, with offices located at 33 Harbour Square, Suite 202,
      Toronto, Ontario, Canada M5J-2G2 (the “Company”),
      and
      the investors listed on the Schedule of Buyers attached hereto (individually,
      a
“Buyer”
and
      collectively, the “Buyers”).

    

    RECITALS

     

    A. The
      Company and each Buyer is executing and delivering this Agreement in reliance
      upon the exemption from securities registration afforded by Section 4(2) of
      the
      Securities Act of 1933, as amended (the “1933
      Act”),
      and
      Rule 506 of Regulation D (“Regulation D”)
      as
      promulgated by the United States Securities and Exchange Commission (the
“SEC”)
      under
      the 1933 Act.

     

    B. The
      Company has authorized senior secured convertible notes, in the form attached
      hereto as Exhibit
      A
      (the
“Notes”),
      which
      Notes shall be convertible into shares of the Company’s common stock, $0.001 par
      value per share (the “Common
      Stock”)
      (as
      converted, collectively, the “Conversion
      Shares”),
      in
      accordance with the terms of the Notes.

     

    C.
       Each
      Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
      conditions stated in this Agreement, (i) the aggregate original principal amount
      of the Notes set forth opposite such Buyer’s name in column (3) on the Schedule
      of Buyers, (ii) a warrant to acquire up to that number of additional shares
      of
      Common Stock set forth opposite such Buyer’s name in column (4) on the Schedule
      of Buyers, in the form attached hereto as Exhibit
      B
      (the
“Series
      A Warrants”)
      (as
      exercised, collectively, the “Series
      A Warrant
      Shares”),
      (iii)
      a warrant to acquire up to that number of additional shares of Common Stock
      set
      forth opposite such Buyer’s name in column (5) on the Schedule of Buyers, in the
      form attached hereto as Exhibit
      B-1
      (the
“Series
      A-1 Warrants”)
      (as
      exercised, collectively, the “Series
      A-1 Warrant
      Shares”),
      (iv)
      a warrant to acquire up to that number of additional shares of Common Stock
      set
      forth opposite such Buyer’s name in column (6) on the Schedule of Buyers, in the
      form attached hereto as Exhibit
      C
      (the
“Series
      B Warrants”)
      (as
      exercised, collectively, the “Series
      B Warrant
      Shares”)
      and
      (v) a warrant to acquire up to that number of additional shares of Common Stock
      set forth opposite such Buyer’s name in column (7) on the Schedule of Buyers, in
      the form attached hereto as Exhibit
      D
      (the
“Series
      C Warrants”)
      (as
      exercised, collectively, the “Series
      C Warrant
      Shares”).
      The
      Series A Warrants, the Series A-1 Warrants, the Series B Warrants and the Series
      C Warrants are collectively referred to herein as the “Warrants.”
The
      Series A Warrant Shares, the Series A-1 Warrant Shares, the Series B Warrant
      Shares and the Series C Warrant Shares are collectively referred to herein
      as
      the “Warrant
      Shares.”

     

    D. At
      the
      Closing, the parties hereto shall execute and deliver a Registration Rights
      Agreement, in the form attached hereto as Exhibit
      E
      (the
“Registration
      Rights Agreement”),
      pursuant to which the Company has agreed to provide certain registration rights
      with respect to the Registrable Securities (as defined in the Registration
      Rights Agreement), under the 1933 Act and the rules and regulations promulgated
      thereunder, and applicable state securities laws.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    E. The
      Notes, the Conversion Shares, the Warrants and the Warrant Shares are
      collectively referred to herein as the “Securities.”

     

    F. The
      Notes
      will be secured by a first priority perfected security interest in substantially
      all of the assets of the Company and the Subsidiaries (as defined herein) as
      evidenced by a security agreement as the Buyers shall require in form and
      substance acceptable to each Buyer (such security agreement, together with
      the
      other security documents and agreements entered into in connection with this
      Agreement, as each may be amended or modified from time to time, collectively,
      the “Security
      Documents”),
      and
      each of the Subsidiaries (as defined below) will execute a guaranty
      (collectively, the “Guaranties”)
      pursuant to which each of them guarantees the obligations of the Company under
      the Notes.

     

    AGREEMENT

     

    NOW,
      THEREFORE, in consideration of the premises and the mutual covenants contained
      herein and for other good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, the Company and each Buyer hereby
      agree as follows:

     

    
      	
              1.

            	
              PURCHASE
                AND SALE OF NOTES AND
                WARRANTS.

            

    

     

    
      
        (a)
          Notes
          and Warrants.
          Subject
          to the satisfaction (or waiver) of the conditions set forth in Sections
          6 and 7
          below, the Company shall issue and sell to each Buyer, and each Buyer severally,
          but not jointly, shall purchase from the Company on the Closing Date (as
          defined
          below), a Note in the principal amount as is set forth opposite such Buyer’s
          name in column (3) on the Schedule of Buyers along with (i) the Series
          A
          Warrants to acquire up to that number of Series A Warrant Shares as is
          set forth
          opposite such Buyer’s name in column (4) on the Schedule of Buyers, (ii) the
          Series A-1 Warrants to acquire up to that number of Series A-1 Warrant
          Shares as
          is set forth opposite such Buyer’s name in column (5) on the Schedule of Buyers,
          (iii) the Series B Warrants to acquire up to that number of Series B Warrant
          Shares as is set forth opposite such Buyer’s name in column (6) on the Schedule
          of Buyers and (iv) the Series C Warrants to acquire up to that number of
          Series
          C Warrant Shares as is set forth opposite such Buyer’s name in column (7) on the
          Schedule of Buyers.

      

    

     

    (b) Closing.
      The
      closing (the “Closing”)
      of the
      purchase of the Notes and the Warrants by the Buyers shall occur at the offices
      of Greenberg Traurig, LLP, 77 W. Wacker Drive, Suite 2400, Chicago, Illinois
      60601. The date and time of the Closing (the “Closing
      Date”)
      shall
      be 10:00 a.m., New York time, on the first (1st)
      Business Day on which the conditions to the Closing set forth in Sections 6
      and
      7 below are satisfied or waived (or such later date as is mutually agreed to
      by
      the Company and each Buyer). As used herein “Business
      Day”
means
      any day other than a Saturday, Sunday or other day on which commercial banks
      in
      New York, New York are authorized or required by law to remain
      closed.

     

    (c) Purchase
      Price.
      The
      aggregate purchase price for the Notes and the Warrants to be purchased by
      each
      Buyer (the “Purchase
      Price”)
      shall
      be the amount set forth opposite such Buyer’s name in column (8) on the Schedule
      of Buyers. Each Buyer shall pay its respective Purchase Price for the Note
      and
      related Warrants to be purchased by such Buyer at the Closing.

     

    
      
         

      

      
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    (d) Form
      of Payment.
      On the
      Closing Date, (i) each Buyer shall pay its respective Purchase Price to the
      Company for the Note and the Warrants to be issued and sold to such Buyer at
      the
      Closing, by wire transfer of immediately available funds in accordance with
      the
      Company’s written wire instructions and (ii) the Company shall deliver to
      each Buyer (A) a Note (in such amount as is set forth opposite such Buyer’s name
      in column (3) of the Schedule of Buyers), (B) a Series A Warrant pursuant to
      which such Buyer shall have the right to acquire up to such number of Series
      A
      Warrant Shares as is set forth opposite such Buyer’s name in column (4) of the
      Schedule of Buyers, (C) a Series A-1 Warrant pursuant to which such Buyer shall
      have the right to acquire up to such number of Series A-1 Warrant Shares as
      is
      set forth opposite such Buyer’s name in column (5) of the Schedule of Buyers,
      (D) a Series B Warrant pursuant to which such Buyer shall have the right to
      acquire up to such number of Series B Warrant Shares as is set forth opposite
      such Buyer’s name in column (6) of the Schedule of Buyers and (E) a Series C
      Warrant pursuant to which such Buyer shall have the right to acquire up to
      such
      number of Series C Warrant Shares as is set forth opposite such Buyer’s name in
      column (7) of the Schedule of Buyers, in all cases, duly executed on behalf
      of
      the Company and registered in the name of such Buyer or its
      designee.

     

    
      	
              2.

            	
              BUYER’S
                REPRESENTATIONS AND
                WARRANTIES.

            

    

     

    Each
      Buyer, severally and not jointly, represents and warrants to the Company with
      respect to only itself that: 

     

    (a) Organization;
      Authority.
      Such
      Buyer is an entity duly organized, validly existing and in good standing under
      the laws of the jurisdiction of its organization with the requisite power and
      authority to enter into and to consummate the transactions contemplated by
      the
      Transaction Documents (as defined below) to which it is a party and otherwise
      to
      carry out its obligations hereunder and thereunder.

     

    (b) No
      Public Sale or Distribution.
      Such
      Buyer is (i) acquiring its Note and Warrants, (ii) upon conversion of its Note
      will acquire the Conversion Shares issuable upon conversion thereof, and
      (iii) upon exercise of its Warrants will acquire the Warrant Shares
      issuable upon exercise thereof, in each case, for its own account and not with
      a
      view towards, or for resale in connection with, the public sale or distribution
      thereof, except pursuant to sales registered or exempted under the 1933 Act;
      provided,
      however,
      that by
      making the representations herein, such Buyer does not agree, or make any
      representation or warranty, to hold any of the Securities for any minimum or
      other specific term and reserves the right to dispose of the Securities at
      any
      time in accordance with or pursuant to a registration statement or an exemption
      under the 1933 Act. Such Buyer is acquiring the Securities hereunder in the
      ordinary course of its business. Such Buyer does not presently have any
      agreement or understanding, directly or indirectly, with any Person to
      distribute any of the Securities.

     

    (c) Accredited
      Investor Status.
      Such
      Buyer is an “accredited investor” as that term is defined in Rule 501(a) of
      Regulation D.

     

    (d) Reliance
      on Exemptions.
      Such
      Buyer understands that the Securities are being offered and sold to it in
      reliance on specific exemptions from the registration requirements of United
      States federal and state securities laws and that the Company is relying in
      part
      upon the truth and accuracy of, and such Buyer’s compliance with, the
      representations, warranties, agreements, acknowledgments and understandings
      of
      such Buyer set forth herein in order to determine the availability of such
      exemptions and the eligibility of such Buyer to acquire the
      Securities.

     

    
      
         

      

      
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    (e) Information.
      Such
      Buyer and its advisors, if any, have been furnished with all materials relating
      to the business, finances and operations of the Company and materials relating
      to the offer and sale of the Securities which have been requested by such Buyer.
      Such Buyer and its advisors, if any, have been afforded the opportunity to
      ask
      questions of the Company. Neither such inquiries nor any other due diligence
      investigations conducted by such Buyer or its advisors, if any, or its
      representatives shall modify, amend or affect such Buyer’s right to rely on the
      Company’s representations and warranties contained herein or any representations
      and warranties contained in any other Transaction Document or any other document
      or instrument executed and/or delivered in connection with this Agreement or
      the
      consummation of the transaction contemplated hereby. Such Buyer understands
      that
      its investment in the Securities involves a high degree of risk. Such Buyer
      has
      sought such accounting, legal and tax advice as it has considered necessary
      to
      make an informed investment decision with respect to its acquisition of the
      Securities.

     

    (f) No
      Governmental Review.
      Such
      Buyer understands that no United States federal or state agency or any other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the Securities or the fairness or suitability of the investment
      in the Securities nor have such authorities passed upon or endorsed the merits
      of the offering of the Securities.

     

    (g) Transfer
      or Resale.
      Such
      Buyer understands that except as provided in the Registration Rights Agreement
      and Section 4(h) hereof: (i) the Securities have not been and are not being
      registered under the 1933 Act or any state securities laws, and may not be
      offered for sale, sold, assigned or transferred unless (A) subsequently
      registered thereunder, (B) such Buyer shall have delivered to the Company (if
      requested by the Company) an opinion of counsel to such Buyer, in a form
      reasonably acceptable to the Company, to the effect that such Securities to
      be
      sold, assigned or transferred may be sold, assigned or transferred pursuant
      to
      an exemption from such registration, or (C) such Buyer provides the Company
      with
      reasonable assurance that such Securities can be sold, assigned or transferred
      pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or a successor
      rule thereto) (collectively, “Rule
      144”);
      (ii)
      any sale of the Securities made in reliance on Rule 144 may be made only in
      accordance with the terms of Rule 144 and further, if Rule 144 is not
      applicable, any resale of the Securities under circumstances in which the seller
      (or the Person (as defined in Section 3(s)) through whom the sale is made)
      may
      be deemed to be an underwriter (as that term is defined in the 1933 Act) may
      require compliance with some other exemption under the 1933 Act or the rules
      and
      regulations of the SEC promulgated thereunder; and (iii) neither the Company
      nor
      any other Person is under any obligation to register the Securities under the
      1933 Act or any state securities laws or to comply with the terms and conditions
      of any exemption thereunder.

     

    (h) Validity;
      Enforcement.
      This
      Agreement has been duly and validly authorized, executed and delivered on behalf
      of such Buyer and constitutes the legal, valid and binding obligations of such
      Buyer enforceable against such Buyer in accordance with their respective terms,
      except as such enforceability may be limited by general principles of equity
      or
      to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
      and other similar laws relating to, or affecting generally, the enforcement
      of
      applicable creditors’ rights and remedies.

     

    
      
         

      

      
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    (i) No
      Conflicts.
      The
      execution, delivery and performance by such Buyer of this Agreement and the
      Registration Rights Agreement and the consummation by such Buyer of the
      transactions contemplated hereby and thereby will not (i) result in a violation
      of the organizational documents of such Buyer or (ii) conflict with, or
      constitute a default (or an event which with notice or lapse of time or both
      would become a default) under, or give to others any rights of termination,
      amendment, acceleration or cancellation of, any agreement, indenture or
      instrument to which such Buyer is a party, or (iii) result in a violation of
      any
      law, rule, regulation, order, judgment or decree (including federal and state
      securities laws) applicable to such Buyer, except in the case of clauses (ii)
      and (iii) above, for such conflicts, defaults, rights or violations which would
      not, individually or in the aggregate, reasonably be expected to have a material
      adverse effect on the ability of such Buyer to perform its obligations
      hereunder.

     

    (j) Residency.
      Such
      Buyer is a resident of that jurisdiction specified below its address on the
      Schedule of Buyers.

     

    (k) Certain
      Trading Activities. Such Buyer has not directly or indirectly, nor has any
      Person acting on behalf of or pursuant to any understanding with such Buyer,
      engaged in any transactions in the securities of the Company (including, without
      limitation, any Short Sales involving the Company’s securities) since the time
      that such Buyer was first contacted by the Company regarding the investment
      in
      the Company contemplated herein. “Short
      Sales”
      include, without limitation, all “short sales” as defined in Rule 200
      promulgated under Regulation SHO under the 1934 Act (“Regulation
      SHO”)
      and
      all types of direct and indirect stock pledges, forward sale contracts, options,
      puts, calls, swaps and similar arrangements (including on a total return basis),
      and sales and other transactions through non-U.S. broker dealers or foreign
      regulated brokers (but
      shall not be deemed to include the location and/or reservation of borrowable
      shares of Common Stock).
      Such
      Buyer does not as of the date hereof, and will not immediately following the
      Closing, own 10% or more of the Company’s issued and outstanding shares of
      Common Stock (calculated based on the assumption that all Equivalents (as
      defined below) owned by such Buyer, whether or not presently exercisable or
      convertible, have been fully exercised or converted (as the case may be) but
      taking into account any limitations on exercise or conversion (including
“blockers”) contained therein).

     

    (l) General
      Solicitation.
      Such
      Buyer is not purchasing the Securities as a result of any advertisement,
      article, notice or other communication regarding the Securities published in
      any
      newspaper, magazine or similar media or broadcast over television or radio
      or
      presented at any seminar.

     

    
      
         

      

      
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              3.

            	
              REPRESENTATIONS
                AND WARRANTIES OF THE
                COMPANY.

            

    

     

    The
      Company represents and warrants to each of the Buyers that:

     

    (a) Organization
      and Qualification.
      Each of
      the Company and each of the Subsidiaries are entities duly organized and validly
      existing and in good standing under the laws of the jurisdiction in which they
      are formed, and have the requisite power and authorization to own their
      properties and to carry on their business as now being conducted and as
      presently proposed to be conducted. Each of the Company and each of the
      Subsidiaries is duly qualified as a foreign entity to do business and is in
      good
      standing in every jurisdiction in which its ownership of property or the nature
      of the business conducted by it makes such qualification necessary, except
      to
      the extent that the failure to be so qualified or be in good standing would
      not
      have a Material Adverse Effect. As used in this Agreement, “Material
      Adverse Effect”
means
      any material adverse effect on (i) the business, properties, assets,
      liabilities, operations (including results thereof), condition (financial or
      otherwise) or prospects of the Company or any Material Subsidiary, individually
      or taken as a whole, (ii) the transactions contemplated hereby or in the other
      Transaction Documents or (iii) the authority or ability of the Company or any
      of
      the Subsidiaries to perform their respective obligations under the Transaction
      Documents (as defined below). Other than the Subsidiaries, there is no Person
      in
      which the Company, directly or indirectly, owns capital stock or holds an equity
      or similar interest. For purposes of this Agreement, Generex Pharmaceuticals
      Inc., an Ontario corporation, Generex (Bermuda), Inc., a corporation existing
      pursuant to the Bermuda Companies Act, Antigen Express, Inc., a Delaware
      corporation, Generex Pharmaceuticals (USA) LLC, a North Carolina limited
      liability company, Generex Marketing & Distribution Inc., an Ontario
      corporation, and 1097346 Ontario Inc., an Ontario corporation, are collectively
      referred to herein as the “Subsidiaries”
and
      each individually as a “Subsidiary.”
For
      purposes of this Agreement, “Material
      Subsidiaries”
means,
      collectively, Generex Pharmaceuticals, Inc., Antigen Express, Inc. and any
      other
      Subsidiary which has at least $250,000 in revenues, $250,000 in assets or owns,
      leases or licenses any assets or rights of any kind or nature, or provides
      any services of any kind or nature, that are material to the business,
      operations (including results thereof), properties, condition (including
      financial condition) or prospects of the Company or any of its Subsidiaries,
      either individually or in the aggregate, and each of the foregoing,
      individually, a “Material Subsidiary.”
No
      Subsidiary is a Material Subsidiary other than Generex Pharmaceuticals, Inc.
      and
      Antigen Express, Inc. No Subsidiary, other than Generex Pharmaceuticals, Inc.
      and Antigen Express, Inc., has any material business, activities, operations,
      assets or rights of any kind or nature whatsoever, and none of such Subsidiaries
      have any material historic, ongoing or future liabilities of any kind or nature
      whatsoever.

    

    (b) Authorization;
      Enforcement; Validity.
      The
      Company has the requisite power and authority to enter into and perform its
      obligations under this Agreement and the other Transaction Documents to which
      it
      is a party and to issue the Securities in accordance with the terms hereof
      and
      thereof. Each Subsidiary has the requisite power and authority to enter into
      and
      perform its obligations under the Transaction Documents to which it is a party.
      The execution and delivery of this Agreement and the other Transaction Documents
      by the Company and the Subsidiaries, and the consummation by the Company and
      the
      Subsidiaries of the transactions contemplated hereby and thereby (including,
      without limitation, the issuance of the Notes and the reservation for issuance
      and issuance of the Conversion Shares issuable upon conversion of the Notes,
      the
      issuance of the Warrants and the reservation for issuance and issuance of the
      Warrant Shares issuable upon exercise of the Warrants) have been duly authorized
      by the Company’s board of directors and each of the Subsidiaries’ board of
      directors or other governing body, as applicable, and (other than the filing
      with the SEC of a Notice on Form D and one or more Registration Statements
      in
      accordance with the requirements of the Registration Rights Agreement and any
      other filings as may be required by any state securities agencies) no further
      filing, consent or authorization is required by the Company, the Subsidiaries,
      their respective Boards of Directors or their stockholders or other governing
      body. This Agreement and the other Transaction Documents to which it is a party
      have been duly executed and delivered by the Company and constitutes the legal,
      valid and binding obligations of the Company, enforceable against the Company
      in
      accordance with their respective terms, except as such enforceability may be
      limited by general principles of equity or applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation or similar laws relating to, or
      affecting generally, the enforcement of applicable creditors’ rights and
      remedies and except as rights to indemnification and to contribution may be
      limited by federal or state securities law. The Transaction Documents to which
      each Subsidiary is a party have been duly executed and delivered by each such
      Subsidiary, and constitutes the legal, valid and binding obligations of such
      Subsidiary, enforceable against such Subsidiary in accordance with their
      respective terms, except as such enforceability may be limited by general
      principles of equity or applicable bankruptcy, insolvency, reorganization,
      moratorium, liquidation or similar laws relating to, or affecting generally,
      the
      enforcement of applicable creditors’ rights and remedies and except as rights to
      indemnification and to contribution may be limited by federal or state
      securities law. “Transaction
      Documents”
means,
      collectively, this Agreement, the Notes, the Warrants, the Security Documents,
      the Guaranties, the Registration Rights Agreement, the Irrevocable Transfer
      Agent Instructions (as defined in Section 5(b)) and each of the other agreements
      and instruments entered into by the parties hereto in connection with the
      transactions contemplated hereby and thereby. 

     

    
      
         

      

      
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    (c) Issuance
      of Securities.
      The
      issuance of the Notes and the Warrants are duly authorized and upon issuance
      in
      accordance with the terms of the Transaction Documents shall be validly issued,
      fully paid and non-assessable and free from all taxes, liens, charges and other
      encumbrances with respect to the issue thereof. As of the Closing, the Company
      shall have reserved from its duly authorized capital stock not less than 120%
      of
      the sum of (i) the maximum number of Conversion Shares issuable upon conversion
      of the Notes (assuming for purposes hereof that the Notes are convertible at
      the
      initial Conversion Price (as defined in the Notes) and without taking into
      account any limitations on the conversion of the Notes set forth therein) and
      (ii) the maximum number of Warrant Shares issuable upon exercise of the Warrants
      (without regard to any limitations on the exercise of the Warrants set forth
      therein). Upon conversion in accordance with the Notes or exercise in accordance
      with the Warrants (as the case may be), the Conversion Shares and the Warrant
      Shares, respectively, when issued, will be validly issued, fully paid and
      nonassessable and free from all preemptive or similar rights, taxes, liens,
      charges and other encumbrances with respect to the issue thereof, with the
      holders being entitled to all rights accorded to a holder of Common Stock.
      Subject to the accuracy of the representations and warranties of the Buyers
      in
      this Agreement, the offer and issuance by the Company of the Securities is
      exempt from registration under the 1933 Act.

     

    (d) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the Subsidiaries and the consummation by the Company and the Subsidiaries
      of
      the transactions contemplated hereby and thereby (including, without limitation,
      the issuance of the Notes, the Warrants, the Conversion Shares and Warrant
      Shares and the reservation for issuance of the Conversion Shares and Warrant
      Shares) will not (i) result in a violation of the Certificate of Incorporation
      (as defined in Section 3(r)) or other organizational documents of the Company
      or
      any of the Subsidiaries, any capital stock of the Company or any of the
      Subsidiaries or Bylaws (as defined in Section 3(r)) of the Company or any of
      the
      Subsidiaries, (ii) conflict with, or constitute a default (or an event which
      with notice or lapse of time or both would become a default) under, or give
      to
      others any rights of termination, amendment, acceleration or cancellation of,
      any agreement, indenture or instrument to which the Company or any of the
      Subsidiaries is a party, or (iii) result in a violation of any law, rule,
      regulation, order, judgment or decree (including foreign, federal and state
      securities laws and regulations and the rules and regulations of The
      Nasdaq Capital Market
      (the
“Principal
      Market”)
      and
      including all applicable Canadian and Ontario laws, rules and regulations)
      applicable to the Company or any of the Subsidiaries or by which any property
      or
      asset of the Company or any of the Subsidiaries is bound or affected except,
      in
      the case of clause (ii) or (iii) above, to the extent such violations that
      could
      not reasonably be expected to have a Material Adverse Effect. 

     

    
      
         

      

      
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    (e) Consents.
      Neither
      the Company nor any Subsidiary is required to obtain any consent, authorization
      or order of, or make any filing or registration with, any court, governmental
      agency or any regulatory or self-regulatory agency or any other Person in order
      for it to execute, deliver or perform any of its respective obligations under
      or
      contemplated by the Transaction Documents, in each case, in accordance with
      the
      terms hereof or thereof. All consents, authorizations, orders, filings and
      registrations which the Company or any Subsidiary is required to obtain pursuant
      to the preceding sentence have been obtained or effected on or prior to the
      Closing Date, and neither the Company nor any of the Subsidiaries are aware
      of
      any facts or circumstances which might prevent the Company or any Subsidiary
      from obtaining or effecting any of the registration, application or filings
      pursuant to the preceding sentence. The Company is not in violation of the
      requirements of the Principal Market and has no knowledge of any facts or
      circumstances which could reasonably lead to delisting or suspension of the
      Common Stock in the foreseeable future (other than the potential of its stock
      price decreasing below $1.00). 

     

    (f) Acknowledgment
      Regarding Buyer’s Purchase of Securities.
      The
      Company acknowledges and agrees that each Buyer is acting solely in the capacity
      of an arm’s length purchaser with respect to the Transaction Documents and the
      transactions contemplated hereby and thereby and that no Buyer is (i) an officer
      or director of the Company or any of the Subsidiaries, (ii) an “affiliate” (as
      defined in Rule 144) of the Company or any of the Subsidiaries or (iii) to
      its
      knowledge, a “beneficial owner” of more than 10% of the shares of Common Stock
      (as defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934,
      as amended (the “1934
      Act”)).
      The
      Company further acknowledges that no Buyer is acting as a financial advisor
      or
      fiduciary of the Company or any of the Subsidiaries (or in any similar capacity)
      with respect to the Transaction Documents and the transactions contemplated
      hereby and thereby, and any advice given by a Buyer or any of its
      representatives or agents in connection with the Transaction Documents and
      the
      transactions contemplated hereby and thereby is merely incidental to such
      Buyer’s purchase of the Securities. The Company further represents to each Buyer
      that the Company’s and each Subsidiary’s decision to enter into the Transaction
      Documents to which it is a party has been based solely on the independent
      evaluation by the Company, each Subsidiary and their respective
      representatives.

     

    
      
         

      

      
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    (g) No
      General Solicitation; Placement Agent’s Fees.
      Neither
      the Company, nor any of the Subsidiaries or affiliates, nor any Person acting
      on
      its or their behalf, has engaged in any form of general solicitation or general
      advertising (within the meaning of Regulation D) in connection with the offer
      or
      sale of the Securities. The Company shall be responsible for the payment of
      any
      placement agent’s fees, financial advisory fees, or brokers’ commissions (other
      than for persons engaged by any Buyer or its investment advisor) relating to
      or
      arising out of the transactions contemplated hereby. Neither the Company nor
      any
      of the Subsidiaries has engaged any placement agent (other than Rodman &
Renshaw LLC) or other agent in connection with the sale of the
      Securities.

     

    (h) No
      Integrated Offering.
      None of
      the Company, the Subsidiaries or any of their affiliates, nor any Person acting
      on their behalf has, directly or indirectly, made any offers or sales of any
      security or solicited any offers to buy any security, under circumstances that
      would require registration of the issuance of any of the Securities under the
      1933 Act, whether through integration with prior offerings or otherwise, or
      cause this offering of the Securities to require approval of stockholders of
      the
      Company under any applicable stockholder approval provisions, including, without
      limitation, under the rules and regulations of any exchange or automated
      quotation system on which any of the securities of the Company are listed or
      designated. None of the Company, the Subsidiaries, their affiliates nor any
      Person acting on their behalf will take any action or steps referred to in
      the
      preceding sentence that would require registration of the issuance of any of
      the
      Securities under the 1933 Act or cause the offering of any of the Securities
      to
      be integrated with other offerings.

     

    (i) Dilutive
      Effect.
      The
      Company understands and acknowledges that the number of Conversion Shares and
      Warrant Shares will increase in certain circumstances. The Company further
      acknowledges that its obligation to issue the Conversion Shares upon conversion
      of the Notes and the Warrant Shares upon exercise of the Warrants in accordance
      with this Agreement, the Notes and the Warrants is, absolute and unconditional
      regardless of the dilutive effect that such issuance may have on the ownership
      interests of other stockholders of the Company.

     

    (j) Application
      of Takeover Protections; Rights Agreement.
      The
      Company and its board of directors have taken all necessary action, if any,
      in
      order to render inapplicable any control share acquisition, business
      combination, poison pill (including any distribution under a rights agreement)
      or other similar anti-takeover provision under the Certificate of Incorporation
      or other organizational document or the laws of the jurisdiction of its
      incorporation or otherwise which is or could become applicable to any Buyer
      as a
      result of the transactions contemplated by this Agreement, including, without
      limitation, the Company’s issuance of the Securities and any Buyer’s ownership
      of the Securities. The Company and its board of directors have taken all
      necessary action, if any, in order to render inapplicable any stockholder rights
      plan or similar arrangement relating to accumulations of beneficial ownership
      of
      shares of Common Stock or a change in control of the Company or any of the
      Subsidiaries.

     

    
      
         

      

      
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    (k) SEC
      Documents; Financial Statements.
      During
      the two (2) years prior to the date hereof, the Company has timely filed all
      reports, schedules, forms, statements and other documents required to be filed
      by it with the SEC pursuant to the reporting requirements of the 1934 Act (all
      of the foregoing filed prior to the date hereof and all exhibits included
      therein and financial statements, notes and schedules thereto and documents
      incorporated by reference therein being hereinafter referred to as the
“SEC
      Documents”).
      The
      Company has delivered to the Buyers or their respective representatives true,
      correct and complete copies of each of the SEC Documents not available on the
      EDGAR system. As of their respective dates, the SEC Documents complied in all
      material respects with the requirements of the 1934 Act and the rules and
      regulations of the SEC promulgated thereunder applicable to the SEC Documents,
      and none of the SEC Documents, at the time they were filed with the SEC,
      contained any untrue statement of a material fact or omitted to state a material
      fact required to be stated therein or necessary in order to make the statements
      therein, in the light of the circumstances under which they were made, not
      misleading. As of their respective dates, the financial statements of the
      Company included in the SEC Documents complied as to form in all material
      respects with applicable accounting requirements and the published rules and
      regulations of the SEC with respect thereto as in effect as of the time of
      filing. Such financial statements have been prepared in accordance with
      generally accepted accounting principles, consistently applied, during the
      periods involved (except (i) as may be otherwise indicated in such financial
      statements or the notes thereto, or (ii) in the case of unaudited interim
      statements, to the extent they may exclude footnotes or may be condensed or
      summary statements) and fairly present in all material respects the financial
      position of the Company as of the dates thereof and the results of its
      operations and cash flows for the periods then ended (subject, in the case
      of
      unaudited statements, to normal year-end audit adjustments which will not be
      material, either individually or in the aggregate). No other information
      provided by or on behalf of the Company to the Buyers which is not included
      in
      the SEC Documents, including, without limitation, information referred to in
      Section 2(e) of this Agreement, contains any untrue statement of a material
      fact
      or omits to state any material fact necessary in order to make the statements
      therein not misleading, in the light of the circumstance under which they are
      or
      were made.

     

    (l) Absence
      of Certain Changes.
      Since
      the date of the Company’s most recent audited or reviewed financial statements
      contained in a Form 10-K, there has been no material adverse change and no
      material adverse development in the business, assets, liabilities, properties,
      operations (including results thereof), condition (financial or otherwise)
      or
      prospects of the Company or any of the Subsidiaries, except as may be disclosed
      in the SEC Documents filed after the date of such Form 10-K but prior to the
      date hereof. Since the date of the Company’s most recent audited financial
      statements contained in a Form 10-K, neither the Company nor any of the
      Subsidiaries has (i) declared or paid any dividends, (ii) sold any assets,
      individually or in the aggregate, outside of the ordinary course of business
      or
      (iii) made any material capital expenditures, individually or in the aggregate.
      Neither the Company nor any of the Subsidiaries has taken any steps to seek
      protection pursuant to any law or statute relating to bankruptcy, insolvency,
      reorganization, liquidation or winding up, nor does the Company or any
      Subsidiary have any knowledge or reason to believe that any of their respective
      creditors intend to initiate involuntary bankruptcy proceedings or any actual
      knowledge of any fact which would reasonably lead a creditor to do so. The
      Company and the Subsidiaries, individually and on a consolidated basis, are
      not
      as of the date hereof, and after giving effect to the transactions contemplated
      hereby to occur at the Closing, will not be Insolvent (as defined below). For
      purposes of this Section 3(l), “Insolvent”
means,
      (I) with respect to the Company and the Subsidiaries, on a consolidated basis,
      (i) the present fair saleable value of the Company’s and the Subsidiaries’
assets is less than the amount required to pay the Company’s and the
      Subsidiaries’ total Indebtedness (as defined in Section 3(s)), (ii) the Company
      and the Subsidiaries are unable to pay their debts and liabilities,
      subordinated, contingent or otherwise, as such debts and liabilities become
      absolute and matured or (iii) the Company and the Subsidiaries intend to incur
      or believe that they will incur debts that would be beyond their ability to
      pay
      as such debts mature; and (II) with respect to the Company and each Subsidiary,
      individually, (i) the present fair saleable value of the Company’s or any of the
      Subsidiaries’ assets is less than the amount required to pay each of their
      respective total Indebtedness, (ii) the Company or any of the Subsidiaries
      are
      unable to pay their respective debts and liabilities, subordinated, contingent
      or otherwise, as such debts and liabilities become absolute and matured or
      (iii)
      the Company or any of the Subsidiaries intend to incur or believe that they
      will
      incur debts that would be beyond their respective ability to pay as such debts
      mature. Neither the Company nor any of the Subsidiaries has engaged in business
      or in any transaction, and is not about to engage in business or in any
      transaction, for which the Company’s or such Subsidiary’s remaining assets
      constitute unreasonably small capital.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    (m) No
      Undisclosed Events, Liabilities, Developments or Circumstances.
      No
      event, liability, development or circumstance has occurred or exists, or is
      reasonably expected to exist or occur with respect to the Company, any of the
      Subsidiaries or their respective business, properties, liabilities, prospects,
      operations (including results thereof) or condition (financial or otherwise),
      that would be required to be disclosed by the Company under applicable
      securities laws on a registration statement on Form S-1 filed with the SEC
      relating to an issuance and sale by the Company of its Common Stock and which
      has not been publicly announced or which would have a material adverse effect
      on
      any Buyer’s investment hereunder.

     

    (n) Conduct
      of Business; Regulatory Permits.
      Neither
      the Company nor any of the Subsidiaries is in violation of any term of or in
      default under its Certificate of Incorporation, any certificate of designation,
      preferences or rights of any other outstanding series of preferred stock of
      the
      Company or any of the Subsidiaries or Bylaws or their organizational charter,
      certificate of formation or certificate of incorporation or bylaws,
      respectively. Neither the Company nor any of the Subsidiaries is in violation
      of
      any judgment, decree or order or any statute, ordinance, rule or regulation
      applicable to the Company or any of the Subsidiaries, and neither the Company
      nor any of the Subsidiaries will conduct its business in violation of any of
      the
      foregoing, except in all cases for possible violations which could not,
      individually or in the aggregate, have a Material Adverse Effect. Without
      limiting the generality of the foregoing, the Company is not in violation of
      any
      of the rules, regulations or requirements of the Principal Market and has no
      knowledge of any facts or circumstances that could reasonably lead to delisting
      or suspension of the Common Stock by the Principal Market in the foreseeable
      future (other than the potential of its stock price decreasing below $1.00).
      Since January 1, 2006, (i) the Common Stock has been designated for quotation
      on
      the Principal Market, (ii) trading in the Common Stock has not been suspended
      by
      the SEC or the Principal Market and (iii) the Company has received no
      communication, written or oral, from the SEC or the Principal Market regarding
      the suspension or delisting of the Common Stock from the Principal Market.
      The
      Company and each of the Subsidiaries possess all certificates, authorizations
      and permits issued by the appropriate regulatory authorities necessary to
      conduct their respective businesses, except where the failure to possess such
      certificates, authorizations or permits would not have, individually or in
      the
      aggregate, a Material Adverse Effect, and neither the Company nor any such
      Subsidiary has received any notice of proceedings relating to the revocation
      or
      modification of any such certificate, authorization or permit.

     

    
      
         

      

      
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    (o) Foreign
      Corrupt Practices.
      Neither
      the Company nor any of the Subsidiaries nor any director, officer, nor to the
      Company’s knowledge, any agent, employee or other Person acting on behalf of the
      Company or any of the Subsidiaries has, in the course of its actions for, or
      on
      behalf of, the Company or any of the Subsidiaries (i) used any corporate funds
      for any unlawful contribution, gift, entertainment or other unlawful expenses
      relating to political activity; (ii) made any direct or indirect unlawful
      payment to any foreign or domestic government official or employee from
      corporate funds; (iii) violated or is in violation of any provision of the
      U.S.
      Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
      bribe, rebate, payoff, influence payment, kickback or other unlawful payment
      to
      any foreign or domestic government official or employee.

     

    (p) Sarbanes-Oxley
      Act.
      The
      Company and each Subsidiary is in material compliance with all applicable
      requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the
      date
      hereof, and all applicable rules and regulations promulgated by the SEC
      thereunder that are effective as of the date hereof.

     

    (q) Transactions
      With Affiliates.
      Other
      than the grant of stock options disclosed on Schedule 3(q) and except as
      disclosed in the SEC Documents, none of the officers, directors or employees
      of
      the Company or any of the Subsidiaries is presently a party to any transaction
      with the Company or any of the Subsidiaries (other than for ordinary course
      services as employees, officers or directors), including any contract, agreement
      or other arrangement providing for the furnishing of services to or by,
      providing for rental of real or personal property to or from, or otherwise
      requiring payments to or from any such officer, director or employee or, to
      the
      knowledge of the Company or any of the Subsidiaries, any corporation,
      partnership, trust or other entity in which any such officer, director, or
      employee has a substantial interest or is an officer, director, trustee or
      partner.

     

    (r) Equity
      Capitalization.
      As of
      the date hereof, the authorized capital stock of the Company consists of (i)
      500,000,000 shares of Common Stock, of which 111,675,276 shares are issued
      and
      outstanding and 20,500,796 shares are reserved for issuance pursuant to
      securities (other than the Notes and the Warrants) exercisable or exchangeable
      for, or convertible into, Common Stock and (ii) 1,000 shares of preferred stock,
      none of which, as of the date hereof, are issued and outstanding. No shares
      of
      Common Stock are held in treasury. All of such outstanding shares are duly
      authorized and have been, or upon issuance will be, validly issued and are
      fully
      paid and nonassessable. 11,202,174 shares of the Company’s issued and
      outstanding Common Stock on the date hereof are as of the date hereof owned
      by
      Persons who are “affiliates” (as defined in Rule 405 of the 1933 Act and
      calculated based on the assumption that only officers, directors and holders
      of
      at least 10% of
      the
      Company’s issued and outstanding Common Stock
      are
“affiliates” without conceding that any such Persons are “affiliates” for
      purposes of federal securities laws) of the Company or any of the Subsidiaries.
      To
      the
      Company’s knowledge, as of the date hereof no Person owns 10% or more of the
      Company’s issued and outstanding shares of Common Stock (calculated based on the
      assumption that all Equivalents, whether or not presently exercisable or
      convertible, have been fully exercised or converted (as the case may
      be) taking account of any limitations on exercise or conversion (including
      “blockers”) contained therein without conceding that such identified Person is a
      10% stockholder for purposes of federal securities laws).
      Except
      as disclosed in Schedule 3(r): (i) none of the Company’s or any Subsidiary’s
      capital stock is subject to preemptive rights or any other similar rights or
      any
      liens or encumbrances suffered or permitted by the Company or any Subsidiary;
      (ii) except as disclosed in the SEC Documents, there are no outstanding options,
      warrants, scrip, rights to subscribe to, calls or commitments of any character
      whatsoever relating to, or securities or rights convertible into, or exercisable
      or exchangeable for, any capital stock of the Company or any of the
      Subsidiaries, or contracts, commitments, understandings or arrangements by
      which
      the Company or any of the Subsidiaries is or may become bound to issue
      additional capital stock of the Company or any of the Subsidiaries or options,
      warrants, scrip, rights to subscribe to, calls or commitments of any character
      whatsoever relating to, or securities or rights convertible into, or exercisable
      or exchangeable for, any capital stock of the Company or any of the
      Subsidiaries; (iii) there are no outstanding debt securities, notes, credit
      agreements, credit facilities or other agreements, documents or instruments
      evidencing Indebtedness (as defined in Section 3(s)) of the Company or any
      of
      the Subsidiaries or by which the Company or any of the Subsidiaries is or may
      become bound; (iv) there are no financing statements securing obligations in
      any
      amounts filed in connection with the Company or any of the Subsidiaries; (v)
      there are no agreements or arrangements under which the Company or any of the
      Subsidiaries is obligated to register the sale of any of their securities under
      the 1933 Act (except pursuant to the Registration Rights Agreement); (vi) there
      are no outstanding securities or instruments of the Company or any of the
      Subsidiaries which contain any redemption or similar provisions, and there
      are
      no contracts, commitments, understandings or arrangements by which the Company
      or any of the Subsidiaries is or may become bound to redeem a security of the
      Company or any of the Subsidiaries; (vii) there are no securities or instruments
      containing anti-dilution or similar provisions that will be triggered by the
      issuance of the Securities; (viii) neither the Company nor any Subsidiary has
      any stock appreciation rights or “phantom stock” plans or agreements or any
      similar plan or agreement; and (ix) neither the Company nor any of the
      Subsidiaries have any liabilities or obligations required to be disclosed in
      the
      SEC Documents which are not so disclosed in the SEC Documents, other than those
      incurred in the ordinary course of the Company’s or the Subsidiaries’ respective
      businesses and which, individually or in the aggregate, do not or could not
      have
      a Material Adverse Effect. The Company has furnished to the Buyers true, correct
      and complete copies of the Company’s Certificate of Incorporation, as amended
      and as in effect on the date hereof (the “Certificate of
      Incorporation”),
      and
      the Company’s bylaws, as amended and as in effect on the date hereof (the
“Bylaws”),
      and
      the terms of all securities convertible into, or exercisable or exchangeable
      for, shares of Common Stock and the material rights of the holders thereof
      in
      respect thereto that have not been disclosed in the SEC Documents.

     

    
      
         

      

      
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    (s) Indebtedness
      and Other Contracts.
      Except
      as disclosed on Schedule 3(s)
      or in
      the SEC Documents, neither the Company nor any of the Subsidiaries (i) has
      any
      outstanding Indebtedness (as defined below), (ii) is a party to any contract,
      agreement or instrument, the violation of which, or default under which, by
      the
      other party(ies) to such contract, agreement or instrument could reasonably
      be
      expected to result in a Material Adverse Effect, (iii) is in violation of any
      term of or in default under any contract, agreement or instrument relating
      to
      any Indebtedness, except where such violations and defaults would not result,
      individually or in the aggregate, in a Material Adverse Effect, or (iv) is
      a
      party to any contract, agreement or instrument relating to any Indebtedness,
      the
      performance of which, in the judgment of the Company’s officers, has or is
      expected to have a Material Adverse Effect. For purposes of this Agreement:
      (x)
“Indebtedness”
of
      any
      Person means, without duplication (A) all indebtedness for borrowed money,
      (B)
      all obligations issued, undertaken or assumed as the deferred purchase price
      of
      property or services (including, without limitation, “capital leases” in
      accordance with generally accepted accounting principles) (other than trade
      payables entered into in the ordinary course of business), (C) all reimbursement
      or payment obligations with respect to letters of credit, surety bonds and
      other
      similar instruments, (D) all obligations evidenced by notes, bonds, debentures
      or similar instruments, including obligations so evidenced incurred in
      connection with the acquisition of property, assets or businesses, (E) all
      indebtedness created or arising under any conditional sale or other title
      retention agreement, or incurred as financing, in either case with respect
      to
      any property or assets acquired with the proceeds of such indebtedness (even
      though the rights and remedies of the seller or bank under such agreement in
      the
      event of default are limited to repossession or sale of such property), (F)
      all
      monetary obligations under any leasing or similar arrangement which, in
      connection with generally accepted accounting principles, consistently applied
      for the periods covered thereby, is classified as a capital lease, (G) all
      indebtedness referred to in clauses (A) through (F) above secured by (or for
      which the holder of such Indebtedness has an existing right, contingent or
      otherwise, to be secured by) any mortgage, lien, pledge, charge, security
      interest or other encumbrance upon or in any property or assets (including
      accounts and contract rights) owned by any Person, even though the Person which
      owns such assets or property has not assumed or become liable for the payment
      of
      such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
      or obligations of others of the kinds referred to in clauses (A) through (G)
      above; (y) “Contingent
      Obligation”
means,
      as to any Person, any direct or indirect liability, contingent or otherwise,
      of
      that Person with respect to any indebtedness, lease, dividend or other
      obligation of another Person if the primary purpose or intent of the Person
      incurring such liability, or the primary effect thereof, is to provide assurance
      to the obligee of such liability that such liability will be paid or discharged,
      or that any agreements relating thereto will be complied with, or that the
      holders of such liability will be protected (in whole or in part) against loss
      with respect thereto; and (z) “Person”
means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization, any other entity and
      a
      government or any department or agency thereof.

     

    
      
         

      

      
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    (t) Absence
      of Litigation.
      Except
      as set forth on Schedule 3(t) or in the SEC Documents, there is no action,
      suit,
      proceeding, inquiry or investigation before or by the Principal Market, any
      court, public board, government agency, self-regulatory organization or body
      pending or, to the knowledge of the Company, threatened against or affecting
      the
      Company or any of the Subsidiaries, the Common Stock or any of the Company’s or
      the Subsidiaries’ officers or directors which is outside of the ordinary course
      of business or individually or in the aggregate could have a Material Adverse
      Effect.

     

    (u) Insurance.
      The
      Company and each of the Subsidiaries are insured by insurers of recognized
      financial responsibility against such losses and risks and in such amounts
      as
      management of the Company believes to be prudent and customary in the businesses
      in which the Company and the Subsidiaries are engaged. Neither the Company
      nor
      any such Subsidiary has been refused any insurance coverage sought or applied
      for, and neither the Company nor any such Subsidiary has any reason to believe
      that it will be unable to renew its existing insurance coverage as and when
      such
      coverage expires or to obtain similar coverage from similar insurers as may
      be
      necessary to continue its business at a cost that would not have a Material
      Adverse Effect.

     

    
      
         

      

      
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    (v) Employee
      Relations.
      Neither
      the Company nor any of the Subsidiaries is a party to any collective bargaining
      agreement or employs any member of a union. The Company believe that its and
      its
      Subsidiaries’ relations with their respective employees are good. No executive
      officer (as defined in Rule 501(f) promulgated under the 1933 Act) or other
      key
      employee of the Company or any of the Subsidiaries has notified the Company
      or
      any such Subsidiary that such officer intends to leave the Company or any such
      Subsidiary or otherwise terminate such officer’s employment with the Company or
      any such Subsidiary. No executive officer or other key employee of the Company
      or any of the Subsidiaries is, to the Company’s knowledge, in violation of any
      material term of any employment contract, confidentiality, disclosure or
      proprietary information agreement, non-competition agreement, or any other
      contract or agreement or any restrictive covenant, and the continued employment
      of each such executive officer or other key employee (as the case may be) to
      the
      Company’s knowledge does not subject the Company or any of the Subsidiaries to
      any liability with respect to any of the foregoing matters. The Company and
      the
      Subsidiaries are in compliance with all federal, state, local and foreign laws
      and regulations respecting labor, employment and employment practices and
      benefits, terms and conditions of employment and wages and hours, except where
      failure to be in compliance would not, either individually or in the aggregate,
      reasonably be expected to result in a Material Adverse Effect.

     

    (w) Title.
      The
      Company and the Subsidiaries have good and marketable title in fee simple to
      all
      real property and good and marketable title to all personal property owned
      by
      them which is material to the business of the Company and the Subsidiaries,
      in
      each case, free and clear of all liens, encumbrances and defects except for
      Permitted Liens (as defined in the Notes) and such as do not materially affect
      the value of such property and do not interfere with the use made and proposed
      to be made of such property by the Company and any of the Subsidiaries. Any
      real
      property and facilities held under lease by the Company or any of the
      Subsidiaries are held by them under valid, subsisting and enforceable leases
      with such exceptions as are not material and do not interfere with the use
      made
      and proposed to be made of such property and buildings by the Company or any
      of
      the Subsidiaries. 

     

    (x) Intellectual
      Property Rights.
      The
      Company and the Subsidiaries own or possess adequate rights or licenses to
      use
      all trademarks, trade names, service marks, service mark registrations, service
      names, patents, patent rights, copyrights, original works, inventions, licenses,
      approvals, governmental authorizations, trade secrets and other intellectual
      property rights and all applications and registrations therefor (“Intellectual
      Property Rights”)
      necessary to conduct their respective businesses as now conducted and as
      presently proposed to be conducted. None of the Company’s or the Subsidiaries’
material Intellectual Property Rights have expired, terminated or been
      abandoned, or are expected to expire, terminate or be abandoned, within three
      years from the date of this Agreement. The Company has no knowledge of any
      infringement by the Company or any of the Subsidiaries of Intellectual Property
      Rights of others. There is no claim, action or proceeding being made or brought,
      or to the knowledge of the Company or any of the Subsidiaries, being threatened,
      against the Company or any of the Subsidiaries regarding their Intellectual
      Property Rights, except as disclosed in the SEC Documents. The Company is not
      aware of any facts or circumstances which might give rise to any of the
      foregoing infringements or claims, actions or proceedings. The Company and
      each
      of the Subsidiaries have taken reasonable security measures to protect the
      secrecy, confidentiality and value of all of their Intellectual Property
      Rights.

     

    
      
         

      

      
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    (y) Environmental
      Laws.
      The
      Company and the Subsidiaries (i) are in compliance with all Environmental Laws
      (as defined herein), (ii) have received all permits, licenses or other approvals
      required of them under applicable Environmental Laws to conduct their respective
      businesses and (iii) are in compliance with all terms and conditions of any
      such
      permit, license or approval where, in each of the foregoing clauses (i), (ii)
      and (iii), the failure to so comply could be reasonably expected to have,
      individually or in the aggregate, a Material Adverse Effect. The term
“Environmental
      Laws”
means
      all federal, state, local or foreign laws relating to pollution or protection
      of
      human health or the environment (including, without limitation, ambient air,
      surface water, groundwater, land surface or subsurface strata), including,
      without limitation, laws relating to emissions, discharges, releases or
      threatened releases of chemicals, pollutants, contaminants, or toxic or
      hazardous substances or wastes (collectively, “Hazardous
      Materials”)
      into
      the environment, or otherwise relating to the manufacture, processing,
      distribution, use, treatment, storage, disposal, transport or handling of
      Hazardous Materials, as well as all authorizations, codes, decrees, demands
      or
      demand letters, injunctions, judgments, licenses, notices or notice letters,
      orders, permits, plans or regulations issued, entered, promulgated or approved
      thereunder.

     

    (z) Subsidiary
      Rights.
      The
      Company or one of the Subsidiaries has the unrestricted right to vote, and
      (subject to limitations imposed by applicable law) to receive dividends and
      distributions on, all capital securities of the Subsidiaries as owned by the
      Company or such Subsidiary.

     

    (aa) Tax
      Status.
      The
      Company and each of the Subsidiaries (i) has timely made or filed all foreign,
      federal and state income and all other tax returns, reports and declarations
      required by any jurisdiction to which it is subject, (ii) has timely paid all
      taxes and other governmental assessments and charges that are material in
      amount, shown or determined to be due on such returns, reports and declarations,
      except those being contested in good faith and (iii) has set aside on its books
      provision reasonably adequate for the payment of all taxes for periods
      subsequent to the periods to which such returns, reports or declarations apply,
      except in each case where the failure to file, pay or set aside would not have
      a
      Material Adverse Effect. There are no unpaid taxes in any material amount
      claimed to be due by the taxing authority of any jurisdiction, and the officers
      of the Company and the Subsidiaries know of no basis for any such claim. The
      Company is not operated in such a manner as to qualify as a passive foreign
      investment company, as defined in Section 1297 of the U.S. Internal Revenue
      Code
      of 1986, as amended.

     

    (bb) Internal
      Accounting and Disclosure Controls.
      The
      Company and each of the Subsidiaries maintains a system of internal accounting
      controls sufficient to provide reasonable assurance that (i) transactions are
      executed in accordance with management’s general or specific authorizations,
      (ii) transactions are recorded as necessary to permit preparation of financial
      statements in conformity with generally accepted accounting principles and
      to
      maintain asset and liability accountability, (iii) access to assets or
      incurrence of liabilities is permitted only in accordance with management’s
      general or specific authorization and (iv) the recorded accountability for
      assets and liabilities is compared with the existing assets and liabilities
      at
      reasonable intervals and appropriate action is taken with respect to any
      difference. The Company maintains disclosure controls and procedures (as such
      term is defined in Rule 13a-14 under the 1934 Act) that are effective in
      ensuring that information required to be disclosed by the Company in the reports
      that it files or submits under the 1934 Act is recorded, processed, summarized
      and reported, within the time periods specified in the rules and forms of the
      SEC, including, without limitation, controls and procedures designed to ensure
      that information required to be disclosed by the Company in the reports that
      it
      files or submits under the 1934 Act is accumulated and communicated to the
      Company’s management, including its principal executive officer or officers and
      its principal financial officer or officers, as appropriate, to allow timely
      decisions regarding required disclosure. Neither the Company nor any of the
      Subsidiaries has received any notice or correspondence from any accountant
      relating to any potential material weakness in any part of the system of
      internal accounting controls of the Company or any of the
      Subsidiaries.

     

    
      
         

      

      
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    (cc) Off
      Balance Sheet Arrangements.
      There
      is no transaction, arrangement, or other relationship between the Company or
      any
      of the Subsidiaries and an unconsolidated or other off balance sheet entity
      that
      is required to be disclosed by the Company in its 1934 Act filings and is not
      so
      disclosed or that otherwise could be reasonably likely to have a Material
      Adverse Effect.

     

    (dd) Investment
      Company Status.
      The
      Company is not, and upon consummation of the sale of the Securities will not
      be,
      an “investment company,” an affiliate of an “investment company,” a company
      controlled by an “investment company” or an “affiliated person” of, or
“promoter” or “principal underwriter” for, an “investment company” as such terms
      are defined in the Investment Company Act of 1940, as amended. 

     

    (ee) Acknowledgement
      Regarding Buyers’ Trading Activity.
      It is
      understood and acknowledged by the Company (i) that, other than as contemplated
      by Section 2(k), following the public disclosure of the transactions
      contemplated by the Transaction Documents, in accordance with the terms thereof,
      none of the Buyers have been asked by the Company or any of the Subsidiaries
      to
      agree, nor has any Buyer agreed with the Company or any of the Subsidiaries,
      to
      desist from purchasing or selling, long and/or short, securities of the Company,
      or “derivative” securities based on securities issued by the Company or to hold
      the Securities for any specified term; (ii) that any Buyer, and counter parties
      in “derivative” transactions to which any such Buyer is a party, directly or
      indirectly, presently may have a “short” position in the Common Stock which were
      established prior to such Buyer’s knowledge of the transactions contemplated by
      the Transaction Documents, and (iii) that each Buyer shall not be deemed to
      have
      any affiliation with or control over any arm’s length counter party in any
“derivative” transaction. The Company further understands and acknowledges that
      following the public disclosure of the transactions contemplated by the
      Transaction Documents pursuant to the Press Release one or more Buyers may
      engage in hedging and/or trading activities at various times during the period
      that the Securities are outstanding, including, without limitation, during
      the
      periods that the value of the Warrant Shares or Conversion Shares, as
      applicable, deliverable with respect to the Securities are being determined
      and
      (b) such hedging and/or trading activities, if any, can reduce the value of
      the
      existing stockholders’ equity interest in the Company both at and after the time
      the hedging and/or trading activities are being conducted. The Company
      acknowledges that such aforementioned hedging and/or trading activities do
      not
      constitute a breach of this Agreement or any other Transaction Document or
      any
      of the documents executed in connection herewith or therewith.

     

    
      
         

      

      
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    (ff) Manipulation
      of Price.
      Neither
      the Company nor any of the Subsidiaries has, and, to the knowledge of the
      Company, no Person acting on their behalf has, (i) taken, directly or
      indirectly, any action designed to cause or to result in the stabilization
      or
      manipulation of the price of any security of the Company or any of the
      Subsidiaries to facilitate the sale or resale of any of the Securities, (ii)
      sold, bid for, purchased, or paid any compensation for soliciting purchases
      of,
      any of the Securities, or (iii) paid or agreed to pay to any person any
      compensation for soliciting another to purchase any other securities of the
      Company or any of the Subsidiaries.

     

    (gg) U.S.
      Real Property Holding Corporation.
      Neither
      the Company nor any of the Subsidiaries is, or has ever been, and so long as
      any
      of the Securities are held by any of the Buyers, shall become, a U.S. real
      property holding corporation within the meaning of Section 897 of the Internal
      Revenue Code of 1986, as amended, and the Company and each Subsidiary shall
      so
      certify upon any Buyer’s request. The Common Stock does not derive, and has not
      at any time during the previous five years derived, directly or indirectly
      more than 50% of its fair market value from one or any combination of: (i)
      real
      property situated in Canada, (ii) Canadian resource property and (iii) timber
      resource properties (as such terms are defined for purposes of the Income
      Tax Act (Canada).

     

    (hh) Registration
      Eligibility. The Company is eligible to register the Registrable Securities
      for resale by the Buyers using Form S-3 promulgated under the 1933
      Act.

     

    (ii) Transfer
      Taxes. On the Closing Date, all stock transfer or other taxes (other than
      income or similar taxes) which are required to be paid in connection with the
      sale and transfer of the Securities to be sold to each Buyer hereunder will
      be,
      or will have been, fully paid or provided for by the Company, and all laws
      imposing such taxes will be or will have been complied with.

     

    (jj) Bank
      Holding Company Act. Neither the Company nor any of its Subsidiaries is
      subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”)
      and to
      regulation by the Board of Governors of the Federal Reserve System (the
“Federal
      Reserve”).
      Neither the Company nor any of its Subsidiaries or affiliates owns or controls,
      directly or indirectly, five percent (5%) or more of the outstanding shares
      of
      any class of voting securities or twenty-five percent (25%) or more of the
      total
      equity of a bank or any equity that is subject to the BHCA and to regulation
      by
      the Federal Reserve. Neither the Company nor any of its Subsidiaries or
      affiliates exercises a controlling influence over the management or policies
      of
      a bank or any entity that is subject to the BHCA and to regulation by the
      Federal Reserve.

     

    (kk) Shell
      Company Status.
      The
      Company is not, and has not, since 1998, been, an issuer identified in Rule
      144(i)(1).

     

    (ll) Disclosure.
      The
      Company confirms that neither it nor any other Person acting on its behalf
      has
      provided any of the Buyers or their agents or counsel with any information
      that
      constitutes or could reasonably be expected to constitute material, nonpublic
      information concerning the Company or any of its Subsidiaries, other than the
      existence of the transactions contemplated by this Agreement and the other
      Transaction Documents. The Company understands and confirms that each of the
      Buyers will rely on the foregoing representations in effecting transactions
      in
      securities of the Company. All disclosure provided to the Buyers regarding
      the
      Company and the Subsidiaries, their businesses and the transactions contemplated
      hereby, including the Schedules to this Agreement, furnished by or on behalf
      of
      the Company or any of the Subsidiaries is true and correct and does not contain
      any untrue statement of a material fact or omit to state any material fact
      necessary in order to make the statements made therein, in the light of the
      circumstances under which they were made, not misleading. Each press release
      issued by the Company or any of the Subsidiaries during the twelve (12) months
      preceding the date of this Agreement did not at the time of release contain
      any
      untrue statement of a material fact or omit to state a material fact required
      to
      be stated therein or necessary in order to make the statements therein, in
      the
      light of the circumstances under which they are made, not misleading. No event
      or circumstance has occurred or information exists with respect to the Company
      or any of the Subsidiaries or its or their business, properties, liabilities,
      prospects, operations (including results thereof) or conditions (financial
      or
      otherwise), which, under applicable law, rule or regulation, requires public
      disclosure at or before the date hereof or announcement by the Company but
      which
      has not been so publicly announced or disclosed. The Company acknowledges and
      agrees that no Buyer makes or has made any representations or warranties with
      respect to the transactions contemplated hereby other than those specifically
      set forth in Sections 2.

     

    
      
         

      

      
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    (mm) Ranking
      of Notes. Except as set forth on Schedule 3(mm), no Indebtedness of the
      Company or any of the Subsidiaries, at the Closing, will be senior to, or
pari
      passu
      with,
      the Notes in right of payment, whether with respect to payment or redemptions,
      interest, damages, upon liquidation or dissolution or otherwise.

     

    (nn) FDA.
      As to each product subject to the jurisdiction of the U.S. Food and Drug
      Administration (the “FDA”)
      under
      the Federal Food, Drug and Cosmetic Act, as amended, and the regulations
      thereunder (the “FDCA”)
      that
      is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed
      by the Company or any of its Subsidiaries (each such product, a “Pharmaceutical
      Product”),
      such
      Pharmaceutical Product is being manufactured, packaged, labeled, tested,
      distributed, sold and/or marketed by the Company or such Subsidiary (as the
      case
      may be) in compliance with all applicable requirements under FDCA and similar
      laws, rules and regulations relating to registration, investigational use,
      premarket clearance, licensure, or application approval, good manufacturing
      practices, good laboratory practices, good clinical practices, product listing,
      quotas, labeling, advertising, record keeping and filing of reports, except
      where the failure to be in compliance would not have a Material Adverse Effect.
      There is no pending, completed or, to the Company’s knowledge, threatened,
      action (including any lawsuit, arbitration, or legal or administrative or
      regulatory proceeding, charge, complaint, or investigation) against the Company
      or any of its Subsidiaries, and none of the Company or any of its Subsidiaries
      has received any notice, warning letter or other communication from the FDA
      or
      any other governmental entity, which (i) contests the premarket clearance,
      licensure, registration, or approval of, the uses of, the distribution of,
      the
      manufacturing or packaging of, the testing of, the sale of, or the labeling
      and
      promotion of any Pharmaceutical Product, (ii) withdraws its approval of,
      requests the recall, suspension, or seizure of, or withdraws or orders the
      withdrawal of advertising or sales promotional materials relating to, any
      Pharmaceutical Product, (iii) imposes a clinical hold on any clinical
      investigation by the Company or any of its Subsidiaries, (iv) enjoins production
      at any facility of the Company or any of its Subsidiaries, (v) enters or
      proposes to enter into a consent decree of permanent injunction with the Company
      or any of its Subsidiaries or (vi) otherwise alleges any violation of any laws,
      rules or regulations by the Company or any of its Subsidiaries, and which,
      either individually or in the aggregate, would have a Material Adverse Effect.
      The properties, business and operations of the Company subject to the
      jurisdiction of the FDA have been and are being conducted in all material
      respects in accordance with all applicable laws, rules and regulations of the
      FDA. The Company has not been informed by the FDA that the FDA will prohibit
      the
      marketing, sale, license or use in the United States of any product proposed
      to
      be developed, produced or marketed by the Company nor has the FDA expressed
      any
      concern as to approving or clearing for marketing any product being developed
      or
      proposed to be developed by the Company.

     

    
      
         

      

      
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              4.

            	
              COVENANTS.

            

    

     

    (a) Best
      Efforts.
      Each
      party shall use its best efforts timely to satisfy each of the conditions to
      be
      satisfied by it as provided in Sections 6 and 7 of this Agreement.

     

    (b) Form
      D
      and Blue Sky.
      The
      Company agrees to file a Form D with respect to the Securities as required
      under
      Regulation D and to provide a copy thereof to each Buyer promptly after such
      filing. The Company shall, on or before the Closing Date, take such action
      as
      the Company shall reasonably determine is necessary in order to obtain an
      exemption for, or to, qualify the Securities for sale to the Buyers at the
      Closing pursuant to this Agreement under applicable securities or “Blue Sky”
laws of the states of the United States (or to obtain an exemption from such
      qualification), and shall provide evidence of any such action so taken to the
      Buyers on or prior to the Closing Date. The Company shall make all filings
      and
      reports relating to the offer and sale of the Securities required under
      applicable securities or “Blue Sky” laws of the states of the United States
      following the Closing Date. 

     

    (c) Reporting
      Status.
      Until
      the date on which the Buyers shall have sold all of the Registrable Securities
      (as defined below) (the “Reporting
      Period”),
      the
      Company shall timely file all reports required to be filed with the SEC pursuant
      to the 1934 Act, and the Company shall not terminate its status as an issuer
      required to file reports under the 1934 Act even if the 1934 Act or the rules
      and regulations thereunder would no longer require or otherwise permit such
      termination.

     

    (d) Use
      of
      Proceeds.
      The
      Company shall use the proceeds from the sale of the Securities solely as set
      forth on Schedule 4(d). 

     

    (e) Financial
      Information.
      The
      Company agrees to send the following to each Investor (as defined in the
      Registration Rights Agreement) during the Reporting Period (i) unless the
      following are filed with the SEC through EDGAR and are available to the public
      through the EDGAR system, within one (1) Business Day after the filing thereof
      with the SEC, a copy of its Annual Reports on Form 10-K and Quarterly Reports
      on
      Form 10-Q, any interim reports or any consolidated balance sheets, income
      statements, stockholders’ equity statements and/or cash flow statements for any
      period other than annual, any Current Reports on Form 8-K and any registration
      statements (other than on Form S-8) or amendments filed pursuant to the 1933
      Act, (ii) on the same day as the release thereof, facsimile copies of all press
      releases issued by the Company or any of the Subsidiaries and (iii) copies
      of
      any notices and other information made available or given to the shareholders
      of
      the Company generally, contemporaneously with the making available or giving
      thereof to the shareholders.

     

    
      
         

      

      
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    (f) Listing.
      The
      Company shall promptly secure the listing of all of the Registrable Securities
      (as defined in the Registration Rights Agreement) upon each national securities
      exchange and automated quotation system, if any, upon which the shares of Common
      Stock are then listed (subject to official notice of issuance) and shall
      maintain such listing of all Registrable Securities from time to time issuable
      under the terms of the Transaction Documents on such national securities
      exchange or automated quotation system. The Company shall maintain the Common
      Stock’s authorization for quotation on the Principal Market, the New York Stock
      Exchange, the Nasdaq Global Market or the Nasdaq Global Select Market (each,
      an
“Eligible
      Market”).
      The
      Company shall not take any action which could be reasonably expected to result
      in the delisting or suspension of the Common Stock on an Eligible Market. The
      Company shall pay all fees and expenses in connection with satisfying its
      obligations under this Section 4(f).

     

    (g) Fees.
      The
      Company shall reimburse Cranshire Capital, L.P. or its designee(s) (in addition
      to any other expense amounts paid to any Buyer prior to the date of this
      Agreement) for all reasonable costs and expenses incurred by it or its
      affiliates in connection with the transactions contemplated by the Transaction
      Documents in an amount not to exceed $150,000 (including, without limitation,
      all reasonable legal fees and disbursements in connection therewith,
      documentation and implementation of the transactions contemplated by the
      Transaction Documents and due diligence in connection therewith), which amount
      shall be withheld by Cranshire Capital, L.P. from its Purchase Price at the
      Closing or paid by the Company upon termination of this Agreement so long as
      such termination did not occur as a result of a material breach by Cranshire
      Capital, L.P. of any of its obligations hereunder (as the case may be). The
      Company shall reimburse Iroquois
      Master Fund, Ltd.
      or its
      designee(s) (in addition to any other expense amounts paid to any Buyer prior
      to
      the date of this Agreement) for all reasonable costs and expenses incurred
      by it
      or its affiliates in connection with the transactions contemplated by the
      Transaction Documents in an amount not to exceed $50,000 (including, without
      limitation, all reasonable legal fees and disbursements in connection therewith,
      documentation and implementation of the transactions contemplated by the
      Transaction Documents and due diligence in connection therewith), which amount
      shall be withheld by Iroquois Master Fund, Ltd. from its Purchase Price at
      the
      Closing or paid by the Company upon termination of this Agreement so long as
      such termination did not occur as a result of a material breach by Iroquois
      Master Fund, Ltd. of any of its obligations hereunder (as the case may be).
      The
      Company shall be responsible for the payment of any placement agent’s fees,
      financial advisory fees, or broker’s commissions (other than for Persons engaged
      by any Buyer or Persons claiming rights due to the acts of a Buyer) relating
      to
      or arising out of the transactions contemplated hereby. The Company shall pay,
      and hold each Buyer harmless against, any liability, loss or expense (including,
      without limitation, reasonable attorney’s fees and out-of-pocket expenses)
      arising in connection with any claim relating to any such payment. Except as
      otherwise set forth in the Transaction Documents, each party to this Agreement
      shall bear its own expenses in connection with the sale of the Securities to
      the
      Buyers.

     

    (h) Pledge
      of Securities.
      Notwithstanding anything to the contrary contained in Section 2(g), the Company
      acknowledges and agrees that the Securities may be pledged by a Buyer in
      connection with a bona fide margin agreement or other bona fide loan or
      financing arrangement that is secured by the Securities. The pledge of
      Securities shall not be deemed to be a transfer, sale or assignment of the
      Securities hereunder, except as may otherwise be required under applicable
      securities laws, and no Buyer effecting a pledge of Securities shall be required
      to provide the Company with any notice thereof or otherwise make any delivery
      to
      the Company pursuant to this Agreement or any other Transaction Document. The
      Company hereby agrees to execute and deliver such documentation as a pledgee
      of
      the Securities may reasonably request in connection with a pledge of the
      Securities to such pledgee by a Buyer.

     

    
      
         

      

      
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    (i) Disclosure
      of Transactions and Other Material Information.
      The
      Company shall, on or before 8:30 a.m., New York time, on the first
      (1st)
      Business Day after the date of this Agreement, issue a press release (the
“Press
      Release”)
      reasonably acceptable to the Buyers disclosing all the material terms of the
      transactions contemplated by the Transaction Documents. On
      or
      before 8:30 a.m., New York time, on the second (2nd)
      Business Day following the date of this Agreement, the Company shall file a
      Current Report on Form 8-K describing all the material terms of the transactions
      contemplated by the Transaction Documents in the form required by the 1934
      Act
      and attaching all the material Transaction Documents (including, without
      limitation, this Agreement (and all schedules to this Agreement), the form
      of
      the Security Documents, the form of the Notes, the form of Warrants and the
      Registration Rights Agreement) (including all attachments, the “8-K
      Filing”).
      From
      and after the issuance of the Press Release, the Company shall have disclosed
      all material, nonpublic information delivered to any of the Buyers by the
      Company or any of the Subsidiaries, or any of their respective officers,
      directors, employees or agents (if any) in connection with the transactions
      contemplated by the Transaction Documents. The Company shall not, and the
      Company shall cause each of the Subsidiaries and each of its and their
      respective officers, directors, employees and agents not to, provide any Buyer
      with any material, nonpublic information regarding the Company or any of the
      Subsidiaries from and after the issuance of the Press Release without the
      express prior written consent of such Buyer, except as expressly contemplated
      by
      Section 4(o)(viii). If a Buyer has, or believes it has, received any material,
      nonpublic information regarding the Company or any of its Subsidiaries in breach
      of the immediately preceding sentence, such Buyer shall provide the Company
      with
      written notice thereof in which case the Company shall, within one (1) Trading
      Day of the receipt of such notice, make a public disclosure of all such
      material, nonpublic information so provided. In the event of a breach of any
      of
      the foregoing covenants by the Company, any of the Subsidiaries, or any of
      its
      or their respective officers, directors, employees and agents (as determined
      in
      the reasonable good faith judgment of such Buyer), in addition to any other
      remedy provided herein or in the Transaction Documents, such Buyer shall have
      the right to make a public disclosure, in the form of a press release, public
      advertisement or otherwise, of such material, nonpublic information without
      the
      prior approval by the Company, any of the Subsidiaries, or any of its or their
      respective officers, directors, employees or agents. No Buyer shall have any
      liability to the Company, any of the Subsidiaries, or any of its or their
      respective officers, directors, employees, stockholders or agents, for any
      such
      disclosure of such information. Subject to the foregoing, neither the Company
      nor any Buyer shall issue any press releases or any other public statements
      with
      respect to the transactions contemplated hereby; provided,
      however,
      that
      the Company shall be entitled, without the prior approval of any Buyer, to
      make
      any press release or other public disclosure with respect to such transactions
      (i) in substantial conformity with the 8-K Filing and contemporaneously
      therewith and (ii) as is required by applicable law and regulations (provided
      that in the case of clause (i) each Buyer shall be consulted by the Company
      in
      connection with any such press release or other public disclosure prior to
      its
      release). Without the prior written consent of any applicable Buyer, the Company
      shall not (and shall cause each of the Subsidiaries and affiliates to not)
      disclose the name of such Buyer in any filing (other than the 8-K Filing),
      announcement, release or otherwise.

     

    
      
         

      

      
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    (j) Additional
      Registration Statements. Until the Effective Date (as defined in the
      Registration Rights Agreement) of the initial Registration Statement required
      to
      be filed by the Company pursuant to Section 2(a) of the Registration Rights
      Agreement which covers all of the securities required to be covered thereunder
      and at any time while such Registration Statement is not effective, the Company
      shall not file a registration statement under the 1933 Act relating to
      securities that are not the Registrable Securities.

     

    (k) Additional
      Issuance of Securities.
      The
      Company agrees that for the period commencing on the date hereof and ending
      ninety (90) days after the Effective Date of the initial Registration Statement
      required to be filed by the Company pursuant to Section 2(a) of the Registration
      Rights Agreement which covers all of the securities required to be covered
      thereunder (the “Restricted Period”),
      neither the Company nor any of the Subsidiaries shall directly or indirectly
      issue, offer, sell, grant any option to purchase, or otherwise dispose of (or
      announce any issuance, offer, sale, grant or any option to purchase or other
      disposition of) any of their respective equity or equity equivalent securities,
      including, without limitation, any debt, preferred stock, rights, options,
      warrants or other instrument that is at any time and under any circumstances
      convertible into or exchangeable for, or otherwise entitles the holder thereof
      to receive, capital stock and other securities of the Company (including,
      without limitation, any securities of the Company or any Subsidiary which
      entitle the holder thereof to acquire Common Stock at any time, including
      without limitation, any debt, preferred stock, rights, options, warrants or
      other instrument that is at any time convertible into or exchangeable for,
      or
      otherwise entitles the holder thereof to receive, Common Stock or other
      securities that entitle the holder to receive, directly or indirectly, Common
      Stock) (collectively with such capital stock or other securities of the Company,
      “Equivalents”)
      (any
      such issuance, offer, sale, grant, disposition or announcement being referred
      to
      as a “Subsequent
      Placement”).
      Notwithstanding the foregoing, this Section 4(k) shall not apply in respect
      of
      the issuance of (A) shares of Common Stock or standard options to purchase
      Common Stock issued to directors, officers, employees or consultants of the
      Company in connection with their service as directors or officers of the
      Company, their employment by the Company or their retention as consultants
      by
      the Company pursuant to an equity compensation program or other contract or
      arrangement approved by the board of directors of the Company (or the
      compensation committee of the board of directors of the Company), provided
      that
      all such issuances after the date hereof pursuant to this clause (A) do not,
      in
      the aggregate, exceed more than 5% of the Common Stock issued and outstanding
      immediately prior to the date hereof, (B) shares of Common Stock issued upon
      the
      conversion or exercise of Equivalents issued prior to the date hereof,
provided
      that
      such Equivalents have not been amended since the date of this Agreement to
      increase the number of shares issuable thereunder or to lower the exercise
      or
      conversion price thereof or otherwise materially change the terms or conditions
      thereof in any manner that adversely affects any of the Buyers, (C) the
      Conversion Shares, (D) the Warrant Shares and (E) shares of Common Stock and
      warrants to purchase shares of Common Stock in connection with strategic
      alliances, acquisitions, mergers, and strategic partnerships, the primary
      purpose of which is not to raise capital, and which are approved in good faith
      by the Company’s Board of Directors, provided
      that all
      such issuances after the date hereof pursuant to this clause (E) do not, in
      the
      aggregate (determined on a fully-diluted basis), exceed more than 10% of the
      shares of Common Stock issued and outstanding immediately prior to the date
      hereof (each of the foregoing in clauses (A) through (E), collectively the
      “Excluded
      Securities”).

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

     

    (l) Reservation
      of Shares.
      So long
      as any Notes or Warrants remain outstanding, the Company shall take all action
      necessary to at all times have authorized, and reserved for the purpose of
      issuance, no less than 120% of (i) the maximum number of shares of Common Stock
      issuable upon conversion of all the Notes (assuming for purposes hereof, that
      the Notes are convertible at the Conversion Price (as defined in the Notes)
      and
      without regard to any limitations on the exercise of the Notes set forth
      therein) and (ii) the maximum number of shares of Common Stock issuable upon
      exercise of all the Warrants (without regard to any limitations on the exercise
      of the Warrants set forth therein).

     

    (m) Conduct
      of Business.
      The
      business of the Company and the Subsidiaries shall not be conducted in violation
      of any law, ordinance or regulation of any governmental entity, except where
      such violations would not result, either individually or in the aggregate,
      in a
      Material Adverse Effect. The Company shall conduct its business in such a manner
      as will ensure that the Common Stock does not derive directly or indirectly
      more
      than 50% of its fair market value from one or any combination of: (i) real
      property situated in Canada, (ii) Canadian resource property and (iii) timber
      resource properties (as such terms are defined for purposes of the Income
      Tax Act (Canada).
      No portion of any interest paid on the Notes shall be deductible by the Company
      in computing the Company’s taxable income earned in Canada for purposes of
      the
      Income Tax Act
      (Canada).

     

    (n) Variable
      Rate Transaction. Until all of the Notes have been converted, redeemed or
      otherwise satisfied in accordance with their terms, the Company and each
      Subsidiary shall be prohibited from effecting or entering into an agreement
      to
      effect any Subsequent Placement involving a “Variable
      Rate Transaction.”
The
      term “Variable
      Rate Transaction”
shall
      mean a transaction in which the Company or any Subsidiary (i) issues or sells
      any Equivalents either (A) at a conversion, exercise or exchange rate or other
      price that is based upon and/or varies with the trading prices of or quotations
      for the shares of Common Stock at any time after the initial issuance of such
      Equivalents, or (B) with a conversion, exercise or exchange price that is
      subject to being reset at some future date after the initial issuance of such
      Equivalents or upon the occurrence of specified or contingent events directly
      or
      indirectly related to the business of the Company or the market for the Common
      Stock, other than pursuant to a customary “weighted average” anti-dilution
      provision or (ii) enters into any agreement (including, but not limited to,
      an
      equity line of credit) whereby the Company or any Subsidiary may sell securities
      at a future determined price (other than standard and customary “preemptive” or
“participation” rights). Each Buyer shall be entitled to obtain injunctive
      relief against the Company and the Subsidiaries to preclude any such issuance,
      which remedy shall be in addition to any right to collect damages.

     

    (o) Participation
      Right. From the date hereof until the later of (i) twelve (12) months after
      the Effective Date of the initial Registration Statement required to be filed
      by
      the Company pursuant to Section 2(a) of the Registration Rights Agreement which
      covers all of the securities required to be covered thereunder and (2) the
      date
      on which all of the Notes have been converted, redeemed or otherwise satisfied
      in accordance with their terms, neither the Company nor any of the Subsidiaries
      shall, directly or indirectly, effect any Subsequent Placement unless the
      Company shall have first complied with this Section 4(o). The Company
      acknowledges and agrees that the right set forth in this Section 4(o) is a
      right
      granted by the Company, separately, to each Buyer.

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

     

    (i) At
      least
      five (5) Trading Days prior to the closing of the Subsequent Placement, the
      Company shall deliver to each Buyer a written notice of its intention to effect
      a Subsequent Placement (each such notice, a “Pre-Notice”),
      which
      Pre-Notice shall ask such Buyer if it wants to review the details of such
      financing.  Upon the request of a Buyer, and only upon a request by such
      Buyer, the Company shall promptly, but no later than one (1) Trading Day after
      such request, deliver to such Buyer an irrevocable written notice (the
“Offer
      Notice”)
      of any
      proposed or intended issuance or sale or exchange (the “Offer”)
      of the
      securities being offered (the “Offered
      Securities”)
      in a
      Subsequent Placement, which Offer Notice shall (w) identify and describe the
      Offered Securities, (x) describe the price and other terms upon which they
      are
      to be issued, sold or exchanged, and the number or amount of the Offered
      Securities to be issued, sold or exchanged, (y) identify the Persons (if known)
      to which or with which the Offered Securities are to be offered, issued, sold
      or
      exchanged and (z) offer to issue and sell to or exchange with such Buyer in
      accordance with the terms of the Offer all of the Offered Securities,
provided
      that the
      number of Offered Securities which such Buyer shall have the right to subscribe
      for under this Section 4(o) shall be (a) based on such Buyer’s pro rata portion
      of the aggregate original principal amount of the Notes purchased hereunder
      by
      all Buyers (the “Basic
      Amount”),
      and
      (b) with respect to each Buyer that elects to purchase its Basic Amount, any
      additional portion of the Offered Securities attributable to the Basic Amounts
      of other Buyers as such Buyer shall indicate it will purchase or acquire should
      the other Buyers subscribe for less than their Basic Amounts (the “Undersubscription
      Amount”).

    

    (ii) To
      accept
      an Offer, in whole or in part, such Buyer must deliver a written notice to
      the
      Company prior to the end of the fifth (5th)
      Business Day after such Buyer’s receipt of the Offer Notice (the “Offer
      Period”),
      setting forth the portion of such Buyer’s Basic Amount that such Buyer elects to
      purchase and, if such Buyer shall elect to purchase all of its Basic Amount,
      the
      Undersubscription Amount, if any, that such Buyer elects to purchase (in either
      case, the “Notice
      of Acceptance”).
      If
      the Basic Amounts subscribed for by all Buyers are less than the total of all
      of
      the Basic Amounts, then such Buyer who has set forth an Undersubscription Amount
      in its Notice of Acceptance shall be entitled to purchase, in addition to the
      Basic Amounts subscribed for, the Undersubscription Amount it has subscribed
      for; provided,
      however,
      that if
      the Undersubscription Amounts subscribed for exceed the difference between
      the
      total of all the Basic Amounts and the Basic Amounts subscribed for (the
“Available
      Undersubscription Amount”),
      such
      Buyer who has subscribed for any Undersubscription Amount shall be entitled
      to
      purchase only that portion of the Available Undersubscription Amount as the
      Basic Amount of such Buyer bears to the total Basic Amounts of all Buyers that
      have subscribed for Undersubscription Amounts, subject to rounding by the
      Company to the extent it deems reasonably necessary. Notwithstanding the
      foregoing, if the Company desires to modify or amend the terms and conditions
      of
      the Offer prior to the expiration of the Offer Period, the Company may deliver
      to each Buyer a new Offer Notice and the Offer Period shall expire on the fifth
      (5th)
      Business Day after such Buyer’s receipt of such new Offer Notice.

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

     

    (iii) The
      Company shall have (i) twenty (20) Business Days from the expiration of the
      Offer Period above to offer, issue, sell or exchange all or any part of such
      Offered Securities as to which a Notice of Acceptance has not been given by
      a
      Buyer (the “Refused
      Securities”)
      pursuant to a definitive agreement(s) (the “Subsequent
      Placement Agreement”),
      but
      only to the offerees described in the Offer Notice (if so described therein)
      and
      only upon terms and conditions (including, without limitation, unit prices
      and
      interest rates) that are not more favorable to the acquiring Person or Persons
      or less favorable to the Company than those set forth in the Offer Notice and
      (ii) ten (10) Business Days from the expiration of the Offer Period to publicly
      announce (a) the execution of such Subsequent Placement Agreement, and (b)
      either (x) the consummation of the transactions contemplated by such Subsequent
      Placement Agreement or (y) the termination of such Subsequent Placement
      Agreement, which shall be filed with the SEC on a Current Report on Form 8-K
      with such Subsequent Placement Agreement and any documents contemplated therein
      filed as exhibits thereto.

    

    (iv) In
      the
      event the Company shall propose to sell less than all the Refused Securities
      (any such sale to be in the manner and on the terms specified in Section
      4(o)(iii) above), then such Buyer may, at its sole option and in its sole
      discretion, reduce the number or amount of the Offered Securities specified
      in
      its Notice of Acceptance to an amount that shall be not less than the number
      or
      amount of the Offered Securities that such Buyer elected to purchase pursuant
      to
      Section 4(o)(ii) above multiplied by a fraction, (i) the numerator of which
      shall be the number or amount of Offered Securities the Company actually
      proposes to issue, sell or exchange (including Offered Securities to be issued
      or sold to Buyers pursuant to this Section 4(o) prior to such reduction) and
      (ii) the denominator of which shall be the original amount of the Offered
      Securities. In the event that any Buyer so elects to reduce the number or amount
      of Offered Securities specified in its Notice of Acceptance, the Company may
      not
      issue, sell or exchange more than the reduced number or amount of the Offered
      Securities unless and until such securities have again been offered to the
      Buyers in accordance with Section 4(o)(i) above.

    

    (v) Upon
      the
      closing of the issuance, sale or exchange of all or less than all of the Refused
      Securities, such Buyer shall acquire from the Company, and the Company shall
      issue to such Buyer, the number or amount of Offered Securities specified in
      its
      Notice of Acceptance. The purchase by such Buyer of any Offered Securities
      is
      subject in all cases to the preparation, execution and delivery by the Company
      and such Buyer of a separate purchase agreement relating to such Offered
      Securities reasonably satisfactory in form and substance to such Buyer and
      its
      counsel.

    

    (vi) Any
      Offered Securities not acquired by a Buyer or other Persons in accordance with
      this Section 4(o) may not be issued, sold or exchanged until they are again
      offered to such Buyer under the procedures specified in this
      Agreement.

    

    (vii) The
      Company and each Buyer agree that if any Buyer elects to participate in the
      Offer, neither the Subsequent Placement Agreement with respect to such Offer
      nor
      any other transaction documents related thereto (collectively, the “Subsequent
      Placement Documents”)
      shall
      include any term or provision whereby such Buyer shall be required to agree
      to
      any restrictions on trading as to any securities of the Company owned by such
      Buyer prior to such Subsequent Placement.

     

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

     

    (viii) Notwithstanding
      anything to the contrary in this Section 4(o) and unless otherwise agreed to
      by
      such Buyer, the Company shall either confirm in writing to such Buyer that
      the
      transaction with respect to the Subsequent Placement has been abandoned or
      shall
      publicly disclose its intention to issue the Offered Securities, in either
      case
      in such a manner such that such Buyer will not be in possession of any material,
      non-public information, by the tenth (10th)
      day
      following delivery of the Offer Notice. If by such tenth (10th)
      day, no
      public disclosure regarding a transaction with respect to the Offered Securities
      has been made, and no notice regarding the abandonment of such transaction
      has
      been received by such Buyer, such transaction shall be deemed to have been
      abandoned and such Buyer shall not be deemed to be in possession of any
      material, non-public information with respect to the Company or any of the
      Subsidiaries. Should the Company decide to pursue such transaction with respect
      to the Offered Securities, the Company shall provide such Buyer with another
      Offer Notice and such Buyer will again have the right of participation set
      forth
      in this Section 4(o). The Company shall not be permitted to deliver more than
      one such Offer Notice to such Buyer in any sixty (60) day period.

     

    (ix) The
      restrictions contained in this Section 4(o) shall not apply in connection with
      the issuance of any Excluded Securities. The Company shall not circumvent the
      provisions of this Section 4(o) by providing terms or conditions to one Buyer
      that are not provided to all.

     

    (p) Passive
      Foreign Investment Company. The Company shall conduct its business in such a
      manner as will ensure that the Company will not be deemed to constitute a
      passive foreign investment company within the meaning of Section 1297 of the
      U.S. Internal Revenue Code of 1986, as amended.

     

    (q) Restriction
      on Redemption and Cash Dividends. So long as any Notes are outstanding, the
      Company shall not, directly or indirectly, redeem, or declare or pay any cash
      dividend or distribution on, the Common Stock without the prior express written
      consent of the Required Holders (as defined in the Notes).

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

     

    (r) Shareholder
      Approval. The Company shall provide each shareholder entitled to vote at a
      special or annual meeting of shareholders of the Company (the “Shareholder
      Meeting”),
      which
      shall be promptly called and held not later than ninety (90) days after the
      Closing Date (the “Shareholder
      Meeting Deadline”),
      a
      proxy statement, substantially in the form which has been previously reviewed
      by
      each of the Buyers and each of their counsel, soliciting each such shareholder’s
      affirmative vote at the Shareholder Meeting for approval of resolutions
      providing for the Company’s issuance of all of the Securities as described in
      the Transaction Documents in accordance with applicable law and the rules and
      regulations of Principal Market (such affirmative approval being referred to
      herein as the “Shareholder
      Approval”
and
      the
      date of such Shareholder Approval shall be referred to as the “Shareholder
      Approval Date”),
      and
      the Company shall use its best efforts (including bearing commercially
      reasonable expenses) to solicit its shareholders’ approval of such resolutions
      (which efforts shall include, without limitation, the requirement to hire a
      reputable proxy solicitor) and to cause the board of directors of the Company
      to
      recommend to the shareholders that they approve such resolutions. The Company
      shall be obligated to seek to obtain the Shareholder Approval by the Shareholder
      Meeting Deadline. As the Company has already filed a preliminary proxy statement
      with the SEC under Rule 14a-6 with respect to its Annual Meeting of Shareholders
      to be held on May 28, 2008 (the “Preliminary
      Proxy Statement”),
      the
      Company shall seek such Shareholder Approval at such Annual Meeting and the
      Shareholder Meeting Deadline shall be no later than June 30, 2008. In connection
      therewith, the Company shall within ten (10) days after the date hereof file
      with the SEC an amendment to such Preliminary Proxy Statement, in form and
      substance acceptable to each Buyer and its counsel, soliciting the Shareholder
      Approval in accordance with the foregoing, and the Company shall cause the
      definitive proxy materials for such Annual Meeting to contain such solicitation
      for the Shareholder Approval and to be in form and substance acceptable to
      each
      Buyer and its counsel. If, despite the Company’s best efforts the Shareholder
      Approval is not obtained on or prior to the Shareholder Meeting Deadline, the
      Company shall cause an additional Shareholder Meeting to be held each
      semi-annual period thereafter until such Shareholder Approval is obtained or
      until such Shareholder Approval is no longer required under the rules and
      regulations of the Principal Market or is no longer required to eliminate
      restrictions on the issuance of shares of Common Stock pursuant to the Notes
      and
      Warrants. The Company shall not directly or indirectly take any action which
      would result in a Dilutive Issuance (as defined in the Notes and Warrants)
      prior
      to the Shareholder Approval Date. The Company agrees that any such action and
      resulting Dilutive Issuance (as defined in the Notes and Warrants) shall be
      null
      and void and that the Buyers would be irreparably harmed to the extent that
      the Company takes any such action. 

     

    (s) DTC
      Eligibility.
      The
      Company shall pay all fees to DTC (as defined below) required to be paid, and
      shall take all other necessary actions, so that the Company is eligible to
      participate in DTC’s Fast Automated Securities Transfer Program no later than
      thirty (30) days after the Closing Date. 

     

    
      	
              5.

            	
              REGISTER;
                TRANSFER AGENT INSTRUCTIONS;
                LEGEND.

            

    

     

    (a) Register.
      The
      Company shall maintain at its principal executive offices (or such other office
      or agency of the Company as it may designate by notice to each holder of
      Securities), a register for the Notes and the Warrants in which the Company
      shall record the name and address of the Person in whose name the Notes
      and the
      Warrants have been issued (including the name and address of each transferee),
      the principal amount of the Notes held by such Person, the number of Conversion
      Shares issuable upon conversion of the Notes and the number of Warrant Shares
      issuable upon exercise of the Warrants held by such Person. The Company shall
      keep the register open and available at all times during business hours for
      inspection of any Buyer or its legal representatives.

     

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

     

    (b) Transfer
      Agent Instructions.
      The
      Company shall issue irrevocable instructions to its transfer agent and any
      subsequent transfer agent in the form acceptable to the Buyers (the
“Irrevocable
      Transfer Agent Instructions”)
      to
      issue certificates or credit shares to the applicable balance accounts at The
      Depository Trust Company (“DTC”),
      registered in the name of each Buyer or
      its
      respective nominee(s),
      for the
      Conversion Shares and the Warrant Shares in such amounts as specified from
      time
      to time by each Buyer to the Company upon conversion of the Notes or the
      exercise of the Warrants (as the case may be). The Company represents and
      warrants that no instruction other than the Irrevocable Transfer Agent
      Instructions referred to in this Section 5(b), and stop transfer instructions
      to
      give effect to Section 2(g) hereof, will be given by the Company to its transfer
      agent with respect to the Securities, and that the Securities shall otherwise
      be
      freely transferable on the books and records of the Company to the extent
      provided in this Agreement and the other Transaction Documents. If a Buyer
      effects a sale, assignment or transfer of the Securities in accordance with
      Section 2(g), the Company shall permit the transfer and shall promptly instruct
      its transfer agent to issue one or more certificates or credit shares to the
      applicable balance accounts at DTC in such name and in such denominations as
      specified by such Buyer to effect such sale, transfer or assignment. In the
      event that such sale, assignment or transfer involves Conversion Shares or
      Warrant Shares sold, assigned or transferred pursuant to an effective
      registration statement or in compliance with Rule 144, the transfer agent shall
      issue such shares to such Buyer, assignee or transferee (as the case may be)
      without any restrictive legend in accordance with Section 5(d) below. The
      Company acknowledges that a breach by it of its obligations hereunder will
      cause
      irreparable harm to a Buyer. Accordingly, the Company acknowledges that the
      remedy at law for a breach of its obligations under this Section 5(b) will
      be
      inadequate and agrees, in the event of a breach or threatened breach by the
      Company of the provisions of this Section 5(b), that a Buyer shall be entitled,
      in addition to all other available remedies, to an order and/or injunction
      restraining any breach and requiring immediate issuance and transfer, without
      the necessity of showing economic loss and without any bond or other security
      being required. The Company shall cause its counsel to issue the legal opinion
      referred to in the Irrevocable Transfer Agent Instructions to the Company’s
      transfer agent on each Effective Date. Any fees (with respect to the transfer
      agent, counsel to the Company or otherwise) associated with the issuance of
      such
      opinion or the removal of any legends on any of the Securities shall be borne
      by
      the Company.

     

    (c) Legends.
      Each
      Buyer understands that the certificates or other instruments representing the
      Notes and the Warrants and, until such time as the resale of the Conversion
      Shares and the Warrant Shares (as the case may be) have been registered under
      the 1933 Act as contemplated by the Registration Rights Agreement or are
      eligible for sale pursuant to Rule 144, the stock certificates representing
      the
      Conversion Shares and the Warrant Shares (as the case may be), except as set
      forth below, shall bear any legend as required by the “blue sky” laws of any
      state and a restrictive legend in substantially the following form (and a
      stop-transfer order may be placed against transfer of such stock
      certificates):

     

    [NEITHER
      THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
      THE
      SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE
      BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
      LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
      (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL
      TO
      THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO
      THE
      COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
      OR
      ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
      NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
      WITH
      A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
      THE
      SECURITIES.

     

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

    

      
        
          (d)
            Removal
            of Legends.
            Certificates evidencing Securities shall not be required to contain the
            legend
            set forth in Section 5(c) above or any other legend (i) while a registration
            statement (including the Registration Statement) covering the resale of such
            Securities is effective under the Securities Act, (ii) if such Securities
            are
            eligible to be sold, assigned or transferred under Rule 144 (provided
            that a
            Buyer provides the Company with reasonable assurances that such Securities
            are
            eligible for sale, assignment or transfer under Rule 144 which shall
            not include
            an opinion of counsel), (iii) in connection with a sale, assignment or
            other
            transfer (other than under Rule 144) provided
            such
            Buyer provides the Company with an opinion of counsel to such Buyer,
            in a
            generally acceptable form, to the effect that such sale, assignment or
            transfer
            of the Securities may be made without registration under the applicable
            requirements of the 1933 Act or (iv) if such legend is not required under
            applicable requirements of the 1933 Act (including, without limitation,
            controlling judicial interpretations and pronouncements issued by the
            SEC). If a
            legend is not required pursuant to the foregoing, the Company shall no
            later
            than two (2) Trading Days (as defined below) following the delivery by
            a Buyer
            to the Company or the transfer agent (with notice to the Company) of
            a legended
            certificate representing such Securities (endorsed or with stock powers
            attached, signatures guaranteed, and otherwise in form necessary to affect
            the
            reissuance and/or transfer, if applicable), together with any other deliveries
            from such Buyer as may be required above in this Section 5(d), as directed
            by
            such Buyer, either: (A) deliver (or cause to be delivered to) such Buyer
            a
            certificate representing such Securities that is free from all restrictive
            and
            other legends or (B) credit the balance account of such Buyer’s or such Buyer’s
            nominee with DTC with a number of shares of Common Stock equal to the
            number of
            Conversion Shares or Warrant Shares (as the case may be) represented
            by the
            certificate, the conversion notice or exercise notice (as the case may
            be) so
            delivered by such Buyer (the date by which such certificate is required
            to be
            delivered to such Buyer or such credit is so required to be made to the
            balance
            account of such Buyer’s or such Buyer’s nominee with DTC pursuant to the
            foregoing is referred to herein as the “Required
            Delivery Date”).
            

        

      

       

      (e) Failure
        to Timely Deliver; Buy-In.
        If the
        Company fails to (i) issue and deliver (or cause to be delivered) to a Buyer
        by
        the Required Delivery Date a certificate representing the Securities so
        delivered to the Company by such Buyer that is free from all restrictive
        and
        other legends or (ii) credit the balance account of such Buyer’s or such Buyer’s
        nominee with DTC for such number of shares of Conversion Shares or Warrant
        Shares so delivered to the Company, then, in addition to all other remedies
        available to such Buyer, the Company shall pay in cash to such Buyer on each
        day
        after the Required Delivery Date that the issuance or credit of such shares
        is
        not timely effected an amount equal to 2% of the original principal amount
        of
        such Buyer’s Note. In addition to the foregoing, if the Company fails to so
        properly deliver such unlegended certificates or so properly credit the balance
        account of such Buyer’s or such Buyer’s nominee with DTC by the Required
        Delivery Date, and if on or after the Required Delivery Date such Buyer
        purchases (in an open market transaction or otherwise) shares of Common Stock
        to
        deliver in satisfaction of a sale by such Buyer of shares of Common Stock
        that
        such Buyer anticipated receiving from the Company without any restrictive
        legend
        (a “Buy-In”),
        then
        the Company shall, within three (3) Trading Days after such Buyer’s request and
        in such Buyer’s sole discretion, either (i) pay cash to such Buyer in an amount
        equal to such Buyer’s total purchase price (including brokerage commissions, if
        any) for the shares of Common Stock so purchased (the “Buy-In
        Price”),
        at
        which point the Company’s obligation to deliver such certificate or credit such
        Buyer’s balance account shall terminate and such shares shall be cancelled, or
        (ii) promptly honor its obligation to deliver to such Buyer a certificate
        or
        certificates or credit such Buyer’s DTC account representing such number of
        shares of Common Stock that would have been issued if the Company timely
        complied with its obligations hereunder and pay cash to such Buyer in an
        amount
        equal to the excess (if any) of the Buy-In Price over the product of (A)
        such
        number of shares of Conversion Shares or Warrant Shares (as the case may
        be)
        that the Company was required to deliver to such Buyer by the Required Delivery
        Date times (B) the average VWAP of the Common Stock for the five (5) Trading
        Day
        period immediately preceding the Required Delivery Date. 

       

      
        
           

        

        
          30

          
            

          

        

        
           

        

      

       

    

    For
      purposes of this Section 5(e),
      “VWAP”
      means,
      for any security as of any date, the dollar volume-weighted average price for
      such security on the Principal Market (or, if the Principal Market is not the
      principal trading market for the Common Stock, then on the principal securities
      exchange or securities market on which the Common Stock is then traded) during
      the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00
      p.m.,
      New York time, as reported by Bloomberg Financial Markets (“Bloomberg”)
      through its “Volume at Price” function or, if the foregoing does not apply, the
      dollar volume-weighted average price of such security in the over-the-counter
      market on the electronic bulletin board for such security during the period
      beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York
      time, as reported by Bloomberg, or, if no dollar volume-weighted average price
      is reported for such security by Bloomberg for such hours, the average of the
      highest closing bid price and the lowest closing ask price of any of the market
      makers for such security as reported in the “pink sheets” by Pink Sheets LLC
      (formerly the National Quotation Bureau, Inc.). If VWAP cannot be calculated
      for
      such security on such date on any of the foregoing bases, the VWAP of such
      security on such date shall be the fair market value as mutually determined
      by
      the Company and the Buyer. If the Company and the Buyer are unable to agree
      upon
      the fair market value of such security, then they shall agree in good faith
      on a
      reputable investment bank to make such determination of fair market value,
      whose
      determination shall be final and binding and whose fees and expenses shall
      be
      borne by the Company. All such determinations shall be appropriately adjusted
      for any share dividend, share split or other similar transaction during such
      period. “Trading
      Day”
means
      any day on which the Common Stock is traded on the Principal Market, or, if
      the
      Principal Market is not the principal trading market for the Common Stock,
      then
      on the principal securities exchange or securities market on which the Common
      Stock is then traded; provided that “Trading Day” shall not include any day on
      which the Common Stock is scheduled to trade on such exchange or market for
      less
      than 4.5 hours or any day that the Common Stock is suspended from trading during
      the final hour of trading on such exchange or market (or if such exchange or
      market does not designate in advance the closing time of trading on such
      exchange or market, then during the hour ending at 4:00:00 p.m., New York
      time).

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    
      	
              6.

            	
              CONDITIONS
                TO THE COMPANY’S OBLIGATION TO
                SELL.

            

    

     

    (a) The
      obligation of the Company hereunder to issue and sell the Notes and
      the
      related Warrants
      to
      each
      Buyer at the Closing is subject to the satisfaction, at or before the Closing
      Date, of each of the following conditions, provided that these conditions
      are for the Company’s sole benefit and may be waived by the Company at any time
      in their sole discretion by providing each Buyer with prior written notice
      thereof:

     

    (i) Such
      Buyer shall have executed each of the Transaction Documents to which it is
      a
      party and delivered the same to the Company.

     

    (ii) Such
      Buyer shall have delivered to the Company the Purchase Price (less, in the
      case
      of Cranshire Capital, L.P. and Iroquois Master Fund, Ltd., the amounts withheld
      pursuant to Section 4(g))
      for the
      Note and the related Warrants being purchased by such Buyer at the Closing
      by
      wire transfer of immediately available funds pursuant to the wire instructions
      provided by the Company.

     

    (iii) The
      representations and warranties of such Buyer shall be true and correct in all
      material respects as of the date when made and as of the Closing Date as though
      originally made at that time (except for representations and warranties that
      speak as of a specific date, which shall be true and correct as of such date),
      and such Buyer shall have performed, satisfied and complied in all material
      respects with the covenants, agreements and conditions required by this
      Agreement to be performed, satisfied or complied with by such Buyer at or prior
      to the Closing Date.

     

    
      	
              7.

            	
              CONDITIONS
                TO EACH BUYER’S OBLIGATION TO PURCHASE. 

            

    

     

    (a) The
      obligation of each Buyer hereunder to purchase its Note and
      its
      related Warrants at the Closing is subject to the satisfaction, at or before
      the
      Closing Date, of each of the following conditions, provided that these
      conditions are for each Buyer’s sole benefit and may be waived by such Buyer at
      any time in its sole discretion by providing the Company with prior written
      notice thereof:

     

    (i) The
      Company and each Subsidiary (as the case may be) shall have duly executed and
      delivered to such Buyer each of the Transaction Documents to which it is a
      party
      and the Company shall have duly executed and delivered to such Buyer a Note
      (in
      such amount as is set forth across from such Buyer’s name in column (3) of the
      Schedule of Buyers and
      the
      related Series A Warrants, Series A-1 Warrants, Series B Warrants and Series
      C
      Warrants (for such number of shares of Common Stock as is set forth across
      from
      such Buyer’s name in columns (4), (5), (6) and (7) of the Schedule of Buyers,
      respectively) being purchased by such Buyer at the Closing pursuant to this
      Agreement.

     

    (ii) Such
      Buyer shall have received the opinion of Eckert Seamans Cherin & Mellott,
      LLC, the Company’s counsel, dated as of the Closing Date, in the form of
Exhibit
      F
      attached
      hereto.

     

    (iii) The
      Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
      Agent Instructions, in form acceptable to such Buyer, which instructions shall
      have been delivered to and acknowledged in writing by the Company’s transfer
      agent.

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    (iv) The
      Company shall have delivered to such Buyer a certificate evidencing the
      formation and good standing of the Company and each of the Subsidiaries in
      each
      such entity’s jurisdiction of formation issued by the Secretary of State (or
      comparable office) of such jurisdiction of formation as of a date within ten
      (10) days of the Closing Date.

     

    (v) The
      Company shall have delivered to such Buyer a certificate evidencing the
      Company’s and each Material Subsidiary’s qualification as a foreign corporation
      and good standing issued by the Secretary of State (or comparable office) of
      each jurisdiction in which the Company and each Subsidiary conducts business
      and
      is required to so qualify, as of a date within ten (10) days of the Closing
      Date.

     

    (vi) The
      Company shall have delivered to such Buyer a certified copy of the Certificate
      of Incorporation as certified by the Delaware Secretary of State within ten
      (10)
      days of the Closing Date.

     

    (vii) Each
      of
      the Material Subsidiaries shall have delivered to such Buyer a certified copy
      of
      its certificate of incorporation as certified by the Secretary of State (or
      comparable office) of such Subsidiary’s jurisdiction of incorporation within ten
      (10) days of the Closing Date.

     

    (viii) The
      Company and each Subsidiary shall have delivered to such Buyer a certificate,
      executed by the Secretary of the Company and each Subsidiary and dated as of
      the
      Closing Date, as to (i) the resolutions consistent with Section 3(b)
      as
      adopted by the Company’s and each Subsidiary’s board of directors in a form
      reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation
      of
      the Company and the organizational documents of each Subsidiary and (iii) the
      Bylaws of the Company and the bylaws of each Subsidiary, each as in effect
      at
      the Closing, in the form attached hereto as Exhibit
      G.

     

    (ix) Each
      and
      every representation and warranty of the Company shall be true and correct
      as of
      the date when made and as of the Closing Date as though made at that time
      (except for representations and warranties that speak as of a specific date,
      which shall be true and correct as of such date) and the Company shall have
      performed, satisfied and complied in all respects with the covenants, agreements
      and conditions required to be performed, satisfied or complied with by the
      Company at or prior to the Closing Date. Such Buyer shall have received a
      certificate, executed by the Chief Executive Officer of the Company, dated
      as of
      the Closing Date, to the foregoing effect and as to such other matters as may
      be
      reasonably requested by such Buyer in the form attached hereto as Exhibit
      H.

     

    (x) The
      Company shall have delivered to such Buyer a letter from the Company’s transfer
      agent certifying the number of shares of Common Stock outstanding on the Closing
      Date immediately prior to the Closing.

     

    (xi) The
      Common Stock (I) shall be designated for quotation or listed on the Principal
      Market and (II) shall not have been suspended, as of the Closing Date, by the
      SEC or the Principal Market from trading on the Principal Market nor shall
      suspension by the SEC or the Principal Market have been threatened, as of the
      Closing Date, either (A) in writing by the SEC or the Principal Market or (B)
      by
      falling below the minimum maintenance requirements of the Principal
      Market.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    (xii) The
      Company shall have obtained all governmental, regulatory or third party consents
      and approvals, if any, necessary for the sale of the Securities, including
      without limitation, those required by the Principal Market.

     

    (xiii) No
      statute, rule, regulation, executive order, decree, ruling or injunction shall
      have been enacted, entered, promulgated or endorsed by any court or governmental
      authority of competent jurisdiction that prohibits the consummation of any
      of
      the transactions contemplated by the Transaction Documents.

     

    (xiv) Since
      the
      date of execution of this Agreement, no event or series of events shall have
      occurred that reasonably would have or result in a Material Adverse
      Effect.

     

    (xv) The
      Company shall have obtained approval of the Principal Market to list the
      Conversion Shares and the Warrant Shares.

     

    (xvi) The
      Company shall have obtained letter agreements from each of the warrant holders
      listed on Schedule 7(xvi)
      attached
      hereto pursuant to which each of them waives the increase to the number of
      shares to their respective warrants set forth on such schedule solely in
      connection with the anti-dilution adjustment that would occur as a result of
      the
      transactions contemplated by this Agreement, and the Company shall have extended
      the expiration of such warrants to seven (7) years.

     

    (xvii) The
      Company and the Subsidiaries shall have delivered to such Buyer such other
      documents relating to the transactions contemplated by this Agreement as such
      Buyer or its counsel may reasonably request.

     

    
      	
              8.

            	
              TERMINATION. 

            

    

     

    In
      the
      event that the Closing shall not have occurred with respect to a Buyer on or
      before ten (10) days from the date hereof due to the Company’s or such Buyer’s
      failure to satisfy the conditions set forth in Sections 6
      and
7
      above
      (and a non-breaching party’s failure to waive such unsatisfied condition(s)),
      any such non-breaching party at any time shall have the right to terminate
      its
      obligations under this Agreement with respect to such breaching party on or
      after the close of business on such date without liability of such non-breaching
      party to any other party; provided,
      however,
      that
      the abandonment of the sale and purchase of the Notes and the Warrants shall
      be
      applicable only to such non-breaching party providing such written notice;
      provided
      further,
      notwithstanding any such termination the Company shall remain obligated to
      reimburse the non-breaching Buyers for the expenses described in Section
4(g)
      above.
      Nothing contained in this Section 8
      shall be
      deemed to release any party from any liability for any breach by such party
      of
      the terms and provisions of this Agreement or the other Transaction Documents
      or
      to impair the right of any party to compel specific performance by any other
      party of its obligations under this Agreement or the other Transaction
      Documents.

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    
      	
              9.

            	
              MISCELLANEOUS.

            

    

     

    (a) Governing
      Law; Jurisdiction; Jury Trial.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by the internal laws of the State of New
      York, without giving effect to any choice of law or conflict of law provision
      or
      rule (whether of the State of New York or any other jurisdictions) that would
      cause the application of the laws of any jurisdictions other than the State
      of
      New York. Each party hereby irrevocably submits to the exclusive jurisdiction
      of
      the state and federal courts sitting in The City of New York, Borough of
      Manhattan, for the adjudication of any dispute hereunder or in connection
      herewith or with any transaction contemplated hereby or discussed herein, and
      hereby irrevocably waives, and agrees not to assert in any suit, action or
      proceeding, any claim that it is not personally subject to the jurisdiction
      of
      any such court, that such suit, action or proceeding is brought in an
      inconvenient forum or that the venue of such suit, action or proceeding is
      improper. Each party hereby irrevocably waives personal service of process
      and
      consents to process being served in any such suit, action or proceeding by
      mailing a copy thereof to such party at the address for such notices to it
      under
      this Agreement and agrees that such service shall constitute good and sufficient
      service of process and notice thereof. Nothing contained herein shall be deemed
      to limit in any way any right to serve process in any manner permitted by law.
      EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT
      TO
      REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
      CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
      HEREBY. 

     

    (b) Counterparts.
      This
      Agreement may be executed in two or more identical counterparts, all of which
      shall be considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to the other party.
      In
      the event that any signature is delivered by facsimile transmission or by an
      e-mail which contains a portable document format (.pdf) file of an executed
      signature page, such signature page shall create a valid and binding obligation
      of the party executing (or on whose behalf such signature is executed) with
      the
      same force and effect as if such signature page were an original
      thereof.

     

    (c) Headings;
      Gender.
      The
      headings of this Agreement are for convenience of reference and shall not form
      part of, or affect the interpretation of, this Agreement. Unless the context
      clearly indicates otherwise, each pronoun herein shall be deemed to include
      the
      masculine, feminine, neuter, singular and plural forms thereof. The terms
“including,”
      “includes,”
      “include”
and
      words of like import shall be construed broadly as if followed by the words
      “without limitation.” The terms “herein,”
      “hereunder,”
      “hereof”
and
      words of like import refer to this entire Agreement instead of just the
      provision in which they are found. For purposes of this Agreement for each
      Buyer’s benefit, the word “state” or “states” includes any “province” or
“provinces” in Canada and the concept of “law, rules or regulations” includes
      laws, rules and regulations under applicable law, rules and regulations in
      Canada.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    (d) Severability.
      If any
      provision of this Agreement shall be invalid or unenforceable in any
      jurisdiction, such invalidity or unenforceability shall not affect the validity
      or enforceability of the remainder of this Agreement in that jurisdiction or
      the
      validity or enforceability of any provision of this Agreement in any other
      jurisdiction. Notwithstanding anything to the contrary contained in this
      Agreement or any other Transaction Document (and without implication that the
      following is required or applicable), it is the intention of the parties that
      in
      no event shall amounts and value paid by the Company and/or the Subsidiaries
      (as
      the case may be), or payable to or received by the Buyers, under the Transaction
      Documents, including without limitation, any amounts that would be characterized
      as “interest” under applicable law (including, without limitation, any
      applicable Canadian law), exceed amounts permitted under any such applicable
      law. Accordingly, if any obligation to pay, payment made to such Buyer, or
      collection by such Buyer pursuant the Transaction Documents is finally
      judicially determined to be contrary to any such applicable law, such obligation
      to pay, payment or collection shall be deemed to have been made by mutual
      mistake of such Buyer, the Company and the Subsidiaries and such amount shall
      be
      deemed to have been adjusted with retroactive effect to the maximum amount
      or
      rate of interest, as the case may be, as would not be so prohibited by the
      applicable law. Such adjustment shall be effected, to the extent necessary,
      by
      reducing or refunding, at the option of such Buyer, the amount of interest
      or
      any other amounts which would constitute unlawful amounts required to be paid
      or
      actually paid to such Buyer under the Transaction Documents. For greater
      certainty, to the extent that any interest, charges, fees, expenses or other
      amounts required to be paid to or received by such Buyer under any of the
      Transaction Documents or related thereto are held to be within the meaning
      of
“interest” or another applicable term to otherwise be violative of applicable
      law, such amounts shall be pro-rated over the period of time to which they
      relate.

     

    (e) Entire
      Agreement; Amendments.
      This
      Agreement, the other Transaction Documents and the schedules and exhibits
      attached hereto and thereto and the instruments referenced herein and therein
      supersede all other prior oral or written agreements between the Buyers, the
      Company, the Subsidiaries, their affiliates and Persons acting on their behalf
      with respect to the matters contained herein and therein (provided that the
      foregoing shall not have any effect on any agreements any Buyer has entered
      into
      with the Company or any of its Subsidiaries prior to the date hereof with
      respect to any prior investment made by such Buyer in the Company), and this
      Agreement, the other Transaction Documents, the schedules and exhibits attached
      hereto and thereto and the instruments referenced herein and therein contain
      the
      entire understanding of the parties with respect to the matters covered herein
      and therein and, except as specifically set forth herein or therein, neither
      the
      Company nor any Buyer makes any representation, warranty, covenant or
      undertaking with respect to such matters. No provision of this Agreement may
      be
      amended or waived other than by an instrument in writing signed by the Company
      and the holders of at least eighty percent (80%) of the then outstanding
      principal amount of the Notes issued hereunder, and any amendment or to, or
      waiver of any provision of, this Agreement made in conformity with the
      provisions of this Section 9(e)
      shall be
      binding on all Buyers and holders of Securities, as applicable, provided
      that any
      party may give a waiver in writing as to itself. No such amendment or waiver
      (unless given pursuant to the foregoing proviso) shall be effective to the
      extent that it applies to less than all of the holders of the Notes then
      outstanding. No consideration shall be offered or paid to any Person to amend
      or
      consent to a waiver or modification of any provision of any of the Transaction
      Documents unless the same consideration also is offered to all of the parties
      to
      the Transaction Documents, holders of the Notes or holders of the Warrants
      (as
      the case may be). The Company has not, directly or indirectly, made any
      agreements with any Buyers relating to the terms or conditions of the
      transactions contemplated by the Transaction Documents except as set forth
      in
      the Transaction Documents. Without limiting the foregoing, the Company confirms
      that, except as set forth in this Agreement, no Buyer has made any commitment
      or
      promise or has any other obligation to provide any financing to the Company,
      any
      Subsidiary or otherwise.

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

     

    (f) Notices.
      Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Agreement must be in writing and will be deemed
      to
      have been delivered: (i) upon receipt, when delivered personally; (ii) upon
      receipt, when sent by facsimile (provided confirmation of transmission is
      mechanically or electronically generated and kept on file by the sending party);
      or (iii) one (1) Business Day after deposit with an overnight courier service
      with next day delivery specified, in each case, properly addressed to the party
      to receive the same. The addresses and facsimile numbers for such communications
      shall be:

     

    If
      to the
      Company:

     

    Generex
      Biotechnology Corporation

    33
      Harbour Square, Suite 202

    Toronto,
      Ontario, Canada M5J-2G2 

    Telephone:
      (416) 364-2551

    Facsimile:
      (416) 364-9363

    Attention:
      CEO

     

    With
      a
      copy (for informational purposes only) to:

     

    Eckert
      Seamans Cherin & Mellott, LLC

    2
      Liberty
      Place, 50 S. 16th Street

    22nd
      Floor

    Philadelphia,
      PA 19102

    Telephone:
      (215)851-8472

    Facsimile:
      215 851-8383

    Attention:
      Gary A. Miller, Esq.

     

    If
      to the
      Transfer Agent:

     

    StockTrans,
      Inc

    44
      W.
      Lancaster Ave

    Ardmore,
      PA 19003

    Telephone:
      (610) 649-7300

    Facsimile:
      (610) 649-7302

    Attention:
      Bob Winterle, VP Operations

    

    If
      to a
      Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
      with copies to such Buyer’s representatives as set forth on the Schedule of
      Buyers, 

     

    with
      a
      copy (for informational purposes only) to:

     

    Greenberg
      Traurig, LLP

    77
      W.
      Wacker Drive, Suite 2400

    Chicago,
      Illinois 60602

    Telephone:
      (312) 456-8400

    Facsimile:
      (312) 456-8435

    Attention:
      Peter H. Lieberman, Esq.

                  Todd
      A.
      Mazur, Esq.

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

     

    or
      to
      such other address and/or facsimile number and/or to the attention of such
      other
      Person as the recipient party has specified by written notice given to each
      other party five (5) days prior to the effectiveness of such change;
provided,
      that
      Greenberg Traurig, LLP shall only be provided copies of notices sent to
      Cranshire Capital, L.P. Written confirmation of receipt (A) given by the
      recipient of such notice, consent, waiver or other communication, (B)
      mechanically or electronically generated by the sender’s facsimile machine
      containing the time, date, recipient facsimile number and an image of the first
      page of such transmission or (C) provided by an overnight courier service shall
      be rebuttable evidence of personal service, receipt by facsimile or receipt
      from
      an overnight courier service in accordance with clause (i), (ii) or (iii) above,
      respectively.

     

    (g) Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective successors and assigns, including any purchasers of any of
      the
      Securities. The Company shall not assign this Agreement or any rights or
      obligations hereunder without the prior written consent of the holders of at
      least eighty percent (80%) of the aggregate number of Registrable Securities
      issued and issuable under the Transaction Documents, including, without
      limitation, by way of a Fundamental Transaction (as defined in the Warrants)
      (unless the Company is in compliance with the applicable provisions governing
      Fundamental Transactions set forth in the Warrants). A Buyer may assign some
      or
      all of its rights hereunder in connection with transfer of any of its Securities
      without the consent of the Company, in which event such assignee shall be deemed
      to be a Buyer hereunder with respect to such assigned rights.

     

    (h) No
      Third Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, other than the Indemnitees
      referred to in Section 9(k).

     

    (i) Survival.
      The
      representations, warranties, agreements and covenants shall survive the Closing.
      Each Buyer shall be responsible only for its own representations, warranties,
      agreements and covenants hereunder.

     

    (j) Further
      Assurances.
      Each
      party shall do and perform, or cause to be done and performed, all such further
      acts and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents, as any other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

     

    (k) Indemnification.
      In
      consideration of each Buyer’s execution and delivery of the Transaction
      Documents and acquiring the Securities thereunder and in addition to all of
      the
      Company’s other obligations under the Transaction Documents, the Company shall
      defend, protect, indemnify and hold harmless each Buyer and each holder of
      any
      Securities and all of their stockholders, partners, members, officers,
      directors, employees and direct or indirect investors and any of the foregoing
      Persons’ agents or other representatives (including, without limitation, those
      retained in connection with the transactions contemplated by this Agreement)
      (collectively, the “Indemnitees”)
      from
      and against any and all actions, causes of action, suits, claims, losses, costs,
      penalties, fees, liabilities and damages, and expenses in connection therewith
      (irrespective of whether any such Indemnitee is a party to the action for which
      indemnification hereunder is sought), and including reasonable attorneys’ fees
      and disbursements (the “Indemnified
      Liabilities”),
      incurred by any Indemnitee as a result of, or arising out of, or relating to
      (a)
      any misrepresentation or breach of any representation or warranty made by the
      Company or any Subsidiary in any of the Transaction Documents, (b) any breach
      of
      any covenant, agreement or obligation of the Company or any Subsidiary contained
      in any of the Transaction Documents or (c) any cause of action, suit or claim
      brought or made against such Indemnitee by a third party (including for these
      purposes a derivative action brought on behalf of the Company or any Subsidiary)
      and arising out of or resulting from (i) the execution, delivery, performance
      or
      enforcement of any of the Transaction Documents, (ii) any transaction financed
      or to be financed in whole or in part, directly or indirectly, with the proceeds
      of the issuance of the Securities, (iii) any disclosure properly made by such
      Buyer pursuant to Section 4(i),
      or (iv)
      the status of such Buyer or holder of the Securities as an investor in the
      Company pursuant to the transactions contemplated by the Transaction Documents,
      except, with respect to clause (c), to the extent such Indemnified Liability
      arises from an Indemnitee’s gross negligence, bad faith or willful misconduct.
      To the extent that the foregoing undertaking by the Company may be unenforceable
      for any reason, the Company shall make the maximum contribution to the payment
      and satisfaction of each of the Indemnified Liabilities which is permissible
      under applicable law. Except as otherwise set forth herein, the mechanics and
      procedures with respect to the rights and obligations under this Section
9(k)
      shall be
      the same as those set forth in Section 6 of the Registration Rights
      Agreement.

     

    (l) No
      Strict Construction.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.

     

    (m) Remedies.
      Each
      Buyer and each holder of any Securities shall have all rights and remedies
      set
      forth in the Transaction Documents and all rights and remedies which such
      holders have been granted at any time under any other agreement or contract
      and
      all of the rights which such holders have under any law. Any Person having
      any
      rights under any provision of this Agreement shall be entitled to enforce such
      rights specifically (without posting a bond or other security), to recover
      damages by reason of any breach of any provision of this Agreement and to
      exercise all other rights granted by law. Furthermore, the Company recognizes
      that in the event that it or any Subsidiary fails to perform, observe, or
      discharge any or all of its or such Subsidiary’s (as the case may be)
      obligations under the Transaction Documents, any remedy at law may prove to
      be
      inadequate relief to the Buyers. The Company therefore agrees that the Buyers
      shall be entitled to seek specific performance and/or temporary, preliminary
      and
      permanent injunctive or other equitable relief from any court of competent
      jurisdiction in any such case without the necessity of proving actual damages
      and without posting a bond or other security.

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

     

    (n) Withdrawal
      Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) the Transaction Documents, whenever any Buyer exercises
      a
      right, election, demand or option under a Transaction Document and the Company
      or any Subsidiary does not timely perform its related obligations within the
      periods therein provided, then such Buyer may rescind or withdraw, in its sole
      discretion from time to time upon written notice to the Company or such
      Subsidiary (as the case may be), any relevant notice, demand or election in
      whole or in part without prejudice to its future actions and rights

     

    (o) Payment
      Set Aside.
      To the
      extent that the Company or any Subsidiary makes a payment or payments to any
      Buyer hereunder or pursuant to any of the other Transaction Documents or any
      of
      the Buyers enforce or exercise their rights hereunder or thereunder, and such
      payment or payments or the proceeds of such enforcement or exercise or any
      part
      thereof are subsequently invalidated, declared to be fraudulent or preferential,
      set aside, recovered from, disgorged by or are required to be refunded, repaid
      or otherwise restored to the Company or any Subsidiary, a trustee, receiver
      or
      any other Person under any law (including, without limitation, any bankruptcy
      law, foreign, state or federal law, common law or equitable cause of action),
      then to the extent of any such restoration the obligation or part thereof
      originally intended to be satisfied shall be revived and continued in full
      force
      and effect as if such payment had not been made or such enforcement or setoff
      had not occurred. Unless otherwise expressly indicated, all dollar amounts
      referred to in this Agreement and the other Transaction Documents are in United
      States Dollars (“US
      Dollars”),
      and
      all amounts owing under this Agreement and all other Transaction Documents
      shall
      be paid in US Dollars. All amounts denominated in other currencies shall be
      converted in the US Dollar equivalent amount in accordance with the Exchange
      Rate on the date of calculation. “Exchange
      Rate” means,
      in
      relation to any amount of currency to be converted into US Dollars pursuant
      to
      this Agreement, the US Dollar exchange rate as published in the Wall Street
      Journal on the relevant date of calculation.

     

    (p) Independent
      Nature of Buyers’ Obligations and Rights.
      The
      obligations of each Buyer under the Transaction Documents are several and not
      joint with the obligations of any other Buyer, and no Buyer shall be responsible
      in any way for the performance of the obligations of any other Buyer under
      any
      Transaction Document. Nothing contained herein or in any other Transaction
      Document, and no action taken by any Buyer pursuant hereto or thereto, shall
      be
      deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
      do not so constitute, a partnership, an association, a joint venture or any
      other kind of group or entity, or create a presumption that the Buyers are
      in
      any way acting in concert or as a group or entity with respect to such
      obligations or the transactions contemplated by the Transaction Documents or
      any
      matters, and the Company acknowledges that the Buyers are not acting in concert
      or as a group, and the Company shall not assert any such claim, with respect
      to
      such obligations or the transactions contemplated by the Transaction Documents.
      The decision of each Buyer to purchase Securities pursuant to the Transaction
      Documents has been made by such Buyer independently of any other Buyer. Each
      Buyer acknowledges that no other Buyer has acted as agent for such Buyer in
      connection with such Buyer making its investment hereunder and that no other
      Buyer will be acting as agent of such Buyer in connection with monitoring such
      Buyer’s investment in the Securities or enforcing its rights under the
      Transaction Documents. The Company and each Buyer confirms that each Buyer
      has
      independently participated with the Company and the Subsidiaries in the
      negotiation of the transaction contemplated hereby with the advice of its own
      counsel and advisors. Each Buyer shall be entitled to independently protect
      and
      enforce its rights, including, without limitation, the rights arising out of
      this Agreement or out of any other Transaction Documents, and it shall not
      be
      necessary for any other Buyer to be joined as an additional party in any
      proceeding for such purpose. The use of a single agreement to effectuate the
      purchase and sale of the Securities contemplated hereby was solely in the
      control of the Company, not the action or decision of any Buyer, and was done
      solely for the convenience of the Company and the Subsidiaries and not because
      it was required or requested to do so by any Buyer. It is expressly understood
      and agreed that each provision contained in this Agreement and in each other
      Transaction Document is between the Company, each Subsidiary and a Buyer,
      solely, and not between the Company, the Subsidiaries and the Buyers
      collectively and not between and among the Buyers.

     

    [signature
      pages follow]

     

    
      
        
          
          

        

        
          40

          
            

          

        

        
          
          

        

      

    

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Agreement to be duly executed as of the date first written above.

     

    
      	
              COMPANY:

            
	 	 	 
	
              GENEREX
                BIOTECHNOLOGY

              CORPORATION

            
	 
	
              By:

            	/s/
              Rose C. Perri
	 	
              Name:     

            	
              Rose
                C. Perri

            
	 	
              Title:     

            	
              Chief
                Financial Officer

            
	 	 	 
	
              By:

            	/s/
              Mark A. Fletcher
	 	
              Name:     

            	
              Mark
                A. Fletcher

            
	 	
              Title:     

            	
              Executive
                Vice President and General Counsel

            

    

     

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Agreement to be duly executed as of the date first written above.

    

    
      	
              BUYERS:

            
	 	 
	
              CRANSHIRE
                CAPITAL, L.P.

            
	 
	
              By:

            	
              Downsview
                Capital, Inc.

            
	
              Its:

            	
              General
                Partner

            
	 	 
	
              /s/
                Mitchell P. Kopin

            
	
              By:

            	
              Mitchell
                P. Kopin

            
	
              Its:

            	
              President

            

    

     

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Agreement to be duly executed as of the date first written
      above.

     

    
      	
              BUYERS:

            
	 	 
	
              SMITHFIELD
                FIDUCIARY LLC

            
	 	 
	
              By:

            	
              /s/
                Adam J. Chill

            
	 	
              Adam
                J. Chill, Authorized Signatory

            

    

     

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Agreement to be duly executed as of the date first written
      above.

     

    
      	
              BUYERS:

            	 
	 	 
	
              IROQUOIS
                MASTER FUND LTD.

            
	 	 
	
              By:

            	
              /s/
                Joshua Silverman

            
	 	
              Joshua
                Silverman, Authorized Signatory

            

    

    

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Agreement to be duly executed as of the date first written
      above.

     

    
      	
              BUYERS:

            
	 	 
	
              IROQUOIS
                CAPITAL OPPORTUNITY FUND LP

            
	 	 
	
              By:

            	
              /s/
                Joshua Silverman

            
	 	
              Joshua
                Silverman, Authorized Signatory

            

    

    

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Agreement to be duly executed as of the date first written
      above.

    

    
      	
              BUYERS:

            
	 	 
	
              PORTSIDE
                GROWTH AND OPPORTUNITY

              FUND

            
	 	 
	
              By:

            	
              /s/
                Jeffrey C. Smith

            
	 	
              Jeffrey
                C. Smith, Authorized Signatory

            

    

     

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Agreement to be duly executed as of the date first written above.

    

    
      	
              BUYERS:

            
	 	 
	
              ROCKMORE
                INVESTMENT MASTER FUND

              LTD.

            
	 	 
	
              By:

            	
              /s/
                Michael Clateman

            
	
              Name:      Michael
                Clateman

            
	
              Title:     Managing
                Director

            

    

     

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    SCHEDULE
      OF BUYERS 

    
      
        
          	
                  (1)

                	
                   

                	
                  (2)

                	 	
                  (3)

                	
                   

                	
                  (4)

                	 	
                  (5)

                	 	
                  (6)

                	 	
                  (7)

                	 	
                  (8)

                	 	
                  (9)

                	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Buyer

                	
                   

                	
                  Address and Facsimile Number

                	
                   

                	
                  Principal
                    Amount of Note

                	
                   

                	
                  Number of
                    

                  Series A
                    Warrants

                	
                   

                	
                  Number of
                    

                  Series A-1
                    Warrants

                	
                   

                	
                   Number of
                    

                  Series B
                    Warrants

                	
                   

                	
                  Number of
                    

                  Series C
                    Warrants

                	
                   

                	
                  Purchase
                    Price

                	
                   

                	
                  Legal
                    Representative’s

                  Address
                    and Facsimile Number

                	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Cranshire
                    Capital, L.P.

                	 	 	
                  3100
                    Dundee Road, Suite 703

                  Northbrook,
                    Illinois 60062

                  Attn:
                    Mitchell P. Kopin

                  Facsimile:
                    (847) 562-9031

                	 	
                  $

                	
                  5,000,000

                	 	 	
                  1,273,058

                	 	 	
                  1,826,115

                	 	 	
                  4,132,231

                	 	 	
                  3,099,173

                	 	
                  $

                	
                  5,000,000

                	 	 	
                  Greenberg
                    Traurig, LLP

                  77
                    W. Wacker Drive, Suite 2500

                  Chicago,
                    Illinois 60601

                  Attention:
                    Peter H. Lieberman

                                   Todd
                    A. Mazur

                  Facsimile:
                    (312) 456-8435 

                  Telephone:
                    (312) 456-8400

                	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Smithfield
                    Fiduciary LLC

                	 	 	
                  
                  

                  c/o
                    Highbridge Capital Management LLC

                  9
                    West 57th Street, 27th Floor

                  
                    New
                      York, New York 10019

                    Attn:
                      Ari J. Storch / Adam J. Chill

                    Facsimile:
                      (212) 751-0755

                  

                	 	
                  $

                	
                  7,000,000

                	 	 	
                  1,782,281

                	 	 	
                  2,556,562

                	 	 	
                  5,785,124

                	 	 	
                  4,338,843

                	 	
                  $

                	
                  7,000,000

                	 	 	
                  Elected
                    not to provide

                	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Iroquois
                    Master Fund Ltd.

                	 	 	
                  
                  

                  Iroquois
                    Master Fund Ltd.

                  641
                    Lexington Avenue, 26th Floor

                  New
                    York, New York 10022

                  Facsimile:
                    (212) 207-3452

                	 	
                  $

                	
                  3,650,000

                	 	 	
                  929,332

                	 	 	
                  1,333,065

                	 	 	
                  3,016,529

                	 	 	
                  2,262,397

                	 	
                  $

                	
                  3,650,000

                	 	 	
                  
                  

                  Iroquois
                    Master Fund Ltd.

                  641
                    Lexington Avenue, 26th Floor

                  New
                    York, New York 10022

                  Facsimile:
                    (212) 207-3452

                  Attn:
                    Mitch Kulick

                	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Iroquois
                    Capital Opportunity Fund, LP

                   

                	 	 	
                  
                  

                  Iroquois
                    Master Fund Ltd.

                  641
                    Lexington Avenue, 26th Floor

                  New
                    York, New York 10022

                  Facsimile:
                    (212) 207-3452

                	 	
                  $

                	
                  1,000,000

                	 	 	
                  254,612

                	 	 	
                  365,223

                	 	 	
                  826,446

                	 	 	
                  619,835

                	 	
                  $

                	
                  1,000,000

                	 	 	
                  
                  

                  Iroquois
                    Master Fund Ltd.

                  641
                    Lexington Avenue, 26th Floor

                  New
                    York, New York 10022

                  Facsimile:
                    (212) 207-3452

                  Attn:
                    Mitch Kulick

                	
                   

                
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Portside
                    Growth and Opportunity Fund 

                	
                   

                	
                   

                	
                  
                  

                  c/o
                    Ramius LLC

                  599
                    Lexington Avenue, 20th Floor

                  New
                    York, New York 10022

                  Attn:
                    Jeffrey C. Smith / Owen S. Littman

                  Facsimile:
                    (212) 845-7986

                	
                   

                	
                  $

                	
                  2,000,000

                	
                   

                	
                   

                	
                  509,223

                	
                   

                	
                   

                	
                  730,446

                	
                   

                	
                   

                	
                  1,652,893

                	
                   

                	
                   

                	
                  1,239,669

                	
                   

                	
                  $

                	
                  2,000,000

                	
                   

                	
                   

                	
                  Elected
                    not to provide

                	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Rockmore
                    Investment Master Fund Ltd.

                	 	 	
                  
                  

                  c/o
                    Rockmore Capital, LLC

                  150
                    E. 58th
                    Street, 28th
                    Floor

                  New
                    York, NY 10155

                  Attn:
                    Bruce Bernstein/Michael Clateman

                  Facsimile:
                    (212) 258-2315

                	 	
                  $

                	
                  2,000,000

                	 	 	
                  509,223

                	 	 	
                  730,446

                	 	 	
                  1,652,893

                	 	 	
                  1,239,669

                	 	
                  $

                	
                  2,000,000

                	 	 	
                  Elected
                    not to provide

                	 

        

      

    

     

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    EXHIBITS

     

    
      	
              Exhibit
                A

            	
              Form
                of Note

            
	
              Exhibit
                B

            	
              Form
                of Series A Warrant

            
	
              Exhibit
                B-1

            	
              Form
                of Series A-1 Warrant

            
	
              Exhibit
                C

            	
              Form
                of Series B Warrant

            
	
              Exhibit
                D

            	
              Form
                of Series C Warrant

            
	
              Exhibit
                E

            	
              Form
                of Registration Rights Agreement

            
	
              Exhibit
                F

            	
              Form
                of Company’s Counsel Opinion

            
	
              Exhibit
                G

            	
              Form
                of Secretary’s Certificate

            
	
              Exhibit
                H

            	
              Form
                of Officer’s Certificate

            

    

    

    
      	
              Schedule
                3(q)

            	
              Transactions
                with Affiliates

            
	
              Schedule
                3(r)

            	
              Capitalization

            
	
              Schedule
                3(s)

            	
              Indebtedness
                and Other Contracts

            
	
              Schedule
                3(t)

            	
              Litigation

            
	
              Schedule
                4(d)

            	
              Use
                of Proceeds

            
	
              Schedule
                7(xvi)

            	
              Warrant
                Amendments[FORM
      OF SENIOR SECURED CONVERTIBLE NOTE]

     

    NEITHER
      THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
      THE
      SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
      LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
      (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL
      TO
      THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO
      THE
      COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
      OR
      ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
      NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
      WITH
      A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
      THE
      SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF
      THIS NOTE, INCLUDING SECTIONS 3(c)(iii)
      AND 18(a)
      HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE
      SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET
      FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii)
      OF THIS NOTE.

     

    Generex
      Biotechnology Corporation

     

    Senior
      Secured Convertible Note

     

    
      	
              Issuance
                Date: March 31, 2008

            	
              Original
                Principal Amount: U.S. $

            

    

    

    FOR
      VALUE RECEIVED,
      Generex
      Biotechnology Corporation, a Delaware corporation (the “Company”),
      hereby promises to pay to the order of [CRANSHIRE CAPITAL L.P.][OTHER BUYERS]
      or
      registered assigns (“Holder”)
      the
      amount set out above as the Original Principal Amount (as reduced pursuant
      to
      the terms hereof pursuant to redemption, conversion or otherwise, the
“Principal”)
      when
      due, whether upon the Maturity Date (as defined below), on any Installment
      Date
      with respect to the Installment Amount due on such Installment Date (each,
      as
      defined herein), acceleration, redemption or otherwise (in each case in
      accordance with the terms hereof) and to pay interest (“Interest”)
      on any
      outstanding Principal at the applicable Interest Rate from the date set out
      above as the Issuance Date (the “Issuance Date”)
      until
      the same becomes due and payable, whether upon an Interest Date (as defined
      below), any Installment Date or the Maturity Date or acceleration, conversion,
      redemption or otherwise (in each case in accordance with the terms hereof).
      This
      Senior Secured Convertible Note (including all Senior Secured Convertible Notes
      issued in exchange, transfer or replacement hereof, this “Note”)
      is one
      of an issue of Senior Secured Convertible Notes issued pursuant to the
      Securities Purchase Agreement on the Closing Date (collectively, the
“Notes”
and
      such other Senior Convertible Notes, the “Other Notes”).
      Certain capitalized terms used herein are defined in Section 28.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    1. PAYMENTS
      OF PRINCIPAL.
      On each
      Installment Date (which includes the Maturity Date), the Company shall pay
      to
      the Holder an amount equal to the Installment Amount due on such Installment
      Date in accordance with Section 8.
      Other
      than as specifically permitted by this Note, the Company may not prepay any
      portion of the outstanding Principal, accrued and unpaid Interest or accrued
      and
      unpaid Late Charges on Principal and Interest, if any.

     

    2. INTEREST;
      INTEREST RATE.
      Interest on this Note shall commence accruing on the Issuance Date, shall accrue
      daily at the Interest Rate on the outstanding Principal amount from time to
      time, shall be computed on the basis of a 360-day year comprised of twelve
      (12)
      thirty (30) day months and shall be payable in arrears for each Quarter on
      the
      first Installment Date immediately following the end of such Quarter during
      the
      period beginning on the Issuance Date and ending on, and including, the Maturity
      Date (each, an “Interest Date”),
      with
      the first Interest Date being August 1, 2008. Interest shall be payable on
      each
      Interest Date in accordance with Section 8
      as part
      of the Installment Amount, to the record holder of this Note on the applicable
      Interest Date, and
      to
      the extent that any Principal amount of this Note is converted prior to such
      Interest Date, accrued and unpaid Interest with respect to such converted
      Principal amount and accrued and unpaid Late Charges with respect to such
      Principal and Interest shall be paid on the applicable Conversion Date (as
      defined below) to the record holder of this Note, in
      cash.
      From and after the occurrence and during the continuance of any Event of
      Default, the Interest Rate shall be increased to sixteen percent (16%). In
      the
      event that such Event of Default is subsequently cured, the adjustment referred
      to in the preceding sentence shall cease to be effective as of the date of
      such
      cure; provided that the Interest as calculated and unpaid at such increased
      rate
      during the continuance of such Event of Default shall continue to apply to
      the
      extent relating to the days after the occurrence of such Event of Default
      through and including the date of such cure of such Event of
      Default.

     

    3. CONVERSION
      OF NOTES.
      This
      Note shall be convertible into shares of Common Stock (as defined below), on
      the
      terms and conditions set forth in this Section 3.

     

    (a) Conversion
      Right.
      Subject
      to the provisions of Section 3(d),
      at any
      time or times on or after the Issuance Date, the Holder shall be entitled to
      convert any portion of the outstanding and unpaid Conversion Amount (as defined
      below) into fully paid and nonassessable shares of Common Stock in accordance
      with Section 3(c),
      at the
      Conversion Rate (as defined below). The Company shall not issue any fraction
      of
      a share of Common Stock upon any conversion. If the issuance would result in
      the
      issuance of a fraction of a share of Common Stock, the Company shall round
      such
      fraction of a share of Common Stock up to the nearest whole share. The Company
      shall pay any and all transfer, stamp and similar taxes that may be payable
      with
      respect to the issuance and delivery of Common Stock upon conversion of any
      Conversion Amount.

     

    (b) Conversion
      Rate.
      The
      number of shares of Common Stock issuable upon conversion of any Conversion
      Amount pursuant to Section 3(a)
      shall be
      determined by dividing (x) such Conversion Amount by (y) the Conversion Price
      (the “Conversion
      Rate”).

     

    (i) “Conversion
      Amount”
means
      the portion of the Principal to be converted, redeemed or otherwise with respect
      to which this determination is being made.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (ii) “Conversion
      Price”
means,
      as of any Conversion Date or other date of determination, $1.21, subject to
      adjustment as provided herein.

     

    (c) Mechanics
      of Conversion.

     

    (i) Optional
      Conversion.
      To
      convert any Conversion Amount into shares of Common Stock on any date (a
“Conversion
      Date”),
      the
      Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt
      on or
      prior to 11:59 p.m., New York time, on such date, a copy of an executed notice
      of conversion in the form attached hereto as Exhibit
      I
      (the
“Conversion
      Notice”)
      to the
      Company and (B) if required by Section 3(c)(iii),
      surrender this Note to a nationally recognized overnight delivery service for
      delivery to the Company (or an indemnification undertaking with respect to
      this
      Note in the case of its loss, theft or destruction). On or before the first
      (1st)
      Trading
      Day following the date of receipt of a Conversion Notice, the Company shall
      transmit by facsimile an acknowledgment of confirmation of receipt of such
      Conversion Notice to the Holder and the Company’s transfer agent (the
“Transfer
      Agent”).
      On or
      before the second (2nd)
      Trading
      Day following the date of receipt of a Conversion Notice (the “Share
      Delivery Date”),
      the
      Company shall (1) provided that the Transfer Agent is participating in The
      Depository Trust Company’s (“DTC”)
      Fast
      Automated Securities Transfer Program, credit such aggregate number of shares
      of
      Common Stock to which the Holder shall be entitled to the Holder’s or its
      designee’s balance account with DTC through its Deposit Withdrawal Agent
      Commission system or (Y) if the Transfer Agent is not participating in the
      DTC
      Fast Automated Securities Transfer Program, issue and deliver (via reputable
      overnight courier) to the address as specified in the Conversion Notice, a
      certificate, registered in the name of the Holder or its designee, for the
      number of shares of Common Stock to which the Holder shall be entitled; and
      (2)
      pay to the Holder in cash an amount equal to the accrued and unpaid Interest
      on
      the Conversion Amount up to and including the Conversion Date, including
accrued
      and unpaid Late Charges with respect to such Conversion Amount and
      Interest.
      If this
      Note is physically surrendered for conversion as required by Section
3(c)(iii)
      and the
      outstanding Principal of this Note is greater than the Principal portion of
      the
      Conversion Amount being converted, then the Company shall as soon as practicable
      and in no event later than three (3) Business Days after receipt of this Note
      and at its own expense, issue and deliver to the Holder (or its designee) a
      new
      Note (in accordance with Section 18(d))
      representing the outstanding Principal not converted. The Person or Persons
      entitled to receive the shares of Common Stock issuable upon a conversion of
      this Note shall be treated for all purposes as the record holder or holders
      of
      such shares of Common Stock on the Conversion Date. In the event of a partial
      conversion of this Note pursuant hereto, the Principal amount converted shall
      be
      deducted from the Installment Amount(s) relating to the Installment Date(s)
      as
      set forth in the Conversion Notice.

     

    
      
        
        

      

      
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    (ii) Company’s
      Failure to Timely Convert.
      If the
      Company shall fail, for any reason or for no reason, to issue to the Holder
      within three (3) Trading Days after the Company’s receipt of a facsimile copy of
      a Conversion Notice, a certificate for the number of shares of Common Stock
      to
      which the Holder is entitled and register such shares of Common Stock on the
      Company’s share register or to credit the Holder’s or its designee’s balance
      account with DTC for such number of shares of Common Stock to which the Holder
      is entitled upon the Holder’s conversion of any Conversion Amount (as the case
      may be) (a “Conversion
      Failure”),
      then,
      in addition to all other remedies available to the Holder, (1) the Company
      shall
      pay in cash to the Holder on each day after such third (3rd)
      Trading
      Day that the issuance of such shares of Common Stock is not timely effected
      an
      amount equal to 2% of the product of (A) the sum of the number of shares of
      Common Stock not issued to the Holder on a timely basis and to which the Holder
      is entitled and (B) the Closing Sale Price of the Common Stock on the Trading
      Day immediately preceding the last possible date which the Company could have
      issued such shares of Common Stock to the Holder without violating Section
      3(c)(i)
      and (2)
      the Holder, upon written notice to the Company, may void its Conversion Notice
      with respect to, and retain or have returned (as the case may be) any portion
      of
      this Note that has not been converted pursuant to such Conversion Notice;
provided
      that the
      voiding of a Conversion Notice shall not affect the Company’s obligations to
      make any payments which have accrued prior to the date of such notice pursuant
      to this Section 3(c)(ii)
      or
      otherwise. In addition to the foregoing, if within three (3) Trading Days after
      the Company’s receipt of the facsimile copy of a Conversion Notice, the Company
      shall fail to issue and deliver a certificate to the Holder and register such
      shares of Common Stock on the Company’s share register or credit the Holder’s or
      its designee’s balance account with DTC for the number of shares of Common Stock
      to which the Holder is entitled upon the Holder’s conversion hereunder (as the
      case may be), and if on or after such third (3rd)
      Trading
      Day the Holder purchases (in an open market transaction or otherwise) shares
      of
      Common Stock to deliver in satisfaction of a sale by the Holder of shares of
      Common Stock issuable upon such conversion that the Holder anticipated receiving
      from the Company (a “Buy-In”),
      then
      the Company shall, within three (3) Business Days after the Holder’s request and
      in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal
      to the Holder’s total purchase price (including brokerage commissions and other
      out-of-pocket expenses, if any) for the shares of Common Stock so purchased
      (the
“Buy-In
      Price”),
      at
      which point the Company’s obligation to deliver such certificate (and to issue
      such shares of Common Stock) shall terminate, or (ii) promptly honor its
      obligation to deliver to the Holder a certificate or certificates representing
      such shares of Common Stock or credit the Holder’s balance account with DTC for
      the number of shares of Common Stock to which the Holder is entitled upon the
      Holder’s conversion hereunder (as the case may be) and pay cash to the Holder in
      an amount equal to the excess (if any) of the Buy-In Price over the product
      of
      (A) such number of shares of Common Stock times (B) the Closing Sale Price
      of
      the Common Stock on the Trading Day immediately preceding the Conversion
      Date.

     

    (iii) Book-Entry.
      Notwithstanding anything to the contrary set forth herein, upon conversion
      of
      any portion of this Note in accordance with the terms hereof, the Holder shall
      not be required to physically surrender this Note to the Company unless (A)
      the
      full Conversion Amount represented by this Note is being converted or (B) the
      Holder has provided the Company with prior written notice (which notice may
      be
      included in a Conversion Notice) requesting reissuance of this Note upon
      physical surrender of this Note. The Holder and the Company shall maintain
      records showing the Principal, Interest and Late Charges converted and/or paid
      (as the case may be) and the dates of such conversions and/or payments (as
      the
      case may be) or shall use such other method, reasonably satisfactory to the
      Holder and the Company, so as not to require physical surrender of this Note
      upon conversion.

     

    
      
        
        

      

      
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    (iv) Pro
      Rata Conversion; Disputes.
      In the
      event that the Company receives a Conversion Notice from more than one holder
      of
      Notes for the same Conversion Date and the Company can convert some, but not
      all, of such portions of the Notes submitted for conversion, the Company,
      subject to Section 3(d),
      shall
      convert from each holder of Notes electing to have Notes converted on such
      date
      a pro rata amount of such holder’s portion of its Notes submitted for conversion
      based on the principal amount of Notes submitted for conversion on such date
      by
      such holder relative to the aggregate principal amount of all Notes submitted
      for conversion on such date. In the event of a dispute as to the number of
      shares of Common Stock issuable to the Holder in connection with a conversion
      of
      this Note, the Company shall issue to the Holder the number of shares of Common
      Stock not in dispute and resolve such dispute in accordance with Section
23.

     

    (d) Limitations
      on Conversions.

     

    (i) Beneficial
      Ownership.
      Notwithstanding
      anything to the contrary contained in this Note, this Note shall not be
      convertible by the Holder hereof, and the Company shall not effect any
      conversion of this Note or otherwise issue any shares of Common Stock pursuant
      to Section 8
      hereof,
      to the extent (but only to the extent) that, if after giving effect to such
      conversion, the Holder or any of its affiliates would beneficially own in excess
      of [4.90%][9.90%][4.99%][9.99%] (the “Maximum
      Percentage”)
      of the
      outstanding shares of Common Stock immediately after giving effect to
      such conversion. To the extent the above limitation applies, the determination
      of whether this Note shall be convertible (vis-à-vis other convertible,
      exercisable or exchangeable securities owned by the Holder) shall, subject
      to
      such Maximum Percentage limitation, be determined on the basis of the first
      submission to the Company for conversion, exercise or exchange (as the case
      may
      be). No prior inability to convert this Note, or to issue shares of Common
      Stock, pursuant to this paragraph shall have any effect on the applicability
      of
      the provisions of this paragraph with respect to any subsequent
      determination of convertibility. For purposes of this paragraph, beneficial
      ownership and all determinations and calculations (including, without
      limitation, with respect to calculations of percentage ownership) shall be
      determined by the Holder in accordance with Section 13(d) of the 1934 Act (as
      defined in the Securities Purchase Agreement) and the rules and regulations
      promulgated thereunder. The provisions of this paragraph shall be implemented
      in
      a manner otherwise than in strict conformity with the terms of this paragraph
      to
      correct this paragraph (or any portion hereof) which may be defective or
      inconsistent with the intended Maximum Percentage beneficial ownership
      limitation herein contained or to make changes or supplements necessary or
      desirable to properly give effect to such Maximum Percentage limitation. The
      limitations contained in this paragraph shall apply to a successor Holder of
      this Note. For any reason at any time, upon the written or oral request of
      the
      Holder, the Company shall within one (1) Business Day confirm orally and in
      writing to the Holder the number of shares of Common Stock then outstanding,
      including by virtue of any prior conversion or exercise of convertible or
      exercisable securities into Common Stock, including, without limitation,
      pursuant to this Note or securities issued pursuant to the Securities Purchase
      Agreement. [By written notice to the Company, the Holder may increase or
      decrease the Maximum Percentage to any other percentage not in excess of 9.99%
      specified in such notice; provided that (i) any such increase will not be
      effective until the sixty-first (61st)
      day
      after such notice is delivered to the Company, and (ii) any such increase or
      decrease will apply only to the Holder and not to any other holder of
      Notes.][HOLDER MAY ELECT WHICH BRACKETED PROVISIONS APPLY PRIOR TO ISSUANCE]
      Each delivery of a Conversion Notice by the Holder will constitute a
      representation by the Holder that it has evaluated the limitation set forth
      in
      this paragraph and determined that issuance of the full number of Conversion
      Shares requested by the Holder in such Conversion Notice is permitted under
      this
      paragraph. 

     

    
      
        
        

      

      
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    (ii) Principal
      Market Regulation.
      The
      Company shall not be obligated to issue any shares of Common Stock upon
      conversion of this Note, and the Holder of this Note shall not have the right
      to
      receive upon conversion of this Note any shares of Common Stock, if the issuance
      of such shares of Common Stock would exceed the aggregate number of shares
      of
      Common Stock which the Company may issue upon conversion or exercise (as the
      case may be) of the Notes and Warrants without breaching the Company’s
      obligations under the rules or regulations of the Principal Market (the number
      of shares which may be issued without violating such rules and regulations,
      the
“Exchange
      Cap”),
      except that such limitation shall not apply in the event that the Company (A)
      obtains Shareholder Approval (as defined in the Securities Purchase Agreement)
      as required by the applicable rules of the Principal Market for issuances of
      shares of Common Stock in excess of such amount or (B) obtains a written opinion
      from outside counsel to the Company that such approval is not required, which
      opinion shall be reasonably satisfactory to the Holder. Until Shareholder
      Approval or such written opinion is obtained, no purchaser of the Notes pursuant
      to the Securities Purchase Agreement (the “Buyers”)
      shall
      be issued in the aggregate, upon conversion or exercise or otherwise (as the
      case may be) of Notes or Warrants, shares of Common Stock in an amount greater
      than the product of the Exchange Cap multiplied by a fraction, the numerator
      of
      which is the original principal amount of Notes issued to such Buyer pursuant
      to
      the Securities Purchase Agreement on the Closing Date and the denominator of
      which is the aggregate original principal amount of all Notes issued to the
      Buyers pursuant to the Securities Purchase Agreement on the Closing Date (with
      respect to each Buyer, the “Exchange
      Cap Allocation”).
      In
      the event that any Buyer shall sell or otherwise transfer any of such Buyer’s
      Notes, the transferee shall be allocated a pro rata portion of such Buyer’s
      Exchange Cap Allocation, and the restrictions of the prior sentence shall apply
      to such transferee with respect to the portion of the Exchange Cap Allocation
      allocated to such transferee. In the event that any holder of Notes shall
      convert all of such holder’s Notes into a number of shares of Common Stock
      which, in the aggregate, is less than such holder’s Exchange Cap Allocation,
      then the difference between such holder’s Exchange Cap Allocation and the number
      of shares of Common Stock actually issued to such holder shall be allocated
      to
      the respective Exchange Cap Allocations of the remaining holders of Notes on
      a
      pro rata basis in proportion to the aggregate principal amount of the Notes
      then
      held by each such holder. In the event that the Company is prohibited from
      issuing any shares of Common Stock upon conversion of this Note as a result
      of
      the operation of this Section 3(d)(ii),
      the
      Company shall pay cash in exchange for cancellation of such shares of Common
      Stock, at a price per share equal to the difference between the Closing Sale
      Price of the Common Stock for the Trading Day immediately preceding the date
      of
      the attempted conversion and the applicable Conversion Price as of such date
      of
      attempted conversion. 

     

    
      
        
        

      

      
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    4. RIGHTS
      UPON EVENT OF DEFAULT.

     

    (a) Event
      of Default.
      Each of
      the following events shall constitute an “Event
      of Default”:

     

    (i) the
      failure of the applicable Registration Statement (as defined in the Registration
      Rights Agreement) to be filed with the SEC on or prior to the date that is
      ten
      (10) days after the applicable Filing Deadline (as defined in the Registration
      Rights Agreement) or the failure of the applicable Registration Statement to
      be
      declared effective by the SEC on or prior to the date that is twenty (20) days
      after the applicable Effectiveness Deadline (as defined in the Registration
      Rights Agreement);

     

    (ii) while
      the
      applicable Registration Statement is required to be maintained effective
      pursuant to the terms of the Registration Rights Agreement, the effectiveness
      of
      the applicable Registration Statement lapses for any reason (including, without
      limitation, the issuance of a stop order) or is unavailable to any holder of
      Registrable Securities (as defined in the Registration Rights Agreement) for
      sale of all of such holder’s Registrable Securities (as defined in the
      Registration Rights Agreement) in accordance with the terms of the Registration
      Rights Agreement, and such lapse or unavailability remains uncured for a period
      of five (5) consecutive Trading Days or for more than an aggregate of seven
      (7)
      Trading Days in any 365-day period (excluding days during an Allowable Grace
      Period (as defined in the Registration Rights Agreement));

     

    (iii) the
      suspension from trading or failure of the Common Stock to be listed on an
      Eligible Market for a period of five (5) consecutive days or for more than
      an
      aggregate of ten (10) days in any 365-day period;

     

    (iv) the
      Company’s (A) failure to cure a Conversion Failure by delivery of the required
      number of shares of Common Stock within five (5) Trading Days after the
      applicable Conversion Date or (B) notice, written or oral, to any holder of
      the
      Notes, including, without limitation, by way of public announcement or through
      any of its agents, at any time, of its intention not to comply with a request
      for conversion of any Notes into shares of Common Stock that is requested in
      accordance with the provisions of the Notes, other than pursuant to Section
      3(d);

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (v) at
      any
      time following the tenth (10th)
      consecutive day that the Holder’s Authorized Share Allocation is less than the
      number of shares of Common Stock that the Holder would be entitled to receive
      upon a conversion of the full Conversion Amount of this Note (without regard
      to
      any limitations on conversion set forth in Section 3(d)
      or
      otherwise);

     

    (vi) the
      Company’s or any Subsidiary’s failure to pay to the Holder any amount of
      Principal, Interest, Late Charges or other amounts when and as due under this
      Note (including, without limitation, the Company’s or any Subsidiary’s failure
      to pay any redemption payments or amounts hereunder) or any other Transaction
      Document (as defined in the Securities Purchase Agreement) or any other
      agreement, document, certificate or other instrument delivered in connection
      with the transactions contemplated hereby and thereby to which the Holder is
      a
      party, except, in the case of a failure to pay Interest and Late Charges when
      and as due, in which case only if such failure remains uncured for a period
      of
      at least five (5) days;

     

    (vii) the
      Company fails to remove any restrictive legend on any certificate or any shares
      of Common Stock issued to the Holder upon conversion or exercise (as the case
      may be) of any Securities acquired by the Holder under the Securities Purchase
      Agreement (including this Note) as and when required by such Securities or
      the
      Securities Purchase Agreement, unless otherwise then prohibited by applicable
      federal securities laws, and any such remains uncured for at least five (5)
      days;

     

    (viii) the
      occurrence of any default under, redemption of or acceleration prior to maturity
      of any Indebtedness (as defined in the Securities Purchase Agreement) of the
      Company or any of its Subsidiaries, other than with respect to (A) Permitted
      Senior Indebtedness and (B) any Other Notes;

     

    (ix) bankruptcy,
      insolvency, reorganization or liquidation proceedings or other proceedings
      for
      the relief of debtors shall be instituted by or against the Company or any
      Material Subsidiary and, if instituted against the Company or any Material
      Subsidiary by a third party, shall not be dismissed within thirty (30) days
      of
      their initiation;

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (x) the
      commencement by the Company or any Material Subsidiary of a voluntary case
      or
      proceeding under any applicable federal, state or foreign bankruptcy,
      insolvency, reorganization or other similar law or of any other case or
      proceeding to be adjudicated a bankrupt or insolvent, or the consent by it
      to
      the entry of a decree, order, judgment or other similar document in respect
      of
      the Company or any Material Subsidiary in an involuntary case or proceeding
      under any applicable federal, state or foreign bankruptcy, insolvency,
      reorganization or other similar law or to the commencement of any bankruptcy
      or
      insolvency case or proceeding against it, or the filing by it of a petition
      or
      answer or consent seeking reorganization or relief under any applicable federal,
      state or foreign law, or the consent by it to the filing of such petition or
      to
      the appointment of or taking possession by a custodian, receiver, liquidator,
      assignee, trustee, sequestrator or other similar official of the Company or
      any
      Material Subsidiary or of any substantial part of its property, or the making
      by
      it of an assignment for the benefit of creditors, or the execution of a
      composition of debts, or the occurrence of any other similar federal, state
      or
      foreign proceeding, or the admission by it in writing of its inability to pay
      its debts generally as they become due, the taking of corporate action by the
      Company or any Material Subsidiary in furtherance of any such action or the
      taking of any action by any Person to commence a UCC foreclosure sale or any
      other similar action under federal, state or foreign law;

     

    (xi) the
      entry
      by a court of (i) a decree, order, judgment or other similar document in respect
      of the Company or any Material Subsidiary of a voluntary or involuntary case
      or
      proceeding under any applicable federal, state or foreign bankruptcy,
      insolvency, reorganization or other similar law or (ii) a decree, order,
      judgment or other similar document adjudging the Company or any Material
      Subsidiary as bankrupt or insolvent, or approving as properly filed a petition
      seeking liquidation, reorganization, arrangement, adjustment or composition
      of
      or in respect of the Company or any Material Subsidiary under any applicable
      federal, state or foreign law or (iii) a decree, order, judgment or other
      similar document appointing a custodian, receiver, liquidator, assignee,
      trustee, sequestrator or other similar official of the Company or any Material
      Subsidiary or of any substantial part of its property, or ordering the winding
      up or liquidation of its affairs, and the continuance of any such decree, order,
      judgment or other similar document or any such other decree, order, judgment
      or
      other similar document unstayed and in effect for a period of thirty (30)
      consecutive days;

     

    (xii) a
      final
      judgment or judgments for the payment of money aggregating in excess of $500,000
      are rendered against the Company and/or any of its Subsidiaries and which
      judgments are not, within thirty (30) days after the entry thereof, bonded,
      discharged or stayed pending appeal, or are not discharged within thirty (30)
      days after the expiration of such stay; provided, however, that any judgment
      which is covered by insurance or an indemnity from a credit worthy party shall
      not be included in calculating the $500,000 amount set forth above so long
      as
      the Company provides the Holder a written statement from such insurer or
      indemnity provider (which written statement shall be reasonably satisfactory
      to
      the Holder) to the effect that such judgment is covered by insurance or an
      indemnity and the Company or such Subsidiary (as the case may be) will receive
      the proceeds of such insurance or indemnity within thirty (30) days of the
      issuance of such judgment;

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (xiii) the
      Company and/or any Subsidiary, individually or in the aggregate, either (i)
      fails to pay, when due, or within any applicable grace period, any payment
      with
      respect to any Indebtedness in excess of $250,000 due to any third party, other
      than, with respect to unsecured Indebtedness only, payments contested by the
      Company and/or such Subsidiary (as the case may be) in good faith by proper
      proceedings and with respect to which adequate reserves have been set aside
      for
      the payment thereof in accordance with GAAP, or otherwise be in breach or
      violation of any agreement for monies owed or owing in an amount in excess
      of
      $250,000, which breach or violation permits the other party thereto to declare
      a
      default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist
      any other circumstance or event that would, with or without the passage of
      time
      or the giving of notice, result in a default or event of default under any
      agreement binding the Company or any Subsidiary, which default or event of
      default would or is likely to have a material adverse effect on the business,
      assets, operations (including results thereof), liabilities, properties,
      condition (including financial condition) or prospects of the Company or any
      of
      its Subsidiaries, individually or in the aggregate;

     

    (xiv) the
      Company or any Subsidiary materially breaches any representation, warranty,
      covenant or other term or condition of any Transaction Document, except, in
      the
      case of a breach of a covenant of any Transaction Document which is curable,
      only if such breach remains uncured for a period of at least five (5)
      days;

     

    (xv) any
      breach or failure in any respect by the Company or any Subsidiary to comply
      with
      any provision of either of Sections 8
      or
13
      of this
      Note; 

     

    (xvi) any
      Material Adverse Effect (as defined in the Securities Purchase Agreement)
      occurs;

     

    (xvii) any
      breach or failure in any respect by the Company or any Subsidiary to comply
      with
      any provision of Sections 6(c), 6(g)(i), 6(g)(ii) or 6(k) of the Security
      Agreement (as defined below); or

     

    (xviii) any
      Event
      of Default (as defined in the Other Notes) occurs with respect to any Other
      Notes.

     

    
      
        
        

      

      
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    (b) Redemption
      Right.
      Upon
      the occurrence of an Event of Default with respect to this Note or any Other
      Note, the Company shall within one (1) Business Day deliver written notice
      thereof via facsimile and overnight courier (with next day delivery specified)
      (an “Event
      of Default Notice”)
      to the
      Holder. At any time after the earlier of the Holder’s receipt of an Event of
      Default Notice and the Holder becoming aware of an Event of Default, the Holder
      may require the Company to redeem all or any portion of this Note by delivering
      written notice thereof (the “Event
      of Default Redemption Notice”)
      to the
      Company, which Event of Default Redemption Notice shall indicate the portion
      of
      this Note the Holder is electing to redeem. Each portion of this Note subject
      to
      redemption by the Company pursuant to this Section 4(b)
      shall be
      redeemed by the Company at a price equal to the greater of (i) the product
      of
      (A) the sum of the Conversion Amount to be redeemed together with accrued and
      unpaid Interest with respect to such Conversion Amount and accrued and unpaid
      Late Charges with respect to such Conversion Amount and Interest and (B) the
      Redemption Premium and (ii) the product of (X) the Conversion Rate with respect
      to such sum of the Conversion Amount together with accrued and unpaid Interest
      with respect to such Conversion Amount and accrued and unpaid Late Charges
      with
      respect to such Conversion Amount and Interest in effect at such time as the
      Holder delivers an Event of Default Redemption Notice and (Y) the product of
      (1)
      the Equity Value Redemption Premium and (2) the greater of (I) the Closing
      Sale
      Price of the Common Stock on the date immediately preceding such Event of
      Default, (II) the Closing Sale Price of the Common Stock on the date immediately
      after such Event of Default and (III) the Closing Sale Price of the Common
      Stock
      on the date the Holder delivers the Event of Default Redemption Notice (the
      “Event
      of Default Redemption
      Price”).
      Redemptions required by this Section 4(b)
      shall be
      made in accordance with the provisions of Section 11.
      To the
      extent redemptions required by this Section 4(b)
      are
      deemed or determined by a court of competent jurisdiction to be prepayments
      of
      the Note by the Company, such redemptions shall be deemed to be voluntary
      prepayments. Notwithstanding anything to the contrary in this Section
4,
      but
      subject to Section 3(d),
      until
      the Event of Default Redemption Price (together with any interest thereon)
      is
      paid in full, the Conversion Amount submitted for redemption under this Section
      4(b)
      (together with any interest thereon) may be converted, in whole or in part,
      by
      the Holder into Common Stock pursuant to Section 3.
      In the
      event of a partial redemption of this Note pursuant hereto, the Principal amount
      redeemed shall be deducted from the Installment Amount(s) relating to the
      applicable Installment Date(s) as set forth in the Event of Default Redemption
      Notice. The parties hereto agree that in the event of the Company’s redemption
      of any portion of the Note under this Section 4(b),
      the
      Holder’s damages would be uncertain and difficult to estimate because of the
      parties’ inability to predict future interest rates and the uncertainty of the
      availability of a suitable substitute investment opportunity for the Holder.
      Accordingly, any redemption premium due under this Section 4(b)
      is
      intended by the parties to be, and shall be deemed, a reasonable estimate of
      the
      Holder’s actual loss of its investment opportunity and not as a
      penalty.

     

    5. RIGHTS
      UPON FUNDAMENTAL TRANSACTION.

     

    (a) Assumption.
      The
      Company shall not enter into or be party to a Fundamental Transaction unless
      (i) the Successor Entity assumes in writing all of the obligations of the
      Company under this Note and the other Transaction Documents in accordance with
      the provisions of this Section 5(a)
      pursuant
      to written agreements in form and substance satisfactory to the Holder and
      approved by the Holder prior to such Fundamental Transaction, including
      agreements to deliver to each holder of Notes in exchange for such Notes a
      security of the Successor Entity evidenced by a written instrument substantially
      similar in form and substance to the Notes, including, without limitation,
      having a principal amount and interest rate equal to the principal amounts
      then
      outstanding and the interest rates of the Notes held by such holder, having
      similar conversion rights as the Notes and having similar ranking to the Notes,
      and satisfactory to the Holder and (ii) the Successor Entity (including its
      Parent Entity) is a publicly traded corporation whose common stock is quoted
      on
      or listed for trading on an Eligible Market. Upon the occurrence of any
      Fundamental Transaction, the Successor Entity shall succeed to, and be
      substituted for (so that from and after the date of such Fundamental
      Transaction, the provisions of this Note and the other Transaction Documents
      referring to the “Company” shall refer instead to the Successor Entity), and may
      exercise every right and power of the Company and shall assume all of the
      obligations of the Company under this Note and the other Transaction Documents
      with the same effect as if such Successor Entity had been named as the Company
      herein. Upon consummation of the Fundamental Transaction, the Successor Entity
      shall deliver to the Holder confirmation that there shall be issued upon
      conversion or redemption of this Note at
      any
      time after the consummation of the Fundamental Transaction, in lieu of the
      shares of the Company’s Common Stock (or
      other
      securities, cash, assets or other property (except such items still issuable
      under Section 6,
      which
      shall continue to be receivable thereafter) issuable
      upon the conversion or redemption of the Notes prior to such Fundamental
      Transaction,
      such
      shares of the publicly traded common stock (or their equivalent) of the
      Successor Entity (including its Parent Entity) which the Holder would have
      been
      entitled to receive upon the happening of such Fundamental Transaction had
      this
      Note been converted immediately prior to such Fundamental Transaction
(without
      regard to any limitations on the conversion of this Note),
      as
      adjusted in accordance with the provisions of this Note. The
      provisions of this Section shall apply similarly and equally to successive
      Fundamental Transactions and shall be applied without regard to any limitations
      on the conversion of this Note.

     

    
      
        
        

      

      
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    (b) Redemption
      Right.
      No
      sooner than twenty (20) Trading Days nor later than ten (10) Trading Days prior
      to the consummation of a Fundamental Transaction, but not prior to the public
      announcement of such Fundamental Transaction, the Company shall deliver written
      notice thereof via facsimile and overnight courier to the Holder (a
“Fundamental
      Transaction Notice”).
      At
      any time during the period beginning after the Holder’s receipt of a Fundamental
      Transaction Notice and ending on the later of twenty (20) Trading Days after
      (A)
      consummation of such Fundamental Transaction or (B) the date of receipt of
      such
      Fundamental Transaction Notice, the Holder may require the Company to redeem
      all
      or any portion of this Note by delivering written notice thereof (“Fundamental
      Transaction Redemption Notice”)
      to the
      Company, which Fundamental Transaction Redemption Notice shall indicate the
      Conversion Amount the Holder is electing to redeem. The portion of this Note
      subject to redemption pursuant to this Section 5
      shall be
      redeemed by the Company in cash at a price equal to the greater of (i) the
      sum
      of (x) the product of the Fundamental Transaction Redemption Premium and the
      Conversion Amount being redeemed and (y) the amount of any accrued but unpaid
      Interest on such Conversion Amount being redeemed and accrued and unpaid Late
      Charges, if any, with respect to such Conversion Amount and Interest through
      the
      date of such redemption payment and (ii) the product of (x) the Equity Value
      Redemption Premium and (y) the sum of (1) the product of (A) the Conversion
      Amount being redeemed multiplied by (B) the quotient determined by dividing
      (I)
      the aggregate cash consideration and the aggregate cash value of any non-cash
      consideration per share of Common Stock to be paid to the holders of the shares
      of Common Stock upon consummation of the Fundamental Transaction (any such
      non-cash consideration to be valued at the higher of the Closing Sale Price
      of
      such securities as of the Trading Day immediately prior to the consummation
      of
      such Fundamental Transaction, the Closing Sale Price on the Trading Day
      immediately following the public announcement of such proposed Fundamental
      Transaction and the Closing Sale Price on the Trading Day immediately prior
      to
      the public announcement of such proposed Fundamental Transaction) by (II) the
      Conversion Price plus (2) the amount of any accrued but unpaid Interest on
      such
      Conversion Amount being redeemed and accrued and unpaid Late Charges, if any,
      with respect to such Conversion Amount and Interest through the date of such
      redemption payment, (the “Fundamental
      Transaction Redemption Price”).
      Redemptions required by this Section 5
      shall be
      made in accordance with the provisions of Section 11
      and
      shall have priority to payments to stockholders in connection with a Fundamental
      Transaction. To the extent redemptions required by this Section 5(b)
      are
      deemed or determined by a court of competent jurisdiction to be prepayments
      of
      the Note by the Company, such redemptions shall be deemed to be voluntary
      prepayments. Notwithstanding anything to the contrary in this Section
5,
      but
      subject to Section 3(d),
      until
      the Fundamental Transaction Redemption Price (together with any interest
      thereon) is paid in full, the Conversion Amount submitted for redemption under
      this Section 5(b)
      (together with any interest thereon) may be converted, in whole or in part,
      by
      the Holder into Common Stock pursuant to Section 3.
      In the
      event of a partial redemption of this Note pursuant hereto, the Principal amount
      redeemed shall be deducted from the Installment Amount(s) relating to the
      applicable Installment Date(s) as set forth in the Fundamental Transaction
      Redemption Notice. The parties hereto agree that in the event of the Company’s
      redemption of any portion of the Note under this Section 5(b),
      the
      Holder’s damages would be uncertain and difficult to estimate because of the
      parties’ inability to predict future interest rates and the uncertainty of the
      availability of a suitable substitute investment opportunity for the Holder.
      Accordingly, any redemption premium due under this Section 5(b)
      is
      intended by the parties to be, and shall be deemed, a reasonable estimate of
      the
      Holder’s actual loss of its investment opportunity and not as a
      penalty.

     

    
      
        
        

      

      
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    6. RIGHTS
      UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

     

    (a) Purchase
      Rights.
      In
      addition to any adjustments pursuant to Section 7
      below,
      if at any time the Company grants, issues or sells any Options, Convertible
      Securities or rights to purchase stock, warrants, securities or other property
      pro rata to the record holders of any class of Common Stock (the “Purchase
      Rights”),
      then
      the Holder will be entitled to acquire, upon the terms applicable to such
      Purchase Rights, the aggregate Purchase Rights which the Holder could have
      acquired if the Holder had held the number of shares of Common Stock acquirable
      upon complete conversion of this Note (without taking into account any
      limitations or restrictions on the convertibility of this Note) immediately
      before the date on which a record is taken for the grant, issuance or sale
      of
      such Purchase Rights, or, if no such record is taken, the date as of which
      the
      record holders of Common Stock are to be determined for the grant, issue or
      sale
      of such Purchase Rights (provided, however, that to the extent that the Holder’s
      right to participate in any such Purchase Right would result in the Holder
      exceeding the Maximum Percentage, then the Holder shall not be entitled to
      participate in such Purchase Right to such extent (or beneficial ownership
      of
      such shares of Common Stock as a result of such Purchase Right to such extent)
      and such Purchase Right to such extent shall be held in abeyance for the Holder
      until such time, if ever, as its right thereto would not result in the Holder
      exceeding the Maximum Percentage).

     

    
      
        
        

      

      
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    (b) Other
      Corporate Events.
      In
      addition to and not in substitution for any other rights hereunder, prior to
      the
      consummation of any Fundamental Transaction pursuant to which holders of shares
      of Common Stock are entitled to receive securities or other assets with respect
      to or in exchange for shares of Common Stock (a “Corporate
      Event”),
      the
      Company shall make appropriate provision to insure that the Holder will
      thereafter have the right to receive upon a conversion of this Note (i) in
      addition to the shares of Common Stock receivable upon such conversion, such
      securities or other assets to which the Holder would have been entitled with
      respect to such shares of Common Stock had such shares of Common Stock been
      held
      by the Holder upon the consummation of such Corporate Event (without taking
      into
      account any limitations or restrictions on the convertibility of this Note)
      or
      (ii) in lieu of the shares of Common Stock otherwise receivable upon such
      conversion, such securities or other assets received by the holders of shares
      of
      Common Stock in connection with the consummation of such Corporate Event in
      such
      amounts as the Holder would have been entitled to receive had this Note
      initially been issued with conversion rights for the form of such consideration
      (as opposed to shares of Common Stock) at a conversion rate for such
      consideration commensurate with the Conversion Rate. The provisions of this
      Section shall apply similarly and equally to successive Corporate Events and
      shall be applied without regard to any limitations on the conversion or
      redemption of this Note.

     

    7. RIGHTS
      UPON ISSUANCE OF OTHER SECURITIES.

     

    (a) Adjustment
      of Conversion Price upon Issuance of Common Stock.
      If and
      whenever on or after the Subscription Date, the Company issues or sells, or
      in
      accordance with this Section 7(a)
      is
      deemed to have issued or sold, any shares
      of
Common
      Stock (including the issuance or sale of shares
      of
Common
      Stock owned or held by or for the account of the Company, but excluding any
      Excluded Securities (as defined in the Securities Purchase Agreement) issued
      or
      sold or deemed to have been issued or sold) for a consideration per share (the
      “New
      Issuance Price”)
      less
      than a price equal to the Conversion Price in effect immediately prior to such
      issue or sale or deemed issuance or sale (such lesser price being referred
      to as
      the “Applicable
      Price”)
      (the
      foregoing a “Dilutive
      Issuance”),
      then
      immediately after such Dilutive Issuance, the Conversion Price then in effect
      shall be reduced to an amount equal to the New Issuance Price. For purposes
      of
      determining the adjusted Conversion Price under this Section 7(a),
      the
      following shall be applicable:

     

    (i) Issuance
      of Options.
      If
      the
      Company in any manner grants or sells any Options and the lowest price per
      share
      for which one share of Common Stock is issuable upon the exercise of any such
      Option or upon conversion, exercise or exchange of any Convertible Securities
      issuable upon exercise of any such Option is less than the Applicable Price,
      then such share of Common Stock shall be deemed to be outstanding and to have
      been issued and sold by the Company at the time of the granting or sale of
      such
      Option for such price per share. For purposes of this Section 7(a)(i),
      the
“lowest price per share for which one share of Common Stock is issuable upon
      the
      exercise of any such Options or upon conversion, exercise or exchange of any
      Convertible Securities issuable upon exercise of any such Option” shall be equal
      to the sum of the lowest amounts of consideration (if any) received or
      receivable by the Company with respect to any one share of Common Stock upon
      the
      granting or sale of the Option, upon exercise of the Option and upon conversion,
      exercise or exchange of any Convertible Security issuable upon exercise of
      such
      Option. Except as contemplated below, no further adjustment of the Conversion
      Price shall be made upon the actual issuance of such share of Common Stock
      or of
      such Convertible Securities upon the exercise of such Options or upon the actual
      issuance of such share of Common Stock upon conversion, exercise or exchange
      of
      such Convertible Securities.

     

    
      
        
        

      

      
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    (ii) Issuance
      of Convertible Securities.
      If the
      Company in any manner issues or sells any Convertible Securities and the lowest
      price per share for which one share of Common Stock is issuable upon the
      conversion, exercise or exchange thereof is less than the Applicable Price,
      then
      such share of Common Stock shall be deemed to be outstanding and to have been
      issued and sold by the Company at the time of the issuance or sale of such
      Convertible Securities for such price per share. For the purposes of this
      Section 7(a)(ii),
      the
“lowest price per share for which one share of Common Stock is issuable upon
      the
      conversion, exercise or exchange thereof” shall be equal to the sum of the
      lowest amounts of consideration (if any) received or receivable by the Company
      with respect to one share of Common Stock upon the issuance or sale of the
      Convertible Security and upon conversion, exercise or exchange of such
      Convertible Security. Except as contemplated below, no further adjustment of
      the
      Conversion Price shall be made upon the actual issuance of such share of Common
      Stock upon conversion, exercise or exchange of such Convertible Securities,
      and
      if any such issue or sale of such Convertible Securities is made upon exercise
      of any Options for which adjustment of the Conversion Price has been or is
      to be
      made pursuant to other provisions of this Section 7(a),
      except
      as contemplated below, no further adjustment of the Conversion Price shall
      be
      made by
      reason
      of such issue or sale.

     

    (iii) Change
      in Option Price or Rate of Conversion.
      If the
      purchase or exercise price provided for in any Options, the additional
      consideration, if any, payable upon the issue, conversion, exercise or exchange
      of any Convertible Securities, or the rate at which any Convertible Securities
      are convertible into or exercisable or exchangeable for shares of Common Stock
      increases or decreases at any time, the Conversion Price in effect at the time
      of such increase or decrease shall be adjusted to the Conversion Price which
      would have been in effect at such time had such Options or Convertible
      Securities provided for such increased or decreased purchase price, additional
      consideration or increased or decreased conversion rate (as the case may be)
      at
      the time initially granted, issued or sold. For purposes of this Section
7(a)(iii),
      if the
      terms of any Option or Convertible Security that was outstanding as of the
      Subscription Date are increased or decreased in the manner described in the
      immediately preceding sentence, then such Option or Convertible Security and
      the
      shares of Common Stock deemed issuable upon exercise, conversion or exchange
      thereof shall be deemed to have been issued as of the date of such increase
      or
      decrease. No adjustment pursuant to this Section 7(a)
      shall be
      made if such adjustment would result in an increase of the Conversion Price
      then
      in effect.

     

    
      
        
        

      

      
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    (iv) Calculation
      of Consideration Received.
      In case
      any Option is issued in connection with the issue or sale of other securities
      of
      the Company, together comprising one integrated transaction in which no specific
      consideration is allocated to such Options by the parties thereto, the Options
      will be deemed to have been issued for a consideration of $0.01. If any shares
      of Common Stock, Options or Convertible Securities are issued or sold or deemed
      to have been issued or sold for cash, the consideration received therefor will
      be deemed to be the net amount received by the Company therefor. If any shares
      of Common Stock, Options or Convertible Securities are issued or sold for a
      consideration other than cash, the amount of such consideration received by
      the
      Company will be the fair value of such consideration, except where such
      consideration consists of publicly traded securities, in which case the amount
      of consideration received by the Company for such securities will be the average
      VWAP of such security for the five (5) Trading Day period immediately preceding
      the date of receipt. If any shares of Common Stock, Options or Convertible
      Securities are issued to the owners of the non-surviving entity in connection
      with any merger in which the Company is the surviving entity, the amount of
      consideration therefor will be deemed to be the fair value of such portion
      of
      the net assets and business of the non-surviving entity as is attributable
      to
      such shares of Common Stock, Options or Convertible Securities (as the case
      may
      be). The fair value of any consideration other than cash or publicly traded
      securities will be determined jointly by the Company and the Holder. If such
      parties are unable to reach agreement within ten (10) days after the occurrence
      of an event requiring valuation (the “Valuation
      Event”),
      the
      fair value of such consideration will be determined within five (5) Trading
      Days
      after the tenth (10th)
      day
      following such Valuation Event by an independent, reputable appraiser jointly
      selected by the Company and the Holder. The determination of such appraiser
      shall be final and binding upon all parties absent manifest error and the fees
      and expenses of such appraiser shall be borne by the Company.

     

    (v) Record
      Date.
      If the
      Company takes a record of the holders of shares of Common Stock for the purpose
      of entitling them (A) to receive a dividend or other distribution payable in
      Common Stock, Options or in Convertible Securities or (B) to subscribe for
      or
      purchase shares of Common Stock, Options or Convertible Securities, then such
      record date will be deemed to be the date of the issue or sale of the shares
      of
      Common Stock deemed to have been issued or sold upon the declaration of such
      dividend or the making of such other distribution or the date of the granting
      of
      such right of subscription or purchase (as the case may be).

     

    (b) Adjustment
      of Conversion Price upon Subdivision or Combination of Common
      Stock.
      If the
      Company at any time on or after the Subscription Date subdivides (by any stock
      split, stock dividend, recapitalization or otherwise) one or more classes of
      its
      outstanding shares of Common Stock into a greater number of shares, the
      Conversion Price in effect immediately prior to such subdivision will be
      proportionately reduced. If the Company at any time on or after the Subscription
      Date combines (by combination, reverse stock split or otherwise) one or more
      classes of its outstanding shares of Common Stock into a smaller number of
      shares, the Conversion Price in effect immediately prior to such combination
      will be proportionately increased. Any adjustment pursuant to this Section
      7(b)
      shall
      become effective immediately after the effective date of such subdivision or
      combination. If any event requiring an adjustment under this Section
7(b)
      occurs
      during the period that a Conversion Price is calculated hereunder, then the
      calculation of such Conversion Price shall be adjusted appropriately to reflect
      such event.

     

    
      
        
        

      

      
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    (c) Other
      Events.
      In the
      event that the Company (or any direct or indirect subsidiary thereof) shall
      take any action to which the provisions hereof are not strictly applicable,
      or,
      if applicable, would not operate to protect the Holder from dilution or if
      any
      event occurs of the type contemplated by the provisions of this Section
7
      but not
      expressly provided for by such provisions (including, without limitation, the
      granting of stock appreciation rights, phantom stock rights or other rights
      with
      equity features), then the Company’s Board of Directors shall in good faith
      determine and implement an appropriate adjustment in the Conversion Price so
      as
      to protect the rights of the Holder; provided that no such adjustment pursuant
      to this Section 7(c)
      will
      increase the Conversion Price as otherwise determined pursuant to this Section
      7,
      provided further that if the Holder does not accept such adjustments as
      appropriately protecting its interests hereunder against such dilution, then
      the
      Company’s Board of Directors and the Holder shall agree, in good faith, upon an
      independent investment bank of nationally recognized standing to make such
      appropriate adjustments, whose determination shall be final and binding and
      whose fees and expenses shall be borne by the Company.

     

    8. COMPANY
      INSTALLMENT CONVERSION OR REDEMPTION. 

     

    (a) General.
      On each
      applicable Installment Date, the Company shall pay to the Holder of this Note
      the Installment Amount due on such date by converting such Installment Amount,
      provided that there is not then an Equity Conditions Failure, in accordance
      with
      this Section 8
      (a
“Company
      Conversion”);
      provided, however, that the Company may, at its option as described below,
      pay
      all or any part of the Installment Amount by redeeming such Installment Amount
      in cash (a “Company
      Redemption”)
      or by
      any combination of a Company Conversion and a Company Redemption so long as
      all
      of the outstanding applicable Installment Amount due shall be converted and/or
      redeemed by the Company on the applicable Installment Date, subject to the
      provisions of this Section 8;
      provided further, however, that the Company shall not be entitled to pay any
      portion of the Installment Amount in shares of Common Stock pursuant to a
      Company Conversion and shall be required to pay such Installment Amount in
      cash
      pursuant to a Company Redemption if the average daily volume of the Common
      Stock
      on the Principal Market (as reported on Bloomberg) during the Company Conversion
      Measuring Period is less than 200,000 shares. Notwithstanding
      the foregoing, (i) the Company may not effect a Company Conversion of any
      Installment Amount under this Section 8
      in
      excess of the Holder Pro Rata Amount of the applicable Installment Volume
      Limitation and (ii) the Company may not effect a Company Conversion of any
      Installment Amount under this Section 8
      until
      Shareholder Approval is obtained.
      On or
      prior to the date which is the twenty first (21st)
      Trading
      Day prior to each Installment Date (each, an “Installment
      Notice Due Date”),
      the
      Company shall deliver written notice (each, a “Company
      Installment Notice”
and
      the
      date all of the holders receive such notice is referred to as to the
“Company
      Installment Notice Date”),
      to
      each holder of Notes which Company Installment Notice shall (i) either (A)
      confirm that the applicable Installment Amount of such holder’s Note shall be
      converted in whole pursuant to a Company Conversion or (B) (1) state that the
      Company elects to redeem, or is required to redeem in accordance with the
      provisions of the Notes, in whole or in part, the applicable Installment Amount
      pursuant to a Company Redemption and (2) specify the portion of the Installment
      Amount which the Company elects or is required to redeem pursuant to a Company
      Redemption (such amount to be redeemed, the “Company
      Redemption Amount”)
      and
      the portion of the Installment Amount, if any, that the Company elects to
      convert pursuant to a Company Conversion (such amount of the applicable
      Installment Amount so elected to be properly converted pursuant to this Section
      8
      is
      referred to herein as the “Company
      Conversion Amount”)
      which
      amounts when added together, must equal the entire applicable Installment Amount
      and (ii) if the Installment Amount is to be paid, in whole or in part, pursuant
      to a Company Conversion, certify that there is not then an Equity Conditions
      Failure as of the date of the Company Installment Notice. Each Company
      Installment Notice shall be irrevocable. If the Company does not timely deliver
      a Company Installment Notice in accordance with this Section 8,
      then
      the Company shall be deemed to have delivered an irrevocable Company Installment
      Notice confirming a Company Conversion and shall be deemed to have certified
      that there is not then an Equity Conditions Failure in connection with any
      such
      conversion. No later than two (2) Trading Days after delivery of a Company
      Installment Notice setting forth a Company Conversion Amount, the Company shall
      deliver to the Holder’s account with DTC such number of shares of Common Stock
      (the “Pre-Installment
      Conversion Shares”)
      equal
      to the quotient of (x) such Company Conversion Amount divided by (y) the
      Pre-Installment Conversion Price. Except as expressly provided in this Section
      8(a),
      the
      Company shall convert and/or redeem the applicable Installment Amount of this
      Note pursuant to this Section 8
      and the
      corresponding Installment Amounts of the Other Notes pursuant to the
      corresponding provisions of the Other Notes in the same ratio of the Installment
      Amount being converted and/or redeemed hereunder. The Company Conversion Amount
      (whether set forth in the Company Installment Notice or by operation of this
      Section 8)
      shall
      be converted in accordance with Section 8(b)
      and the
      Company Redemption Amount shall be redeemed in accordance with Section
8(c).

     

    
      
        
        

      

      
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    (b) Mechanics
      of Company Conversion.
      Subject
      to Section 3(d),
      if the
      Company delivers a Company Installment Notice and elects, or is deemed to have
      delivered a Company Installment Notice and deemed to have elected, in whole
      or
      in part, a Company Conversion in accordance with Section 8(a),
      then
      the applicable Company Conversion Amount, if any, which remains outstanding
      as
      of the applicable Installment Date shall be converted as of the applicable
      Installment Date by converting on such Installment Date such Company Conversion
      Amount at the Company Conversion Price; provided that the Equity Conditions
      are
      then satisfied (or waived in writing by the Holder) on such Installment Date,
      that the Holder Pro Rata Amount of the Installment Volume Limitation is not
      exceeded, Shareholder Approval has been obtained and the Company is not
      otherwise prohibited under any other provision of this Note from electing a
      Company Conversion. The number of shares of Common Stock to be delivered upon
      such Company Conversion shall be reduced by the amount of any Pre-Installment
      Conversion Shares delivered in connection with such Installment Date. If an
      Event of Default occurs during any applicable Installment Period, then either
      (i) the Holder shall return any Pre-Installment Conversion Shares delivered
      in
      connection with the applicable Installment Date or (ii) the Conversion Amount
      used to calculate the Event of Default Redemption Price shall be reduced by
      the
      product of (x) the Company Conversion Amount applicable to such Installment
      Date
      multiplied by (y) the Conversion Share Ratio (as defined below). If the Equity
      Conditions are not satisfied (or waived in writing by the Holder) on such
      Installment Date, the Holder Pro Rata Amount of the Installment Volume
      Limitation is exceeded, Shareholder Approval has not been obtained, or the
      Company is not otherwise permitted under any other provision of this Note from
      electing a Company Conversion, then at the option of the Holder designated
      in
      writing to the Company, the Holder may require the Company to do any one or
      more
      of the following: (i) the Company shall redeem all or any part designated by
      the
      Holder of the unconverted Company Conversion Amount (such designated amount
      is
      referred to as the “First
      Redemption Amount”)
      and
      the Company shall pay to the Holder within three (3) days of such Installment
      Date, by wire transfer of immediately available funds, an amount in cash equal
      to 120% of such First Redemption Amount, and/or (ii) the Company Conversion
      shall be null and void with respect to all or any part designated by the Holder
      of the unconverted Company Conversion Amount and the Holder shall be entitled
      to
      all the rights of a holder of this Note with respect to such amount of the
      Company Conversion Amount; provided, however, that the Conversion Price for
      such
      unconverted Company Conversion Amount shall thereafter be adjusted to equal
      the
      lesser of (A) the Company Conversion Price as in effect on the date on which
      the
      Holder voided the Company Conversion and (B) the Company Conversion Price as
      in
      effect on the date on which the Holder delivers a Conversion Notice relating
      thereto. In the event of an Equity Conditions Failure, either (I) the Holder
      shall return any Pre-Installment Conversion Shares delivered in connection
      with
      the applicable Installment Date or (II) any related First Redemption Amount
      shall be reduced by the product of (X) the Company Conversion Amount applicable
      to such Installment Date multiplied by (Y) the Conversion Share Ratio. If the
      Company fails to redeem any First Redemption Amount by the third (3rd)
      day
      following the applicable Installment Date by payment of such amount on the
      applicable Installment Date, then the Holder shall have the rights set forth
      in
      Section 11(a)
      as if
      the Company failed to pay the applicable Company Installment Redemption Price
      (as defined below) and all other rights under this Note (including, without
      limitation, such failure constituting an Event of Default described in Section
      4(a)(xv)).
      Notwithstanding anything to the contrary in this Section 8(b),
      but
      subject to 3(d),
      until
      the Company delivers Common Stock representing the Company Conversion Amount
      to
      the Holder, the Company Conversion Amount may be converted by the Holder into
      Common Stock pursuant to Section 3.
      In the
      event that the Holder elects to convert the Company Conversion Amount prior
      to
      the applicable Installment Date as set forth in the immediately preceding
      sentence, the Company Conversion Amount so converted shall be deducted from
      the
      Installment Amount(s) relating to the applicable Installment Date(s) as set
      forth in the applicable Conversion Notice.

     

    
      
        
        

      

      
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    (c) Mechanics
      of Company Redemption.
      If the
      Company elects, or is required to elect, a Company Redemption, in whole or
      in
      part, in accordance with Section 8(a),
      then
      the Company Redemption Amount, if any, which is to be paid to the Holder on
      the
      applicable Installment Date shall be redeemed by the Company on such Installment
      Date, and the Company shall pay to the Holder on such Installment Date, by
      wire
      transfer of immediately available funds, in an amount in cash (the “Company
      Installment Redemption Price”)
      equal
      to 100% of the Company Redemption Amount. If the Company fails to redeem the
      Company Redemption Amount on the applicable Installment Date by payment of
      the
      Company Installment Redemption Price on such date, then at the option of the
      Holder designated in writing to the Company (any such designation, “Conversion
      Notice”
for
      purposes of this Note), the Holder may require the Company to convert all or
      any
      part of the Company Redemption Amount at the Company Conversion Price.
      Conversions required by this Section 8(c)
      shall be
      made in accordance with the provisions of Section 3(c).
      Notwithstanding anything to the contrary in this Section 8(c),
      but
      subject to Section 3(d),
      until
      the Company Installment Redemption Price (together with any interest thereon)
      is
      paid in full, the Company Redemption Amount (together with any interest thereon)
      may be converted, in whole or in part, by the Holder into Common Stock pursuant
      to Section 3.
      In the
      event the Holder elects to convert all or any portion of the Company Redemption
      Amount prior to the applicable Installment Date as set forth in the immediately
      preceding sentence, the Company Redemption Amount so converted shall be deducted
      from the Installment Amounts relating to the applicable Installment Dates as
      set
      forth in the applicable Conversion Notice.

     

    
      
        
        

      

      
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    9. NONCIRCUMVENTION.
      The
      Company hereby covenants and agrees that the Company will not, by amendment
      of
      its Certificate of Incorporation, Bylaws or through any reorganization, transfer
      of assets, consolidation, merger, scheme of arrangement, dissolution, issue
      or
      sale of securities, or any other voluntary action, avoid or seek to avoid the
      observance or performance of any of the terms of this Note, and will at all
      times in good faith carry out all of the provisions of this Note and take all
      action as may be required to protect the rights of the Holder of this Note.
      Without limiting the generality of the foregoing, the Company (i) shall not
      increase the par value of any shares of Common Stock receivable upon conversion
      of this Note above the Conversion Price then in effect, (ii) shall take all
      such actions as may be necessary or appropriate in order that the Company may
      validly and legally issue fully paid and nonassessable shares of Common Stock
      upon the conversion of this Note, and (iii) shall, so long as any of the Notes
      are outstanding, take all action necessary to reserve and keep available out
      of
      its authorized and unissued shares of Common Stock, solely for the purpose
      of
      effecting the conversion of the Notes, the maximum number of shares of Common
      Stock as shall from time to time be necessary to effect the conversion of the
      Notes then outstanding (without regard to any limitations on
      conversion).

     

    10. RESERVATION
      OF AUTHORIZED SHARES.

     

    (a) Reservation.
      The
      Company shall initially reserve out of its authorized and unissued Common Stock
      a number of shares of Common Stock for each of the Notes equal to 120% of the
      entire Conversion Rate with respect to the entire Conversion Amount of each
      such
      Note as of the Issuance Date.
      So
      long as any of the Notes are outstanding, the Company shall take all action
      necessary to reserve and keep available out of its authorized and unissued
      Common Stock, solely for the purpose of effecting the conversion of the Notes,
      120% of the number of shares of Common Stock as shall from time to time be
      necessary to effect the conversion of all of the Notes then outstanding;
      provided that at no time shall the number of shares of Common Stock so reserved
      be less than the number of shares required to be reserved by the previous
      sentence (without regard to any limitations on conversions) (the “Required
      Reserve Amount”).
      The
      initial number of shares of Common Stock reserved for conversions of the Notes
      and each increase in the number of shares so reserved shall be allocated pro
      rata among the holders of the Notes based on the original principal amount
      of
      the Notes held by each holder at the Closing (as defined in the Securities
      Purchase Agreement) or increase in the number of reserved shares (as the case
      may be) (the “Authorized
      Share Allocation”).
      In
      the event that a holder shall sell or otherwise transfer any of such holder’s
      Notes, each transferee shall be allocated a pro rata portion of such holder’s
      Authorized Share Allocation. Any shares of Common Stock reserved and allocated
      to any Person which ceases to hold any Notes shall be allocated to the remaining
      holders of Notes, pro rata based on the principal amount of the Notes then
      held
      by such holders.

     

    
      
        
        

      

      
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    (b) Insufficient
      Authorized Shares.
      If,
      notwithstanding Section 10(a),
      and not
      in limitation thereof, at any time while any of the Notes remain outstanding
      the
      Company does not have a sufficient number of authorized and unreserved shares
      of
      Common Stock to satisfy its obligation to reserve for issuance upon conversion
      of the Notes at least a number of shares of Common Stock equal to the Required
      Reserve Amount (an “Authorized
      Share Failure”),
      then
      the Company shall immediately take all action necessary to increase the
      Company’s authorized shares of Common Stock to an amount sufficient to allow the
      Company to reserve the Required Reserve Amount for the Notes then outstanding.
      Without limiting the generality of the foregoing sentence, as soon as
      practicable after the date of the occurrence of an Authorized Share Failure,
      but
      in no event later than sixty (60) days after the occurrence of such Authorized
      Share Failure, the Company shall hold a meeting of its stockholders for the
      approval of an increase in the number of authorized shares of Common Stock.
      In
      connection with such meeting, the Company shall provide each stockholder with
      a
      proxy statement and shall use its best efforts to solicit its stockholders’
approval of such increase in authorized shares of Common Stock and to cause
      its
      board of directors to recommend to the stockholders that they approve such
      proposal.

     

    11. HOLDER’S
      REDEMPTIONS.

     

    (a) Mechanics.
      The
      Company shall deliver the applicable Event of Default Redemption Price to the
      Holder within five (5) Business Days after the Company’s receipt of the Holder’s
      Event of Default Redemption Notice. If the Holder has submitted a Fundamental
      Transaction Redemption Notice in accordance with Section 5(b),
      the
      Company shall deliver the applicable Fundamental Transaction Redemption Price
      to
      the Holder concurrently with the consummation of such Fundamental Transaction
      if
      such notice is received prior to the consummation of such Fundamental
      Transaction and within five (5) Business Days after the Company’s receipt of
      such notice otherwise. The Company shall deliver the applicable Company
      Installment Redemption Price to the Holder on the applicable Installment Date.
      In the event of a redemption of less than all of the Conversion Amount of this
      Note, the Company shall promptly cause to be issued and delivered to the Holder
      a new Note (in accordance with Section 18(d))
      representing the outstanding Principal which has not been redeemed. In the
      event
      that the Company does not pay the applicable Redemption Price to the Holder
      within the time period required, at any time thereafter and until the Company
      pays such unpaid Redemption Price in full, the Holder shall have the option,
      in
      lieu of redemption, to require the Company to promptly return to the Holder
      all
      or any portion of this Note representing the Conversion Amount that was
      submitted for redemption and for which the applicable Redemption Price (together
      with any Late Charges thereon) has not been paid. Upon the Company’s receipt of
      such notice, (x) the applicable Redemption Notice shall be null and void with
      respect to such Conversion Amount, (y) the Company shall immediately return
      this
      Note, or issue a new Note (in accordance with Section 18(d))
      to the
      Holder representing the sum of such Conversion Amount to be redeemed together
      with accrued and unpaid Interest with respect to such Conversion Amount and
      accrued and unpaid Late Charges with respect to such Conversion Amount and
      Interest and (z) after Shareholder Approval is obtained, the Conversion Price
      of
      this Note or such new Notes shall be adjusted to the lesser of (A) the
      Conversion Price as in effect on the date on which the applicable Redemption
      Notice is voided and (B) the lowest Closing Bid Price of the Common Stock during
      the period beginning on and including the date on which the applicable
      Redemption Notice is delivered to the Company and ending on and including the
      date on which the applicable Redemption Notice is voided. The Holder’s delivery
      of a notice voiding a Redemption Notice and exercise of its rights following
      such notice shall not affect the Company’s obligations to make any payments of
      Late Charges which have accrued prior to the date of such notice with respect
      to
      the Conversion Amount subject to such notice.

     

    
      
        
        

      

      
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    (b) Redemption
      by Other Holders.
      Upon
      the Company’s receipt of notice from any of the holders of the Other Notes for
      redemption or repayment as a result of an event or occurrence substantially
      similar to the events or occurrences described in Section 4(b)
      or
      Section 5(b)
      (each,
      an “Other
      Redemption Notice”),
      the
      Company shall immediately, but no later than one (1) Business Day of its receipt
      thereof, forward to the Holder by facsimile a copy of such notice. If the
      Company receives a Redemption Notice and one or more Other Redemption Notices,
      during the seven (7) Business Day period beginning on and including the date
      which is three (3) Business Days prior to the Company’s receipt of the Holder’s
      applicable Redemption Notice and ending on and including the date which is
      three
      (3) Business Days after the Company’s receipt of the Holder’s applicable
      Redemption Notice and the Company is unable to redeem all principal, interest
      and other amounts designated in such Redemption Notice and such Other Redemption
      Notices received during such seven (7) Business Day period, then the Company
      shall redeem a pro rata amount from each holder of the Notes (including the
      Holder) based on the principal amount of the Notes submitted for redemption
      pursuant to such Redemption Notice and such Other Redemption Notices received
      by
      the Company during such seven (7) Business Day period.

     

    12. VOTING
      RIGHTS.
      The
      Holder shall have no voting rights as the holder of this Note, except as
      required by law, including, without limitation, the General Corporation Law
      of
      the State of Delaware, and as expressly provided in this Note.

     

    13. COVENANTS.

     

    (a) Rank. All
      payments due under this Note (a) shall rank pari
      passu
      with all
      Other Notes and (b) shall be senior to all other Indebtedness of the Company
      and
      its Subsidiaries other than the Permitted Senior Indebtedness.

     

    (b) Incurrence
      of Indebtedness.
      So long
      as this Note is outstanding, the Company shall not, and the Company shall not
      permit any of its Subsidiaries to, directly or indirectly, incur or guarantee,
      assume or suffer to exist any Indebtedness, other than (i) the Indebtedness
      evidenced by this Note and the Other Notes and (ii) Permitted
      Indebtedness.

     

    
      
        
        

      

      
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    (c) Existence
      of Liens.
      So long
      as this Note is outstanding, the Company shall not, and the Company shall not
      permit any of its Subsidiaries to, directly or indirectly, allow or suffer
      to
      exist any mortgage, lien, pledge, charge, security interest or other encumbrance
      upon or in any property or assets (including accounts and contract rights)
      owned
      by the Company or any of its Subsidiaries (collectively, “Liens”)
      other
      than Permitted Liens.

     

    (d) Restricted
      Payments.
      The
      Company shall not, and the Company shall not permit any of its Subsidiaries
      to,
      directly or indirectly, redeem, defease, repurchase, repay or make any payments
      in respect of, by the payment of cash or cash equivalents (in whole or in part,
      whether by way of open market purchases, tender offers, private transactions
      or
      otherwise), all or any portion of any Indebtedness (other than Permitted Senior
      Indebtedness), whether by way of payment in respect of principal of (or premium,
      if any) or interest on, such Indebtedness if at the time such payment is due
      or
      is otherwise made or, after giving effect to such payment, (i) an event
      constituting an Event of Default has occurred and is continuing or (ii) an
      event
      that with the passage of time and without being cured would constitute an Event
      of Default has occurred and is continuing.

     

    (e) Restriction
      on Redemption and Cash Dividends.
      Until
      all of the Notes have been converted, redeemed or otherwise satisfied in
      accordance with their terms, the Company shall not, directly or indirectly,
      redeem, repurchase or declare or pay any cash dividend or distribution on its
      capital stock without the prior express written consent of the
      Holder.

     

    (f) Net
      Cash Balance Test.
      The
      Company shall maintain a Net Cash Balance in excess of the applicable Reserved
      Amount (the “Net
      Cash Balance Test”).
      If
      the Company fails (a “Failure
      Date”)
      to
      satisfy the Net Cash Balance Test, the Company promptly shall provide to the
      Holder a certification, executed on behalf of the Company by the Chief Financial
      Officer of the Company, as to the amount of the Net Cash Balance as of the
      Failure Date, and immediately publicly disclose (on a Current Report on Form
      8-K
      or otherwise) such material non-public information (the date of such
      certification and public announcement, the “Disclosure
      Date”).

     

    (g) Restriction
      on Transfer of Assets.
      The
      Company shall not, and shall cause each Subsidiary to not, sell, lease, convey
      or otherwise dispose of any assets or rights of the Company or any Subsidiary
      owned or hereafter acquired whether in a single transaction or a series of
      related transactions, other than (i) sales, leases, conveyances and other
      dispositions of such assets or rights by the Company and its Subsidiaries that,
      in the aggregate, do not have a fair market value in excess of $250,000 in
      any
      twelve (12) month period and (ii) sales of inventory in the ordinary course
      of
      business.

     

    (h) Maturity
      of Indebtedness.
      The
      Company shall not permit any Indebtedness of the Company or any of the
      Subsidiaries to mature or accelerate prior to the Maturity Date, other than
      Permitted Senior Indebtedness.

     

    
      
        
        

      

      
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    (i) New
      Subsidiaries.
      Simultaneously with the acquisition or formation of each New Subsidiary, the
      Company shall cause such New Subsidiary to execute, and deliver to each holder
      of Notes, all Security Documents (as defined in the Securities Purchase
      Agreement) required to be executed by each of the Current Subsidiaries on the
      Closing Date.

     

    14. SECURITY.
      This
      Note and the Other Notes are secured to the extent and in the manner set forth
      in the Transaction Documents (including, without limitation, the Security
      Documents and the Guaranties (as defined in the Securities Purchase
      Agreement)).

     

    15. PARTICIPATION.
      The
      Holder, as the holder of this Note, shall be entitled to receive such dividends
      paid and distributions made to the holders of Common Stock to the same extent
      as
      if the Holder had converted this Note into Common Stock (without regard to
      any
      limitations on conversion herein or elsewhere) and had held such shares of
      Common Stock on the record date for such dividends and distributions. Payments
      under the preceding sentence shall be made concurrently with the dividend or
      distribution to the holders of Common Stock (provided, however, that to the
      extent that the Holder’s right to participate in any such dividend or
      distribution would result in the Holder exceeding the Maximum Percentage, then
      the Holder shall not be entitled to participate in such dividend or distribution
      to such extent (or the beneficial ownership of any such shares of Common Stock
      as a result of such dividend or distribution to such extent) and such dividend
      or distribution to such extent shall be held in abeyance for the benefit of
      the
      Holder until such time, if ever, as its right thereto would not result in the
      Holder exceeding the Maximum Percentage).

     

    16. AMENDING
      THE TERMS OF NOTES.
      The
      prior written consent of the Holder shall be required for any change or
      amendment to this Note. No
      consideration shall be offered or paid to the Holder to amend or consent to
      a
      waiver or modification of any provision of this Note unless the same
      consideration is also offered to all of the holders of the Other Notes.
The
      Holder shall be entitled, at its option, to the benefit of any amendment to
      any
      of the Other Notes.

     

    17. TRANSFER.
      This
      Note and any shares of Common Stock issued upon conversion of this Note may
      be
      offered, sold, assigned or transferred by the Holder without the consent of
      the
      Company, subject only to the provisions of Section 2(g) of the Securities
      Purchase Agreement.

     

    18. REISSUANCE
      OF THIS NOTE.

     

    (a) Transfer.
      If this
      Note is to be transferred, the Holder shall surrender this Note to the Company,
      whereupon the Company will forthwith issue and deliver upon the order of the
      Holder a new Note (in accordance with Section 18(d)),
      registered as the Holder may request, representing the outstanding Principal
      being transferred by the Holder and, if less than the entire outstanding
      Principal is being transferred, a new Note (in accordance with Section
18(d))
      to the
      Holder representing the outstanding Principal not being transferred. The Holder
      and any assignee, by acceptance of this Note, acknowledge and agree that, by
      reason of the provisions of Section 3(c)(iii)
      following conversion or redemption of any portion of this Note, the outstanding
      Principal represented by this Note may be less than the Principal stated on
      the
      face of this Note.

     

    
      
        
        

      

      
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    (b) Lost,
      Stolen or Mutilated Note.
      Upon
      receipt by the Company of evidence reasonably satisfactory to the Company of
      the
      loss, theft, destruction or mutilation of this Note (as to which a written
      certification and the indemnification contemplated below shall suffice as such
      evidence), and, in the case of loss, theft or destruction, of any
      indemnification undertaking by the Holder to the Company in customary and
      reasonable form and, in the case of mutilation, upon surrender and cancellation
      of this Note, the Company shall execute and deliver to the Holder a new Note
      (in
      accordance with Section 18(d))
      representing the outstanding Principal.

     

    (c) Note
      Exchangeable for Different Denominations.
      This
      Note is exchangeable, upon the surrender hereof by the Holder at the principal
      office of the Company, for a new Note or Notes (in accordance with Section
      18(d)
      and in
      principal amounts of at least $100,000) representing in the aggregate the
      outstanding Principal of this Note, and each such new Note will represent such
      portion of such outstanding Principal as is designated by the Holder at the
      time
      of such surrender.

     

    (d) Issuance
      of New Notes.
      Whenever the Company is required to issue a new Note pursuant to the terms
      of
      this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall
      represent, as indicated on the face of such new Note, the Principal remaining
      outstanding (or in the case of a new Note being issued pursuant to Section
      18(a)
      or
      Section 18(c),
      the
      Principal designated by the Holder which, when added to the principal
      represented by the other new Notes issued in connection with such issuance,
      does
      not exceed the Principal remaining outstanding under this Note immediately
      prior
      to such issuance of new Notes), (iii) shall have an issuance date, as indicated
      on the face of such new Note, which is the same as the Issuance Date of this
      Note, (iv) shall have the same rights and conditions as this Note, and (v)
      shall
      represent accrued and unpaid Interest and Late Charges on the Principal and
      Interest of this Note, from the Issuance Date.

     

    19. 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 and any of the other Transaction Documents
      at
      law or in equity (including a decree of specific performance and/or other
      injunctive relief), and nothing herein shall limit the Holder’s right to pursue
      actual and consequential damages for any failure by the Company to comply with
      the terms of this Note. The Company covenants to the Holder that there shall
      be
      no characterization concerning this instrument other than as expressly provided
      herein. 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 and shall not, except as expressly provided herein,
      be
      subject to any other obligation of the Company (or the performance thereof).
      The
      Company acknowledges that a breach by it of its obligations hereunder will
      cause
      irreparable harm to the Holder and that the remedy at law for any such breach
      may be inadequate. The Company therefore agrees that, in the event of any such
      breach or threatened breach, the Holder shall be entitled, in addition to all
      other available remedies, to an injunction restraining any breach, without
      the
      necessity of showing economic loss and without any bond or other security being
      required.

     

    
      
        
        

      

      
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    20. PAYMENT
      OF COLLECTION, ENFORCEMENT AND OTHER COSTS.
      If (a)
      this Note is placed in the hands of an attorney for collection or enforcement
      or
      is collected or enforced through any legal proceeding or the Holder otherwise
      takes action to collect amounts due under this Note or to enforce the provisions
      of this Note or (b) there occurs any bankruptcy, reorganization, receivership
      of
      the Company or other proceedings affecting Company creditors’ rights and
      involving a claim under this Note, then the Company shall pay the costs incurred
      by the Holder for such collection, enforcement or action or in connection with
      such bankruptcy, reorganization, receivership or other proceeding, including,
      without limitation, attorneys’ fees and disbursements.

     

    21. CONSTRUCTION;
      HEADINGS.
      This
      Note shall be deemed to be jointly drafted by the Company and the Holder and
      shall not be construed against any Person as the drafter hereof. The headings
      of
      this Note are for convenience of reference and shall not form part of, or affect
      the interpretation of, this Note. Terms used in this Note but defined in the
      other Transaction Documents shall have the meanings ascribed to such terms
      on
      the Closing Date in such other Transaction Documents unless otherwise consented
      to in writing by the Holder.

     

    22. 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. No waiver
      shall be effective unless it is in writing and signed by an authorized
      representative of the waiving party.

     

    23. DISPUTE
      RESOLUTION.
      In the
      case of a dispute as to the determination of the Closing Bid Price, the Closing
      Sale Price or the fair market value or the arithmetic calculation of the
      Conversion Rate or any Redemption Price, the Company or the Holder (as the
      case
      may be) shall submit the disputed determinations or arithmetic calculations
      (as
      the case may be) via facsimile within two (2) Business Days of receipt, or
      deemed receipt, of the applicable notice or other event giving rise to such
      dispute (as the case may be) to the Company or the Holder (as the case may
      be).
      If the Holder and the Company are unable to agree upon such determination or
      calculation within two (2) Business Days of such disputed determination or
      arithmetic calculation being submitted to the Company or the Holder (as the
      case
      may be), then the Company shall, within two (2) Business Days submit via
      facsimile (a) the disputed determination of the Closing Bid Price, the Closing
      Sale Price or fair market value (as the case may be) to an independent,
      reputable investment bank selected by the Company and approved by the Holder
      or
      (b) the disputed arithmetic calculation of the Conversion Rate or any Redemption
      Price (as the case may be) to the Company’s independent, outside accountant. The
      Company shall cause at its expense the investment bank or the accountant (as
      the
      case may be) to perform the determinations or calculations (as the case may
      be)
      and notify the Company and the Holder of the results no later than ten (10)
      Business Days from the time it receives such disputed determinations or
      calculations (as the case may be). Such investment bank’s or accountant’s
      determination or calculation (as the case may be) shall be binding upon all
      parties absent demonstrable error.

     

    
      
        
        

      

      
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    24. NOTICES;
      PAYMENTS.

     

    (a) Notices.
      Whenever notice is required to be given under this Note, unless otherwise
      provided herein, such notice shall be given in accordance with Section 9(f)
      of
      the Securities Purchase Agreement. The Company shall provide the Holder with
      prompt written notice of all actions taken pursuant to this Note, including
      in
      reasonable detail a description of such action and the reason therefore. Without
      limiting the generality of the foregoing, the Company will give written notice
      to the Holder (i) immediately upon any adjustment of the Conversion Price,
      setting forth in reasonable detail, and certifying, the calculation of such
      adjustment and (ii) at least fifteen (15) days prior to the date on which the
      Company closes its books or takes a record (A) with respect to any dividend
      or
      distribution upon the Common Stock, (B) with respect to any grant, issuances,
      or
      sales of any Options, Convertible Securities or rights to purchase stock,
      warrants, securities or other property to holders of shares of Common Stock
      or
      (C) for determining rights to vote with respect to any Fundamental Transaction,
      dissolution or liquidation, provided in each case that such information shall
      be
      made known to the public prior to or in conjunction with such notice being
      provided to the Holder.

     

    (b) Payments.
      Whenever any payment of cash is to be made by the Company to any Person pursuant
      to this Note, such payment shall be made in lawful money of the United States
      of
      America by a check drawn on the account of the Company and sent via overnight
      courier service to such Person at such address as previously provided to the
      Company in writing (which address, in the case of each of the Buyers, shall
      initially be as set forth on the Schedule of Buyers attached to the Securities
      Purchase Agreement); provided that the Holder may elect to receive a payment
      of
      cash via wire transfer of immediately available funds by providing the Company
      with prior written notice setting out such request and the Holder’s wire
      transfer instructions. Whenever any amount expressed to be due by the terms
      of
      this Note is due on any day which is not a Business Day, the same shall instead
      be due on the next succeeding day which is a Business Day and, in the case
      of
      any Interest Date which is not the date on which this Note is paid in full,
      the
      extension of the due date thereof shall not be taken into account for purposes
      of determining the amount of Interest due on such date. Any amount of Principal
      or other amounts due under the Transaction Documents which is not paid when
      due
      shall result in a late charge being incurred and payable by the Company in
      an
      amount equal to interest on such amount at the rate of eighteen percent (18%)
      per annum from the date such amount was due until the same is paid in full
      (“Late
      Charge”).

     

    25. CANCELLATION.
      After
      all Principal, accrued Interest and other amounts at any time owed on this
      Note
      have been paid in full, this Note shall automatically be deemed canceled, shall
      be surrendered to the Company for cancellation and shall not be
      reissued.

     

    26. WAIVER
      OF NOTICE.
      To the
      extent permitted by law, the Company hereby irrevocably waives demand, notice,
      presentment, protest and all other demands and notices in connection with the
      delivery, acceptance, performance, default or enforcement of this Note and
      the
      Securities Purchase Agreement.

     

    
      
        
        

      

      
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    27. GOVERNING
      LAW.
      This
      Note shall be construed and enforced in accordance with, and all questions
      concerning the construction, validity, interpretation and performance of this
      Note shall be governed by, the internal laws of the State of New York, without
      giving effect to any choice of law or conflict of law provision or rule (whether
      of the State of New York or any other jurisdictions) that would cause the
      application of the laws of any jurisdictions other than the State of New York.
      The Company hereby irrevocably submits to the exclusive jurisdiction of the
      state and federal courts sitting in The City of New York, Borough of Manhattan,
      for the adjudication of any dispute hereunder or in connection herewith or
      with
      any transaction contemplated hereby or discussed herein, and hereby irrevocably
      waives, and agrees not to assert in any suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is brought in an inconvenient forum or that
      the
      venue of such suit, action or proceeding is improper. Nothing contained herein
      shall be deemed to limit in any way any right to serve process in any manner
      permitted by law. In the event that any provision of this Note is invalid or
      unenforceable under any applicable statute or rule of law, then such provision
      shall be deemed inoperative to the extent that it may conflict therewith and
      shall be deemed modified to conform with such statute or rule of law. Any such
      provision which may prove invalid or unenforceable under any law shall not
      affect the validity or enforceability of any other provision of this Note.
      Nothing contained herein shall be deemed or operate to preclude the Holder
      from
      bringing suit or taking other legal action against the Company in any other
      jurisdiction to collect on the Company’s obligations to the Holder, to realize
      on any collateral or any other security for such obligations, or to enforce
      a
      judgment or other court ruling in favor of the Holder. THE
      COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
      REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
      CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED
      HEREBY.

     

    28. CERTAIN
      DEFINITIONS.
      For
      purposes of this Note, the following terms shall have the following
      meanings:

     

    (a) “Bloomberg”
means
      Bloomberg Financial Markets.

     

    (b) “Business
      Day”
means
      any day other than Saturday, Sunday or other day on which commercial banks
      in
      The City of New York are authorized or required by law to remain
      closed.

     

    (c) “Closing
      Bid Price”
and
      “Closing
      Sale Price”
means,
      for any security as of any date, the last closing bid price and last closing
      trade price, respectively, for such security on the Principal Market, as
      reported by Bloomberg, or, if the Principal Market begins to operate on an
      extended hours basis and does not designate the closing bid price or the closing
      trade price (as the case may be) then the last bid price or last trade price,
      respectively, of such security prior to 4:00:00 p.m., New York time, as reported
      by Bloomberg, or, if the Principal Market is not the principal securities
      exchange or trading market for such security, the last closing bid price or
      last
      trade price, respectively, of such security on the principal securities exchange
      or trading market where such security is listed or traded as reported by
      Bloomberg, or if the foregoing do not apply, the last closing bid price or
      last
      trade price, respectively, of such security in the over-the-counter market
      on
      the electronic bulletin board for such security as reported by Bloomberg, or,
      if
      no closing bid price or last trade price, respectively, is reported for such
      security by Bloomberg, the average of the bid prices, or the ask prices,
      respectively, of any market makers for such security as reported in the “pink
      sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If
      the Closing Bid Price or the Closing Sale Price cannot be calculated for a
      security on a particular date on any of the foregoing bases, the Closing Bid
      Price or the Closing Sale Price (as the case may be) of such security on such
      date shall be the fair market value as mutually determined by the Company and
      the Holder. If the Company and the Holder are unable to agree upon the fair
      market value of such security, then such dispute shall be resolved in accordance
      with the procedures in Section 23.
      All
      such determinations shall be appropriately adjusted for any stock dividend,
      stock split, stock combination or other similar transaction during such
      period.

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    (d) “Closing
      Date”
shall
      have the meaning set forth in the Securities Purchase Agreement, which date
      is
      the date the Company initially issued Notes pursuant to the terms of the
      Securities Purchase Agreement.

     

    (e) “Common
      Stock”
means
      (i) the Company’s shares of common stock, $0.001 par value per share, and
      (ii) any capital stock into which such common stock shall have been changed
      or
      any share capital resulting from a reclassification of such common
      stock.

     

    (f) “Company
      Conversion Price”
means
      the lower of (i) the then applicable Conversion Price and (ii) the price which
      shall be computed as 90% of the arithmetic average of the VWAP of the Common
      Stock on each of the twenty (20) consecutive Trading Days immediately preceding
      the applicable Installment Date (each such period, a “Company
      Conversion Measuring Period”).
      All
      such determinations to be appropriately adjusted for any stock split, stock
      dividend, stock combination or other similar transaction during such Company
      Conversion Measuring Period.

     

    (g) “Conversion
      Share Ratio”
      means as
      to any applicable Installment Date, the quotient of (i) the number of
      Pre-Installment Conversion Shares delivered in connection with such Installment
      Date divided by (ii) the number of Post-Installment Conversion Shares applicable
      to such Installment Date.

     

    (h) “Convertible
      Securities”
means
      any stock or securities (other than Options) directly or indirectly convertible
      into or exercisable or exchangeable for shares of Common Stock.

     

    (i) “Current
      Subsidiaries”
means,
      collectively, Generex Pharmaceuticals Inc., an Ontario corporation, Generex
      (Bermuda), Inc., a corporation existing pursuant to the Bermuda Companies Act,
      Antigen Express, Inc., a Delaware corporation, Generex Pharmaceuticals (USA)
      LLC, a North Carolina limited liability company, Generex Marketing &
Distribution Inc., an Ontario corporation, and 1097346 Ontario Inc., an Ontario
      corporation, and each of the foregoing, individually, a “Current
      Subsidiary.”
      

     

    (j) “Eligible
      Market”
means
      the Principal Market, The New York Stock Exchange, Inc., the Nasdaq Global
      Select Market or the Nasdaq Global Market.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    (k) “Equity
      Conditions”
means:
      (i) on each day during the period beginning one month prior to the applicable
      date of determination and ending on and including the applicable date of
      determination either
      (x) the applicable Registration Statement filed pursuant to the Registration
      Rights Agreement shall be effective and the prospectus contained therein shall
      be available for the resale of all of the Registrable Securities (which, solely
      for clarification purposes, includes all shares
      of
      Common Stock issuable upon conversion of this Note, including, without
      limitation, under Sections 3
      and
8)
      in
      accordance with the terms of the Registration Rights Agreement and
      there
      shall not have been during such period any Grace Periods (as
      defined in the Registration Rights Agreement) or
      (y)
      all Registrable Securities shall be eligible for sale without restriction and
      without the need for registration under any applicable federal or state
      securities laws (in each case, disregarding any limitation on conversion or
      exercise);
      (ii) on
      each day during the period beginning three months prior to the applicable date
      of determination and ending on and including the applicable date of
      determination (the “Equity
      Conditions Measuring Period”),
      the
      shares of Common Stock (including all Registrable Securities)
      are
      listed or designated for quotation on an Eligible Market and shall not have
      been
      suspended from trading on an Eligible Market (other than suspensions of not
      more
      than two (2) days and occurring prior to the applicable date of determination
      due to business announcements by the Company) nor shall delisting or suspension
      by an Eligible Market have been threatened (with a reasonable prospect of
      delisting occurring) or pending either (A) in writing by such Eligible Market
      or
      (B) by falling below the minimum listing maintenance requirements of the
      Eligible Market on which the shares of Common Stock are then listed; (iii)
      on
      each day during the Equity Conditions Measuring Period, the Company shall have
      delivered all shares of Common Stock issuable upon conversion of this Note
      on a
      timely basis as set forth in Section 3
      hereof
      and all other shares of capital stock required to be delivered by the Company
      on
      a timely basis as set forth in the other Transaction Documents; (iv) any shares
      of Common Stock to be issued in connection with the event requiring
      determination may be issued in full without violating Section 3(d)
      hereof
      or the rules or regulations of the Eligible Market on which the Common Stock
      is
      then listed; (v) on each day during the Equity Conditions Measuring Period,
      no
      public announcement of a pending, proposed or intended Fundamental Transaction
      shall have occurred which has not been abandoned, terminated or consummated;
      (vi)
      the
      Company shall have no knowledge of any fact that would reasonably be expected
      to
      cause (1) the applicable Registration Statement required to be filed pursuant
      to
      the Registration Rights Agreement not to be effective or the prospectus
      contained therein not to be available for the resale of at least all of the
      Registrable Securities in accordance with the terms of the Registration Rights
      Agreement or (2) any Registrable Securities not to be eligible for sale without
      restriction pursuant to Rule 144 under the 1933 Act and any applicable state
      securities laws (in each case, disregarding any limitation on conversion or
      exercise); (vii) the Holder shall not be in (and no other Buyer shall be in)
      possession of any material, non-public information provided to any of them
      by
      the Company or any of its affiliates, other than as expressly contemplated
      by
      Section 4(i) of the Securities Purchase Agreement; (viii) on
      each
      day during the Equity Conditions Measuring Period, the Company otherwise shall
      have been in compliance with and shall not have breached any provision,
      covenant, representation or warranty of any Transaction Document; and (ix)
      on
      each day during the Equity Conditions Measuring Period, there shall not have
      occurred an Event of Default or an event that with the passage of time or giving
      of notice would constitute an Event of Default.

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    (l) “Equity
      Conditions Failure”
means
      that on any day during the period commencing ten (10) Trading Days prior to
      the
      applicable Company Installment Notice Date through the later of the applicable
      Installment Date and the date on which the applicable shares of Common Stock
      are
      actually delivered to the Holder, the Equity Conditions have not been satisfied
      (or waived in writing by the Holder).

     

    (m) “Equity
      Value Redemption Premium”
means
      135%.

     

    (n) “Fundamental
      Transaction”
means
      that the Company shall, directly or indirectly, in one or more related
      transactions, (i) consolidate or merge with or into (whether or not the Company
      is the surviving corporation) another Person, or (ii) sell, assign, transfer,
      convey or otherwise dispose of all or substantially all of the properties or
      assets of the Company to another Person, or (iii) allow another Person to make
      a
      purchase, tender or exchange offer that is accepted by the holders of more
      than
      50% of the outstanding shares of Common Stock (not including any shares of
      Common Stock held by the Person or Persons making or party to, or associated
      or
      affiliated with the Persons making or party to, such purchase, tender or
      exchange offer), or (iv) consummate a stock purchase agreement or other business
      combination (including, without limitation, a reorganization, recapitalization,
      spin-off or scheme of arrangement) with another Person whereby such other Person
      acquires more than the 50% of the outstanding shares of Common Stock (not
      including any shares of Common Stock held by the other Person or other Persons
      making or party to, or associated or affiliated with the other Persons making
      or
      party to, such stock purchase agreement or other business combination), or
      (v)
      reorganize, recapitalize or reclassify its Common Stock, or (vi) any “person” or
“group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the
      Exchange Act) is or shall become the “beneficial owner” (as defined in Rule
      13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate
      ordinary voting power represented by issued and outstanding Common
      Stock.

     

    (o) “Fundamental
      Transaction Redemption Premium”
means
      150%.

     

    (p) “GAAP”
means
      United States generally accepted accounting principles, consistently
      applied.

     

    (q) “Holder
      Pro Rata Amount”
means
      a
      fraction (i) the numerator of which is the original Principal amount of this
      Note on the Closing Date and (ii) the denominator of which is the aggregate
      original principal amount of all Notes issued to the initial purchasers pursuant
      to the Securities Purchase Agreement on the Closing Date.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    (r) “Installment
      Amount”
means,
      with respect to any Installment Date, the lesser of (A) the product of (i)
      $1,376,666.67, multiplied
      by (ii)
      Holder Pro Rata Amount and (B) the Principal amount under this Note as of such
      Installment Date, as any such Installment Amount may be reduced pursuant to
      the
      terms of this Note, whether upon conversion, redemption or otherwise, together
      with, in each case, the sum of any accrued and unpaid Interest as of such
      Installment Date under this Note (if such Installment Date is also an Interest
      Date) and accrued and unpaid Late Charges, if any, under this Note as of such
      Installment Date. In the event the Holder shall sell or otherwise transfer
      any
      portion of this Note, the transferee shall be allocated a pro rata portion
      of
      the each unpaid Installment Amount hereunder.

     

    (s) “Installment
      Date”
means
      each of the following dates: (i) August 1, 2008, (ii) September 1, 2008, (iii)
      October 1, 2008, (iv) November 1, 2008, (v) December 1, 2008, (vi) January
      1,
      2009, (vii) February 1, 2009, (viii) March 1, 2009, (ix) April 1, 2009, (x)
      May
      1, 2009, (xi) June 1, 2009, (xii) July 1, 2009, (xiii) August 1, 2009, (xv)
      September 1, 2009 and (xv) the Maturity Date.

     

    (t) “Installment
      Volume Limitation”
means
      25% of the aggregate dollar trading volume (as reported on Bloomberg) of the
      Common Stock on the Principal Market over the twenty (20) consecutive Trading
      Day period ending on the Trading Day immediately preceding the applicable
      Installment Notice Date.

     

    (u) “Interest Rate”
means
      eight percent (8%) per annum.

     

    (v) “Material
      Subsidiaries”
means,
      collectively, Generex Pharmaceuticals, Inc., Antigen Express, Inc. and any
      other
      Subsidiary which has, as of any date of determination, at least $250,000 in
      revenues, $250,000 in assets or owns, leases or licenses any assets or rights
      of
      any kind or nature, or provides any services of any kind or nature, that
      are material to the business, operations (including results thereof),
      properties, condition (including financial condition) or prospects of the
      Company or any of its Subsidiaries, either individually or in the aggregate,
      and
      each of the foregoing, individually, a “Material Subsidiary.”

     

    (w) “Maturity Date”
shall
      mean September 30, 2009; provided,
      however,
      that
      the Maturity Date may be extended at the option of the Holder (i) in the event
      that, and for so long as, an Event of Default shall have occurred and be
      continuing or any event shall have occurred and be continuing that with the
      passage of time and the failure to cure would result in an Event of Default
      or
      (ii) through the date that is twenty (20) Business Days after the consummation
      of a Fundamental Transaction in the event that a Fundamental Transaction is
      publicly announced or a Fundamental Transaction Notice is delivered prior to
      the
      Maturity Date; provided,
      further,
      that if
      a Holder elects to convert some or all of this Note pursuant to Section
3
      hereof,
      and the Conversion Amount would be limited pursuant to Section 3(d)
      hereunder, the Maturity Date shall automatically be extended until such time
      as
      such provision shall not limit the conversion of this Note.

     

    (x) “Net
      Cash Balance”
means,
      at any date, (i) an amount equal to the aggregate amount of cash, cash
      equivalents (but not including any restricted cash) and marketable securities,
      consisting of corporate bonds, commercial paper and medium-term notes, as shown
      or reflected in the notes to the Company’s consolidated balance sheet as at such
      date minus
      (ii) all
      Indebtedness of the Company and its Subsidiaries (including,
      for
      purposes of this clause (ii),
      trade
      payables but excluding,
      for purposes of this clause (ii),
      Indebtedness under the Notes).

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    (y) “New
      Subsidiaries”
means,
      as of any date of determination, any Person (i) in which the Company after
      the
      Subscription Date, directly or indirectly, owns or acquires any of the
      outstanding capital stock or holds any equity or similar interest of such Person
      or (ii) in which the Company after the Subscription Date, directly or
      indirectly, controls or operates all or any part of the business, operations
      or
      administration of such Person, and each of the foregoing, individually, a
“New
      Subsidiary.”

     

    (z) “Options”
means
      any rights, warrants or options to subscribe for or purchase shares of Common
      Stock or Convertible Securities.

     

    (aa) “Parent
      Entity”
of
      a
      Person means an entity that, directly or indirectly, controls the applicable
      Person and whose common stock or equivalent equity security is quoted or listed
      on an Eligible Market, or, if there is more than one such Person or Parent
      Entity, the Person or Parent Entity with the largest public market
      capitalization as of the date of consummation of the Fundamental
      Transaction.

     

    (bb) “Permitted
      Indebtedness”
      means
      (i) total Indebtedness of the Company and the Subsidiaries not to exceed $2
      million in the aggregate outstanding at any time; provided, however, that such
      Indebtedness shall be made expressly subordinate in right of payment to the
      Indebtedness evidenced by the Notes, as reflected in a written agreement
      acceptable to the Required Holders and approved by the Required Holders in
      writing, and which Indebtedness does not provide at any time for (A) the
      payment, prepayment, repayment, repurchase or defeasance, directly or
      indirectly, of any principal or premium, if any, thereon until ninety-one (91)
      days after the Maturity Date or later and (B) total interest and fees at a
      rate
      in excess of the Interest Rate; (ii) equipment leases and purchase money
      obligations of the Company and the Subsidiaries not to exceed $500,000 in the
      aggregate outstanding at any time, (iii) Indebtedness evidenced by this Note
      and
      the Other Notes and (iv) Indebtedness of 1097346 Ontario Inc. secured by
      mortgages outstanding on the date hereof in the principal amount of $3,292,969
      (in Canadian dollars), and any renewal or refinancing thereof (provided that
      such renewal or refinancing does not increase the outstanding principal amount
      or increase or decrease the length of the term thereof).

     

    (cc) “Permitted
      Liens”
means
      (i) any Lien for taxes not yet due or delinquent or being contested in good
      faith by appropriate proceedings for which adequate reserves have been
      established in accordance with GAAP, (ii) any statutory Lien arising in the
      ordinary course of business by operation of law with respect to a liability
      that
      is not yet due or delinquent, (iii) any Lien created by operation of law, such
      as materialmen’s liens, mechanics’ liens and other similar liens, arising in the
      ordinary course of business with respect to a liability that is not yet due
      or
      delinquent or that are being contested in good faith by appropriate proceedings,
      (iv) Liens securing the Company’s obligations under the Notes, and (v) any Lien
      securing Permitted Senior Indebtedness.

     

    (dd) “Permitted
      Senior Indebtedness” means
      the
      Indebtedness described in clauses (ii) and (iv) of Permitted
      Indebtedness.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    (ee) “Person”
means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization, any other entity and
      a
      government or any department or agency thereof.

     

    (ff) “Post-Installment
      Conversion Shares”
      means
      that number of shares of Common Stock that would be required to be delivered
      pursuant to Section 8
      on an
      applicable Installment Date without taking into account the delivery of any
      Pre-Installment Conversion Shares.

     

    (gg) “Pre-Installment
      Conversion Price”
means
      the lower of (i) the then applicable Conversion Price and (ii) the price which
      shall be computed as 90% of the arithmetic average of the VWAP of the Common
      Stock on each of the twenty (20) consecutive Trading Days immediately preceding
      the delivery or deemed delivery of the applicable Company Installment Notice.
      All such determinations to be appropriately adjusted for any stock split, stock
      dividend, stock combination or other similar transaction during such Company
      Conversion Measuring Period.

     

    (hh) “Principal
      Market”
means
      the Nasdaq Capital Market.

     

    (ii) “Quarter”
means
      each of: the period beginning on and including April 1 and ending on and
      including June 30; the period beginning on and including July 1 and ending
      on
      and including September 30; the period beginning on and including October 1
      and
      ending on and including December 31; and the period beginning on and including
      January 1 and ending on and including March 31.

     

    (jj) “Redemption
      Notices”
means,
      collectively, the Event of Default Redemption Notice and the Fundamental
      Transaction Redemption Notice, and each of the foregoing, individually, a
“Redemption
      Notice.”

     

    (kk) “Redemption
      Premium”
means
      (i) in the case of the Events of Default described in Section 4(a)
      (other
      than Sections 4(a)(ix)
      through
4(a)(xi)),
      135%
      or (ii) in the case of the Events of Default described in Sections 4(a)(ix)
      through
4(a)(xi),
      100%.

     

    (ll) “Redemption
      Prices”
means,
      collectively, the Event of Default Redemption Price, the Fundamental Transaction
      Redemption Price and the Company Installment Redemption Price, and each of
      the
      foregoing, individually, a “Redemption
      Price.”

     

    (mm) “Registration
      Rights Agreement”
means
      that certain registration rights agreement, dated as of the Closing Date, by
      and
      among the Company and the initial holders of the Notes relating to, among other
      things, the registration of the resale of the Common Stock issuable upon
      conversion of the Notes and exercise of the Warrants.

     

    (nn) “Required
      Holders”
means
      the holders of Notes representing at least eighty percent (80%) of the aggregate
      principal amount of the Notes then outstanding.

     

    (oo) “Reserved
      Amount”
means,
      as of any date of determination, an amount equal to 75% of the aggregate
      Principal amount outstanding under all of the Notes.

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    (pp) “SEC”
means
      the United States Securities and Exchange Commission.

     

    (qq) “Securities
      Purchase Agreement”
means
      that certain securities purchase agreement, dated as of the Subscription Date,
      by and among the Company and the initial holders of the Notes pursuant to which
      the Company issued the Notes and Warrants.

     

    (rr) “Security
      Agreement”
means
      that certain security agreement, dated as of the Closing Date, by and among
      the
      Company, the Subsidiaries and the initial holders of the Notes.

     

    (ss) “Subscription
      Date”
means
      March 31, 2008.

     

    (tt) “Subsidiaries”
means,
      as of any date of determination, collectively, all Current Subsidiaries and
      all
      New Subsidiaries, and each of the foregoing, individually, a “Subsidiary.”

     

    (uu) “Successor
      Entity”
means
      the Person (or, if so elected by the Holder, the Parent Entity) formed by,
      resulting from or surviving any Fundamental Transaction or the Person (or,
      if so
      elected by the Holder, the Parent Entity) with which such Fundamental
      Transaction shall have been entered into.

     

    (vv) “Trading
      Day”
means
      any day on which the Common Stock is traded on the Principal Market, or, if
      the
      Principal Market is not the principal trading market for the Common Stock,
      then
      on the principal securities exchange or securities market on which the Common
      Stock is then traded; provided that “Trading Day” shall not include any day on
      which the Common Stock is scheduled to trade on such exchange or market for
      less
      than 4.5 hours or any day that the Common Stock is suspended from trading during
      the final hour of trading on such exchange or market (or if such exchange or
      market does not designate in advance the closing time of trading on such
      exchange or market, then during the hour ending at 4:00:00 p.m., New York
      time).

     

    (ww) “VWAP”
means,
      for any security as of any date, the dollar volume-weighted average price for
      such security on the Principal Market (or, if the Principal Market is not the
      principal trading market for such security, then on the principal securities
      exchange or securities market on which such security is then traded) during
      the
      period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m.,
      New
      York time, as reported by Bloomberg through its “Volume at Price” function or,
      if the foregoing does not apply, the dollar volume-weighted average price of
      such security in the over-the-counter market on the electronic bulletin board
      for such security during the period beginning at 9:30:01 a.m., New York time,
      and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if
      no
      dollar volume-weighted average price is reported for such security by Bloomberg
      for such hours, the average of the highest closing bid price and the lowest
      closing ask price of any of the market makers for such security as reported
      in
      the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
      Inc.). If the VWAP cannot be calculated for such security on such date on any
      of
      the foregoing bases, the VWAP of such security on such date shall be the fair
      market value as mutually determined by the Company and the Holder. If the
      Company and the Holder are unable to agree upon the fair market value of such
      security, then such dispute shall be resolved in accordance with the procedures
      in Section 23.
      All
      such determinations shall be appropriately adjusted for any share dividend,
      share split or other similar transaction during such period.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    (xx) “Warrants”
has
      the
      meaning ascribed to such term in the Securities Purchase Agreement, and shall
      include all warrants issued in exchange therefor or replacement
      thereof.

     

    29. DISCLOSURE.
      Upon
      receipt or delivery by the Company of any notice in accordance with the terms
      of
      this Note, unless the Company has in good faith determined that the matters
      relating to such notice do not constitute material, nonpublic information
      relating to the Company or any of its Subsidiaries, the Company shall within
      one
      (1) Business Day after any such receipt or delivery publicly disclose such
      material, nonpublic information on a Current Report on Form 8-K or otherwise.
      In
      the event that the Company believes that a notice contains material, nonpublic
      information relating to the Company or any of its Subsidiaries, the Company
      so
      shall indicate to such Holder contemporaneously with delivery of such notice,
      and in the absence of any such indication, the Holder shall be allowed to
      presume that all matters relating to such notice do not constitute material,
      nonpublic information relating to the Company or its Subsidiaries. Nothing
      contained in this Section 29
      shall
      limit any obligations of the Company, or any rights of the Holder, under Section
      4(i) of the Securities Purchase Agreement.

     

    [signature
      page follows]

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

    

    

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

    

      
        	 	
                Generex
                  Biotechnology Corporation

              
	 	 
	
                 

              	
                By:
                  

              	 
	 	
                 

              	
                 
                  Name:

              
	 	
                 

              	
                 
                  Title:

              

      

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      I

     

    GENEREX
      BIOTECHNOLOGY CORPORATION

     

    CONVERSION
      NOTICE

     

    Reference
      is made to the Senior Secured Convertible Note (the “Note”)
      issued
      to the undersigned by Generex Biotechnology Corporation (the “Company”).
      In
      accordance with and pursuant to the Note, the undersigned hereby elects to
      convert the Conversion Amount (as defined in the Note) of the Note indicated
      below into shares of Common Stock, par value $0.001 per share (the “Common
      Stock”),
      of
      the Company, as of the date specified below.

     

    
      	
              Date
                of
                Conversion:_____________________________________________________________________________

            
	 
	
              Aggregate
                Conversion Amount to be converted:
                ______________________________________________________

            
	 
	
              Please
                confirm the following information:

            
	 
	
              Conversion
                Price:
                ______________________________________________________________________________

            
	 
	
              Number
                of shares of Common Stock to be issued:
                ____________________________________________________

            
	 
	
              Please
                issue the Common Stock into which the Note is being converted in
                the
                following name and to the following address:

            
	 
	
              Issue
                to:
                ______________________________________________________________________________________

            
	
              ____________________________________________________________________________________

            
	
              ____________________________________________________________________________________

            
	 
	
              Facsimile
                Number:
                _____________________________________________________________________________

            
	 
	
              Authorization:
                _________________________________________________________________________________

            
	 
	
              By: 
                __________________________________________________________________________________

            
	 
	
              Title: 
                ___________________________________________________________________________

            
	 
	
              Dated:
                ______________________________________________________________________________________________

            
	 
	
              Account
                Number:
                ______________________________________________________________________________

            
	
                (if
                electronic book entry transfer)

            
	 
	
              Transaction
                Code Number:
                _______________________________________________________________________

            
	
                (if
                electronic book entry transfer)

            
	
              Installment
                Amounts to be reduced (and corresponding Installment Dates) and amount
                of
                reduction: ____________________

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ACKNOWLEDGMENT

     

    The
      Company hereby acknowledges this Conversion Notice and hereby directs
      _________________ to issue the above indicated number of shares of Common Stock
      in accordance with the Transfer Agent Instructions dated _____________, 2008
      from the Company and acknowledged and agreed to by
      ________________________.

     

    
      	
               

            	
              Generex
                Biotechnology Corporation

            
	 	
            
	
               

            	
              By:
                

            	 
	
               

            	
            	
               
                Name:

            
	
               

            	
            	
               
                Title:

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