Exhibit 10.2

 

NEITHER THESE 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 (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT, OR (B) IF REASONABLY REQUESTED BY THE COMPANY, AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT.

 

VYYO INC.

 

CONVERTIBLE NOTE

 

Issuance Date: March 22, 2006

 

Principal: U.S. $10,000,000

 

FOR VALUE RECEIVED, VYYO Inc., a Delaware corporation, (the “Company”), hereby
promises to pay to Goldman, Sachs & Co. or registered assigns (“Holder”) the
amount set out above as the Principal (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the “Principal”) when due,
whether upon the Maturity Date (each, as defined herein) unless earlier redeemed
or converted (in each case in accordance with the terms hereof), and to pay
interest (“Interest”) on any outstanding Principal at the rate of 10.0% per
annum (the “Interest Rate”), from the date set out above as the Issuance Date
(the “Issuance Date”) until the same becomes due and payable unless earlier
redeemed or converted.  This Convertible Note (including all Convertible Notes
issued in exchange, transfer or replacement hereof, this “Note”) is issued on
the Closing Date pursuant to the Securities Purchase Agreement, dated as of the
date hereof, by and among the Company and the Investors identified therein (the
“Securities Purchase Agreement”). Certain capitalized terms used herein are
defined in Section 27.  Capitalized terms that are not otherwise defined herein
have the meanings given to such terms in the Securities Purchase Agreement.

 

1.  MATURITY.  ON THE MATURITY DATE, THE COMPANY SHALL PAY TO THE HOLDER AN
AMOUNT IN CASH REPRESENTING ALL OUTSTANDING PRINCIPAL AND THE ACCRUED AND UNPAID
INTEREST THEREON.  THE COMPANY SHALL MAKE SUCH PAYMENT ON THE MATURITY DATE,
TOGETHER WITH THE AMOUNT OF ANY ACCRUED AND UNPAID INTEREST ON SUCH PRINCIPAL,
BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS TO AN ACCOUNT DESIGNATED IN
WRITING BY THE HOLDER.

 

2.  INTEREST; INTEREST RATE. INTEREST ON THIS NOTE SHALL COMMENCE ACCRUING ON
THE ISSUANCE DATE AND SHALL BE COMPUTED ON THE BASIS OF A 360-DAY YEAR COMPRISED
OF TWELVE 30-DAY MONTHS AND SHALL BE PAYABLE IN ARREARS FOR EACH CALENDAR
QUARTER ON THE FIRST DAY OF THE SUCCEEDING CALENDAR 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 APRIL 1, 2006 BY
WIRE TRANSFER OF IMMEDIATELY

 

--------------------------------------------------------------------------------

 

PAYABLE FUNDS.  INTEREST SHALL BE PAYABLE ON EACH INTEREST DATE IN CASH.  PRIOR
TO THE PAYMENT OF INTEREST ON AN INTEREST DATE, INTEREST ON THIS NOTE SHALL
ACCRUE AT THE INTEREST RATE AND BE PAYABLE IN CASH UPON ANY CONVERSION IN
ACCORDANCE WITH SECTION 4.  UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF
ANY DEFAULT IN THE PAYMENT OF THE INTEREST OR PRINCIPAL WHEN DUE, THE INTEREST
RATE SHALL BE INCREASED BY TWO PERCENT (2.0%) PER ANNUM (THE “DEFAULT RATE”). 
IN THE EVENT THAT SUCH INTEREST OR PRINCIPAL PAYMENT DEFAULT IS SUBSEQUENTLY
CURED, THE ADJUSTMENT REFERRED TO IN THE PRECEDING SENTENCE SHALL CEASE TO BE
EFFECTIVE AS OF THE DATE OF SUCH CURE.  INTEREST ON OVERDUE INTEREST SHALL
ACCRUE AT THE SAME RATE COMPOUNDED QUARTERLY.

 

3.  SUBORDINATION.  THE PRINCIPAL AND INTEREST ON THIS NOTE IS EXPRESSLY
SUBORDINATED IN RIGHT OF PAYMENT TO (I) THE SENIOR SECURED NOTES ISSUED ON THE
DATE HEREOF, AND (II) ANY BORROWED MONEY BY THE COMPANY DESIGNATED AS SENIOR
DEBT BY THE BOARD OF DIRECTORS (“INDEBTEDNESS”).  UPON PAYMENT OR DISTRIBUTION
OF THE ASSETS OF THE COMPANY TO CREDITORS UPON ANY DISSOLUTION, WINDING UP,
LIQUIDATION, REORGANIZATION, RECAPITALIZATION OR READJUSTMENT OF THE COMPANY OR
ITS PROPERTY, PAYMENT OF THE PRINCIPAL AND INTEREST WILL BE SUBORDINATE TO THE
PRIOR PAYMENT IN FULL OF ALL SUCH INDEBTEDNESS.  NO PAYMENT OF PRINCIPAL OR
INTEREST MAY BE MADE BY THE COMPANY IF (I) AT ANY TIME THERE EXISTS (OR AFTER
GIVING EFFECT TO THE PAYMENT THERE WOULD EXIST) AN EVENT OF DEFAULT UNDER THE
AGREEMENT PURSUANT TO WHICH SUCH INDEBTEDNESS HAS BEEN ISSUED, OR (II) FULL
PAYMENT OF AMOUNTS THEN DUE FOR PRINCIPAL AND INTEREST ON THE INDEBTEDNESS HAS
NOT BEEN MADE OR DULY PROVIDED FOR.  THE HOLDER OF THIS NOTE SHALL EXECUTE ANY
FURTHER DOCUMENTATION REASONABLY REQUESTED BY A LENDER TO EFFECT THE FOREGOING.

 

4.  CONVERSION OF NOTES.  SUBJECT TO SECTION 7(A), THIS NOTE SHALL BE
CONVERTIBLE INTO COMMON SHARES OF THE COMPANY, $0.0001 PAR VALUE (THE “COMMON
SHARES”), ON THE TERMS AND CONDITIONS SET FORTH IN THIS SECTION 4.

 

(A)  CONVERSION RIGHT.  AT ANY TIME OR TIMES ON OR AFTER THE ISSUANCE DATE AND
PRIOR TO REPAYMENT, THE HOLDER SHALL BE ENTITLED TO CONVERT ANY PORTION OF THE
OUTSTANDING AND UNPAID CONVERSION AMOUNT (AS DEFINED BELOW) INTO FULLY PAID AND
NONASSESSABLE COMMON SHARES IN ACCORDANCE WITH SECTION 4(C), AT THE CONVERSION
RATE (AS DEFINED BELOW); PROVIDED THAT, FOLLOWING A FUNDAMENTAL TRANSACTION,
THIS NOTE SHALL BE ENTITLED TO CONVERT ONLY INTO SUCH CONSIDERATION AS THE
COMMON SHARES OUTSTANDING PRIOR THERETO BECAME ENTITLED TO RECEIVE, AS
APPROPRIATELY ADJUSTED TO GIVE EFFECT TO THE CONVERSION RATE IN THIS NOTE.  THE
COMPANY SHALL NOT ISSUE ANY FRACTION OF A COMMON SHARE UPON ANY CONVERSION.  IF
THE ISSUANCE WOULD RESULT IN THE ISSUANCE OF A FRACTION OF A COMMON SHARE, THE
COMPANY SHALL ROUND SUCH FRACTION OF A COMMON SHARE TO THE NEAREST WHOLE SHARE.

 

(B)  CONVERSION RATE.  THE NUMBER OF COMMON SHARES ISSUABLE UPON CONVERSION OF
ANY CONVERSION AMOUNT PURSUANT TO SECTION 4(A) SHALL BE DETERMINED BY DIVIDING
(X) SUCH CONVERSION AMOUNT BY (Y) THE CONVERSION PRICE (SUCH NUMBER OF SHARES,
THE “CONVERSION RATE”).

 

(I)  “CONVERSION AMOUNT” MEANS THE PORTION OF THE PRINCIPAL TO BE CONVERTED OR
REDEEMED WITH RESPECT TO WHICH THIS DETERMINATION IS BEING MADE.

 

2

--------------------------------------------------------------------------------

 

(II)  “CONVERSION PRICE” MEANS, AS OF ANY CONVERSION DATE (AS DEFINED BELOW) OR
OTHER DATE OF DETERMINATION A PRICE EQUAL TO $10.00, SUBJECT TO ADJUSTMENT AS
PROVIDED HEREIN.

 

(C)  MECHANICS OF CONVERSION.

 

(I)  OPTIONAL CONVERSION.  TO CONVERT ANY CONVERSION AMOUNT GREATER THAN
$500,000 INTO COMMON SHARES 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 (THE “CONVERSION NOTICE”) TO THE COMPANY AND (B) IF REQUIRED BY
SECTION 4(F), SURRENDER THIS NOTE 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 A
CONFIRMATION OF RECEIPT OF SUCH CONVERSION NOTICE TO THE HOLDER AND THE TRANSFER
AGENT.  ON OR BEFORE THE THIRD (3RD) TRADING DAY FOLLOWING THE DATE OF RECEIPT
OF A CONVERSION NOTICE (THE “SHARE DELIVERY DATE”), THE COMPANY SHALL: (1) (X)
PROVIDED THAT THE TRANSFER AGENT IS PARTICIPATING IN THE DTC FAST AUTOMATED
SECURITIES TRANSFER PROGRAM, CREDIT SUCH AGGREGATE NUMBER OF COMMON SHARES OR
OTHER CONSIDERATION TO WHICH THE HOLDER SHALL BE ENTITLED TO THE HOLDER’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 TO THE ADDRESS AS SPECIFIED IN
THE CONVERSION NOTICE, A CERTIFICATE, REGISTERED IN THE NAME OF THE HOLDER, FOR
THE NUMBER OF COMMON SHARES OR OTHER CONSIDERATION TO WHICH THE HOLDER SHALL BE
ENTITLED, (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
AND (3) FOR ANY CONVERSIONS PRIOR TO MARCH 22, 2010 IN CONNECTION WITH A
FUNDAMENTAL TRANSACTION, PAY ANY APPLICABLE MAKE-WHOLE PREMIUM IN ACCORDANCE
WITH SECTION 4(D). THE PERSON OR PERSONS ENTITLED TO RECEIVE THE COMMON SHARES
ISSUABLE UPON A CONVERSION OF THIS NOTE SHALL BE TREATED FOR ALL PURPOSES AS THE
RECORD HOLDER OR HOLDERS OF SUCH COMMON SHARES ON THE CONVERSION DATE.

 

(D)  MAKE-WHOLE PREMIUM.

 

(I)  IF A FUNDAMENTAL TRANSACTION OCCURS ON OR PRIOR TO MARCH 22, 2010, THE
COMPANY ALSO SHALL PAY THE MAKE-WHOLE PREMIUM, IF ANY, TO THE HOLDER WHO ELECTS
TO CONVERT ITS NOTE PURSUANT TO THIS SECTION OR ELECTS TO HAVE ITS NOTE REDEEMED
PURSUANT TO SECTION 6(A) HEREOF PURSUANT TO THE FUNDAMENTAL TRANSACTION. THE
MAKE-WHOLE PREMIUM, IF ANY, SHALL BE PAID IN CASH ON THE FUNDAMENTAL TRANSACTION
EFFECTIVE DATE TO HOLDERS WHO EXERCISE SUCH CONVERSION RIGHT.

 

3

--------------------------------------------------------------------------------

 

(1)  THE “MAKE-WHOLE PREMIUM” SHALL BE DETERMINED AS FOLLOWS:

 

(2)  IF THE FUNDAMENTAL TRANSACTION EFFECTIVE DATE IS AFTER MARCH 22, 2010, NO
MAKE-WHOLE PREMIUM SHALL BE PAID;

 

(3)  IF THE STOCK PRICE EQUALS OR EXCEEDS $17.50 (SUBJECT TO ADJUSTMENT PURSUANT
TO SECTION 8), NO MAKE-WHOLE PREMIUM SHALL BE PAID; AND

 

(4)  IN ALL OTHER CASES, THE MAKE-WHOLE PREMIUM SHALL BE AN AMOUNT EQUAL TO THE
INTEREST THAT OTHERWISE WOULD ACCRUE ON THE PRINCIPAL OF THE NOTE HAD IT
REMAINED OUTSTANDING FROM THE DATE HEREOF THROUGH MARCH 22, 2010, LESS THE
AMOUNT OF INTEREST ACCRUED AND PAID PRIOR TO THE DATE OF CONVERSION. 
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH HEREIN, THE MAKE-WHOLE
PREMIUM, IF ANY, SHALL BE PAID IN CASH AND SHALL NOT INCREASE OR AFFECT THE
CONVERSION AMOUNT, CONVERSION PRICE, OR THE NUMBER OF SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THIS NOTE.

 

(II)  FOR PURPOSES OF SECTION 4(D), THE FOLLOWING TERMS SHALL HAVE THE MEANINGS
INDICATED:

 

(1)  “FUNDAMENTAL TRANSACTION EFFECTIVE DATE” MEANS THE DATE THAT A FUNDAMENTAL
TRANSACTION BECOMES EFFECTIVE.

 

(2)  “STOCK PRICE” MEANS THE PRICE PAID PER COMMON SHARE IN THE TRANSACTION
CONSTITUTING THE FUNDAMENTAL TRANSACTION, DETERMINED AS FOLLOWS:

 

(I)  IF HOLDERS OF THE COMMON SHARES RECEIVE ONLY CASH IN THE TRANSACTION
CONSTITUTING THE FUNDAMENTAL TRANSACTION, THEN THE STOCK PRICE SHALL EQUAL THE
CASH AMOUNT PAID PER COMMON SHARE; AND

 

(II)  IN ALL OTHER CASES, THE STOCK PRICE SHALL BE THE AVERAGE OF THE DAILY
TRADING PRICES PER COMMON SHARE FOR THE TEN CONSECUTIVE TRADING DAY PERIOD
ENDING ON THE TRADING DAY IMMEDIATELY PRECEDING THE FUNDAMENTAL TRANSACTION
EFFECTIVE DATE.

 

(E)  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.  THE HOLDER AND THE COMPANY SHALL MAINTAIN
RECORDS SHOWING THE PRINCIPAL CONVERTED AND THE DATES OF SUCH CONVERSIONS 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.

 

4

--------------------------------------------------------------------------------

 

5.  RIGHTS UPON EVENT OF DEFAULT.

 

(A)  EVENT OF DEFAULT.  EACH OF THE FOLLOWING EVENTS SHALL CONSTITUTE AN “EVENT
OF DEFAULT”:

 

(I)  THE COMPANY’S FAILURE TO CONVERT A NOTE IN ACCORDANCE WITH SECTION 4 WITHIN
FIVE (5) TRADING DAYS AFTER THE APPLICABLE CONVERSION DATE;

 

(II)  THE COMPANY SHALL FAIL TO PAY ANY PRINCIPAL OWING UNDER THIS NOTE WHEN
DUE;

 

(III)  THE COMPANY SHALL FAIL TO PAY ANY INTEREST OWING UNDER THIS NOTE WHEN
DUE, AND SUCH FAILURE SHALL CONTINUE FOR THIRTY (30) DAYS;

 

(IV)  THE COMPANY OR ANY SIGNIFICANT SUBSIDIARY SHALL (A) FAIL TO MAKE ANY
PAYMENT WHEN DUE UNDER THE TERMS OF ANY BOND, DEBENTURE, NOTE OR OTHER EVIDENCE
OF INDEBTEDNESS TO BE PAID BY THE COMPANY OR SUCH SIGNIFICANT SUBSIDIARY
(EXCLUDING THIS NOTE, WHICH DEFAULT IS ADDRESSED BY CLAUSES (II) AND (III)
ABOVE, BUT INCLUDING ANY OTHER EVIDENCE OF INDEBTEDNESS OF THE COMPANY OR SUCH
SIGNIFICANT SUBSIDIARY) AND SUCH FAILURE SHALL CONTINUE BEYOND ANY PERIOD OF
GRACE PROVIDED WITH RESPECT THERETO, OR (B) DEFAULT IN THE OBSERVANCE OR
PERFORMANCE OF ANY OTHER AGREEMENT, TERM OR CONDITION CONTAINED IN ANY SUCH
BOND, DEBENTURE, NOTE OR OTHER EVIDENCE OF INDEBTEDNESS; AND THE EFFECT OF SUCH
FAILURE OR DEFAULT IN CLAUSE (A) OR (B) IS TO CAUSE, OR PERMIT THE HOLDER
THEREOF TO CAUSE, INDEBTEDNESS IN AN AGGREGATE AMOUNT OF ONE MILLION DOLLARS
($1,000,000) OR MORE TO BECOME DUE PRIOR TO ITS STATED DATE OF MATURITY AND SUCH
FAILURE SHALL CONTINUE FOR THIRTY (30) DAYS;

 

(V)  AN INVOLUNTARY PROCEEDING SHALL BE COMMENCED OR AN INVOLUNTARY PETITION
SHALL BE FILED SEEKING (A) LIQUIDATION, REORGANIZATION OR OTHER RELIEF IN
RESPECT OF THE COMPANY OR ANY SIGNIFICANT SUBSIDIARY OR ITS DEBTS, OR OF A
SUBSTANTIAL PART OF ITS ASSETS, UNDER ANY FEDERAL, STATE OR FOREIGN BANKRUPTCY,
INSOLVENCY, RECEIVERSHIP OR SIMILAR LAW NOW OR HEREAFTER IN EFFECT OR (B) THE
APPOINTMENT OF A RECEIVER, TRUSTEE, CUSTODIAN, SEQUESTRATOR, CONSERVATOR OR
SIMILAR OFFICIAL FOR THE COMPANY OR ANY SIGNIFICANT SUBSIDIARY OR FOR A
SUBSTANTIAL PART OF ITS ASSETS, AND, IN ANY SUCH CASE, SUCH PROCEEDING OR
PETITION SHALL CONTINUE UNDISMISSED FOR 30 DAYS OR AN ORDER OR DECREE APPROVING
OR ORDERING ANY OF THE FOREGOING SHALL BE ENTERED;

 

(VI)  THE COMPANY OR ANY SIGNIFICANT SUBSIDIARY SHALL (A) VOLUNTARILY COMMENCE
ANY PROCEEDING OR FILE ANY PETITION SEEKING LIQUIDATION, REORGANIZATION OR OTHER
RELIEF UNDER ANY FEDERAL, STATE OR FOREIGN BANKRUPTCY, INSOLVENCY, RECEIVERSHIP
OR SIMILAR LAW NOW OR HEREAFTER IN EFFECT, (B) CONSENT TO THE INSTITUTION OF, OR
FAIL TO CONTEST IN A TIMELY AND APPROPRIATE MANNER, ANY PROCEEDING OR PETITION
DESCRIBED IN CLAUSE (V) OF THIS SECTION, (C) APPLY FOR OR CONSENT TO THE
APPOINTMENT OF A RECEIVER, TRUSTEE, CUSTODIAN, SEQUESTRATOR, CONSERVATOR OR
SIMILAR OFFICIAL FOR THE COMPANY OR ANY SIGNIFICANT SUBSIDIARY OR FOR A
SUBSTANTIAL PART OF ITS ASSETS, (D) FILE AN ANSWER ADMITTING THE MATERIAL
ALLEGATIONS OF A PETITION FILED AGAINST

 

5

--------------------------------------------------------------------------------

 

IT IN ANY SUCH PROCEEDING, (E) MAKE A GENERAL ASSIGNMENT FOR THE BENEFIT OF
CREDITORS OR (F) TAKE ANY ACTION FOR THE PURPOSE OF EFFECTING ANY OF THE
FOREGOING;

 

(VII)  ONE OR MORE JUDGMENTS FOR THE PAYMENT OF MONEY IN AN AMOUNT IN EXCESS OF
FIVE MILLION DOLLARS ($5,000,000) IN THE AGGREGATE, OUTSTANDING AT ANY ONE TIME,
SHALL BE RENDERED AGAINST THE COMPANY OR ANY SIGNIFICANT SUBSIDIARY AND THE SAME
SHALL REMAIN UNDISCHARGED FOR A PERIOD OF SIXTY (60) DAYS DURING WHICH EXECUTION
SHALL NOT BE EFFECTIVELY STAYED, OR ANY JUDGMENT, WRIT, ASSESSMENT, WARRANT OF
ATTACHMENT, OR EXECUTION OR SIMILAR PROCESS SHALL BE ISSUED OR LEVIED AGAINST A
SUBSTANTIAL PART OF THE PROPERTY OF THE COMPANY OR ANY SIGNIFICANT SUBSIDIARY
AND SUCH JUDGMENT, WRIT, OR SIMILAR PROCESS SHALL NOT BE RELEASED, STAYED,
VACATED OR OTHERWISE DISMISSED WITHIN SIXTY (60) DAYS AFTER ISSUE OR LEVY;

 

(VIII)  FAILURE (A) OF THE COMPANY TO MAKE ANY REQUIRED FILINGS WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION OR (B) OF THE COMMON STOCK TO BE
LISTED ON AN ELIGIBLE SECURITIES EXCHANGE, AND IN EITHER CASE (A) OR (B) SUCH
FAILURE SHALL CONTINUE FOR SIXTY (60) DAYS;

 

(IX)  THE COMPANY SHALL FAIL TO OBSERVE OR PERFORM ANY OTHER COVENANT,
OBLIGATION, CONDITION OR AGREEMENT CONTAINED IN THIS NOTE OR THE GUARANTY AND
SECURITY AGREEMENT AND, TO THE EXTENT SUCH FAILURE IS CAPABLE OF BEING CURED,
SUCH FAILURE SHALL CONTINUE FOR SIXTY (60) DAYS.

 

(B)  EVENT OF DEFAULT REDEMPTION RIGHT.  PROMPTLY AFTER THE OCCURRENCE OF AN
EVENT OF DEFAULT WITH RESPECT TO THIS NOTE, THE COMPANY SHALL DELIVER WRITTEN
NOTICE THEREOF VIA FACSIMILE AND OVERNIGHT COURIER (AN “EVENT OF DEFAULT
NOTICE”) TO THE HOLDER.  THE HOLDER, UPON THE APPROVAL OF HOLDERS HOLDING MORE
THAN 33 1/3% OF THE AGGREGATE PRINCIPAL BALANCE OF THE NOTES THEN OUTSTANDING,
BY WRITTEN NOTICE TO THE COMPANY, MAY DECLARE ALL OUTSTANDING AMOUNTS PAYABLE BY
THE COMPANY HEREUNDER TO BE IMMEDIATELY DUE AND PAYABLE WITHOUT PRESENTMENT,
DEMAND, PROTEST OR ANY OTHER NOTICE OF ANY KIND, ALL OF WHICH ARE HEREBY
EXPRESSLY WAIVED, ANYTHING CONTAINED HEREIN TO THE CONTRARY NOTWITHSTANDING
(“REDEMPTION PRICE”).  UPON THE OCCURRENCE OR EXISTENCE OF ANY EVENT OF DEFAULT
DESCRIBED IN SECTIONS (V) OR (VI) HEREOF, IMMEDIATELY AND WITHOUT NOTICE, ALL
OUTSTANDING AMOUNTS PAYABLE BY THE COMPANY HEREUNDER SHALL AUTOMATICALLY BECOME
IMMEDIATELY DUE AND PAYABLE, WITHOUT PRESENTMENT, DEMAND, PROTEST OR ANY OTHER
NOTICE OF ANY KIND, ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED, ANYTHING CONTAINED
HEREIN TO THE CONTRARY NOTWITHSTANDING.  IN ADDITION TO THE FOREGOING REMEDIES,
UPON THE OCCURRENCE OR EXISTENCE OF ANY EVENT OF DEFAULT, THE HOLDER MAY
EXERCISE, UPON THE APPROVAL OF HOLDERS HOLDING MORE THAN A MAJORITY OF THE
AGGREGATE PRINCIPAL BALANCE OF THE NOTES, ANY OTHER RIGHT, POWER OR REMEDY
PERMITTED TO IT BY LAW, EITHER BY SUIT IN EQUITY OR BY ACTION AT LAW, OR BOTH.

 

6.  RIGHTS UPON FUNDAMENTAL TRANSACTION.

 

(A)  FUNDAMENTAL TRANSACTION REDEMPTION RIGHT.  NO SOONER THAN TWENTY (20) DAYS
NOR LATER THAN TEN (10) DAYS PRIOR TO THE CONSUMMATION OF A FUNDAMENTAL
TRANSACTION, BUT NOT PRIOR TO THE PUBLIC ANNOUNCEMENT OF SUCH FUNDAMENTAL
TRANSACTION,

 

6

--------------------------------------------------------------------------------

 

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 (THE “FUNDAMENTAL TRANSACTION PERIOD”) BEGINNING AFTER THE HOLDER’S
RECEIPT OF A FUNDAMENTAL TRANSACTION NOTICE AND ENDING ON THE DATE THAT IS ONE
(1) TRADING DAY BEFORE THE FUNDAMENTAL TRANSACTION EFFECTIVE DATE, THE HOLDER,
AT ITS OPTION, 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 6 SHALL BE REDEEMED BY
THE COMPANY IN CASH AT A PRICE EQUAL TO 101% OF THE PRINCIPAL PLUS ANY ACCRUED
BUT UNPAID INTEREST THEREON UP TO, BUT NOT INCLUDING, THE FUNDAMENTAL
TRANSACTION EFFECTIVE DATE (THE “FUNDAMENTAL TRANSACTION REDEMPTION PRICE”) ON
THE FUNDAMENTAL TRANSACTION EFFECTIVE DATE.  IN ADDITION, FOR ANY REDEMPTION
MADE PRIOR TO MARCH 22, 2010, THE HOLDER SHALL ALSO BE PAID THE MAKE-WHOLE
PREMIUM, IF ANY, AS APPLICABLE.  REDEMPTIONS REQUIRED BY THIS SECTION 6 SHALL
HAVE PRIORITY TO PAYMENTS TO STOCKHOLDERS IN CONNECTION WITH A FUNDAMENTAL
TRANSACTION.  TO THE EXTENT REDEMPTIONS REQUIRED BY THIS SECTION 6 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 6, UNTIL THE
FUNDAMENTAL TRANSACTION REDEMPTION PRICE (TOGETHER WITH INTEREST THEREON AND THE
MAKE-WHOLE PREMIUM, IF ANY) IS PAID IN FULL, THE CONVERSION AMOUNT SUBMITTED FOR
REDEMPTION UNDER THIS SECTION 6 MAY BE CONVERTED, IN WHOLE OR IN PART PURSUANT
TO SECTION 4.  THE PARTIES HERETO AGREE THAT IN THE EVENT OF THE COMPANY’S
REDEMPTION OF ANY PORTION OF THE NOTE UNDER THIS SECTION 6, 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 6 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.

 

7.  RIGHTS UPON CERTAIN OTHER CORPORATE EVENTS.

 

(A)  CORPORATE EVENTS.  SUBJECT TO THE SECTION 4(D) AND 6 HEREIN AS APPLICABLE,
PRIOR TO THE CONSUMMATION OF ANY FUNDAMENTAL TRANSACTION PURSUANT TO WHICH
HOLDERS OF COMMON SHARES ARE ENTITLED TO RECEIVE SECURITIES OR OTHER ASSETS WITH
RESPECT TO OR IN EXCHANGE FOR COMMON SHARES (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, SUCH SECURITIES OR OTHER
ASSETS RECEIVED BY THE HOLDERS OF COMMON SHARES 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 COMMON SHARES) 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 UNLESS OR UNTIL THE NOTE IS REDEEMED OR REPAID.

 

8.  ADJUSTMENT OF CONVERSION PRICE UPON SUBDIVISION OR COMBINATION OF COMMON
SHARES.  IF THE COMPANY AT ANY TIME ON OR AFTER THE

 

7

--------------------------------------------------------------------------------

 

ISSUANCE DATE SUBDIVIDES (BY ANY SHARE SPLIT, SHARE DIVIDEND, RECAPITALIZATION
OR OTHERWISE) ONE OR MORE CLASSES OF ITS OUTSTANDING COMMON SHARES 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 ISSUANCE DATE COMBINES (BY COMBINATION, REVERSE SHARE SPLIT OR
OTHERWISE) ONE OR MORE CLASSES OF ITS OUTSTANDING COMMON SHARES INTO A SMALLER
NUMBER OF SHARES, THE CONVERSION PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH
COMBINATION WILL BE PROPORTIONATELY INCREASED.

 

9.  COVENANTS.  UNTIL ALL PRINCIPAL AND INTEREST AND ANY OTHER AMOUNTS DUE AND
PAYABLE UNDER THIS NOTE HAVE BEEN PAID IN FULL IN CASH, THE COMPANY SHALL, AND
SHALL CAUSE EACH SIGNIFICANT SUBSIDIARY TO:

 

(A)  PROVIDE PROMPT WRITTEN NOTICE TO THE HOLDER OF THE OCCURRENCE OF ANY EVENT
OF DEFAULT, OR ANY EVENT WHICH WITH THE GIVING OF NOTICE OR LAPSE OF TIME, OR
BOTH, WOULD CONSTITUTE AN EVENT OF DEFAULT, HEREUNDER;

 

(B)  DO OR CAUSE TO BE DONE ALL THINGS REASONABLY NECESSARY TO PRESERVE, RENEW
AND KEEP IN FULL FORCE AND EFFECT ITS LEGAL EXISTENCE; AND

 

(C)  KEEP PROPER BOOKS OF RECORD AND ACCOUNT IN WHICH FULL, TRUE AND CORRECT
ENTRIES ARE MADE OF ALL DEALINGS AND TRANSACTIONS IN RELATION TO ITS BUSINESS
AND ACTIVITIES, (II) PERMIT ANY REPRESENTATIVES DESIGNATED BY THE HOLDER, UPON
REASONABLE PRIOR NOTICE, TO VISIT AND INSPECT ITS PROPERTIES, TO EXAMINE AND
MAKE EXTRACTS FROM ITS BOOKS AND RECORDS, AND TO DISCUSS ITS AFFAIRS, FINANCES
AND CONDITION WITH ITS OFFICERS AND INDEPENDENT ACCOUNTANTS, ALL AT SUCH
REASONABLE TIMES AND AS OFTEN AS REASONABLY REQUESTED, AND (III) PROVIDE TO THE
HOLDER THE SAME INFORMATION RIGHTS AS IT PROVIDES TO ITS STOCKHOLDERS.

 

10.  RESERVATION OF AUTHORIZED SHARES.

 

(A)  RESERVATION. THE COMPANY SHALL HAVE SUFFICIENT AUTHORIZED AND UNISSUED
COMMON SHARES FOR EACH OF THE NOTES EQUAL TO THE NUMBER OF COMMON SHARES
NECESSARY TO EFFECT THE CONVERSION AT THE CONVERSION RATE WITH RESPECT TO THE
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 SHARES,
SOLELY FOR THE PURPOSE OF EFFECTING THE CONVERSION OF THE NOTES, THE NUMBER OF
COMMON SHARES 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 COMMON SHARES SO AVAILABLE BE LESS THAN THE NUMBER OF SHARES REQUIRED TO BE
RESERVED BY THE PREVIOUS SENTENCE (WITHOUT REGARD TO ANY LIMITATIONS ON
CONVERSIONS) (THE “REQUIRED AMOUNT”).

 

11.  REDEMPTION MECHANICS.  IN THE EVENT THAT THE COMPANY DOES NOT PAY THE
APPLICABLE REDEMPTION PRICE TO THE HOLDER WITHIN FIVE (5) TRADING DAYS, 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

 

8

--------------------------------------------------------------------------------

 

SUBMITTED FOR REDEMPTION AND FOR WHICH THE APPLICABLE REDEMPTION PRICE HAS NOT
BEEN PAID.  UPON THE COMPANY’S RECEIPT OF SUCH NOTICE, (X) THE 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 15(D)) TO THE HOLDER REPRESENTING SUCH CONVERSION AMOUNT.

 

12.  RIGHTS UPON DISTRIBUTION OF ASSETS.  IF THE COMPANY SHALL DECLARE OR MAKE
ANY DIVIDEND OR OTHER DISTRIBUTION OF ITS ASSETS (OR RIGHTS TO ACQUIRE ITS
ASSETS) TO HOLDERS OF COMMON SHARES, BY WAY OF RETURN OF CAPITAL OR OTHERWISE
(INCLUDING, WITHOUT LIMITATION, ANY DISTRIBUTION OF CASH, SHARES OR OTHER
SECURITIES, PROPERTY OR OPTIONS BY WAY OF A DIVIDEND, SPIN OFF,
RECLASSIFICATION, CORPORATE REARRANGEMENT, SCHEME OF ARRANGEMENT OR OTHER
SIMILAR TRANSACTION) (A “DISTRIBUTION”), AT ANY TIME AFTER THE ISSUANCE OF THIS
NOTE, THEN, IN EACH SUCH CASE ANY CONVERSION PRICE IN EFFECT IMMEDIATELY PRIOR
TO THE CLOSE OF BUSINESS ON THE RECORD DATE FIXED FOR THE DETERMINATION OF
HOLDERS OF COMMON SHARES ENTITLED TO RECEIVE THE DISTRIBUTION SHALL BE REDUCED,
EFFECTIVE AS OF THE CLOSE OF BUSINESS ON SUCH RECORD DATE, TO A PRICE DETERMINED
BY MULTIPLYING SUCH CONVERSION PRICE BY A FRACTION OF WHICH (I) THE NUMERATOR
SHALL BE THE CLOSING BID PRICE OF THE COMMON SHARES ON THE TRADING DAY
IMMEDIATELY PRECEDING SUCH RECORD DATE MINUS THE VALUE OF THE DISTRIBUTION (AS
DETERMINED IN GOOD FAITH BY THE COMPANY’S BOARD OF DIRECTORS) APPLICABLE TO ONE
COMMON SHARE, AND (II) THE DENOMINATOR SHALL BE THE CLOSING BID PRICE OF THE
COMMON SHARES ON THE TRADING DAY IMMEDIATELY PRECEDING SUCH RECORD DATE.

 

13.  VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES.  THIS NOTE MAY BE AMENDED AND
ANY PROVISION MAY BE WAIVED WITH THE CONSENT OF THE COMPANY AND THE HOLDER.  IN
ADDITION, THE NOTES MAY BE AMENDED AND A PROVISION MAY BE WAIVED BY THE COMPANY
WITH THE AFFIRMATIVE VOTE OR CONSENT OF THE HOLDERS OF A MAJORITY OF THE
AGGREGATE PRINCIPAL AMOUNT OF THE NOTES.  ANY CHANGE OR AMENDMENT SO APPROVED
SHALL BE BINDING UPON ALL EXISTING AND FUTURE HOLDERS OF THIS NOTE; PROVIDED
THAT, NO SUCH AMENDMENT OR WAIVER MAY MATERIALLY AND ADVERSELY AFFECT THE
ECONOMIC INTEREST IN THE COMPANY OF THE HOLDER OF THIS NOTE IN A MANNER
DISPROPORTIONATE TO THE HOLDERS OF OTHER NOTES WITHOUT THE CONSENT OF THE HOLDER
HEREOF.

 

14.  TRANSFER.  THIS NOTE AND ANY COMMON SHARES ISSUED UPON CONVERSION OF THIS
NOTE MAY BE OFFERED, SOLD, ASSIGNED OR TRANSFERRED BY THE HOLDER WITHOUT THE
CONSENT OF THE COMPANY IN AGGREGATE PRINCIPAL AMOUNTS OF AT LEAST $500,000,
SUBJECT ONLY TO THE PROVISIONS OF SECTION 4.1 OF THE SECURITIES PURCHASE
AGREEMENT AND COMPLIANCE WITH APPLICABLE LAW.

 

15.  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 15(D)),
REGISTERED AS THE HOLDER MAY REQUEST, REPRESENTING THE OUTSTANDING PRINCIPAL
BEING TRANSFERRED BY THE HOLDER AND, IF LESS THEN THE ENTIRE OUTSTANDING
PRINCIPAL IS BEING TRANSFERRED, A NEW NOTE (IN ACCORDANCE WITH SECTION 15(D)) TO
THE HOLDER REPRESENTING THE OUTSTANDING PRINCIPAL

 

9

--------------------------------------------------------------------------------

 

NOT BEING TRANSFERRED.  THE HOLDER AND ANY ASSIGNEE, BY ACCEPTANCE OF THIS NOTE,
ACKNOWLEDGE AND AGREE THAT, BY REASON OF THE PROVISIONS OF SECTION 4(F)
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.

 

(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, AND, IN THE CASE OF LOSS, THEFT OR DESTRUCTION, OF ANY
INDEMNIFICATION UNDERTAKING BY THE HOLDER TO THE COMPANY IN CUSTOMARY 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 15(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 15(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 15(A) OR SECTION 15(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 ON THE PRINCIPAL OF THIS NOTE, FROM THE ISSUANCE DATE.

 

16.  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).  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.

 

10

--------------------------------------------------------------------------------

 

17.  PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS.  IF FOLLOWING AN EVENT
OF DEFAULT (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 REASONABLE COSTS INCURRED BY THE HOLDER FOR SUCH
COLLECTION, ENFORCEMENT OR ACTION OR IN CONNECTION WITH SUCH BANKRUPTCY,
REORGANIZATION, RECEIVERSHIP OR OTHER PROCEEDING, INCLUDING, BUT NOT LIMITED TO,
ATTORNEYS’ FEES AND DISBURSEMENTS.

 

18.  CONSTRUCTION; HEADINGS.  THIS NOTE SHALL BE DEEMED TO BE JOINTLY DRAFTED BY
THE COMPANY AND ALL THE HOLDERS 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.

 

19.  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.

 

20.  NOTICES.  WHENEVER NOTICE IS REQUIRED TO BE GIVEN UNDER THIS NOTE, UNLESS
OTHERWISE PROVIDED HEREIN, SUCH NOTICE SHALL BE DELIVERED IN ACCORDANCE WITH
SECTION 6.4 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 TWENTY (20) 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 SHARES OR (B) 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.

 

21.  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.

 

22.  WAIVER OF NOTICE.  TO THE EXTENT PERMITTED BY LAW, THE COMPANY HEREBY
WAIVES DEMAND, NOTICE, 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.

 

11

--------------------------------------------------------------------------------

 

23.  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.  ANY ACTION BROUGHT BY EITHER PARTY AGAINST THE OTHER
CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT SHALL BE BROUGHT ONLY
IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF
NEW YORK AND WAIVE TRIAL BY JURY.  BOTH PARTIES AGREE TO SUBMIT TO THE
JURISDICTION OF SUCH COURTS.  THE PREVAILING PARTY SHALL BE ENTITLED TO RECOVER
FROM THE OTHER PARTY ITS REASONABLE ATTORNEY’S FEES AND COSTS.  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.

 

24.  INDEMNIFICATION.

 

(A)  SUBJECT TO THE LIMITATIONS HEREIN, THE COMPANY SHALL INDEMNIFY THE HOLDER,
AND EACH AFFILIATE OF THE HOLDER (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”)
AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS,
DAMAGES, LIABILITIES AND RELATED EXPENSES, (EXCLUDING THE LEGAL FEES OF COUNSEL
FOR ANY INDEMNITEE), INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE BY A THIRD
PARTY ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF:  (I) THE EXECUTION
OR DELIVERY OF THIS NOTE, THE PERFORMANCE BY THE COMPANY AND ITS SUBSIDIARIES
HERETO OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THE CONSUMMATION OF OR THE
USE OF THE PROCEEDS THEREFROM, OR (II) THE MATERIAL BREACH BY THE COMPANY OR ANY
SUBSIDIARY OF (A) ANY REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT CONTAINED
HEREIN OR (B) ANY REPRESENTATION OR WARRANTY IN SECTION 3.1 OF THE SECURITIES
PURCHASE AGREEMENT, AS THEY RELATE TO THIS NOTE; PROVIDED THAT SUCH INDEMNITY
SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES,
CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF
COMPETENT JURISDICTION BY FINAL AND NON-APPEALABLE JUDGMENT TO HAVE RESULTED
FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.

 

(B)           TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY AND THE
HOLDER HEREOF SHALL NOT ASSERT, AND HEREBY WAIVES, ANY CLAIM AGAINST ANY
INDEMNITEE, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR
PUNITIVE DAMAGES ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF, THIS THE
THIS NOTE, THE SECURITIES PURCHASE AGREEMENT AND THE REGISTRATION RIGHTS
AGREEMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, OR THE
USE OF THE PROCEEDS THEREOF.

 

12

--------------------------------------------------------------------------------

 

25.  MAXIMUM PAYMENTS.  NOTHING CONTAINED HEREIN SHALL BE DEEMED TO ESTABLISH OR
REQUIRE THE PAYMENT OF A RATE OF INTEREST OR OTHER CHARGES IN EXCESS OF THE
MAXIMUM PERMITTED BY APPLICABLE LAW.  IN THE EVENT THAT THE RATE OF INTEREST
REQUIRED TO BE PAID OR OTHER CHARGES HEREUNDER EXCEED THE MAXIMUM PERMITTED BY
SUCH LAW, ANY PAYMENTS IN EXCESS OF SUCH MAXIMUM SHALL BE CREDITED AGAINST
AMOUNTS OWED BY THE COMPANY TO THE HOLDER AND THUS REFUNDED TO THE COMPANY.

 

26.  NONCIRCUMVENTION. THE COMPANY HEREBY COVENANTS AND AGREES THAT THE COMPANY
WILL NOT, BY AMENDMENT OF ITS CERTIFICATE OF INCORPORATION OR 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.

 

27.  CERTAIN DEFINITIONS.  FOR PURPOSES OF THIS NOTE, THE FOLLOWING TERMS SHALL
HAVE THE FOLLOWING MEANINGS:

 

(A)  “BLOOMBERG” MEANS BLOOMBERG FINANCIAL MARKETS.

 

(B)  “CALENDAR QUARTER” MEANS EACH OF: THE PERIOD BEGINNING ON AND INCLUDING
JANUARY 1 AND ENDING ON AND INCLUDING MARCH 31; 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; AND THE PERIOD
BEGINNING ON AND INCLUDING OCTOBER 1 AND ENDING ON AND INCLUDING DECEMBER 31.

 

(C)  “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.

 

(D)  “ELIGIBLE MARKET” MEANS THE PRINCIPAL MARKET, THE NEW YORK STOCK EXCHANGE,
INC OR THE NASDAQ CAPITAL MARKET.

 

(E)  “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) BE SUBJECT TO AN OFFER FROM ANOTHER PERSON OR GROUP OF RELATED PERSONS
(AS DEFINED IN SECTIONS 13(D) AND 14(D) OF THE EXCHANGE ACT) OTHER THAN THE
HOLDER TO MAKE A PURCHASE, TENDER OR EXCHANGE OFFER THAT IS ACCEPTED BY THE
HOLDERS OF MORE THAN THE 50% OF THE OUTSTANDING VOTING SHARES (NOT INCLUDING ANY
VOTING SHARES 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 SHARE PURCHASE AGREEMENT OR OTHER BUSINESS
COMBINATION (INCLUDING, WITHOUT LIMITATION, A REORGANIZATION, RECAPITALIZATION,
SPIN-OFF OR SCHEME OF ARRANGEMENT) WITH ANOTHER PERSON OR GROUP OF RELATED
PERSONS (AS DEFINED IN SECTIONS 13(D) AND 14(D) OF THE EXCHANGE ACT) WHEREBY
SUCH OTHER PERSON OR GROUP

 

13

--------------------------------------------------------------------------------

 

ACQUIRES MORE THAN THE 50% OF THE OUTSTANDING VOTING SHARES (NOT INCLUDING ANY
VOTING SHARES 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 SHARE
PURCHASE AGREEMENT OR OTHER BUSINESS COMBINATION), PROVIDED HOWEVER, A
FUNDAMENTAL TRANSACTION SHALL NOT INCLUDE (I) ANY REORGANIZATION,
RECAPITALIZATION OR RECLASSIFICATION OF THE COMMON SHARES IN WHICH HOLDERS OF
THE COMPANY’S VOTING POWER IMMEDIATELY PRIOR TO SUCH REORGANIZATION,
RECAPITALIZATION OR RECLASSIFICATION CONTINUE AFTER SUCH REORGANIZATION,
RECAPITALIZATION OR RECLASSIFICATION TO HOLD PUBLICLY TRADED SECURITIES AND,
DIRECTLY OR INDIRECTLY, THE VOTING POWER OF THE SURVIVING ENTITY OR ENTITIES
NECESSARY TO ELECT A MAJORITY OF THE MEMBERS OF THE BOARD OF DIRECTORS (OR THEIR
EQUIVALENT IF OTHER THAN A CORPORATION) OF SUCH ENTITY OR ENTITIES, OR (II)
PURSUANT TO A MIGRATORY MERGER EFFECTED SOLELY FOR THE PURPOSE OF CHANGING THE
JURISDICTION OF INCORPORATION OF THE COMPANY.

 

(F)  “GAAP” MEANS UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES,
CONSISTENTLY APPLIED.

 

(G)  “MATURITY DATE” MEANS MARCH 22, 2011.

 

(H)  “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.

 

(I)  “PRINCIPAL MARKET” MEANS THE NASDAQ NATIONAL MARKET.

 

(J)  “REDEMPTION NOTICES” MEANS, COLLECTIVELY, THE EVENT OF DEFAULT REDEMPTION
NOTICES, AND THE FUNDAMENTAL TRANSACTION REDEMPTION NOTICES, EACH OF THE
FOREGOING, INDIVIDUALLY, A REDEMPTION NOTICE.

 

(K)  “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 SHARES ISSUABLE UPON CONVERSION OF THE NOTES.

 

(L)  “REQUIRED HOLDERS” MEANS THE HOLDERS OF NOTES REPRESENTING AT LEAST A
MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES THEN OUTSTANDING.

 

(M)  “SEC” MEANS THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION.

 

(N)  “SUCCESSOR ENTITY” MEANS THE PERSON, WHICH MAY BE THE COMPANY, FORMED BY,
RESULTING FROM OR SURVIVING ANY FUNDAMENTAL TRANSACTION OR THE PERSON WITH WHICH
SUCH FUNDAMENTAL TRANSACTION SHALL HAVE BEEN MADE.

 

(O)  “TAX” MEANS ANY TAX, LEVY, IMPOST, DUTY OR OTHER CHARGE OR WITHHOLDING OF A
SIMILAR NATURE (INCLUDING ANY RELATED PENALTY OR INTEREST).

 

(P)  “TAX DEDUCTION” MEANS A DEDUCTION OR WITHHOLDING FOR OR ON ACCOUNT OF TAX
FROM A PAYMENT UNDER THE NOTES.

 

14

--------------------------------------------------------------------------------

 

(Q)  “TRADING DAY” MEANS (A) ANY DAY ON WHICH THE COMMON STOCK IS LISTED OR
QUOTED AND TRADED ON ITS PRIMARY TRADING MARKET, (B) IF THE COMMON STOCK IS NOT
THEN LISTED OR QUOTED AND TRADED ON ANY ELIGIBLE MARKET, THEN A DAY ON WHICH
TRADING OCCURS ON THE NASDAQ NATIONAL MARKET (OR ANY SUCCESSOR THERETO), OR (C)
IF TRADING CEASES TO OCCUR ON THE NASDAQ NATIONAL MARKET (OR ANY SUCCESSOR
THERETO), ANY BUSINESS DAY.

 

(R)  “VOTING SHARES” OF A PERSON MEANS CAPITAL SHARES OF SUCH PERSON OF THE
CLASS OR CLASSES PURSUANT TO WHICH THE HOLDERS THEREOF HAVE THE GENERAL VOTING
POWER TO ELECT, OR THE GENERAL POWER TO APPOINT, AT LEAST A MAJORITY OF THE
BOARD OF DIRECTORS, MANAGERS OR TRUSTEES OF SUCH PERSON (IRRESPECTIVE OF WHETHER
OR NOT AT THE TIME CAPITAL SHARES OF ANY OTHER CLASS OR CLASSES SHALL HAVE OR
MIGHT HAVE VOTING POWER BY REASON OF THE HAPPENING OF ANY CONTINGENCY).

 

[Signature Page Follows]

 

15

--------------------------------------------------------------------------------

 

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

 

 

VYYO INC

 

 

 

By:

 

 

Name:

 

Title:

 

--------------------------------------------------------------------------------