Exhibit 10.2

 

 

[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.

 

HELIOS AND MATHESON ANALYTICS INC.

 

SENIOR SECURED CONVERTIBLE NOTE

 

Issuance Date: ___________, ______

Original Principal Amount: U.S. $[●]

 

FOR VALUE RECEIVED, Helios and Matheson Analytics Inc., a Delaware corporation
(the “Company”), hereby promises to pay to the order of [BUYER] or its
registered assigns (“Holder”) the amount set forth 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, or upon 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 (as defined below) from
the date set forth above as the Issuance Date (the “Issuance Date”) until the
same becomes due and payable, whether upon the Maturity Date or upon
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, dated as of February __,
2017 (the “Subscription Date”), by and among the Company and the investors (the
“Buyers”) referred to therein, as amended from time to time (collectively, the
“Notes”, and such other Senior Secured Convertible Notes, the “Other Notes”).
Certain capitalized terms used herein are defined in Section 31.

 

 
 

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1.     PAYMENTS OF PRINCIPAL. On the Maturity Date, the Company shall pay to the
Holder an amount in cash representing 115% of all outstanding Principal, accrued
and unpaid Interest and accrued and unpaid Late Charges (as defined in Section
24(c)) on such Principal and Interest. 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. [INSERT IN INITIAL NOTE ONLY: Notwithstanding anything herein
to the contrary, with respect to any conversion or redemption hereunder, as
applicable, the Company shall convert or redeem, as applicable, First, all
accrued and unpaid Interest hereunder and under any other Notes or December
Notes held by such Holder, Second, all accrued and unpaid Late Charges on any
Principal and Interest hereunder and under any other Notes or December Notes
held by such Holder, and Third, all Principal outstanding hereunder and under
any other Notes or December Notes held by such Holder.]

  

[INSERT IN ADDITIONAL NOTE ONLY:

 

(a)     Investor Prepayments; No Share Issuance until Paid in Full. Upon the
consummation of any Investor Prepayment, the aggregate outstanding Restricted
Principal under this Note shall automatically become unrestricted Principal
hereunder, on a dollar-for-dollar basis, in an amount equal to the aggregate
amount of cash paid in such Investor Prepayment. Notwithstanding anything herein
to the contrary, the shares of Common Stock issuable upon conversion of
Restricted Principal hereunder shall not be issued by the Company until such
portion of the Investor Note equivalent to the Restricted Principal subject to
such conversion has been fully paid pursuant to an Investor Prepayment or
otherwise upon maturity of the Investor Note (to the Company or to such other
Persons as directed by the Company in writing) and such Restricted Principal
becomes unrestricted Principal in accordance with the preceding sentence.

 

(b)     Prohibited Transfer or Severability Reduction. Upon any Prohibited
Transfer (as defined in the Investor Note) of, or Severability Event (as defined
in the Investor Note) under, the Investor Note, (x) the Investor Note shall be
deemed paid in full and shall be null and void, and (y) 75% of the remaining
Restricted Principal of this Note shall be automatically cancelled (with the
remaining 25% of the Restricted Principal of this Note automatically becoming
unrestricted Principal hereunder).

 

(c)     Investor Offset Right Reduction. Upon any exercise by the Holder of
Investor Offset Rights (as defined in the Investor Note), the Restricted
Principal hereunder shall automatically and simultaneously be reduced, on a
dollar-for-dollar basis, by such portion of the aggregate principal of the
Investor Note cancelled pursuant to such Investor Offset Rights.

 

(d)     Single Integrated Transaction. The Company hereby acknowledges and
agrees that (i) the Holder shall be entitled to exercise the Investor Offset
Rights through any means permissible under applicable law, including without
limitation, set-off and recoupment and (ii) the obligations of the Holder under
the Investor Note and the obligations of the Company under this Note arise in a
single integrated transaction and constitute related and interdependent
obligations within such transaction.

 

 
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(e)     Order of Conversion and/or Redemption. Notwithstanding anything herein
to the contrary, with respect to any conversion or redemption hereunder, as
applicable, the Company shall convert or redeem, as applicable, First, all
accrued and unpaid Interest hereunder and under any other Notes or December
Notes held by such Holder, Second, all accrued and unpaid Late Charges on any
Principal and Interest hereunder and under any other Notes or December Notes
held by such Holder, Third, all Principal (other than Restricted Principal)
outstanding hereunder and under any other Notes held by such Holder and, Fourth,
all other amounts outstanding (other than Restricted Principal) under any other
Notes or December Notes held by such Holder, in each case, prior to any
conversion or redemption, as applicable, of any Restricted Principal hereunder.]

 

2.     INTEREST; INTEREST RATE.

 

(a)     Interest on this Note shall commence accruing on the Issuance Date and
shall be computed on the basis of a 360-day year and twelve 30-day months and
shall be payable in arrears on April 1, 2017 and, thereafter, with respect to
any given calendar quarter, the first Trading Day of such calendar quarter
(each, an “Interest Date”). Interest shall be payable on each Interest Date, to
the record holder of this Note on the applicable Interest Date, in shares of
Common Stock (“Interest Shares”) so long as there has been no Equity Conditions
Failure (unless waived in writing by the Holder); provided however, that the
Company may, at its option following notice to the Holder, pay Interest on any
Interest Date in cash (“Cash Interest”) or in a combination of Cash Interest and
Interest Shares. The Company shall deliver a written notice (each, an “Interest
Election Notice”) to each holder of the Notes on or prior to the Interest Notice
Due Date (the date such notice is delivered to all of the holder, the “Interest
Notice Date”) which notice (i) either (A) confirms that Interest to be paid on
such Interest Date shall be paid entirely in Interest Shares or (B) elects to
pay Interest as Cash Interest or a combination of Cash Interest and Interest
Shares and specifies the amount of Interest that shall be paid as Cash Interest
and the amount of Interest, if any, that shall be paid in Interest Shares and
(ii) certifies that there has been no Equity Conditions Failure (or if an Equity
Conditions Failure has occurred as of the Interest Notice Date, unless the
Company has elected to pay such Interest as Cash Interest, the Interest Notice
shall indicate that unless the Holder, in its sole discretion, waives the Equity
Conditions Failure, in whole or in part, the Interest shall be paid as Cash
Interest). Notwithstanding anything herein to the contrary, if no Equity
Conditions Failure has occurred as of the Interest Notice Date but an Equity
Conditions Failure occurs at any time prior to the Interest Date, (A) the
Company shall provide the Holder a subsequent notice to that effect and (B)
unless the Holder, in its sole discretion, waives the Equity Conditions Failure,
the Interest shall be paid in cash. Interest to be paid on an Interest Date in
Interest Shares shall be paid in a number of fully paid and nonassessable shares
(rounded to the nearest whole share in accordance with Section 3(a)) of Common
Stock equal to the quotient of (1) the amount of Interest payable on such
Interest Date less any Cash Interest paid and (2) the Alternate Conversion Price
in effect on the applicable Interest Date.

 

 
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(b)     When any Interest Shares are to be paid on an Interest Date, the Company
shall (i) (A) provided that the Company's transfer agent (the “Transfer Agent”)
is participating in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, credit such aggregate number of Interest Shares to
which the Holder shall be entitled to the Holder's or its designee's balance
account with DTC through its Deposit/Withdrawal at Custodian system, or (B) if
the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver on the applicable Interest Date, to the
address set forth in the register maintained by the Company for such purpose
pursuant to the Securities Purchase Agreement or to such address as specified by
the Holder in writing to the Company at least two (2) Business Days prior to the
applicable Interest Date, a certificate, registered in the name of the Holder or
its designee, for the number of Interest Shares to which the Holder shall be
entitled and (ii) with respect to each Interest Date, pay to the Holder, in cash
by wire transfer of immediately available funds, the amount of any Cash
Interest.

 

(c)     Prior to the payment of Interest on an Interest Date, Interest on this
Note shall accrue at the Interest Rate and be payable by way of inclusion of the
Interest in the Conversion Amount on each Conversion Date in accordance with
Section 3(b)(i) or upon any redemption in accordance with Section 11 or any
required payment upon any Bankruptcy Event of Default. From and after the
occurrence and during the continuance of any Event of Default, the Interest Rate
shall automatically be increased to the Default Rate. In the event that such
Event of Default is subsequently cured (and no other Event of Default then
exists (including, without limitation, for the Company’s failure to pay such
Interest at the Default Rate on the applicable Interest Date), the adjustment
referred to in the preceding sentence shall cease to be effective as of the
calendar day immediately following 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. At any time after [INSERT IN INITIAL NOTES: the
Issuance Date][INSERT IN ADDITIONAL NOTES such date no December Notes remain
outstanding], this Note shall be convertible into validly issued, fully paid and
non-assessable 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 validly issued, fully paid and non-assessable 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, issuance and similar taxes, costs and expenses (including,
without limitation, fees and expenses of the Transfer Agent (as defined below))
that may be payable with respect to the issuance and delivery of Common Stock
upon conversion of any Conversion Amount.

 

 
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(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 sum of (x) portion of the Principal to be
converted, redeemed or otherwise with respect to which this determination is
being made and (y) all accrued and unpaid Interest with respect to such portion
of the Principal amount and accrued and unpaid Late Charges with respect to such
portion of such Principal and such Interest, if any.

 

(ii)     “Conversion Price” means, as of any Conversion Date or other date of
determination, $[ ]1, 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 deliver
(whether via facsimile, electronic mail or otherwise), 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. If required by Section 3(c)(iii), within three (3) Trading Days
following a conversion of this Note as aforesaid, the Holder shall 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 as contemplated by Section 18(b)). On or
before the first (1st) Trading Day following the date of receipt of a Conversion
Notice, the Company shall transmit by facsimile or electronic mail an
acknowledgment of confirmation and representation as to whether such shares of
Common Stock may then be resold pursuant to Rule 144 or an effective and
available registration statement, in the form attached hereto as Exhibit II, of
receipt of such Conversion Notice to the Holder and the Transfer Agent which
confirmation shall constitute an instruction to the Transfer Agent to process
such Conversion Notice in accordance with the terms herein. On or before the
third (3rd) Trading Day following the date on which the Company has received a
Conversion Notice (or such earlier date as required pursuant to the 1934 Act or
other applicable law, rule or regulation for the settlement of a trade initiated
on the applicable Conversion Date of such shares of Common Stock issuable
pursuant to such Conversion Notice) (the “Share Delivery Deadline”), the Company
shall (1) provided that the Transfer Agent is participating in the DTC Fast
Automated Securities Transfer Program, credit such aggregate number of shares of
Common Stock to which the Holder shall be entitled pursuant to such conversion
to the Holder’s or its designee’s balance account with DTC through its
Deposit/Withdrawal at Custodian system or (2) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, upon the
request of the Holder, 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 pursuant to such conversion. If this Note
is physically surrendered for conversion pursuant to 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. Notwithstanding anything to the contrary contained in this Note or the
Registration Rights Agreement, after the effective date of the Registration
Statement (as defined in the Registration Rights Agreement) and prior to the
Holder’s receipt of the notice of a Grace Period (as defined in the Registration
Rights Agreement), the Company shall cause the Transfer Agent to deliver
unlegended shares of Common Stock to the Holder (or its designee) in connection
with any sale of Registrable Securities (as defined in the Registration Rights
Agreement) with respect to which the Holder has entered into a contract for
sale, and delivered a copy of the prospectus included as part of the particular
Registration Statement to the extent applicable, and for which the Holder has
not yet settled.

                                                          

 1 [INSERT IN INITIAL NOTE: $4.00][INSERT IN ADDITIONAL NOTE: $4.50]

 

 
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(ii)     Company’s Failure to Timely Convert. If the Company shall fail, for any
reason or for no reason, on or prior to the applicable Share Delivery Deadline,
either (I) either (x) prior to the Resale Eligibility Date or if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer
Program, to issue and deliver to the Holder (or its designee) 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, (y)
after the Resale Eligibility Date and if the Transfer Agent is participating in
the DTC Fast Automated Securities Transfer Program, to credit the balance
account of the Holder or the Holder’s designee with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
conversion of this Note (as the case may be) or (II) after the Resale
Eligibility Date, if the Registration Statement covering the resale of the
shares of Common Stock that are the subject of the Conversion Notice (the
“Unavailable Conversion Shares”) is not available for the resale of such
Unavailable Conversion Shares and the Company fails to promptly, but in no event
later than as required pursuant to the Registration Rights Agreement (x) so
notify the Holder and (y) deliver such shares of Common Stock electronically
without any restrictive legend by crediting such aggregate number of shares of
Common Stock to which the Holder is entitled pursuant to such conversion to the
Holder’s or its designee’s balance account with DTC through its
Deposit/Withdrawal At Custodian system (the event described in the immediately
foregoing clause (II) is hereinafter referred as a “Notice Failure” and together
with the event described in clause (I) above, 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 Share Delivery Deadline 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 or prior to the Share Delivery Deadline and to
which the Holder is entitled, multiplied by (B) any trading price of the Common
Stock selected by the Holder in writing as in effect at any time during the
period beginning on the applicable Conversion Date and ending on the applicable
Share Delivery Deadline 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 on or prior to the Share Delivery
Deadline and after the Resale Eligibility Date either (A) if the Transfer Agent
is not participating in the DTC Fast Automated Securities Transfer Program, the
Company shall fail to issue and deliver to the Holder (or its designee) a
certificate and register such shares of Common Stock on the Company’s share
register or, if the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, the Transfer Agent shall fail to credit the balance
account of the Holder or the Holder’s designee with DTC for the number of shares
of Common Stock to which the Holder is entitled upon the Holder’s conversion
hereunder or pursuant to the Company’s obligation pursuant to clause (II) below
or (B) a Notice Failure occurs, and if on or after such Share Delivery Deadline
the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock corresponding to all or any portion of the number of shares of
Common Stock issuable upon such conversion that the Holder is entitled to
receive from the Company and has not received from the Company in connection
with such Conversion Failure or Notice Failure, as applicable (a “Buy-In”),
then, in addition to all other remedies available to the Holder, the Company
shall, within three (3) Business Days after receipt of 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 (including, without limitation, by any other Person in respect, or on
behalf, of the Holder) (the “Buy-In Price”), at which point the Company’s
obligation to so issue and deliver such certificate (and to issue such shares of
Common Stock) or credit the balance account of such Holder or such Holder’s
designee, as applicable, 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 to issue such shares of Common Stock) shall terminate, or (II)
promptly honor its obligation to so issue and deliver to the Holder a
certificate or certificates representing such shares of Common Stock or credit
the balance account of such Holder or such Holder’s designee, as applicable,
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 (x) such number of shares of Common Stock multiplied by (y)
the lowest Closing Sale Price of the Common Stock on any Trading Day during the
period commencing on the date of the applicable Conversion Notice and ending on
the date of such issuance and payment under this clause (II) (the “Buy-In
Payment Amount”). Nothing shall limit the Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity, including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver certificates representing
shares of Common Stock (or to electronically deliver such shares of Common
Stock) upon the conversion of this Note as required pursuant to the terms
hereof. Notwithstanding anything herein to the contrary, with respect to any
given Notice Failure and/or Conversion Failure, this Section 3(c)(ii) shall not
apply to the Holder to the extent the Company has already paid such amounts in
full to such Holder with respect to such Notice Failure and/or Conversion
Failure, as applicable, pursuant to the analogous sections of the Securities
Purchase Agreement.

 

 
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(iii)     Registration; Book-Entry. The Company shall maintain a register (the
“Register”) for the recordation of the names and addresses of the holders of
each Note and the principal amount of the Notes [INSERT IN ADDITIONAL NOTE ONLY:
and Restricted Principal] held by such holders (the “Registered Notes”). The
entries in the Register shall be conclusive and binding for all purposes absent
manifest error. The Company and the holders of the Notes shall treat each Person
whose name is recorded in the Register as the owner of a Note for all purposes
(including, without limitation, the right to receive payments of Principal and
Interest hereunder) notwithstanding notice to the contrary. A Registered Note
may be assigned, transferred or sold in whole or in part only by registration of
such assignment or sale on the Register. Upon its receipt of a written request
to assign, transfer or sell all or part of any Registered Note by the holder
thereof, the Company shall record the information contained therein in the
Register and issue one or more new Registered Notes in the same aggregate
principal amount as the principal amount of the surrendered Registered Note to
the designated assignee or transferee pursuant to Section 18, provided that if
the Company does not so record an assignment, transfer or sale (as the case may
be) of all or part of any Registered Note within two (2) Business Days of such a
request, then the Register shall be automatically deemed updated to reflect such
assignment, transfer or sale (as the case may be). Notwithstanding anything to
the contrary set forth in this Section 3, following 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 (in which event this Note
shall be delivered to the Company following conversion thereof as contemplated
by Section 3(c)(i)) 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) [INSERT IN ADDITIONAL NOTE ONLY: or
Restricted Principal becoming unrestricted] and the dates of such conversions
[INSERT IN ADDITIONAL NOTE ONLY:, Investor Prepayments] 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. If the Company does not update the Register to record such
Principal, Interest and Late Charges converted and/or paid (as the case may be)
[INSERT IN ADDITIONAL NOTE ONLY: or Restricted Principal becoming unrestricted]
and the dates of such conversions, [INSERT IN ADDITIONAL NOTE ONLY: Investor
Prepayment] and/or payments (as the case may be) within two (2) Business Days of
such occurrence, then the Register shall be automatically deemed updated to
reflect such occurrence.

 

 
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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. The Company shall not effect the conversion of any
portion of this Note, and the Holder shall not have the right to convert any
portion of this Note pursuant to the terms and conditions of this Note and any
such conversion shall be null and void and treated as if never made, to the
extent that after giving effect to such conversion, the Holder together with the
other Attribution Parties collectively would beneficially own in excess of 9.99%
(the “Maximum Percentage”) of the shares of Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing sentence,
the aggregate number of shares of Common Stock beneficially owned by the Holder
and the other Attribution Parties shall include the number of shares of Common
Stock held by the Holder and all other Attribution Parties plus the number of
shares of Common Stock issuable upon conversion of this Note with respect to
which the determination of such sentence is being made, but shall exclude shares
of Common Stock which would be issuable upon (A) conversion of the remaining,
nonconverted portion of this Note beneficially owned by the Holder or any of the
other Attribution Parties and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without
limitation, any convertible notes or convertible preferred stock or warrants)
beneficially owned by the Holder or any other Attribution Party subject to a
limitation on conversion or exercise analogous to the limitation contained in
this Section 3(d)(i). For purposes of this Section 3(d)(i), beneficial ownership
shall be calculated in accordance with Section 13(d) of the 1934 Act. For
purposes of determining the number of outstanding shares of Common Stock the
Holder may acquire upon the conversion of this Note without exceeding the
Maximum Percentage, the Holder may rely on the number of outstanding shares of
Common Stock as reflected in (x) the Company’s most recent Annual Report on Form
10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public
filing with the SEC, as the case may be, (y) a more recent public announcement
by the Company or (z) any other written notice by the Company or the Transfer
Agent, if any, setting forth the number of shares of Common Stock outstanding
(the “Reported Outstanding Share Number”). If the Company receives a Conversion
Notice from the Holder at a time when the actual number of outstanding shares of
Common Stock is less than the Reported Outstanding Share Number, the Company
shall notify the Holder in writing of the number of shares of Common Stock then
outstanding and, to the extent that such Conversion Notice would otherwise cause
the Holder’s beneficial ownership, as determined pursuant to this Section
3(d)(i), to exceed the Maximum Percentage, the Holder must notify the Company of
a reduced number of shares of Common Stock to be purchased pursuant to such
Conversion Notice. 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 or by electronic mail to the Holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Note, by the Holder and any other
Attribution Party since the date as of which the Reported Outstanding Share
Number was reported. In the event that the issuance of shares of Common Stock to
the Holder upon conversion of this Note results in the Holder and the other
Attribution Parties being deemed to beneficially own, in the aggregate, more
than the Maximum Percentage of the number of outstanding shares of Common Stock
(as determined under Section 13(d) of the 1934 Act), the number of shares so
issued by which the Holder’s and the other Attribution Parties’ aggregate
beneficial ownership exceeds the Maximum Percentage (the “Excess Shares”) shall
be deemed null and void and shall be cancelled ab initio, and the Holder shall
not have the power to vote or to transfer the Excess Shares. Upon delivery of a
written notice to the Company, the Holder may from time to time increase (with
such increase not effective until the sixty-first (61st) day after delivery of
such notice) or decrease the Maximum Percentage to any other percentage not in
excess of 9.99% as specified in such notice; provided that (i) any such increase
in the Maximum Percentage 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 the other Attribution Parties and not
to any other holder of Notes that is not an Attribution Party of the Holder. For
purposes of clarity, the shares of Common Stock issuable pursuant to the terms
of this Note in excess of the Maximum Percentage shall not be deemed to be
beneficially owned by the Holder for any purpose including for purposes of
Section 13(d) or Rule 16a-1(a)(1) of the 1934 Act. No prior inability to convert
this Note 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. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section 3(d)(i) to the extent necessary to correct this paragraph (or any
portion of this paragraph) which may be defective or inconsistent with the
intended beneficial ownership limitation contained in this Section 3(d)(i) or to
make changes or supplements necessary or desirable to properly give effect to
such limitation. The limitation contained in this paragraph may not be waived
and shall apply to a successor holder of this Note.

 

 
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(ii)     Exchange Cap. The Company shall not issue any shares of Common Stock
upon conversion of this Note or otherwise pursuant to the terms of this Note 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 of the Notes
or otherwise pursuant to the terms of this Note without breaching the Company’s
obligations, if any, under the rules or regulations of the Principal Market (the
number of shares which may be issued without violating such rules and
regulations, including rules related to the aggregate of offerings under NASDAQ
Listing Rule 5635(d), as applicable, the “Exchange Cap”), except that such
limitation shall not apply in the event that the Company (A) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market for issuances of shares of Common Stock upon conversion of the
Notes or otherwise pursuant to the terms of this Note 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 such approval or such written opinion is obtained, no Buyer shall
be issued in the aggregate, upon conversion of any Notes or otherwise pursuant
to the terms of this Note, shares of Common Stock in an amount greater than the
product of (i) the Exchange Cap multiplied by (ii) the quotient of (A) the
aggregate original principal amount of Notes issued to such Buyer pursuant to
the Securities Purchase Agreement on the Closing Date divided by (B) 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 with respect to such
portion of such Notes so transferred, and the restrictions of the prior sentence
shall apply to such transferee with respect to the portion of the Exchange Cap
Allocation so allocated to such transferee. Upon conversion in full of a
holder’s Notes, the difference (if any) between such holder’s Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder upon such holder’s conversion in full of such holder’s Notes shall be
allocated to the respective Exchange Cap Allocations of the remaining holders of
Notes on a pro rata basis in proportion to the shares of Common Stock underlying
the Notes then held by each such holder. In the event that the Company is
prohibited from issuing shares of Common Stock pursuant to this Section 3(d)(ii)
(the “Exchange Cap Shares”) after April 30, 2017, the Company shall pay cash in
exchange for the cancellation of such portion of the Conversion Amount of the
Note convertible into such Exchange Cap Shares at a price equal to the sum of
(i) the product of (x) such number of Exchange Cap Shares and (y) the greatest
Closing Sale Price of the Common Stock on any Trading Day during the period
commencing on the date the Holder delivers the applicable Conversion Notice with
respect to such Exchange Cap Shares to the Company and ending on the date of
such issuance and payment under this Section 3(e) and (ii) to the extent 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 Exchange Cap Shares,
any Buy-In Payment Amount, any brokerage commissions and other out-of-pocket
expenses, if any, of the Holder incurred in connection therewith (collectively,
the “Exchange Cap Share Cancellation Amount”); provided, that no Exchange Cap
Share Cancellation Amount shall be due and payable to the Holder to the extent
that (x) on or prior to the applicable Share Delivery Deadline, the Exchange Cap
Allocation of a Holder is increased (whether by assignment by a holder of Notes
or all, or any portion, of such holder's Exchange Cap Allocation or otherwise)
(an “Exchange Cap Allocation Increase”) and (y) after giving effect to such
Exchange Cap Allocation Increase, the Company delivers the applicable Exchange
Cap Shares to the Holder (or its designee) on or prior to the applicable Share
Delivery Deadline.

 

 
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(e)     Right of Alternate Conversion.

 

(i)     General.

 

(1)     Alternate Optional Conversion. At any time from and after the Issuance
Date, at the option of the Holder, the Holder may convert (each, an “Alternate
Optional Conversion”, and the date of such Alternate Optional Conversion, an
“Alternate Optional Conversion Date”) all, or any part, of the Principal amount
of this Note as of the initial Issuance Date (together with any accrued and
unpaid Interest thereon and accrued and unpaid Late Charges on such Principal
and Interest through such Alternate Optional Conversion Date) into shares of
Common Stock (such portion of the Conversion Amount subject to such Alternate
Optional Conversion, the “Alternate Optional Conversion Amount”) at the
Alternate Conversion Price.

 

(2)     Alternate Conversion Upon an Event of Default. At any time during an
Event of Default Redemption Right Period (as defined below) (regardless of
whether such Event of Default has been cured or if the Holder has delivered an
Event of Default Redemption Notice to the Company), the Holder may, at the
Holder’s option, convert (each, an “Alternate Event of Default Conversion” and
together with each Alternate Optional Conversion, each, an “Alternate
Conversion”, and the date of such Alternate Event of Default Conversion, each,
an “Alternate Event of Default Conversion Date”, and together with each
Alternate Optional Conversion Date, each, an “Alternate Conversion Date”) all,
or any part of, the Conversion Amount (such portion of the Conversion Amount
subject to such Alternate Conversion, the “Alternate Event of Default Conversion
Amount” and together with each Alternate Optional Conversion Amount, each, an
“Alternate Conversion Amount”) into shares of Common Stock at the Alternate
Conversion Event of Default Price.

 

(ii)     Mechanics of Alternate Conversion. On any Alternate Conversion Date,
the Holder may voluntarily convert any Alternate Conversion Amount pursuant to
Section 3(c) (with “Alternate Conversion Price” replacing “Conversion Price” for
all purposes hereunder with respect to such Alternate Optional Conversion, with
“Alternate Conversion Event of Default Price” replacing “Conversion Price” for
all purposes hereunder with respect to such Alternate Event of Default
Conversion and, solely with respect to the calculation of the number of shares
of Common Stock issuable upon conversion of any Conversion Amount in an
Alternate Event of Default Conversion, with “Redemption Premium of the
Conversion Amount” replacing “Conversion Amount” in clause (x) of the definition
of Conversion Rate above with respect to such Alternate Conversion) by
designating in the Conversion Notice delivered pursuant to this Section 3(e) of
this Note that the Holder is electing to use the Alternate Conversion Price for
such conversion. Notwithstanding anything to the contrary in this Section 3(e),
but subject to Section 3(d), until the Company delivers shares of Common Stock
representing the applicable Alternate Conversion Amount to the Holder, such
Alternate Conversion Amount may be converted by the Holder into shares of Common
Stock pursuant to Section 3(c) without regard to this Section 3(e).

 

 
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(f)     Mandatory Conversion.

 

(i)     General. If at any time after [INSERT IN INITIAL NOTE: the Issuance
Date][INSERT IN ADDITIONAL NOTE: the later of (x) the Issuance Date and (y) the
date no December Note or Initial Note (as defined in the Securities Purchase
Agreement) remains outstanding], no Equity Conditions Failure then exists
(unless waived, in whole or in part, in writing by the Holder (but only with
respect to such specified Equity Conditions waived and, if applicable, portion
of the Mandatory Conversion Amount (as defined below) in which such waiver is
applicable), the Company shall have the right to require the Holder to convert
all, or any part, of the Conversion Amount of this Note, not in excess of the
Maximum Mandatory Share Amount or the Maximum Mandatory Conversion Amount, as
designated in the Mandatory Conversion Notice (as defined below) into fully
paid, validly issued and nonassessable shares of Common Stock in accordance with
Section 3(c) hereof (with “Mandatory Conversion Price” replacing “Conversion
Price” for all purposes hereunder with respect to such Mandatory Conversion) as
of the Mandatory Conversion Date (as defined below) (each, a “Mandatory
Conversion”). The Company may exercise its right to require conversion under
this Section 3(f) by delivering a written notice thereof by facsimile or
electronic mail to all, but not less than all, of the holders of Notes and the
Transfer Agent (each, a “Mandatory Conversion Notice” and each date all of the
holders received a notice is referred to as a “Mandatory Conversion Notice
Date”) at a conversion price equal to the Mandatory Conversion Price. The
Mandatory Conversion Notice shall be irrevocable. The Mandatory Conversion
Notice shall state (i) the Trading Day selected for the Mandatory Conversion in
accordance with this Section 3(f), which Trading Day shall be the third (3rd)
Trading Day following the Mandatory Conversion Notice Date (each, a “Mandatory
Conversion Date”), (ii) the aggregate Conversion Amount (not in excess of the
Maximum Mandatory Conversion Amount or resulting in the issuance of such
aggregate number of shares of Common Stock in excess of the Maximum Mandatory
Share Amount), of the Notes subject to mandatory conversion from the Holder and
all of the holders of the Notes pursuant to this Section 3(f) (and analogous
provisions under the Other Notes) (each, a “Mandatory Conversion Amount”), and
(iii) that there has been no Equity Conditions Failure (or specifying any such
Equity Conditions Failure that then exists and has not been waived (or, if
appcliable, with respect to such portion of the Mandatory Convesion Amount in
which such waiver is not applicable), with an acknowledgement that unless such
Equity Conditions are waived, in whole or in part, such Mandatory Conversion
Notice will be invalid (or, if applicable, such portion of the Mandatory
Conversion Notice will be invalid with respect to such portion of the Mandatory
Conversion Amount in which such waiver is not applicable). Notwithstanding the
foregoing, (x) the Company may affect only one (1) Mandatory Conversion during
any three (3) Trading Day period and (y) the Holder may, at its option, by
written notice to the Company at any time on or prior to the applicable
Mandatory Conversion Date, increase the Mandatory Conversion Amount to any
amount up to, and including, all of the Conversion Amount then outstanding
hereunder, whether or not in excess of the Maximum Mandatory Conversion Amount.
Notwithstanding anything herein to the contrary, (i) if an Equity Conditions
Failure occurs at any time prior to the Mandatory Conversion Date, (A) the
Company shall provide the Holder a subsequent notice to that effect and (B)
unless the Holder waives the applicable Equity Conditions Failure, the Mandatory
Conversion shall be cancelled and the applicable Mandatory Conversion Notice
shall be null and void and (ii) at any time prior to the date all of the shares
of Common Stock to be delivered to the Holder (or its designee) in such
Mandatory Conversion have been delivered in full in compliance with Section 3(c)
above, the Mandatory Conversion Amount may be converted, in whole or in part, by
the Holders into shares of Common Stock pursuant to Section 3. Notwithstanding
the foregoing, any Conversion Amount subject to a Mandatory Conversion may be
converted by the Holder hereunder prior to the applicable Mandatory Conversion
Date and such aggregate Conversion Amount converted hereunder on or after the
Mandatory Conversion Notice Date and prior to such Mandatory Conversion Date
shall reduce the Mandatory Conversion Amount to be converted on such Mandatory
Conversion Date. For the avoidance of doubt, if any Event of Default has
occurred and continuing, unless such Event of Default has been waived, in whole
or in part, in writing by the Holder, Company shall have no right to effect a
Mandatory Conversion; provided, that such Event of Default shall have no effect
upon the Holder’s right to convert this Note in its discretion.

 

 
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(ii)     Pro Rata Conversion Requirement. If the Company elects to cause a
Mandatory Conversion of this Note pursuant to Section 3(f), then it must
simultaneously take the same action in the same proportion with respect to all
of the Other Notes.

 

(iii)     True-Up of Mandatory Conversion. On the fifth (5th) Trading Day
immediately following a Mandatory Conversion Date and on each fifth (5th)
Trading Day thereafter through and including the fifteenth (15th) Trading Day
immediately following such Mandatory Conversion Date (each, a “True-Up Date”),
if the True-Up Price is less than the applicable Mandatory Conversion Price,
then on each such True-Up Date the Company shall deliver to the Holder such
additional number of shares of Common Stock equal to the difference of (A) the
quotient of (x) the applicable Mandatory Conversion Amount, divided by (y) the
True-Up Price, less (B) such aggregate number of shares of Common Stock
previously delivered to the Holder on such Mandatory Conversion Date and/or any
prior True-Up Date with respect to such Mandatory Conversion (each, a
“True-Up”); provided, however, that to the extent that such True-Up would result
in the Holder and the other Attribution Parties exceeding the Maximum
Percentage, then the Holder shall not be entitled to such True-Up to the extent
of the Maximum Percentage (and shall not be entitled to beneficial ownership of
such shares of Common Stock as a result of such True-Up (and beneficial
ownership) to the extent of any such excess) and such portion of such True-Up
shall be held in abeyance for the benefit of the Holder until such time or
times, if ever, as its right thereto would not result in the Holder and the
other Attribution Parties exceeding the Maximum Percentage, at which time or
times the Holder shall be granted such portion of the True-Up held in the
abeyance to the same extent as if there had been no such limitation.

 

 
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(iv)     Mechanics. All shares of Common Stock required to be delivered to the
Holder pursuant to this Section 3(f) shall be delivered to the Holder in
accordance with Section 3(c) as if a Conversion Notice with respect to such
Conversion Amount to be converted shall have been delivered to the Company on
the third (3rd) Trading Day immediately prior such Mandatory Conversion Date or
True-Up Date, as applicable.

 

4.     RIGHTS UPON EVENT OF DEFAULT.

 

(a)     Event of Default. Each of the following events shall constitute an
“Event of Default” and each of the events in clauses (ix), (x) and (xi) shall
constitute a “Bankruptcy 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 five (5) 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
five (5) 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 such
Registration Statement (or the prospectus contained therein) 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 in accordance
with the terms of the Registration Rights Agreement (or such lesser number of
Registrable Securities as required to be registered in accordance with Section
2(f) of the Registration Rights Agreement), and such lapse or unavailability
continues for a period of five (5) consecutive days or for more than an
aggregate of ten (10) days in any 365-day period (excluding days during an
Allowable Grace Period (as defined in the Registration Rights Agreement));

 

 
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(iii)     the suspension from trading or the failure of the Common Stock to be
trading or listed (as applicable) on an Eligible Market for a period of five (5)
consecutive Trading Days;

 

(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 exercise date (as the case may be) 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, as required, 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);

 

(v)     except to the extent the Company is in compliance with Section 10(b)
below, at any time following the tenth (10th) consecutive Trading Day that the
Holder’s Authorized Share Allocation (as defined in Section 10(a) below) is less
than the number of shares of Common Stock that the Holder would be entitled to
receive upon a conversion by the Holder 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, 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)
Trading 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 (as defined in the Securities Purchase
Agreement) 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 failure remains uncured for at least five (5)
Trading Days;

 

(viii)     the occurrence of any default under, redemption of or acceleration
prior to maturity of at least an aggregate of $150,000 of Indebtedness (as
defined in the Securities Purchase Agreement) of the Company or any of its
Subsidiaries, other than with respect to any Other Notes;

 

 
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(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 Subsidiary and, if instituted against the Company or any
Subsidiary by a third party, shall not be dismissed within thirty (30) days of
their initiation;

 

(x)     the commencement by the Company or any 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 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 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 Subsidiary in
furtherance of any such action or the taking of any action by any Person to
commence a Uniform Commercial Code 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 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
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 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 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 $150,000 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, settled or stayed pending appeal, or are not
discharged within thirty (30) days after the expiration of such stay; provided,
however, any judgment which is covered by insurance or an indemnity from a
credit worthy party shall not be included in calculating the $150,000 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;

 

 
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(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 $150,000 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 is otherwise
in breach or violation of any agreement for monies owed or owing in an amount in
excess of $150,000, 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) of the Company or any of its
Subsidiaries, individually or in the aggregate;

 

(xiv)     other than as specifically set forth in another clause of this Section
4(a), the Company or any Subsidiary breaches any representation or warranty in
any material respect (other than representations or warranties subject to
material adverse effect or materiality limitations, which may not be breached in
any respect) or any covenant or other term or condition of any Transaction
Document, except, in the case of a breach of a covenant or other term or
condition that is curable, only if such breach remains uncured for a period of
ten (10) consecutive Trading Days;

 

(xv)     a materially false or inaccurate certification (including a false or
inaccurate deemed certification) by the Company that either (A) the Equity
Conditions are satisfied, (B) there has been no Equity Conditions Failure, or
(C) as to whether any Event of Default has occurred;

 

(xvi)     any breach or failure in any respect by the Company or any Subsidiary
to comply with any provision of Section 13 of this Note;

 

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

 

(xviii)     any material provision of any Transaction Document (including,
without limitation, the Security Documents) shall at any time for any reason
(other than pursuant to the express terms thereof) cease to be valid and binding
on or enforceable against the parties thereto in any material respect, or the
validity or enforceability thereof shall be contested by any party thereto, or a
proceeding shall be commenced by the Company or any Subsidiary or any
governmental authority having jurisdiction over any of them, seeking to
establish the invalidity or unenforceability thereof, or the Company or any
Subsidiary shall deny in writing that it has any liability or obligation
purported to be created under any Transaction Document (including, without
limitation, the Security Documents); and

 

 
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(xix)     any Security Document shall for any reason fail or cease to create a
separate valid and perfected and, except to the extent permitted by the terms
hereof or thereof, first priority Lien (as defined in the Securities Purchase
Agreement) on the Collateral (as defined in the Security Documents) in favor of
the Collateral Agent (as defined in the Securities Purchase Agreement) or any
material provision of any Security Document shall at any time for any reason
cease to be valid and binding on or enforceable against the Company or the
validity or enforceability thereof shall be contested by any party thereto, or a
proceeding shall be commenced by the Company or any governmental authority
having jurisdiction over the Company, seeking to establish the invalidity or
unenforceability thereof;

 

(xx)     any material damage to, or loss, theft or destruction of, any
Collateral, whether or not insured, or any strike, lockout, labor dispute,
embargo, condemnation, act of God or public enemy, or other casualty which
causes, for more than fifteen (15) consecutive days, the cessation or
substantial curtailment of revenue producing activities at any facility of the
Company or any Subsidiary, if any such event or circumstance could have a
Material Adverse Effect; or

 

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

 

(b)     Notice of an Event of Default; 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
or electronic mail 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, (such earlier date, the “Event of Default Right
Commencement Date”) and ending (such ending date, the “Event of Default Right
Expiration Date”, and each such period, an “Event of Default Redemption Right
Period”) on the twentieth (20th) Trading Day after the later of (x) the date
such Event of Default is cured and (y) the Holder’s receipt of an Event of
Default Notice that includes (I) a reasonable description of the applicable
Event of Default, (II) a certification as to whether, in the opinion of the
Company, such Event of Default is capable of being cured and, if applicable, a
reasonable description of any existing plans of the Company to cure such Event
of Default and (III) a certification as to the date the Event of Default
occurred and, if cured on or prior to the date of such Event of Default Notice,
the applicable Event of Default Right Expiration Date, the Holder may require
the Company to redeem the Holder may require the Company to redeem (regardless
of whether such Event of Default has been cured) 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 Conversion Amount to be redeemed multiplied by (B) the Redemption
Premium and (ii) the product of (X) the Conversion Rate with respect to the
Conversion Amount in effect at such time as the Holder delivers an Event of
Default Redemption Notice multiplied by (Y) the product of (1) the Redemption
Premium multiplied by (2) the greatest Closing Sale Price of the Common Stock on
any Trading Day during the period commencing on the date immediately preceding
such Event of Default and ending on the date the Company makes the entire
payment required to be made under this Section 4(b) (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 this Note by the Company, such redemptions
shall be deemed to be voluntary prepayments. Notwithstanding anything to the
contrary in this Section 4(b), but subject to Section 3(d), until the Event of
Default Redemption Price (together with any Late Charges thereon) is paid in
full, the Conversion Amount submitted for redemption under this Section 4(b)
(together with any Late Charges thereon) may be converted, in whole or in part,
by the Holder into Common Stock pursuant to the terms of this Note. In the event
of the Company’s redemption of any portion of this 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. Any redemption
upon an Event of Default shall not constitute an election of remedies by the
Holder, and all other rights and remedies of the Holder shall be preserved.

  

(c)     Mandatory Redemption upon Bankruptcy Event of Default. Notwithstanding
anything to the contrary herein, and notwithstanding any conversion that is then
required or in process, upon any Bankruptcy Event of Default, whether occurring
prior to or following the Maturity Date, the Company shall immediately pay to
the Holder an amount in cash representing (i) all outstanding Principal, accrued
and unpaid Interest and accrued and unpaid Late Charges on such Principal and
Interest, multiplied by (ii) the Redemption Premium, in addition to any and all
other amounts due hereunder, without the requirement for any notice or demand or
other action by the Holder or any other person or entity, provided that the
Holder may, in its sole discretion, waive such right to receive payment upon a
Bankruptcy Event of Default, in whole or in part, and any such waiver shall not
affect any other rights of the Holder hereunder, including any other rights in
respect of such Bankruptcy Event of Default, any right to conversion, and any
right to payment of the Event of Default Redemption Price or any other
Redemption Price, as applicable.

 

 
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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 and security 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 a
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 such Fundamental Transaction, in lieu
of the shares of Common Stock (or other securities, cash, assets or other
property (except such items still issuable under Sections 6 and 15, 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. Notwithstanding the foregoing, the Holder may elect, at
its sole option, by delivery of written notice to the Company to waive this
Section 5(a) to permit the Fundamental Transaction without the assumption of
this Note. The provisions of this Section 4(c) 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)     Notice of a Change of Control; Redemption Right. No sooner than twenty
(20) Trading Days nor later than ten (10) Trading Days prior to the consummation
of a Change of Control (the “Change of Control Date”), but not prior to the
public announcement of such Change of Control, the Company shall deliver written
notice thereof via facsimile or electronic mail and overnight courier to the
Holder (a “Change of Control Notice”). At any time during the period beginning
after the Holder’s receipt of a Change of Control Notice or the Holder becoming
aware of a Change of Control if a Change of Control Notice is not delivered to
the Holder in accordance with the immediately preceding sentence (as applicable)
and ending on the later of twenty (20) Trading Days after (A) consummation of
such Change of Control or (B) the date of receipt of such Change of Control
Notice, the Holder may require the Company to redeem all or any portion of this
Note by delivering written notice thereof (“Change of Control Redemption
Notice”) to the Company, which Change of Control 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 greatest of (i) the product of (w)
the Change of Control Redemption Premium multiplied by (y) the Conversion Amount
being redeemed, (ii) the product of (A) the Conversion Amount being redeemed
multiplied by (B) the quotient determined by dividing (I) the greatest Closing
Sale Price of the shares of Common Stock during the period beginning on the date
immediately preceding the earlier to occur of (1) the consummation of the
applicable Change of Control and (2) the public announcement of such Change of
Control and ending on the date the Holder delivers the Change of Control
Redemption Notice by (II) the Conversion Price then in effect and (iii) the
product of (A) the Conversion Amount being redeemed multiplied by (B) the
quotient of (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 such Change of Control (any
such non-cash consideration constituting publicly-traded securities shall be
valued at the highest of the Closing Sale Price of such securities as of the
Trading Day immediately prior to the consummation of such Change of Control, the
Closing Sale Price of such securities on the Trading Day immediately following
the public announcement of such proposed Change of Control and the Closing Sale
Price of such securities on the Trading Day immediately prior to the public
announcement of such proposed Change of Control) divided by (II) the Conversion
Price then in effect (the “Change of Control 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 such Change of Control. To the extent redemptions required by this Section
5(b) are deemed or determined by a court of competent jurisdiction to be
prepayments of this 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 Change of Control Redemption Price
(together with any Late Charges thereon) is paid in full, the Conversion Amount
submitted for redemption under this Section 5(b) (together with any Late Charges
thereon) may be converted, in whole or in part, by the Holder into Common Stock
pursuant to Section 3. In the event of the Company’s redemption of any portion
of this 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 all or substantially all of 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 and assuming for such purpose that the Note was
converted at the Alternate Conversion Price as of the applicable record date)
immediately prior to 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 shares 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 and the other Attribution Parties exceeding the Maximum
Percentage, then the Holder shall not be entitled to participate in such
Purchase Right to the extent of the Maximum Percentage (and shall not be
entitled to beneficial ownership of such shares of Common Stock as a result of
such Purchase Right (and beneficial ownership) to the extent of any such excess)
and such Purchase Right to such extent shall be held in abeyance (and, if such
Purchase Right has an expiration date, maturity date or other similar provision,
such term shall be extended by such number of days held in abeyance, if
applicable) for the benefit of the Holder until such time or times, if ever, as
its right thereto would not result in the Holder and the other Attribution
Parties exceeding the Maximum Percentage, at which time or times the Holder
shall be granted such right (and any Purchase Right granted, issued or sold on
such initial Purchase Right or on any subsequent Purchase Right held similarly
in abeyance (and, if such Purchase Right has an expiration date, maturity date
or other similar provision, such term shall be extended by such number of days
held in abeyance, if applicable)) to the same extent as if there had been no
such limitation).

 

(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
ensure that the Holder will thereafter have the right to receive upon a
conversion of this Note, at the Holder’s option (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. Provision made pursuant to the preceding sentence shall be
in a form and substance satisfactory to the Holder. The provisions of this
Section 6 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.

 

 
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7.     RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

 

(a)     Adjustment of Conversion Price upon Subdivision or Combination of Common
Stock. Without limiting any provision of Sections 5, 6 or 15, if the Company at
any time on or after the Subscription Date subdivides (by any stock split, stock
dividend, stock combination, recapitalization or other similar transaction) 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. Without limiting any provision of Sections 5, 6
or 15, if the Company at any time on or after the Subscription Date combines (by
any stock split, stock dividend, stock combination, recapitalization or other
similar transaction) 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(a) shall become effective immediately
after the effective date of such subdivision or combination. If any event
requiring an adjustment under this Section 7(a) 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.

 

(b)     Holder’s Right of Adjusted Conversion Price. In addition to and not in
limitation of the other provisions of this Section 7, if the Company in any
manner issues or sells or enters into any agreement to issue or sell, any Common
Stock, Options or Convertible Securities (any such securities, “Variable Price
Securities”), after the Subscription Date that are issuable pursuant to such
agreement or convertible into or exchangeable or exercisable for shares of
Common Stock at a price which varies or may vary with the market price of the
shares of Common Stock, including by way of one or more reset(s) to a fixed
price, but exclusive of such formulations reflecting customary anti-dilution
provisions (such as share splits, share combinations, share dividends and
similar transactions) (each of the formulations for such variable price being
herein referred to as, the “Variable Price”), the Company shall provide written
notice thereof via facsimile or electronic mail and overnight courier to the
Holder on the date of such agreement and the issuance of such Convertible
Securities or Options. From and after the date the Company enters into such
agreement or issues any such Variable Price Securities, the Holder shall have
the right, but not the obligation, in its sole discretion to substitute the
Variable Price for the Conversion Price upon conversion of this Note by
designating in the Conversion Notice delivered upon any conversion of this Note
that solely for purposes of such conversion the Holder is relying on the
Variable Price rather than the Conversion Price then in effect. The Holder’s
election to rely on a Variable Price for a particular conversion of this Note
shall not obligate the Holder to rely on a Variable Price for any future
conversion of this Note.

 

 
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(c)     Other Events. In the event that the Company (or any Subsidiary) 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 absent manifest error and whose fees and expenses shall be
borne by the Company.

 

(d)     Calculations. All calculations under this Section 7 shall be made by
rounding to the nearest cent or the nearest 1/100th of a share, as applicable.
The number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.

 

(e)     Voluntary Adjustment by Company. The Company may at any time during the
term of this Note, with the prior written consent of the Required Holders,
reduce the then current Conversion Price of each of the Notes to any amount
equal to or greater than the Floor Price and for any period of time deemed
appropriate by the board of directors of the Company.

 

8.     REDEMPTIONS AT THE COMPANY’S ELECTION.

 

(a)     Company Optional Redemption. At any time no Equity Conditions Failure
exists (unless waived in writing by the Holder) [INSERT IN ADDITIONAL NOTE: and
no December Note or Initial Note (as defined in the Securities Purchase
Agreement) remains outstanding], subject to the Company’s compliance with
Section 1(e) above, the Company shall have the right to redeem all, but not less
than all, of the Conversion Amount then remaining under this Note (the “Company
Optional Redemption Amount”) on the Company Optional Redemption Date (each as
defined below) (a “Company Optional Redemption”). The portion of this Note
subject to redemption pursuant to this Section 8(a) shall be redeemed by the
Company in cash at a price (the “Company Optional Redemption Price”) equal to
115% of the Conversion Amount being redeemed as of the Company Optional
Redemption Date [INSERT IN ADDITIONAL NOTE ONLY: (which, with respect to any
Restricted Principal hereunder, may be offset and reduced on a dollar for dollar
basis by the surrender for cancellation of such portion of the Investor Note
equal to the amount of Restricted Principal included in such Company Optional
Redemption hereunder)]. The Company may exercise its right to require redemption
under this Section 8(a) by delivering a written notice thereof by facsimile or
electronic mail and overnight courier to all, but not less than all, of the
holders of Notes (the “Company Optional Redemption Notice” and the date all of
the holders of Notes received such notice is referred to as the “Company
Optional Redemption Notice Date”). The Company may deliver only one Company
Optional Redemption Notice hereunder and such Company Optional Redemption Notice
shall be irrevocable. The Company Optional Redemption Notice shall (x) state the
date on which the Company Optional Redemption shall occur (the “Company Optional
Redemption Date”) which date shall not be less than ten (10) Trading Days nor
more than thirty (30) Trading Days following the Company Optional Redemption
Notice Date, (y) certify that there has been no Equity Conditions Failure (or
specifying any such Equity Conditions Failure that then exists, with an
acknowledgement that unless such Equity Conditions are waived by the Holder, in
its sole discretion, such Company Optional Redemption Notice will be invalid)
and (z) state the aggregate Conversion Amount of the Notes which is being
redeemed in such Company Optional Redemption from the Holder and all of the
other holders of the Notes pursuant to this Section 8(a) (and analogous
provisions under the Other Notes) on the Company Optional Redemption Date.
Notwithstanding anything herein to the contrary, (i) if no Equity Conditions
Failure has occurred as of the Company Optional Redemption Notice Date but an
Equity Conditions Failure occurs at any time prior to the Company Optional
Redemption Date, (A) the Company shall provide the Holder a subsequent notice to
that effect and (B) unless the Holder, in its sole discretion., waives the
Equity Conditions Failure, the Company Optional Redemption shall be cancelled
and the applicable Company Optional Redemption Notice shall be null and void and
(ii) at any time prior to the date the Company Optional Redemption Price is
paid, in full, the Company Optional Redemption Amount may be converted, in whole
or in part, by the Holder into shares of Common Stock pursuant to Section 3. All
Conversion Amounts converted by the Holder after the Company Optional Redemption
Notice Date shall reduce the Company Optional Redemption Amount of this Note
required to be redeemed on the Company Optional Redemption Date. Redemptions
made pursuant to this Section 8(a) shall be made in accordance with Section 11.
In the event of the Company’s redemption of any portion of this Note under this
Section 8(a), 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 8(a)
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. For
the avoidance of doubt, the Company shall have no right to effect a Company
Optional Redemption if any Event of Default has occurred and continuing, but any
Event of Default shall have no effect upon the Holder’s right to convert this
Note in its discretion.

 

 
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(b)     Pro Rata Redemption Requirement. If the Company elects to cause a
Company Optional Redemption of this Note pursuant to Section 8(a), then it must
simultaneously take the same action with respect to all of the Other Notes.

 

9.     NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Certificate of Incorporation (as defined
in the Securities Purchase Agreement), Bylaws (as defined in the Securities
Purchase Agreement) 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 or any other provision of this Note or the other
Transaction Documents, the Company (a) 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, and (b) 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. Notwithstanding anything herein to the contrary, if after the sixty (60)
calendar day anniversary of the Issuance Date, the Holder is not permitted to
convert this Note in full for any reason (other than pursuant to restrictions
set forth in Section 3(d) hereof), the Company shall use its best efforts to
promptly remedy such failure, including, without limitation, obtaining such
consents or approvals as necessary to permit such conversion into shares of
Common Stock.

 

 
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10.     RESERVATION OF AUTHORIZED SHARES.

 

(a)     Reservation. So long as any Notes remain outstanding, the Company shall
at all times reserve at least the greater of (x) 6 million and (y) 200% of the
number of shares of Common Stock as shall from time to time be necessary to
effect the conversion, including without limitation, Alternate Conversions, of
all of the Notes then outstanding (without regard to any limitations on
conversions and assuming such Notes remain outstanding until the Maturity Date)
(the “Required Reserve Amount”). The Required Reserve Amount (including, without
limitation, 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 on the Closing Date 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.

 

(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 or obtain written consent 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 or information statement, as applicable, and shall use its best
efforts to solicit or obtain 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. In the event that
the Company is prohibited from issuing shares of Common Stock pursuant to the
terms of this Note due to the failure by the Company to have sufficient shares
of Common Stock available out of the authorized but unissued shares of Common
Stock (such unavailable number of shares of Common Stock, the “Authorized
Failure Shares”), in lieu of delivering such Authorized Failure Shares to the
Holder, the Company shall pay cash in exchange for the redemption of such
portion of the Conversion Amount convertible into such Authorized Failure Shares
at a price equal to the sum of (i) the product of (x) such number of Authorized
Failure Shares and (y) the greatest Closing Sale Price of the Common Stock on
any Trading Day during the period commencing on the date the Holder delivers the
applicable Conversion Notice with respect to such Authorized Failure Shares to
the Company and ending on the date of such issuance and payment under this
Section 10(a); and (ii) to the extent 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 Authorized Failure Shares, any brokerage commissions and
other out-of-pocket expenses, if any, of the Holder incurred in connection
therewith. Nothing contained in Section 10(a) or this Section 10(b) shall limit
any obligations of the Company under any provision of the Securities Purchase
Agreement.

 

 
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11.     REDEMPTIONS.

 

(a)     Mechanics. The Company shall deliver the applicable Event of Default
Redemption Price to the Holder in cash 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 Change of Control Redemption Notice in accordance with
Section 5(b), the Company shall deliver the applicable Change of Control
Redemption Price to the Holder in cash concurrently with the consummation of
such Change of Control if such notice is received prior to the consummation of
such Change of Control and within five (5) Business Days after the Company’s
receipt of such notice otherwise. The Company shall deliver the applicable
Company Optional Redemption Price to the Holder in cash on the applicable
Company Optional Redemption Date. Notwithstanding anything herein to the
contrary, in connection with any redemption hereunder at a time the Holder is
entitled to receive a cash payment under any of the other Transaction Documents,
at the option of the Holder delivered in writing to the Company, the applicable
Redemption Price hereunder shall be increased by the amount of such cash payment
owed to the Holder under such other Transaction Document and, upon payment in
full or conversion in accordance herewith, shall satisfy the Company’s payment
obligation under such other Transaction Document. 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, and in each case the principal amount of this
Note or such new Note (as the case may be) shall be increased by an amount equal
to the difference between (1) the applicable Redemption Price (as the case may
be, and as adjusted pursuant to this Section 11, if applicable) minus (2) the
Principal portion of the Conversion Amount submitted for redemption and (z) the
Conversion Price of this Note or such new Notes (as the case may be) shall be
automatically adjusted with respect to each conversion effected thereafter by
the Holder to the lowest of (A) the Conversion Price as in effect on the date on
which the applicable Redemption Notice is voided, (B) 75% of 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 and (C) 75% of the quotient of (I) the sum of the five (5) lowest VWAPs
of the Common Stock during the twenty (20) consecutive Trading Day period ending
and including the Trading Day immediately preceding the applicable Conversion
Date divided by (II) five (5) (it being understood and agreed that all such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during such period). 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 or electronic mail 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
Delaware General Corporation Law) and as expressly provided in this Note.

 

 
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13.     COVENANTS. Until all of the Notes have been converted, redeemed or
otherwise satisfied in accordance with their terms:

 

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

 

(b)     Incurrence of Indebtedness. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, 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) other Permitted
Indebtedness) until the ninety-first (91st) calendar day after no Notes remain
outstanding.

 

(c)     Existence of Liens. The Company shall not, and the Company shall cause
each of its Subsidiaries to not, 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 cause
each of its Subsidiaries to not, 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 the Notes) 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 the ninety-first
(91st) calendar day after no Notes remain outstanding, the Company shall not,
and the Company shall cause each of its Subsidiaries to not, directly or
indirectly, redeem, repurchase or declare or pay any cash dividend or
distribution on any of its capital stock.

 

(f)     Restriction on Transfer of Assets. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
sell, lease, license, assign, transfer, spin-off, split-off, close, convey or
otherwise dispose of any of the Collateral (as defined in the Security
Documents) whether in a single transaction or a series of related transactions,
other than (i) sales, leases, licenses, assignments, transfers, conveyances and
other dispositions of such assets or rights by the Company and its Subsidiaries
in the ordinary course of business consistent with its past practice, or, in the
case of licenses by Zone (as defined in the Securities Purchase Agreement), in
the ordinary course of business consistent with Zone’s plan of operation as of
the Subscription Date, and (ii) and (ii) sales of inventory and product in the
ordinary course of business.

 

 
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(g)     Maturity of Indebtedness. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, directly or indirectly, permit any
Indebtedness of the Company or any of its Subsidiaries other than Permitted
Indebtedness to mature or accelerate prior to the Maturity Date.

 

(h)     Change in Nature of Business. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, engage in
any material line of business substantially different from those lines of
business conducted by or publicly contemplated to be conducted by the Company
and each of its Subsidiaries on the Subscription Date or any business
substantially related or incidental thereto. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
modify its or their corporate structure or purpose.

 

(i)     Preservation of Existence, Etc. The Company shall maintain and preserve,
and cause each of its Subsidiaries to maintain and preserve, its existence,
rights and privileges, and become or remain, and cause each of its Subsidiaries
to become or remain, duly qualified and in good standing in each jurisdiction in
which the character of the properties owned or leased by it or in which the
transaction of its business makes such qualification necessary.

 

(j)     Maintenance of Properties, Etc. The Company shall maintain and preserve,
and cause each of its Subsidiaries to maintain and preserve, all of its
properties which are necessary or useful in the proper conduct of its business
in good working order and condition, ordinary wear and tear excepted, and
comply, and cause each of its Subsidiaries to comply, at all times with the
provisions of all leases to which it is a party as lessee or under which it
occupies property, so as to prevent any loss or forfeiture thereof or
thereunder.

 

(k)     Maintenance of Intellectual Property. The Company will, and will cause
each of its Subsidiaries to, take all action necessary or advisable to maintain
all of the Intellectual Property Rights (as defined in the Securities Purchase
Agreement) of the Company and/or any of its Subsidiaries that are necessary or
material to the conduct of its business in full force and effect.

 

(l)     Maintenance of Insurance. The Company shall maintain, and cause each of
its Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations (including, without limitation, comprehensive general
liability, hazard, rent and business interruption insurance) with respect to its
properties (including all real properties leased or owned by it) and business,
in such amounts and covering such risks as is required by any governmental
authority having jurisdiction with respect thereto or as is carried generally in
accordance with sound business practice by companies in similar businesses
similarly situated.

 

(m)     Transactions with Affiliates. The Company shall not, nor shall it permit
any of its Permitted Subsidiaries to, enter into, renew, extend or be a party
to, any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease, transfer or exchange of property or
assets of any kind or the rendering of services of any kind) with any affiliate,
except (i) transactions approved by a majority of the Company’s independent
directors and a Majority In Interest and (ii) transactions in the ordinary
course of business in a manner and to an extent consistent with past practice
and necessary or desirable for the prudent operation of its business, for fair
consideration and on terms no less favorable to it or its Subsidiaries than
would be obtainable in a comparable arm’s length transaction with a Person that
is not an affiliate thereof, provided that the foregoing shall in no way limit
or prevent the Company from consummating the Reserve Amount Forgiveness (as
defined in the Agreement and Plan of Merger, dated as of July 12, 2016, among
the Company, Zone Acquisition, Inc. and Zone Technologies, Inc.) or entering
into a consulting agreement with a non-independent director of the Company
provided that cash compensation paid to such non-independent director for
consulting services thereunder does not exceed $225,000 per year.

 

 
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(n)     Restricted Issuances. The Company shall not, directly or indirectly,
without the prior written consent of the holders of a majority in aggregate
principal amount of the Notes then outstanding, (i) issue any Notes (other than
as contemplated by the Securities Purchase Agreement and the Notes), [INSERT IN
INITIAL NOTE ONLY: or ] (ii) issue any other securities that would cause a
breach or default under the Notes [INSERT IN ADDITIONAL NOTE ONLY: or (iii)
until such initial time as the only Principal outstanding hereunder consists of
Restricted Principal (and any principal outstanding under any other Notes held
by the Holder consists of Restricted Principal (as defined in such Other
Notes))], issue any shares of Common Stock, Options or Convertible Securities,
directly or indirectly, at a purchase price, per share of Common Stock (on an as
converted and as exercised basis) less than $4.00 (as adjusted for stock splits,
stock dividends, stock combinations, recapitalizations and similar events).

 

(o)     New Subsidiaries. Simultaneously with the acquisition or formation of
each New Subsidiary of NewSub, the Company shall cause such New Subsidiary to
execute, and deliver to each holder of Notes, all Security Documents as
requested by the Collateral Agent or the Required Holders, as applicable. The
Company shall also deliver to the Collateral Agent an opinion of counsel to such
New Subsidiary that is reasonably satisfactory to the Collateral Agent and the
Required Holders covering such legal matters with respect to such New Subsidiary
becoming a guarantor of the Company’s obligations, executing and delivering the
Security Document and any other matters that the Collateral Agent or the
Required Holders may reasonably request. The Company shall deliver, or cause the
applicable Subsidiary to deliver to the Collateral Agent, each of the physical
stock certificates of such New Subsidiary, along with undated stock powers for
each such certificates, executed in blank (or, if any such shares of capital
stock are uncertificated, confirmation and evidence reasonably satisfactory to
the Collateral Agent and the Required Holders that the security interest in such
uncertificated securities has been transferred to and perfected by the
Collateral Agent, in accordance with Sections 8-313, 8-321 and 9-115 of the
Uniform Commercial Code or any other similar or local or foreign law that may be
applicable).

 

 
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(p)     Change in Collateral; Collateral Records. The Company shall (i) give the
Collateral Agent not less than thirty (30) days’ prior written notice of any
change in the location of any Collateral (as defined in the Security Documents),
other than to locations set forth in the Perfection Certificate (as defined in
the Securities Purchase Agreement) hereto and with respect to which the
Collateral Agent has filed financing statements and otherwise fully perfected
its Liens thereon, (ii) advise the Collateral Agent promptly, in sufficient
detail, of any material adverse change relating to the type, quantity or quality
of the Collateral or the Lien granted thereon and (iii) execute and deliver, and
cause each of its Subsidiaries to execute and deliver, to the Collateral Agent
for the benefit of the Holder and holders of the Other Notes from time to time,
solely for the Collateral Agent’s convenience in maintaining a record of
Collateral, such written statements and schedules as the Collateral Agent or any
Holder may reasonably require, designating, identifying or describing the
Collateral.

 

(q)     Independent Investigation. At the request of the Holder either (x) at
any time when an Event of Default has occurred and is continuing, (y) upon the
occurrence of an event that with the passage of time or giving of notice would
constitute an Event of Default or (z) at any time the Holder reasonably believes
an Event of Default may have occurred or be continuing, the Company shall hire
an independent, reputable investment bank selected by the Company and approved
by the Holder (such approval not to be unreasonably withheld or delayed) to
investigate as to whether any breach of this Note has occurred (the “Independent
Investigator”). If the Independent Investigator determines that such breach of
this Note has occurred, the Independent Investigator shall notify the Company of
such breach and the Company shall deliver written notice to each holder of a
Note of such breach. In connection with such investigation, the Independent
Investigator may, during normal business hours, inspect all contracts, books,
records, personnel, offices and other facilities and properties of the Company
and its Subsidiaries and, to the extent available to the Company after the
Company uses reasonable efforts to obtain them, the records of its legal
advisors and accountants (including the accountants’ work papers) and any books
of account, records, reports and other papers not contractually required of the
Company to be confidential or secret, or subject to attorney-client or other
evidentiary privilege, and the Independent Investigator may make such copies and
inspections thereof as the Independent Investigator may reasonably request. The
Company shall furnish the Independent Investigator with such financial and
operating data and other information with respect to the business and properties
of the Company as the Independent Investigator may reasonably request. The
Company shall permit the Independent Investigator to discuss the affairs,
finances and accounts of the Company with, and to make proposals and furnish
advice with respect thereto to, the Company’s officers, directors, key employees
and independent public accountants or any of them (and by this provision the
Company authorizes said accountants to discuss with such Independent
Investigator the finances and affairs of the Company and any Subsidiaries), all
at such reasonable times, upon reasonable notice, and as often as may be
reasonably requested.

 

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).

 

 
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15.     DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant to
Section 7, if the Company shall declare or make any dividend or other
distributions of its assets (or rights to acquire its assets) to any or all
holders of shares of Common Stock, by way of return of capital or otherwise
(including without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (the “Distributions”), then the Holder will be entitled to
such Distributions as 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 and
assuming for such purpose that the Note was converted at the Alternate
Conversion Price as of the applicable record date) immediately prior to the date
on which a record is taken for such Distribution or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
such Distributions (provided, however, that to the extent that the Holder’s
right to participate in any such Distribution would result in the Holder and the
other Attribution Parties exceeding the Maximum Percentage, then the Holder
shall not be entitled to participate in such Distribution to the extent of the
Maximum Percentage (and shall not be entitled to beneficial ownership of such
shares of Common Stock as a result of such Distribution (and beneficial
ownership) to the extent of any such excess) and the portion of such
Distribution shall be held in abeyance for the benefit of the Holder until such
time or times, if ever, as its right thereto would not result in the Holder and
the other Attribution Parties exceeding the Maximum Percentage, at which time or
times the Holder shall be granted such Distribution (and any Distributions
declared or made on such initial Distribution or on any subsequent Distribution
held similarly in abeyance) to the same extent as if there had been no such
limitation).

 

16.     AMENDING THE TERMS OF THIS NOTE. The prior written consent of the
Required Holders (as defined in the Securities Purchase Agreement) shall be
required for any change, waiver or amendment to this Note. Any change, waiver or
amendment so approved shall be binding upon all existing and future holders of
this Note and any Other Notes; provided, however, that no such change, waiver
or, as applied to any of the Notes held by any particular holder of Notes,
shall, without the written consent of that particular holder, (i) reduce the
amount of Principal, reduce the amount of accrued and unpaid Interest, or extend
the Maturity Date, of the Notes, (ii) disproportionally and adversely affect any
rights under the Notes of any holder of Notes; or (iii) modify any of the
provisions of, or impair the right of any holder of Notes under, this Section
16.

 

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 $1,000) 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 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. The Company
shall provide all information and documentation to the Holder that is requested
by the Holder to enable the Holder to confirm the Company’s compliance with the
terms and conditions of this Note (including, without limitation, compliance
with Section 7).

 

 
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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. The Company expressly acknowledges and agrees
that no amounts due under this Note shall be affected, or limited, by the fact
that the purchase price paid for this Note was less than the original Principal
amount hereof.

 

21.     CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted
by the Company and the initial Holder and shall not be construed against any
such 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. 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 Note instead of just the provision in which they are found. Unless
expressly indicated otherwise, all section references are to sections of this
Note. Terms used in this Note and not otherwise defined herein, 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. Notwithstanding
the foregoing, nothing contained in this Section 22 shall permit any waiver of
any provision of Section 3(d).

 

 
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23.     DISPUTE RESOLUTION.

 

(a)     Submission to Dispute Resolution.

 

(i)     In the case of a dispute relating to a Closing Bid Price, a Closing Sale
Price, a Conversion Price, an Alternate Conversion Price, a VWAP or a fair
market value or the arithmetic calculation of a Conversion Rate, or the
applicable Redemption Price (as the case may be) (including, without limitation,
a dispute relating to the determination of any of the foregoing), the Company or
the Holder (as the case may be) shall submit the dispute to the other party via
facsimile or electronic mail (A) if by the Company, within two (2) Business Days
after the occurrence of the circumstances giving rise to such dispute or (B) if
by the Holder at any time after the Holder learned of the circumstances giving
rise to such dispute. If the Holder and the Company are unable to promptly
resolve such dispute relating to such Closing Bid Price, such Closing Sale
Price, such Conversion Price, such Alternate Conversion Price, such VWAP or such
fair market value, or the arithmetic calculation of such Conversion Rate or such
applicable Redemption Price (as the case may be), at any time after the second
(2nd) Business Day following such initial notice by the Company or the Holder
(as the case may be) of such dispute to the Company or the Holder (as the case
may be), then the Company shall select an independent, reputable investment bank
approved by the Required Holders (as defined in the Securities Purchase
Agreement), such approval not to be unreasonably withheld, to resolve such
dispute.

 

(ii)     The Holder and the Company shall each deliver to such investment bank
(A) a copy of the initial dispute submission so delivered in accordance with the
first sentence of this Section 23 and (B) written documentation supporting its
position with respect to such dispute, in each case, no later than 5:00 p.m.
(New York time) by the fifth (5th) Business Day immediately following the date
on which the Holder selected such investment bank (the “Dispute Submission
Deadline”) (the documents referred to in the immediately preceding clauses (A)
and (B) are collectively referred to herein as the “Required Dispute
Documentation”) (it being understood and agreed that if either the Holder or the
Company fails to so deliver all of the Required Dispute Documentation by the
Dispute Submission Deadline, then the party who fails to so submit all of the
Required Dispute Documentation shall no longer be entitled to (and hereby waives
its right to) deliver or submit any written documentation or other support to
such investment bank with respect to such dispute and such investment bank shall
resolve such dispute based solely on the Required Dispute Documentation that was
delivered to such investment bank prior to the Dispute Submission Deadline).
Unless otherwise agreed to in writing by both the Company and the Holder or
otherwise requested by such investment bank, neither the Company nor the Holder
shall be entitled to deliver or submit any written documentation or other
support to such investment bank in connection with such dispute (other than the
Required Dispute Documentation).

 

 
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(iii)     The Company and the Holder shall cause such investment bank to
determine the resolution of such dispute and notify the Company and the Holder
of such resolution no later than ten (10) Business Days immediately following
the Dispute Submission Deadline. The fees and expenses of such investment bank
shall be borne solely by the Company, and such investment bank’s resolution of
such dispute shall be final and binding upon all parties absent manifest error.

 

(b)     Miscellaneous. The Company expressly acknowledges and agrees that (i)
this Section 23 constitutes an agreement to arbitrate between the Company and
the Holder (and constitutes an arbitration agreement) under § 7501, et seq. of
the New York Civil Practice Law and Rules (“CPLR”) and that the Holder is
authorized to apply for an order to compel arbitration pursuant to CPLR §
7503(a) in order to compel compliance with this Section 23, (ii) a dispute
relating to a Conversion Price, (iii) the terms of this Note and each other
applicable Transaction Document shall serve as the basis for the selected
investment bank’s resolution of the applicable dispute, such investment bank
shall be entitled (and is hereby expressly authorized) to make all findings,
determinations and the like that such investment bank determines are required to
be made by such investment bank in connection with its resolution of such
dispute and in resolving such dispute such investment bank shall apply such
findings, determinations and the like to the terms of this Note and any other
applicable Transaction Documents, (iv) the Holder (and only the Holder), in its
sole discretion, shall have the right to submit any dispute described in this
Section 23 to any state or federal court sitting in The City of New York,
Borough of Manhattan, in lieu of utilizing the procedures set forth in this
Section 23 and (v) nothing in this Section 23 shall limit the Holder from
obtaining any injunctive relief or other equitable remedies (including, without
limitation, with respect to any matters described in this Section 23).

 

24.     NOTICES; CURRENCY; 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 all (or substantially all) 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)     Currency. All dollar amounts referred to in this Note are in United
States Dollars (“U.S. Dollars”), and all amounts owing under this Note shall be
paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall
be converted into the U.S. 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 U.S. Dollars pursuant to this Note,
the U.S. Dollar exchange rate as published in the Wall Street Journal on the
relevant date of calculation (it being understood and agreed that where an
amount is calculated with reference to, or over, a period of time, the date of
calculation shall be the final date of such period of time).

 

 
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(c)     Payments. Whenever any payment of cash is to be made by the Company to
any Person pursuant to this Note, unless otherwise expressly set forth herein,
such payment shall be made in lawful money of the United States of America by a
certified 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. Any amount of
Principal or other amounts due under the Transaction Documents which is not paid
when due (solely to the extent such amount is not then accruing interest at the
Default Rate) 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, Late Charges 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.

 

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 Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois. Except as otherwise required by Section 23 above, the Company
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in Chicago, Illinois, 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. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. Nothing contained herein (i) 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 or (ii) shall limit, or shall be deemed or construed to limit, any
provision of Section 23. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE TO, 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.

 

 
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28.     JUDGMENT CURRENCY.

 

(a)     If for the purpose of obtaining or enforcing judgment against the
Company in any court in any jurisdiction it becomes necessary to convert into
any other currency (such other currency being hereinafter in this Section 28
referred to as the “Judgment Currency”) an amount due in U.S. dollars under this
Note, the conversion shall be made at the Exchange Rate prevailing on the
Trading Day immediately preceding:

 

(i)     the date actual payment of the amount due, in the case of any proceeding
in the courts of New York or in the courts of any other jurisdiction that will
give effect to such conversion being made on such date: or

 

(ii)     the date on which the foreign court determines, in the case of any
proceeding in the courts of any other jurisdiction (the date as of which such
conversion is made pursuant to this Section 28(a)(ii) being hereinafter referred
to as the “Judgment Conversion Date”).

 

(b)     If in the case of any proceeding in the court of any jurisdiction
referred to in Section 28(a)(ii) above, there is a change in the Exchange Rate
prevailing between the Judgment Conversion Date and the date of actual payment
of the amount due, the applicable party shall pay such adjusted amount as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the Exchange Rate prevailing on the date of payment, will produce
the amount of US dollars which could have been purchased with the amount of
Judgment Currency stipulated in the judgment or judicial order at the Exchange
Rate prevailing on the Judgment Conversion Date.

 

(c)     Any amount due from the Company under this provision shall be due as a
separate debt and shall not be affected by judgment being obtained for any other
amounts due under or in respect of this Note.

 

29.     SEVERABILITY. If any provision of this Note is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this Note
so long as this Note as so modified continues to express, without material
change, the original intentions of the parties as to the subject matter hereof
and the prohibited nature, invalidity or unenforceability of the provision(s) in
question does not substantially impair the respective expectations or reciprocal
obligations of the parties or the practical realization of the benefits that
would otherwise be conferred upon the parties. The parties will endeavor in good
faith negotiations to replace the prohibited, invalid or unenforceable
provision(s) with a valid provision(s), the effect of which comes as close as
possible to that of the prohibited, invalid or unenforceable provision(s).

 

 
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30.     MAXIMUM PAYMENTS. Without limiting Section 9(d) of the Securities
Purchase Agreement, 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.

 

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

 

(a)     “1933 Act” means the Securities Act of 1933, as amended, and the rules
and regulations thereunder.

 

(b)     “1934 Act” means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.

 

(c)      “Affiliate” means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, such Person, it being understood for purposes of this definition that
“control” of a Person means the power directly or indirectly either to vote 10%
or more of the stock having ordinary voting power for the election of directors
of such Person or direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.

 

(d)     “Alternate Conversion Price” means, with respect to any Alternate
Conversion that price which shall be the lower of (i) the applicable Conversion
Price as in effect on the applicable Conversion Date of the applicable Alternate
Conversion and (ii) [INSERT IN INITIAL NOTE: $4.00] [INSERT IN ADDITIONAL NOTE:
the greater of (I) the Floor Price and (II) 85% of the quotient of (x) the sum
of the VWAP of the Common Stock for each of the five (5) consecutive Trading
Days ending and including the Trading Day immediately preceding the delivery or
deemed delivery of the applicable Conversion Notice, divided by (y) five (5)
(such period, the “Alternate Conversion Measuring Period”). All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination, reclassification or similar transaction that
proportionately decreases or increases the Common Stock during such Alternate
Conversion Measuring Period.

 

 
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(e)     “Alternate Conversion Event of Default Price” means, with respect to any
Alternate Conversion that price which shall be the lowest of (i) the applicable
Conversion Price as in effect on the applicable Conversion Date of the
applicable Alternate Conversion, and (ii) 75% of the lowest VWAP of the Common
Stock for each of the thirty (30) consecutive Trading Days ending and including
the Trading Day of delivery or deemed delivery of the applicable Conversion
Notice (such period, the “Alternate Conversion Event of Default Measuring
Period”). All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination, reclassification or similar
transaction that proportionately decreases or increases the Common Stock during
such Alternate Conversion Event of Default Measuring Period.

 

(f)     “Approved Stock Plan” means any employee benefit plan which has been
approved by the board of directors of the Company prior to or subsequent to the
Subscription Date pursuant to which shares of Common Stock and standard options
to purchase Common Stock may be issued to any employee, consultant, officer or
director for services provided to the Company in their capacity as such.

 

(g)     “Attribution Parties” means, collectively, the following Persons and
entities: (i) any investment vehicle, including, any funds, feeder funds or
managed accounts, currently, or from time to time after the Issuance Date,
directly or indirectly managed or advised by the Holder’s investment manager or
any of its Affiliates or principals, (ii) any direct or indirect Affiliates of
the Holder or any of the foregoing, (iii) any Person acting or who could be
deemed to be acting as a Group together with the Holder or any of the foregoing
and (iv) any other Persons whose beneficial ownership of the Company’s Common
Stock would or could be aggregated with the Holder’s and the other Attribution
Parties for purposes of Section 13(d) of the 1934 Act. For clarity, the purpose
of the foregoing is to subject collectively the Holder and all other Attribution
Parties to the Maximum Percentage.

 

(h)     “Black Scholes Consideration Value” means the value of the applicable
Option, Convertible Security or Adjustment Right (as the case may be) as of the
date of issuance thereof calculated using the Black Scholes Option Pricing Model
obtained from the “OV” function on Bloomberg utilizing (i) an underlying price
per share equal to the Closing Sale Price of the Common Stock on the Trading Day
immediately preceding the public announcement of the execution of definitive
documents with respect to the issuance of such Option, Convertible Security or
Adjustment Right (as the case may be), (ii) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term
of such Option, Convertible Security or Adjustment Right (as the case may be) as
of the date of issuance of such Option, Convertible Security or Adjustment Right
(as the case may be), (iii) a zero cost of borrow and (iv) an expected
volatility equal to the greater of 100% and the 100 day volatility obtained from
the “HVT” function on Bloomberg (determined utilizing a 365 day annualization
factor) as of the Trading Day immediately following the date of issuance of such
Option, Convertible Security or Adjustment Right (as the case may be).

 

(i)     “Bloomberg” means Bloomberg, L.P.

 

(j)     “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.

 

 
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(k)     “Change of Control” means any Fundamental Transaction other than (i) any
merger of the Company or any of its, direct or indirect, wholly-owned
Subsidiaries with or into any of the foregoing Persons, (ii) any reorganization,
recapitalization or reclassification of the shares of Common Stock 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, are, in all material respects, the holders of the voting
power of the surviving entity (or entities with the authority or voting power to
elect the members of the board of directors (or their equivalent if other than a
corporation) of such entity or entities) after such reorganization,
recapitalization or reclassification, (iii) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Company or any of its Subsidiaries, or (iv) the Merger (as defined in the
Securities Purchase Agreement).

 

(l)     “Change of Control Redemption Premium” means [INSERT IN INITIAL NOTE:
125%][INSERT IN ADDITIONAL NOTE: 110%].

 

(m)     “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 OTC
Markets Group Inc. (formerly Pink Sheets LLC). 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 splits, stock
dividends, stock combinations, recapitalizations or other similar transactions
during such period.

 

(n)     “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.

 

 
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(o)     “Common Stock” means (i) the Company’s shares of common stock, $0.01 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.

 

(p)      “Convertible Securities” means any stock or other security (other than
Options) that is at any time and under any circumstances, directly or
indirectly, convertible into, exercisable or exchangeable for, or which
otherwise entitles the holder thereof to acquire, any shares of Common Stock.

 

(q)     “Current Subsidiary” means any Person in which the Company on the
Subscription Date, directly or indirectly, (i) owns any of the outstanding
capital stock or holds any equity or similar interest of such Person or (ii)
controls or operates all or any part of the business, operations or
administration of such Person, and all of the foregoing, collectively, “Current
Subsidiaries”.

 

(r)     “December Notes” means those certain Senior Secured Convertible Notes
issued pursuant to the December Securities Purchase Agreement.

 

(s)     “December Securities Purchase Agreement” means that certain securities
purchase agreement, dated as of December 1, 2016, by and among the Company and
the initial holders of the December Notes pursuant to which the Company issued
the December Notes, as may be amended from time to time.

 

(t)      “Default Rate” means (x) during the first thirty (30) calendar days
after the occurrence and continuance of an Event of Default, twelve percent
(12%) per annum, and (y) thereafter, eighteen percent (18.0%) per annum.

 

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

 

 
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(v)     “Equity Conditions” means, with respect to an given date of
determination: (i) on each day during the period beginning thirty calendar days
prior to such applicable date of determination (or, with respect to the initial
thirty calendar days after the Resale Eligibility Date, as of the Resale
Eligibility Date) and ending on and including such applicable date of
determination either (x) one or more Registration Statements filed pursuant to
the Registration Rights Agreement shall be effective and the prospectus
contained therein shall be available on such applicable date of determination
(with, for the avoidance of doubt, any shares of Common Stock previously sold
pursuant to such prospectus deemed unavailable) for the resale of all shares of
Common Stock to be issued in connection with the event requiring this
determination (or issuable upon conversion of the Conversion Amount being
redeemed in the event requiring this determination at the Alternate Conversion
Price then in effect (without regard to any limitations on conversion set forth
herein)) (each, a “Required Minimum Securities Amount”), in each case, 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 pursuant to Rule 144 (as defined in the Securities Purchase
Agreement) without the need for registration under any applicable federal or
state securities laws (in each case, disregarding any limitation on conversion
of the Notes, other issuance of securities with respect to the Notes) and no
Current Information Failure (as defined in the Registration Rights Agreement)
exists or is continuing; (ii) on each day during the period beginning thirty
calendar days prior to the applicable date of determination and ending on and
including the applicable date of determination (the “Equity Conditions Measuring
Period”), the Common Stock (including all Registrable Securities) is listed or
designated for quotation (as applicable) 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 after giving effect to all applicable notice,
appeal, compliance and hearing periods) or reasonably likely to occur or pending
as evidenced by (A) a writing by such Eligible Market or (B) the Company falling
below the minimum listing maintenance requirements of the Eligible Market on
which the Common Stock is then listed or designated for quotation (as
applicable) other than as disclosed in the SEC Documents (as defined in the
Securities Purchase Agreement) prior to the Issuance Date; (iii) 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 (or issuable upon conversion of the Conversion
Amount being redeemed in the event requiring this determination) may be issued
in full without violating Section 3(d) hereof; (v) any shares of Common Stock to
be issued in connection with the event requiring determination (or issuable upon
conversion of the Conversion Amount being redeemed in the event requiring this
determination (without regards to any limitations on conversion set forth
herein)) may be issued in full without violating the rules or regulations of the
Eligible Market on which the Common Stock is then listed or designated for
quotation (as applicable); (vi) 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; (vii) the Company shall have no knowledge of any fact
that would reasonably be expected to cause (1) any Registration Statement
required to be filed pursuant to the Registration Rights Agreement to not be
effective or the prospectus contained therein to not be available for the resale
of the applicable Required Minimum Securities Amount of Registrable Securities
in accordance with the terms of the Registration Rights Agreement or (2) any
Registrable Securities to not be eligible for sale pursuant to Rule 144 without
the need for registration under any applicable federal or state securities laws
(in each case, disregarding any limitation on conversion of the Notes, other
issuance of securities with respect to the Notes) and no Current Information
Failure exists or is continuing; (viii) the Holder shall not be in (and no other
holder of Notes shall be in) possession of any material, non-public information
provided to any of them by the Company, any of its Subsidiaries or any of their
respective affiliates, employees, officers, representatives, agents or the like;
(ix) on each day during the Equity Conditions Measuring Period, the Company
otherwise shall have been in compliance with each, and shall not have breached
any representation or warranty in any material respect (other than
representations or warranties subject to material adverse effect or materiality,
which may not be breached in any respect) or any covenant or other term or
condition of any Transaction Document, including, without limitation, the
Company shall not have failed to timely make any payment pursuant to any
Transaction Document; (x) on each Trading Day during the Equity Conditions
Measuring Period, there shall not have occurred any Volume Failure or Price
Failure as of such applicable date of determination; (xi) on the applicable date
of determination (A) no Authorized Share Failure shall exist or be continuing
and the applicable Required Minimum Securities Amount of shares of Common Stock
are available under the certificate of incorporation of the Company and reserved
by the Company to be issued pursuant to the Notes and (B) all shares of Common
Stock to be issued in connection with the event requiring this determination (or
issuable upon conversion of the Conversion Amount being redeemed in the event
requiring this determination (without regards to any limitations on conversion
set forth herein)) may be issued in full without resulting in an Authorized
Share Failure; (xii) on each day during the Equity Conditions Measuring Period,
there shall not have occurred and there shall not exist an Event of Default or
an event that with the passage of time or giving of notice would constitute an
Event of Default; (xiii) the shares of Common Stock issuable pursuant the event
requiring the satisfaction of the Equity Conditions are duly authorized and
listed and eligible for trading without restriction on an Eligible Market; and
(xiv) the Stockholder Approval (as defined in the Securities Purchase Agreement)
shall have been obtained.

 

 
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(w)     “Equity Conditions Failure” means that (i) on any day during the period
commencing twenty (20) Trading Days prior to the applicable Company Optional
Redemption Notice Date through the applicable Company Optional Redemption Date
or (ii) on any day during the period commencing twenty (20) Trading Days prior
to the applicable Interest Notice Date through the applicable Interest Date, or
(iii) on any day during the period commencing twenty (20) Trading Days prior to
the applicable Mandatory Conversion Notice Date through the applicable Mandatory
Conversion Date, the Equity Conditions have not been satisfied (or waived in
writing by the Holder).

 

(x)     “Floor Price” means $4.00 (or such lower price as mutually determined by
the Company and the Holder in writing).

 

(y)     “Fundamental Transaction” means (A) that the Company shall, directly or
indirectly, including through subsidiaries, Affiliates or otherwise, in one or
more related transactions, (i) consolidate or merge with or into (whether or not
the Company is the surviving corporation) another Subject Entity, or (ii) sell,
assign, transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company or any of its “significant subsidiaries” (as
defined in Rule 1-02 of Regulation S-X) to one or more Subject Entities, or
(iii) make, or allow one or more Subject Entities to make, or allow the Company
to be subject to or have its Common Stock be subject to or party to one or more
Subject Entities making, a purchase, tender or exchange offer that is accepted
by the holders of at least either (x) 50% of the outstanding shares of Common
Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any
shares of Common Stock held by all Subject Entities making or party to, or
Affiliated with any Subject Entities making or party to, such purchase, tender
or exchange offer were not outstanding; or (z) such number of shares of Common
Stock such that all Subject Entities making or party to, or Affiliated with any
Subject Entity making or party to, such purchase, tender or exchange offer,
become collectively the beneficial owners (as defined in Rule 13d-3 under the
1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv)
consummate a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with one or more Subject Entities whereby all such
Subject Entities, individually or in the aggregate, acquire, either (x) at least
50% of the outstanding shares of Common Stock, (y) at least 50% of the
outstanding shares of Common Stock calculated as if any shares of Common Stock
held by all the Subject Entities making or party to, or Affiliated with any
Subject Entity making or party to, such stock purchase agreement or other
business combination were not outstanding; or (z) such number of shares of
Common Stock such that the Subject Entities become collectively the beneficial
owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the
outstanding shares of Common Stock, or (v) reorganize, recapitalize or
reclassify its Common Stock, (B) that the Company shall, directly or indirectly,
including through subsidiaries, Affiliates or otherwise, in one or more related
transactions, allow any Subject Entity individually or the Subject Entities in
the aggregate to be or become the “beneficial owner” (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, whether through acquisition,
purchase, assignment, conveyance, tender, tender offer, exchange, reduction in
outstanding shares of Common Stock, merger, consolidation, business combination,
reorganization, recapitalization, spin-off, scheme of arrangement,
reorganization, recapitalization or reclassification or otherwise in any manner
whatsoever, of either (x) at least 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock, (y) at least 50% of the
aggregate ordinary voting power represented by issued and outstanding Common
Stock not held by all such Subject Entities as of the date of this Note
calculated as if any shares of Common Stock held by all such Subject Entities
were not outstanding, or (z) a percentage of the aggregate ordinary voting power
represented by issued and outstanding shares of Common Stock or other equity
securities of the Company sufficient to allow such Subject Entities to effect a
statutory short form merger or other transaction requiring other shareholders of
the Company to surrender their shares of Common Stock without approval of the
shareholders of the Company or (C) directly or indirectly, including through
subsidiaries, Affiliates or otherwise, in one or more related transactions, the
issuance of or the entering into any other instrument or transaction structured
in a manner to circumvent, or that circumvents, the intent of this definition in
which case this definition shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this definition to the
extent necessary to correct this definition or any portion of this definition
which may be defective or inconsistent with the intended treatment of such
instrument or transaction.

 

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

 

(aa)     “Group” means a “group” as that term is used in Section 13(d) of the
1934 Act and as defined in Rule 13d-5 thereunder.

 

(bb)     “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.

 

(cc)      “Indebtedness” shall have the meaning ascribed to such term in the
Securities Purchase Agreement.

 

(dd)      “Interest Rate” means six percent (6%) per annum, as may be adjusted
from time to time in accordance with Section 1(a).

 

(ee)     [INSERT IN INITIAL NOTE: [INTENTIONALLY OMITTED]] [INSERT IN ADDITIONAL
NOTE ONLY: “Investor Note” means that certain promissory note of the Holder
issued to the Company at the Closing Date, pursuant to the Securities Purchase
Agreement, with an aggregate principal amount outstanding equal to the
Restricted Principal outstanding hereunder and secured by a cash amount set
forth in a bank account of the Holder (or its affiliates) at least equal to the
Restricted Principal outstanding hereunder.]

 

(ff)     [INSERT IN INITIAL NOTE: [INTENTIONALLY OMITTED]] [INSERT IN ADDITIONAL
NOTE ONLY: “Investor Prepayment” means any Prepayment (as defined in the
Investor Note) of the Investor Note.]

 

(gg)     “Mandatory Conversion Price” means, with respect to any Mandatory
Conversion that price which shall be the lower of (i) the applicable Conversion
Price as in effect on the applicable Mandatory Conversion Date, and (ii) 80% the
sum of (A) the VWAP of the Common Stock for each of the three (3) Trading Days
with the lowest VWAP of the Common Stock during the twenty (20) consecutive
Trading Day period ending on and including the Trading Day immediately prior to
the applicable Mandatory Conversion Date divided by (B) three (3) (such period,
the “Mandatory Conversion Measuring Period”). All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination,
reclassification or similar transaction that proportionately decreases or
increases the Common Stock during such Mandatory Conversion Measuring Period.

 

(hh)      “Maturity Date” shall mean October __, 2017; provided, however, 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 Change of Control 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.

 

 
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(ii)     “Maximum Mandatory Conversion Amount” with respect to any Mandatory
Conversion Date means the difference of (x) $500,000 less (y) the sum of each
Conversion Amount converted hereunder (or required to be converted pursuant to a
Mandatory Conversion Date scheduled to occur during the Maximum Mandatory
Conversion Measuring Period (as defined below)) and pursuant to any other Notes
of the Holder (whether pursuant to a Mandatory Conversion or otherwise) during
the five (5) Trading Day period ending and including such applicable Mandatory
Conversion Date (the “Maximum Mandatory Conversion Measuring Period”).

 

(jj)     “Maximum Mandatory Share Amount” with respect to any Mandatory
Conversion Date means 100% of the quotient of (x) the sum of the composite
aggregate daily share trading volume as reported on Bloomberg of the Common
Stock for each Trading Day during the five (5) Trading Day period ending and
including the Trading Day immediately prior to the applicable Mandatory
Conversion Notice Date, divided by (y) five (5). All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination,
reclassification or similar transaction that proportionately decreases or
increases the Common Stock during such measuring period.

 

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

 

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

 

(mm)    “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.

 

(nn)     “Permitted Indebtedness” means (i) Indebtedness evidenced by this Note,
the Other Notes and the December Notes, (ii) Indebtedness set forth on Schedule
3(s) to the Securities Purchase Agreement, as in effect as of the Subscription
Date, (iii) intercompany Indebtedness between the Company and any wholly-owned
subsidiary of the Company (including, without limitation, the Zone Loan (as
defined in the December Securities Purchase Agreement)) and (iv) Indebtedness
secured by Permitted Liens or unsecured but as described in clauses (iv) and (v)
of the definition of Permitted Liens.

 

(oo)     “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 (A) upon or in any equipment
acquired or held by the Company or any of its Subsidiaries to secure the
purchase price of such equipment or Indebtedness incurred solely for the purpose
of financing the acquisition or lease of such equipment, or (B) existing on such
equipment at the time of its acquisition, provided that the Lien is confined
solely to the property so acquired and improvements thereon, and the proceeds of
such equipment, in either case, with respect to Indebtedness in an aggregate
amount not to exceed $150,000, (v) Liens incurred in connection with the
extension, renewal or refinancing of the Indebtedness secured by Liens of the
type described in clause (iv) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase, (vi) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payments of custom duties in
connection with the importation of goods, (vii) Liens arising from judgments,
decrees or attachments in circumstances not constituting an Event of Default
under Section 4(a)(xii), (viii) Liens with respect to the Notes or the December
Notes.

 

 
45

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

 

(qq)      “Price Failure” means, with respect to a particular date of
determination, the VWAP of the Common Stock on any Trading Day during any
Trading Day during the twenty (20) Trading Day period ending on the Trading Day
immediately preceding such date of determination fails to exceed $2.00 (as
adjusted for stock splits, stock dividends, stock combinations,
recapitalizations or other similar transactions occurring after the Subscription
Date). All such determinations to be appropriately adjusted for any stock
splits, stock dividends, stock combinations, recapitalizations or other similar
transactions during any such measuring period.

 

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

 

(ss)     “Redemption Notices” means, collectively, the Event of Default
Redemption Notices, the Company Optional Redemption Notices and the Change of
Control Redemption Notices, and each of the foregoing, individually, a
“Redemption Notice.”

 

(tt)       “Redemption Premium” means 125%.

 

(uu)     “Redemption Prices” means, collectively, Event of Default Redemption
Prices, the Change of Control Redemption Prices, and the Company Optional
Redemption Prices, and each of the foregoing, individually, a “Redemption
Price.”

 

(vv)     “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 or
otherwise pursuant to the terms of the Notes, as may be amended from time to
time.

 

 
46

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(ww)      “Resale Eligibility Date” means the earlier to occur of (i) the
Effective Date (as defined in the Registration Rights Agreement) of a
Registration Statement registering any of the Registrable Securities (as defined
in the Registration Rights Agreement) and (ii) the initial date any of the
Registrable Securities are eligible to be resold pursuant to Rule 144.

 

(xx)     [INSERT IN INITIAL NOTE ONLY: [INTENTIONALLY OMITTED]][INSERT IN
ADDITIONAL NOTE ONLY: “Restricted Principal” means, initially $5,000,000,
subject to reduction as provided herein, including, without limitation, pursuant
to Investor Prepayments or Investor Offset Rights.]

 

(yy)      “SEC” means the United States Securities and Exchange Commission or
the successor thereto.

 

(zz)     “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, as
may be amended from time to time.

 

(aaa)      “Security Agreement” shall have the meaning as set forth in the
Securities Purchase Agreement.

 

(bbb)     “Subscription Date” means February __, 2017.

 

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

 

(ddd)     “Subject Entity” means any Person, Persons or Group or any Affiliate
or associate of any such Person, Persons or Group.

 

(eee)      “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.

 

(fff)     “Trading Day” means, as applicable, (x) with respect to all price or
trading volume determinations relating to the Common Stock, 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) unless such
day is otherwise designated as a Trading Day in writing by the Holder or (y)
with respect to all determinations other than price determinations relating to
the Common Stock, any day on which The New York Stock Exchange (or any successor
thereto) is open for trading of securities.

 

 
47

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(ggg)     “True-Up Price” means, with respect to any Mandatory Conversion, 85%
of the VWAP of the Common Stock on the Trading Day with the lowest VWAP of the
Common Stock during the fifteen (15) consecutive Trading Day period commencing
on, and including, the Trading Day immediately following the applicable
Mandatory Conversion Date (such period, the “True-Up Measuring Period”). All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination, reclassification or similar transaction that
proportionately decreases or increases the Common Stock during the True-Up
Measuring Periods.

 

(hhh)      “Volume Failure” means, with respect to a particular date of
determination, the aggregate daily dollar trading volume (as reported on
Bloomberg) of the Common Stock on the Principal Market on any Trading Days
during the five (5) Trading Day period ending on the Trading Day immediately
preceding such date of determination (such period, the “Volume Failure Measuring
Period”), is less than $250,000 (as adjusted for any stock splits, stock
dividends, stock combinations, recapitalizations or other similar transactions
occurring after the Subscription Date). All such determinations to be
appropriately adjusted for any stock splits, stock dividends, stock
combinations, recapitalizations or other similar transactions during such Volume
Failure Measuring Period.

 

(iii)      “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 “HP”
function (set to weighted average) 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 OTC Markets Group
Inc. (formerly Pink Sheets LLC). 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 stock dividend, stock split, stock combination,
recapitalization or other similar transaction during such period.

 

 
48

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32.     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,
non-public information relating to the Company or any of its Subsidiaries, the
Company shall within one (1) Business Day or such receipt or prior to (or
simultaneous with) such delivery, as applicable, publicly disclose such
material, non-public information on a Current Report on Form 8-K or otherwise.
In the event that the Company believes that a notice contains material,
non-public information relating to the Company or any of its Subsidiaries, the
Company so shall indicate to the 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,
non-public information relating to the Company or any of its Subsidiaries. If
the Company or any of its Subsidiaries provides material non-public information
to the Holder that is not simultaneously filed in a Current Report on Form 8-K
and the Holder has not agreed to receive such material non-public information,
the Company hereby covenants and agrees that the Holder shall not have any duty
of confidentiality to the Company, any of its Subsidiaries or any of their
respective officers, directors, employees, affiliates or agents with respect to,
or a duty to any of the foregoing not to trade on the basis of, such material
non-public information. Nothing contained in this Section 32 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]

 

 
49

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

 

 

HELIOS AND MATHESON ANALYTICS INC.

 

 

 

By:                                                                       

        Name:

        Title:

 

 

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EXHIBIT I

 

HELIOS AND MATHESON ANALYTICS INC.
CONVERSION NOTICE

 

Reference is made to the Senior Secured Convertible Note (the “Note”) issued to
the undersigned by Helios and Matheson Analytics Inc., a Delaware 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, $0.001 par value per share
(the “Common Stock”), of the Company, as of the date specified below.
Capitalized terms not defined herein shall have the meaning as set forth in the
Note.

 

 

Date of Conversion:  

 

 

 

 

 

Aggregate Principal to be converted:

 

 

 

 

 

Aggregate accrued and unpaid Interest and accrued and unpaid Late Charges with
respect to such portion of the Aggregate Principal and such Aggregate Interest
to be converted:

 

 

 

 

AGGREGATE CONVERSION AMOUNT
TO BE CONVERTED:  

 

 

Please confirm the following information:  

 

 

Conversion Price:

 

 

 

 

 

Number of shares of Common Stock to be issued:

 

 

☐          If this Conversion Notice is being delivered with respect to an
Alternate Conversion, check here if Holder is electing to use the following
Alternate Conversion Price:____________  

 

 

 

Please issue the Common Stock into which the Note is being converted to Holder,
or for its benefit, as follows:

 

  ☐    Check here if requesting delivery as a certificate to the following name
and to the following address:       Issue to:        

 

 

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

 

 

☐   Check here if requesting delivery by Deposit/Withdrawal at Custodian as
follows:

 

DTC Participant:      

DTC Number:

     

Account Number:

 

 

Notwithstanding anything to the contrary contained herein, this Conversion
Notice shall constitute a representation by the Holder of the Note submitting
this Conversion Notice that after giving effect to the conversion provided for
in this Conversion Notice, such Holder (together with its affiliates) will not
have beneficial ownership (together with the beneficial ownership of such
Person’s affiliates) of a number of shares of Common Stock which exceeds the
Maximum Percentage (as defined in the Note) of the total outstanding shares of
Common Stock of the Company as determined pursuant to the provisions of Section
3(d)(i) of the Note.

 

Date: _____________ __,            

 

                                                         
Name of Registered Holder

         

By:                                                   

       Name:

       Title:

 

 

       Tax ID:_____________________

 

       Facsimile:___________________

 

E-mail Address:

 

 

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

 

 

Exhibit II

 

ACKNOWLEDGMENT

 

The Company hereby (a) acknowledges this Conversion Notice, (b) certifies that
the above indicated number of shares of Common Stock [are][are not] eligible to
be resold by the Holder either (i) pursuant to Rule 144 (subject to the Holder’s
execution and delivery to the Company of a customary 144 representation letter)
or (ii) an effective and available registration statement and (c) hereby directs
_________________ to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated _____________, 20__
from the Company and acknowledged and agreed to by ________________________.

 

 

HELIOS AND MATHESON ANALYTICS INC.

   

By:                                                                               

       Name:

       Title: