Exhibit 10.3

 
[FORM OF SENIOR 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 SELECTED BY THE HOLDER, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT, OR (II) UNLESS 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.
 
GT Biopharma, Inc.
 
SENIOR CONVERTIBLE NOTE
 
Issuance Date: January [  ], 2018
Original Principal Amount: U.S. $[          ]

 
FOR VALUE RECEIVED, GT Biopharma, Inc., a Delaware corporation (the "Company"),
hereby promises to pay to [BUYER] or registered assigns (the "Holder") in cash
and/or in shares of Common Stock (as defined below) the amount set out above as
the Original Principal Amount (as reduced pursuant to the terms hereof pursuant
to redemption, conversion or otherwise and/or as increased pursuant to the terms
hereof, the "Principal") when due, whether upon the Maturity Date (as defined
below), acceleration, redemption or otherwise (in each case in accordance with
the terms hereof) and to pay default interest ("Interest") on any outstanding
Principal at the applicable Default Rate until the same becomes due and payable,
whether upon the Maturity Date, acceleration, conversion, redemption or
otherwise (in each case in accordance with the terms hereof). This Senior
Convertible Note (including all Senior Convertible Notes issued in exchange,
transfer or replacement hereof, this "Note") is one of an issue of Senior
Convertible Notes issued pursuant to the Securities Purchase Agreement on the
Closing Date (collectively, the "Notes" and such other Senior Convertible Notes,
the "Other Notes"). Certain capitalized terms used herein are defined in Section
31.
 
 

 
 
(1) PAYMENTS OF PRINCIPAL; PREPAYMENT. The Company acknowledges and agrees that
this Note was issued at an original issue discount. On the Maturity Date, the
Company shall pay to the Holder an amount in cash representing all outstanding
Principal, accrued and unpaid Interest and accrued and unpaid Late Charges (as
defined in Section 24(b)) on such Principal and Interest. The "Maturity Date"
shall be July [  ], 20181, as may be extended at the option of the Holder (i) in
the event that, and for so long as, an Event of Default (as defined in Section
4(a)) shall have occurred and be continuing on the Maturity Date (as may be
extended pursuant to this Section 1) or any event shall have occurred and be
continuing on the Maturity Date (as may be extended pursuant to this Section 1)
that with the passage of time and the failure to cure would result in an Event
of Default and (ii) through the date that is ten (10) Business Days after the
consummation of a Change of Control in the event that a Change of Control is
publicly announced or a Change of Control Notice (as defined in Section 5(b)) is
delivered prior to the Maturity Date. Other than as specifically permitted by
this Note, the Company may not prepay any portion of the outstanding Principal,
accrued and unpaid Interest or accrued and unpaid Late Charges on Principal and
Interest, if any.
 
(2) DEFAULT INTEREST. This Note shall not bear any ordinary interest. Interest
on this Note shall commence accruing immediately upon the occurrence of, and
shall continue accruing during the continuance of, an Event of Default, at the
Default Rate and shall be computed on the basis of a 360-day year of twelve
30-day months and shall be payable, if applicable, on the Maturity Date to the
record holder of this Note on the Maturity Date in cash by wire transfer of
immediately available funds pursuant to wire instructions provided by the Holder
in writing to the Company. Prior to the payment of Interest on the Maturity
Date, Interest on this Note shall accrue at the Default Rate and be payable by
way of inclusion of the Interest in the Conversion Amount (as defined in Section
3(b)(i)) on each (i) Conversion Date (as defined in Section 3(c)(i)) in
accordance with Section 3(c)(i) and/or (ii) Redemption Date. In the event that
such Event of Default is subsequently cured, the Interest shall cease to accrue
as of the date of such cure; provided, that the Interest as calculated and
unpaid as of the cure of such Event of Default shall continue to be due and
payable as set forth above; provided, further, that for the purpose of this
Section 2, such Event of Default shall not be deemed cured unless and until any
accrued and unpaid Interest shall be paid to the Holder.
 
(3) CONVERSION OF NOTES. At any time or times after the date set out above as
the Issuance Date (the "Issuance Date"), this Note shall be convertible into
shares of Common Stock 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 into fully paid and
nonassessable shares of Common Stock in accordance with Section 3(c), at the
Conversion Rate (as defined below). The Company shall not issue any fraction of
a share of Common Stock upon any conversion. If the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up to the nearest whole share. The Company
shall pay any and all transfer, stamp and similar taxes that may be payable with
respect to the issuance and delivery of Common Stock upon conversion of any
Conversion Amount.
 
 

1 Insert date that is the six (6) months immediately following the Issuance
Date, or if such date falls on a Holiday, the next day that is not a Holiday.
 
 
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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 (A) the portion of the Principal to be
converted, redeemed or otherwise with respect to which this determination is
being made, (B) accrued and unpaid Interest, if any, with respect to such
Principal and (C) accrued and unpaid Late Charges, if any, with respect to such
Principal and Interest.
 
(ii) "Conversion Price" means, as of any Conversion Date or other date of
determination, $4.58 per share, subject to adjustment as provided herein.
 
(c) Mechanics of Conversion.
 
(i) Optional Conversion. To convert any Conversion Amount into shares of Common
Stock on any date (a "Conversion Date"), the Holder shall (A) transmit by
facsimile or electronic mail (or otherwise deliver), for delivery 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 (a "Conversion Notice") to
the Company and (B) if required by Section 3(c)(iii), but without delaying the
Company's requirement to deliver shares of Common Stock on the applicable Share
Delivery Date (as defined below), surrender this Note to a common carrier for
delivery to the Company as soon as practicable on or following such date (or an
indemnification undertaking with respect to this Note in the case of its loss,
theft or destruction). The Holder may also indicate in a Conversion Notice the
number of shares of Common Stock it seeks to receive upon conversion of any
portion of this Note and the reduction of the Conversion Amount pursuant to such
conversion shall be determined at the end of such Conversion Date by multiplying
such number of shares of Common Stock by the applicable Conversion Price. No
ink-original Conversion Notice shall be required, nor shall any medallion
guarantee (or other type of guarantee or notarization) of any Conversion Notice
be required. On or before the first (1st) Business Day following the date of
delivery of a Conversion Notice, the Company shall transmit by facsimile or
electronic mail a confirmation of receipt of such Conversion Notice to the
Holder and the Company's transfer agent (the "Transfer Agent"). On or before the
earlier of (i) the second (2nd) Trading Day and (ii) the number of Trading Days
comprising the Standard Settlement Period, in each case, following the date of
delivery of a Conversion Notice (a "Share Delivery Date"), the Company shall (x)
provided that the Transfer Agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer Program, credit such
aggregate number of shares of Common Stock to which the Holder shall be entitled
to the Holder's or its designee's balance account with DTC through its Deposit
Withdrawal At Custodian system or (y) if the Transfer Agent is not participating
in the DTC Fast Automated Securities Transfer Program, issue and deliver to the
address as specified in the Conversion Notice, a certificate, registered in the
name of the Holder or its designee, for the number of shares of Common Stock to
which the Holder shall be entitled. If this Note is physically surrendered for
conversion as required by Section 3(c)(iii) and the outstanding Principal of
this Note is greater than the Principal portion of the Conversion Amount being
converted, then the Company shall as soon as practicable and in no event later
than three (3) Business Days after delivery of this Note and at its own expense,
issue and deliver to the Holder 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, irrespective of the date
such shares of Common Stock are credited to the Holder's account with DTC or the
date of delivery of the certificates evidencing such shares of Common Stock, as
the case may be.
 
 
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(ii) Company's Failure to Timely Convert. If the Company shall fail on or prior
to the applicable Share Delivery Date to issue and deliver a certificate to the
Holder, if the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, or credit the Holder's balance account with DTC, if
the Transfer Agent is participating in the DTC Fast Automated Securities
Transfer Program, for the number of shares of Common Stock to which the Holder
is entitled upon the Holder's conversion of any Conversion Amount (a "Conversion
Failure"), then (A) the Company shall pay damages to the Holder for each Trading
Day of such Conversion Failure in an amount equal to 1.5% of the product of (1)
the sum of the number of shares of Common Stock not issued to the Holder on or
prior to the Share Delivery Date and to which the Holder is entitled, and (2)
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 Date and (B) 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 the
Company shall fail on or prior to the applicable Share Delivery Date to issue
and deliver a certificate to the Holder, if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, or credit
the Holder's balance account with DTC, if the Transfer Agent is participating in
the DTC Fast Automated Securities Transfer Program, for the number of shares of
Common Stock to which the Holder is entitled upon the Holder's conversion of any
Conversion Amount or on any date of the Company's obligation to deliver shares
of Common Stock as contemplated pursuant to clause (y) below, and if on or after
such Trading Day the Holder purchases (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of
Common Stock issuable upon such conversion that the Holder anticipated receiving
from the Company (a "Buy-In"), then the Company shall, within three (3) Trading
Days after the Holder's request and in the Holder's discretion, either (x) pay
cash to the Holder in an amount equal to the Holder's total purchase price
(including brokerage commissions and other out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (the "Buy-In Price"), at which point the
Company's obligation to issue and deliver such certificate or credit the
Holder's balance account with DTC for the shares of Common Stock to which the
Holder is entitled upon the Holder's conversion of the applicable Conversion
Amount shall terminate, or (y) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such shares of Common Stock or
credit the Holder's balance account with DTC for such shares of Common Stock and
pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock, times (B)
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 Date. Nothing herein 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 shares
of Common Stock upon conversion of this Note as required pursuant to the terms
hereof.
 
 
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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 (and stated interest thereon)
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, if any,
hereunder, notwithstanding notice to the contrary. A Registered Note may be
assigned or sold in whole or in part only by registration of such assignment or
sale on the Register. Upon its receipt of a request to assign or sell all or
part of any Registered Note by the Holder, 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 17. Notwithstanding anything to the contrary in this Section
3(c)(iii), the Holder may assign any Note or any portion thereof to an Affiliate
of the Holder or a Related Fund of the Holder without delivering a request to
assign or sell such Note to the Company and the recordation of such assignment
or sale in the Register (a "Related Party Assignment"); provided, that (x) the
Company may continue to deal solely with such assigning or selling Holder unless
and until the Holder has delivered a request to assign or sell such Note or
portion thereof to the Company for recordation in the Register; (y) the failure
of such assigning or selling Holder to deliver a request to assign or sell such
Note or portion thereof to the Company shall not affect the legality, validity,
or binding effect of such assignment or sale and (z) such assigning or selling
Holder shall, acting solely for this purpose as a non-fiduciary agent of the
Company, maintain a register (the "Related Party Register") comparable to the
Register on behalf of the Company, and any such assignment or sale shall be
effective upon recordation of such assignment or sale in the Related Party
Register. Notwithstanding anything to the contrary set forth herein, upon
conversion of any portion of this Note in accordance with the terms hereof, the
Holder shall not be required to physically surrender this Note to the Company
unless (A) the full Conversion Amount represented by this Note is being
converted or (B) the Holder has provided the Company with prior written notice
(which notice may be included in a Conversion Notice) requesting reissuance of
this Note upon physical surrender of this Note. The Holder and the Company shall
maintain records showing the Principal, Interest and Late Charges, if any,
converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Company, so as not to require
physical surrender of this Note upon conversion.
 
 
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(iv) Pro Rata Conversion; Disputes. In the event that the Company receives a
Conversion Notice from this Note and one or more holder of Other Notes for the
same Conversion Date and the Company can convert some, but not all, of such
portions of this Note and the Other Notes submitted for conversion, the Company,
subject to Section 3(d), shall convert from the Holder and each holder of Other
Notes electing to have this Note or the Other Notes converted on such date a pro
rata amount of such holder's portion of the Note and its Other Notes submitted
for conversion based on the Principal amount of this Note and the Other Notes
submitted for conversion on such date by such holder relative to the aggregate
Principal amount of this Note and all Other 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) Beneficial Ownership. Notwithstanding anything to the contrary contained
herein, the Company shall not issue any shares of Common Stock pursuant to the
terms of this Note, and the Holder shall not have the right to any shares
otherwise issuable pursuant to the terms of this Note and any such issuance
shall be null and void and treated as if never made, to the extent that after
giving effect to such issuance, the Holder together with the other Attribution
Parties collectively would beneficially own in excess of 4.99% (the "Maximum
Percentage") of the shares of Common Stock outstanding immediately after giving
effect to such issuance. 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 (i) conversion of the remaining, nonconverted
portion of this Note beneficially owned by the Holder or any of the other
Attribution Parties and (ii) 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,
including the Other Notes and 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). For purposes of this
Section 3(d), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act. For purposes of determining the number of
outstanding shares of Common Stock the Holder may acquire upon the conversion of
the Note without exceeding the Maximum Percentage, the Holder may rely on the
number of outstanding shares of Common Stock as reflected in (i) 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, (ii)
a more recent public announcement by the Company or (iii) any other written
notice by the Company or the Transfer Agent 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), 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)
Trading 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 Exchange 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 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 Exchange Act. 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) 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) 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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(4) RIGHTS UPON EVENT OF DEFAULT.
 
(a) Event of Default. Each of the following events shall constitute an "Event of
Default":
 
(i) the failure of the applicable Registration Statement required to be filed
pursuant to the Registration Rights Agreement to be filed within fifteen (15)
days after the applicable time period specified in the Registration Rights
Agreement or to be declared effective by the SEC on or prior to the date that is
thirty (30) days after the applicable Effectiveness Deadline (as defined in the
Registration Rights Agreement), or, while the applicable Registration Statement
is required to be maintained effective pursuant to the terms of the Registration
Rights Agreement, the effectiveness of the applicable Registration Statement
lapses for any reason (including, without limitation, the issuance of a stop
order) or is unavailable to any holder of the Notes for sale of all of such
holder's Registrable Securities in accordance with the terms of the Registration
Rights Agreement, and such lapse or unavailability continues for a period of
fifteen (15) consecutive Trading Days or for more than an aggregate of thirty
(30) Trading Days in any 365-day period (other than days during an Allowable
Grace Period (as defined in the Registration Rights Agreement);
 
 
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(ii) (A) the suspension of the Common Stock from trading on an Eligible Market
for a period of two (2) consecutive Trading Days or for more than an aggregate
of fifteen (15) Trading Days in any 365-day period or (B) the failure of the
Common Stock to be listed on an Eligible Market;
 
(iii) the Company's (A) failure to cure a Conversion Failure by delivery of the
required number of shares of Common Stock within five (5) Business Days after
the applicable Conversion Date or (B) notice, written or oral, to the Holder or
any holder of the Other Notes, including by way of public announcement or
through any of its agents, at any time, of its intention not to comply with a
request for conversion of this Note or any Other Notes into shares of Common
Stock that is tendered in accordance with the provisions of this Note or the
Other Notes, other than pursuant to Section 3(d) (and analogous provisions under
the Other Notes);
 
(iv) at any time following the fifth (5th) consecutive Business Day that the
Holder's Authorized Share Allocation (as defined in Section 10(a)) is less than
the sum of (A) 200% of the number of shares of Common Stock that the Holder
would be entitled to receive upon a conversion of the full Conversion Amount of
this Note (without regard to any limitations on conversion set forth in Section
3(d) or otherwise) and (B) the number of shares of Common Stock that the Holder
would be entitled to receive upon exercise in full of the Holder's Warrants
(without regard to any limitations on exercise set forth in the Warrants);
 
(v) the Company's failure to pay to the Holder any amount of Principal,
Interest, Late Charges or other amounts when and as due under this Note or the
Other Notes (including, without limitation, the Company's failure to pay any
redemption amounts hereunder) or any other Transaction Document, except, in the
case of a failure to pay Interest and/or Late Charges when and as due, in which
case only if such failure continues for a period of at least an aggregate of
five (5) Business Days;
 
(vi) any default under, redemption of or acceleration prior to maturity of any
Indebtedness of the Company or any of its Subsidiaries other than with respect
to this Note or any Other Notes;
 
(vii) the Company or any of its Subsidiaries, pursuant to or within the meaning
of Title 11, U.S. Code, or any similar Federal, foreign or state law for the
relief of debtors (collectively, "Bankruptcy Law"), (A) commences a voluntary
case, (B) consents to the entry of an order for relief against it in an
involuntary case, (C) consents to the appointment of a receiver, trustee,
assignee, liquidator or similar official (a "Custodian"), (D) makes a general
assignment for the benefit of its creditors or (E) admits in writing that it is
generally unable to pay its debts as they become due;
 
(viii) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that (A) is for relief against the Company or any of its
Subsidiaries in an involuntary case, (B) appoints a Custodian of the Company or
any of its Subsidiaries or (C) orders the liquidation of the Company or any of
its Subsidiaries;
 
 
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(ix) a final judgment or judgments for the payment of money aggregating in
excess of $250,000 are rendered against the Company or any of its Subsidiaries
and which judgments are not, within sixty (60) days after the entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged within sixty
(60) days after the expiration of such stay; provided, however, that any
judgment which is covered by insurance or an indemnity from a credit worthy
party shall not be included in calculating the $250,000 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 will receive the proceeds of such insurance or
indemnity within thirty (30) days of the issuance of such judgment;
 
(x) other than as specifically set forth in another clause of this Section 4(a),
the Company or any of its Subsidiaries breaches any representation, warranty,
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 of any Transaction
Document which is curable, only if such breach continues for a period of at
least an aggregate of five (5) Business Days;
 
(xi) any breach or failure in any respect to comply with Sections 13, 14 or 15
of this Note;
 
(xii) any material damage to, or loss, theft or destruction of, a material
amount of property of the Company, 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 reasonably be expected to have a Material Adverse Effect (as defined in
the Securities Purchase Agreement);
 
(xiii) a false or inaccurate certification (including a false or inaccurate
deemed certification) by the Company that the Equity Conditions are satisfied or
that there has been no Equity Conditions Failure or as to whether any Event of
Default has occurred; or
 
(xiv) any Event of Default (as defined in the Other Notes) occurs with respect
to any Other Notes.
 
 
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(b) Redemption Right. Upon the occurrence of an Event of Default with respect to
this Note or any Other Note, the Company shall within one (1) Business Day
deliver written notice thereof via facsimile or electronic mail and overnight
courier (an "Event of Default Notice") to the Holder. At any time after the
earlier of the Holder's receipt of an Event of Default Notice and the Holder
becoming aware of an Event of Default, the Holder may require the Company to
redeem (an "Event of Default Redemption") 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 require the Company 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 in cash by wire transfer of
immediately available funds at a price equal to the Conversion Amount being
redeemed (the "Event of Default Redemption Price"). Redemptions required by this
Section 4(b) shall be made in accordance with the provisions of Section 11. To
the extent redemptions required by this Section 4(b) are deemed or determined by
a court of competent jurisdiction to be prepayments of the Note by the Company,
such redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 4, but subject to Section 3(d), until
the Event of Default Redemption Price (together with any interest thereon) is
paid in full, the Conversion Amount submitted for redemption under this Section
4(b) (together with any interest thereon) may be converted, in whole or in part,
by the Holder into Common Stock pursuant to Section 3.
 
(5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
 
(a) Assumption. The Company shall not enter into or be party to a Fundamental
Transaction while any Notes remain outstanding unless 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
Required Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements, if so requested by the Holder, 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 and the Default Rate of the
Notes then outstanding held by such holder, having similar conversion rights and
having similar ranking to the Notes, and satisfactory to the Required Holders.
Any security issuable or potentially issuable to the Holder pursuant to the
terms of this Note on the consummation of a Fundamental Transaction shall be
registered and freely tradable by the Holder without any restriction or
limitation or the requirement to be subject to any holding period pursuant to
any applicable securities laws. No later than (i) five (5) days prior to the
occurrence or consummation of any Fundamental Transaction or (ii) if later, the
first Trading Day following the date the Company first becomes aware of the
occurrence or potential occurrence of a Fundamental Transaction, the Company
shall deliver written notice thereof via facsimile or electronic mail and
overnight courier to the Holder. Upon the occurrence or consummation of any
Fundamental Transaction, and it shall be a required condition to the occurrence
or consummation of any Fundamental Transaction that, the Company and the
Successor Entity or Successor Entities, jointly and severally, shall succeed to,
and the Company shall cause any Successor Entity or Successor Entities to
jointly and severally succeed to, and be added to the term "Company" under this
Note (so that from and after the date of such Fundamental Transaction, each and
every provision of this Note referring to the "Company"
 
 
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shall refer instead to each of the Company and the Successor Entity or Successor
Entities, jointly and severally), and the Company and the Successor Entity or
Successor Entities, jointly and severally, may exercise every right and power of
the Company prior thereto and shall assume all of the obligations of the Company
prior thereto under this Note with the same effect as if the Company and such
Successor Entity or Successor Entities, jointly and severally, had been named as
the Company in this Note, and, solely at the request of the Holder, if the
Successor Entity and/or Successor Entities is a publicly traded corporation
whose common capital stock is quoted on or listed for trading on an Eligible
Market, the Company shall, or shall cause the Successor Entity, to deliver (in
addition to and without limiting any right under this Note) to the Holder in
exchange for this Note a security of the Successor Entity and/or Successor
Entities evidenced by a written instrument substantially similar in form and
substance to this Note and convertible for a corresponding number of shares of
capital stock of the Successor Entity and/or Successor Entities (the "Successor
Capital Stock") equivalent (as set forth below) to the shares of Common Stock
acquirable and receivable upon conversion of this Note (without regard to any
limitations on the conversion of this Note) prior to such Fundamental
Transaction (such corresponding number of shares of Successor Capital Stock to
be delivered to the Holder shall equal the greater of (I) the quotient of (A)
the aggregate dollar value of all consideration (including cash consideration
and any consideration other than cash ("Non-Cash Consideration"), in such
Fundamental Transaction, as such values are set forth in any definitive
agreement for the Fundamental Transaction that has been executed at the time of
the first public announcement of the Fundamental Transaction or, if no such
value is determinable from such definitive agreement, as determined in
accordance with Section 23 with the term "Non-Cash Consideration" being
substituted for the term "Conversion Price") that the Holder would have been
entitled to receive upon the happening of such Fundamental Transaction or the
record, eligibility or other determination date for the event resulting in such
Fundamental Transaction, had this Note been converted immediately prior to such
Fundamental Transaction or the record, eligibility or other determination date
for the event resulting in such Fundamental Transaction (without regard to any
limitations on the conversion of this Note) (the "Aggregate Consideration")
divided by (B) the per share Closing Sale Price of such Successor Capital Stock
on the Trading Day immediately prior to the consummation or occurrence of the
Fundamental Transaction and (II) the product of (A) the quotient obtained by
diving (x) the Aggregate Consideration, by (y) the Closing Sale Price of the
Common Stock on the Trading Day immediately prior to the consummation or
occurrence of the Fundamental Transaction and (B) the highest exchange ratio
pursuant to which any stockholder of the Company may exchange Common Stock for
Successor Capital Stock) (provided, however, to the extent that the Holder's
right to receive any such shares of publicly traded common stock (or their
equivalent) of the Successor Entity would result in the Holder and its other
Attribution Parties exceeding the Maximum Percentage, if applicable, then the
Holder shall not be entitled to receive such shares to such extent (and shall
not be entitled to beneficial ownership of such shares of publicly traded common
stock (or their equivalent) of the Successor Entity as a result of such
consideration to such extent) and the portion of such shares shall be held in
abeyance for the Holder until such time or times, as its right thereto would not
result in the Holder and its other Attribution Parties exceeding the Maximum
Percentage, at which time or times the Holder shall be delivered such shares to
the extent as if there had been no such limitation), and such security shall be
satisfactory to the Holder, and with an identical conversion price to the
Conversion Price hereunder (such adjustments to the number of shares of capital
stock and such conversion price
 
 
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being for the purpose of protecting after the consummation or occurrence of such
Fundamental Transaction the economic value of this Note that was in effect
immediately prior to the consummation or occurrence of such Fundamental
Transaction, as elected by the Holder solely at its option). Upon occurrence or
consummation of the Fundamental Transaction, and it shall be a required
condition to the occurrence or consummation of such Fundamental Transaction
that, the Company and the Successor Entity or Successor Entities shall deliver
to the Holder confirmation that there shall be issued upon conversion of this
Note at any time after the occurrence or consummation of the Fundamental
Transaction, as applicable, as elected by the Holder solely at its option,
shares of Common Stock, Successor Capital Stock or, in lieu of the shares of
Common Stock or Successor Capital Stock (or other securities, cash, assets or
other property purchasable upon the conversion of this Note prior to such
Fundamental Transaction), such shares of stock, securities, cash, assets or any
other property whatsoever (including warrants or other purchase or subscription
rights), which for purposes of clarification may continue to be shares of Common
Stock, if any, that the Holder would have been entitled to receive upon the
happening of such Fundamental Transaction or the record, eligibility or other
determination date for the event resulting in such Fundamental Transaction, had
this Note been converted immediately prior to such Fundamental Transaction or
the record, eligibility or other determination date for the event resulting in
such Fundamental Transaction (without regard to any limitations on the
conversion of this Note), as adjusted in accordance with the provisions of this
Note. The provisions of this Section 5(a) shall apply similarly and equally to
successive Fundamental Transactions.
 
(b) Redemption Right. While any Notes remain outstanding, no later than five (5)
days prior to the consummation of a Change of Control, 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
on the earlier to occur of (x) any oral or written agreement by the Company or
any of its Subsidiaries, upon consummation of which the transaction contemplated
thereby would reasonably be expected to result in a Change of Control, (y) the
Holder becoming aware of a Change of Control and (z) the Holder's receipt of a
Change of Control Notice and ending twenty-five (25) Trading Days after the date
of the consummation of such Change of Control, the Holder may require the
Company to redeem (a "Change of Control Redemption") 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 require the Company to
redeem. The portion of this Note subject to redemption pursuant to this Section
5(b) shall be redeemed by the Company in cash by wire transfer of immediately
available funds at a price equal to the Conversion Amount being redeemed (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 a 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 the Note by the Company,
such redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 5, but subject to Section 3(d), until
the Change of Control Redemption Price (together with any interest thereon) is
paid in full, the Conversion Amount submitted for redemption under this Section
5(b) (together with any interest thereon) may be converted, in whole or in part,
by the Holder into Common Stock pursuant to Section 3.
 
 
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(6) DISTRIBUTION OF ASSETS; RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER
CORPORATE EVENTS.
 
(a) Distribution of Assets. While any Notes remain outstanding, 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, Options, evidence of
Indebtedness or any other assets 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)
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 such extent (and shall not be entitled to
beneficial ownership of such shares of Common Stock as a result of such
Distribution (and beneficial ownership) to such extent) and the portion of such
Distribution shall be held in abeyance for the Holder until such time or times
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 rights (and any rights under this Section 6(a) on such
initial rights or on any subsequent such rights to be held similarly in
abeyance) to the same extent as if there had been no such limitation).
 
(b) Purchase Rights. While any Notes remain outstanding, if at any time the
Company grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "Purchase Rights"), then the Holder
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which the Holder could have acquired if the Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately 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 such extent (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 such extent) and
such Purchase Right to such extent shall be held in abeyance for the Holder
until such time or times 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 to be held similarly in abeyance) to the same extent as if there had been
no such limitation).
 
 
-13-

 
 
(c) Other Corporate Events. While any Notes remain outstanding, in addition to
and not in substitution for any other rights hereunder, prior to the occurrence
or consummation of any Fundamental Transaction pursuant to which holders of
shares of Common Stock are entitled to receive securities, cash, assets or other
property with respect to or in exchange for shares of Common Stock (a "Corporate
Event"), the Company shall make appropriate provision to ensure that, and any
applicable Successor Entity or Successor Entities shall ensure that, and it
shall be a required condition to the occurrence or consummation of such
Corporate Event that, the Holder will thereafter have the right to receive upon
conversion of this Note at any time after the occurrence or consummation of the
Corporate Event, shares of Common Stock or Successor Capital Stock or, if so
elected by the Holder, in lieu of the shares of Common Stock (or other
securities, cash, assets or other property) purchasable upon the conversion of
this Note prior to such Corporate Event (but not in lieu of such items still
issuable under Sections 6(a) and 6(b), which shall continue to be receivable on
the Common Stock or on such shares of stock, securities, cash, assets or any
other property otherwise receivable with respect to or in exchange for shares of
Common Stock), such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or subscription rights
and any shares of Common Stock) which the Holder would have been entitled to
receive upon the occurrence or consummation of such Corporate Event or the
record, eligibility or other determination date for the event resulting in such
Corporate Event, had this Note been converted immediately prior to such
Corporate Event or the record, eligibility or other determination date for the
event resulting in such Corporate Event (without regard to any limitations on
conversion of this Note). Provision made pursuant to the preceding sentence
shall be in a form and substance satisfactory to the Required Holders. The
provisions of this Section 6 shall apply similarly and equally to successive
Corporate Events.
 
(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
 
(a) Adjustment of Conversion Price upon Issuance of Common Stock. If and
whenever on or after the Subscription Date through the first (1st) day
immediately following the earlier of (i) the date of consummation of a financing
that qualifies as a Qualified Financing (as defined in the Warrants) or (ii) the
date that no Notes remain outstanding, the Company issues or sells, or in
accordance with this Section 7(a) is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, but excluding shares of Common
Stock deemed to have been issued or sold by the Company in connection with any
Excluded Securities) for a consideration per share (the "New Issuance Price")
less than a price (the "Applicable Price") equal to the Conversion Price in
effect immediately prior to such issue or sale or deemed issuance or sale (the
foregoing a "Dilutive Issuance"), then immediately after such Dilutive Issuance
the Conversion Price then in effect shall be reduced to an amount equal to the
New Issuance Price. For purposes of determining the adjusted Conversion Price
under this Section 7(a), the following shall be applicable:
 
 
-14-

 
 
(i) Issuance of Options. If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or exchange or
exercise of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 7(a)(i), the "lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Options or upon
conversion or exchange or exercise of any Convertible Securities issuable upon
exercise of such Option" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon granting or sale of the Option, upon exercise of
the Option and upon conversion or exchange or exercise of any Convertible
Security issuable upon exercise of such Option less any consideration paid or
payable by the Company with respect to such one share of Common Stock upon the
granting or sale of such Option, upon exercise of such Option and upon
conversion exercise or exchange of any Convertible Security issuable upon
exercise of such Option. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such shares of Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such shares of Common Stock upon conversion or exchange or exercise
of such Convertible Securities.
 
(ii) Issuance of Convertible Securities. If the Company in any manner issues or
sells any Convertible Securities and the lowest price per share for which one
share of Common Stock is issuable upon the conversion or exchange or exercise
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 7(a)(ii), the "lowest price per
share for which one share of Common Stock is issuable upon the conversion or
exchange or exercise thereof" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the issuance or sale of the Convertible Security
and upon the conversion or exchange or exercise of such Convertible Security
less any consideration paid or payable by the Company with respect to such one
share of Common Stock upon the issuance or sale of the Convertible Security and
upon the conversion or exchange or exercise of such Convertible Security. No
further adjustment of the Conversion Price shall be made upon the actual
issuance of such shares of Common Stock upon conversion or exchange or exercise
of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which adjustment
of the Conversion Price has been or is to be made pursuant to other provisions
of this Section 7(a), no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.
 
(iii) Change in Option Price or Rate of Conversion. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion, exchange or exercise of any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or
exchangeable or exercisable for shares of Common Stock increases or decreases at
any time, the Conversion Price in effect at the time of such increase or
decrease shall be adjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities provided for such
increased or decreased purchase price, additional consideration or increased or
decreased conversion rate, as the case may be, at the time initially granted,
issued or sold. For purposes of this Section 7(a)(iii), if the terms of any
Option or Convertible Security that was outstanding as of the Subscription Date
are increased or decreased in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the shares of Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 7(a) shall be made if such adjustment would
result in an increase of the Conversion Price then in effect.
 
 
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(iv) Calculation of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction, (x) the Options will be deemed to have
been issued for the Option Value of such Options and (y) the other securities
issued or sold in such integrated transaction shall be deemed to have been
issued or sold for the difference of (I) the aggregate consideration received by
the Company less any consideration paid or payable by the Company pursuant to
the terms of such other securities of the Company, less (II) the Option Value of
such Options. If any shares of Common Stock, Options or Convertible Securities
are issued or sold or deemed to have been issued or sold for cash, the
consideration other than cash received therefor will be deemed to be the net
amount received by the Company therefor. If any shares of Common Stock, Options
or Convertible Securities are issued or sold for a consideration other than
cash, the amount of such consideration received by the Company will be the fair
value of such consideration, except where such consideration consists of
publicly traded securities, in which case the amount of consideration received
by the Company will be the Closing Sale Price of such publicly traded securities
on the date of receipt of such publicly traded securities. If any shares of
Common Stock, Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or publicly traded securities will be determined jointly by the Company and
the Required Holders. If such parties are unable to reach agreement within ten
(10) Business Days after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be determined
within five (5) Business Days after the tenth (10th) Business Day following the
Valuation Event by an independent, reputable appraiser jointly selected by the
Company and the Required Holders. The determination of such appraiser shall be
final and binding upon all parties absent manifest error and the fees and
expenses of such appraiser shall be borne by the Company. Notwithstanding
anything to the contrary contained herein, if any calculation pursuant to this
Section 7(a)(iv) would result in a dollar value that is lower than the par value
of the Common Stock, then such dollar value shall be deemed to equal the par
value of the Common Stock.
 
(v) Record Date. If the Company takes a record of the holders of shares of
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in shares of Common Stock, Options or in Convertible
Securities or (B) to subscribe for or purchase shares of Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
 
 
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(vi) No Readjustments. For the avoidance of doubt, in the event the Conversion
Price has been adjusted pursuant to this Section 7(a) and the Dilutive Issuance
that triggered such adjustment does not occur, is not consummated, is unwound or
is cancelled after the facts for any reason whatsoever, in no event shall the
Conversion Price be readjusted to the Conversion Price that would have been in
effect if such Dilutive Issuance had not occurred or been consummated.
 
(b) Adjustment of Conversion Price upon Subdivision or Combination of Common
Stock. If the Company at any time on or after the Subscription Date subdivides
(by any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced. If the Company at any time on or after the
Subscription Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior to such
combination will be proportionately increased.
 
(c) Other Events. 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 will make an appropriate adjustment in the Conversion Price so as to
protect the rights of the Holder under this Note; provided, that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 7.
 
(d) 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 to any amount and for any period of time deemed
appropriate by the Board of Directors of the Company.
 
 
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(8) COMPANY REDEMPTIONS.
 
(a) General. At any time and from time to time after the Issuance Date, the
Company shall: (i) have the right to redeem all or any portion of the Conversion
Amount then remaining under this Note and the Other Notes (the "Company Optional
Redemption Amount") as designated in the applicable Company Optional Redemption
Notice on a Company Optional Redemption Date (each as defined below) (a "Company
Optional Redemption") and (ii) to the extent the Company or any of its
Subsidiaries consummates a Subsequent Placement (the date of the consummation of
such Subsequent Placement, a "Subsequent Placement Date"), the Company shall be
required to use at least fifty percent (50%) of the gross proceeds raised in
such Subsequent Placement to redeem the Conversion Amount then remaining under
this Note and the Other Notes (a "Company Mandatory Redemption Amount") on the
applicable Company Mandatory Redemption Date (as defined below) (a "Company
Mandatory Redemption"). The portion of this Note and the Other Notes subject to
redemption pursuant to this Section 8(a) shall be redeemed by the Company on the
applicable Company Optional Redemption Date (as defined below) or Company
Mandatory Redemption Date, as applicable, in cash by wire transfer of
immediately available funds pursuant to wire instructions provided by the Holder
in writing to the Company at a price equal to the greater of (x) 100% of the
Conversion Amount to be redeemed and (y) the product of (A) the Conversion
Amount being redeemed and (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 Company Optional Redemption
Notice Date (as defined below) or the Company Mandatory Redemption Notice Date,
as the case may be, and ending on the related Company Optional Redemption Date
or Company Mandatory Redemption Date, as applicable, by (II) the lowest
Conversion Price in effect during such period; provided, however, that this
clause (y) shall equal zero dollars ($0) solely in the event that no Equity
Conditions Failure occurs at any time during period commencing from the
applicable Company Optional Redemption Notice Date or the Company Mandatory
Redemption Notice Date, as the case may be, through the related Company Optional
Redemption Date or Company Mandatory Redemption Date, as applicable (a "Company
Optional Redemption Price" or "Company Mandatory Redemption Price", as
applicable). The Company may exercise its right to require a Company Optional
Redemption under this Section 8 by delivering prior written notice thereof
fifteen (15) Trading Days prior to the applicable Company Optional Redemption
Date (as defined below) by facsimile or electronic mail and overnight courier to
the Holder and all, but not less than all, of the holders of the Other Notes (a
"Company Optional Redemption Notice" and the date all of the holders of the
Notes received such notice is referred to as a "Company Optional Redemption
Notice Date"). The Company shall be required to effect a Company Mandatory
Redemption under this Section 8 by delivering written notice thereof by no later
than the first (1st) Trading Day following a Subsequent Placement Date by
facsimile or electronic mail and overnight courier to the Holder and all, but
not less than all, of the holders of the Other Notes (a "Company Mandatory
Redemption Notice" and the date all of the holders of the Notes received such
notice is referred to as a "Company Mandatory Redemption Notice Date"). Each
Company Optional Redemption Notice and each Company Mandatory Redemption Notice
shall be irrevocable. The Company may not effect more than five (5) Company
Optional Redemptions. Each Company Optional Redemption Notice shall (i) state
the date on which the applicable Company Optional Redemption shall occur (a
"Company Optional Redemption Date"), which date shall be fifteen (15) Trading
Days following the applicable Company Optional Redemption Notice Date or, if
such date falls on a Holiday, the next day that is not a Holiday and (ii) state
the aggregate Conversion Amount of the Notes which the Company has elected to be
subject to Company Optional Redemption from the Holder and all of the holders of
the Other Notes pursuant to this Section 8(a) (and analogous provisions under
the Other Notes) on such Company Optional Redemption Date. Each Company
Mandatory Redemption Notice shall (i) state the date on which the applicable
Company Mandatory Redemption shall occur (a "Company Mandatory Redemption
Date"), which date shall be fifteen (15) Trading Days following the applicable
Company Mandatory Redemption Notice Date or, if such date falls on a Holiday,
the next day that is not a Holiday, (ii) the gross proceeds raised by the
Company or its Subsidiary in the applicable Subsequent Placement triggering such
Company Mandatory Redemption and the date of the consummation of such Subsequent
Placement and (iii) state the aggregate Conversion Amount of the Notes which the
Company has elected to be subject to Company Mandatory Redemption from the
Holder and all of the holders of the Other Notes pursuant to this Section 8(a)
(and analogous provisions under the Other Notes) on such Company Mandatory
Redemption Date. Notwithstanding anything to the contrary in this Section 8,
until the applicable Company Optional Redemption Price or Company Mandatory
Redemption Price, as applicable, is paid in full, such Company Optional
Redemption Amount or Company Mandatory Redemption Amount, as applicable, may be
converted, subject to Section 3(d), 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 a Company Optional Redemption Notice Date or Company
Mandatory Redemption Notice Date, as applicable, shall reduce the Company
Optional Redemption Amount or Company Mandatory Redemption Amount, as
applicable, of this Note required to be redeemed on such Company Optional
Redemption Date or Company Mandatory Redemption Date, as applicable, unless the
Holder otherwise indicates in the applicable Conversion Notice. Company Optional
Redemptions and Company Mandatory Redemptions made pursuant to this Section 8
shall be made in accordance with Section 11. To the extent redemptions required
by this Section 8 are deemed or determined by a court of competent jurisdiction
to be prepayments of the Note by the Company, such redemptions shall be deemed
to be voluntary prepayments. Notwithstanding anything to the contrary contained
in this Note, failure of the Company to comply with any notice requirement
hereunder, including without limitation, the conditions of the Company Mandatory
Redemption Notice, shall not relieve the Company from any other obligation
hereunder, including without limitation, its obligation to comply with a Company
Mandatory Redemption.
 
 
-18-

 
 
(b) Pro Rata Redemption Requirement. If the Company elects to cause a Company
Optional Redemption or is required to cause a Company Mandatory Redemption
pursuant to Section 8(a), then it must simultaneously take the same action in
the same proportion with respect to the Other Notes. If the Company elects to
cause a Company Optional Redemption, or is required to cause Company Mandatory
Redemption, pursuant to Section 8(a) (or similar provisions under the Other
Notes) with respect to less than all of the Conversion Amounts of the Notes then
outstanding, then the Company shall require redemption of a Conversion Amount
from each of the holders of the Notes equal to the product of (i) the aggregate
Company Optional Redemption Amount of Notes which the Company has elected to
cause to be redeemed, or the aggregate Company Mandatory Redemption Amount of
Notes which the Company is required to redeem, as applicable, pursuant to
Section 8(a), multiplied by (ii) the fraction, the numerator of which is the sum
of the aggregate Original Principal Amount of the Notes purchased by such holder
of outstanding Notes and the denominator of which is the sum of the aggregate
Original Principal Amount of the Notes purchased by all holders holding
outstanding Notes (such fraction with respect to each holder is referred to as
its "Company Redemption Allocation Percentage", and such amount with respect to
each holder is referred to as its "Pro Rata Company Redemption Amount");
provided, however that in the event that any holder's Pro Rata Company
Redemption Amount exceeds the outstanding Principal amount of such holder's
Note, then such excess Pro Rata Company Redemption Amount shall be allocated
amongst the remaining holders of Notes in accordance with the foregoing formula.
In the event that the initial holder of any Notes shall sell or otherwise
transfer any of such holder's Notes, the transferee shall be allocated a pro
rata portion of such holder's Company Redemption Allocation Percentage and Pro
Rata Company Redemption Amount.
 
 
-19-

 
 
(9) NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of its Certificate of Incorporation, Bylaws or through
any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note.
 
(10) RESERVATION OF AUTHORIZED SHARES.
 
(a) Reservation. The Company shall initially reserve out of its authorized and
unissued shares of Common Stock a number of shares of Common Stock for each of
this Note and the Other Notes equal to 200% of the Conversion Rate with respect
to the Conversion Amount of each such Note as of the Issuance Date. So long as
any of this Note and the Other Notes are outstanding, the Company shall take all
action necessary to reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion of
this Note and the Other Notes, the number of shares of Common Stock specified
above in this Section 10(a) as shall from time to time be necessary to effect
the conversion of all of the Notes then outstanding; provided, that at no time
shall the number of shares of Common Stock so reserved be less than the number
of shares required to be reserved pursuant hereto (in each case, without regard
to any limitations on conversions) (the "Required Reserve Amount"). The initial
number of shares of Common Stock reserved for conversions of this Note and the
Other Notes and each increase in the number of shares so reserved shall be
allocated pro rata among the Holder and the holders of the Other Notes based on
the Principal amount of this Note and the Other Notes held by each holder at the
Closing (as defined in the Securities Purchase Agreement) or increase in the
number of reserved shares, as the case may be (the "Authorized Share
Allocation"). In the event that a holder shall sell or otherwise transfer this
Note or any of such holder's Other 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 Holder and the remaining holders of Other Notes, pro
rata based on the Principal amount of this Note and the Other Notes then held by
such holders.
 
(b) Insufficient Authorized Shares. If 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 either (x) obtain the written consent of its
stockholders for the approval of an increase in the number of authorized shares
of Common Stock and provide each stockholder with an information statement with
respect thereto or (y) hold a meeting of its stockholders for the approval of an
increase in the number of authorized shares of Common Stock. In connection with
such meeting, the Company shall provide each stockholder with a proxy statement
and shall use its best efforts to solicit its stockholders' approval of such
increase in authorized shares of Common Stock and to cause its Board of
Directors to recommend to the stockholders that they approve such proposal.
Notwithstanding the foregoing, if during any such time of an Authorized Share
Failure, the Company is able to obtain the written consent of a majority of the
shares of its issued and outstanding Common Stock to approve the increase in the
number of authorized shares of Common Stock, the Company may satisfy this
obligation by obtaining such consent and submitting for filing with the SEC an
Information Statement on Schedule 14C. If, upon any conversion of this Note, the
Company does not have sufficient authorized shares to deliver in satisfaction of
such conversion, then unless the Holder elects to rescind such attempted
conversion, the Holder may require the Company to pay to the Holder within three
(3) Trading Days of the applicable attempted conversion, cash in an amount equal
to the product of (i) the number of shares of Common Stock that the Company is
unable to deliver pursuant to this Section 10, and (ii) the highest Closing Sale
Price of the Common Stock during the period beginning on the date of the
applicable Conversion Date and ending on the date the Company makes the
applicable cash payment.
 
 
-20-

 
 
(11) REDEMPTIONS.
 
(a) Mechanics. The Company shall deliver the applicable Event of Default
Redemption Price to the Holder within three (3) Business Days after the
Company's receipt of the Holder's Event of Default Redemption Notice (the "Event
of Default Redemption Date"). 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 (i) concurrently
with the consummation of such Change of Control if such notice is received prior
to the consummation of such Change of Control and (ii) within three (3) Business
Days after the Company's receipt of such notice otherwise (such date, the
"Change of Control Redemption Date"). The Company shall deliver the applicable
Company Optional Redemption Price to the Holder on the applicable Company
Optional Redemption Date. The Company shall deliver the applicable Company
Mandatory Redemption Price to the Holder on the applicable Company Mandatory
Redemption Date. The Company shall pay the applicable Redemption Price to the
Holder in cash by wire transfer of immediately available funds pursuant to wire
instructions provided by the Holder in writing to the Company on the applicable
due date. In the event of a redemption of less than all of the Conversion Amount
of this Note, the Company shall promptly cause to be issued and delivered to the
Holder a new Note (in accordance with Section 18(d)) representing the
outstanding Principal which has not been redeemed and any accrued Interest on
such Principal which shall be calculated as if no Redemption Notice has been
delivered. 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 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) 85% 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) 85% of the quotient of (I)
the sum of the five (5) lowest Weighted Average Prices of the Common Stock
during the twenty (20) consecutive Trading Day period ending on and including
the Trading Day immediately preceding the applicable Conversion Date divided by
(II) five (5).
 
 
-21-

 
 
(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) or pursuant to equivalent provisions set forth
in the Other Notes (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 Redemption Notice and ending on and including the date which is three
(3) Business Days after the Company's receipt of the Holder's 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 the Holder and each holder of the Other Notes based on the
Principal amount of this Note and the Other 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.
 
(c) Insufficient Assets. If upon a Redemption Date, the assets of the Company
are insufficient to pay the applicable Redemption Price, the Company shall (i)
take all appropriate action reasonably within its means to maximize the assets
available for paying the applicable Redemption Price, (ii) redeem out of all
such assets available therefor on the applicable Redemption Date the maximum
possible portion of the applicable Redemption Price that it can redeem on such
date, pro rata among the Holder and the holders of the Other Notes to be
redeemed in proportion to the aggregate Principal amount of this Note and the
Other Notes outstanding on the applicable Redemption Date and (iii) following
the applicable Redemption Date, at any time and from time to time when
additional assets of the Company become available to pay the balance of the
applicable Redemption Price of this Note and the Other Notes, the Company shall
use such assets, at the end of the then current fiscal quarter, to pay the
balance of such Redemption Price of this Note and the Other Notes, or such
portion thereof for which assets are then available, on the basis set forth
above at the applicable Redemption Price, and such assets will not be used prior
to the end of such fiscal quarter for any other purpose. Interest on the
Principal amount of this Note and the Other Notes that have not been redeemed
shall continue to accrue until such time as the Company redeems this Note and
the Other Notes. The Company shall pay to the Holder the applicable Redemption
Price without regard to the legal availability of funds unless expressly
prohibited by applicable law or unless the payment of the applicable Redemption
Price could reasonably be expected to result in personal liability to the
directors of the Company.
 
 
-22-

 
 
(12) VOTING RIGHTS. The Holder shall have no voting rights as the holder of this
Note, except as required by law and as expressly provided in this Note.
 
(13) RANK. All payments due under this Note (a) shall rank pari passu with all
Other Notes and (b) except for Permitted Indebtedness, shall be senior to all
other Indebtedness of the Company and its Subsidiaries.
 
(14) NEGATIVE COVENANTS. Until all of the Notes have been converted, redeemed or
otherwise satisfied in accordance with their terms, the Company shall not, and
the Company shall not permit any of its Subsidiaries without the prior written
consent of the Required Holders to, directly or indirectly:
 
(a) incur or guarantee, assume or suffer to exist any Indebtedness, other than
Permitted Indebtedness;
 
(b) 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;
 
(c) 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 this Note and the Other 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, an event constituting,
or that with the passage of time and without being cured would constitute, an
Event of Default has occurred and is continuing;
 
(d) 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 (including, without limitation Permitted
Indebtedness other than this Note and the Other Notes), by way of payment in
respect of principal of (or premium, if any) such Indebtedness. For clarity,
such restriction shall not preclude the payment of regularly scheduled interest
payments which may accrue under such Permitted Indebtedness;
 
(e) redeem or repurchase its Equity Interest (except on a pro rata basis among
all holders thereof);
 
(f) declare or pay any cash dividend or distribution on any Equity Interest of
the Company or of its Subsidiaries;
 
 
-23-

 
 
(g) make, or permit any of its Subsidiaries to make, any change in the nature of
its business as described in the Company's most recent Annual Report filed on
Form 10-K with the SEC or modify its corporate structure or purpose; or
 
(h) encumber or allow any Liens on, any of its owned or licensed copyright
rights, copyright applications, copyright registrations and like protections in
each work of authorship and derivative work, whether published or unpublished,
any patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered or
not, and the goodwill of the business of the Company and its Subsidiaries
connected with and symbolized thereby, know-how, operating manuals, trade secret
rights, rights to unpatented inventions, and any claims for damage by way of any
past, present, or future infringement of any of the foregoing, in each case,
other than Permitted Liens; or
 
(i) 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 in the ordinary course of
business in a manner and to an extent consistent with past practice 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.
 
(15) AFFIRMATIVE COVENANTS. Until all of the Notes have been converted, redeemed
or otherwise satisfied in accordance with their terms, the Company shall, and
the Company shall cause each Subsidiary to, directly or indirectly:
 
(a) 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, except for any failures that would not reasonably be
expected to result in a Material Adverse Effect;
 
(b) 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; except for any failures that would not reasonably be
expected to result in a Material Adverse Effect and
 
(c) maintain, insurance 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 reasonable business practice by companies
in similar businesses similarly situated.
 
 
-24-

 
 
(16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES; MFN. Any provision of this
Note may be changed or amended with the prior written consent of the Holder and
the Company, and any provision of this Note may be waived with the prior written
consent of the Holder. In addition, the affirmative vote of the Required Holders
at a meeting duly called for such purpose or the written consent without a
meeting of the Required Holders shall be required for any change or amendment or
waiver of any provision of all Notes (including this Note and all Other Notes).
Any change or amendment by the Company and the Required Holders, and any waiver
by the Required Holders, shall be binding all holders of Notes (including the
Holder of this Note and all Other Notes). The Company hereby covenants and
agrees that if, and whenever on or after the date hereof, the Company amends or
modifies any term of any of the Notes held by any Person (each document amending
such terms, an "Amendment Document"), then (i) the Company shall provide notice
thereof to the Holder immediately following the occurrence thereof and (ii) the
terms and conditions of this Note shall be, without any further action by the
Holder or the Company, automatically amended and modified in an economically and
legally equivalent manner such that the Holder shall receive the benefit of such
amended or modified terms and/or conditions (as the case may be) set forth in
such Amendment Document, provided that upon written notice to the Company at any
time the Holder may elect not to accept the benefit of any such amended or
modified term or condition, in which event the term or condition contained in
this Note shall apply to the Holder as it was in effect immediately prior to
such amendment or modification as if such amendment or modification never
occurred with respect to the Holder. The provisions of the foregoing sentence
shall apply similarly and equally to each Amendment Document
 
(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(f) 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) and subject
to Section 3(c)(iii)), 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.
 
(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with
Section 18(d)) representing the outstanding Principal.
 
 
-25-

 
 
(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) 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, if any, 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. Amounts set forth or provided for herein with
respect to payments, conversion, redemption and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
 
(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, but not limited to,
attorneys' fees and disbursements.
 
(21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by
the Company and all the purchasers of the Notes pursuant to the Securities
Purchase Agreement (the "Purchasers") and shall not be construed against any
person as the drafter hereof. The headings of this Note are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Note.
 
 
-26-

 
 
(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.
 
(23) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Closing Bid Price or the Closing Sale Price or the arithmetic calculation of the
Conversion Rate, the Conversion Price or any Redemption Price, the Company shall
submit the disputed determinations or arithmetic calculations via facsimile or
electronic mail within one (1) Business Day of receipt, or deemed receipt, of
the Conversion Notice or Redemption Notice or other event giving rise to such
dispute, as the case may be, to the Holder. If the Holder and the Company are
unable to agree upon such determination or calculation within one (1) Business
Day of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within one (1) Business Day submit via
facsimile or electronic mail (a) the disputed determination of the Closing Bid
Price or the Closing Sale Price to an independent, reputable investment bank
selected by the Holder and approved by the Company, such approval not to be
unreasonably withheld, conditioned or delayed, or (b) the disputed arithmetic
calculation of the Conversion Rate, Conversion Price or any Redemption Price to
an independent, outside accountant, selected by the Holder and approved by the
Company, such approval not to be unreasonably withheld, conditioned or delayed.
The Company, at the Company's expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than five (5)
Business Days from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.
 
(24) NOTICES; PAYMENTS.
 
(a) Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with Section
9(f) of the Securities Purchase Agreement. The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Note, including
in reasonable detail a description of such action and the reason therefore.
Without limiting the generality of the foregoing, the Company shall 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 five (5) 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 pro rata
subscription offer to holders 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.
 
 
-27-

 
 
(b) Payments. Whenever any payment of cash is to be made by the Company to any
Person pursuant to this Note, such payment shall be made in lawful money of the
United States of America by a check drawn on the account of the Company and sent
via overnight courier service to such Person at such address as previously
provided to the Company in writing (which address, in the case of each of the
Purchasers, 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 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 five
percent (5.0%) per annum from the date such amount was due until the same is
paid in full ("Late Charge").
 
(25) CANCELLATION. After all Principal, accrued Interest and other amounts at
any time owed on this Note have been paid in full, this Note shall automatically
be deemed canceled, shall be surrendered to the Company for cancellation and
shall not be reissued.
 
(26) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note and the
Securities Purchase Agreement.
 
(27) GOVERNING LAW; JURISDICTION; JURY TRIAL. This Note shall be construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Note shall be governed by, the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. The Company hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address set forth in
Section 9(f) of the Securities Purchase Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Nothing contained herein shall be deemed
or operate to preclude the Holder from bringing suit or taking other legal
action against the Company in any other jurisdiction to collect on the Company's
obligations to the Holder, to realize on any collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor of
the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION
CONTEMPLATED HEREBY.
 
 
-28-

 
 
(28) 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).
 
(29) DISCLOSURE. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries, the Company
shall within one (1) Business Day after any such receipt or delivery publicly
disclose such material, nonpublic information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains
material, nonpublic information relating to the Company or 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,
nonpublic information relating to the Company or its Subsidiaries.
 
(30) USURY. This Note is subject to the express condition that at no time shall
the Company be obligated or required to pay interest hereunder at a rate or in
an amount which could subject the Holder to either civil or criminal liability
as a result of being in excess of the maximum interest rate or amount which the
Company is permitted by applicable law to contract or agree to pay. If by the
terms of this Note, the Company is at any time required or obligated to pay
interest hereunder at a rate or in an amount in excess of such maximum rate or
amount, the rate or amount of interest under this Note shall be deemed to be
immediately reduced to such maximum rate or amount and the interest payable
shall be computed at such maximum rate or be in such maximum amount and all
prior interest payments in excess of such maximum rate or amount shall be
applied and shall be deemed to have been payments in reduction of the principal
balance of this Note.
 
(31) CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall
have the following meanings:
 
(a) "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.
 
 
-29-

 
 
(b) "Approved Stock Plan" means any employee benefit plan which has been
approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer or director for
services provided to the Company.
 
(c) "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 Exchange Act. For clarity, the
purpose of the foregoing is to subject collectively the Holder and all other
Attribution Parties to the Maximum Percentage.
 
(d) "Bloomberg" means Bloomberg Financial Markets.
 
(e) "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.
 
(f) "Change of Control" means any Fundamental Transaction other than (i) any
reorganization, recapitalization or reclassification of the 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 respect, 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 or (ii) pursuant to a
migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.
 
(g) "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 OTC Link or "pink sheets" by OTC Markets
Group Inc. (formerly Pink OTC Markets Inc.). If the Closing Bid Price or the
Closing Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as
the case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 23. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination,
reclassification or similar transaction during the applicable calculation
period.
 
 
-30-

 
 
(h) "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.
 
(i) "Common Stock" means (i) the Company's shares of Common Stock, par value
$0.001 per share, and (ii) any share capital into which such Common Stock shall
have been changed or any share capital resulting from a reclassification of such
Common Stock.
 
(j) "Common Stock Equivalents" means, collectively, Options and Convertible
Securities.
 
(k) "Contingent Obligation" means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.
 
(l) "Convertible Securities" means any stock or securities (other than Options)
directly or indirectly convertible into or exercisable or exchangeable for
shares of Common Stock.
 
(m) "Default Rate" means 10.0% per annum.
 
(n) "Eligible Market" means the Principal Market, The New York Stock Exchange,
the NYSE American, the Nasdaq Global Market, the Nasdaq Global Select Market,
the Nasdaq Capital Market or the OTC QX.
 
 
-31-

 
 
(o) "Equity Conditions" means each of the following conditions: (i) on each day
during the applicable Equity Conditions Measuring Period, either (x) all
Registration Statements filed and required to be filed pursuant to the
Registration Rights Agreement shall be effective and available for the resale of
all remaining Registrable Securities including the shares of Common Stock
issuable upon conversion of the Conversion Amount that is subject to the
applicable Company Optional Redemption or Company Mandatory Redemption, as
applicable, requiring the satisfaction of the Equity Conditions, in accordance
with the terms of the Registration Rights Agreement and there shall not have
been any Grace Periods (as defined in the Registration Rights Agreement) or (y)
all Conversion Shares issuable pursuant to the terms of this Note and the Other
Notes and exercise of the Warrants, including the shares of Common Stock
issuable upon conversion of the Conversion Amount that is subject to the
applicable Company Optional Redemption or Company Mandatory Redemption, as
applicable, requiring the satisfaction of the Equity Conditions, shall be
eligible for sale without restriction or limitation pursuant to Rule 144
(assuming that all Warrant Shares were issued pursuant to a Cashless Exercise
(as defined in the Warrants) and without the need for registration under any
applicable federal or state securities laws; (ii) on each day during the Equity
Conditions Measuring Period, the Common Stock is designated for quotation on the
Principal Market or any other Eligible Market and shall not have been suspended
from trading on such exchange or 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 such
exchange or market been threatened, commenced or pending either (A) in writing
by such exchange or market or (B) by falling below the then effective minimum
listing maintenance requirements of such exchange or market; (iii) during the
Equity Conditions Measuring Period, the Company shall have delivered Conversion
Shares pursuant to the terms of this Note and the Other Notes and Warrant Shares
upon exercise of the Warrants to the holders on a timely basis as set forth in
Section 3(c) hereof (and analogous provisions under the Other Notes) and Section
1(a) of the Warrants; (iv) the shares of Common Stock issuable upon conversion
of the Conversion Amount that is subject to the applicable Company Optional
Redemption or Company Mandatory Redemption, as applicable, requiring the
satisfaction of the Equity Conditions may be issued in full without violating
Section 3(d) hereof and the rules or regulations of the Principal Market or any
other applicable Eligible Market; (v) during the Equity Conditions Measuring
Period, the Company shall not have failed to timely make any payments pursuant
to any Transaction Document; (vi) during the Equity Conditions Measuring Period,
there shall not have occurred either (A) the public announcement of a pending,
proposed or intended Fundamental Transaction which has not been abandoned,
terminated or consummated, (B) an Event of Default or (C) an event that with the
passage of time or giving of notice would constitute an Event of Default; (vii)
the Company shall have no knowledge of any fact that would cause (x) the
Registration Statements required pursuant to the Registration Rights Agreement
not to be effective and available for the resale of all remaining Registrable
Securities, including the shares of Common Stock issuable upon conversion of the
Conversion Amount that is subject to the applicable Company Optional or Company
Mandatory Redemption, as applicable, Redemption requiring the satisfaction of
the Equity Conditions, in accordance with the terms of the Registration Rights
Agreement or (y) any shares of Common Stock issuable pursuant to the terms of
this Note and the Other Notes and shares of Common Stock issuable upon exercise
of the Warrants, including the shares of Common Stock issuable upon conversion
of the Conversion Amount that is subject to the applicable Company Optional
Redemption or Company Mandatory Redemption, as applicable, requiring the
satisfaction of the Equity Conditions, not to be eligible for sale without
restriction or limitation pursuant to Rule 144 and without the requirement to be
in compliance with Rule 144(c)(1) (or any successor thereto) promulgated under
the Securities Act and any applicable state securities laws; (viii) during the
Equity Conditions Measuring Period, the Company otherwise shall have been in
compliance with and shall not have breached any provision, covenant,
representation or warranty of any Transaction Document; (ix) the Holder shall
not be in possession of any material, nonpublic information received from the
Company, any Subsidiary or its respective agent or affiliates; and (x) the
shares of Common Stock issuable upon conversion of the Conversion Amount that is
subject to the applicable Company Optional Redemption or Company Mandatory
Redemption, as applicable, requiring the satisfaction of the Equity Conditions
are duly authorized and listed and eligible for trading without restriction on
an Eligible Market.
 
 
-32-

 
 
(p) "Equity Conditions Failure" means that on any applicable date of
determination, the Equity Conditions have not each been satisfied (or waived in
writing by the Holder).
 
(q) "Equity Conditions Measuring Period" means each day during the period
beginning thirty (30) Trading Days prior to the applicable date of determination
and ending on and including the applicable date of determination.
 
(r) "Equity Interests" means (a) all shares of capital stock (whether
denominated as common capital stock or preferred capital stock), equity
interests, beneficial, partnership or membership interests, joint venture
interests, participations or other ownership or profit interests in or
equivalents (regardless of how designated) of or in a Person (other than an
individual), whether voting or non-voting and (b) all securities convertible
into or exchangeable for any of the foregoing and all warrants, Options or other
rights to purchase, subscribe for or otherwise acquire any of the foregoing,
whether or not presently convertible, exchangeable or exercisable.
 
(s) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
 
(t) "Excluded Securities" means any shares of Common Stock issued or issuable:
(i) in connection with any Approved Stock Plan; (ii) pursuant to the terms of
the Notes or upon the exercise of the Warrants; provided that the terms of such
Notes or Warrants are not amended, modified or changed on or after the
Subscription Date; and (iii) upon conversion or exercise of any Options or
Convertible Securities which are outstanding on the day immediately preceding
the Subscription Date, provided that the terms of such Options or Convertible
Securities are not amended, modified or changed on or after the Subscription
Date.
 
 
-33-

 
 
(u) "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
Exchange Act) of at least 50% of the outstanding shares of Common Stock, or (iv)
consummate a stock 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 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 Exchange 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
Exchange 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 Subscription Date
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 stockholders of
the Company to surrender their shares of Common Stock without approval of the
stockholders 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.
 
 
-34-

 
 
(v) "GAAP" means United States generally accepted accounting principles,
consistently applied.
 
(w) "Group" means a "group" as that term is used in Section 13(d) of the
Exchange Act and as defined in Rule 13d-5 thereunder.
 
(x) "Holiday" means a day other than a Business Day or on which trading does not
take place on the Principal Market.
 
(y) "Indebtedness" of any Person means, without duplication (i) all indebtedness
for borrowed money, (ii) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services, including (without limitation)
"capital leases" in accordance with GAAP (other than trade payables entered into
in the ordinary course of business consistent with past practice), (iii) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (iv) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(v) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (vi) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is
classified as a capital lease, (vii) all indebtedness referred to in clauses (i)
through (vi) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage, deed
of trust, lien, pledge, charge, security interest or other encumbrance of any
nature whatsoever in or upon any property or assets (including accounts and
contract rights) with respect to any asset or property owned by any Person, even
though the Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (viii) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (i) through (vii) above.
 
(z) "Option Value" means the value of an Option based on the Black and Scholes
Option Pricing model obtained from the "OV" function on Bloomberg determined as
of (A) the Trading Day prior to the public announcement of the applicable Option
if the issuance of such Option is publicly announced or (B) the Trading Day
immediately following the issuance of the applicable Option if the issuance of
such Option is not publicly announced, for pricing purposes and reflecting (i) a
risk-free interest rate corresponding to the U.S. Treasury rate for a period
equal to the remaining term of the applicable Option as of the applicable date
of determination, (ii) an expected volatility equal to the greater of 100% and
the 100 day volatility obtained from the HVT function on Bloomberg as of the day
immediately following the public announcement of (A) the Trading Day immediately
following the public announcement of the applicable Option if the issuance of
such Option is publicly announced or (B) the Trading Day immediately following
the issuance of the applicable Option if the issuance of such Option is not
publicly announced, (iii) (iii) the underlying price per share used in such
calculation shall be the highest Weighted Average Price of the Common Stock
during the period beginning on the Trading Day prior to the execution of
definitive documentation relating to the issuance of the applicable Option and
ending on (A) the Trading Day immediately following the public announcement of
such issuance, if the issuance of such Option is publicly announced or (B) the
Trading Day immediately following the issuance of the applicable Option if the
issuance of such Option is not publicly announced, (iv) a zero cost of borrow
and (v) a 360 day annualization factor.
 
 
-35-

 
 
(aa) "Options" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
 
(bb) "Parent Entity" of a Person means an entity that, directly or indirectly,
controls the applicable Person, including such entity whose common capital stock
or equivalent equity security is quoted or listed on an Eligible Market (or, if
so elected by the Required Holders, any other market, exchange or quotation
system), or, if there is more than one such Person or such entity, the Person or
entity designated by the Required Holders or in the absence of such designation,
such Person or such entity with the largest public market capitalization as of
the date of consummation of the Fundamental Transaction.
 
(cc) "Permitted Indebtedness" means (i) Indebtedness evidenced by this Note and
the Other Notes, (ii) trade payables incurred in the ordinary course of business
consistent with past practice, and (iii) Indebtedness secured by Permitted Liens
described in clauses (iv) and (v) of the definition of Permitted Liens.
 
(dd) "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, (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) leases or subleases and licenses and sublicenses granted to others in the
ordinary course of the Company's business, not interfering in any material
respect with the business of the Company and its Subsidiaries taken as a whole,
(vii) 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, and (viii) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 4(a)(ix).
 
(ee) "Person" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.
 
(ff) "Principal Market" means the OTC QB.
 
(gg) "Redemption Dates" means, collectively, the Event of Default Redemption
Dates, the Change of Control Redemption Dates, the Company Optional Redemption
Dates and the Company Mandatory Redemption Dates, as applicable,, each of the
foregoing, individually, a Redemption Date.
 
 
-36-

 
 
(hh) "Redemption Notices" means, collectively, the Event of Default Redemption
Notices, the Change of Control Redemption Notices, the Company Optional
Redemption Notices and Company Mandatory Redemption Notices, as applicable, each
of the foregoing, individually, a Redemption Notice.
 
(ii) "Redemption Prices" means, collectively, the Event of Default Redemption
Prices, the Change of Control Redemption Prices, the Company Optional Redemption
Prices and the Company Mandatory Redemption Prices, as applicable, each of the
foregoing, individually, a Redemption Price.
 
(jj) "Registrable Securities" shall have the meaning ascribed to such term in
the Registration Rights Agreement.
 
(kk) "Registration Rights Agreement" means that certain registration rights
agreement dated as of the Subscription Date by and among the Company and the
Purchasers relating to, among other things, the registration of the resale of
the shares of Common Stock issuable upon conversion of this Note and the Other
Notes and exercise of the Warrants.
 
(ll) "Registration Statement" shall have the meaning ascribed to such term in
the Registration Rights Agreement.
 
(mm) "Related Fund" means, with respect to any Person, a fund or account managed
by such Person or an Affiliate of such Person.
 
(nn) "Required Holders" means the holders of Notes representing at least a
majority of the aggregate principal amount of the Notes then outstanding and
shall include (i) Empery Asset Management, LP so long as Empery Asset
Management, LP or any of its Affiliates holds any Notes and (ii) Ayrton Capital
LLC so long as Ayrton Capital LLC or any of its Affiliates holds any Notes.
 
(oo) "SEC" means the United States Securities and Exchange Commission.
 
(pp) "Securities Purchase Agreement" means that certain securities purchase
agreement dated as of the Subscription Date by and among the Company and the
Purchasers of the Notes pursuant to which the Company issued the Notes and
Warrants.
 
(i) "Standard Settlement Period" means the standard settlement period, expressed
in a number of Trading Days, on the Company's primary trading market with
respect to the Common Stock as in effect on the date of delivery of the
applicable Conversion Notice.
 
(qq) "Subject Entity" means any Person, Persons or Group or any Affiliate or
associate of any such Person, Persons or Group.
 
(rr) "Subsequent Placement" means any direct or indirect, offer, sale, grant any
option to purchase, or other disposition of any of its or its Subsidiaries'
equity or equity equivalent securities, including without limitation any debt,
preferred stock or other instrument or security whether or not such security is,
at any time during its life and under any circumstances, convertible into or
exchangeable or exercisable for Common Stock or Common Stock Equivalents.
 
 
-37-

 
 
(ss) "Subscription Date" means January 22, 2018.
 
(tt) "Subsidiary" has the meaning ascribed to such term in the Securities
Purchase Agreement.
 
(uu) "Successor Entity" means one or more Person or Persons (or, if so elected
by the Required Holders, the Company or Parent Entity) formed by, resulting from
or surviving any Fundamental Transaction or one or more Person or Persons (or,
if so elected by the Required Holders, the Company or the Parent Entity) with
which such Fundamental Transaction shall have been entered into.
 
(i) "Trading Day" means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock on such day, then on the principal securities
exchange or securities market on which the Common Stock is then traded.
 
(vv) "Transaction Document" has the meaning ascribed to such term in the
Securities Purchase Agreement.
 
(ww) "Warrant Shares" means shares of Common Stock issuable by the Company upon
the exercise of any of the Warrants.
 
(xx) "Warrants" has the meaning ascribed to such term in the Securities Purchase
Agreement, and shall include all warrants issued in exchange therefor or
replacement thereof.
 
(yy) "Weighted Average Price" means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market during
the period beginning at 9:30:01 a.m., New York time (or such other time as the
Principal Market publicly announces is the official open of trading), and ending
at 4:00:00 p.m., New York time (or such other time as the Principal Market
publicly announces is the official close of trading), as reported by Bloomberg
through its "Volume at Price" function or, if the foregoing does not apply, the
dollar volume-weighted average price of such security in the over-the-counter
market on the electronic bulletin board for such security during the period
beginning at 9:30:01 a.m., New York time (or such other time as such market
publicly announces is the official open of trading), and ending at 4:00:00 p.m.,
New York time (or such other time as such market publicly announces is the
official close of trading), 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 OTC
Link or "pink sheets" by OTC Markets Group Inc. (formerly Pink OTC Markets
Inc.). If the Weighted Average Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Weighted Average Price 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
pursuant to Section 23 with the term "Weighted Average Price" being substituted
for the term "Exercise Price." All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination,
reclassification or other similar transaction during the applicable calculation
period.
 
[Signature Page Follows]
 
 
 
 
-38-

 
 
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
the Issuance Date set out above.
 
 
GT Biopharma, Inc.
 
By: 
Name:
Title:

 
 
 
 
-39-

 

 
EXHIBIT I
 
GT BIOPHARAMA, INC.
 
 
CONVERSION NOTICE
 
Reference is made to the Senior Convertible Note (the "Note") issued to the
undersigned by GT Biopharma, 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 par value $0.001 per share (the "Common
Stock") of the Company, as of the date specified below.
 
Date of Conversion:
 
Aggregate Conversion Amount to be converted or number of Conversion Shares to be
issued upon conversion:
 
Please confirm the following information:
Conversion Price:
 
If Aggregate Conversion Amount is provided above, number of shares of Common
Stock to be issued:
 
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
Issue to:
 
 
 
 
 
Facsimile Number and Electronic Mail:
 
Authorization:
 
By:
 
Title:
 
Dated:
 
Account Number:
 
  (if electronic book entry transfer)
 
Transaction Code Number:
 
  (if electronic book entry transfer)
 

 
 
-40-

 

 
ACKNOWLEDGMENT
 
The Company hereby acknowledges this Conversion Notice and hereby directs
ComputerShare Trust Company, N.A. to issue the above indicated number of shares
of Common Stock in accordance with the Transfer Agent Instructions dated
January __, 2018 from the Company and acknowledged and agreed to by
ComputerShare Trust Company, N.A.
 
 
GT Biopharma, Inc.
 
By: 
Name:
Title:

 
 
 
 
 
 
-41-