Exhibit 10.1

EXECUTION COPY

SECURITIES PURCHASE AGREEMENT

SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of October 19, 2010,
by and among Biovest International, Inc., a Delaware corporation, with
headquarters located at 324 South Hyde Park Avenue, Suite 350, Tampa, Florida
(the “Company”), and the investors listed on the Schedule of Buyers attached
hereto (individually, a “Buyer” and collectively, the “Buyers”).

WHEREAS:

A. On November 10, 2008 (the “Petition Date”), Accentia Biopharmaceuticals, Inc.
(“Accentia”) and its subsidiaries, the Company, Analytica International, Inc.,
TEAMM Pharmaceuticals, Inc., AccentRx, Inc., Accentia Specialty Pharmacy, Inc.,
Biovax, Inc., AutovaxID, Inc., Biolender, LLC and Biolender II, LLC (hereinafter
collectively referred to as the “Debtors”), filed voluntary petitions (the
“Chapter 11 Cases”) for relief under Chapter 11 of Title 11 of the United States
Code, 11 U.S.C. §§ 101-1330 (as amended, the “Bankruptcy Code”), with the United
States Bankruptcy Court for the Middle District of Florida (Tampa Division) (the
“Bankruptcy Court”). Since the Petition Date, the Debtors have continued to
operate their businesses and manage their properties as debtors in possession
pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code. On November 13,
2008, the Bankruptcy Court entered its Order Granting Debtor’s Ex Parte
Emergency Motion for Order Directing Joint Administration of Chapter 11 Cases
Pursuant to Bankruptcy Rule 1015(b) in each of the Debtors’ Chapter 11 Cases.
Pursuant to the Joint Administration Order, the Debtors’ Chapter 11 Cases are
being jointly administered for procedural purposes only under In re: Accentia
Biopharmaceuticals, Inc., Case No. 8:08-bk-17795-KRM.

B. The Company and each Buyer are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by
Section 364(f) of the Bankruptcy Code, Section 4(2) of the Securities Act of
1933, as amended (the “1933 Act”), and Rule 506 of Regulation D (“Regulation D”)
as promulgated by the United States Securities and Exchange Commission (the
“SEC”) under the 1933 Act.

C. The Company has authorized (i) a new series of secured convertible notes of
the Company, in substantially the form attached hereto as Exhibit A-1 (the
“Initial Notes”), which notes shall be convertible into the Company’s common
stock, par value $0.01 per share (the “Common Stock”) (the Initial Notes as
converted, collectively, the “Initial Conversion Shares”), in accordance with
the terms of the Initial Notes, and (ii) a new series of convertible notes of
the Company, in substantially the form attached hereto as Exhibit A-2 (the
“Exchange Notes” and, together with the Initial Notes, the “Notes”), which notes
shall be convertible into the Common Stock in accordance with the terms of the
Exchange Notes (the Exchange Notes as converted, collectively, the “Exchange
Conversion Shares” and, together with the Initial Conversion Shares, the
“Conversion Shares”).

D. The Notes bear interest and, from time to time, may require the payment of a
Make-Whole Amount, each of which, subject to certain conditions, may be paid in
shares of Common Stock (collectively, the “Interest Shares”).

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

 

E. Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms
and conditions stated in this Agreement, (i) that aggregate principal amount of
Initial Notes, set forth opposite such Buyer’s name in column (3) on the
Schedule of Buyers attached hereto (which aggregate principal amount of Initial
Notes for all Buyers shall be up to $8,000,000), (ii) Series A Warrants, in
substantially the form attached hereto as Exhibit B-1 (the “Initial Series A
Warrants”), representing the right to acquire up to that number of shares of
Common Stock set forth opposite such Buyer’s name in column (4) on the Schedule
of Buyers (as exercised, collectively, the “Initial Series A Warrant Shares”)
and (iii) Series B Warrants, in substantially the form attached hereto as
Exhibit B-1 (the “Initial Series B Warrants” and, together with the Initial
Series A Warrants, the “Initial Warrants”), representing the right to acquire up
to that number of shares of Common Stock set forth opposite such Buyer’s name in
column (5) on the Schedule of Buyers (as exercised, collectively, the “Initial
Series B Warrant Shares” and, together with the Initial Series A Warrant Shares,
the “Initial Warrant Shares”). As used herein, the term “Series A Warrants”
shall mean the Initial Series A Warrants and the Exchange Series A Warrants. As
used herein, the term “Series B Warrants” shall mean the Initial Series B
Warrants and the Exchange Series B Warrants.

F. On the Effective Date (as defined in the Company’s First Amended Joint Plan
of Reorganization (as amended, modified or supplemented in accordance with its
terms, the Bankruptcy Code or the Federal Bankruptcy Procedure and local rules,
the “Plan”)), the Initial Notes shall be mandatorily exchangeable and exchanged
by each Buyer for an aggregate principal amount of Exchange Notes equal to the
aggregate principal amount of Initial Notes being exchanged by each Buyer
thereof plus accrued but unpaid interest on the Initial Notes.

G. On the Effective Date of the Plan, (i) the Initial Series A Warrants shall be
mandatorily exchangeable and shall be exchanged by each Buyer for Series A
Warrants, in substantially the form attached hereto as Exhibit B-2 (the
“Exchange Series A Warrants”), representing the right to acquire the same number
of shares of Common Stock as the unexercised Initial Series A Warrant Shares
(the “Exchange Series A Warrant Shares” and, together with the Initial Series A
Warrant Shares, the “Series A Warrant Shares”) and (ii) the Initial Series B
Warrants shall be mandatorily exchangeable and shall be exchanged by each Buyer
for Series B Warrants, in substantially the form attached hereto as Exhibit B-2
(the “Exchange Series B Warrants” and, together with the Exchange Series A
Warrants, the “Exchange Warrants”), representing the right to acquire the same
number of shares of Common Stock as the unexercised Initial Series B Warrant
Shares (the “Exchange Series B Warrant Shares” and, together with the Initial
Series B Warrant Shares, the “Series B Warrant Shares”). The Initial Warrants
and the Exchange Warrants collectively are referred to herein as the “Warrants”.
The Exchange Series A Warrant Shares and the Exchange Series B Warrant Shares
collectively are referred to herein as the “Exchange Warrant Shares” and the
Series A Warrant Shares and the Series B Warrant Shares collectively are
referred to herein as the “Warrant Shares.”

H. Upon the exchange of (i) the Initial Notes for the Exchange Notes and
(ii) the Initial Warrants for the Exchange Warrants, the Exchange Notes and the
Exchange Warrants will be issued pursuant to Section 1145 of the Bankruptcy Code
and upon the issuance of the Exchange Conversion Shares and the Exchange Warrant
Shares, such shares will be freely transferable without any restrictions or
limitations and without the requirement to be registered under the 1933 Act.

 

- 2 -

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

 

I. The Initial Notes will be secured by a first priority perfected security
interest in a segregated blocked bank account (the “Account”) at Wells Fargo,
National Association (the “Account Bank”) as evidenced by a Security Agreement,
in the form attached hereto as Exhibit C-1 (as amended or modified from time to
time in accordance with its terms, the “Security Agreement”) and an account
control agreement in the form attached hereto as Exhibit C-2 (the “Account
Control Agreement” and, together with the Security Agreement, the “Security
Documents”).

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

NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

1. PURCHASE AND SALE OF NOTES AND WARRANTS.

(a) Purchase of Initial Notes and Initial Warrants. Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to each Buyer, and each Buyer severally, but not jointly,
agrees to purchase from the Company on the Closing Date (as defined below),
(x) a principal amount of Initial Notes as is set forth opposite such Buyer’s
name in column (3) on the Schedule of Buyers, (y) Initial Series A Warrants to
acquire up to that number of Series A Warrant Shares as is set forth opposite
such Buyer’s name in column (4) on the Schedule of Buyers and (z) Initial Series
B Warrants to acquire up to that number of Series B Warrant Shares as is set
forth opposite such Buyer’s name in column (5) on the Schedule of Buyers (the
“Closing”).

(b) Closing. The date and time of the Closing (the “Closing Date”) shall be
10:00 a.m., New York City time, on the date hereof (or such other date and time
as is mutually agreed to by the Company and each Buyer) after notification of
satisfaction (or waiver) of the conditions to the Closing set forth in Sections
6 and 7 below, at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New
York, New York 10022.

(c) Purchase Price. The aggregate purchase price for the Initial Notes and the
Initial Warrants to be purchased by each such Buyer at the Closing (the
“Purchase Price”) shall be the amount set forth opposite each Buyer’s name in
column (6) of the Schedule of Buyers. Each Buyer shall pay $1,000 for each
$1,000 of principal amount of Initial Notes and related Initial Warrants to be
purchased by such Buyer at the Closing. The Buyers and the Company agree that
the Notes and the Warrants constitute an “investment unit” for purposes of
Section 1273(c)(2) of the Internal Revenue Code of 1986, as amended (the
“Code”). The Buyers and the Company mutually agree that the allocation of the
issue price of such investment unit between the Initial Notes and the Initial
Warrants in accordance with Section 1273(c)(2) of the Code and Treasury
Regulation Section 1.1273-2(h) shall be an aggregate amount of $917,855
allocated to the Initial Warrants and the balance of the Purchase Price
allocated to the Initial Notes, and neither the Buyers nor the Company shall
take any position inconsistent with such allocation in any tax return or in any
judicial or administrative proceeding in respect of taxes.

(d) Form of Payment. On the Closing Date, (i) each Buyer shall pay its Purchase
Price to the Company for the Initial Notes and the Initial Warrants to be issued
and sold

 

- 3 -

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

to such Buyer at the Closing (less, in the case of Empery Asset Master Ltd.
(“Empery”), the amounts withheld pursuant to Section 4(g)), by wire transfer of
immediately available funds to the Account and (ii) the Company shall deliver to
each Buyer the Initial Notes (allocated in the principal amounts as such Buyer
shall request) which such Buyer is then purchasing hereunder along with the
Initial Warrants (allocated in the amounts as such Buyer shall request) which
such Buyer is purchasing, in each case duly executed on behalf of the Company
and registered in the name of such Buyer or its designee.

2. BUYER’S REPRESENTATIONS AND WARRANTIES. Each Buyer, severally and not
jointly, represents and warrants with respect to only itself that:

(a) Organization. Such Buyer is an entity duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization.

(b) No Public Sale or Distribution. Such Buyer is (i) acquiring the Notes and
the Warrants and (ii) upon conversion of the Notes and exercise of the Warrants
(other than those Warrants exercised pursuant to a Cashless Exercise (as defined
in the Warrants)) will acquire the Conversion Shares issuable upon conversion of
the Notes and the Warrant Shares issuable upon exercise of the Warrants, for its
own account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except for sales registered or exempted
under the 1933 Act and in compliance with applicable state securities laws;
provided, however, that by making the representations herein, such Buyer does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act,
including pursuant to, or as permitted by, Section 1145 of the Bankruptcy Code,
and in compliance with applicable state securities laws. Such Buyer is acquiring
the Securities hereunder in the ordinary course of its business. Such Buyer does
not presently have any present intention, plan, arrangement, agreement or
understanding, directly or indirectly, with any Person (as defined in
Section 3(s)) to distribute any of the Securities.

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

(d) Experience of Such Buyer. Such Buyer, either alone or together with its
representatives has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. Such Buyer has considered and has discussed with
such Buyer’s professional legal, tax, accounting and financial advisors, to the
extent such Buyer has deemed necessary, the suitability of an investment in the
Securities for such Buyer’s particular tax and financial situation and has
determined that the Securities being purchased by such Buyer are a suitable
investment for such Buyer. Such Buyer recognizes that an investment in the
Securities involves substantial risks, including the possible loss of the entire
amount of such investment.

(e) Reliance on Exemptions. Such Buyer understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying in part upon the

 

- 4 -

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

truth and accuracy of, and such Buyer’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Buyer set
forth herein in order to determine the availability of such exemptions and the
eligibility of such Buyer to acquire the Securities.

(f) Information. Such Buyer and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities that have been
requested by such Buyer. Such Buyer and its advisors, if any, have been afforded
the opportunity to ask questions of the Company. Neither such inquiries nor any
other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer’s right to
rely on the Company’s representations and warranties contained herein. Such
Buyer understands that its investment in the Securities involves a high degree
of risk. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities. Such Buyer and its advisors, if any, have had the
opportunity to read the Disclosure Materials (as defined below). The reports and
materials filed or furnished by the Company under the 1934 Act, including
pursuant to Section 13(a) or 15(d) thereof, filed or furnished since January 1,
2010, are collectively referred to herein as the “SEC Documents” and, together
with this Agreement and the Schedules to this Agreement, the “Disclosure
Materials.” Such Buyer acknowledges that the Company makes no representation or
warranty to Buyer other than as expressly made by Company in the Transaction
Documents, including, without limitation, with respect to any projections,
estimates or budgets heretofore delivered or made available to such Buyer
concerning future revenues, expenses, expenditures or results of operations.

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

(h) No Legal, Tax or Investment Advice. Such Buyer understands that nothing in
this Agreement or any other materials presented by or on behalf of the Company
to such Buyer in connection with the purchase of the Securities constitutes
legal, tax or investment advice. Such Buyer has consulted such legal, tax and
investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of the Securities. Such Buyer
understands that the Placement Agent has acted solely as the agent of the
Company in the placement of the Securities and not of the Buyer, and that the
Placement Agent makes no representation or warranty with regard to the merits of
this transaction or as to the accuracy of any information such Buyer may have
received in connection therewith. Such Buyer acknowledges that he, she or it has
not relied on any information or advice furnished by or on behalf of the
Placement Agent.

(i) Transfer or Resale. Such Buyer understands that except for the Exchange
Notes, the Exchange Warrants, the Exchange Conversion Shares or the Exchange
Warrant Shares, which will be freely transferable pursuant to Section 1145 of
the Bankruptcy Code: (i) the Securities have not been and are not being
registered under the 1933 Act or any state

 

- 5 -

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

securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder, (B) such Buyer shall have
delivered to the Company an opinion of counsel, in a generally acceptable form,
to the effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company with reasonable assurance that such
Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A promulgated under the 1933 Act (or a successor rule thereto) (collectively,
“Rule 144”); (ii) any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the Securities under circumstances in which the
seller (or the Person (as defined below) through whom the sale is made) may be
deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
Person is under any obligation to register the Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. 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 and such pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and no
Buyer effecting a pledge of Securities shall be required to provide the Company
with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or any other Transaction Document (as defined in
Section 3(b)), including, without limitation, this Section 2(i).

(j) Legends. Such Buyer understands that the certificates or other instruments
representing the Initial Notes and the Initial Warrants and, until such time as
the resale of the Initial Conversion Shares and the Initial Warrant Shares have
been registered under the 1933 Act, the stock certificates representing the
Initial Conversion Shares and the Initial Warrant Shares, except as set forth
below, shall bear any legend as required by the “blue sky” laws of any state and
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE]
HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN]
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A FORM REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS THE HOLDER PROVIDES THE COMPANY
WITH REASONABLE ASSURANCE THAT SUCH

 

- 6 -

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

SECURITIES CAN BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT
(COLLECTIVELY, “RULE 144”) AND APPLICABLE STATE SECURITIES LAWS. 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.

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped or issue to such holder by electronic delivery at the applicable balance
account at The Depository Trust Company (“DTC”), if, unless otherwise required
by state securities laws, (i) such Securities are registered for resale under
the 1933 Act, (ii) in connection with a sale, assignment or other transfer, such
holder provides the Company with an opinion of counsel, in a form reasonably
acceptable to the Company, to the effect that such sale, assignment or transfer
of the Securities may be made without registration under the applicable
requirements of the 1933 Act, or (iii) the Buyer provides the Company with
reasonable assurances that the Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A. The Company shall be responsible for the fees
of its transfer agent and all DTC fees associated with such issuance.
Notwithstanding the foregoing, if any Securities are issued pursuant to
Section 1145 of the Bankruptcy Code, such Securities shall not bear any
restrictive legend, including, without limitation, the foregoing legend, and if
any such a restrictive legend appears on any such Securities, such legend shall
promptly be removed by the Company.

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

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

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

 

- 7 -

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

 

(n) Broker Fees. Such Buyer has not entered into any agreement or arrangement
that would entitle any broker or finder to compensation by the Company in
connection with the sale of the Securities to such Buyer.

(o) No Advertisement. Such Buyer is not, to such Buyer’s knowledge, subscribing
for the Securities as a result of or subsequent to any advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio or presented at any seminar, meeting
or conference whose attendees have been invited by any general solicitation or
general advertising.

(p) Prohibited Transactions. Such Buyer has not, directly or indirectly, and no
Person acting on behalf of or pursuant to any understanding with such Buyer has,
engaged in any purchases or sales of any securities, including any derivatives,
of the Company (including, without limitation, any Short Sales (as defined
below) involving any of the Company’s securities) (a “Transaction”) since the
time that such Buyer was first contacted by the Company or any other Person
regarding an investment in the Company. Such Buyer covenants that neither it nor
any Person acting on its behalf or pursuant to any understanding with such Buyer
will engage, directly or indirectly, in any Transactions prior to the time the
transactions contemplated by this Agreement are publicly disclosed. “Short
Sales” include, without limitation, all “short sales” as defined in Rule 200
promulgated under Regulation SHO under the 1934 Act (as defined below) and all
types of direct and indirect stock pledges, forward sale contracts, options,
puts, calls, short sales, swaps, derivatives and similar arrangements (including
on a total return basis), and sales and other transactions through non-U.S.
broker-dealers or foreign regulated brokers. Notwithstanding the foregoing, for
avoidance of doubt, nothing contained herein shall constitute a representation
or warranty, or preclude any actions, with respect to the identification of the
availability of, or securing of, available shares to borrow in order to effect
short sales or similar transactions in the future.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

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

(a) Organization and Qualification. The Company is duly organized and validly
existing in good standing under the laws of the jurisdiction in which it is
formed, and has the requisite power and authorization to own its properties and
to carry on its business as now being conducted. The Company is duly qualified
as a foreign entity to do business and is in good standing in every jurisdiction
in which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not reasonably be expected to have a
Material Adverse Effect. As used in this Agreement, “Material Adverse Effect”
means, other than as contemplated by the Chapter 11 Cases, any material adverse
effect on the business, properties, assets, operations, results of operations,
condition (financial or otherwise) or prospects of the Company or on the
transactions contemplated hereby or on the other Transaction Documents or by the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). The Company has
no Subsidiaries except as set forth on

 

- 8 -

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

Schedule 3(a). As used herein, “Subsidiaries” shall mean any entity in which the
Company, directly or indirectly, owns any of the capital stock or holds an
equity or similar interest. Except as set forth on Schedule 3(a), each of the
Subsidiaries (i) has no properties or assets, (ii) other than liabilities that
will be extinguished pursuant to the Chapter 11 Cases, has no liabilities,
(iii) shall be liquidated on the Effective Date pursuant to the Plan, (iv) is
not a party to any contract, agreement or instrument, and (v) from the date
hereof until the Effective Date shall not conduct any business or operations,
enter into any transaction, agreement or arrangement or incur any indebtedness
or liabilities. The Company shall not form any Subsidiaries while any Initial
Notes or Initial Warrants are outstanding.

(b) Authorization; Enforcement; Validity. Subject only to Bankruptcy Court
approval, the Company has the requisite power and authority to enter into and
perform its obligations under this Agreement, the Notes, the Warrants, the
Lock-Up Agreements (as defined in Section 7(xii)), the Irrevocable Transfer
Agent Instructions (as defined in Section 5(b)), the Security Documents, and
each of the other agreements entered into by the parties hereto in connection
with the transactions contemplated by this Agreement (collectively, the
“Transaction Documents”) and to issue the Securities in accordance with the
terms hereof and thereof. The execution and delivery of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Notes and the Warrants, the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion of the Notes, the reservation for
issuance and the issuance of the Interest Shares issuable pursuant to the terms
of the Notes and the reservation for issuance and the issuance of the Warrant
Shares issuable upon exercise of the Warrants have been duly authorized by the
Company’s Board of Directors and no further filing, consent, or authorization is
required by the Company, its Board of Directors or its stockholders. This
Agreement and the other Transaction Documents have been duly executed and
delivered by the Company, and, upon Bankruptcy Court approval, shall constitute
the legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as such enforceability
may be limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally, the enforcement of applicable creditors’ rights and
remedies.

(c) Issuance of Securities. The issuance of the Notes and the Warrants are duly
authorized and, upon issuance and payment therefor in accordance with this
Agreement, shall be validly issued and free from all taxes, liens and charges
with respect to the issue thereof. As of the Closing, a number of shares of
Common Stock shall have been duly authorized and reserved for issuance (the
“Required Reserved Amount) which equals or exceeds the sum of (A) 130% of the
aggregate of the maximum number of shares of Common Stock (i) issuable upon
conversion of the Notes, (ii) issuable as Interest Shares pursuant to the terms
of the Notes; and (iii) issuable upon exercise of the Series A Warrants and
(B) 100% of the aggregate of the maximum number of shares of Common Stock
issuable upon exercise of the Series B Warrants. Upon conversion or payment in
accordance with the Notes or exercise in accordance with the Warrants, as the
case may be, the Conversion Shares, the Interest Shares and the Warrant Shares,
respectively, will be validly issued, fully paid and nonassessable and free from
all preemptive or similar rights, taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. Assuming the accuracy of each of the representations and
warranties set forth in Section 2 of this Agreement, the offer and issuance by
the Company of the Securities is exempt from registration under the 1933 Act.

 

- 9 -

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

 

(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Notes and the Warrants and reservation for issuance and issuance of the
Conversion Shares, the Interest Shares and the Warrant Shares) will not
(i) result in a violation of any memorandum of association, certificate of
incorporation, certificate of formation, any certificate of designations or
other constituent documents of the Company, any capital stock of the Company or
the articles of association or bylaws of the Company or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) in any respect under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture or instrument to which the Company is a party, except to the extent
that such conflict, default, termination, amendment, acceleration or
cancellation right would not reasonably be expected to have a Material Adverse
Effect, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including, assuming the accuracy of the Buyers’
representations and warranties in Section 2, federal and state securities laws
and regulations and the rules and regulations of the OTCQX market tier operated
by Pink OTC Markets Inc. (the “Principal Market”)), and laws of the State of
Delaware applicable to the Company or by which any property or asset of the
Company is bound or affected, except to the extent that such violation would not
reasonably be expected to have a Material Adverse Effect.

(e) Consents. Except for Bankruptcy Court approval, the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the Closing Date, and the Company is unaware of any
facts or circumstances that might prevent the Company from obtaining or
effecting any of the registration, application or filings pursuant to the
preceding sentence. The Company is not in violation of the listing requirements
of the Principal Market and has no knowledge of any facts that would reasonably
lead to delisting or suspension of the Common Stock in the foreseeable future.
The issuance by the Company of the Securities shall not have the effect of
delisting or suspending the Common Stock from the Principal Market.

(f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of an
arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company or any of its Subsidiaries, (ii) an “affiliate” (as
defined in Rule 144) of the Company or any of its Subsidiaries or (iii) to the
knowledge of the Company, a “beneficial owner” of more than 10% of the shares of
Common Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange
Act of 1934, as amended (the “1934 Act”)). The Company further acknowledges that
no Buyer is acting as a financial advisor or fiduciary of the Company or any of
its Subsidiaries (or in any similar

 

- 10 -

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

capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such
Buyer’s purchase of the Securities. The Company further represents to each Buyer
that the Company’s decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its
representatives.

(g) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor
any of its Subsidiaries or affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or brokers’ commissions (other than for
persons engaged by any Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby, including, without limitation,
placement agent fees payable to ROTH Capital Partners, LLC, as placement agent
(the “Placement Agent”) in connection with the sale of the Securities. The
Company shall pay, and hold each Buyer harmless against, any liability, loss or
expense (including, without limitation, attorney’s fees and out-of-pocket
expenses) arising in connection with any such claim. The Company acknowledges
that it has engaged the Placement Agent in connection with the sale of the
Securities. Other than the Placement Agent, neither the Company nor any of its
Subsidiaries has engaged any placement agent or other agent in connection with
the sale of the Securities.

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

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

 

- 11 -

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

 

(j) Application of Takeover Protections; Rights Agreement. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the jurisdiction of its formation which is or could become applicable to any
Buyer as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company’s issuance of the Securities and any Buyer’s
ownership of the Securities. The Company has not adopted a stockholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.

(k) SEC Documents; Financial Statements. Except as disclosed in Schedule 3(k),
since August 16, 2010, the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the 1934 Act. The Company has
delivered to the Buyers or their respective representatives true, correct and
complete copies of the SEC Documents not available on the EDGAR system. As of
their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents, except for such
rules and regulations governing the timing of such filings, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective filing dates, the financial statements of the Company included
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

(l) Absence of Certain Changes. Except as disclosed in Schedule 3(l), since
August 16, 2010, there has been no material adverse change and no material
adverse development in the business, assets, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company.
Since September 30, 2009, neither the Company nor any of its Subsidiaries has
(i) declared or paid any dividends, (ii) sold any assets, individually or in the
aggregate, in excess of $100,000 outside of the ordinary course of business or
(iii) had capital expenditures, individually or in the aggregate, in excess of
$100,000.

(m) No Undisclosed Events, Liabilities, Developments or Circumstances. Other
than the Chapter 11 Cases, no event, liability, development or circumstance has
occurred or exists, or is contemplated to occur with respect to the Company, its
Subsidiaries or their respective business, properties, prospects, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-1 filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.

 

- 12 -

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

 

(n) Conduct of Business; Regulatory Permits. The Company is not in violation of
any term of or in default under any certificate of designations of any
outstanding series of preferred stock of the Company, its Certificate of
Incorporation or Bylaws (as such terms are defined below) or its organizational
charter or memorandum of association or certificate of incorporation or articles
of association or bylaws, respectively. The Company is not in violation of any
judgment, decree or order or any statute, ordinance, rule or regulation
applicable to the Company, and the Company shall not conduct its business in
violation of any of the foregoing, except for possible violations which could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Without limiting the generality of the foregoing, the Company is
not in violation of any of the rules, regulations or requirements of the
Principal Market and has no knowledge of any facts or circumstances that would
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. Except as set forth in Schedule 3(n), during
the two (2) years prior to the date hereof, (i) trading in the Common Stock has
not been suspended by the SEC or the Principal Market and (ii) the Company has
received no communication, written or oral, from the SEC or the Principal Market
regarding the suspension or delisting of the Common Stock from the Principal
Market. The Company possesses all certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory authorities
necessary to conduct its business, except where the failure to possess such
certificates, authorizations or permits would not have, individually or in the
aggregate, a Material Adverse Effect, and the Company has not received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.

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

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

(q) Transactions With Affiliates. Except as set forth on Schedule 3(q), none of
the officers, directors or employees of the Company is presently a party to any
material transaction with the Company (other than for ordinary course services
as employees, officers or directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any such officer, director or employee or, to the knowledge of the
Company, any affiliate of such officer, director or employee.

 

- 13 -

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

 

(r) Equity Capitalization.

(i) As of the date hereof, the authorized capital stock of the Company consists
of (i) 300,000,000 shares of Common Stock, of which as of the date hereof,
98,149,783 shares are issued and outstanding, 26,802,486 shares are reserved for
issuance pursuant to the Company’s stock option and purchase plans and
86,339,113 shares are reserved for issuance pursuant to securities (other than
the aforementioned options, the Notes and the Warrants) exercisable or
exchangeable for, or convertible into, Common Stock and (ii) 50,000,000 shares
of preferred stock of the Company, par value $0.01 per share (“Preferred
Stock”), of which as of the date hereof, no shares are issued and outstanding,
reserved for issuance pursuant to the Company’s stock option and purchase plans
or reserved for issuance pursuant to securities exercisable or exchangeable for,
or convertible into, Preferred Stock. All of such outstanding shares have been,
or upon issuance in accordance with their terms, will be, validly issued and are
fully paid and nonassessable. Except as disclosed in Schedule 3(r): (A) none of
the Company’s capital stock is subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company;
(B) there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into, or exercisable or exchangeable for, any shares of
capital stock of the Company, or contracts, commitments, understandings or
arrangements by which the Company is or may become bound to issue additional
shares of capital stock of the Company or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
shares of capital stock of the Company; (C) there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness of the Company or by which the
Company is or may become bound; (D) there are no financing statements securing
obligations in any material amounts, either singly or in the aggregate, filed in
connection with the Company; (E) there are no agreements or arrangements under
which the Company is obligated to register the sale of any of their securities
under the 1933 Act; (F) there are no outstanding securities or instruments of
the Company which contain any redemption or similar provisions, and there are no
contracts, commitments, understandings or arrangements by which the Company is
or may become bound to redeem a security of the Company; (G) there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities; (H) the Company does not
have any stock appreciation rights or “phantom stock” plans or agreements or any
similar plan or agreement; and (I) the Company has no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company’s
business and which, individually or in the aggregate, do not or would not have a
Material Adverse Effect. The Company has furnished or made available to the
Buyers true, correct and complete copies of the Company’s Certificate of
Incorporation, as amended and as in effect on the date hereof (the “Certificate
of Incorporation”), and the Company’s Bylaws, as amended and as in effect on the
date hereof (the “Bylaws”), and the terms of all securities convertible into, or
exercisable or exchangeable for, shares of Common Stock and the material rights
of the holders thereof in respect thereto.

 

- 14 -

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

 

(ii) The equity capitalization of the Company, immediately after giving effect
to the transactions contemplated by this Agreement and the effectiveness of the
Plan, will be as set forth in Schedule 3(r)(ii).

(s) Indebtedness and Other Contracts.

(i) Except as disclosed in Schedule 3(s)(i), , the Company (A) has no
outstanding Indebtedness (as defined below), (B) is not a party to any contract,
agreement or instrument, the violation of which, or default under which, by the
other party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (C) is in violation of any term
of or in default under any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (D) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect. For purposes of this Agreement:
(x) “Indebtedness” of any Person means, without duplication (1) all indebtedness
for borrowed money, (2) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services, including, without limitation,
“capital leases” in accordance with United States generally accepted accounting
principles (other than trade payables entered into in the ordinary course of
business), (3) all reimbursement or payment obligations with respect to letters
of credit, surety bonds and other similar instruments, (4) 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, (5) 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), (6) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (7) all indebtedness referred to in clauses
(1) through (6) above secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (8) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (1) through (7) above; (y) “Contingent Obligation” means,
as to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) “Person” means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.

 

- 15 -

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

 

(ii) The Indebtedness of the Company and its Subsidiaries, after giving effect
to the transactions contemplated by this Agreement and the effectiveness of the
Plan, will be as set forth in Schedule 3(s)(ii), which Schedule shall contain a
description of the material terms of any such Indebtedness.

(t) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company, the
Common Stock or any of the Company’s officers or directors in their capacities
as such, except as set forth in Schedule 3(t). The matters set forth in Schedule
3(t) would not reasonably be expected to have a Material Adverse Effect.

(u) Insurance. The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the business in which the
Company is engaged. The Company has not been refused any insurance coverage
sought or applied for and the Company has no reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not have a Material Adverse
Effect.

(v) Employee Relations.

(i) The Company is not a party to any collective bargaining agreement and does
not employ any member of a union. The Company believes that its relations with
its employees are good. Except as set forth on Schedule 3(v), no current
executive officer of the Company (as defined in Rule 501(f) of the 1933 Act) has
notified the Company that such officer intends to leave the Company or otherwise
terminate such officer’s employment with the Company. No executive officer of
the Company, to the knowledge of the Company, is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or
any other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer, to the knowledge of the Company, does
not subject the Company to any liability with respect to any of the foregoing
matters.

(ii) The Company is in compliance with all federal, state, local and foreign
laws and regulations respecting labor, employment and employment practices and
benefits, terms and conditions of employment and wages and hours, except where
failure to be in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.

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

 

- 16 -

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

 

(x) Intellectual Property Rights. The Company owns or possesses adequate rights
or licenses to use all trademarks, trade names, service marks, service mark
registrations, service names, original works of authorship, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights and all
applications and registrations therefor (“Intellectual Property Rights”)
necessary to conduct its business as now conducted. Except as set forth in
Schedule 3(x), all of the Company’s Intellectual Property Rights and relevant
applications therefor have been duly registered by the United States Patent and
Trademark Office, or the equivalent offices of non-US jurisdictions where such
Intellectual Property Rights are registrable with such governmental or other
registration authority and are not subject to a pending registration
application, and have been properly maintained in accordance with applicable
law. Except as set forth in Schedule 3(x), none of the Company’s Intellectual
Property Rights have expired or terminated or have been abandoned or are
expected to expire or terminate or are expected to be abandoned, within three
years from the date of this Agreement. The Company does not have any knowledge
of any infringement by the Company or its Subsidiaries of Intellectual Property
Rights of others. There is no claim, action or proceeding being made or brought,
or to the knowledge of the Company or any of its Subsidiaries, being threatened,
against the Company or any of its Subsidiaries regarding its Intellectual
Property Rights. The Company is not aware of any facts or circumstances which
might give rise to any of the foregoing infringements or claims, actions or
proceedings. The Company has taken reasonable security measures to protect the
secrecy, confidentiality and value of all of its Intellectual Property Rights.

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

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

 

- 17 -

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

 

(aa) Tax Status. The Company (i) has made or filed all U.S. federal, state,
local and foreign income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject, (ii) has paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.

(bb) Internal Accounting and Disclosure Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management’s general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference. The
Company maintains disclosure controls and procedures (as such term is defined in
Rule 13a-15 under the 1934 Act) that are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed in to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is accumulated and communicated to the Company’s management,
including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions
regarding required disclosure. Since September 30, 2010, neither the Company nor
any of its Subsidiaries has received any notice or correspondence from any
accountant relating to any material weakness in any part of the system of
internal accounting controls of the Company or any of its Subsidiaries.

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

(dd) Collateral. No creditor of the Company has rights in or to the Account. The
Exchange Notes shall constitute general unsecured obligations of the Company.

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

 

- 18 -

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

 

(ff) Manipulation of Price. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result, or that could reasonably be expected to cause or result,
in the stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of any of the Securities, (ii) other than the
Placement Agent, sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) other than the
Placement Agent, paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.

(gg) Acknowledgement Regarding Buyers’ Trading Activity. It is understood and
acknowledged by the Company that (i) none of the Buyers has been asked to agree,
nor has any Buyer agreed, to desist from purchasing or selling, long and/or
short, securities of the Company, or “derivative” securities based on securities
issued by the Company or to hold the Securities for any specified term; (ii) any
Buyer, and counter-parties in “derivative” transactions to which any such Buyer
is a party, directly or indirectly, presently may have a “short” position in the
Common Stock, and (iii) each Buyer shall not be deemed to have any affiliation
with or control over any arm’s length counter-party in any “derivative”
transaction. The Company further understands and acknowledges that one or more
Buyers may engage in hedging and/or trading activities at various times during
the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Conversion Shares, the Interest Shares
and/or the Warrant Shares are being determined and (b) such hedging and/or
trading activities, if any, can reduce the value of the existing stockholders’
equity interest in the Company both at and after the time the hedging and/or
trading activities are being conducted. The Company acknowledges that such
aforementioned hedging and/or trading activities do not constitute a breach of
this Agreement, the Notes, the Warrants or any of the documents executed in
connection herewith.

(hh) No Additional Agreements. The Company does not have any agreement or
understanding with any Buyer with respect to the transactions contemplated by
the Transaction Documents other than as specified in the Transaction Documents.

(ii) Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Buyers or their agents or counsel
with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information. The Company understands and confirms
that each of the Buyers will rely on the foregoing representations in effecting
transactions in securities of the Company. All disclosure provided to the Buyers
regarding the Company, or any of its Subsidiaries, their business and the
transactions contemplated hereby, including the disclosure schedules to this
Agreement, furnished by or on behalf of the Company in writing in connection
with the transactions contemplated hereby is true and correct and does not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. Each press release
issued by the Company or any of its Subsidiaries during the twelve (12) months
preceding the date of this Agreement did not at the time of release contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. No event
or circumstance has occurred or information exists with respect to the Company
or its business,

 

- 19 -

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

properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed. The
Company acknowledges and agrees that no Buyer makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 2.

(jj) Shell Company Status. The Company is not, and has never been, an issuer
identified in Rule 144(i)(1).

(kk) Stock Option Plans. Each stock option granted by the Company was granted
(i) in accordance with the terms of the applicable Company stock option plan and
(ii) with an exercise price at least equal to the fair market value of the
Common Stock on the date such stock option would be considered granted under
GAAP and applicable law. No stock option granted under the Company’s stock
option plan has been backdated. The Company has not knowingly granted, and there
is no and has been no Company policy or practice to knowingly grant, stock
options prior to, or otherwise knowingly coordinate the grant of stock options
with, the release or other public announcement of material information regarding
the Company or its financial results or prospects.

(ll) No Disagreements with Accountants and Lawyers. There are no material
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company and the Company is current with respect to
any fees owed to its accountants and lawyers which could affect the Company’s
ability to perform any of its obligations under any of the Transaction
Documents.

4. COVENANTS.

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

(b) Form D and Blue Sky. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each
Buyer promptly after such filing. The Company shall take such action as the
Company shall reasonably determine is necessary in order to obtain an exemption
for or to qualify the Securities for sale to the Buyers at the Closing pursuant
to this Agreement under applicable securities or “Blue Sky” laws of the states
of the United States (or to obtain an exemption from such qualification), and
shall provide evidence of any such action so taken to the Buyers no later than
five (5) Business Days after the Closing Date. The Company shall make all
filings and reports relating to the offer and sale of the Securities required
under applicable securities or “Blue Sky” laws of the states of the United
States following the Closing Date.

(c) Reporting Status. Until the date on which the Buyers (or any transferee or
assignee thereof) may sell all the Conversion Shares, the Interest Shares and
Warrant Shares under Rule 144 in any three month period, without any
restrictions or limitations and without the requirement to be in compliance with
Rule 144(c)(1) (the “Reporting Period”), the Company

 

- 20 -

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

shall timely file all reports required to be filed with the SEC pursuant to the
1934 Act, and during such Reporting Period, the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would no longer require or otherwise
permit such termination.

(d) [Intentionally Omitted].

(e) Financial Information. The Company agrees to send the following to each
Buyer (or any transferee or assignee thereof) during the Reporting Period
(i) unless the following are filed with the SEC through EDGAR and are available
to the public through the EDGAR system, within one (1) Business Day after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, any
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K (or any
analogous reports under the 1934 Act) and any registration statements (other
than on Form S-8) or amendments filed pursuant to the 1933 Act and (ii) copies
of any notices and other information made available or given to the stockholders
of the Company generally, contemporaneously with the making available or giving
thereof to the stockholders. As used herein, “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) Listing. The Company shall promptly secure the listing of all of the
Conversion Shares and Warrant Shares upon each national securities exchange and
automated quotation system, if any, upon which the Common Stock is then listed
(subject to official notice of issuance) and shall maintain such listing of all
such Conversion Shares and Warrant Shares from time to time issuable under the
terms of the Transaction Documents. The Company shall maintain the authorization
for quotation of the Common Stock on the Principal Market or any other Eligible
Market (as defined in the Warrants). The Company shall not take any action which
would be reasonably expected to result in the delisting or suspension of the
Common Stock on the Principal Market unless the Company has previously secured
the listing on another Eligible Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(f).

(g) Fees. The Company shall reimburse Empery (a Buyer) or its designee(s) (in
addition to any other expense amounts paid to any Buyer or its counsel prior to
the date of this Agreement) for all reasonable costs and expenses incurred in
connection with the transactions contemplated by the Transaction Documents
(including all reasonable legal fees and disbursements in connection therewith,
documentation and implementation of the transactions contemplated by the
Transaction Documents and due diligence in connection therewith) in an amount
not to exceed $100,000 (the “Fee Cap”) if the Chapter 11 Case relating to the
Company is uncontested; provided, that the Fee Cap shall not apply if the
Chapter 11 Case relating to the Company becomes contested, which amount may be
withheld by such Buyer from its Purchase Price at the Closing. The Company shall
be responsible for the payment of any placement agent’s fees, financial advisory
fees, or broker’s commissions (other than for Persons engaged by any Buyer)
relating to or arising out of the transactions contemplated hereby, including,
without limitation, any fees or commissions payable to the Placement Agent. The
Company shall pay, and hold each Buyer harmless against, any liability, loss or
expense (including, without limitation, reasonable attorney’s fees and
out-of-pocket expenses) arising in connection with any claim relating to any
such payment. Except as otherwise set forth in the Transaction Documents, each
party to this Agreement shall bear its own expenses in connection with the sale
of the Securities to the Buyers.

 

- 21 -

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

 

(h) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by a Buyer (or any transferee or assignee thereof) in
connection with a bona fide margin agreement or other loan or financing
arrangement that is secured by the Securities. The pledge of Securities shall
not be deemed to be a transfer, sale or assignment of the Securities hereunder,
and no Buyer (or any transferee or assignee thereof) effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document, including, without limitation, Section 2(i) hereof;
provided that a Buyer (or any transferee or assignee thereof) and its pledgee
shall be required to comply with the provisions of Section 2(i) hereof in order
to effect a sale, transfer or assignment of Securities to such pledgee. The
Company hereby agrees to execute and deliver such documentation as a pledgee of
the Securities may reasonably request in connection with a pledge of the
Securities to such pledgee by a Buyer (or any transferee or assignee thereof).

(i) Disclosure of Transactions and Other Material Information. On or before 8:30
a.m., New York City time, on the fourth (4th) Business Day after this Agreement
has been executed, the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act and attaching the material
Transaction Documents (including, without limitation, this Agreement (and all
schedules and exhibits to this Agreement), the form of the Notes, the form of
Warrants, the Security Documents and the form of Lock-Up Agreement as exhibits
to such filing, all as required by the rules and regulations of the SEC
(including all attachments, the “8-K Filing”). From and after the filing of the
8-K Filing with the SEC, no Buyer shall be in possession of any material,
nonpublic information received from the Company, any of its Subsidiaries or any
of their respective officers, directors, employees or agents, that is not
disclosed in the 8-K Filing. The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors, employees
and agents, not to, provide any Buyer with any material, nonpublic information
regarding the Company or any of its Subsidiaries from and after the filing of
the 8-K Filing with the SEC without the express prior written consent of such
Buyer. If a Buyer has, or believes it has, received, without its prior written
consent, any such material, nonpublic information regarding the Company or any
of its Subsidiaries from the Company, any of its Subsidiaries or any of their
respective officers, directors, affiliates or agents, it may provide the Company
with written notice thereof. The Company shall, within two (2) Trading Days (as
defined in the Notes) of receipt of such notice, make public disclosure of such
material, nonpublic information. In the event of a breach of the foregoing
covenant by the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees and agents, in addition to any other
remedy provided herein or in the Transaction Documents, a Buyer shall have the
right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information without the
prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents. No Buyer shall have any
liability to the Company, its Subsidiaries, or any of its or their respective
officers, directors, employees, stockholders or agents for any such disclosure.
To the extent that the Company, Subsidiary or any of its or their officers,
directors, employees or agents delivers any material, non-public information to
a Buyer without such Buyer’s consent, the Company, on

 

- 22 -

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

behalf of it, its Subsidiaries and its and its Subsidiaries, officers,
directors, employees and agents, hereby covenants and agrees that such Buyer
shall not have any duty of confidentiality with respect to, or a duty not to
trade on the basis of, such material, non-public information. Subject to the
foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Buyer, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release). Without the
prior written consent of any applicable Buyer, neither the Company nor any of
its affiliates shall disclose the name of such Buyer in any filing,
announcement, release or otherwise, except as required by law or the rules and
regulations of the SEC or other governmental authority.

(j) Collateral Agent.

(i) Each Buyer hereby (a) appoints Empery, as the collateral agent hereunder and
under the Security Documents (in such capacity, the “Collateral Agent”), and
(b) authorizes the Collateral Agent (and its officers, directors, employees and
agents) to take such action on such Buyer’s behalf in accordance with the terms
hereof and thereof. The Collateral Agent shall not have, by reason hereof or the
Security Documents, a fiduciary relationship in respect of any Buyer. Neither
the Collateral Agent nor any of its officers, directors, employees and agents
shall have any liability to any Buyer for any action taken or omitted to be
taken in connection hereof or the Security Documents except to the extent caused
by its own gross negligence or willful misconduct, and each Buyer agrees to
defend, protect, indemnify and hold harmless the Collateral Agent and all of its
officers, directors, employees and agents (collectively, the “Collateral Agent
Indemnitees”) from and against any losses, damages, liabilities, obligations,
penalties, actions, judgments, suits, fees, costs and expenses (including,
without limitation, reasonable attorneys’ fees, costs and expenses) incurred by
such Collateral Agent Indemnitee, whether direct, indirect or consequential,
arising from or in connection with the performance by such Collateral Agent
Indemnitee of the duties and obligations of Collateral Agent pursuant hereto or
any of the Security Documents.

(ii) The Collateral Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message
believed by it in good faith to be genuine and correct and to have been signed,
sent or made by the proper Person, and with respect to all matters pertaining to
this Agreement or any of the other Transaction Documents and its duties
hereunder or thereunder, upon advice of counsel selected by it.

(iii) The Collateral Agent may resign from the performance of all its functions
and duties hereunder and under the Notes and the Security Documents at any time
by giving at least ten (10) Business Days prior written notice to the Company
and each holder of the Notes. Such resignation shall take effect upon the
acceptance by a successor Collateral Agent of appointment as provided below.
Upon any such notice of resignation, the holders of two-thirds of the
outstanding principal under the Notes shall appoint a successor Collateral
Agent. Upon the

 

- 23 -

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

acceptance of the appointment as Collateral Agent, such successor Collateral
Agent shall succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Collateral Agent, and the retiring Collateral Agent
shall be discharged from its duties and obligations under this Agreement, the
Notes and the Security Documents. After any Collateral Agent’s resignation
hereunder, the provisions of this Section 4(j) shall inure to its benefit. If a
successor Collateral Agent shall not have been so appointed within said ten
(10) Business Day period, the retiring Collateral Agent shall then appoint a
successor Collateral Agent who shall serve until such time, if any, as the
holders of two-thirds of the outstanding principal under the Notes appoint a
successor Collateral Agent as provided above.

(k) Additional Notes; Variable Securities. So long as any Buyer beneficially
owns any Notes, the Company will not issue any Notes other than to the Buyers as
contemplated hereby.

(l) Corporate Existence. So long as any Buyer beneficially owns any Securities,
the Company shall maintain its corporate existence and shall not be party to any
Fundamental Transaction (as defined in the Notes) unless the Company is in
compliance with the applicable provisions governing Fundamental Transactions set
forth in the Notes and the Warrants.

(m) Reservation of Shares. So long as any Buyer owns any Securities, the Company
shall take all action necessary to at all times after the Stockholder Approval
(as defined below) have authorized, and reserved for the purpose of issuance, no
less than the sum of (A) 130% of the sum of the number of shares of Common Stock
issuable (i) upon conversion of the Notes, (ii) as Interest Shares pursuant to
the terms of the Notes and (iii) upon exercise of the Series A Warrants then
outstanding and (B) the maximum number of shares of Common Stock issuable upon
exercise of the Series B Warrants then outstanding (in each case, without taking
into account any limitations on the conversion of the Notes or exercise of the
Warrants set forth in the Notes and Warrants, respectively). If at any time the
number of shares of Common Stock authorized and reserved for issuance is not
sufficient to meet the Required Reserved Amount, the Company will promptly take
all corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of stockholders
to authorize additional shares to meet the Company’s obligations under
Section 3(c), in the case of an insufficient number of authorized shares, obtain
stockholder approval of an increase in such authorized number of shares, and
voting the management shares of the Company in favor of an increase in the
authorized shares of the Company to ensure that the number of authorized shares
is sufficient to meet the Required Reserved Amount.

(n) Conduct of Business. The Company shall not file any registration statement
for any of its or its Subsidiaries securities until thirty (30) days after all
of the Conversion Shares and Warrant Shares are freely transferable pursuant to
Section 1145 of the Bankruptcy Code without any restrictions or limitations.

(o) Additional Issuances of Securities.

(i) For purposes of this Section 4(o), the following definitions shall apply.

 

- 24 -

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

 

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

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

(3) “Common Stock Equivalents” means, collectively, Options and Convertible
Securities.

(ii) From the date hereof until sixty (60) days after the Effective Date (the
“Trigger Date”), the Company will not, directly or indirectly, file any
registration statement with the SEC. From the date hereof until the Trigger
Date, the Company will not, (i) directly or indirectly, offer, sell, grant any
option to purchase, or otherwise dispose of (or announce any offer, sale, grant
or 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 that is, at
any time during its life and under any circumstances, convertible into or
exchangeable or exercisable for Common Stock or Common Stock Equivalents (any
such sale, grant, disposition or announcement being referred to as a “Subsequent
Placement”) or (ii) be party to any solicitations, negotiations or discussions
with regard to the foregoing.

(iii) From the Trigger Date until the later of: (a) the first anniversary of the
Effective Date, and (b), if any Subsequent Placement is consummated following
the Closing Date and prior to the first anniversary of the Effective Date and a
Buyer participates in such Subsequent Offering to the maximum extent permitted
hereunder, solely with respect to such Buyer, the first anniversary of the
consummation of such Subsequent Placement, the Company will not, directly or
indirectly, effect any Subsequent Placement unless the Company shall have first
complied with this Section 4(o)(iii).

(1) At least two (2) Business Day prior to the consummation of any proposed or
intended Subsequent Placement, the Company or its agent shall contact each Buyer
and ask whether such Buyer is willing to receive material non-public information
(each such notice, a “Pre-Notice”); provided that neither the Company nor any of
its agents shall provide any material non-public information with respect to the
Company to any Buyer without the express written consent of such Buyer to
receive such material non-public information. Upon the written request of each
Buyer no later than one (1) Business Day after such Buyer’s receipt of such
Pre-Notice, and only upon the written request by such Buyer, the Company shall
promptly, but no later than one (1) Business Day after such request, deliver via
facsimile and email to the applicable facsimile number and email address set
forth on the Schedule of Buyers attached hereto, to each Buyer an irrevocable
written notice (the “Offer Notice”) of any proposed or intended issuance or sale
or exchange (the “Offer”) of the securities being offered (the “Offered
Securities”) in a Subsequent Placement, which Offer Notice shall (w) identify
and describe the Offered Securities, (x) describe the price and other terms upon
which they are to be issued,

 

- 25 -

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

sold or exchanged, and the number or amount of the Offered Securities to be
issued, sold or exchanged, (y) identify the persons or entities (if known and
unless prohibited in writing by such persons or entities) to which or with which
the Offered Securities are to be issued, sold or exchanged and (z) offer to
issue and sell to or exchange with such Buyers, in the aggregate, no less than
twenty-five percent (25%) of the Offered Securities issued, sold or exchanged in
such Subsequent Placement, allocated among such Buyers based on each Buyer’s pro
rata percentage of the aggregate principal amount of Notes purchased hereunder
(the “Basic Amount”).

(2) To accept an Offer, in whole or in part, such Buyer must deliver a written
notice to the Company prior to the end of the first (1st) Business Day after the
Company’s delivery of the Offer Notice via facsimile and email to the applicable
facsimile number and email address set forth on the Schedule of Buyers attached
hereto, provided that confirmation of transmission is mechanically or
electronically generated, as the case may be, and kept on file by the Company
(the “Offer Period”), setting forth the percentage of such Buyer’s Basic Amount
that such Buyer elects to purchase (the “Notice of Acceptance”). Notwithstanding
anything to the contrary contained herein, if the Company desires to materially
modify or amend the terms and conditions of the Offer prior to the expiration of
the Offer Period (other than the number or amount of Offered Securities to be
issued, sold or exchanged), the Company may deliver to the Buyers a new Offer
Notice and the Offer Period shall expire on the first (1st) Business Day after
such Buyer’s receipt of such new Offer Notice.

(3) The Company shall have ten (10) Business Days from the expiration of the
Offer Period above (i) to offer, issue, sell or exchange all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by the
Buyers (the “Refused Securities”) pursuant to a definitive agreement (the
“Subsequent Placement Agreement”) but only upon terms and conditions (including,
without limitation, unit prices and interest rates) that are not more favorable
to the acquiring person or persons or less favorable to the Company than those
set forth in the Offer Notice (without first delivering to each Buyer a new
Offer Notice) and (ii) to publicly announce (a) the execution of such Subsequent
Placement Agreement, and (b) either (x) the consummation of the transactions
contemplated by such Subsequent Placement Agreement or (y) the termination of
such Subsequent Placement Agreement, which shall be filed with the SEC on a
Current Report on Form 8-K with such Subsequent Placement Agreement and any
documents contemplated therein filed as exhibits thereto; provided, however,
that if the Offered Securities are to be sold pursuant to a registration
statement filed with the SEC pursuant to the 1933 Act, such period shall be
extended to the earlier of (i) three (3) Business Days following such
registration statement being declared effective by the SEC and (ii) fifteen
(15) Business Days after the Company, any of its Subsidiaries or any of their
respective officers, directors, affiliates or agents delivered material
nonpublic information regarding the Company or any of its Subsidiaries to any
Buyer in connection with an applicable Offer.

 

- 26 -

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

 

(4) [Intentionally Omitted]

(5) Upon the closing of the issuance, sale or exchange of any Offered
Securities, the Buyers shall acquire from the Company, and the Company shall
issue to the Buyers, the percentage of Offered Securities specified in the
Notices of Acceptance upon the terms and conditions specified in the Offer. The
purchase by the Buyers of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and the Buyers of a purchase
agreement relating to such Offered Securities reasonably satisfactory in form
and substance to the Buyers and their respective counsel.

(6) Any Offered Securities not acquired by the Buyers or other persons in
accordance with Section 4(o)(iii)(3) above may not be issued, sold or exchanged
until they are again offered to the Buyers under the procedures specified in
this Agreement.

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

(8) Notwithstanding anything to the contrary in this Section 4(o) and unless
otherwise agreed to by the Buyers, the Company shall either confirm in writing
to the Buyers that the transaction with respect to the Subsequent Placement has
been abandoned or shall publicly disclose its intention to issue the Offered
Securities, in either case in such a manner such that the Buyers will not be in
possession of material non-public information, by the fifteenth (15th) Business
Day following the Offer Period. If by the fifteenth (15th) Business Day
following the Offer Period no public disclosure regarding a transaction with
respect to the Offered Securities has been made, and no notice regarding the
abandonment of such transaction has been received by the Buyers, such
transaction shall be deemed to have been abandoned and the Buyers shall not be
deemed to be in possession of any material, non-public information with respect
to the Company. Should the Company decide to pursue such transaction with
respect to the Offered Securities, the Company shall provide each Buyer with
another Offer Notice and each Buyer will again have the right of participation
set forth in this Section 4(o)(iii). The Company shall not be permitted to
deliver more than one such Offer Notice (other than the delivery of an Offer
Notice contemplated pursuant to Section 4(o)(iii)(3)) to the Buyers in any 60
day period.

(iv) The restrictions contained in subsections (ii) and (iii) of this
Section 4(o) shall not apply in connection with the issuance of any Excluded
Securities. As used herein, “Excluded Securities” shall mean any Common Stock
issued or issuable: (i) in

 

- 27 -

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

connection with any Approved Stock Plan, (ii) upon exercise of the Warrants or
conversion of the Notes; provided that the terms of the Warrants or Other Notes
(as defined in the Notes) are not amended, modified or changed on or after the
date hereof other than pursuant to Section 2(b) of the Warrant and other than
pursuant to any anti-dilution provisions of the Note, the Other Notes and the
Warrants; (iii) upon conversion or exercise of any Options or Convertible
Securities which are outstanding on the day immediately preceding the date
hereof; provided that the exercise prices or conversion prices of such Options
or Convertible Securities are not decreased and the number of shares issuable
upon exercise or conversion are not increased other than in accordance with
their terms on or after the date hereof, (iv) in connection with mergers,
acquisitions, strategic business transactions (including, without limitation,
license, distribution or development partnerships) or joint ventures, in each
case with non-affiliated third parties and otherwise on an arm’s-length basis,
the purpose of which is not to raise additional capital; provided that any
Common Stock issued or issuable in connection with any transaction contemplated
by this clause (iv) that is either (A) attributable to capital raising for the
Company or its Subsidiaries (other than nominal amounts of capital or (B) to
raise capital for the Company or its Subsidiaries, directly or indirectly, in
connection with any transaction contemplated by this clause (iv), including,
without limitation, securities issued in one or more related transactions or
that result in similar economic consequences, shall not be deemed to be Excluded
Securities and (v) pursuant to the Plan. As used herein, “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, director, consultant or advisor for services
provided to the Company; provided, however, that in the case of any issuance to
of securities to any consultant or advisor of the Company, such securities are
granted solely in consideration of the provision of bona fide services to the
Company relating to the Company’s business or operations and not in connection
with services relating to a financing or similar activity.

(p) Successor Collateral Agent. The Company hereby covenants and agrees to take
all actions as promptly as practicable reasonably requested by either the holder
of a majority of the outstanding principal amount of Notes or the Collateral
Agent (or its successor), from time to time, to secure a successor Collateral
Agent satisfactory to the Buyers, in their sole discretion, including, without
limitation, by paying all fees of such successor Collateral Agent, by having the
Company agree to indemnify any successor Collateral Agent and by the Company
executing a collateral agency agreement or similar agreement and/or any
amendment to the Security Documents reasonably requested or required by the
successor Collateral Agent.

(q) Lock-Up. The Company shall not amend or waive any provision of any of the
Lock-Up Agreements except to extend the term of the lock-up period and shall
enforce the provisions of each Lock-Up Agreement in accordance with its terms.
If any officer or director that is a party to a Lock-Up Agreement breaches any
provision of a Lock-Up Agreement, the Company shall promptly use its best
efforts to seek specific performance of the terms of such Lock-Up Agreement.

(r) Closing Documents. On or prior to fourteen (14) calendar days after the
Closing Date, the Company agrees to deliver, or cause to be delivered, to each
Buyer and Schulte Roth & Zabel LLP executed copies of the Transaction Documents,
Securities and other document required to be delivered to any party pursuant to
Section 7 hereof or otherwise.

 

- 28 -

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

 

(s) Bankruptcy Court Filing and Confirmation. The Company shall use its
reasonable best efforts to cause the Bankruptcy Court to enter an order in form
and substance reasonably satisfactory to the Buyers confirming the Plan as soon
as practicable. Without limiting the generality of the foregoing, no later than
five Business Days prior to the delivery of the draft confirmation order or any
filing relating to this Agreement or the transactions contemplated thereby to
the Bankruptcy Court, the Company shall provide as copy of such draft
confirmation order or other documents to the Buyers for their review and
comment.

(t) Bankruptcy Court Order. The Company shall not, and the Company shall not
permit any of its Subsidiaries to, at any time, seek, consent to or suffer to
exist any reversal, modification, amendment, stay or vacation of any order
approving the issuance of the Initial Notes and Initial Warrants pursuant to the
terms of the Transaction Documents (the “Approval Order”), except for
modifications and amendments agreed to by holders of at least two-thirds of the
Initial Notes purchased on the Closing Date without any restrictions or
limitations.

(u) Existence of Claims. The Company shall not, and the Company shall not permit
any of its Subsidiaries to, at any time, suffer to exist a priority for any
administrative expense or unsecured claim against the Company, including,
without limitation, any administrative expenses of the kind specified in, or
arising or ordered under, Sections 105, 326, 328, 330, 331, 503(b), 506(c),
507(a), 507(b), 546(c) 726 and 1114 of the Bankruptcy Code equal or superior to
the priority of the holders of the Initial Notes in the Account.

(v) Shares Freely Transferable. The Exchange Notes, the Exchange Warrants, the
Exchange Conversion Shares and the Exchange Warrant Shares upon their issuance
in connection with the consummation of the Plan shall be freely transferable and
eligible for sale without any restriction or limitation and without the need for
registration under any applicable federal and state securities laws pursuant to
Section 1145 of the Bankruptcy Code.

(w) Market Activity. From and after the date hereof and until 11:59 p.m. on
December 21, 2010, each Buyer and its affiliates shall not, directly or
indirectly, engage in any transactions involving “short sales” (as defined in
Rule 200 of Regulation SHO under the 1933 Act) or any transaction involving
derivatives that would result in a “put equivalent position” (as defined in Rule
16a-1(h) under the 1934 Act), in each case with respect to the Common Stock;
provided, however, that nothing shall prevent any Buyer from taking any actions
to use available shares to borrow in order to effect short sales or similar
transactions in the future and nothing shall prevent or limit the sale of any
Securities issued hereunder. Notwithstanding anything to the contrary contained
herein, the foregoing restrictions shall not apply to any Buyer that irrevocably
elects to forego the adjustment to increase the Maximum Eligibility Number
contemplated in the Series B Warrants.

(x) Exchange Notes and Exchange Warrants. On the Effective Date, the Initial
Notes and the Initial Warrants shall be mandatorily exchangeable and exchanged
for the Exchange Notes and the Exchange Warrants, respectively. On the Effective
Date, the Company shall issue and deliver the Exchange Notes and the Exchange
Warrants to the holders of the Initial Notes and Initial Warrants. Within three
(3) Trading Days following the delivery of the Exchange Notes and Exchange
Warrants to each such holder, such holder shall deliver to the Company the
Initial Notes and Initial Warrants held by such holder. Notwithstanding anything

 

- 29 -

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

to the contrary contained in this Section, each Buyer’s obligation to exchange
the Initial Notes and Initial Warrants for the Exchange Notes and the Exchange
Warrants shall be subject to the satisfaction, at or before the Effective Date,
of each of the following conditions, provided that these conditions are for each
Buyer’s sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof: (i) such
Buyer shall have received a legal opinion of Foley & Lardner LLP, the Company’s
outside counsel, dated as of the Effective Date, in substantially the form of
Exhibit E-1 attached hereto, (ii) no Event of Default (as defined in the Notes)
shall have occurred and no event shall have occurred that with the passage of
time and the failure to cure would result in an Event of Default and (iii) the
Company shall have executed and delivered to such Buyer the Reaffirmation
Agreement in substantially the form of Exhibit I attached hereto.

(y) Account. Upon deposit of the aggregate Purchase Price in the Account at
Closing, the Company, the Collateral Agent and the Buyers each covenant and
agree that, in accordance with the provisions of Section 4(j) hereof, the
Collateral Agent shall have sole authority and discretion to deliver
instructions to Account Bank with respect to distributions from the Account. The
Company, the Collateral Agent and the Buyers further agree that, so long as no
Event of Default (as defined in the Notes) shall have occurred and no event
shall have occurred that with the passage of time and the failure to cure would
result in an Event of Default, upon the Effective Date, the Collateral Agent
shall give instructions to the Account Bank to release to the Company all cash
in the Account other than cash in an amount equal to any unpaid fees or expenses
contemplated pursuant to Section 4(g) hereof, which may be withheld and paid to
Empery or its counsel in satisfaction of any such fees or expense obligations.
The Company hereby covenants and agrees to deliver to the Collateral Agent all
information reasonably requested by the Collateral Agent and/or to assist the
Collateral Agent in delivering instructions to the Account Bank with respect to
distributions from the Account or otherwise.

5. REGISTER; TRANSFER AGENT INSTRUCTIONS.

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

(b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at the DTC,
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares, the Interest Shares and the Warrant Shares issued at the
Closing or upon conversion of the Notes or exercise of the Warrants in such
amounts as specified in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Notes or exercise of the Warrants in
the form of Exhibit D attached hereto (the “Irrevocable Transfer Agent
Instructions”). The Company warrants that

 

- 30 -

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

no instruction other than the Irrevocable Transfer Agent Instructions referred
to in this Section 5(b), and stop transfer instructions to give effect to
Section 2(j) hereof, will be given by the Company to its transfer agent, and
that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
other Transaction Documents. If a Buyer effects a sale, assignment or transfer
of the Securities in accordance with Section 2(j), the Company shall permit the
transfer and shall promptly instruct its transfer agent to issue one or more
certificates or credit shares to the applicable balance accounts at DTC in such
name and in such denominations as specified by such Buyer to effect such sale,
transfer or assignment. In the event that Conversion Shares, the Interest Shares
or Warrant Shares were issued pursuant to Section 1145 of the Bankruptcy Code or
such sale, assignment or transfer involves Conversion Shares or Warrant Shares
sold, assigned or transferred pursuant to an effective registration statement or
pursuant to Rule 144, the transfer agent shall issue such Securities to the
Buyer (or any transferee or assignee thereof), as the case may be, without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Buyer. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5(b) will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 5(b), that
a Buyer shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required.

6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

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

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

(ii) Such Buyer shall have delivered to the Company the Purchase Price (less, in
the case of Empery, the amounts withheld pursuant to Section 4(g)) for the
Initial Notes and the Initial Warrants being purchased by such Buyer at the
Closing by wire transfer of immediately available funds to the Account.

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

 

- 31 -

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

 

7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

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

(i) The Company shall have duly executed and delivered to such Buyer (A) each of
the Transaction Documents, (B) the Initial Notes (allocated in such principal
amounts as such Buyer shall request), being purchased by such Buyer at the
Closing pursuant to this Agreement and (C) the related Initial Warrants
(allocated in such amounts as such Buyer shall request) being purchased by such
Buyer at the Closing pursuant to this Agreement.

(ii) Such Buyer and the Placement Agent shall have received the opinion of
Foley & Lardner LLP, the Company’s outside counsel, dated as of the Closing
Date, in substantially the form of Exhibit E-2 attached hereto.

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

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

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

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

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

(viii) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date which shall be true and correct as of such specified date) and the Company
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by the

 

- 32 -

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

Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in the form attached hereto as Exhibit G.

(ix) The Company shall have delivered to such Buyer a letter from the Company’s
transfer agent certifying the number of shares of Common Stock outstanding as of
a date within five days of the Closing Date.

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

(xi) The Company shall have obtained all governmental, regulatory or third party
consents and approvals, if any, necessary for the sale of the Securities.

(xii) The Company shall have delivered to each Buyer a lock-up agreement in the
form attached hereto as Exhibit H executed and delivered by each of Accentia
Biopharmaceuticals, Inc., Laurus Mutual Fund, Ltd, (In Liquidation) and its
affiliate, Kathleen M. O’Donnell Trustee of the Francis E. O’Donnell Irrevocable
Trust #1, Ronald E. Osman, Francis E. O’Donnell, Jr., Dennis Ryll and John
Sitillides (collectively, the “Lock-Up Agreements”).

(xiii) The Company shall have delivered to such Buyer a certified copy of the
Final Approval Order (as defined in the Initial Notes), which shall approve the
transactions contemplated by this Agreement and the other Transaction Documents
as well as the transactions contemplated hereby and thereby, including the
issuance of the Securities, and no stay of such order shall have been entered
or, if entered, shall remain in effect. The order shall contain a finding that
such Buyer is extending credit to the Company in good faith and a provision that
such Buyer is entitled to all of the protections afforded by Section 364 of the
Bankruptcy Code. In addition, such order shall contain a finding to the effect
that: (i) the Transaction Documents have been negotiated in good faith and at
arm’s-length between the Company and the Buyers, (ii) the terms of the Notes and
the Warrants to be issued pursuant to the Transaction Documents are fair,
reasonable, and reflect the Company’s exercise of sound and prudent business
judgment consistent with its fiduciary duties, and (iii) that any loans and/or
other financial accommodations made to the Company by the Buyers pursuant to the
Transaction Documents and such order shall (A) be deemed to have been extended
by the Buyers in good faith, as that term is used in Section 364 of the
Bankruptcy Code, and the Buyers shall be entitled to all of the protections
afforded thereby and (B) constitute reasonably equivalent value and fair
consideration for the Notes and Warrants under the Bankruptcy Code and
applicable non-bankruptcy law.

 

- 33 -

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

 

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

8. TERMINATION. In the event that the Closing shall not have occurred with
respect to a Buyer on or before ten (10) Business Days from the date hereof due
to the Company’s or such Buyer’s failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party’s failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated pursuant to this
Section 8, the Company shall remain obligated to reimburse the non-breaching
Buyers for the expenses described in Section 4(g) above.

9. MISCELLANEOUS.

(a) Governing Law; Jurisdiction; Jury Trial. On or prior to the Effective Date,
all questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of Florida, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Florida or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Florida. From and after the Effective Date, all questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New York. Each party
hereby irrevocably submits to the exclusive jurisdiction of the Bankruptcy Court
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein arising on or prior to
the Effective Date, 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, in each case for the period prior to the Effective Date.
Each party hereby irrevocably submits to the exclusive jurisdiction of the state
and federal courts sitting in The City of New York, Borough of Manhattan, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein arising from and after the
Effective Date, 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, in each case for the period following the Effective Date. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

 

- 34 -

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

 

(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.

(c) Headings. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.

(d) Severability. If any provision of this Agreement 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
Agreement so long as this Agreement 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).

(e) Entire Agreement; Amendments. This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Buyers, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters. No provision of this Agreement may
be amended or waived other than by an instrument in writing signed by the
Company and holders of at least two-thirds of the Initial Notes purchased on the
Closing Date, and any amendment to this Agreement made in accordance with this
Section 9(e) shall be binding on all Buyers and holders of Securities, as
applicable. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of this Agreement unless
the same consideration also is offered to all of the parties to this Agreement.
The Company has not, directly or indirectly, made any agreements with any Buyers
relating to the terms or conditions of the transactions contemplated by the
Transaction Documents except as set forth in the Transaction Documents. Without
limiting the foregoing, the Company confirms that, except as set forth in this
Agreement, no Buyer has made any commitment or promise or has any other
obligation to provide any financing to the Company or otherwise.

 

- 35 -

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

 

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

If to the Company:

Biovest International, Inc.

324 S. Hyde Park Ave., Suite 350

Tampa, Florida 33606

Telephone:      (813) 864-2558

Facsimile:        (813) 258-6912

Attention:        President

With a copy to:

Foley & Lardner LLP

100 N. Tampa Street, Suite 2700

Tampa, Florida 33602

Telephone:      (813) 229-2300

Facsimile:        (813) 221-4210

Attention:        Curt P. Creely

With a copy to:

Stichter Riedel Blain & Prosser P.A.

110 E. Madison Street, Suite 200

Tampa, Florida 33602

Telephone:      (813) 229-0144

Facsimile:        (813) 229-1811

Attention:        Charles A. Postler

If to the Transfer Agent:

StockTrans, Inc.

44 West Lancaster Ave.

Ardmore, PA 19003

Telephone:      (610) 649-7300

Facsimile:        (610) 649-7302

Attention:        Operations

 

- 36 -

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

 

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

with a copy (for informational purposes only) to:

Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York 10022

Telephone:      (212) 756-2000

Facsimile:        (212) 593-5955

Attention:        Eleazer N. Klein, Esq.

E-mail:            eleazer.klein@srz.com

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

(g) Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes or the Warrants. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the holders of at least two-thirds of the aggregate principal
amount of Initial Notes issued and issuable hereunder, including by way of a
Fundamental Transaction (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants). A Buyer may assign some or all of its rights hereunder without the
consent of the Company, in which event such assignee shall be deemed to be a
Buyer hereunder with respect to such assigned rights.

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

(i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5
and 9 shall survive the Closing. Each Buyer shall be responsible only for its
own representations, warranties, agreements and covenants hereunder.

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

 

- 37 -

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

 

(k) Indemnification. (i) In consideration of each Buyer’s execution and delivery
of the Transaction Documents and acquiring the Securities thereunder and in
addition to all of the Company’s other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and all of their stockholders, partners, members, officers, directors,
employees and direct or indirect investors and any of the foregoing Persons’
agents or other representatives (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the “Indemnitees”) from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the
“Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action, suit or claim brought
or made against such Indemnitee by a third party (including for these purposes a
derivative action brought on behalf of the Company) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities, or (iii) any disclosure made by such Buyer pursuant to
Section 4(i) or (iv) the status of such Buyer as an investor in the Company
pursuant to the transactions contemplated by the Transaction Documents. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Notwithstanding the foregoing, the Company will not be liable to
any Buyer or related Indemnitee under this Agreement to the extent, but only to
the extent, of any Indemnified Liability that is finally judicially determined
to have been caused by (i) a breach by such Buyer of any of the representations,
warranties, covenants or agreements made by such Buyer in this Agreement or
(ii) the gross negligence or willful misconduct of such Buyer.

(ii) Promptly after receipt by an Indemnitee under this Section 9(k) of notice
of the commencement of any action or proceeding (including any governmental
action or proceeding) involving an Indemnified Liability, such Indemnitee shall,
if a claim for indemnification in respect thereof is to be made against any
indemnifying party under this Section 9(k), deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnitee; provided, however, that an Indemnitee
shall have the right to retain its own counsel with the fees and expenses of not
more than one counsel for such Indemnitee to be paid by the indemnifying party,
if, in the reasonable opinion of the Indemnitee, the representation by such
counsel of the Indemnitee and the indemnifying party would be inappropriate due
to actual or potential differing interests between such Indemnitee and any other
party represented by such counsel in such proceeding. Legal counsel referred to
in the

 

- 38 -

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

immediately preceding sentence shall be selected by the Buyers holding at least
a two-thirds of the aggregate principal amount of Initial Notes issued and
issuable hereunder. The Indemnitee shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or
Indemnified Liabilities by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnitee that
relates to such action or Indemnified Liabilities. The indemnifying party shall
keep the Indemnitee fully apprised at all times as to the status of the defense
or any settlement negotiations with respect thereto. No indemnifying party shall
be liable for any settlement of any action, claim or proceeding effected without
its prior written consent, provided, however, that the indemnifying party shall
not unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnitee, which consent shall
not be unreasonably withheld conditioned or delayed, consent to entry of any
judgment or enter into any settlement or other compromise which (i) does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnitee of a release from all liability in respect to such
Indemnified Liabilities or litigation, (ii) requires any admission of wrongdoing
by such Indemnitee, or (iii) obligates or requires an Indemnitee to take, or
refrain from taking, any action. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnitee with respect to all third parties, firms or corporations relating to
the matter for which indemnification has been made. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnitee under this Section 9(k), except to the extent that
the indemnifying party is prejudiced in its ability to defend such action.

(iii) The indemnification required by this Section 9(k) shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Liabilities are
incurred.

(iv) The indemnity agreements contained herein shall be in addition to (x) any
cause of action or similar right of the Indemnitee against the indemnifying
party or others, and (y) any liabilities the indemnifying party may be subject
to pursuant to applicable law.

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

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

 

- 39 -

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

 

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

(o) Payment Set Aside. To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.

(p) Independent Nature of Buyers’ Obligations and Rights. The obligations of
each Buyer under any Transaction Document are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way for
the performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as, and the Company acknowledges that the Buyers do not so
constitute, a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Buyers are in any way acting in concert
or as a group, and the Company shall not assert any such claim with respect to
such obligations or the transactions contemplated by the Transaction Documents
and the Company acknowledges that the Buyers are not acting in concert or as a
group with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges and each Buyer confirms that it
has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be
joined as an additional party in any proceeding for such purpose.

(q) Currency. Unless otherwise indicated, all dollar amounts referred to in this
Agreement are in United States Dollars. All amounts owing under this Agreement
or any Transaction Document shall be paid in US dollars. All amounts denominated
in other currencies shall be converted in the US dollar equivalent amount in
accordance with the Exchange Rate on the date of calculation. “Exchange Rate”
means, in relation to any amount of currency to be converted into US dollars
pursuant to this Agreement, the US dollar exchange rate as published in The Wall
Street Journal on the relevant date of calculation.

[Signature Page Follows]

 

- 40 -

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

 

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

 

COMPANY: BIOVEST INTERNATIONAL, INC.

By:

 

 

 

Name:

 

Title:

[Signature Page to Securities Purchase Agreement]

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

 

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

 

BUYERS: [BUYER]

By:

 

 

 

Name:

 

Title:

[Signature Page to Securities Purchase Agreement]

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

 

EXHIBITS

 

Exhibit A-1

   Form of Initial Notes

Exhibit A-2

   Form of Exchange Notes

Exhibit B-1

   Form of Initial Warrants

Exhibit B-2

   Form of Exchange Warrants

Exhibit C-1

   Form of Security Agreement

Exhibit C-2

   Form of Account Control Agreement

Exhibit D

   Form of Irrevocable Transfer Agent Instructions

Exhibit E-1

   Form of Opinion of Company Counsel - Effective Date

Exhibit E-2

   Form of Opinion of Company Counsel - Closing

Exhibit F

   Form of Secretary’s Certificate

Exhibit G

   Form of Officer’s Certificate

Exhibit H

   Form of Lock-Up Agreement

Exhibit I

   Form of Reaffirmation Agreement

SCHEDULES

 

Schedule 3(a)

   Subsidiaries

Schedule 3(k)

   SEC Documents

Schedule 3(l)

   Absence of Certain Changes

Schedule 3(n)

   Regulatory Permits

Schedule 3(p)

   Transactions with Affiliates

Schedule 3(r)

   Equity Capitalization

Schedule 3(r)(ii)

   Pro Forma Equity Capitalization

Schedule 3(s)(i)

   Indebtedness and Other Contracts

Schedule 3(s)(ii)

   Pro Forma Indebtedness

Schedule 3(t)

   Absence of Litigation

Schedule 3(v)

   Employee Relations

Schedule 3(x)

   Intellectual Property Rights

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

Schedules (Omitted)

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

 

Exhibit A-1

[FORM OF DEBTOR IN POSSESSION SECURED CONVERTIBLE NOTE]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS NOTE NOR THE
SECURITIES INTO WHICH THIS NOTE IS 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, 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)(iv) AND 17(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)(iv) OF THIS NOTE.

BIOVEST INTERNATIONAL, INC.

DEBTOR IN POSSESSION SECURED CONVERTIBLE NOTE

 

Issuance Date: [                ], 2010   Original Principal Amount: U.S.
$[                ]

FOR VALUE RECEIVED, Biovest International, Inc., a Delaware corporation (the
“Company”), and debtor in possession, hereby promises to pay to [BUYER] or
registered assigns (the “Holder”) the amount set out above as the Original
Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, the “Principal”) when due, whether upon the
Maturity Date (as defined below), acceleration, redemption, conversion or
otherwise (in each case in accordance with the terms hereof) and to pay interest
(“Interest”) on any outstanding Principal at the Interest Rate from the date
identified above as the Issuance Date (the “Issuance Date”) until the same
becomes due and payable, whether upon an Interest Date (as defined below), the
Maturity Date, acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof). This Debtor in Possession Secured
Convertible Note (including all Debtor in Possession Secured Convertible Notes
issued in exchange, transfer or replacement hereof, this “Note”) is one of an
issue of Debtor in Possession Secured Convertible Notes (collectively, the
“Notes” and such other Debtor in Possession Secured Convertible Notes, the
“Other Notes”) issued on the Closing Date pursuant to the Securities Purchase
Agreement (as defined below). Certain capitalized terms used herein are defined
in Section 30.

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

 

(1) PAYMENTS OF PRINCIPAL. On the Maturity Date, the Company shall pay to the
Holder an amount in cash representing all outstanding Principal and accrued and
unpaid Interest. The “Maturity Date” shall be December 15, 2010, 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 and accrued and unpaid Interest.

(2) INTEREST; INTEREST RATE. (a) Interest on this Note shall commence accruing
on the Issuance Date and shall be computed on the basis of a 360-day year and
twelve 30-day months and shall be payable in arrears on the first calendar day
of each succeeding month after the Issuance Date (each, an “Interest Date”) with
the first Interest Date being December 1, 2010. Interest shall be payable on
each Interest Date, to the record holder of this Note on the applicable Interest
Date, in shares of Common Stock (“Interest Shares”) so long as there has been no
Equity Conditions Failure; provided however, that the Company may, at its option
following notice to the Holder, pay Interest on any Interest Date in cash (“Cash
Interest”) or in a combination of Cash Interest and Interest Shares. The Company
shall deliver a written notice to each holder of the Notes on or prior to the
twenty-fifth (25th) Trading Day prior to the applicable Interest Date (the date
such notice is delivered to all of the holders of Notes, the “Interest Notice
Date”) which notice (i) either (A) confirms that Interest to be paid on such
Interest Date shall be paid entirely in Interest Shares or (B) elects to pay
Interest as Cash Interest or a combination of Cash Interest and Interest Shares
and specifies the amount of Interest that shall be paid as Cash Interest and the
amount of Interest, if any, that shall be paid in Interest Shares and
(ii) certifies that the Equity Conditions are satisfied as of such Interest
Notice Date; provided that the Company must simultaneously take the same action
in the same proportion with respect to the Other Notes. If the Equity Conditions
are not satisfied as of the Interest Notice Date, then unless the Company has
elected to pay such Interest as Cash Interest, the Interest Notice shall
indicate that unless the Holder waives the Equity Conditions, the Interest shall
be paid as Cash Interest. If the Equity Conditions were satisfied as of the
Interest Notice Date but the Equity Conditions are no longer satisfied at any
time prior to the Interest Date, the Company shall provide the Holder a
subsequent notice to that effect indicating that unless the Holder waives the
Equity Conditions, the Interest shall be paid as Cash Interest. Interest to be
paid on an Interest Date in Interest Shares shall be paid in a number of fully
paid and nonassessable shares (rounded up to the nearest whole share in
accordance with Section 3(a)) of Common Stock equal to the quotient of (1) the
amount of Interest payable on such Interest Date less any Cash Interest paid on
such Interest Date and (2) the Interest Conversion Price in effect on the
applicable Interest Date.

(b) When any Interest Shares are to be paid on an Interest Date, the Company
shall (i) (A) provided that the Company’s transfer agent (the “Transfer Agent”)
is participating in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, credit such aggregate number of Interest Shares to
which the Holder shall be entitled to the Holder’s or its designee’s balance
account with DTC through its Deposit Withdrawal Agent

 

- 2 -

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

Commission system, or (B) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and deliver on the applicable
Interest Date, to the address set forth in the register maintained by the
Company for such purpose pursuant to the Securities Purchase Agreement or to
such address as specified by the Holder in writing to the Company at least two
(2) Business Days prior to the applicable Interest Date, a certificate,
registered in the name of the Holder or its designee, for the number of Interest
Shares to which the Holder shall be entitled and (ii) with respect to each
Interest Date, pay to the Holder, in cash by wire transfer of immediately
available funds, the amount of any Cash Interest.

(c) From and after the occurrence and during the continuance of an Event of
Default, the Interest Rate shall be increased to fifteen percent (15.0%) per
annum. In the event that such Event of Default is subsequently cured, the
adjustment referred to in the preceding sentence shall cease to be effective as
of the date of such cure; provided that the Interest as calculated and unpaid at
such increased rate during the continuance of such Event of Default shall
continue to apply to the extent relating to the days after the occurrence of
such Event of Default through and including the date of cure of such Event of
Default. The Company shall pay any and all transfer, stamp, and similar taxes
that may be payable with respect to the issuance and delivery of Interest
Shares.

(3) CONVERSION OF NOTES. This Note shall be convertible into shares of the
Company’s common stock, par value $0.01 per share (the “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 date hereof, the Holder shall be entitled to convert any
portion of the outstanding and unpaid Conversion Amount (as defined below) into
fully paid and nonassessable shares of Common Stock in accordance with
Section 3(c), at the Conversion Rate (as defined below). The Company shall not
issue any fraction of a share of Common Stock upon any conversion. If the
issuance would result in the issuance of a fraction of a share of Common Stock,
the Company shall round such fraction of a share of Common Stock up to the
nearest whole share. The Company shall pay any and all transfer, stamp and
similar taxes that may be payable with respect to the issuance and delivery of
Common Stock upon conversion of any Conversion Amount.

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

(i) “Conversion Amount” means the sum of (A) the portion of the Principal to be
converted, redeemed or otherwise with respect to which this determination is
being made, and (B) accrued and unpaid Interest with respect to such Principal.

(ii) “Conversion Price” means, as of any Conversion Date (as defined below) or
other date of determination, $0.91, subject to adjustment as provided herein.

 

- 3 -

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

 

(c) Mechanics of Conversion.

(i) Optional Conversion. To convert any Conversion Amount into shares of Common
Stock on any date (a “Conversion Date”), the Holder shall (A) transmit by
facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New
York time, on such date, a copy of an executed notice of conversion in the form
attached hereto as Exhibit I (the “Conversion Notice”) to the Company and the
Transfer Agent and (B) if required by Section 3(c)(iv), 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). On or before the first
(1st) Business Day following the date of receipt of a Conversion Notice, the
Company shall transmit by facsimile a confirmation of receipt of such Conversion
Notice to the Holder and the Transfer Agent. On or before the third
(3rd) Trading Day following the date of receipt of a Conversion Notice (the
“Share Delivery Date”), the Company shall (x) provided that the Transfer Agent
is participating in the DTC Fast Automated Securities Transfer Program, credit
such aggregate number of shares of Common Stock to which the Holder shall be
entitled to the Holder’s or its designee’s balance account with DTC through its
Deposit Withdrawal Agent Commission system or (y) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issue and
deliver 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)(iv) 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 five (5) Business Days after receipt of
this Note and at its own expense, issue and deliver to the holder a new Note (in
accordance with Section 17(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.

(ii) Make-Whole Amount Upon Conversion. In addition to the foregoing, on each
Share Delivery Date, any applicable Make-Whole Amount on such Conversion Amount
(the “Make-Whole Conversion Amount”) shall be paid to the Holder in shares of
Common Stock (“Make-Whole Shares”) so long as there has been no Equity
Conditions Failure; provided however, that the Company may, at its option
following notice to the Holder, pay such Make-Whole Conversion Amount in cash
(“Make-Whole Cash”) or in a combination of Make-Whole Shares and Make-Whole
Cash. In the event that the Company desires to elect to pay any portion of its
Make-Whole Conversion Amount as a Make-Whole Cash, then the Company shall
deliver a written notice (“Make-Whole Notice”) to the Holder no later than one
(1) Trading Day following the receipt of the Conversion Notice by the Company
(the “Make-Whole Notice Date”), which notice elects to pay the Make-Whole
Conversion Amount in the form of a Make-Whole Cash or a combination of a
Make-Whole Cash and Make-Whole Shares and specifies the amount of the Make-Whole
Conversion Amount that shall be paid as a Make-Whole Cash and the amount of
Make-Whole Conversion Amount, if any, that shall be paid in Make-Whole Shares.
If the Equity Conditions are not satisfied as of the

 

- 4 -

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

Conversion Date, then unless the Company has elected to pay such Make-Whole
Conversion Amount as a Make-Whole Cash, the Make-Whole Notice shall indicate
that unless the Holder waives the Equity Conditions, the Make-Whole Conversion
Amount shall be paid in the form of a Make-Whole Cash. If the Equity Conditions
were satisfied as of the Conversion Date but the Equity Conditions are no longer
satisfied at any time prior to the Share Delivery Date, the Company shall
provide the Holder a subsequent notice to that effect indicating that unless the
Holder waives the Equity Conditions, the Make-Whole Conversion Amount shall be
paid in the form of a Make-Whole Cash. The Make-Whole Conversion Amount to be
paid on such Share Delivery Date in Make-Whole Shares shall be paid in a number
of fully paid and nonassessable shares of Common Stock (rounded to the nearest
whole share in accordance with Section 3(a)) equal to the quotient of (1) the
Make-Whole Conversion Amount payable on the applicable Conversion Date less any
Make-Whole Cash paid and (2) the Interest Conversion Price in effect on the
applicable Conversion Date. Delivery of the Make-Whole Shares shall be made in
the manner set forth in Section 2(b)(i) of this Note replacing the terms
“Interest Shares” with “Make-Whole Shares” and “Interest Date” with “Share
Delivery Date.”

(iii) Company’s Failure to Timely Convert. If the Company shall fail to issue a
certificate to the Holder or credit the Holder’s balance account with DTC, as
applicable, for the number of shares of Common Stock to which the Holder is
entitled upon conversion of any Conversion Amount on or prior to the date which
is three (3) Trading Days after the Conversion Date (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) the Closing
Sale Price of the Common Stock on the 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)(iii) or otherwise. In addition to the foregoing, if within
three (3) Trading Days after the Company’s receipt of the facsimile copy of a
Conversion Notice, the Company shall fail to issue and deliver a certificate to
the Holder or credit the Holder’s balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon such holder’s
conversion of any Conversion Amount, 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 five (5) Trading Days after the
Holder’s request and in the Holder’s discretion, either (i) pay cash to the
Holder in an amount equal to the Holder’s total purchase price (including
brokerage commissions and other out-of-pocket expenses, if any) for the shares
of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s
obligation to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such 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) the Closing Bid
Price on the Conversion Date.

 

- 5 -

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

 

(iv) 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 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 a 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)(iv), a Holder may assign any Note or any portion thereof to
an Affiliate of such Holder or a Related Fund of such 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 such 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 physical
surrender and reissue of this Note. The Holder and the Company shall maintain
records showing the Principal and Interest 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.

(v) Pro Rata Conversion; Disputes. In the event that the Company receives a
Conversion Notice from more than one holder of Notes for the same Conversion
Date and the Company can convert some, but not all, of such portions of the
Notes submitted for conversion, the Company, subject to Section 3(d), shall
convert from each holder of Notes electing to have Notes converted on such date
a pro rata amount of such holder’s portion of its Notes submitted for conversion
based on the principal amount of Notes submitted for conversion on such date by
such holder relative to the aggregate

 

- 6 -

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

principal amount of all Notes submitted for conversion on such date. In the
event of a dispute as to the number of shares of Common Stock issuable to the
Holder in connection with a conversion of this Note, the Company shall issue to
the Holder the number of shares of Common Stock not in dispute and resolve such
dispute in accordance with Section 22.

(d) Limitations on Conversions; Beneficial Ownership. The Company shall not
effect any conversion of this Note, and the Holder of this Note shall not have
the right to convert any portion of this Note pursuant to Section 3(a), to the
extent that after giving effect to such conversion, the Holder (together with
the Holder’s Affiliates) would beneficially own in excess of 4.99% (the “Maximum
Percentage”) of the number of shares of Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and its
Affiliates shall include 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 the number of shares of Common Stock which
would be issuable upon (A) conversion of the remaining, nonconverted portion of
this Note beneficially owned by the Holder or any of its Affiliates and
(B) exercise or conversion of the unexercised or nonconverted portion of any
other securities of the Company (including, without limitation, any Other Notes
or warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
Affiliates. Except as set forth in the preceding sentence, for purposes of this
Section 3(d), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). For purposes of this Section 3(d), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company’s most recent
Form 10-K, Form 10-Q or Form 8-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding.
For any reason at any time, upon the written or oral request of the Holder, the
Company shall within one (1) Business Day confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. 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 or its Affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. By written notice to
the Company, the Holder may increase or decrease the Maximum Percentage to any
other percentage not in excess of 9.99% specified in such notice; provided that
(i) any such increase will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company, and (ii) any such increase or
decrease will apply only to the Holder and not to any other holder of Notes. 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
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended beneficial ownership limitation herein contained
or to make changes or supplements necessary or desirable to properly give effect
to such limitation.

 

- 7 -

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

 

(4) RIGHTS UPON EVENT OF DEFAULT.

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

(i) the Company’s failure to pay to the Holder any amount of Principal
(including, without limitation, any redemption payments), Interest or other
amounts when and as due under this Note or any other Transaction Document (as
defined in the Securities Purchase Agreement) or any other agreement, document,
certificate or other instrument delivered in connection with the transactions
contemplated hereby and thereby to which the Holder is a party, except (x) the
failure to pay Interest when and as due shall be an Event of Default only if
such failure continues for a period of at least five (5) Business Days, and
(y) the failure to pay any amount other than Principal and Interest when and as
due shall be an Event of Default only if such failure continues for a period of
at least five (5) Business Days after the Company knew or should reasonably have
known after due inquiry of the obligation to pay any such amount;

(ii) any default under or acceleration prior to maturity of any Indebtedness of
the Company in excess of $250,000, other than with respect to any Other Notes or
any redemption of such Indebtedness prior to its maturity with respect to any
default;

(iii) a final judgment or judgments for the payment of money aggregating in
excess of $250,000 are rendered against the Company 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 creditworthy 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; provided that no payments made on account of
allowed claims pursuant to the terms of the Company’s Plan of Reorganization and
confirmation order entered by the Bankruptcy Court relating to the Company’s
Chapter 11 Case shall constitute an Event of Default;

(iv) the Company breaches any representation, warranty, covenant or other term
or condition of any Transaction Document, except, in the case of a breach of a
covenant which is curable, only if such breach continues for a period of at
least ten (10) consecutive Business Days;

(v) any breach or failure in any respect to comply with Section 14 of this Note;

(vi) the aggregate number of shares of Common Stock, on the date of the
effectiveness of the Company’s Plan of Reorganization with respect to the
Company’s Chapter 11 Case (“Chapter 11 Effectiveness”) after giving effect to
the Chapter 11 Effectiveness, (A) issued or issuable shall, excluding the shares
of Common Stock issued or issuable pursuant to the conversion or exercise of the
Notes and Warrants, respectively, exceed 44,000,000 shares of Common Stock or
(B) issued or issuable that are both (1) not subject to Lock-Up Agreements (as
defined in the Securities Purchase

 

- 8 -

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

Agreement) and (2) issuable within ninety (90) days of the Chapter 11
Effectiveness, shall, excluding the shares of Common Stock issued or issuable
pursuant to the conversion or exercise of the Notes and Warrants, respectively,
exceed 2,600,000 shares of Common Stock;

(vii) the aggregate amount of Indebtedness of the Company outstanding on the
date of Chapter 11 Effectiveness after giving effect to the Chapter 11
Effectiveness (other than the Notes) shall exceed the amount of Indebtedness set
forth on the chart located at the end of Schedule 3(s)(ii) of the Securities
Purchase Agreement;

(viii) the occurrence of any of the following in the Company’s Chapter 11 Case
prior to the Effective Date:

(1) an interim order approving the issuance of the Notes and Warrants pursuant
to the terms of the Transaction Documents (the “Approval Order”) has not been
entered on the docket for the Company’s Chapter 11 Case by October 13, 2010; and
a final order approving the issuance of the Notes and Warrants pursuant to the
Transaction Documents (the “Final Approval Order”) has not been entered on the
docket for the Company’s Chapter 11 Case by October 29, 2010; and such Final
Approval Order shall not have become final and non-appealable by November 12,
2010;

(2) the bringing of a motion or taking of any other action by the Company to
obtain additional financing under Section 364(c) or (d) of the Bankruptcy Code
not otherwise permitted pursuant to the Transaction Documents; provided,
however, that the Company may continue to obtain financing from Corps Real LLC
consistent with orders already entered by the Bankruptcy Court in the Chapter 11
Case;

(3) the prosecution of any plan of reorganization or any direct or indirect
amendment to such plan by the Company that does not provide for the issuance of
the Common Stock to be delivered upon conversion of the Notes and exercise of
the Warrants;

(4) the entry of an order staying, reversing or vacating any of the Transaction
Documents or the Approval Order, without the written consent of the Required
Holders;

(5) the entry of an order amending, supplementing, or modifying any of the
Transaction Documents or the Approval Order, without the written consent of the
Required Holders or the filing of a motion for reconsideration by the Company
with respect to the Approval Order;

(6) the statutory committee of unsecured creditors of the Company or any other
party or entity shall prevail on a motion, pleading, complaint or action against
any holder of Notes or otherwise prevail on an objection to any such holder’s
claims or prevail on any similar pleading which seeks to affect any such
holder’s claims;

 

- 9 -

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

 

(7) the appointment of an interim or permanent trustee in the Company’s Chapter
11 Case or the appointment of a receiver or an examiner with expanded powers
beyond those set forth under Sections 1106(a)(3) and (4) of the Bankruptcy Code
to operate or manage the financial affairs, the business, or reorganization of
the Company;

(8) the dismissal of the Company’s Chapter 11 Case, or the conversion of such
case from one under Chapter 11 to one under Chapter 7 of the Bankruptcy Code, or
the Company shall file a motion or other pleading seeking such conversion or
dismissal of its Chapter 11 Case under Section 1112 of the Bankruptcy Code or
otherwise;

(9) the entry of an order in the Company’s Chapter 11 Case avoiding or requiring
repayment of any portion of the payments made on account of the Principal and
Interest owing under the Notes;

(10) the failure of the Company to perform any of its obligations under the
Approval Order;

(11) the entry of an order in the Company’s Chapter 11 Case granting any other
superpriority administrative claim equal or superior to that granted to the
Holders of Notes with respect to the Collateral, without the written consent of
the Required Holders;

(12) the failure of the confirmation order approving the Company’s Plan of
Reorganization to be in form and substance reasonably satisfactory to the
Required Holders, including, without limitation, providing for the issuance of
Common Stock upon conversion of the Notes and exercise of the Warrants as being
freely transferable and eligible for sale without any restriction or limitation
and without the need for registration under any applicable federal or state
securities laws, pursuant to Section 1145 of the Bankruptcy Code or otherwise;
or

(13) the Bankruptcy Court order confirming the Company’s Plan of Reorganization
shall not have become a final order on or before November 15, 2010; provided
such date shall be extended to the extent the delay is due to extensions granted
or caused by the Bankruptcy Court (other than extensions requested by the
Company); provided, further, that the parties may agree in writing to extend the
November 15, 2010 deadline, or

(ix) any material provision of any Security Document (as defined in the
Securities Purchase Agreement) shall at any time for any reason (other than
pursuant to the express terms thereof) cease to be valid and binding on or
enforceable against the Company, or the validity or enforceability thereof shall
be contested by any party thereto, or a proceeding shall be commenced by the
Company or any governmental authority having jurisdiction over any of them,
seeking to establish the invalidity or unenforceability thereof, or the Company
shall deny in writing that it has any liability or obligation purported to be
created under any Security Document;

 

- 10 -

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

 

(x) any Security Document, after delivery thereof pursuant hereto, shall for any
reason fail or cease to create a valid and perfected and, except to the extent
permitted by the terms hereof or thereof, first priority Lien in favor of the
Collateral Agent (as defined in the Securities Purchase Agreement) for the
benefit of the holders of the Notes on any Collateral; or

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

(b) Redemption Right. Upon the occurrence of an Event of Default with respect to
this Note or any Other Note, the Company shall within one (1) Business Day
deliver written notice thereof via facsimile and overnight courier (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 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
at a price equal to 110% of the sum of (i) any Make-Whole Amount and (ii) the
greater of (x) the Conversion Amount to be redeemed and (y) the product of
(A) the Conversion Rate in effect at such time as the Holder delivers an Event
of Default Redemption Notice with respect to such Conversion Amount being
redeemed and (B) the greatest Weighted Average Price of the Common Stock on any
Trading Day during the period commencing on the date immediately preceding such
Event of Default and ending on the date the Holder delivers the Event of Default
Redemption Notice (the “Event of Default Redemption Price”). Redemptions
required by this Section 4(b) shall be made in accordance with the provisions of
Section 12. 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.
The parties hereto agree that in the event of the Company’s redemption of any
portion of the Note under this Section 4(b), the Holder’s damages would be
uncertain and difficult to estimate because of the parties’ inability to predict
future interest rates and the uncertainty of the availability of a suitable
substitute investment opportunity for the Holder. Accordingly, any Event of
Default redemption premium due under this Section 4(b) is intended by the
parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual
loss of its investment opportunity and not as a penalty.

(5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

(a) Assumption. The Company shall not enter into or be party to a Fundamental
Transaction unless (i) the Successor Entity assumes in writing all of the
obligations of the Company under this Note and the other Transaction Documents
in accordance with the provisions of this Section 5(a) pursuant to written
agreements in form and substance reasonably satisfactory to the Required Holders
and approved by the Required Holders prior to such

 

- 11 -

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

Fundamental Transaction, including agreements to deliver to each holder of Notes
in exchange for such Notes a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to the Notes,
including, without limitation, having a principal amount and interest rate equal
to the principal amounts and the interest rates of the Notes then outstanding
held by such holder, having similar conversion rights and having similar ranking
and security to the Notes, and satisfactory to the Required Holders and (ii) the
Successor Entity (including its Parent Entity) is a publicly traded corporation
whose common stock is quoted on or listed for trading on an Eligible Market.
Upon the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Note referring to the “Company”
shall refer instead to the Successor Entity), and may exercise every right and
power of the Company and shall assume all of the obligations of the Company
under this Note with the same effect as if such Successor Entity had been named
as the Company herein. Upon consummation of the Fundamental Transaction, the
Successor Entity shall deliver to the Holder confirmation that there shall be
issued upon conversion or redemption of this Note at any time after the
consummation of the Fundamental Transaction, in lieu of the shares of the
Company’s Common Stock (or other securities, cash, assets or other property)
issuable upon the conversion or redemption of the Notes prior to such
Fundamental Transaction, such shares of the publicly traded common stock (or
their equivalent) of the Successor Entity (including its Parent Entity), as
adjusted in accordance with the provisions of this Note. The provisions of this
Section shall apply similarly and equally to successive Fundamental Transactions
and shall be applied without regard to any limitations on the conversion or
redemption of this Note.

(b) Redemption Right. No sooner than fifteen (15) days nor later than ten
(10) days prior to the consummation of a Change of Control, but not prior to the
public announcement of such Change of Control, the Company shall deliver written
notice thereof via facsimile and overnight courier to the Holder (a “Change of
Control Notice”). At any time during the period beginning after the Holder’s
receipt of a Change of Control Notice and ending twenty (20) 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”, and the date thereof, the “Change of Control Redemption Notice Date”)
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 at a price equal to 110% of the sum of
(i) any Make-Whole Amount and (ii) the greater of (x) the Conversion Amount to
be redeemed and (y) the product of (A) the Conversion Rate in effect at such
time as the Holder delivers a Change of Control Redemption Notice with respect
to such Conversion Amount being redeemed and (B) the greatest Weighted Average
Price of the Common Stock during the period beginning on the date immediately
preceding the earlier to occur of (1) the consummation of the Change of Control
and (2) the public announcement of such Change of Control and ending on the date
the Holder delivers the Change of Control Redemption Notice (the “Change of
Control Redemption Price”). Redemptions required by this Section 5 shall be made
in accordance with the provisions of Section 12 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,

 

- 12 -

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

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. The parties hereto agree that in the event of the
Company’s redemption of any portion of the Note under this Section 5(b), the
Holder’s damages would be uncertain and difficult to estimate because of the
parties’ inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any Change of Control redemption premium due under this
Section 5(b) is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder’s actual loss of its investment opportunity and not as a
penalty.

(6) DISTRIBUTION OF ASSETS; RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER
CORPORATE EVENTS.

(a) Distribution of Assets. If the Company shall declare or make any dividend or
other distributions of its assets (or rights to acquire its assets) to any or
all holders of shares of Common Stock, by way of return of capital or otherwise
(including without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (the “Distributions”), the Company shall make appropriate
provision to insure that upon a conversion of this Note, the Holder will
thereafter have the right to receive in addition to the shares of Common Stock
receivable upon such conversion, such Distributions to which the Holder would
have been entitled with respect to such shares of Common Stock had such shares
of Common Stock been held by the Holder 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 (without taking into account any limitations or restrictions on
the convertibility of this Note).

(b) Purchase Rights. 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.

(c) Other Corporate Events. In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a “Corporate Event”), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon a
conversion of this Note, (i) in addition to the shares of Common Stock
receivable upon such conversion, such securities or other assets to which the
Holder would have been entitled with respect to such shares of Common Stock had
such shares of Common Stock been held by the

 

- 13 -

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

Holder upon the consummation of such Corporate Event (without taking into
account any limitations or restrictions on the convertibility of this Note) or
(ii) in lieu of the shares of Common Stock otherwise receivable upon such
conversion, such securities or other assets received by the holders of shares of
Common Stock in connection with the consummation of such Corporate Event in such
amounts as the Holder would have been entitled to receive had this Note
initially been issued with conversion rights for the form of such consideration
(as opposed to shares of Common Stock) at a conversion rate for such
consideration commensurate with the Conversion Rate. Provision made pursuant to
the preceding sentence shall be in a form and substance satisfactory to the
Required Holders. The provisions of this Section shall apply similarly and
equally to successive Corporate Events and shall be applied without regard to
any limitations on the conversion or redemption of this Note.

(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

(a) Adjustment of Conversion Price upon Issuance of Common Stock. If and
whenever on or after the Subscription Date, the Company issues or sells, or in
accordance with this Section 7(a) is deemed to have issued or sold, any shares
of Common Stock (excluding Excluded Securities and 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 (the foregoing a
“Dilutive Issuance”), then immediately after such Dilutive Issuance the
Conversion Price then in effect shall be reduced concurrently with such Dilutive
Issuance to (A) in the event that the Dilutive Issuance is completed at a time
during which at least one-third of the Original Principal Amount of the Notes
remains outstanding (the “Ratchet Period”), to the New Issuance Price, and
(B) in the event that the Dilutive Issuance is completed at a time that less
than one-third of the Original Principal Amount of the Notes remain outstanding,
an amount determined by multiplying the Conversion Price then in effect by a
fraction, (x) the numerator of which shall be the sum of (1) the number of
shares of Common Stock Deemed Outstanding immediately prior to such Dilutive
Issuance plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Company for such additional shares in the Dilutive
Issuance would purchase at the Conversion Price then in effect; and (y) the
denominator of which shall be the number of shares of Common Stock Deemed
Outstanding immediately after such Dilutive Issuance but before giving effect to
anti-dilution rights contained in other securities of the Company that would be
triggered by the same Dilutive Issuance. For purposes of this paragraph, “Common
Stock Deemed Outstanding” shall mean at any given time, the number of shares of
Common Stock outstanding at such time, plus the number of shares of Common Stock
deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii) hereof
regardless of whether the Options or Convertible Securities are actually
exercisable at such time, but excluding any Common Stock owned or held by or for
the account of the Company or issuable upon conversion or exercise, as
applicable, of the Notes and the Warrants. For purposes of determining the
adjusted Conversion Price under this Section 7(a), the following shall be
applicable:

(i) Issuance of Options. If the Company in any manner grants any Options and the
lowest price per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such Option is less than
the

 

- 14 -

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

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 exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities issuable upon exercise of any such
Option” shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion, exercise or exchange of any Convertible Security
issuable upon exercise of such Option 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, exercise or exchange 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, exercise or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 7(a)(ii), the “lowest price per
share for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the Convertible Security and
upon conversion, exercise or exchange of such Convertible Security less any
consideration paid or payable by the Company with respect to such one share of
Common Stock upon the issuance or sale of such Convertible Security and upon
conversion, exercise or exchange 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, exercise or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Conversion Price has been or is to be made pursuant to other provisions of this
Section 7(a), 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 issued after the Subscription Date, the additional
consideration, if any, payable upon the issue, conversion, exercise or exchange
of any Convertible Securities issued after the Subscription Date, or the rate at
which any Convertible Securities issued after the Subscription Date are
convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Conversion Price 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

 

- 15 -

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

consideration or increased or decreased conversion rate, as the case may be, at
the time initially granted, issued or sold. Additionally, if the terms of any
Option or Convertible Security that was outstanding as of the Subscription Date
is 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, but in
such event the amount of the adjustment to the Conversion Price pursuant to this
Section 7 will not be proportionately greater than the proportionate amount of
the 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.

(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 and (y) the other securities issued or sold in
such integrated transaction shall be deemed to have been issued 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. If any shares of Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any shares of Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of such consideration received by the Company will
be the fair value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Company will be the Closing Sale Price of such security on the date of
receipt. If any shares of Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with any merger
in which the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to such shares of
Common Stock, Options or Convertible Securities, as the case may be. The fair
value of any consideration other than cash or securities will be determined
jointly by the Company and the Required Holders. If such parties are unable to
reach agreement within ten (10) days after the occurrence of an event requiring
valuation (the “Valuation Event”), the fair value of such consideration will be
determined within five (5) Trading Days after the tenth (10th) day following 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.

(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.

 

- 16 -

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

 

(vi) Variable-Priced Securities. If the Company issues or sells, or in
accordance with Section 7 is deemed to have issued or sold, any Options or
Convertible Securities after the Issuance Date, that are convertible into or
exchangeable or exercisable for shares of Common Stock at a price which varies
or may vary with the market price of the shares of Common Stock, including by
way of one or more reset(s) to a fixed price (each of the formulations for such
variable price being herein referred to as, a “Variable Price Formulation”), the
Company shall provide written notice thereof via facsimile and overnight courier
to the Holder (the “Variable Notice”) on the date of issuance or deemed issuance
of such Convertible Securities or Options. From and after the date the Company
issues or is deemed to have issued any such Convertible Securities or Options
with a Variable Price Formulation, but only for so long as such Convertible
Securities or Options are outstanding, the Holder shall have the right, but not
the obligation, in its sole discretion to substitute any applicable Variable
Price Formulation for the Conversion Price upon the Conversion of this Note by
designating in the Conversion Notice delivered upon any conversion of this Notes
that solely for purposes of such conversion the Holder is relying on the
Variable Price Formulation rather than the Conversion Price then in effect. The
Holder’s election to rely on a Variable Price Formulation for a particular
conversion of this Note shall not obligate the Holder to rely on a Variable
Price Formulation for any future conversion of this Note. In connection with
determining the “lowest price per share for which one share of Common Stock is
issuable upon exercise of any Option” pursuant to Section 7(a)(i) and the
“lowest price per share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange of a Convertible Security” pursuant to
Section 7(a)(ii), as such terms pertain solely to any Variable Price Formulation
contained in any Option or Convertible Securities issued after the Issuance
Date, such lowest price shall equal the lesser of (i) the fixed exercise,
conversion or exchange price set forth in the applicable Option or Convertible
Security and (ii) the Variable Price Formulation contained in the applicable
Option or Convertible Security, calculated as if such Option or Convertible
Security were converted, exercised or exchanged as of the date of issuance of
the applicable Option or Convertible Security.

(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) De Minimis Adjustments. No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.01 in such price; provided, however, that any adjustment which by
reason of this Section 7(c) is not required to be made shall be carried forward
and taken into account in any subsequent adjustments

 

- 17 -

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

under this Section 7. All calculations under this Section 7 shall be made by the
Company in good faith and shall be made to the nearest cent or to the nearest
one hundredth of a share, as applicable. No adjustment need be made for a change
in the par value or no par value of the Company’s Common Stock.

(d) Voluntary Adjustment By Company. The Company may at any time during the term
of this Note 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.

(8) 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.

(9) RESERVATION OF AUTHORIZED SHARES.

(a) Reservation. The Company shall initially reserve out of its authorized and
unissued Common Stock a number of shares of Common Stock for each of the Notes
equal to 130% of the Conversion Rate with respect to the Conversion Amount of
each such Note as of the Issuance Date. So long as any of the Notes are
outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Notes, 130% of the number of shares
of Common Stock as shall from time to time be necessary to effect the conversion
of all of the Notes then outstanding; provided that at no time shall the number
of shares of Common Stock so reserved be less than the number of shares required
to be reserved by the previous sentence (without regard to any limitations on
conversions) (the “Required Reserve Amount”). The initial number of shares of
Common Stock reserved for conversions of the Notes and each increase in the
number of shares so reserved shall be allocated pro rata among the holders of
the Notes based on the principal amount of the Notes held by each holder at the
Closing (as defined in the Securities Purchase Agreement) or increase in the
number of reserved shares, as the case may be (the “Authorized Share
Allocation”). In the event that a holder shall sell or otherwise transfer any of
such holder’s Notes, each transferee shall be allocated a pro rata portion of
such holder’s Authorized Share Allocation. Any shares of Common Stock reserved
and allocated to any Person which ceases to hold any Notes shall be allocated to
the remaining holders of Notes, pro rata based on the principal amount of the
Notes then held by such holders.

(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

 

- 18 -

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

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.

(10) COMPANY’S RIGHT OF MANDATORY CONVERSION.

(a) Mandatory Conversion. At any time after the effective date (the “Effective
Date”) of the Company’s Plan of Reorganization with respect to the Company’s
Chapter 11 Case (the “Mandatory Conversion Eligibility Date”), if (i) the
Weighted Average Price of the Common Stock listed on the Principal Market equals
or exceeds 150% of the Conversion Price as of the Issuance Date (subject to
appropriate adjustments for stock splits, stock dividends, stock combinations
and other similar transactions after the Issuance Date) for a period of ten
(10) consecutive Trading Days commencing after the Mandatory Conversion
Eligibility Date (the “Mandatory Conversion Measuring Period”), and (ii) no
Equity Conditions Failure has occurred, the Company shall have the right to
require the Holder to convert all or any portion of the Conversion Amount then
remaining under this Note, in each case as designated in the Mandatory
Conversion Notice (as defined below) into fully paid, validly issued and
nonassessable shares of Common Stock in accordance with Section 3(c) hereof at
the Conversion Rate as of the Mandatory Conversion Date (as defined below) (a
“Mandatory Conversion”). The Company may exercise its right to require
conversion under this Section 10(a) by delivering within not more than two
(2) Trading Days following the end of such Mandatory Conversion Measuring Period
a written notice thereof by facsimile and overnight courier to all, but not less
than all, of the holders of Notes and the Transfer Agent (the “Mandatory
Conversion Notice” and the date all of the holders of the Notes received such
notice by facsimile is referred to as the “Mandatory Conversion Notice Date”).
The Mandatory Conversion Notice shall be irrevocable. The Mandatory Conversion
Notice shall (y) state (I) the Trading Day selected for the Mandatory
Conversion, which Trading Day shall be no sooner than twenty (20) Trading Days
nor later than sixty (60) Trading Days following the Mandatory Conversion Notice
Date (the “Mandatory Conversion Date”), (II) the aggregate Conversion Amount of
the Notes subject to Mandatory Conversion from the Holder and all of the holders
of the Notes pursuant to this Section 10(a) (and analogous provisions under the
Other Notes), (III) the number of shares of Common Stock to be issued to the
Holder on the Mandatory Conversion Date and (z) certify that there has been no
Equity Conditions Failure; provided, however, that the Company may not effect a
Mandatory Conversion under this Section in excess of the Holder Pro Rata Amount
of the applicable Mandatory Conversion Volume Limitation. Notwithstanding the
foregoing, the Company may not effect a Mandatory Conversion until a minimum of
thirty (30) consecutive days have elapsed after any prior Mandatory Conversion
Date.

(b) Pro Rata Conversion Requirement. If the Company elects to cause a conversion
of any Conversion Amount of this Note pursuant to Section 10(a), then it must
simultaneously take the same action in the same proportion with respect to the
Other Notes. If the

 

- 19 -

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

Company elects a Mandatory Conversion of this Note pursuant to Section 10(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
conversion of a Conversion Amount from each of the holders of the Notes equal to
the product of (1) the aggregate Conversion Amount of Notes which the Company
has elected to cause to be converted pursuant to Section 10(a), multiplied by
(2) a 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 “Conversion Allocation
Percentage,” and such amount with respect to each holder is referred to as its
“Pro Rata Conversion Amount”); provided, however, that in the event that any
holder’s Pro Rata Conversion Amount exceeds the outstanding Principal amount of
such holder’s Note, then such excess Pro Rata Conversion 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 Conversion Allocation Percentage
and the Pro Rata Conversion Amount.

(11) OPTIONAL REDEMPTION AT THE COMPANY’S ELECTION.

(a) General. At any time after the date hereof, so long as there has been no
Equity Conditions Failure, the Company shall have the right to redeem all or any
portion of the Conversion Amount then remaining under this Note (the “Company
Optional Redemption Amount”) as designated in the Company Optional Redemption
Notice on the Company Optional Redemption Date (each as defined below) (a
“Company Optional Redemption”). The portion of this Note subject to redemption
pursuant to this Section 11(a) shall be redeemed by the Company in cash at a
price equal to 110% of the sum of (x) any Make-Whole Amount and (y) the
Conversion Amount being redeemed (the “Company Optional Redemption Price”). The
Company may exercise its right to require redemption under this Section 11 by
delivering a written notice thereof by facsimile and overnight courier to all,
but not less than all, of the holders of Notes (the “Company Optional Redemption
Notice” and the date all of the holders received such notice is referred to as
the “Company Optional Redemption Notice Date”). Each Company Optional Redemption
Notice shall be irrevocable. The Company Optional Redemption Notice shall state
(1) the date on which the Company Optional Redemption shall occur (the “Company
Optional Redemption Date”), which date shall not be less than thirty
(30) Business Days nor more than sixty (60) Business Days following the Company
Optional Redemption Notice Date, and (2) 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 other holders of the Notes pursuant to this
Section 11(a) (and analogous provisions under the Other Notes) on the Company
Optional Redemption Date. The Company may not effect a Company Optional
Redemption until a minimum of five (5) consecutive Trading Days have elapsed
after any prior Company Optional Redemption Date. Notwithstanding anything to
the contrary in this Section 11, until the Company Optional Redemption Price is
paid in full, the Company Optional Redemption Amount may be converted, in whole
or in part, by the Holders into shares of Common Stock pursuant to Section 3. If
the Holder so elects, any or all of the Conversion Amounts converted by the
Holder after the Company Optional Redemption Notice Date shall reduce the
Company Optional Redemption Amount of this Note required to be redeemed on the
Company Optional Redemption Date. Redemptions made pursuant to this Section 11
shall be made in accordance with Section 12.

 

- 20 -

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

 

(b) Pro Rata Redemption Requirement. If the Company elects to cause a Company
Optional Redemption pursuant to Section 11(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 pursuant to Section 11(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 Conversion Amount of Notes which the
Company has elected to cause to be redeemed pursuant to Section 11(a),
multiplied by (ii) a 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.

(12) REDEMPTIONS.

(a) Mechanics. The Company shall deliver the applicable Event of Default
Redemption Price to the Holder within five (5) Business Days after the Company’s
receipt of the Holder’s Event of Default Redemption Notice (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 five (5) Business
Days after the Company’s receipt of such notice otherwise (such date, the
“Change of Control Redemption Date”). If the Company has submitted a Company
Optional Redemption Notice in accordance with Section 11(a), the Company shall
deliver the applicable Company Optional Redemption Price to the Holder on the
Company Optional Redemption 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 17(d))
representing the outstanding Principal which has not been redeemed. In the event
that the Company does not pay the applicable Redemption Price to the Holder
within the time period required, at any time thereafter and until the Company
pays such unpaid Redemption Price in full, the Holder shall have the option, in
lieu of redemption, to require the Company by written notice 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

 

- 21 -

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

a new Note (in accordance with Section 17(d)) to the Holder representing such
Conversion Amount to be redeemed and (z) the Conversion Price of this Note or
such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the applicable Redemption Notice is voided and
(B) the lowest Closing Bid Price of the shares of Common Stock during the period
beginning on and including the date on which the applicable Redemption Notice is
delivered to or by the Company and ending on and including the date on which the
applicable Redemption Notice is voided.

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

(13) VOTING RIGHTS. The Holder shall have no voting rights as the holder of this
Note, except as required by law, including, but not limited to, the General
Corporation Law of the State of Delaware, and as expressly provided in this
Note.

(14) COVENANTS.

(a) Rank and Security. All payments due under this Note (a) shall rank pari
passu with all Other Notes and (b) shall be senior to all other Indebtedness of
the Company with respect to the Collateral. Additionally, all Indebtedness
evidenced by this Note shall pursuant to the terms of the Security Documents be
secured by a perfected first priority Lien in favor of the Collateral Agent (as
defined in the Securities Purchase Agreement) for the benefit of the holders of
the Notes on any Collateral.

(b) Incurrence of Indebtedness. So long as this Note is outstanding, the Company
shall not, directly or indirectly, incur or guarantee, assume or suffer to exist
any Indebtedness, other than Permitted Indebtedness.

(c) Existence of Liens. So long as this Note is outstanding, the Company shall
not, directly or indirectly, allow or suffer to exist any mortgage, lien,
pledge, charge, security interest or other encumbrance (collectively, “Liens”)
upon any of the Collateral.

(d) Bankruptcy Court Order. So long as this Note is outstanding, the Company
shall not, at any time, seek, consent to or suffer to exist any reversal,
modification, amendment, stay or vacation of the Approval Order or the Final
Approval Order, except for modifications and amendments agreed to by the
Required Holders.

 

- 22 -

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

 

(e) Existence of Claims. So long as this Note is outstanding, the Company shall
not at any time, suffer to exist a priority for any administrative expense or
unsecured claim against the Company, including, without limitation, any
administrative expenses of the kind specified in, or arising or ordered under,
Sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(a), 507(b), 546(c) 726 and
1114 of the Bankruptcy Code equal or superior to the priority of the Holder in
respect of the Collateral.

(f) Restricted Payments. The Company shall not, directly or indirectly, redeem,
defease, repurchase, repay or make any payments in respect of, by the payment of
cash or cash equivalents (in whole or in part, whether by way of open market
purchases, tender offers, private transactions or otherwise), all or any portion
of any Indebtedness (other than 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.

(g) Restriction on Redemption. Until all of the Notes have been converted,
redeemed or otherwise satisfied in accordance with their terms, the Company
shall not, directly or indirectly, redeem or repurchase its capital stock
without the prior express written consent of the Required Holders.

(h) Change in Nature of Business. The Company shall not 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. The Company shall not modify its corporate
structure or purpose.

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

(j) Maintenance of Properties, Etc. The Company shall maintain and preserve 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 at all times with the provisions of all leases to which it is a party
as lessee or under which it occupies property, so as to prevent any loss or
forfeiture thereof or thereunder.

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

 

- 23 -

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

 

(l) Transactions with Affiliates. The Company shall not enter into, renew,
extend or be a party to, any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease, transfer or exchange
of property or assets of any kind or the rendering of services of any kind) with
any Affiliate, except (i) in the ordinary course of business in a manner and to
an extent consistent with past practice and necessary or desirable for the
prudent operation of its business (including consistent with the past practices
of Accentia Biopharmaceuticals Inc.), for fair consideration and on terms no
less favorable to it than would be obtainable in a comparable arm’s length
transaction with a Person that is not an Affiliate thereof or (ii) for any
transactions or series of related transactions as are approved by a
disinterested committee of the Company’s board of directors.

(15) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote 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 to this Note
or the Other Notes.

(16) 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(i) of
the Securities Purchase Agreement.

(17) 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 17(d)),
registered as the Holder may request, representing the outstanding Principal
being transferred by the Holder and, if less then the entire outstanding
Principal is being transferred, a new Note (in accordance with Section 17(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)(iv) 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 17(d)) representing the outstanding Principal.

(c) Note Exchangeable for Different Denominations. This Note is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company,
for a new Note or Notes (in accordance with Section 17(d) and in principal
amounts of at least $100,000) representing in the aggregate the outstanding
Principal of this Note, and each such new Note will represent such portion of
such outstanding Principal as is designated by the Holder at the time of such
surrender.

 

- 24 -

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

 

(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 17(a) or Section 17(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 of this Note, from the Issuance Date.

(18) 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 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.

(19) 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 (other than the Company’s Chapter 11 Case), 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.

(20) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by
the Company and all the Holders and shall not be construed against any person as
the drafter hereof. The headings of this Note are for convenience of reference
and shall not form part of, or affect the interpretation of, this Note.

(21) 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 unless a waiver signed by the Holder is set forth in
writing, 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 except as otherwise set forth in a written instrument signed
by Holder.

 

- 25 -

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

 

(22) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Closing Bid Price, the Closing Sale Price or the Weighted Average 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 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
Business Day submit via facsimile (a) the disputed determination of the Closing
Bid Price, the Closing Sale Price or the Weighted Average Price to an
independent, reputable investment bank selected by the Holder and approved by
the Company, such approval not to be unreasonably withheld, 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. 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.

(23) NOTICES; PAYMENTS.

(a) Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Note,
including in reasonable detail a description of such action and the reason
therefore. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least twenty (20) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the Common 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.

(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
Holders, 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

 

- 26 -

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

day which is not a Business Day, the same shall instead be due on the next
succeeding day which is a Business Day and, in the case of any Interest Date
which is not the date on which this Note is paid in full, the extension of the
due date thereof shall not be taken into account for purposes of determining the
amount of Interest due on such date.

(24) 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.

(25) 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.

(26) SUPERPRIORITY CLAIM. The Company’s obligations to the Holder under this
Note (and the holders of the Other Notes) shall constitute allowed superpriority
administrative expense claims in the Company’s Chapter 11 Case pursuant to
section 364(c)(1) of the Bankruptcy Code (the “Superpriority Claims”), having
priority over all other costs and expenses of administration of any kind,
including those specified in, or ordered pursuant to, sections 105, 326, 328,
330, 331, 363, 364, 503, 506, 507, 546, 726, 1113 or 1114 or any other provision
of the Bankruptcy Code or otherwise (whether incurred in the Company’s Chapter
11 Case or any successor case under any chapter of the Bankruptcy Code), and
shall at all times be senior to the rights of the Company or any domestic or
foreign subsidiary or affiliate of the Company, any successor trustee or estate
representative, or any other creditor or party in interest in the Chapter 11
Case or any successor case; provided, however, that the foregoing provision
shall (i) be limited solely to a Superpriority Claim against only the Collateral
and not against any other assets of the Company and (ii) not create any priority
or seniority to any claims of Laurus Master Fund Ltd. (In Liquidation) and its
Affiliates, Corps Real, LLC or Accentia Biopharmaceuticals, Inc. in any and all
assets of the Company (excluding the Collateral). No cost or expense of
administration in the Company’s Chapter 11 Case under any provision of the
Bankruptcy Code, including, but not limited to, sections 105, 326, 328, 330,
331, 363, 364, 503, 506, 507, 546, 726, 1113 or 1114 or any other provision of
the Bankruptcy Code or otherwise (whether incurred in the Company’s Chapter 11
Case or any successor case under any chapter of the Bankruptcy Code), shall be
senior to, equal to, or pari passu with, the allowed Superpriority Claims
granted the holders of the Notes hereunder; provided, however, that the
foregoing provision shall (i) be limited solely to a Superpriority Claim against
only the Collateral and not against any other assets of the Company and (ii) not
create any priority or seniority to any claims of Laurus Master Fund Ltd. (In
Liquidation) and its Affiliates, Corps Real, LLC or Accentia Biopharmaceuticals,
Inc. in any and all assets of the Company (excluding the Collateral). The
allowed Superpriority Claim granted the Holder and the holder of the Other Notes
hereunder against only the Collateral and not against any other assets of the
Company shall continue in the Company’s Chapter 11 Case and in any successor
case under any chapter of the Bankruptcy Code, and shall maintain their priority
until all of the aggregate outstanding Principal and unpaid and accrued Interest
owing under the Notes has been indefeasibly paid in full and the Notes have been
cancelled.

 

- 27 -

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

 

(27) EXCHANGE OF NOTES. On the Effective Date, this Note shall be mandatorily
exchanged for the Exchange Note attached to the Securities Purchase Agreement in
the form attached thereto as Exhibit A-2 (the “Exchange Note”). On the Effective
Date, the Holder shall deliver this Note to the Company and concurrently with
such delivery, the Company shall issue the Exchange Note to the Holder and
cancel this Note.

(28) GOVERNING LAW; JURISDICTION; JURY TRIAL. For the period from the entry of
the Approval Order until the Effective Date, all disputes under this Note and
any other Transaction Document shall be subject to the exclusive jurisdiction of
the Bankruptcy Court. 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. After the Effective Date, except as provided in Section 22,
the Company hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in The City of New York, Borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. 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.

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

 

- 28 -

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

not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or default interest on this Note as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.

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

(a) “Affiliate” means, as to any specified Person, any other Person that
directly or indirectly controls, or is under common control with, or is
controlled by, such specified Person. As used in this definition, “control”
(including, with its correlative meanings, “controlled by” and “under common
control with”) shall mean possession, directly or indirectly, of power to direct
or cause the direction of the management or policies (whether through ownership
of securities or partnership or other ownership interests, by contract, or
otherwise).

(b) “Approved Stock Plan” means any employee benefit plan which has been or is
hereafter approved by the Board of Directors of the Company, pursuant to which
the Company’s securities may be issued to any employee, officer, advisor,
consultant, and/or director for services provided to the Company; provided,
however, that in the case of any issuance of securities to any consultant or
advisor of the Company, such securities are granted solely in consideration of
the provision of bona fide services to the Company relating to the Company’s
business or operations and not in connection with services relating to a
financing or similar activity.

(c) “Bankruptcy Code” means title 11 of the United States Code, 11 U.S.C. ss 101
et seq..

(d) “Bankruptcy Court” means the United States Bankruptcy Court for the Middle
District of Florida (Tampa Division).

(e) “Bloomberg” means Bloomberg Financial Markets.

(f) “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.

(g) “Change of Control” means any Fundamental Transaction other than (i) any
merger, consolidation, reorganization, recapitalization or reclassification of
the Common Stock in which this Note remains convertible into the publicly traded
common stock of the Successor Entity and in which the holders of the Company’s
voting power immediately prior to such merger, consolidation, reorganization,
recapitalization or reclassification continue after such merger, consolidation,
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, the voting power of the Successor Entity
necessary to elect a

 

- 29 -

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

majority of the members of the board of directors (or their equivalent if other
than a corporation) of such Successor Entity and to approve any measure
requiring the approval of holders of a majority of the common stock (or its
equivalent) of the Successor Entity, (ii) a license, distribution or development
agreement relating to one or more of the Company’s biotech products entered into
on an arms length basis for reasonably equivalent value with a Person that is
not a direct or indirect affiliate of the Company or any officer, director or
employee thereof and that is in the business of commercializing or developing
biotech products or (iii) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Company.

(h) “Chapter 11 Case” means the Company’s case under chapter 11 of the
Bankruptcy Code, captioned In re: Biovest International, Inc., Case
No. 8:08-bk-17796-KRM, which case is jointly administered for procedural
purposes only under In re: Accentia Biopharmaceuticals, Inc., Case
No. 8:08-bk-17795-KRM.

(i) “Closing Bid Price” and “Closing Sale Price” means, for any security as of
any date, the last closing bid price and last closing trade price, respectively,
for such security on the Principal Market, as reported by Bloomberg, or, if the
Principal Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price, as the case may be,
then the last bid price or last trade price, respectively, of such security
prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly
the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing
Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the
case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 22. All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock
combination, reclassification or similar transaction during the applicable
calculation period.

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

(k) “Company’s Plan of Reorganization” means the Company’s First Amended Joint
Plan of Reorganization dated as of August 16, 2010 filed in the Chapter 11 Case,
as it may be amended, supplemented or modified from time to time.

(l) “Contingent Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease,

 

- 30 -

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

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.

(m) “Collateral” has the meaning set forth in the Securities Purchase Agreement.

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

(o) “Eligible Market” means the Principal Market, any other market tier operated
by Pink OTC Markets Inc., The New York Stock Exchange, Inc., NYSE Amex, The
NASDAQ Global Market, The NASDAQ Capital Market, The NASDAQ Global Select
Market, or the OTC Bulletin Board.

(p) “Equity Conditions” means each of the following conditions: (i) on each day
during the period beginning on the later of three (3) months prior to the
applicable date of determination and the Issuance Date of this Note and ending
on and including the applicable date of determination (the “Equity Conditions
Measuring Period”), all shares of Common Stock issuable upon conversion of the
Notes and exercise of the Warrants shall be eligible for sale without
restriction and without the need for registration under any applicable federal
or state securities laws including, but not limited to, pursuant to Section 1145
of the Bankruptcy Code; (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 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 one (1) year period
ending on and including the date immediately preceding the applicable date of
determination, the Company shall have delivered shares of Common Stock issuable
upon the conversion of the Notes and 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 Sections 2(a) of the Warrants, respectively; (iv) any
applicable shares of Common Stock to be issued in connection with the event
requiring determination may be issued in full without violating or causing the
Holder to exceed the provisions of 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 within five (5) Business Days of when such
payment is due 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 any shares of Common Stock issuable upon conversion of

 

- 31 -

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

the Notes and shares of Common Stock issuable upon exercise of the Warrants not
to be eligible for sale without restriction pursuant to Rule 144 and without the
requirement to be in compliance with Rule 144(c)(1) (or any successor thereto)
promulgated under the 1933 Act or Section 1145 of the Bankruptcy Code and any
applicable state securities laws and (viii) the Company otherwise shall have
been in compliance with and shall not have materially breached any provision,
covenant, representation or warranty of any Transaction Document which remains
uncured.

(q) “Equity Conditions Failure” means that on any day during the period
commencing ten (10) Trading Days prior to the applicable date of determination
through the applicable date of determination, the Equity Conditions have not
been satisfied (or waived in writing by the Holder).

(r) “Excluded Securities” means any shares of Common Stock issued or issuable:
(i) in connection with any Approved Stock Plan; (ii) upon exercise of the
Warrants or conversion of the Other Notes; provided that the terms of such
Warrants and Other Notes are not amended, modified or changed on or after the
Subscription Date other than pursuant to Section 2(b) of the Warrant and other
than pursuant to any anti-dilution provisions of this Note, the Other Notes, or
the Warrants, (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 exercise prices or conversion prices of
such Options or Convertible Securities are not decreased and the number of
shares issuable upon exercise or conversion are not increased other than in
accordance with their terms, (iv) in connection with mergers, acquisitions,
strategic business partnerships (including without limitation license,
distribution, or development partnerships), or joint ventures, in each case with
non-affiliated third parties and otherwise on an arm’s-length basis, the purpose
of which is not to raise additional capital; provided that any Common Stock
issued or issuable in connection with any transaction contemplated by this
clause (iv) that is either (A) attributable to capital raising for the Company
or its Subsidiaries (other than nominal amounts of capital) or (B) to raise
capital for the Company or its Subsidiaries, directly or indirectly, in order to
fund any transaction contemplated by this clause (iv), including, without
limitation, securities issued in one or more related transactions or that result
in similar economic consequences, shall not be deemed to be Excluded Securities
or (v) pursuant to or in accordance with the Plan.

(s) “Fundamental Transaction” means that (A) the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another Person
or Persons, or (ii) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by the holders of more than the 50% of the outstanding
shares of Voting Stock (not including any shares of Voting Stock held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or
(iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than the 50% of the outstanding shares of Voting Stock (not including any
shares of Voting Stock held by the other Person or other Persons making or party
to, or associated or affiliated with the other Persons making or party to, such
stock purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock or (B) any “person” or “group” (as
these

 

- 32 -

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

terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is
or shall become the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting
power represented by issued and outstanding Common Stock. Notwithstanding the
foregoing, the term “Fundamental Transaction” shall not include any issuance of
securities or any other transaction contemplated to occur at the Effective Date
pursuant to the Company’s Plan of Reorganization.

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

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

(v) “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), (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, lien,
pledge, charge, security interest or other encumbrance upon or in any property
or assets (including accounts and contract rights) owned by any Person, even
though the Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (viii) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (i) through (vii) above.

(w) “Interest Conversion Price” means the lower of (i) the applicable Conversion
Price and (ii) the price computed as 90% of the arithmetic average of the
Weighted Average Price of the Common Stock over the ten (10) consecutive Trading
Day period immediately preceding the Interest Date. All such determinations
shall be appropriately adjusted for any stock split, stock dividend, stock
combination or other similar transaction during such period.

(x) “Interest Rate” means 7.00% per annum, subject to adjustment as set forth in
Section 2.

 

- 33 -

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

 

(y) “Mandatory Conversion Volume Limitation” means 20% of the aggregate dollar
trading volume (as reported on Bloomberg) of the Common Stock on the Principal
Market over the twenty (20) consecutive Trading Day period immediately prior to
the applicable Mandatory Conversion Notice Date.

(z) “Make-Whole Amount” means, as to any Conversion Amount on any Conversion
Date (including the Mandatory Conversion Date), as to any Event of Default
Redemption on any Event of Default Redemption Date, as to any Change of Control
Redemption on any Change of Control Redemption Date or as to any Company
Optional Redemption Price on any Company Optional Redemption Date, the amount
equal to any Interest that, but for (i) the Holder’s exercise of its conversion
right pursuant to Section 3(c), (ii) an Event of Default Redemption pursuant to
Section 4(b), (iii) a Change of Control Redemption pursuant to Section 5(b), or
(iv) a Company Optional Redemption pursuant to Section 11(a), would have accrued
with respect to the Conversion Amount being converted or redeemed under this
Note at the Interest Rate (assuming the Interest Rate then in effect as of the
applicable Conversion Date, Event of Default Redemption Notice Date, Change of
Control Redemption Notice Date or Company Option Redemption Notice Date, as the
case may be, is the Interest Rate through the Maturity Date) for the period from
the applicable Conversion Date, Event of Default Redemption Date, Change of
Control Redemption Date or the Company Optional Redemption Date, as the case may
be, through the earlier of the one (1) year anniversary of such date or the
Maturity Date.

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

(bb) “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 the day prior to the issuance of the applicable Option 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 prior to the public announcement of the
applicable issuance, or if not publicly announced, as of the day immediately
prior to the issuance of the applicable Option, (iii) the underlying price per
share used in such calculation shall be the highest Weighted Average Price
during the period beginning on the day prior to the execution of definitive
documentation relating to the issuance of the applicable Option and the public
announcement of such issuance and (iv) a 360 day annualization factor.

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

(dd) “Permitted Indebtedness” means (i) Indebtedness evidenced by this Note and
the Other Notes, (ii) unsecured Indebtedness incurred by the Company that is
made expressly subordinate in right of payment to the Indebtedness evidenced by
this Note, as reflected in a written agreement acceptable to the Required
Holders and approved by the Required Holders

 

- 34 -

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

in writing, and which Indebtedness does not provide at any time for (A) the
payment, prepayment, repayment, repurchase or defeasance, directly or
indirectly, of any principal or premium, if any, thereon until ninety-one
(91) days after the Maturity Date or later and (B) total interest and fees at a
rate in excess of 10.00% per annum; (iii) Indebtedness secured by Permitted
Liens described in clauses (iv) and (v) of the definition of Permitted Liens;
(iv) Indebtedness described on Schedule 3(s)(ii) of the Securities Purchase
Agreement; and (v) Indebtedness to Corps Real, LLC as approved by the orders of
the Bankruptcy Court.

(ee) “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; (viii) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 4(a)(ix); and
(ix) Liens in favor of Laurus Master Fund, Ltd. and its Affiliates, Corps Real,
LLC, Accentia Biopharmaceuticals, Inc. and the holders of the 15% Secured
Convertible Debentures in a principal amount of $1.15 million issued on
September 22, 2008. Notwithstanding the foregoing, Permitted Liens shall not
include any Liens imposed on the Collateral.

(ff) “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.

(gg) “Principal Market” means the OTCQX market tier operated by Pink OTC Markets
Inc.

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

 

- 35 -

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

 

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

(jj) “Related Fund” means, with respect to any Person, a fund or account managed
by such Person or an Affiliate of such Person.

(kk) “Required Holders” means the holders of Notes representing at least
two-thirds of the aggregate principal amount of the Notes then outstanding.

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

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

(nn) “Subscription Date” means October 19, 2010.

(oo) “Successor Entity” means the Person, which may be the Company, formed by,
resulting from or surviving any Fundamental Transaction or the Person with which
such Fundamental Transaction shall have been made, provided that if such Person
is not a publicly traded entity whose common stock or equivalent equity security
is quoted or listed for trading on an Eligible Market, Successor Entity shall
mean such Person’s Parent Entity.

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

(qq) “Voting Stock” of a Person means capital stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting power
to elect, or the general power to appoint, at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time capital stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).

(rr) “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.

(ss) “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

 

- 36 -

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

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” functions, 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 “pink sheets” by Pink Sheets
LLC (formerly the National Quotation Bureau, 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 22. All
such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination, reclassification or similar transaction during
the applicable calculation period.

(31) 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 such Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries.

[Signature Page Follows]

 

- 37 -

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

 

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

 

BIOVEST INTERNATIONAL, INC., Debtor In Possession By:  

 

  Name:   Title:

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

 

EXHIBIT I

BIOVEST INTERNATIONAL, INC.

CONVERSION NOTICE

Reference is made to the Convertible Note (the “Note”) issued to the undersigned
by Biovest International, 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 par value $0.01 per share (the
“Common Stock”) of the Company, as of the date specified below.

 

Date of Conversion:

 

 

Aggregate Conversion Amount to be converted:

 

 

Please confirm the following information:

Conversion Price:

 

 

Number of shares of Common Stock to be issued:

 

 

Is the Variable Price Formulation being relied on pursuant to Section 7(a)(vi)?
(check one) YES        NO        

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

Issue to:

 

 

 

 

 

 

Facsimile Number:

 

 

Authorization:

 

 

By:

 

 

Title:

 

 

Dated:  

 

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

 

Account Number:

  

 

  (if electronic book entry transfer)

Transaction Code Number:

 

 

  (if electronic book entry transfer)

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

 

ACKNOWLEDGMENT

The Company hereby acknowledges this Conversion Notice and hereby directs
StockTrans, Inc. to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated                 , 2010
from the Company and acknowledged and agreed to by StockTrans, Inc.

 

BIOVEST INTERNATIONAL, INC. By:  

 

  Name:   Title:

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

 

Exhibit A-2

[FORM OF CONVERTIBLE NOTE]

BIOVEST INTERNATIONAL, INC.

CONVERTIBLE NOTE

 

Issuance Date: [                ], 2010   Original Principal Amount: U.S.
$[                ]

FOR VALUE RECEIVED, Biovest International, Inc., a Delaware corporation (the
“Company”), hereby promises to pay to [BUYER] or registered assigns (the
“Holder”) the amount set out above as the Original Principal Amount (as reduced
pursuant to the terms hereof pursuant to redemption, conversion or otherwise,
the “Principal”) when due, whether upon the Maturity Date (as defined below),
acceleration, redemption, conversion or otherwise (in each case in accordance
with the terms hereof) and to pay interest (“Interest”) on any outstanding
Principal at the Interest Rate from the date identified above as the Issuance
Date (the “Issuance Date”) until the same becomes due and payable, whether upon
an Interest Date (as defined below), the Maturity Date, acceleration,
conversion, redemption or otherwise (in each case in accordance with the terms
hereof). This Convertible Note (including all Convertible Notes issued in
exchange, transfer or replacement hereof, this “Note”) is one of an issue of
Convertible Notes (collectively, the “Notes” and such other Convertible Notes,
the “Other Notes”) issued on the Closing Date pursuant to the Securities
Purchase Agreement (as defined below). Certain capitalized terms used herein are
defined in Section 30.

(1) PAYMENTS OF PRINCIPAL. On the Maturity Date, the Company shall pay to the
Holder an amount in cash representing all outstanding Principal and accrued and
unpaid Interest. The “Maturity Date” shall be [                ], 20121, 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 and accrued and unpaid Interest.

(2) INTEREST; INTEREST RATE. (a) Interest on this Note shall commence accruing
on the Issuance Date and shall be computed on the basis of a 360-day year and
twelve 30-day months and shall be payable in arrears on the first calendar day
of each succeeding month after the Issuance Date (each, an “Interest Date”) with
the first Interest Date being December 1, 2010. Interest shall be payable on
each Interest Date, to the record holder of this Note on the applicable Interest
Date, in shares of Common Stock (“Interest Shares”) so long as there has been no
Equity Conditions Failure; provided however, that the Company may, at its option
following

 

1

Insert second anniversary of the Effective Date of the Plan.

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

notice to the Holder, pay Interest on any Interest Date in cash (“Cash
Interest”) or in a combination of Cash Interest and Interest Shares. The Company
shall deliver a written notice to each holder of the Notes on or prior to the
twenty-fifth (25th) Trading Day prior to the applicable Interest Date (the date
such notice is delivered to all of the holders of Notes, the “Interest Notice
Date”) which notice (i) either (A) confirms that Interest to be paid on such
Interest Date shall be paid entirely in Interest Shares or (B) elects to pay
Interest as Cash Interest or a combination of Cash Interest and Interest Shares
and specifies the amount of Interest that shall be paid as Cash Interest and the
amount of Interest, if any, that shall be paid in Interest Shares and
(ii) certifies that the Equity Conditions are satisfied as of such Interest
Notice Date; provided that the Company must simultaneously take the same action
in the same proportion with respect to the Other Notes. If the Equity Conditions
are not satisfied as of the Interest Notice Date, then unless the Company has
elected to pay such Interest as Cash Interest, the Interest Notice shall
indicate that unless the Holder waives the Equity Conditions, the Interest shall
be paid as Cash Interest. If the Equity Conditions were satisfied as of the
Interest Notice Date but the Equity Conditions are no longer satisfied at any
time prior to the Interest Date, the Company shall provide the Holder a
subsequent notice to that effect indicating that unless the Holder waives the
Equity Conditions, the Interest shall be paid as Cash Interest. Interest to be
paid on an Interest Date in Interest Shares shall be paid in a number of fully
paid and nonassessable shares (rounded up to the nearest whole share in
accordance with Section 3(a)) of Common Stock equal to the quotient of (1) the
amount of Interest payable on such Interest Date less any Cash Interest paid on
such Interest Date and (2) the Interest Conversion Price in effect on the
applicable Interest Date.

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

(c) From and after the occurrence and during the continuance of an Event of
Default, the Interest Rate shall be increased to fifteen percent (15.0%) per
annum. In the event that such Event of Default is subsequently cured, the
adjustment referred to in the preceding sentence shall cease to be effective as
of the date of such cure; provided that the Interest as calculated and unpaid at
such increased rate during the continuance of such Event of Default shall
continue to apply to the extent relating to the days after the occurrence of
such Event of Default through and including the date of cure of such Event of
Default. The Company shall pay any and all transfer, stamp, and similar taxes
that may be payable with respect to the issuance and delivery of Interest
Shares.

 

- 2 -

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

 

(3) CONVERSION OF NOTES. This Note shall be convertible into shares of the
Company’s common stock, par value $0.01 per share (the “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 date hereof, the Holder shall be entitled to convert any
portion of the outstanding and unpaid Conversion Amount (as defined below) into
fully paid and nonassessable shares of Common Stock in accordance with
Section 3(c), at the Conversion Rate (as defined below). The Company shall not
issue any fraction of a share of Common Stock upon any conversion. If the
issuance would result in the issuance of a fraction of a share of Common Stock,
the Company shall round such fraction of a share of Common Stock up to the
nearest whole share. The Company shall pay any and all transfer, stamp and
similar taxes that may be payable with respect to the issuance and delivery of
Common Stock upon conversion of any Conversion Amount.

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

(i) “Conversion Amount” means the sum of (A) the portion of the Principal to be
converted, redeemed or otherwise with respect to which this determination is
being made, and (B) accrued and unpaid Interest with respect to such Principal.

(ii) “Conversion Price” means, as of any Conversion Date (as defined below) or
other date of determination, $0.91, subject to adjustment as provided herein.

(c) Mechanics of Conversion.

(i) Optional Conversion. To convert any Conversion Amount into shares of Common
Stock on any date (a “Conversion Date”), the Holder shall (A) transmit by
facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New
York time, on such date, a copy of an executed notice of conversion in the form
attached hereto as Exhibit I (the “Conversion Notice”) to the Company and the
Transfer Agent and (B) if required by Section 3(c)(iv), 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). On or before the first
(1st) Business Day following the date of receipt of a Conversion Notice, the
Company shall transmit by facsimile a confirmation of receipt of such Conversion
Notice to the Holder and the Transfer Agent. On or before the third
(3rd) Trading Day following the date of receipt of a Conversion Notice (the
“Share Delivery Date”), the Company shall (x) provided that the Transfer Agent
is participating in the DTC Fast Automated Securities Transfer Program, credit
such aggregate number of shares of Common Stock to which the Holder shall be
entitled to the Holder’s or its designee’s balance account with DTC through its
Deposit Withdrawal Agent Commission system or (y) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issue and
deliver to

 

- 3 -

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

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)(iv) 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 five (5) Business Days after receipt of this Note and at its own expense,
issue and deliver to the holder a new Note (in accordance with Section 17(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.

(ii) Make-Whole Amount Upon Conversion. In addition to the foregoing, on each
Share Delivery Date, any applicable Make-Whole Amount on such Conversion Amount
(the “Make-Whole Conversion Amount”) shall be paid to the Holder in shares of
Common Stock (“Make-Whole Shares”) so long as there has been no Equity
Conditions Failure; provided however, that the Company may, at its option
following notice to the Holder, pay such Make-Whole Conversion Amount in cash
(“Make-Whole Cash”) or in a combination of Make-Whole Shares and Make-Whole
Cash. In the event that the Company desires to elect to pay any portion of its
Make-Whole Conversion Amount as a Make-Whole Cash, then the Company shall
deliver a written notice (“Make-Whole Notice”) to the Holder no later than one
(1) Trading Day following the receipt of the Conversion Notice by the Company
(the “Make-Whole Notice Date”), which notice elects to pay the Make-Whole
Conversion Amount in the form of a Make-Whole Cash or a combination of a
Make-Whole Cash and Make-Whole Shares and specifies the amount of the Make-Whole
Conversion Amount that shall be paid as a Make-Whole Cash and the amount of
Make-Whole Conversion Amount, if any, that shall be paid in Make-Whole Shares.
If the Equity Conditions are not satisfied as of the Conversion Date, then
unless the Company has elected to pay such Make-Whole Conversion Amount as a
Make-Whole Cash, the Make-Whole Notice shall indicate that unless the Holder
waives the Equity Conditions, the Make-Whole Conversion Amount shall be paid in
the form of a Make-Whole Cash. If the Equity Conditions were satisfied as of the
Conversion Date but the Equity Conditions are no longer satisfied at any time
prior to the Share Delivery Date, the Company shall provide the Holder a
subsequent notice to that effect indicating that unless the Holder waives the
Equity Conditions, the Make-Whole Conversion Amount shall be paid in the form of
a Make-Whole Cash. The Make-Whole Conversion Amount to be paid on such Share
Delivery Date in Make-Whole Shares shall be paid in a number of fully paid and
nonassessable shares of Common Stock (rounded to the nearest whole share in
accordance with Section 3(a)) equal to the quotient of (1) the Make-Whole
Conversion Amount payable on the applicable Conversion Date less any Make-Whole
Cash paid and (2) the Interest Conversion Price in effect on the applicable
Conversion Date. Delivery of the Make-Whole Shares shall be made in the manner
set forth in Section 2(b)(i) of this Note replacing the terms “Interest Shares”
with “Make-Whole Shares” and “Interest Date” with “Share Delivery Date.”

(iii) Company’s Failure to Timely Convert. If the Company shall fail to issue a
certificate to the Holder or credit the Holder’s balance account with DTC, as

 

- 4 -

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

applicable, for the number of shares of Common Stock to which the Holder is
entitled upon conversion of any Conversion Amount on or prior to the date which
is three (3) Trading Days after the Conversion Date (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) the Closing
Sale Price of the Common Stock on the 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)(iii) or otherwise. In addition to the foregoing, if within
three (3) Trading Days after the Company’s receipt of the facsimile copy of a
Conversion Notice, the Company shall fail to issue and deliver a certificate to
the Holder or credit the Holder’s balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon such holder’s
conversion of any Conversion Amount, 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 five (5) Trading Days after the
Holder’s request and in the Holder’s discretion, either (i) pay cash to the
Holder in an amount equal to the Holder’s total purchase price (including
brokerage commissions and other out-of-pocket expenses, if any) for the shares
of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s
obligation to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such 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) the Closing Bid
Price on the Conversion Date.

(iv) 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 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 a 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)(iv), a Holder may assign any Note or any portion thereof to
an Affiliate of such Holder or a Related Fund of such 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

 

- 5 -

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

Assignment”); provided, that (x) the Company may continue to deal solely with
such assigning or selling Holder unless and until such 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 physical surrender and reissue of this Note. The
Holder and the Company shall maintain records showing the Principal and Interest
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.

(v) Pro Rata Conversion; Disputes. In the event that the Company receives a
Conversion Notice from more than one holder of Notes for the same Conversion
Date and the Company can convert some, but not all, of such portions of the
Notes submitted for conversion, the Company, subject to Section 3(d), shall
convert from each holder of Notes electing to have Notes converted on such date
a pro rata amount of such holder’s portion of its Notes submitted for conversion
based on the principal amount of Notes submitted for conversion on such date by
such holder relative to the aggregate principal amount of all Notes submitted
for conversion on such date. In the event of a dispute as to the number of
shares of Common Stock issuable to the Holder in connection with a conversion of
this Note, the Company shall issue to the Holder the number of shares of Common
Stock not in dispute and resolve such dispute in accordance with Section 22.

(d) Limitations on Conversions; Beneficial Ownership. The Company shall not
effect any conversion of this Note, and the Holder of this Note shall not have
the right to convert any portion of this Note pursuant to Section 3(a), to the
extent that after giving effect to such conversion, the Holder (together with
the Holder’s Affiliates) would beneficially own in excess of 4.99% (the “Maximum
Percentage”) of the number of shares of Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and its
Affiliates shall include 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 the number of shares of Common Stock which
would be issuable upon (A) conversion of the remaining, nonconverted portion of
this Note beneficially owned by the Holder or any of its Affiliates and
(B) exercise or conversion of the unexercised or nonconverted portion of any
other securities of the Company (including, without limitation, any Other Notes
or warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
Affiliates. Except as set forth in the preceding sentence, for

 

- 6 -

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

purposes of this Section 3(d), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”). For purposes of this Section 3(d), in determining the
number of outstanding shares of Common Stock, the Holder may rely on the number
of outstanding shares of Common Stock as reflected in (x) the Company’s most
recent Form 10-K, Form 10-Q or Form 8-K, as the case may be, (y) a more recent
public announcement by the Company or (z) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding.
For any reason at any time, upon the written or oral request of the Holder, the
Company shall within one (1) Business Day confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. 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 or its Affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. By written notice to
the Company, the Holder may increase or decrease the Maximum Percentage to any
other percentage not in excess of 9.99% specified in such notice; provided that
(i) any such increase will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company, and (ii) any such increase or
decrease will apply only to the Holder and not to any other holder of Notes. 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
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended beneficial ownership limitation herein contained
or to make changes or supplements necessary or desirable to properly give effect
to such limitation.

(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 any shares of Common Stock issued or issuable upon conversion
of the Notes to be freely transferable and eligible for sale without restriction
and without the need for registration under any applicable federal or state
securities laws pursuant to Section 1145 of the Bankruptcy Code;

(ii) the failure of the Common Stock to be listed or traded on at least one
(1) Eligible Market for a period of five (5) consecutive Trading Days or for
more than an aggregate of ten (10) Trading Days in any 365-day period;

(iii) the Company’s (A) failure to cure a Conversion Failure by delivery of the
required number of shares of Common Stock within ten (10) Business Days after
the applicable Conversion Date or (B) notice, written or oral, to any holder of
the 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 any
Notes into shares of Common Stock that is tendered in accordance with the
provisions of the Notes;

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

 

- 7 -

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

 

(v) the Company’s failure to pay to the Holder any amount of Principal
(including, without limitation, any redemption payments), Interest or other
amounts when and as due under this Note or any other Transaction Document (as
defined in the Securities Purchase Agreement) or any other agreement, document,
certificate or other instrument delivered in connection with the transactions
contemplated hereby and thereby to which the Holder is a party, except (x) the
failure to pay Interest when and as due shall be an Event of Default only if
such failure continues for a period of at least five (5) Business Days, and
(y) the failure to pay any amount other than Principal and Interest when and as
due shall be an Event of Default only if such failure continues for a period of
at least five (5) Business Days after the Company knew or should reasonably have
known after due inquiry of the obligation to pay any such amount;

(vi) the Company, 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; provided, however, that the foregoing shall not apply
to the Company’s Chapter 11 Case;

(vii) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that (A) is for relief against the Company in an involuntary
case, (B) appoints a Custodian of the Company or (C) orders the liquidation of
the Company; provided, however, that the foregoing shall not apply to the
Company’s Chapter 11 Case;

(viii) a final judgment or judgments for the payment of money aggregating in
excess of $250,000 are rendered against the Company 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 creditworthy 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; provided that no payments made on account of
allowed claims pursuant to the terms of the Company’s Plan of Reorganization and
confirmation order entered by the Bankruptcy Court relating to the Company’s
Chapter 11 Case shall constitute an Event of Default;

(ix) the Company breaches any representation, warranty, covenant or other term
or condition of any Transaction Document, except, in the case of a breach of a
covenant which is curable, only if such breach continues for a period of at
least ten (10) consecutive Business Days;

 

- 8 -

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

 

(x) any breach or failure in any respect to comply with Section 14 of this Note;

(xi) the aggregate number of shares of Common Stock, on the date of the
effectiveness of the Company’s Plan of Reorganization with respect to the
Company’s Chapter 11 Case (“Chapter 11 Effectiveness”) after giving effect to
the Chapter 11 Effectiveness, (A) issued or issuable shall, excluding the shares
of Common Stock issued or issuable pursuant to the conversion or exercise of the
Notes and Warrants, respectively, exceed 44,000,000 shares of Common Stock or
(B) issued or issuable that are both (1) not subject to Lock-Up Agreements (as
defined in the Securities Purchase Agreement) and (2) issuable within ninety
(90) days of the Chapter 11 Effectiveness, shall, excluding the shares of Common
Stock issued or issuable pursuant to the conversion or exercise of the Notes and
Warrants, respectively, exceed 2,600,000 shares of Common Stock;

(xii) the aggregate amount of Indebtedness of the Company outstanding on the
date of Chapter 11 Effectiveness after giving effect to the Chapter 11
Effectiveness (other than the Notes) shall exceed the amount of Indebtedness set
forth on the chart located at the end of Schedule 3(s)(ii) of the Securities
Purchase Agreement;

(xiii) if a motion, request or application seeking relief from or revocation of
the confirmation order entered by the Bankruptcy Court relating to the Company’s
Chapter 11 Case has been filed under Rule 59 or 60 of the Federal Rules of Civil
Procedure, as made applicable through Federal Rules of Bankruptcy Procedure 9023
and 9024, respectively, or any analogous Federal Rule of Bankruptcy Procedure,
or under 11 U.S.C. § 1144; or

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

(b) Redemption Right. Upon the occurrence of an Event of Default with respect to
this Note or any Other Note, the Company shall within one (1) Business Day
deliver written notice thereof via facsimile and overnight courier (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 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
at a price equal to 110% of the sum of (i) any Make-Whole Amount and (ii) the
greater of (x) the Conversion Amount to be redeemed and (y) the product of
(A) the Conversion Rate in effect at such time as the Holder delivers an Event
of Default Redemption Notice with respect to such Conversion Amount being
redeemed and (B) the greatest Weighted Average Price of the Common Stock on any
Trading Day during the period

 

- 9 -

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

commencing on the date immediately preceding such Event of Default and ending on
the date the Holder delivers the Event of Default Redemption Notice (the “Event
of Default Redemption Price”). Redemptions required by this Section 4(b) shall
be made in accordance with the provisions of Section 12. 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. The parties hereto
agree that in the event of the Company’s redemption of any portion of the Note
under this Section 4(b), the Holder’s damages would be uncertain and difficult
to estimate because of the parties’ inability to predict future interest rates
and the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any Event of Default redemption premium
due under this Section 4(b) is intended by the parties to be, and shall be
deemed, a reasonable estimate of the Holder’s actual loss of its investment
opportunity and not as a penalty.

(5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

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

(b) Redemption Right. No sooner than fifteen (15) days nor later than ten
(10) days prior to the consummation of a Change of Control, but not prior to the
public announcement of such Change of Control, the Company shall deliver written
notice thereof via

 

- 10 -

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

facsimile and overnight courier to the Holder (a “Change of Control Notice”). At
any time during the period beginning after the Holder’s receipt of a Change of
Control Notice and ending twenty (20) 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”, and
the date thereof, the “Change of Control Redemption Notice Date”) 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 at a price equal to 110% of the sum of (i) any Make-Whole
Amount and (ii) the greater of (x) the Conversion Amount to be redeemed and
(y) the product of (A) the Conversion Rate in effect at such time as the Holder
delivers a Change of Control Redemption Notice with respect to such Conversion
Amount being redeemed and (B) the greatest Weighted Average Price of the Common
Stock during the period beginning on the date immediately preceding the earlier
to occur of (1) the consummation of the Change of Control and (2) the public
announcement of such Change of Control and ending on the date the Holder
delivers the Change of Control Redemption Notice (the “Change of Control
Redemption Price”). Redemptions required by this Section 5 shall be made in
accordance with the provisions of Section 12 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. The parties
hereto agree that in the event of the Company’s redemption of any portion of the
Note under this Section 5(b), the Holder’s damages would be uncertain and
difficult to estimate because of the parties’ inability to predict future
interest rates and the uncertainty of the availability of a suitable substitute
investment opportunity for the Holder. Accordingly, any Change of Control
redemption premium due under this Section 5(b) is intended by the parties to be,
and shall be deemed, a reasonable estimate of the Holder’s actual loss of its
investment opportunity and not as a penalty.

(6) DISTRIBUTION OF ASSETS; RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER
CORPORATE EVENTS.

(a) Distribution of Assets. If the Company shall declare or make any dividend or
other distributions of its assets (or rights to acquire its assets) to any or
all holders of shares of Common Stock, by way of return of capital or otherwise
(including without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (the “Distributions”), the Company shall make appropriate
provision to insure that upon a conversion of this Note, the Holder will
thereafter have the right to receive in addition to the shares of Common Stock
receivable upon such conversion, such Distributions to which the Holder would
have been entitled with respect to such shares of Common Stock had such shares
of Common Stock been held by the Holder 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 (without taking into account any limitations or restrictions on
the convertibility of this Note).

 

- 11 -

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

 

(b) Purchase Rights. 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.

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

(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

(a) Adjustment of Conversion Price upon Issuance of Common Stock. If and
whenever on or after the Subscription Date, the Company issues or sells, or in
accordance with this Section 7(a) is deemed to have issued or sold, any shares
of Common Stock (excluding Excluded Securities and 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 (the foregoing a
“Dilutive Issuance”), then immediately after such Dilutive Issuance the
Conversion Price then in effect shall be reduced concurrently with such Dilutive
Issuance to (A) in the event that the Dilutive Issuance is completed at a time
during which at least one-third of the Original Principal Amount of the Notes
remains outstanding (the “Ratchet Period”), to the New Issuance Price, and
(B) in the event that the

 

- 12 -

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

Dilutive Issuance is completed at a time that less than one-third of the
Original Principal Amount of the Notes remain outstanding, an amount determined
by multiplying the Conversion Price then in effect by a fraction, (x) the
numerator of which shall be the sum of (1) the number of shares of Common Stock
Deemed Outstanding immediately prior to such Dilutive Issuance plus (2) the
number of shares of Common Stock which the aggregate consideration received by
the Company for such additional shares in the Dilutive Issuance would purchase
at the Conversion Price then in effect; and (y) the denominator of which shall
be the number of shares of Common Stock Deemed Outstanding immediately after
such Dilutive Issuance but before giving effect to anti-dilution rights
contained in other securities of the Company that would be triggered by the same
Dilutive Issuance. For purposes of this paragraph, “Common Stock Deemed
Outstanding” shall mean at any given time, the number of shares of Common Stock
outstanding at such time, plus the number of shares of Common Stock deemed to be
outstanding pursuant to Sections 7(a)(i) and 7(a)(ii) hereof regardless of
whether the Options or Convertible Securities are actually exercisable at such
time, but excluding any Common Stock owned or held by or for the account of the
Company or issuable upon conversion or exercise, as applicable, of the Notes and
the Warrants. For purposes of determining the adjusted Conversion Price under
this Section 7(a), the following shall be applicable:

(i) Issuance of Options. If the Company in any manner grants any Options and the
lowest price per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such Option is less than
the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 7(a)(i), the “lowest price per share for which one share of Common Stock
is issuable upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities issuable upon exercise of any such
Option” shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion, exercise or exchange of any Convertible Security
issuable upon exercise of such Option 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, exercise or exchange 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, exercise or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 7(a)(ii), the “lowest price per
share for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof” shall be equal to the sum of the

 

- 13 -

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

lowest amounts of consideration (if any) received or receivable by the Company
with respect to one share of Common Stock upon the issuance or sale of the
Convertible Security and upon conversion, exercise or exchange of such
Convertible Security less any consideration paid or payable by the Company with
respect to such one share of Common Stock upon the issuance or sale of such
Convertible Security and upon conversion, exercise or exchange 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,
exercise or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Conversion Price has been or is to be made pursuant to
other provisions of this Section 7(a), 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 issued after the Subscription Date, the additional
consideration, if any, payable upon the issue, conversion, exercise or exchange
of any Convertible Securities issued after the Subscription Date, or the rate at
which any Convertible Securities issued after the Subscription Date are
convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Conversion Price 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. Additionally, if the terms of any Option or
Convertible Security that was outstanding as of the Subscription Date is
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, but in
such event the amount of the adjustment to the Conversion Price pursuant to this
Section 7 will not be proportionately greater than the proportionate amount of
the 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.

(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 and (y) the other securities issued or sold in
such integrated transaction shall be deemed to have been issued 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. If any shares of Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any shares of Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of such consideration received by the Company will
be the fair value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Company will be the

 

- 14 -

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

Closing Sale Price of such security on the date of receipt. If any shares of
Common Stock, Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or securities will be determined jointly by the Company and the Required
Holders. If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the “Valuation Event”),
the fair value of such consideration will be determined within five (5) Trading
Days after the tenth (10th) day following 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.

(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.

(vi) Variable-Priced Securities. If the Company issues or sells, or in
accordance with Section 7 is deemed to have issued or sold, any Options or
Convertible Securities after the Issuance Date, that are convertible into or
exchangeable or exercisable for shares of Common Stock at a price which varies
or may vary with the market price of the shares of Common Stock, including by
way of one or more reset(s) to a fixed price (each of the formulations for such
variable price being herein referred to as, a “Variable Price Formulation”), the
Company shall provide written notice thereof via facsimile and overnight courier
to the Holder (the “Variable Notice”) on the date of issuance or deemed issuance
of such Convertible Securities or Options. From and after the date the Company
issues or is deemed to have issued any such Convertible Securities or Options
with a Variable Price Formulation, but only for so long as such Convertible
Securities or Options are outstanding, the Holder shall have the right, but not
the obligation, in its sole discretion to substitute any applicable Variable
Price Formulation for the Conversion Price upon the Conversion of this Note by
designating in the Conversion Notice delivered upon any conversion of this Notes
that solely for purposes of such conversion the Holder is relying on the
Variable Price Formulation rather than the Conversion Price then in effect. The
Holder’s election to rely on a Variable Price Formulation for a particular
conversion of this Note shall not obligate the Holder to rely on a Variable
Price Formulation for any future conversion of this Note. In connection with
determining the “lowest price per share for which one share of Common Stock is
issuable upon exercise of any Option” pursuant to Section 7(a)(i) and the
“lowest price per share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange of a Convertible Security” pursuant to
Section 7(a)(ii), as such terms pertain solely to any

 

- 15 -

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

Variable Price Formulation contained in any Option or Convertible Securities
issued after the Issuance Date, such lowest price shall equal the lesser of
(i) the fixed exercise, conversion or exchange price set forth in the applicable
Option or Convertible Security and (ii) the Variable Price Formulation contained
in the applicable Option or Convertible Security, calculated as if such Option
or Convertible Security were converted, exercised or exchanged as of the date of
issuance of the applicable Option or Convertible Security.

(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) De Minimis Adjustments. No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.01 in such price; provided, however, that any adjustment which by
reason of this Section 7(c) is not required to be made shall be carried forward
and taken into account in any subsequent adjustments under this Section 7. All
calculations under this Section 7 shall be made by the Company in good faith and
shall be made to the nearest cent or to the nearest one hundredth of a share, as
applicable. No adjustment need be made for a change in the par value or no par
value of the Company’s Common Stock.

(d) Voluntary Adjustment By Company. The Company may at any time during the term
of this Note 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.

(8) 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.

(9) RESERVATION OF AUTHORIZED SHARES.

(a) Reservation. The Company shall initially reserve out of its authorized and
unissued Common Stock a number of shares of Common Stock for each of the Notes
equal to 130% of the Conversion Rate with respect to the Conversion Amount of
each such Note as of the Issuance Date. So long as any of the Notes are
outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Notes, 130% of the number of shares
of Common Stock as shall from time to time be necessary to effect the conversion
of all of

 

- 16 -

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

the Notes then outstanding; provided that at no time shall the number of shares
of Common Stock so reserved be less than the number of shares required to be
reserved by the previous sentence (without regard to any limitations on
conversions) (the “Required Reserve Amount”). The initial number of shares of
Common Stock reserved for conversions of the Notes and each increase in the
number of shares so reserved shall be allocated pro rata among the holders of
the Notes based on the principal amount of the Notes held by each holder at the
Closing (as defined in the Securities Purchase Agreement) or increase in the
number of reserved shares, as the case may be (the “Authorized Share
Allocation”). In the event that a holder shall sell or otherwise transfer any of
such holder’s Notes, each transferee shall be allocated a pro rata portion of
such holder’s Authorized Share Allocation. Any shares of Common Stock reserved
and allocated to any Person which ceases to hold any Notes shall be allocated to
the remaining holders of Notes, pro rata based on the principal amount of the
Notes then held by such holders.

(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.

(10) COMPANY’S RIGHT OF MANDATORY CONVERSION.

(a) Mandatory Conversion. At any time after the effective date (the “Effective
Date”) of the Company’s Plan of Reorganization with respect to the Company’s
Chapter 11 Case (the “Mandatory Conversion Eligibility Date”), if (i) the
Weighted Average Price of the Common Stock listed on the Principal Market equals
or exceeds 150% of the Conversion Price as of the Issuance Date (subject to
appropriate adjustments for stock splits, stock dividends, stock combinations
and other similar transactions after the Issuance Date) for a period of ten
(10) consecutive Trading Days commencing after the Mandatory Conversion
Eligibility Date (the “Mandatory Conversion Measuring Period”), and (ii) no
Equity Conditions Failure has occurred, the Company shall have the right to
require the Holder to convert all or any portion of the Conversion Amount then
remaining under this Note, in each case as designated in the Mandatory
Conversion Notice (as defined below) into fully paid, validly issued and
nonassessable shares of Common Stock in accordance with Section 3(c) hereof at
the Conversion Rate as of the Mandatory Conversion Date (as defined below) (a
“Mandatory Conversion”). The Company may exercise its right to require
conversion under this Section 10(a) by delivering within not more

 

- 17 -

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

than two (2) Trading Days following the end of such Mandatory Conversion
Measuring Period a written notice thereof by facsimile and overnight courier to
all, but not less than all, of the holders of Notes and the Transfer Agent (the
“Mandatory Conversion Notice” and the date all of the holders of the Notes
received such notice by facsimile is referred to as the “Mandatory Conversion
Notice Date”). The Mandatory Conversion Notice shall be irrevocable. The
Mandatory Conversion Notice shall (y) state (I) the Trading Day selected for the
Mandatory Conversion, which Trading Day shall be no sooner than twenty
(20) Trading Days nor later than sixty (60) Trading Days following the Mandatory
Conversion Notice Date (the “Mandatory Conversion Date”), (II) the aggregate
Conversion Amount of the Notes subject to Mandatory Conversion from the Holder
and all of the holders of the Notes pursuant to this Section 10(a) (and
analogous provisions under the Other Notes), (III) the number of shares of
Common Stock to be issued to the Holder on the Mandatory Conversion Date and
(z) certify that there has been no Equity Conditions Failure; provided, however,
that the Company may not effect a Mandatory Conversion under this Section in
excess of the Holder Pro Rata Amount of the applicable Mandatory Conversion
Volume Limitation. Notwithstanding the foregoing, the Company may not effect a
Mandatory Conversion until a minimum of thirty (30) consecutive days have
elapsed after any prior Mandatory Conversion Date.

(b) Pro Rata Conversion Requirement. If the Company elects to cause a conversion
of any Conversion Amount of this Note pursuant to Section 10(a), then it must
simultaneously take the same action in the same proportion with respect to the
Other Notes. If the Company elects a Mandatory Conversion of this Note pursuant
to Section 10(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 conversion of a Conversion Amount from each of the holders
of the Notes equal to the product of (1) the aggregate Conversion Amount of
Notes which the Company has elected to cause to be converted pursuant to
Section 10(a), multiplied by (2) a 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 “Conversion Allocation Percentage,” and such amount with respect to each
holder is referred to as its “Pro Rata Conversion Amount”); provided, however,
that in the event that any holder’s Pro Rata Conversion Amount exceeds the
outstanding Principal amount of such holder’s Note, then such excess Pro Rata
Conversion 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 Conversion
Allocation Percentage and the Pro Rata Conversion Amount.

(11) OPTIONAL REDEMPTION AT THE COMPANY’S ELECTION.

(a) General. At any time after the date hereof, so long as there has been no
Equity Conditions Failure, the Company shall have the right to redeem all or any
portion of the Conversion Amount then remaining under this Note (the “Company
Optional Redemption Amount”) as designated in the Company Optional Redemption
Notice on the Company Optional Redemption Date (each as defined below) (a
“Company Optional Redemption”). The portion of this Note subject to redemption
pursuant to this Section 11(a) shall be redeemed by the Company

 

- 18 -

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

in cash at a price equal to 110% of the sum of (x) any Make-Whole Amount and
(y) the Conversion Amount being redeemed (the “Company Optional Redemption
Price”). The Company may exercise its right to require redemption under this
Section 11 by delivering a written notice thereof by facsimile and overnight
courier to all, but not less than all, of the holders of Notes (the “Company
Optional Redemption Notice” and the date all of the holders received such notice
is referred to as the “Company Optional Redemption Notice Date”). Each Company
Optional Redemption Notice shall be irrevocable. The Company Optional Redemption
Notice shall state (1) the date on which the Company Optional Redemption shall
occur (the “Company Optional Redemption Date”), which date shall not be less
than thirty (30) Business Days nor more than sixty (60) Business Days following
the Company Optional Redemption Notice Date, and (2) 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 other holders of the Notes
pursuant to this Section 11(a) (and analogous provisions under the Other Notes)
on the Company Optional Redemption Date. The Company may not effect a Company
Optional Redemption until a minimum of five (5) consecutive Trading Days have
elapsed after any prior Company Optional Redemption Date. Notwithstanding
anything to the contrary in this Section 11, until the Company Optional
Redemption Price is paid in full, the Company Optional Redemption Amount may be
converted, in whole or in part, by the Holders into shares of Common Stock
pursuant to Section 3. If the Holder so elects, any or all of the Conversion
Amounts converted by the Holder after the Company Optional Redemption Notice
Date shall reduce the Company Optional Redemption Amount of this Note required
to be redeemed on the Company Optional Redemption Date. Redemptions made
pursuant to this Section 11 shall be made in accordance with Section 12.

(b) Pro Rata Redemption Requirement. If the Company elects to cause a Company
Optional Redemption pursuant to Section 11(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 pursuant to Section 11(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 Conversion Amount of Notes which the
Company has elected to cause to be redeemed pursuant to Section 11(a),
multiplied by (ii) a 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 -

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

 

(12) REDEMPTIONS.

(a) Mechanics. The Company shall deliver the applicable Event of Default
Redemption Price to the Holder within five (5) Business Days after the Company’s
receipt of the Holder’s Event of Default Redemption Notice (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 five (5) Business
Days after the Company’s receipt of such notice otherwise (such date, the
“Change of Control Redemption Date”). If the Company has submitted a Company
Optional Redemption Notice in accordance with Section 11(a), the Company shall
deliver the applicable Company Optional Redemption Price to the Holder on the
Company Optional Redemption 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 17(d))
representing the outstanding Principal which has not been redeemed. In the event
that the Company does not pay the applicable Redemption Price to the Holder
within the time period required, at any time thereafter and until the Company
pays such unpaid Redemption Price in full, the Holder shall have the option, in
lieu of redemption, to require the Company by written notice 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 17(d)) to the Holder representing such Conversion Amount
to be redeemed and (z) the Conversion Price of this Note or such new Notes shall
be adjusted to the lesser of (A) the Conversion Price as in effect on the date
on which the applicable Redemption Notice is voided and (B) the lowest Closing
Bid Price of the shares of Common Stock during the period beginning on and
including the date on which the applicable Redemption Notice is delivered to or
by the Company and ending on and including the date on which the applicable
Redemption Notice is voided.

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

 

- 20 -

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

 

(13) VOTING RIGHTS. The Holder shall have no voting rights as the holder of this
Note, except as required by law, including, but not limited to, the General
Corporation Law of the State of Delaware, and as expressly provided in this
Note.

(14) COVENANTS.

(a) Bankruptcy Court Order. So long as this Note is outstanding, the Company
shall not, at any time, seek, consent to or suffer to exist any reversal,
modification, amendment, stay or vacation of the Approval Order or the Final
Approval Order, except for modifications and amendments agreed to by the
Required Holders.

(b) Existence of Claims. So long as this Note is outstanding, the Company shall
not at any time, suffer to exist a priority for any administrative expense or
unsecured claim against the Company, including, without limitation, any
administrative expenses of the kind specified in, or arising or ordered under,
Sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(a), 507(b), 546(c) 726 and
1114 of the Bankruptcy Code equal or superior to the priority of the Holder in
respect of the Collateral.

(c) Preservation of Existence, Etc. The Company shall maintain and preserve its
existence, rights and privileges, and 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.

(d) Transactions with Affiliates. The Company shall not enter into, renew,
extend or be a party to, any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease, transfer or exchange
of property or assets of any kind or the rendering of services of any kind) with
any Affiliate, except (i) in the ordinary course of business in a manner and to
an extent consistent with past practice and necessary or desirable for the
prudent operation of its business (including consistent with the past practices
of Accentia Biopharmaceuticals Inc.), for fair consideration and on terms no
less favorable to it than would be obtainable in a comparable arm’s length
transaction with a Person that is not an Affiliate thereof or (ii) for any
transactions or series of related transactions as are approved by a
disinterested committee of the Company’s board of directors.

(15) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote 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 to this Note
or the Other Notes.

(16) 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(i) of
the Securities Purchase Agreement.

(17) 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

 

- 21 -

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

of the Holder a new Note (in accordance with Section 17(d)), registered as the
Holder may request, representing the outstanding Principal being transferred by
the Holder and, if less then the entire outstanding Principal is being
transferred, a new Note (in accordance with Section 17(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)(iv) 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 17(d)) representing the outstanding Principal.

(c) Note Exchangeable for Different Denominations. This Note is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company,
for a new Note or Notes (in accordance with Section 17(d) and in principal
amounts of at least $100,000) representing in the aggregate the outstanding
Principal of this Note, and each such new Note will represent such portion of
such outstanding Principal as is designated by the Holder at the time of such
surrender.

(d) Issuance of New Notes. Whenever the Company is required to issue a new Note
pursuant to the terms of this Note, such new Note (i) shall be of like tenor
with this Note, (ii) shall represent, as indicated on the face of such new Note,
the Principal remaining outstanding (or in the case of a new Note being issued
pursuant to Section 17(a) or Section 17(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 of this Note, from the Issuance Date.

(18) 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 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.

 

- 22 -

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

 

(19) 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 (other than the Company’s Chapter 11 Case), 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.

(20) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by
the Company and all the Holders and shall not be construed against any person as
the drafter hereof. The headings of this Note are for convenience of reference
and shall not form part of, or affect the interpretation of, this Note.

(21) 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 unless a waiver signed by the Holder is set forth in
writing, 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 except as otherwise set forth in a written instrument signed
by Holder.

(22) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Closing Bid Price, the Closing Sale Price or the Weighted Average 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 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
Business Day submit via facsimile (a) the disputed determination of the Closing
Bid Price, the Closing Sale Price or the Weighted Average Price to an
independent, reputable investment bank selected by the Holder and approved by
the Company, such approval not to be unreasonably withheld, 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. 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.

 

- 23 -

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

 

(23) NOTICES; PAYMENTS.

(a) Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Note,
including in reasonable detail a description of such action and the reason
therefore. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least twenty (20) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the Common 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.

(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
Holders, shall initially be as set forth on the Schedule of Buyers attached to
the Securities Purchase Agreement); provided that the Holder may elect to
receive a payment of cash via wire transfer of immediately available funds by
providing the Company with prior written notice setting out such request and the
Holder’s wire transfer instructions. Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day and, in
the case of any Interest Date which is not the date on which this Note is paid
in full, the extension of the due date thereof shall not be taken into account
for purposes of determining the amount of Interest due on such date.

(24) 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.

(25) 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.

(26) INTENTIONALLY OMITTED.

(27) INTENTIONALLY OMITTED.

(28) GOVERNING LAW; JURISDICTION; JURY TRIAL. For the period from the entry of
the Approval Order until the Effective Date, all disputes under this Note and
any other Transaction Document shall be subject to the exclusive jurisdiction of
the Bankruptcy Court. Thereafter, this Note shall be construed and enforced in
accordance with, and all questions

 

- 24 -

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

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.
After the Effective Date, except as provided in Section 22, the Company hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. 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.

(29) SEVERABILITY. If any provision of this Note is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this Note
so long as this Note as so modified continues to express, without material
change, the original intentions of the parties as to the subject matter hereof
and the prohibited nature, invalidity or unenforceability of the provision(s) in
question does not substantially impair the respective expectations or reciprocal
obligations of the parties or the practical realization of the benefits that
would otherwise be conferred upon the parties. The parties will endeavor in good
faith negotiations to replace the prohibited, invalid or unenforceable
provision(s) with a valid provision(s), the effect of which comes as close as
possible to that of the prohibited, invalid or unenforceable provision(s). If it
shall be found that any default interest or other amount deemed interest due
hereunder violates the applicable law governing usury, the applicable rate of
interest due hereunder shall automatically be lowered to equal the maximum rate
of interest permitted under applicable law. The Company covenants (to the extent
that it may lawfully do so) that it shall not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law or other law which would prohibit or forgive the Company
from paying all or any portion of the principal of or default interest on this
Note as contemplated herein, wherever enacted, now or at any time hereafter in
force, or which may affect the covenants or the performance of this indenture,
and the Company (to the extent it may lawfully do so) hereby expressly waives
all benefits or advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Holder, but will suffer and permit the execution of every
such as though no such law has been enacted.

 

- 25 -

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

 

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

(a) “Affiliate” means, as to any specified Person, any other Person that
directly or indirectly controls, or is under common control with, or is
controlled by, such specified Person. As used in this definition, “control”
(including, with its correlative meanings, “controlled by” and “under common
control with”) shall mean possession, directly or indirectly, of power to direct
or cause the direction of the management or policies (whether through ownership
of securities or partnership or other ownership interests, by contract, or
otherwise).

(b) “Approved Stock Plan” means any employee benefit plan which has been or is
hereafter approved by the Board of Directors of the Company, pursuant to which
the Company’s securities may be issued to any employee, officer, advisor,
consultant, and/or director for services provided to the Company; provided,
however, that in the case of any issuance of securities to any consultant or
advisor of the Company, such securities are granted solely in consideration of
the provision of bona fide services to the Company relating to the Company’s
business or operations and not in connection with services relating to a
financing or similar activity.

(c) “Bankruptcy Code” means title 11 of the United States Code, 11 U.S.C. ss 101
et seq.

(d) “Bankruptcy Court” means the United States Bankruptcy Court for the Middle
District of Florida (Tampa Division).

(e) “Bloomberg” means Bloomberg Financial Markets.

(f) “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.

(g) “Change of Control” means any Fundamental Transaction other than (i) any
merger, consolidation, reorganization, recapitalization or reclassification of
the Common Stock in which this Note remains convertible into the publicly traded
common stock of the Successor Entity and in which the holders of the Company’s
voting power immediately prior to such merger, consolidation, reorganization,
recapitalization or reclassification continue after such merger, consolidation,
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, the voting power of the Successor Entity
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such Successor Entity and to approve
any measure requiring the approval of holders of a majority of the common stock
(or its equivalent) of the Successor Entity, (ii) a license, distribution or
development agreement relating to one or more of the Company’s biotech products
entered into on an arms length basis for reasonably equivalent value with a
Person that is not a direct or indirect affiliate of the Company or any officer,
director or employee thereof and that is in the business of commercializing or
developing biotech products or (iii) pursuant to a migratory merger effected
solely for the purpose of changing the jurisdiction of incorporation of the
Company.

 

- 26 -

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

 

(h) “Chapter 11 Case” means the Company’s case under chapter 11 of the
Bankruptcy Code, captioned In re: Biovest International, Inc., Case
No. 8:08-bk-17796-KRM, which case is jointly administered for procedural
purposes only under In re: Accentia Biopharmaceuticals, Inc., Case
No. 8:08-bk-17795-KRM.

(i) “Closing Bid Price” and “Closing Sale Price” means, for any security as of
any date, the last closing bid price and last closing trade price, respectively,
for such security on the Principal Market, as reported by Bloomberg, or, if the
Principal Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price, as the case may be,
then the last bid price or last trade price, respectively, of such security
prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly
the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing
Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the
case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 22. All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock
combination, reclassification or similar transaction during the applicable
calculation period.

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

(k) “Company’s Plan of Reorganization” means the Company’s First Amended Joint
Plan of Reorganization dated as of August 16, 2010 filed in the Chapter 11 Case,
as it may be amended, supplemented or modified from time to time.

(l) “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.

(m) “Collateral” has the meaning set forth in the Securities Purchase Agreement.

 

- 27 -

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

 

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

(o) “Eligible Market” means the Principal Market, any other market tier operated
by Pink OTC Markets Inc., The New York Stock Exchange, Inc., NYSE Amex, The
NASDAQ Global Market, The NASDAQ Capital Market, The NASDAQ Global Select
Market, or the OTC Bulletin Board.

(p) “Equity Conditions” means each of the following conditions: (i) on each day
during the period beginning on the later of three (3) months prior to the
applicable date of determination and the Issuance Date of this Note and ending
on and including the applicable date of determination (the “Equity Conditions
Measuring Period”), all shares of Common Stock issuable upon conversion of the
Notes and exercise of the Warrants shall be eligible for sale without
restriction and without the need for registration under any applicable federal
or state securities laws including, but not limited to, pursuant to Section 1145
of the Bankruptcy Code; (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 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 one (1) year period
ending on and including the date immediately preceding the applicable date of
determination, the Company shall have delivered shares of Common Stock issuable
upon the conversion of the Notes and 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 Sections 2(a) of the Warrants, respectively; (iv) any
applicable shares of Common Stock to be issued in connection with the event
requiring determination may be issued in full without violating or causing the
Holder to exceed the provisions of 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 within five (5) Business Days of when such
payment is due 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 any shares of Common Stock issuable upon conversion of the Notes and
shares of Common Stock issuable upon exercise of the Warrants not to be eligible
for sale without restriction pursuant to Rule 144 and without the requirement to
be in compliance with Rule 144(c)(1) (or any successor thereto) promulgated
under the 1933 Act or Section 1145 of the Bankruptcy Code and any applicable
state securities laws and (viii) the Company otherwise shall have been in
compliance with and shall not have materially breached any provision, covenant,
representation or warranty of any Transaction Document which remains uncured.

(q) “Equity Conditions Failure” means that on any day during the period
commencing ten (10) Trading Days prior to the applicable date of determination
through the applicable date of determination, the Equity Conditions have not
been satisfied (or waived in writing by the Holder).

 

- 28 -

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

 

(r) “Excluded Securities” means any shares of Common Stock issued or issuable:
(i) in connection with any Approved Stock Plan; (ii) upon exercise of the
Warrants or conversion of the Other Notes; provided that the terms of such
Warrants and Other Notes are not amended, modified or changed on or after the
Subscription Date other than pursuant to Section 2(b) of the Warrant and other
than pursuant to any anti-dilution provisions of this Note, the Other Notes, or
the Warrants, (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 exercise prices or conversion prices of
such Options or Convertible Securities are not decreased and the number of
shares issuable upon exercise or conversion are not increased other than in
accordance with their terms, (iv) in connection with mergers, acquisitions,
strategic business partnerships (including without limitation license,
distribution, or development partnerships), or joint ventures, in each case with
non-affiliated third parties and otherwise on an arm’s-length basis, the purpose
of which is not to raise additional capital; provided that any Common Stock
issued or issuable in connection with any transaction contemplated by this
clause (iv) that is either (A) attributable to capital raising for the Company
or its Subsidiaries (other than nominal amounts of capital) or (B) to raise
capital for the Company or its Subsidiaries, directly or indirectly, in order to
fund any transaction contemplated by this clause (iv), including, without
limitation, securities issued in one or more related transactions or that result
in similar economic consequences, shall not be deemed to be Excluded Securities
or (v) pursuant to or in accordance with the Plan.

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

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

 

- 29 -

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

 

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

(v) “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), (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, lien,
pledge, charge, security interest or other encumbrance upon or in any property
or assets (including accounts and contract rights) owned by any Person, even
though the Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (viii) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (i) through (vii) above.

(w) “Interest Conversion Price” means the lower of (i) the applicable Conversion
Price and (ii) the price computed as 90% of the arithmetic average of the
Weighted Average Price of the Common Stock over the ten (10) consecutive Trading
Day period immediately preceding the Interest Date. All such determinations
shall be appropriately adjusted for any stock split, stock dividend, stock
combination or other similar transaction during such period.

(x) “Interest Rate” means 7.00% per annum, subject to adjustment as set forth in
Section 2.

(y) “Mandatory Conversion Volume Limitation” means 20% of the aggregate dollar
trading volume (as reported on Bloomberg) of the Common Stock on the Principal
Market over the twenty (20) consecutive Trading Day period immediately prior to
the applicable Mandatory Conversion Notice Date.

(z) “Make-Whole Amount” means, as to any Conversion Amount on any Conversion
Date (including the Mandatory Conversion Date), as to any Event of Default
Redemption on any Event of Default Redemption Date, as to any Change of Control
Redemption on any Change of Control Redemption Date or as to any Company
Optional Redemption Price on any Company Optional Redemption Date, the amount
equal to any Interest that, but for (i) the Holder’s exercise of its conversion
right pursuant to Section 3(c), (ii) an Event of Default

 

- 30 -

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

Redemption pursuant to Section 4(b), (iii) a Change of Control Redemption
pursuant to Section 5(b), or (iv) a Company Optional Redemption pursuant to
Section 11(a), would have accrued with respect to the Conversion Amount being
converted or redeemed under this Note at the Interest Rate (assuming the
Interest Rate then in effect as of the applicable Conversion Date, Event of
Default Redemption Notice Date, Change of Control Redemption Notice Date or
Company Option Redemption Notice Date, as the case may be, is the Interest Rate
through the Maturity Date) for the period from the applicable Conversion Date,
Event of Default Redemption Date, Change of Control Redemption Date or the
Company Optional Redemption Date, as the case may be, through the earlier of the
one (1) year anniversary of such date or the Maturity Date.

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

(bb) “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 the day prior to the issuance of the applicable Option 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 prior to the public announcement of the
applicable issuance, or if not publicly announced, as of the day immediately
prior to the issuance of the applicable Option, (iii) the underlying price per
share used in such calculation shall be the highest Weighted Average Price
during the period beginning on the day prior to the execution of definitive
documentation relating to the issuance of the applicable Option and the public
announcement of such issuance and (iv) a 360 day annualization factor.

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

(dd) “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.

(ee) “Principal Market” means the OTCQX market tier operated by Pink OTC Markets
Inc.

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

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

 

- 31 -

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

 

(hh) “Related Fund” means, with respect to any Person, a fund or account managed
by such Person or an Affiliate of such Person.

(ii) “Required Holders” means the holders of Notes representing at least
two-thirds of the aggregate principal amount of the Notes then outstanding.

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

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

(ll) “Subscription Date” means October 19, 2010.

(mm) “Successor Entity” means the Person, which may be the Company, formed by,
resulting from or surviving any Fundamental Transaction or the Person with which
such Fundamental Transaction shall have been made, provided that if such Person
is not a publicly traded entity whose common stock or equivalent equity security
is quoted or listed for trading on an Eligible Market, Successor Entity shall
mean such Person’s Parent Entity.

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

(oo) “Voting Stock” of a Person means capital stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting power
to elect, or the general power to appoint, at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time capital stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).

(pp) “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.

(qq) “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” functions, or, if the foregoing does not apply,
the dollar volume-weighted average price of such security in the
over-the-counter market

 

- 32 -

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

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 “pink sheets” by Pink Sheets
LLC (formerly the National Quotation Bureau, 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 22. All
such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination, reclassification or similar transaction during
the applicable calculation period.

(31) 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 such Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries.

[Signature Page Follows]

 

- 33 -

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

 

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

 

BIOVEST INTERNATIONAL, INC. By:  

 

  Name:     Title:  

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

 

EXHIBIT I

BIOVEST INTERNATIONAL, INC.

CONVERSION NOTICE

Reference is made to the Convertible Note (the “Note”) issued to the undersigned
by Biovest International, 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 par value $0.01 per share (the
“Common Stock”) of the Company, as of the date specified below.

 

Date of Conversion:

 

 

Aggregate Conversion Amount to be converted:

 

 

Please confirm the following information:

Conversion Price:

 

 

Number of shares of Common Stock to be issued:

 

 

Is the Variable Price Formulation being relied on pursuant to Section 7(a)(vi)?
(check one) YES        NO        

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

Issue to:

 

 

 

 

 

 

Facsimile Number:

 

 

Authorization:

 

 

By:

 

 

Title:

 

 

Dated:  

 

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

 

Account Number:

  

 

  (if electronic book entry transfer)

Transaction Code Number:

 

 

  (if electronic book entry transfer)

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

 

ACKNOWLEDGMENT

The Company hereby acknowledges this Conversion Notice and hereby directs
StockTrans, Inc. to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated                 , 2010
from the Company and acknowledged and agreed to by StockTrans, Inc.

 

BIOVEST INTERNATIONAL, INC. By:  

 

  Name:     Title:  

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

 

Exhibit B-1

[FORM OF SERIES A WARRANT]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE 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 FORM REASONABLY SATISFACTORY TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS THE
HOLDER PROVIDES THE COMPANY WITH REASONABLE ASSURANCE THAT SUCH SECURITIES CAN
BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT (COLLECTIVELY, “RULE
144”) AND APPLICABLE STATE SECURITIES LAWS. 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.

BIOVEST INTERNATIONAL, INC.

WARRANT TO PURCHASE COMMON STOCK

Warrant No.:             

Number of Shares of Common Stock:                     

Date of Issuance: [            ], 2010 (“Issuance Date”)

Biovest International, Inc., a company organized under the laws of Delaware (the
“Company”), hereby certifies that, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, [BUYER], the
registered holder hereof or its permitted assigns (the “Holder”), is entitled,
subject to the terms set forth below, to purchase from the Company, at the
Exercise Price (as defined below) then in effect, upon surrender of this Warrant
to Purchase Common Stock (including any Warrants to Purchase Common Stock issued
in exchange, transfer or replacement hereof, the “Warrant”), at any time or
times on or after the Effective Date (as defined in the Securities Purchase
Agreement) (the “Initial Exercisability Date”), but not after 11:59 p.m., New
York time, on the Expiration Date (as defined below),                     
(                    )1 fully paid nonassessable shares of Common Stock, par
value $0.01 per share, subject to adjustment as provided herein (the “Warrant
Shares”). Except as otherwise defined herein, capitalized terms in this Warrant
shall have the meanings set forth in Section 16. This Warrant is one of the
Series A Warrants to purchase Common Stock (the “SPA Warrants”) issued pursuant
to Section 1 of that certain Securities Purchase Agreement, dated as of October
    , 2010 (the “Subscription Date”), by and among the Company and the investors
(the “Buyers”) referred to therein (the “Securities Purchase Agreement”).

 

1

Insert number of shares equal to such holder’s pro rata share of the aggregate
principal amount of SPA Securities sold by the Company pursuant to the
Securities Purchase Agreement divided by $0.91.

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

 

1. EXERCISE OF WARRANT.

(a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any time or times on or after the
Initial Exercisability Date, in whole or in part, by (i) delivery of a written
notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the
Holder’s election to exercise this Warrant and (ii) (A) payment to the Company
of an amount equal to the applicable Exercise Price multiplied by the number of
Warrant Shares as to which this Warrant is being exercised (the “Aggregate
Exercise Price”) in cash or by wire transfer of immediately available funds or
(B) by notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required
to deliver the original Warrant in order to effect an exercise hereunder.
Execution and delivery of the Exercise Notice with respect to less than all of
the Warrant Shares shall have the same effect as cancellation of the original
Warrant and issuance of a new Warrant evidencing the right to purchase the
remaining number of Warrant Shares. On or before the first (1st) Trading Day
following the date on which the Company has received the Exercise Notice), the
Company shall transmit by facsimile an acknowledgment of confirmation of receipt
of the Exercise Notice to the Holder and the Company’s transfer agent (the
“Transfer Agent”). On or before the third (3rd) Trading Day following the date
on which the Company has received the Exercise Notice (the “Share Delivery
Date”) so long as the Holder delivers the Aggregate Exercise Price (or notice of
a Cashless exercise) on or prior to the 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, upon the request of
the Holder, credit such aggregate number of Warrant Shares to which the Holder
is entitled pursuant to such exercise 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 dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company’s
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise. The Company shall be responsible for all fees and expenses of the
Transfer Agent and all fees and expenses with respect to the issuance of Warrant
Shares via DTC, if any. Upon delivery of the Exercise Notice, so long as the
Holder delivers the Aggregate Exercise Price (or notice of a Cashless Exercise)
on or prior to the Share Delivery Date, the Holder shall be deemed for all
corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective of the date
such Warrant Shares are credited to the Holder’s DTC account or the date of
delivery of the certificates evidencing such Warrant Shares, as the case may be.
If this Warrant is submitted in connection with any exercise pursuant to this
Section 1(a) and the number of Warrant Shares represented by this Warrant
submitted for exercise is greater than the number of Warrant Shares being
acquired upon an exercise, then the Company shall as soon as practicable and in
no event later than three (3) Trading Days after any exercise and at its own
expense, issue a new Warrant (in accordance with Section 7(d)) representing the
right to purchase the number of Warrant Shares issuable immediately prior to
such exercise under this Warrant, less the number of Warrant Shares with respect
to which this Warrant is exercised. No

 

- 2 -

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

fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock to be issued shall be
rounded up to the nearest whole number. The Company shall pay any and all taxes
which may be payable with respect to the issuance and delivery of Warrant Shares
upon exercise of this Warrant.

(b) Exercise Price. For purposes of this Warrant, “Exercise Price” means
$        , subject to adjustment as provided herein.

(c) Company’s Failure to Timely Deliver Securities. If the Company shall fail
for any reason or for no reason to issue to the Holder within three (3) Trading
Days of receipt of the Exercise Notice, so long as the Holder delivers the
Aggregate Exercise Price (or notice of Cashless Exercise) on or prior to the
Share Delivery Date, a certificate for the number of shares of Common Stock to
which the Holder is entitled and register such shares of Common Stock on the
Company’s share register or to credit the Holder’s balance account with DTC for
such number of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise of this Warrant or pursuant to the Company’s obligation
pursuant to clause (ii) below, and if on or after such Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise 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 (i) pay cash
to the Holder in an amount equal to the Holder’s total purchase price (including
brokerage commissions and other reasonable out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (the “Buy-In Price”), at which point the
Company’s obligation to deliver such certificate (and to issue such shares of
Common Stock) or credit such Holder’s balance account with DTC shall terminate,
or (ii) promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such shares of Common Stock or credit such Holder’s
balance account with DTC and pay cash to the Holder in an amount equal to the
excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the date of exercise.

(d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if, after the Effective Date, any Warrant Shares that are the subject
of the Exercise Notice cannot be issued pursuant to Section 1145 of the
Bankruptcy Code (as defined in the Securities Purchase Agreement) or is
otherwise not freely transferable without any restrictions or limitations, the
Holder may, in its sole discretion, exercise this Warrant in whole or in part
and, in lieu of making the cash payment otherwise contemplated to be made to the
Company upon such exercise in payment of the Aggregate Exercise Price, elect
instead to receive upon such exercise the “Net Number” of shares of Common Stock
determined according to the following formula (a “Cashless Exercise”):

Net Number = (A x B) - (A x C)

                                     B

 

- 3 -

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

 

For purposes of the foregoing formula:

 

A=   the total number of shares with respect to which this Warrant is then being
exercised. B=   the Weighted Average Price of the Common Stock (as reported by
Bloomberg) for the five (5) consecutive Trading Days ending on the date
immediately preceding the date of the Exercise Notice. C=   the Exercise Price
then in effect for the applicable Warrant Shares at the time of such exercise.

(e) Disputes. In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the Warrant Shares, the Company shall
promptly issue to the Holder the number of Warrant Shares that are not disputed
and resolve such dispute in accordance with Section 12.

(f) Limitations on Exercises. The Company shall not effect the exercise of this
Warrant, and the Holder shall not have the right to exercise this Warrant, to
the extent that after giving effect to such exercise, such Person (together with
such Person’s affiliates) would beneficially own in excess of 4.99% (the
“Maximum Percentage”) of the shares of Common Stock outstanding immediately
after giving effect to such exercise. For purposes of the foregoing sentence,
the aggregate number of shares of Common Stock beneficially owned by such Person
and its affiliates shall include the number of shares of Common Stock issuable
upon exercise of this Warrant 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) exercise of the remaining, unexercised portion of this Warrant
beneficially owned by such Person and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company beneficially owned by such Person and its affiliates (including,
without limitation, any convertible notes or convertible preferred stock or
warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the “1934 Act”). For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company’s most recent
Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding.
For any reason at any time, upon the written or oral request of the Holder, the
Company shall within one (1) Business Day confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the

 

- 4 -

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

conversion or exercise of securities of the Company, including the SPA Warrants,
by the Holder and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. By 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% specified in such
notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and
(ii) any such increase or decrease will apply only to the Holder and not to any
other holder of SPA Warrants. The provisions of this paragraph shall be
construed and implemented in a manner otherwise than in strict conformity with
the terms of this Section 1(f) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such limitation.

(g) Insufficient Authorized Shares. If at any time while this Warrant remains
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 exercise of this Warrant at least a number of shares of Common
Stock equal to 130% (the “Required Reserve Amount”) of the maximum number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of all of this Warrant then outstanding (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 this Warrant
then outstanding. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than sixty (60) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its reasonable 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.

2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price
and the number of Warrant Shares shall be adjusted from time to time as follows:

(a) Adjustment upon Issuance of shares of Common Stock. If and whenever on or
after the Subscription Date, the Company issues or sells, or in accordance with
this Section 2 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 by the Company in connection with any Excluded Securities (as
defined in the SPA Securities)) for a consideration per share (the “New Issuance
Price”) less than a price (the “Applicable Price”) equal to the Exercise 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 Exercise Price then in effect shall be reduced to an amount equal
to the New Issuance Price. Upon each such adjustment of the Exercise Price
hereunder, the number of Warrant Shares issuable immediately prior to such
Dilutive Issuance shall be adjusted to the number of shares of Common Stock
determined by multiplying the Exercise Price in effect immediately prior to such

 

- 5 -

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

adjustment by the number of Warrant Shares acquirable upon exercise of this
Warrant immediately prior to such adjustment and dividing the product thereof by
the Exercise Price resulting from such adjustment. For purposes of determining
the adjusted Exercise Price under this Section 2(a), the following shall be
applicable:

(i) Issuance of Options. If the Company in any manner grants any Options and the
lowest price per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such Option is less than
the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 2(a)(i), the “lowest price per share for which one share of Common Stock
is issuable upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities issuable upon exercise of any such
Option” shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion, exercise or exchange of any Convertible Security
issuable upon exercise of such Option 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 Exercise Price or number of Warrant Shares 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, exercise or exchange 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, exercise or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 2(a)(ii), the “lowest price per
share for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the Convertible Security and
upon conversion, exercise or exchange of such Convertible Security less any
consideration paid or payable by the Company with respect to such one share of
Common Stock upon the issuance or sale of such Convertible Security and upon
conversion, exercise or exchange of such

 

- 6 -

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

Convertible Security. No further adjustment of the Exercise Price or number of
Warrant Shares shall be made upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such Convertible Securities, and
if any such issue or sale of such Convertible Securities is made upon exercise
of any Options for which adjustment of this Warrant has been or is to be made
pursuant to other provisions of this Section 2(a), no further adjustment of the
Exercise Price or number of Warrant Shares 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 issued after the Subscription Date, the additional
consideration, if any, payable upon the issue, conversion, exercise or exchange
of any Convertible Securities issued after the Subscription Date, or the rate at
which any Convertible Securities issued after the Subscription Date are
convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Exercise Price and the number of Warrant
Shares in effect at the time of such increase or decrease shall be adjusted to
the Exercise Price and the number of Warrant Shares 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. Additionally, if the terms of any Option or Convertible Security
that was outstanding as of the date of the Subscription Date is 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, but in such event the
amount of the adjustment to the Exercise Price pursuant to this Section 2 will
not be proportionately greater than the proportionate amount of the increase or
decrease. No adjustment pursuant to this Section 2(a) shall be made if such
adjustment would result in an increase of the Exercise Price then in effect or a
decrease in the number of Warrant Shares.

(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 and (y) the other securities issued or sold in
such integrated transaction shall be deemed to have been issued 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. If any shares of Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received or receivable by the Company therefor. If any
shares

 

- 7 -

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

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 securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such security on the
date of receipt. If any shares of Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such shares of Common Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or securities will be
determined jointly by the Company and the Required Holders. If such parties are
unable to reach agreement within ten (10) days after the occurrence of an event
requiring valuation (the “Valuation Event”), the fair value of such
consideration will be determined within five (5) Trading Days after the tenth
(10th) day following 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.

(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.

(b) Voluntary Adjustment By Company. The Company may at any time during the term
of this Warrant reduce the then current Exercise Price to any amount and for any
period of time deemed appropriate by the Board of Directors of the Company.

(c) Adjustment upon Subdivision or Combination of shares 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 Exercise
Price in effect immediately prior to such subdivision will be proportionately
reduced and the number of Warrant Shares will be proportionately increased. 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 Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the

 

- 8 -

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

number of Warrant Shares will be proportionately decreased. Any adjustment under
this Section 2(c) shall become effective at the close of business on the date
the subdivision or combination becomes effective.

(d) Holder’s Right of Alternative Exercise Price Following Issuance of Variable
Securities. If the Company issues or sells or, in accordance with this Section 2
is deemed to have issued or sold any Options or Convertible Securities after the
Issuance Date that are convertible into or exchangeable or exercisable for
shares of Common Stock at a price which varies or may vary with the market price
of the shares of Common Stock, including by way of one or more reset(s) to a
fixed price (each of the formulations for such variable price being herein
referred to as, a “Variable Price Formulation”), the Company shall provide
written notice thereof via facsimile and overnight courier to the Holder (the
“Variable Notice”) on the date of issuance or deemed issuance of such
Convertible Securities or Options. From and after the date the Company issues or
is deemed to have issued any such Convertible Securities or Options with a
Variable Price Formulation, but only for so long as such Convertible Securities
or Options are outstanding, the Holder shall have the right, but not the
obligation, in its sole discretion to substitute any of the applicable Variable
Price Formulation for the Exercise Price upon exercise of the Warrants held by
it by designating in the Exercise Notice delivered upon exercise of such Warrant
that solely for purposes of such exercise the Holder is relying on the Variable
Price Formulation rather than the Exercise Price then in effect. The Holder’s
election to rely on a Variable Price Formulation for a particular exercise of
Warrants shall not obligate the Holder to rely on a Variable Price Formulation
for any future exercise of Warrants. In connection with determining the “lowest
price per share for which one share of Common Stock is issuable upon exercise of
any Option” pursuant to Section 2(a)(i) and the “lowest price per share for
which one share of Common Stock is issuable upon the conversion, exercise or
exchange of a Convertible Security” pursuant to Section 2(a)(ii), as such terms
pertain solely to any Variable Price Formulation contained in any Option or
Convertible Securities issued after the Issuance Date, such lowest price shall
equal the lesser of (i) the fixed exercise, conversion or exchange price set
forth in the applicable Option or Convertible Security and (ii) the Variable
Price Formulation contained in the applicable Option or Convertible Security,
calculated as if such Option or Convertible Security were converted, exercised
or exchanged as of the date of issuance of the applicable Option or Convertible
Security.

(e) Price Adjusted Market Price Adjustment. If the Price Adjusted Market Price
is less than the Exercise Price in effect on the Issuance Date, then on
December 22, 2010, the Exercise Price then in effect shall be reduced (but in no
event increased) to 120% of the Price Adjusted Market Price, provided that the
Exercise Price shall not be reduced below $0.60 (subject to adjustment for stock
splits, stock dividends, recapitalizations or other similar events with respect
to the Company’s Common Stock) pursuant to this Section 2(e). For the avoidance
of doubt, if the adjustment in the immediately preceding sentence would
otherwise result in an increase in the Exercise Price hereunder, no adjustment
shall be made. Upon the foregoing adjustment to the Exercise Price, the number
of Warrant Shares issuable immediately prior to such adjustment shall be
adjusted to the number of shares of Common Stock determined by multiplying .9375
by the product of (A) the Exercise Price in effect immediately prior to such
adjustment and (B) the number of Warrant Shares acquirable upon exercise in full
of this Warrant immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.

 

- 9 -

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

 

3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of shares of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a “Distribution”), at any time after the issuance of this
Warrant, then, in each such case, upon an exercise of this Warrant, in whole or
in part, the Holder will be entitled to receive the amount of any such
Distribution that the Holder would have received if the Holder had held,
immediately before the date on which a record is taken for the declaration or
payment of the Distribution, or, if no such record date is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
declaration or payment of the Distribution, the number of shares of Common Stock
that the Holder is entitled to receive upon such exercise (without taking into
account any limitations or restrictions on the convertibility of this Warrant).

4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

(a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above,
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 exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.

(b) Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Warrant and the other Transaction
Documents in accordance with the provisions of this Section (4)(b) 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 to deliver to each holder of the SPA Warrants in exchange
for such Warrants a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value for
the shares of Common Stock reflected by the terms of such Fundamental
Transaction, and exercisable for a corresponding number of shares of capital
stock equivalent to the shares of Common Stock acquirable and receivable upon
exercise of this Warrant (without regard to any limitations on the exercise of
this Warrant) prior to such Fundamental Transaction, and satisfactory to the
Required Holders and (ii) the Successor Entity (including its Parent Entity) is
a publicly traded corporation whose common stock is quoted on or listed for
trading on an Eligible Market. Upon the occurrence of any Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of
this Warrant referring to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume
all of the obligations of the Company under this Warrant with

 

- 10 -

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

the same effect as if such Successor Entity had been named as the Company
herein. Upon consummation of the Fundamental Transaction, the Successor Entity
shall deliver to the Holder confirmation that there shall be issued upon
exercise of this Warrant at any time after the consummation of the Fundamental
Transaction, in lieu of the shares of Common Stock (or other securities, cash,
assets or other property) issuable upon the exercise of the Warrant prior to
such Fundamental Transaction, such shares of the publicly traded common stock or
common shares (or its equivalent) of the Successor Entity (including its Parent
Entity) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had this Warrant been converted immediately
prior to such Fundamental Transaction, as adjusted in accordance with the
provisions of this Warrant. In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a “Corporate Event”), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the Corporate
Event but prior to the Expiration Date, in lieu of shares of Common Stock (or
other securities, cash, assets or other property) purchasable upon the exercise
of this Warrant prior to such Corporate Event, such shares of stock, securities,
cash, assets or any other property whatsoever (including warrants or other
purchase or subscription rights) which the Holder would have been entitled to
receive upon the happening of such Corporate Event had this Warrant been
exercised immediately prior to such Corporate Event. Provision made pursuant to
the preceding sentence shall be in a form and substance reasonably satisfactory
to the Required Holders. The provisions of this Section shall apply similarly
and equally to successive Fundamental Transactions and Corporate Events and
shall be applied without regard to any limitations on the exercise of this
Warrant.

(c) Notwithstanding the foregoing, in the event of a Change of Control, at the
request of the Holder delivered before the ninetieth (90th) day after the
consummation of such Change of Control, the Company (or the Successor Entity)
shall purchase this Warrant from the Holder by paying to the Holder, within five
(5) Business Days after such request (or, if later, on the effective date of the
Change of Control), cash in an amount equal to the Black Scholes Value of the
remaining unexercised portion of this Warrant on the date of such Change of
Control.

5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of its Certificate of Incorporation or Bylaws, or through
any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, 130% of the number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of the SPA Warrants then outstanding
(without regard to any limitations on exercise).

 

- 11 -

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

 

6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically
provided herein, the Holder, solely in such Person’s capacity as a holder of
this Warrant, shall not be entitled to vote or receive dividends or be deemed
the holder of share capital of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the Holder, solely in such
Person’s capacity as the Holder of this Warrant, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the Holder of the Warrant Shares which such Person is then entitled
to receive upon the due exercise of this Warrant. In addition, nothing contained
in this Warrant shall be construed as imposing any liabilities on the Holder to
purchase any securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this Section 6, the Company
shall provide the Holder with copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously with the
giving thereof to the stockholders.

7. REISSUANCE OF WARRANTS.

(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Warrant (in accordance with
Section 7(d)), registered as the Holder may request, representing the right to
purchase the number of Warrant Shares being transferred by the Holder and, if
less than the total number of Warrant Shares then underlying this Warrant is
being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder
representing the right to purchase the number of Warrant Shares not being
transferred.

(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, 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 Warrant,
the Company shall execute and deliver to the Holder a new Warrant (in accordance
with Section 7(d)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new
Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.

 

- 12 -

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

 

(d) Issuance of New Warrants. Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a)
or Section 7(c), the Warrant Shares designated by the Holder which, when added
to the number of shares of Common Stock underlying the other new Warrants issued
in connection with such issuance, does not exceed the number of Warrant Shares
then underlying this Warrant), (iii) shall have an issuance date, as indicated
on the face of such new Warrant which is the same as the Issuance Date, and
(iv) shall have the same rights and conditions as this Warrant.

8. NOTICES. Whenever notice is required to be given under this Warrant, 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 Warrant,
including in reasonable detail a description of such action and the reason
therefor. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Exercise Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen (15) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the shares of Common Stock, (B) with respect
to any grants, issuances or sales of any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property to holders of
shares of Common Stock or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation, provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder.

9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of
this Warrant may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Required Holders. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the SPA Warrants then outstanding.

10. GOVERNING LAW. This Warrant shall be governed by and construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, the
internal laws of the State of Florida, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Florida or any
other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Florida. The Holder and the Company hereby
irrevocably submit to the exclusive jurisdiction of the Bankruptcy Court for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waive, and agree not to assert in any suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of any such court, that such
suit, action or proceeding is brought in an inconvenient forum or that the venue
of such suit, action or proceeding is improper. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law. Nothing contained herein shall be deemed 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

 

- 13 -

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

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 WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted
by the Company and all the Buyers and shall not be construed against any person
as the drafter hereof. The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Warrant.

12. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall submit the disputed determinations or arithmetic calculations via
facsimile within two (2) Business Days of receipt of the Exercise Notice 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 of the
Exercise Price or the Warrant Shares within three (3) Business Days of such
disputed determination or arithmetic calculation being submitted to the Holder,
then the Company shall, within two (2) Business Days submit via facsimile
(a) the disputed determination of the Exercise Price to an independent,
reputable investment bank selected by the Company and approved by the Holder or
(b) the disputed arithmetic calculation of the Warrant Shares to the Company’s
independent, outside accountant. The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten 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.

13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other
remedies available under this Warrant and 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 right of the Holder to
pursue actual damages for any failure by the Company to comply with the terms of
this Warrant. 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 of this Warrant 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.

14. TRANSFER. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company, except as may otherwise be required
by Section 2(f) of the Securities Purchase Agreement.

15. SEVERABILITY. If any provision of this Warrant is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the

 

- 14 -

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

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 Warrant so long as this
Warrant 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).

16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall
have the following meanings:

(a) “Black Scholes Value” means the value of this Warrant based on the Black and
Scholes Option Pricing Model obtained from the “OV” function on Bloomberg
determined as of the day immediately following the public announcement of the
applicable Fundamental Transaction 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 this Warrant as of such date of request, (ii) an
expected volatility equal to 100%, (iii) the underlying price per share used in
such calculation shall be the sum of the price per share being offered in cash,
if any, plus the value of any non-cash consideration, if any, being offered in
the Fundamental Transaction and (iv) a 360 day annualization factor.

(b) “Bloomberg” means Bloomberg Financial Markets.

(c) “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.

(d) “Change of Control” means any Fundamental Transaction other than (i) any
merger, consolidation, reorganization, recapitalization or reclassification of
the Common Stock in which this Warrant remains exercisable for publicly traded
common stock (or its equivalent) of the Successor Entity and in which the
holders of the Company’s voting power immediately prior to such merger,
consolidation, reorganization, recapitalization or reclassification continue
after such merger, consolidation, reorganization, recapitalization or
reclassification to hold publicly traded securities and, directly or indirectly,
the voting power of the Successor Entity necessary to elect a majority of the
members of the board of directors (or their equivalent if other than a
corporation) of such Successor Entity and to approve any measure requiring the
approval of holders of a majority of the common stock (or its equivalent) of the
Successor Entity, (ii) a license, distribution or development agreement relating
to one or more of the Company’s biotech products entered into on an arms length
basis for reasonably equivalent value with a Person that is not a direct or
indirect affiliate of the Company or any officer, director or employee thereof
and that is in the business of commercializing or developing biotech products or
(iii) pursuant to a migratory merger effected solely for the purpose of changing
the jurisdiction of incorporation of the Company.

 

- 15 -

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

 

(e) “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 the last trade price, respectively, of such security
prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly
the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing
Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the
case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 12. All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during the applicable calculation period.

(f) “Common Stock” means (i) the Company’s shares of Common Stock, par value
$0.01 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.

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

(h) “Eligible Market” means the Principal Market, any other market tier operated
by Pink OTC Markets Inc., The Nasdaq Capital Market, The NASDAQ Global Market,
The NASDAQ Global Select Market, The New York Stock Exchange, Inc., The NYSE
Amex or the OTC Bulletin Board.

(i) “Expiration Date” means the date eighty-four (84) months after the Initial
Exercisability Date or, if such date falls on a day other than a Business Day or
on which trading does not take place on the Principal Market (a “Holiday”), the
next day that is not a Holiday.

(j) “Fundamental Transaction” means that (A) the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of the outstanding shares of
Common

 

- 16 -

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

Stock (not including any shares of Common Stock held by the Person or Persons
making or party to, or associated or affiliated with the Persons making or party
to, such purchase, tender or exchange offer), or (iv) consummate a stock
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), or (v) reorganize, recapitalize or
reclassify its Common Stock or (B) any “person” or “group” (as these terms are
used for purposes of Sections 13(d) and 14(d) of the 1934 Act) is or shall
become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding shares of Common Stock. Notwithstanding
the foregoing, the term “Fundamental Transaction” shall not include any issuance
of securities or any other transaction contemplated to occur at the Effective
Date pursuant to the Company’s Plan of Reorganization (as defined in the SPA
Securities).

(k) “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 the day prior to the public announcement of the applicable Option 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
100%, (iii) the underlying price per share used in such calculation shall be the
highest Weighted Average Price during the period beginning on the day prior to
the execution of definitive documentation relating to the issuance of the
applicable Option and the public announcement of such issuance and (iv) a 360
day annualization factor.

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

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

(n) “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.

(o) “Price Adjusted Market Price” means the arithmetic average of the Weighted
Average Prices during the period beginning on (and including) December 1, 2010
and ending on (and including) December 21, 2010.

(p) “Principal Market” means the OTCQX market tier operated by Pink OTC Markets
Inc. or such Eligible Market on which such security is then listed or traded as
reported by Bloomberg.

 

- 17 -

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

 

(q) “Required Holders” means the holders of the SPA Warrants representing at
least two-thirds of the shares of Common Stock underlying the SPA Warrants then
outstanding.

(r) “SPA Securities” means the Initial Notes issued pursuant to the Securities
Purchase Agreement.

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

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

(u) “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 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, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.). If the 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 12 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 or other similar
transaction during the applicable calculation period.

[Signature Page Follows]

 

- 18 -

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

 

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

 

BIOVEST INTERNATIONAL, INC. By:  

 

  Name:   Title:

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

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

BIOVEST INTERNATIONAL, INC.

The undersigned holder hereby exercises the right to purchase
                     of the Common Stock (“Warrant Shares”) of Biovest
International, Inc., a company incorporated under the laws of Delaware (the
“Company”), evidenced by the attached Warrant to Purchase Common Stock (the
“Warrant”). Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant.

1. Form of Exercise Price. The Holder intends that payment of the Exercise Price
shall be made as:

             a “Cash Exercise” with respect to                      Warrant
Shares; and/or

             a “Cashless Exercise” with respect to                      Warrant
Shares.

2. Payment of Exercise Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$             to the Company in accordance with the terms of the Warrant.

3. Delivery of Warrant Shares. The Company shall deliver to the holder
                     Warrant Shares in accordance with the terms of the Warrant.

4. The undersigned holder hereby represents and warrants that after giving
effect to the exercise of the Warrant contemplated by this Exercise Notice, such
holder will not be in violation of the beneficial ownership limits specified in
Section 1(f) of the Warrant, as increased or decreased pursuant to terms
contained therein.

5. Is the Variable Price Formulation being relied on pursuant to Section 2.1(d)?
(check one) YES        NO        

Date:                  ,         

 

Account Number:  

 

(if electronic book entry transfer)

 

Transaction Code Number:  

 

(if electronic book entry transfer)

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

 

 

Name of Registered Holder  

 

  Name:   Title:

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

 

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs
StockTrans, Inc. to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated October [    ], 2010
from the Company and acknowledged and agreed to by StockTrans, Inc.

 

BIOVEST INTERNATIONAL, INC. By:  

 

  Name:   Title:

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

 

Exhibit B-1

[FORM OF SERIES B WARRANT]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE 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 FORM REASONABLY SATISFACTORY TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS THE
HOLDER PROVIDES THE COMPANY WITH REASONABLE ASSURANCE THAT SUCH SECURITIES CAN
BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT (COLLECTIVELY, “RULE
144”) AND APPLICABLE STATE SECURITIES LAWS. 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.

BIOVEST INTERNATIONAL, INC.

WARRANT TO PURCHASE COMMON STOCK

Warrant No.:             

Number of Shares of Common Stock:                     

Date of Issuance: [            ], 2010 (“Issuance Date”)

Biovest International, Inc., a company organized under the laws of Delaware (the
“Company”), hereby certifies that, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, [BUYER], the
registered holder hereof or its permitted assigns (the “Holder”), is entitled,
subject to the terms set forth below, to purchase from the Company, at the
Exercise Price (as defined below) then in effect, upon surrender of this Warrant
to Purchase Common Stock (including any Warrants to Purchase Common Stock issued
in exchange, transfer or replacement hereof, the “Warrant”), at any time or
times on or after the Effective Date (as defined in the Securities Purchase
Agreement) (the “Initial Exercisability Date”), but not after 11:59 p.m., New
York time, on the Expiration Date (as defined below),                     
(                    )1 fully paid nonassessable shares of Common Stock, par
value $0.01 per share, subject to adjustment as provided herein (the “Warrant
Shares”). NOTWITHSTANDING ANY PROVISION OF THIS WARRANT TO THE CONTRARY, NO MORE
THAN THE MAXIMUM ELIGIBILITY NUMBER OF WARRANT SHARES

 

1 Insert number of shares equal to the difference between (i) the Holder’s share
of the aggregate principal amount of SPA Securities sold by the Company pursuant
to the Securities Purchase Agreement divided by $0.50 and (ii) the Holder’s
share of the aggregate principal amount of SPA Securities sold by the Company
pursuant to the Securities Purchase Agreement divided by the Conversion Price
(as defined in the SPA securities) in effect on the Issuance Date.

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

SHALL BE EXERCISABLE HEREUNDER. Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in Section 16. This
Warrant is one of the Series B Warrants to purchase Common Stock (the “SPA
Warrants”) issued pursuant to Section 1 of that certain Securities Purchase
Agreement, dated as of October     , 2010 (the “Subscription Date”), by and
among the Company and the investors (the “Buyers”) referred to therein (the
“Securities Purchase Agreement”).

1. EXERCISE OF WARRANT.

(a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any time or times on or after the
Initial Exercisability Date, in whole or in part, by (i) delivery of a written
notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the
Holder’s election to exercise this Warrant and (ii) (A) payment to the Company
of an amount equal to the applicable Exercise Price multiplied by the number of
Warrant Shares as to which this Warrant is being exercised (the “Aggregate
Exercise Price”) in cash or by wire transfer of immediately available funds or
(B) by notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required
to deliver the original Warrant in order to effect an exercise hereunder.
Execution and delivery of the Exercise Notice with respect to less than all of
the Warrant Shares shall have the same effect as cancellation of the original
Warrant and issuance of a new Warrant evidencing the right to purchase the
remaining number of Warrant Shares. On or before the first (1st) Trading Day
following the date on which the Company has received the Exercise Notice), the
Company shall transmit by facsimile an acknowledgment of confirmation of receipt
of the Exercise Notice to the Holder and the Company’s transfer agent (the
“Transfer Agent”). On or before the third (3rd) Trading Day following the date
on which the Company has received the Exercise Notice (the “Share Delivery
Date”) so long as the Holder delivers the Aggregate Exercise Price (or notice of
a Cashless exercise) on or prior to the 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, upon the request of
the Holder, credit such aggregate number of Warrant Shares to which the Holder
is entitled pursuant to such exercise 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 dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company’s
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise. The Company shall be responsible for all fees and expenses of the
Transfer Agent and all fees and expenses with respect to the issuance of Warrant
Shares via DTC, if any. Upon delivery of the Exercise Notice, so long as the
Holder delivers the Aggregate Exercise Price (or notice of a Cashless Exercise)
on or prior to the Share Delivery Date, the Holder shall be deemed for all
corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective of the date
such Warrant Shares are credited to the Holder’s DTC account or the date of
delivery of the certificates evidencing such Warrant Shares, as the case may be.
If this Warrant is submitted in connection with any exercise pursuant to this
Section 1(a) and the number of Warrant Shares represented by this Warrant
submitted for exercise is greater than the number of Warrant Shares being
acquired upon an exercise, then the Company shall as soon as

 

- 2 -

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

practicable and in no event later than three (3) Trading Days after any exercise
and at its own expense, issue a new Warrant (in accordance with Section 7(d))
representing the right to purchase the number of Warrant Shares issuable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised. No fractional
shares of Common Stock are to be issued upon the exercise of this Warrant, but
rather the number of shares of Common Stock to be issued shall be rounded up to
the nearest whole number. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.

(b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $0.01,
subject to adjustment as provided herein.

(c) Company’s Failure to Timely Deliver Securities. If the Company shall fail
for any reason or for no reason to issue to the Holder within three (3) Trading
Days of receipt of the Exercise Notice, so long as the Holder delivers the
Aggregate Exercise Price (or notice of Cashless Exercise) on or prior to the
Share Delivery Date, a certificate for the number of shares of Common Stock to
which the Holder is entitled and register such shares of Common Stock on the
Company’s share register or to credit the Holder’s balance account with DTC for
such number of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise of this Warrant or pursuant to the Company’s obligation
pursuant to clause (ii) below, and if on or after such Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise 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 (i) pay cash
to the Holder in an amount equal to the Holder’s total purchase price (including
brokerage commissions and other reasonable out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (the “Buy-In Price”), at which point the
Company’s obligation to deliver such certificate (and to issue such shares of
Common Stock) or credit such Holder’s balance account with DTC shall terminate,
or (ii) promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such shares of Common Stock or credit such Holder’s
balance account with DTC and pay cash to the Holder in an amount equal to the
excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the date of exercise.

(d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if, after the Effective Date, any Warrant Shares that are the subject
of the Exercise Notice cannot be issued pursuant to Section 1145 of the
Bankruptcy Code (as defined in the Securities Purchase Agreement) or is
otherwise not freely transferable without any restrictions or limitations, the
Holder may, in its sole discretion, exercise this Warrant in whole or in part
and, in lieu of making the cash payment otherwise contemplated to be made to the
Company upon such exercise in payment of the Aggregate Exercise Price, elect
instead to receive upon such exercise the “Net Number” of shares of Common Stock
determined according to the following formula (a “Cashless Exercise”):

Net Number = (A x B) - (A x C)

                                     B

 

- 3 -

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

 

For purposes of the foregoing formula: A=   the total number of shares with
respect to which this Warrant is then being exercised. B=   the Weighted Average
Price of the Common Stock (as reported by Bloomberg) for the five (5)
consecutive Trading Days ending on the date immediately preceding the date of
the Exercise Notice. C=   $0.001.

(e) Disputes. In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the Warrant Shares, the Company shall
promptly issue to the Holder the number of Warrant Shares that are not disputed
and resolve such dispute in accordance with Section 12.

(f) Limitations on Exercises. The Company shall not effect the exercise of this
Warrant, and the Holder shall not have the right to exercise this Warrant, to
the extent that after giving effect to such exercise, such Person (together with
such Person’s affiliates) would beneficially own in excess of 4.99% (the
“Maximum Percentage”) of the shares of Common Stock outstanding immediately
after giving effect to such exercise. For purposes of the foregoing sentence,
the aggregate number of shares of Common Stock beneficially owned by such Person
and its affiliates shall include the number of shares of Common Stock issuable
upon exercise of this Warrant 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) exercise of the remaining, unexercised portion of this Warrant
beneficially owned by such Person and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company beneficially owned by such Person and its affiliates (including,
without limitation, any convertible notes or convertible preferred stock or
warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the “1934 Act”). For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company’s most recent
Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding.
For any reason at any time, upon the written or oral request of the Holder, the
Company shall within one (1) Business Day confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the

 

- 4 -

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

conversion or exercise of securities of the Company, including the SPA Warrants,
by the Holder and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. By 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% specified in such
notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and
(ii) any such increase or decrease will apply only to the Holder and not to any
other holder of SPA Warrants. The provisions of this paragraph shall be
construed and implemented in a manner otherwise than in strict conformity with
the terms of this Section 1(f) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such limitation.

(g) Insufficient Authorized Shares. If at any time while this Warrant remains
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 exercise of this Warrant at least a number of shares of Common
Stock equal to 100% (the “Required Reserve Amount”) of the maximum number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of all of this Warrant then outstanding (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 this Warrant
then outstanding. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than sixty (60) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its reasonable 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.

(h) Mandatory Exercise. If the Maximum Eligibility Number on December 22, 2010
is greater than zero, then this Warrant shall be deemed to be exercised by a
Cashless Exercise pursuant to Section 1(d) above and the Company shall be
obligated to deliver all Warrant Shares in accordance with, and in the time
periods specified in, this Warrant as if the Holder had delivered an Exercise
Notice on such date with respect to the maximum number of Warrant Shares
exercisable hereunder.

2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price
and the number of Warrant Shares shall be adjusted from time to time as follows:

(a) Intentionally Omitted.

(b) Intentionally Omitted.

(c) Adjustment upon Subdivision or Combination of shares of Common Stock. If the
Company at any time on or after the Subscription Date subdivides (by

 

- 5 -

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

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 Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be
proportionately increased. 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 Exercise Price in effect immediately prior to such
combination will be proportionately increased and the number of Warrant Shares
will be proportionately decreased. Any adjustment under this Section 2(c) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.

(d) Holder’s Right of Alternative Exercise Price Following Issuance of Variable
Securities. If the Company issues or sells or, in accordance with this Section 2
is deemed to have issued or sold any Options or Convertible Securities after the
Issuance Date that are convertible into or exchangeable or exercisable for
shares of Common Stock at a price which varies or may vary with the market price
of the shares of Common Stock, including by way of one or more reset(s) to a
fixed price (each of the formulations for such variable price being herein
referred to as, a “Variable Price Formulation”), the Company shall provide
written notice thereof via facsimile and overnight courier to the Holder (the
“Variable Notice”) on the date of issuance or deemed issuance of such
Convertible Securities or Options. From and after the date the Company issues or
is deemed to have issued any such Convertible Securities or Options with a
Variable Price Formulation, but only for so long as such Convertible Securities
or Options are outstanding, the Holder shall have the right, but not the
obligation, in its sole discretion to substitute any of the applicable Variable
Price Formulation for the Exercise Price upon exercise of the Warrants held by
it by designating in the Exercise Notice delivered upon exercise of such Warrant
that solely for purposes of such exercise the Holder is relying on the Variable
Price Formulation rather than the Exercise Price then in effect. The Holder’s
election to rely on a Variable Price Formulation for a particular exercise of
Warrants shall not obligate the Holder to rely on a Variable Price Formulation
for any future exercise of Warrants.

 

- 6 -

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

 

3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of shares of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a “Distribution”), at any time after the issuance of this
Warrant, then, in each such case, upon an exercise of this Warrant, in whole or
in part, the Holder will be entitled to receive the amount of any such
Distribution that the Holder would have received if the Holder had held,
immediately before the date on which a record is taken for the declaration or
payment of the Distribution, or, if no such record date is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
declaration or payment of the Distribution, the number of shares of Common Stock
that the Holder is entitled to receive upon such exercise (without taking into
account any limitations or restrictions on the convertibility of this Warrant).

4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

(a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above,
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 exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.

(b) Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Warrant and the other Transaction
Documents in accordance with the provisions of this Section (4)(b) 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 to deliver to each holder of the SPA Warrants in exchange
for such Warrants a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value for
the shares of Common Stock reflected by the terms of such Fundamental
Transaction, and exercisable for a corresponding number of shares of capital
stock equivalent to the shares of Common Stock acquirable and receivable upon
exercise of this Warrant (without regard to any limitations on the exercise of
this Warrant) prior to such Fundamental Transaction, and satisfactory to the
Required Holders and (ii) the Successor Entity (including its Parent Entity) is
a publicly traded corporation whose common stock is quoted on or listed for
trading on an Eligible Market. Upon the occurrence of any Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of
this Warrant referring to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume
all of the obligations of the Company under this Warrant with

 

- 7 -

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

the same effect as if such Successor Entity had been named as the Company
herein. Upon consummation of the Fundamental Transaction, the Successor Entity
shall deliver to the Holder confirmation that there shall be issued upon
exercise of this Warrant at any time after the consummation of the Fundamental
Transaction, in lieu of the shares of Common Stock (or other securities, cash,
assets or other property) issuable upon the exercise of the Warrant prior to
such Fundamental Transaction, such shares of the publicly traded common stock or
common shares (or its equivalent) of the Successor Entity (including its Parent
Entity) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had this Warrant been converted immediately
prior to such Fundamental Transaction, as adjusted in accordance with the
provisions of this Warrant. In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a “Corporate Event”), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the Corporate
Event but prior to the Expiration Date, in lieu of shares of Common Stock (or
other securities, cash, assets or other property) purchasable upon the exercise
of this Warrant prior to such Corporate Event, such shares of stock, securities,
cash, assets or any other property whatsoever (including warrants or other
purchase or subscription rights) which the Holder would have been entitled to
receive upon the happening of such Corporate Event had this Warrant been
exercised immediately prior to such Corporate Event. Provision made pursuant to
the preceding sentence shall be in a form and substance reasonably satisfactory
to the Required Holders. The provisions of this Section shall apply similarly
and equally to successive Fundamental Transactions and Corporate Events and
shall be applied without regard to any limitations on the exercise of this
Warrant.

(c) Notwithstanding the foregoing, in the event of a Change of Control, at the
request of the Holder delivered before the ninetieth (90th) day after the
consummation of such Change of Control, the Company (or the Successor Entity)
shall purchase this Warrant from the Holder by paying to the Holder, within five
(5) Business Days after such request (or, if later, on the effective date of the
Change of Control), cash in an amount equal to the Black Scholes Value of the
remaining unexercised portion of this Warrant on the date of such Change of
Control.

5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of its Certificate of Incorporation or Bylaws, or through
any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, 130% of the number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of the SPA Warrants then outstanding
(without regard to any limitations on exercise).

 

- 8 -

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

 

6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically
provided herein, the Holder, solely in such Person’s capacity as a holder of
this Warrant, shall not be entitled to vote or receive dividends or be deemed
the holder of share capital of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the Holder, solely in such
Person’s capacity as the Holder of this Warrant, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the Holder of the Warrant Shares which such Person is then entitled
to receive upon the due exercise of this Warrant. In addition, nothing contained
in this Warrant shall be construed as imposing any liabilities on the Holder to
purchase any securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this Section 6, the Company
shall provide the Holder with copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously with the
giving thereof to the stockholders.

7. REISSUANCE OF WARRANTS.

(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Warrant (in accordance with
Section 7(d)), registered as the Holder may request, representing the right to
purchase the number of Warrant Shares being transferred by the Holder and, if
less than the total number of Warrant Shares then underlying this Warrant is
being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder
representing the right to purchase the number of Warrant Shares not being
transferred.

(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, 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 Warrant,
the Company shall execute and deliver to the Holder a new Warrant (in accordance
with Section 7(d)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new
Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.

 

- 9 -

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

 

(d) Issuance of New Warrants. Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a)
or Section 7(c), the Warrant Shares designated by the Holder which, when added
to the number of shares of Common Stock underlying the other new Warrants issued
in connection with such issuance, does not exceed the number of Warrant Shares
then underlying this Warrant), (iii) shall have an issuance date, as indicated
on the face of such new Warrant which is the same as the Issuance Date, and
(iv) shall have the same rights and conditions as this Warrant.

8. NOTICES. Whenever notice is required to be given under this Warrant, 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 Warrant,
including in reasonable detail a description of such action and the reason
therefor. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Exercise Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen (15) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the shares of Common Stock, (B) with respect
to any grants, issuances or sales of any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property to holders of
shares of Common Stock or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation, provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder.

9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of
this Warrant may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Required Holders. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the SPA Warrants then outstanding.

10. GOVERNING LAW. This Warrant shall be governed by and construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, the
internal laws of the State of Florida, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Florida or any
other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Florida. The Holder and the Company hereby
irrevocably submit to the exclusive jurisdiction of the Bankruptcy Court for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waive, and agree not to assert in any suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of any such court, that such
suit, action or proceeding is brought in an inconvenient forum or that the venue
of such suit, action or proceeding is improper. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law. Nothing contained herein shall be deemed 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

 

- 10 -

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

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 WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted
by the Company and all the Buyers and shall not be construed against any person
as the drafter hereof. The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Warrant.

12. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall submit the disputed determinations or arithmetic calculations via
facsimile within two (2) Business Days of receipt of the Exercise Notice 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 of the
Exercise Price or the Warrant Shares within three (3) Business Days of such
disputed determination or arithmetic calculation being submitted to the Holder,
then the Company shall, within two (2) Business Days submit via facsimile
(a) the disputed determination of the Exercise Price to an independent,
reputable investment bank selected by the Company and approved by the Holder or
(b) the disputed arithmetic calculation of the Warrant Shares to the Company’s
independent, outside accountant. The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten 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.

13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other
remedies available under this Warrant and 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 right of the Holder to
pursue actual damages for any failure by the Company to comply with the terms of
this Warrant. 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 of this Warrant 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.

14. TRANSFER. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company, except as may otherwise be required
by Section 2(f) of the Securities Purchase Agreement.

15. SEVERABILITY. If any provision of this Warrant is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the

 

- 11 -

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

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 Warrant so long as this
Warrant 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).

16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall
have the following meanings:

(a) “Black Scholes Value” means the value of this Warrant based on the Black and
Scholes Option Pricing Model obtained from the “OV” function on Bloomberg
determined as of the day immediately following the public announcement of the
applicable Fundamental Transaction 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 this Warrant as of such date of request, (ii) an
expected volatility equal to 100%, (iii) the underlying price per share used in
such calculation shall be the sum of the price per share being offered in cash,
if any, plus the value of any non-cash consideration, if any, being offered in
the Fundamental Transaction and (iv) a 360 day annualization factor.

(b) “Bloomberg” means Bloomberg Financial Markets.

(c) “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.

(d) “Change of Control” means any Fundamental Transaction other than (i) any
merger, consolidation, reorganization, recapitalization or reclassification of
the Common Stock in which this Warrant remains exercisable for publicly traded
common stock (or its equivalent) of the Successor Entity and in which the
holders of the Company’s voting power immediately prior to such merger,
consolidation, reorganization, recapitalization or reclassification continue
after such merger, consolidation, reorganization, recapitalization or
reclassification to hold publicly traded securities and, directly or indirectly,
the voting power of the Successor Entity necessary to elect a majority of the
members of the board of directors (or their equivalent if other than a
corporation) of such Successor Entity and to approve any measure requiring the
approval of holders of a majority of the common stock (or its equivalent) of the
Successor Entity, (ii) a license, distribution or development agreement relating
to one or more of the Company’s biotech products entered into on an arms length
basis for reasonably equivalent value with a Person that is not a direct or
indirect affiliate of the Company or any officer, director or employee thereof
and that is in the business of commercializing or developing biotech products or
(iii) pursuant to a migratory merger effected solely for the purpose of changing
the jurisdiction of incorporation of the Company.

 

- 12 -

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

 

(e) “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 the last trade price, respectively, of such security
prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly
the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing
Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the
case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 12. All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during the applicable calculation period.

(f) “Common Stock” means (i) the Company’s shares of Common Stock, par value
$0.01 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.

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

(h) “Eligible Market” means the Principal Market, any other market tier operated
by Pink OTC Markets Inc., The Nasdaq Capital Market, The NASDAQ Global Market,
The NASDAQ Global Select Market, The New York Stock Exchange, Inc., The NYSE
Amex or the OTC Bulletin Board.

(i) “Expiration Date” means December 23, 2010 or, if such date falls on a
Holiday, the next day that is not a Holiday.

(j) “Fundamental Transaction” means that (A) the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of the outstanding shares of
Common Stock (not including any shares of Common Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or

 

- 13 -

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

exchange offer), or (iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than the 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making or
party to, such stock purchase agreement or other business combination), or
(v) reorganize, recapitalize or reclassify its Common Stock or (B) any “person”
or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of
the 1934 Act) is or shall become the “beneficial owner” (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding shares of Common
Stock. Notwithstanding the foregoing, the term “Fundamental Transaction” shall
not include any issuance of securities or any other transaction contemplated to
occur at the Effective Date pursuant to the Company’s Plan of Reorganization (as
defined in the SPA Securities).

(k) “Maximum Eligibility Number” means initially zero and such number shall be
increased, on December 22, 2010 if 80% of the Price Adjusted Market Price is
less than $0.91, to a number equal to the difference between (I) the quotient
determined by dividing (A) the aggregate principal amount of SPA Securities
purchased by the Holder (or such Holder’s assignee) on the Issuance Date by
(B) the greater of (1) $0.50 (subject to adjustment for stock splits, stock
dividends, recapitalizations or other similar events with respect to the
Company’s Common Stock) and (2) 80% of the Price Adjusted Market Price and (II)
the quotient determined by dividing the aggregate principal amount of SPA
Securities purchased by the Holder (or such Holder’s assignee) on the Issuance
Date by (B) $0.91; provided, that in no event shall the Maximum Eligibility
Number exceed the number of Warrant Shares set forth on the first page of this
Warrant (as adjusted pursuant to the terms set forth herein).

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

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

(n) “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.

(o) “Price Adjusted Market Price” means the arithmetic average of the Weighted
Average Prices during the period beginning on (and including) December 1, 2010
and ending on (and including) December 21, 2010.

(p) “Principal Market” means the OTCQX market tier operated by Pink OTC Markets
Inc. or such Eligible Market on which such security is then listed or traded as
reported by Bloomberg.

 

- 14 -

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

 

(q) “Required Holders” means the holders of the SPA Warrants representing at
least two-thirds of the shares of Common Stock underlying the SPA Warrants then
outstanding.

(r) “SPA Securities” means the Initial Notes issued pursuant to the Securities
Purchase Agreement.

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

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

(u) “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 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, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.). If the 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 12 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 or other similar
transaction during the applicable calculation period.

[Signature Page Follows]

 

- 15 -

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

 

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

 

BIOVEST INTERNATIONAL, INC. By:  

 

  Name:   Title:

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

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

BIOVEST INTERNATIONAL, INC.

The undersigned holder hereby exercises the right to purchase
                     of the Common Stock (“Warrant Shares”) of Biovest
International, Inc., a company incorporated under the laws of Delaware (the
“Company”), evidenced by the attached Warrant to Purchase Common Stock (the
“Warrant”). Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant.

1. Form of Exercise Price. The Holder intends that payment of the Exercise Price
shall be made as:

             a “Cash Exercise” with respect to                      Warrant
Shares; and/or

             a “Cashless Exercise” with respect to              Warrant Shares.

2. Payment of Exercise Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$             to the Company in accordance with the terms of the Warrant.

3. Delivery of Warrant Shares. The Company shall deliver to the holder
                     Warrant Shares in accordance with the terms of the Warrant.

4. The undersigned holder hereby represents and warrants that after giving
effect to the exercise of the Warrant contemplated by this Exercise Notice, such
holder will not be in violation of the beneficial ownership limits specified in
Section 1(f) of the Warrant, as increased or decreased pursuant to terms
contained therein.

5. Is the Variable Price Formulation being relied on pursuant to Section 2.1(d)?
(check one) YES          NO         

Date:                  ,         

 

Account Number:  

 

(if electronic book entry transfer)

 

Transaction Code Number:  

 

(if electronic book entry transfer)

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

 

 

Name of Registered Holder  

 

  Name:   Title:

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

 

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs
StockTrans, Inc. to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated October [    ], 2010
from the Company and acknowledged and agreed to by StockTrans, Inc.

 

BIOVEST INTERNATIONAL, INC. By:  

 

  Name:   Title:

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

 

Exhibit B-2

[FORM OF SERIES A WARRANT]

BIOVEST INTERNATIONAL, INC.

WARRANT TO PURCHASE COMMON STOCK

Warrant No.:             

Number of Shares of Common Stock:                     

Date of Issuance: [            ], 2010 (“Issuance Date”)

Biovest International, Inc., a company organized under the laws of Delaware (the
“Company”), hereby certifies that, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, [BUYER], the
registered holder hereof or its permitted assigns (the “Holder”), is entitled,
subject to the terms set forth below, to purchase from the Company, at the
Exercise Price (as defined below) then in effect, upon surrender of this Warrant
to Purchase Common Stock (including any Warrants to Purchase Common Stock issued
in exchange, transfer or replacement hereof, the “Warrant”), at any time or
times on or after the Effective Date (as defined in the Securities Purchase
Agreement) (the “Initial Exercisability Date”), but not after 11:59 p.m., New
York time, on the Expiration Date (as defined below),                     
(                    )1 fully paid nonassessable shares of Common Stock, par
value $0.01 per share, subject to adjustment as provided herein (the “Warrant
Shares”). Except as otherwise defined herein, capitalized terms in this Warrant
shall have the meanings set forth in Section 16. This Warrant is one of the
Series A Warrants to purchase Common Stock (the “SPA Warrants”) issued pursuant
to Section 1 of that certain Securities Purchase Agreement, dated as of October
    , 2010 (the “Subscription Date”), by and among the Company and the investors
(the “Buyers”) referred to therein (the “Securities Purchase Agreement”).

1. EXERCISE OF WARRANT.

(a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any time or times on or after the
Initial Exercisability Date, in whole or in part, by (i) delivery of a written
notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the
Holder’s election to exercise this Warrant and (ii) (A) payment to the Company
of an amount equal to the applicable Exercise Price multiplied by the number of
Warrant Shares as to which this Warrant is being exercised (the “Aggregate
Exercise Price”) in cash or by wire transfer of immediately available funds or
(B) by notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required
to deliver the original Warrant in order to effect an exercise hereunder.
Execution and delivery of the Exercise Notice with respect to less than all of
the Warrant Shares shall have the same effect as cancellation of the original
Warrant and issuance of a new Warrant evidencing the right to purchase the
remaining number of Warrant Shares. On or before the first (1st) Trading Day
following the date on which the Company has received the

 

1 Insert number of shares equal to such holder’s pro rata share of the aggregate
principal amount of SPA Securities sold by the Company pursuant to the
Securities Purchase Agreement divided by $0.91

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

Exercise Notice), the Company shall transmit by facsimile an acknowledgment of
confirmation of receipt of the Exercise Notice to the Holder and the Company’s
transfer agent (the “Transfer Agent”). On or before the third (3rd) Trading Day
following the date on which the Company has received the Exercise Notice (the
“Share Delivery Date”) so long as the Holder delivers the Aggregate Exercise
Price (or notice of a Cashless exercise) on or prior to the 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,
upon the request of the Holder, credit such aggregate number of Warrant Shares
to which the Holder is entitled pursuant to such exercise 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 dispatch by overnight
courier to the address as specified in the Exercise Notice, a certificate,
registered in the Company’s share register in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise. The Company shall be responsible for all
fees and expenses of the Transfer Agent and all fees and expenses with respect
to the issuance of Warrant Shares via DTC, if any. Upon delivery of the Exercise
Notice, so long as the Holder delivers the Aggregate Exercise Price (or notice
of a Cashless Exercise) on or prior to the Share Delivery Date, the Holder shall
be deemed for all corporate purposes to have become the holder of record of the
Warrant Shares with respect to which this Warrant has been exercised,
irrespective of the date such Warrant Shares are credited to the Holder’s DTC
account or the date of delivery of the certificates evidencing such Warrant
Shares, as the case may be. If this Warrant is submitted in connection with any
exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then the Company shall as soon
as practicable and in no event later than three (3) Trading Days after any
exercise and at its own expense, issue a new Warrant (in accordance with
Section 7(d)) representing the right to purchase the number of Warrant Shares
issuable immediately prior to such exercise under this Warrant, less the number
of Warrant Shares with respect to which this Warrant is exercised. No fractional
shares of Common Stock are to be issued upon the exercise of this Warrant, but
rather the number of shares of Common Stock to be issued shall be rounded up to
the nearest whole number. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.

(b) Exercise Price. For purposes of this Warrant, “Exercise Price” means
$        , subject to adjustment as provided herein.

(c) Company’s Failure to Timely Deliver Securities. If the Company shall fail
for any reason or for no reason to issue to the Holder within three (3) Trading
Days of receipt of the Exercise Notice, so long as the Holder delivers the
Aggregate Exercise Price (or notice of Cashless Exercise) on or prior to the
Share Delivery Date, a certificate for the number of shares of Common Stock to
which the Holder is entitled and register such shares of Common Stock on the
Company’s share register or to credit the Holder’s balance account with DTC for
such number of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise of this Warrant or pursuant to the Company’s obligation
pursuant to clause (ii) below, and if on or after such Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving from the

 

- 2 -

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

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 (i) pay cash
to the Holder in an amount equal to the Holder’s total purchase price (including
brokerage commissions and other reasonable out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (the “Buy-In Price”), at which point the
Company’s obligation to deliver such certificate (and to issue such shares of
Common Stock) or credit such Holder’s balance account with DTC shall terminate,
or (ii) promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such shares of Common Stock or credit such Holder’s
balance account with DTC and pay cash to the Holder in an amount equal to the
excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the date of exercise.

(d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if, after the Effective Date, any Warrant Shares that are the subject
of the Exercise Notice cannot be issued pursuant to Section 1145 of the
Bankruptcy Code (as defined in the Securities Purchase Agreement) or is
otherwise not freely transferable without any restrictions or limitations, the
Holder may, in its sole discretion, exercise this Warrant in whole or in part
and, in lieu of making the cash payment otherwise contemplated to be made to the
Company upon such exercise in payment of the Aggregate Exercise Price, elect
instead to receive upon such exercise the “Net Number” of shares of Common Stock
determined according to the following formula (a “Cashless Exercise”):

Net Number = (A x B) - (A x C)

                                     B

For purposes of the foregoing formula:

 

A=   the total number of shares with respect to which this Warrant is then being
exercised.

B=

  the Weighted Average Price of the Common Stock (as reported by Bloomberg) for
the five (5) consecutive Trading Days ending on the date immediately preceding
the date of the Exercise Notice.

C=

  the Exercise Price then in effect for the applicable Warrant Shares at the
time of such exercise.

(e) Disputes. In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the Warrant Shares, the Company shall
promptly issue to the Holder the number of Warrant Shares that are not disputed
and resolve such dispute in accordance with Section 12.

(f) Limitations on Exercises. The Company shall not effect the exercise of this
Warrant, and the Holder shall not have the right to exercise this Warrant, to
the extent that after giving effect to such exercise, such Person (together with
such Person’s affiliates) would beneficially own in excess of 4.99% (the
“Maximum Percentage”) of the shares of Common Stock outstanding immediately
after giving effect to such exercise. For

 

- 3 -

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

purposes of the foregoing sentence, the aggregate number of shares of Common
Stock beneficially owned by such Person and its affiliates shall include the
number of shares of Common Stock issuable upon exercise of this Warrant 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) exercise of the
remaining, unexercised portion of this Warrant beneficially owned by such Person
and its affiliates and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company beneficially owned by
such Person and its affiliates (including, without limitation, any convertible
notes or convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein. Except as
set forth in the preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the “1934 Act”). For purposes of this Warrant,
in determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (1) the
Company’s most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other
public filing with the Securities and Exchange Commission, as the case may be,
(2) a more recent public announcement by the Company or (3) any other notice by
the Company or the Transfer Agent setting forth the number of shares of Common
Stock outstanding. For any reason at any time, upon the written or oral request
of the Holder, the Company shall within one (1) Business Day confirm orally and
in writing to the Holder the number of shares of Common Stock then outstanding.
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 the SPA Warrants, by the Holder and its affiliates since
the date as of which such number of outstanding shares of Common Stock was
reported. By 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% specified in such notice; provided that (i) any such increase
will not be effective until the sixty-first (61st) day after such notice is
delivered to the Company, and (ii) any such increase or decrease will apply only
to the Holder and not to any other holder of SPA Warrants. The provisions of
this paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 1(f) to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
beneficial ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation.

(g) Insufficient Authorized Shares. If at any time while this Warrant remains
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 exercise of this Warrant at least a number of shares of Common
Stock equal to 130% (the “Required Reserve Amount”) of the maximum number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of all of this Warrant then outstanding (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 this Warrant
then outstanding. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than sixty (60) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a

 

- 4 -

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

proxy statement and shall use its reasonable 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.

2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price
and the number of Warrant Shares shall be adjusted from time to time as follows:

(a) Adjustment upon Issuance of shares of Common Stock. If and whenever on or
after the Subscription Date, the Company issues or sells, or in accordance with
this Section 2 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 by the Company in connection with any Excluded Securities (as
defined in the SPA Securities)) for a consideration per share (the “New Issuance
Price”) less than a price (the “Applicable Price”) equal to the Exercise 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 Exercise Price then in effect shall be reduced to an amount equal
to the New Issuance Price. Upon each such adjustment of the Exercise Price
hereunder, the number of Warrant Shares issuable immediately prior to such
Dilutive Issuance shall be adjusted to the number of shares of Common Stock
determined by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares acquirable upon exercise of this
Warrant immediately prior to such adjustment and dividing the product thereof by
the Exercise Price resulting from such adjustment. For purposes of determining
the adjusted Exercise Price under this Section 2(a), the following shall be
applicable:

(i) Issuance of Options. If the Company in any manner grants any Options and the
lowest price per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such Option is less than
the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 2(a)(i), the “lowest price per share for which one share of Common Stock
is issuable upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities issuable upon exercise of any such
Option” shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion, exercise or exchange of any Convertible Security
issuable upon exercise of such Option 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 Exercise Price or number of Warrant

 

- 5 -

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

Shares 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, exercise or
exchange 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, exercise or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 2(a)(ii), the “lowest price per
share for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the Convertible Security and
upon conversion, exercise or exchange of such Convertible Security less any
consideration paid or payable by the Company with respect to such one share of
Common Stock upon the issuance or sale of such Convertible Security and upon
conversion, exercise or exchange of such Convertible Security. No further
adjustment of the Exercise Price or number of Warrant Shares shall be made upon
the actual issuance of such shares of Common Stock upon conversion, exercise or
exchange of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which adjustment
of this Warrant has been or is to be made pursuant to other provisions of this
Section 2(a), no further adjustment of the Exercise Price or number of Warrant
Shares 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 issued after the Subscription Date, the additional
consideration, if any, payable upon the issue, conversion, exercise or exchange
of any Convertible Securities issued after the Subscription Date, or the rate at
which any Convertible Securities issued after the Subscription Date are
convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Exercise Price and the number of Warrant
Shares in effect at the time of such increase or decrease shall be adjusted to
the Exercise Price and the number of Warrant Shares 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. Additionally, if the terms of any Option or Convertible Security
that was outstanding as of the date of the Subscription Date is increased or
decreased in the manner described in the immediately preceding sentence, then
such Option or Convertible Security

 

- 6 -

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

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, but in such event the amount of the adjustment to the
Exercise Price pursuant to this Section 2 will not be proportionately greater
than the proportionate amount of the increase or decrease. No adjustment
pursuant to this Section 2(a) shall be made if such adjustment would result in
an increase of the Exercise Price then in effect or a decrease in the number of
Warrant Shares.

(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 and (y) the other securities issued or sold in
such integrated transaction shall be deemed to have been issued 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. If any shares of Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received or receivable 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 securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such security on the
date of receipt. If any shares of Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such shares of Common Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or securities will be
determined jointly by the Company and the Required Holders. If such parties are
unable to reach agreement within ten (10) days after the occurrence of an event
requiring valuation (the “Valuation Event”), the fair value of such
consideration will be determined within five (5) Trading Days after the tenth
(10th) day following 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.

(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,

 

- 7 -

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

Options or in Convertible Securities or (B) to subscribe for or purchase shares
of Common Stock, Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.

(b) Voluntary Adjustment By Company. The Company may at any time during the term
of this Warrant reduce the then current Exercise Price to any amount and for any
period of time deemed appropriate by the Board of Directors of the Company.

(c) Adjustment upon Subdivision or Combination of shares 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 Exercise
Price in effect immediately prior to such subdivision will be proportionately
reduced and the number of Warrant Shares will be proportionately increased. 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 Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(c) shall become effective at the close of
business on the date the subdivision or combination becomes effective.

(d) Holder’s Right of Alternative Exercise Price Following Issuance of Variable
Securities. If the Company issues or sells or, in accordance with this Section 2
is deemed to have issued or sold any Options or Convertible Securities after the
Issuance Date that are convertible into or exchangeable or exercisable for
shares of Common Stock at a price which varies or may vary with the market price
of the shares of Common Stock, including by way of one or more reset(s) to a
fixed price (each of the formulations for such variable price being herein
referred to as, a “Variable Price Formulation”), the Company shall provide
written notice thereof via facsimile and overnight courier to the Holder (the
“Variable Notice”) on the date of issuance or deemed issuance of such
Convertible Securities or Options. From and after the date the Company issues or
is deemed to have issued any such Convertible Securities or Options with a
Variable Price Formulation, but only for so long as such Convertible Securities
or Options are outstanding, the Holder shall have the right, but not the
obligation, in its sole discretion to substitute any of the applicable Variable
Price Formulation for the Exercise Price upon exercise of the Warrants held by
it by designating in the Exercise Notice delivered upon exercise of such Warrant
that solely for purposes of such exercise the Holder is relying on the Variable
Price Formulation rather than the Exercise Price then in effect. The Holder’s
election to rely on a Variable Price Formulation for a particular exercise of
Warrants shall not obligate the Holder to rely on a Variable Price Formulation
for any future exercise of Warrants. In connection with determining the “lowest
price per share for which one share of Common Stock is issuable upon exercise of
any Option” pursuant to Section 2(a)(i) and the “lowest price per share for
which one share of Common Stock is issuable upon the conversion, exercise or
exchange of a Convertible Security” pursuant to Section 2(a)(ii), as such terms
pertain solely to

 

- 8 -

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

any Variable Price Formulation contained in any Option or Convertible Securities
issued after the Issuance Date, such lowest price shall equal the lesser of
(i) the fixed exercise, conversion or exchange price set forth in the applicable
Option or Convertible Security and (ii) the Variable Price Formulation contained
in the applicable Option or Convertible Security, calculated as if such Option
or Convertible Security were converted, exercised or exchanged as of the date of
issuance of the applicable Option or Convertible Security.

(e) Price Adjusted Market Price Adjustment. If the Price Adjusted Market Price
is less than the Exercise Price in effect on the Issuance Date, then on
December 22, 2010, the Exercise Price then in effect shall be reduced (but in no
event increased) to 120% of the Price Adjusted Market Price, provided that the
Exercise Price shall not be reduced below $0.60 (subject to adjustment for stock
splits, stock dividends, recapitalizations or other similar events with respect
to the Company’s Common Stock) pursuant to this Section 2(e). For the avoidance
of doubt, if the adjustment in the immediately preceding sentence would
otherwise result in an increase in the Exercise Price hereunder, no adjustment
shall be made. Upon the foregoing adjustment to the Exercise Price, the number
of Warrant Shares issuable immediately prior to such adjustment shall be
adjusted to the number of shares of Common Stock determined by multiplying .9375
by the product of (A) the Exercise Price in effect immediately prior to such
adjustment and (B) the number of Warrant Shares acquirable upon exercise in full
of this Warrant immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.

3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of shares of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a “Distribution”), at any time after the issuance of this
Warrant, then, in each such case, upon an exercise of this Warrant, in whole or
in part, the Holder will be entitled to receive the amount of any such
Distribution that the Holder would have received if the Holder had held,
immediately before the date on which a record is taken for the declaration or
payment of the Distribution, or, if no such record date is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
declaration or payment of the Distribution, the number of shares of Common Stock
that the Holder is entitled to receive upon such exercise (without taking into
account any limitations or restrictions on the convertibility of this Warrant).

4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

(a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above,
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 exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.

 

- 9 -

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

 

(b) Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Warrant and the other Transaction
Documents in accordance with the provisions of this Section (4)(b) 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 to deliver to each holder of the SPA Warrants in exchange
for such Warrants a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value for
the shares of Common Stock reflected by the terms of such Fundamental
Transaction, and exercisable for a corresponding number of shares of capital
stock equivalent to the shares of Common Stock acquirable and receivable upon
exercise of this Warrant (without regard to any limitations on the exercise of
this Warrant) prior to such Fundamental Transaction, and satisfactory to the
Required Holders and (ii) the Successor Entity (including its Parent Entity) is
a publicly traded corporation whose common stock is quoted on or listed for
trading on an Eligible Market. Upon the occurrence of any Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of
this Warrant referring to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume
all of the obligations of the Company under this Warrant with the same effect as
if such Successor Entity had been named as the Company herein. Upon consummation
of the Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon exercise of this Warrant at any
time after the consummation of the Fundamental Transaction, in lieu of the
shares of Common Stock (or other securities, cash, assets or other property)
issuable upon the exercise of the Warrant prior to such Fundamental Transaction,
such shares of the publicly traded common stock or common shares (or its
equivalent) of the Successor Entity (including its Parent Entity) which the
Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had this Warrant been converted immediately prior to
such Fundamental Transaction, as adjusted in accordance with the provisions of
this Warrant. In addition to and not in substitution for any other rights
hereunder, prior to the consummation of any Fundamental Transaction pursuant to
which holders of shares of Common Stock are entitled to receive securities or
other assets with respect to or in exchange for shares of Common Stock (a
“Corporate Event”), the Company shall make appropriate provision to insure that
the Holder will thereafter have the right to receive upon an exercise of this
Warrant at any time after the consummation of the Corporate Event but prior to
the Expiration Date, in lieu of shares of Common Stock (or other securities,
cash, assets or other property) purchasable upon the exercise of this Warrant
prior to such Corporate Event, such shares of stock, securities, cash, assets or
any other property whatsoever (including warrants or other purchase or
subscription rights) which the Holder would have been entitled to receive upon
the happening of such Corporate Event had this Warrant been exercised
immediately prior to such Corporate Event. Provision made pursuant to the
preceding sentence shall be in a form and substance reasonably satisfactory to
the Required Holders. The provisions of this Section shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied without regard to any limitations on the exercise of this Warrant.

 

- 10 -

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

 

(c) Notwithstanding the foregoing, in the event of a Change of Control, at the
request of the Holder delivered before the ninetieth (90th) day after the
consummation of such Change of Control, the Company (or the Successor Entity)
shall purchase this Warrant from the Holder by paying to the Holder, within five
(5) Business Days after such request (or, if later, on the effective date of the
Change of Control), cash in an amount equal to the Black Scholes Value of the
remaining unexercised portion of this Warrant on the date of such Change of
Control.

5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of its Certificate of Incorporation or Bylaws, or through
any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, 130% of the number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of the SPA Warrants then outstanding
(without regard to any limitations on exercise).

6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically
provided herein, the Holder, solely in such Person’s capacity as a holder of
this Warrant, shall not be entitled to vote or receive dividends or be deemed
the holder of share capital of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the Holder, solely in such
Person’s capacity as the Holder of this Warrant, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the Holder of the Warrant Shares which such Person is then entitled
to receive upon the due exercise of this Warrant. In addition, nothing contained
in this Warrant shall be construed as imposing any liabilities on the Holder to
purchase any securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this Section 6, the Company
shall provide the Holder with copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously with the
giving thereof to the stockholders.

7. REISSUANCE OF WARRANTS.

(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Warrant (in accordance with
Section 7(d)),

 

- 11 -

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

registered as the Holder may request, representing the right to purchase the
number of Warrant Shares being transferred by the Holder and, if less than the
total number of Warrant Shares then underlying this Warrant is being
transferred, a new Warrant (in accordance with Section 7(d)) to the Holder
representing the right to purchase the number of Warrant Shares not being
transferred.

(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, 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 Warrant,
the Company shall execute and deliver to the Holder a new Warrant (in accordance
with Section 7(d)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new
Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.

(d) Issuance of New Warrants. Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a)
or Section 7(c), the Warrant Shares designated by the Holder which, when added
to the number of shares of Common Stock underlying the other new Warrants issued
in connection with such issuance, does not exceed the number of Warrant Shares
then underlying this Warrant), (iii) shall have an issuance date, as indicated
on the face of such new Warrant which is the same as the Issuance Date, and
(iv) shall have the same rights and conditions as this Warrant.

8. NOTICES. Whenever notice is required to be given under this Warrant, 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 Warrant,
including in reasonable detail a description of such action and the reason
therefor. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Exercise Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen (15) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the shares of Common Stock, (B) with respect
to any grants, issuances or sales of any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property to holders of
shares of Common Stock or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation, provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder.

 

- 12 -

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

 

9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of
this Warrant may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Required Holders. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the SPA Warrants then outstanding.

10. GOVERNING LAW. This Warrant shall be governed by and construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant 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 Holder and the Company
hereby irrevocably submit 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
waive, and agree not to assert in any suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of any such court, that such
suit, action or proceeding is brought in an inconvenient forum or that the venue
of such suit, action or proceeding is improper. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law. Nothing contained herein shall be deemed 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 WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted
by the Company and all the Buyers and shall not be construed against any person
as the drafter hereof. The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Warrant.

12. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall submit the disputed determinations or arithmetic calculations via
facsimile within two (2) Business Days of receipt of the Exercise Notice 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 of the
Exercise Price or the Warrant Shares within three (3) Business Days of such
disputed determination or arithmetic calculation being submitted to the Holder,
then the Company shall, within two (2) Business Days submit via facsimile
(a) the disputed determination of the Exercise Price to an independent,
reputable investment bank selected by the Company and approved by the Holder or
(b) the disputed arithmetic calculation of the Warrant Shares to the Company’s
independent, outside accountant. The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten Business Days from the time it receives

 

- 13 -

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

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.

13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other
remedies available under this Warrant and 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 right of the Holder to
pursue actual damages for any failure by the Company to comply with the terms of
this Warrant. 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 of this Warrant 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.

14. TRANSFER. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company, except as may otherwise be required
by Section 2(f) of the Securities Purchase Agreement.

15. SEVERABILITY. If any provision of this Warrant 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
Warrant so long as this Warrant 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).

16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall
have the following meanings:

(a) “Black Scholes Value” means the value of this Warrant based on the Black and
Scholes Option Pricing Model obtained from the “OV” function on Bloomberg
determined as of the day immediately following the public announcement of the
applicable Fundamental Transaction 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 this Warrant as of such date of request, (ii) an
expected volatility equal to 100%, (iii) the underlying price per share used in
such calculation shall be the sum of the price per share being offered in cash,
if any, plus the value of any non-cash consideration, if any, being offered in
the Fundamental Transaction and (iv) a 360 day annualization factor.

 

- 14 -

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

 

(b) “Bloomberg” means Bloomberg Financial Markets.

(c) “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.

(d) “Change of Control” means any Fundamental Transaction other than (i) any
merger, consolidation, reorganization, recapitalization or reclassification of
the Common Stock in which this Warrant remains exercisable for publicly traded
common stock (or its equivalent) of the Successor Entity and in which the
holders of the Company’s voting power immediately prior to such merger,
consolidation, reorganization, recapitalization or reclassification continue
after such merger, consolidation, reorganization, recapitalization or
reclassification to hold publicly traded securities and, directly or indirectly,
the voting power of the Successor Entity necessary to elect a majority of the
members of the board of directors (or their equivalent if other than a
corporation) of such Successor Entity and to approve any measure requiring the
approval of holders of a majority of the common stock (or its equivalent) of the
Successor Entity, (ii) a license, distribution or development agreement relating
to one or more of the Company’s biotech products entered into on an arms length
basis for reasonably equivalent value with a Person that is not a direct or
indirect affiliate of the Company or any officer, director or employee thereof
and that is in the business of commercializing or developing biotech products or
(iii) pursuant to a migratory merger effected solely for the purpose of changing
the jurisdiction of incorporation of the Company.

(e) “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 the last trade price, respectively, of such security
prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly
the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing
Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the
case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 12. All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during the applicable calculation period.

 

- 15 -

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

 

(f) “Common Stock” means (i) the Company’s shares of Common Stock, par value
$0.01 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.

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

(h) “Eligible Market” means the Principal Market, any other market tier operated
by Pink OTC Markets Inc., The Nasdaq Capital Market, The NASDAQ Global Market,
The NASDAQ Global Select Market, The New York Stock Exchange, Inc., The NYSE
Amex or the OTC Bulletin Board.

(i) “Expiration Date” means the date eighty-four (84) months after the Initial
Exercisability Date or, if such date falls on a day other than a Business Day or
on which trading does not take place on the Principal Market (a “Holiday”), the
next day that is not a Holiday.

(j) “Fundamental Transaction” means that (A) the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of the outstanding shares of
Common Stock (not including any shares of Common Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock or (B) any “person” or “group” (as
these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act)
is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the
1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding shares of Common Stock. Notwithstanding
the foregoing, the term “Fundamental Transaction” shall not include any issuance
of securities or any other transaction contemplated to occur at the Effective
Date pursuant to the Company’s Plan of Reorganization (as defined in the SPA
Securities).

(k) “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 the day prior to the public announcement of the applicable Option 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
100%, (iii) the underlying price per share used in such calculation shall be the
highest Weighted Average Price during the period beginning on the day prior to
the execution of definitive documentation relating to the issuance of the
applicable Option and the public announcement of such issuance and (iv) a 360
day annualization factor.

 

- 16 -

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

 

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

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

(n) “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.

(o) “Price Adjusted Market Price” means the arithmetic average of the Weighted
Average Prices during the period beginning on (and including) December 1, 2010
and ending on (and including) December 21, 2010.

(p) “Principal Market” means the OTCQX market tier operated by Pink OTC Markets
Inc. or such Eligible Market on which such security is then listed or traded as
reported by Bloomberg.

(q) “Required Holders” means the holders of the SPA Warrants representing at
least two-thirds of the shares of Common Stock underlying the SPA Warrants then
outstanding.

(r) “SPA Securities” means the Exchange Notes (as defined in the Securities
Purchase Agreement).

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

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

(u) “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

 

- 17 -

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

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 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, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.). If the 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 12 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 or other similar
transaction during the applicable calculation period.

[Signature Page Follows]

 

- 18 -

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

 

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

 

BIOVEST INTERNATIONAL, INC. By:  

 

  Name:   Title:

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

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

BIOVEST INTERNATIONAL, INC.

The undersigned holder hereby exercises the right to purchase
                     of the Common Stock (“Warrant Shares”) of Biovest
International, Inc., a company incorporated under the laws of Delaware (the
“Company”), evidenced by the attached Warrant to Purchase Common Stock (the
“Warrant”). Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant.

1. Form of Exercise Price. The Holder intends that payment of the Exercise Price
shall be made as:

             a “Cash Exercise” with respect to                      Warrant
Shares; and/or

             a “Cashless Exercise” with respect to                      Warrant
Shares.

2. Payment of Exercise Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$             to the Company in accordance with the terms of the Warrant.

3. Delivery of Warrant Shares. The Company shall deliver to the holder
                     Warrant Shares in accordance with the terms of the Warrant.

4. The undersigned holder hereby represents and warrants that after giving
effect to the exercise of the Warrant contemplated by this Exercise Notice, such
holder will not be in violation of the beneficial ownership limits specified in
Section 1(f) of the Warrant, as increased or decreased pursuant to terms
contained therein.

5. Is the Variable Price Formulation being relied on pursuant to Section 2.1(d)?
(check one) YES        NO        

Date:                  ,         

 

Account Number:  

 

(if electronic book entry transfer)

 

Transaction Code Number:  

 

(if electronic book entry transfer)

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

 

 

Name of Registered Holder  

 

  Name:   Title:

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

 

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs
StockTrans, Inc. to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated October [    ], 2010
from the Company and acknowledged and agreed to by StockTrans, Inc.

 

BIOVEST INTERNATIONAL, INC. By:  

 

  Name:   Title:

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

 

Exhibit B-2

[FORM OF SERIES B WARRANT]

BIOVEST INTERNATIONAL, INC.

WARRANT TO PURCHASE COMMON STOCK

Warrant No.:             

Number of Shares of Common Stock:                     

Date of Issuance: [            ], 2010 (“Issuance Date”)

Biovest International, Inc., a company organized under the laws of Delaware (the
“Company”), hereby certifies that, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, [BUYER], the
registered holder hereof or its permitted assigns (the “Holder”), is entitled,
subject to the terms set forth below, to purchase from the Company, at the
Exercise Price (as defined below) then in effect, upon surrender of this Warrant
to Purchase Common Stock (including any Warrants to Purchase Common Stock issued
in exchange, transfer or replacement hereof, the “Warrant”), at any time or
times on or after the Effective Date (as defined in the Securities Purchase
Agreement) (the “Initial Exercisability Date”), but not after 11:59 p.m., New
York time, on the Expiration Date (as defined below),                     
(                    )1 fully paid nonassessable shares of Common Stock, par
value $0.01 per share, subject to adjustment as provided herein (the “Warrant
Shares”). NOTWITHSTANDING ANY PROVISION OF THIS WARRANT TO THE CONTRARY, NO MORE
THAN THE MAXIMUM ELIGIBILITY NUMBER OF WARRANT SHARES SHALL BE EXERCISABLE
HEREUNDER. Except as otherwise defined herein, capitalized terms in this Warrant
shall have the meanings set forth in Section 16. This Warrant is one of the
Series B Warrants to purchase Common Stock (the “SPA Warrants”) issued pursuant
to Section 1 of that certain Securities Purchase Agreement, dated as of October
    , 2010 (the “Subscription Date”), by and among the Company and the investors
(the “Buyers”) referred to therein (the “Securities Purchase Agreement”).

1. EXERCISE OF WARRANT.

(a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any time or times on or after the
Initial Exercisability Date, in whole or in part, by (i) delivery of a written
notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the
Holder’s election to exercise this Warrant and (ii) (A) payment to the Company
of an amount equal to the applicable Exercise Price multiplied by the number of
Warrant Shares as to which this Warrant is being exercised (the “Aggregate
Exercise Price”) in cash or by wire transfer of immediately available funds or
(B) by notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 1(d)). The

 

1 Insert number of shares equal to the difference between (i) the Holder’s share
of the aggregate principal amount of SPA Securities sold by the Company pursuant
to the Securities Purchase Agreement divided by $0.50 and (ii) the Holder’s
share of the aggregate principal amount of SPA Securities sold by the Company
pursuant to the Securities Purchase Agreement divided by $0.91.

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

Holder shall not be required to deliver the original Warrant in order to effect
an exercise hereunder. Execution and delivery of the Exercise Notice with
respect to less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares. On or before the
first (1st) Trading Day following the date on which the Company has received the
Exercise Notice), the Company shall transmit by facsimile an acknowledgment of
confirmation of receipt of the Exercise Notice to the Holder and the Company’s
transfer agent (the “Transfer Agent”). On or before the third (3rd) Trading Day
following the date on which the Company has received the Exercise Notice (the
“Share Delivery Date”) so long as the Holder delivers the Aggregate Exercise
Price (or notice of a Cashless exercise) on or prior to the 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,
upon the request of the Holder, credit such aggregate number of Warrant Shares
to which the Holder is entitled pursuant to such exercise 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 dispatch by overnight
courier to the address as specified in the Exercise Notice, a certificate,
registered in the Company’s share register in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise. The Company shall be responsible for all
fees and expenses of the Transfer Agent and all fees and expenses with respect
to the issuance of Warrant Shares via DTC, if any. Upon delivery of the Exercise
Notice, so long as the Holder delivers the Aggregate Exercise Price (or notice
of a Cashless Exercise) on or prior to the Share Delivery Date, the Holder shall
be deemed for all corporate purposes to have become the holder of record of the
Warrant Shares with respect to which this Warrant has been exercised,
irrespective of the date such Warrant Shares are credited to the Holder’s DTC
account or the date of delivery of the certificates evidencing such Warrant
Shares, as the case may be. If this Warrant is submitted in connection with any
exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then the Company shall as soon
as practicable and in no event later than three (3) Trading Days after any
exercise and at its own expense, issue a new Warrant (in accordance with
Section 7(d)) representing the right to purchase the number of Warrant Shares
issuable immediately prior to such exercise under this Warrant, less the number
of Warrant Shares with respect to which this Warrant is exercised. No fractional
shares of Common Stock are to be issued upon the exercise of this Warrant, but
rather the number of shares of Common Stock to be issued shall be rounded up to
the nearest whole number. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.

(b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $0.01,
subject to adjustment as provided herein.

(c) Company’s Failure to Timely Deliver Securities. If the Company shall fail
for any reason or for no reason to issue to the Holder within three (3) Trading
Days of receipt of the Exercise Notice, so long as the Holder delivers the
Aggregate Exercise Price (or notice of Cashless Exercise) on or prior to the
Share Delivery Date, a certificate for the number of shares of Common Stock to
which the Holder is entitled and register such shares of Common Stock on the
Company’s share register or to credit the Holder’s balance account with DTC for

 

- 2 -

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

such number of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise of this Warrant or pursuant to the Company’s obligation
pursuant to clause (ii) below, and if on or after such Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise 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 (i) pay cash
to the Holder in an amount equal to the Holder’s total purchase price (including
brokerage commissions and other reasonable out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (the “Buy-In Price”), at which point the
Company’s obligation to deliver such certificate (and to issue such shares of
Common Stock) or credit such Holder’s balance account with DTC shall terminate,
or (ii) promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such shares of Common Stock or credit such Holder’s
balance account with DTC and pay cash to the Holder in an amount equal to the
excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the date of exercise.

(d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if, after the Effective Date, any Warrant Shares that are the subject
of the Exercise Notice cannot be issued pursuant to Section 1145 of the
Bankruptcy Code (as defined in the Securities Purchase Agreement) or is
otherwise not freely transferable without any restrictions or limitations, the
Holder may, in its sole discretion, exercise this Warrant in whole or in part
and, in lieu of making the cash payment otherwise contemplated to be made to the
Company upon such exercise in payment of the Aggregate Exercise Price, elect
instead to receive upon such exercise the “Net Number” of shares of Common Stock
determined according to the following formula (a “Cashless Exercise”):

Net Number = (A x B) - (A x C)

                                     B

For purposes of the foregoing formula:

 

A=   the total number of shares with respect to which this Warrant is then being
exercised.

B=

  the Weighted Average Price of the Common Stock (as reported by Bloomberg) for
the five (5) consecutive Trading Days ending on the date immediately preceding
the date of the Exercise Notice.

C=

  $0.001.

(e) Disputes. In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the Warrant Shares, the Company shall
promptly issue to the Holder the number of Warrant Shares that are not disputed
and resolve such dispute in accordance with Section 12.

 

- 3 -

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

 

(f) Limitations on Exercises. The Company shall not effect the exercise of this
Warrant, and the Holder shall not have the right to exercise this Warrant, to
the extent that after giving effect to such exercise, such Person (together with
such Person’s affiliates) would beneficially own in excess of 4.99% (the
“Maximum Percentage”) of the shares of Common Stock outstanding immediately
after giving effect to such exercise. For purposes of the foregoing sentence,
the aggregate number of shares of Common Stock beneficially owned by such Person
and its affiliates shall include the number of shares of Common Stock issuable
upon exercise of this Warrant 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) exercise of the remaining, unexercised portion of this Warrant
beneficially owned by such Person and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company beneficially owned by such Person and its affiliates (including,
without limitation, any convertible notes or convertible preferred stock or
warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the “1934 Act”). For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company’s most recent
Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding.
For any reason at any time, upon the written or oral request of the Holder, the
Company shall within one (1) Business Day confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. 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 the
SPA Warrants, by the Holder and its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. By 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% specified in such
notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and
(ii) any such increase or decrease will apply only to the Holder and not to any
other holder of SPA Warrants. The provisions of this paragraph shall be
construed and implemented in a manner otherwise than in strict conformity with
the terms of this Section 1(f) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such limitation.

(g) Insufficient Authorized Shares. If at any time while this Warrant remains
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 exercise of this Warrant at least a number of shares of Common
Stock equal to 100% (the “Required Reserve Amount”) of the maximum number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of all of this Warrant then outstanding (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 this Warrant
then outstanding. Without

 

- 4 -

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

limiting the generality of the foregoing sentence, as soon as practicable after
the date of the occurrence of an Authorized Share Failure, but in no event later
than sixty (60) days after the occurrence of such Authorized Share Failure, the
Company shall hold a meeting of its stockholders for the approval of an increase
in the number of authorized shares of Common Stock. In connection with such
meeting, the Company shall provide each stockholder with a proxy statement and
shall use its reasonable 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.

(h) Mandatory Exercise. If the Maximum Eligibility Number on December 22, 2010
is greater than zero, then this Warrant shall be deemed to be exercised by a
Cashless Exercise pursuant to Section 1(d) above and the Company shall be
obligated to deliver all Warrant Shares in accordance with, and in the time
periods specified in, this Warrant as if the Holder had delivered an Exercise
Notice on such date with respect to the maximum number of Warrant Shares
exercisable hereunder.

2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price
and the number of Warrant Shares shall be adjusted from time to time as follows:

(a) Intentionally Omitted.

(b) Intentionally Omitted.

(c) Adjustment upon Subdivision or Combination of shares 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 Exercise
Price in effect immediately prior to such subdivision will be proportionately
reduced and the number of Warrant Shares will be proportionately increased. 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 Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(c) shall become effective at the close of
business on the date the subdivision or combination becomes effective.

(d) Holder’s Right of Alternative Exercise Price Following Issuance of Variable
Securities. If the Company issues or sells or, in accordance with this Section 2
is deemed to have issued or sold any Options or Convertible Securities after the
Issuance Date that are convertible into or exchangeable or exercisable for
shares of Common Stock at a price which varies or may vary with the market price
of the shares of Common Stock, including by way of one or more reset(s) to a
fixed price (each of the formulations for such variable price being herein
referred to as, a “Variable Price Formulation”), the Company shall provide
written notice thereof via facsimile and overnight courier to the Holder (the
“Variable Notice”) on the date of issuance or deemed issuance of such
Convertible Securities or Options. From and after the date the Company issues or
is deemed to have issued any such Convertible Securities or

 

- 5 -

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

Options with a Variable Price Formulation, but only for so long as such
Convertible Securities or Options are outstanding, the Holder shall have the
right, but not the obligation, in its sole discretion to substitute any of the
applicable Variable Price Formulation for the Exercise Price upon exercise of
the Warrants held by it by designating in the Exercise Notice delivered upon
exercise of such Warrant that solely for purposes of such exercise the Holder is
relying on the Variable Price Formulation rather than the Exercise Price then in
effect. The Holder’s election to rely on a Variable Price Formulation for a
particular exercise of Warrants shall not obligate the Holder to rely on a
Variable Price Formulation for any future exercise of Warrants.

3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of shares of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a “Distribution”), at any time after the issuance of this
Warrant, then, in each such case, upon an exercise of this Warrant, in whole or
in part, the Holder will be entitled to receive the amount of any such
Distribution that the Holder would have received if the Holder had held,
immediately before the date on which a record is taken for the declaration or
payment of the Distribution, or, if no such record date is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
declaration or payment of the Distribution, the number of shares of Common Stock
that the Holder is entitled to receive upon such exercise (without taking into
account any limitations or restrictions on the convertibility of this Warrant).

4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

(a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above,
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 exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.

(b) Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Warrant and the other Transaction
Documents in accordance with the provisions of this Section (4)(b) 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 to deliver to each holder of the SPA Warrants in exchange
for such Warrants a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value for
the shares of Common Stock reflected by the terms of such Fundamental
Transaction, and exercisable for a corresponding number of

 

- 6 -

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

shares of capital stock equivalent to the shares of Common Stock acquirable and
receivable upon exercise of this Warrant (without regard to any limitations on
the exercise of this Warrant) prior to such Fundamental Transaction, and
satisfactory to the Required Holders and (ii) the Successor Entity (including
its Parent Entity) is a publicly traded corporation whose common stock is quoted
on or listed for trading on an Eligible Market. Upon the occurrence of any
Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant referring to the “Company” shall
refer instead to the Successor Entity), and may exercise every right and power
of the Company and shall assume all of the obligations of the Company under this
Warrant with the same effect as if such Successor Entity had been named as the
Company herein. Upon consummation of the Fundamental Transaction, the Successor
Entity shall deliver to the Holder confirmation that there shall be issued upon
exercise of this Warrant at any time after the consummation of the Fundamental
Transaction, in lieu of the shares of Common Stock (or other securities, cash,
assets or other property) issuable upon the exercise of the Warrant prior to
such Fundamental Transaction, such shares of the publicly traded common stock or
common shares (or its equivalent) of the Successor Entity (including its Parent
Entity) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had this Warrant been converted immediately
prior to such Fundamental Transaction, as adjusted in accordance with the
provisions of this Warrant. In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a “Corporate Event”), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the Corporate
Event but prior to the Expiration Date, in lieu of shares of Common Stock (or
other securities, cash, assets or other property) purchasable upon the exercise
of this Warrant prior to such Corporate Event, such shares of stock, securities,
cash, assets or any other property whatsoever (including warrants or other
purchase or subscription rights) which the Holder would have been entitled to
receive upon the happening of such Corporate Event had this Warrant been
exercised immediately prior to such Corporate Event. Provision made pursuant to
the preceding sentence shall be in a form and substance reasonably satisfactory
to the Required Holders. The provisions of this Section shall apply similarly
and equally to successive Fundamental Transactions and Corporate Events and
shall be applied without regard to any limitations on the exercise of this
Warrant.

(c) Notwithstanding the foregoing, in the event of a Change of Control, at the
request of the Holder delivered before the ninetieth (90th) day after the
consummation of such Change of Control, the Company (or the Successor Entity)
shall purchase this Warrant from the Holder by paying to the Holder, within five
(5) Business Days after such request (or, if later, on the effective date of the
Change of Control), cash in an amount equal to the Black Scholes Value of the
remaining unexercised portion of this Warrant on the date of such Change of
Control.

5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of its Certificate of Incorporation or Bylaws, or through
any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all

 

- 7 -

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

the provisions of this Warrant and take all action as may be required to protect
the rights of the Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, 130% of the number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of the SPA Warrants then outstanding
(without regard to any limitations on exercise).

6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically
provided herein, the Holder, solely in such Person’s capacity as a holder of
this Warrant, shall not be entitled to vote or receive dividends or be deemed
the holder of share capital of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the Holder, solely in such
Person’s capacity as the Holder of this Warrant, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the Holder of the Warrant Shares which such Person is then entitled
to receive upon the due exercise of this Warrant. In addition, nothing contained
in this Warrant shall be construed as imposing any liabilities on the Holder to
purchase any securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this Section 6, the Company
shall provide the Holder with copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously with the
giving thereof to the stockholders.

7. REISSUANCE OF WARRANTS.

(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Warrant (in accordance with
Section 7(d)), registered as the Holder may request, representing the right to
purchase the number of Warrant Shares being transferred by the Holder and, if
less than the total number of Warrant Shares then underlying this Warrant is
being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder
representing the right to purchase the number of Warrant Shares not being
transferred.

(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, 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 Warrant,
the Company shall execute and deliver to the Holder a new Warrant (in accordance
with Section 7(d)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

 

- 8 -

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

 

(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new
Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.

(d) Issuance of New Warrants. Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a)
or Section 7(c), the Warrant Shares designated by the Holder which, when added
to the number of shares of Common Stock underlying the other new Warrants issued
in connection with such issuance, does not exceed the number of Warrant Shares
then underlying this Warrant), (iii) shall have an issuance date, as indicated
on the face of such new Warrant which is the same as the Issuance Date, and
(iv) shall have the same rights and conditions as this Warrant.

8. NOTICES. Whenever notice is required to be given under this Warrant, 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 Warrant,
including in reasonable detail a description of such action and the reason
therefor. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Exercise Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen (15) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the shares of Common Stock, (B) with respect
to any grants, issuances or sales of any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property to holders of
shares of Common Stock or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation, provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder.

9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of
this Warrant may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Required Holders. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the SPA Warrants then outstanding.

10. GOVERNING LAW. This Warrant shall be governed by and construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant 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 Holder and the Company
hereby irrevocably submit to the exclusive jurisdiction of the state and federal
courts sitting in

 

- 9 -

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

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 waive, and agree not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law. Nothing contained
herein shall be deemed 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 WARRANT OR
ANY TRANSACTION CONTEMPLATED HEREBY.

11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted
by the Company and all the Buyers and shall not be construed against any person
as the drafter hereof. The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Warrant.

12. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall submit the disputed determinations or arithmetic calculations via
facsimile within two (2) Business Days of receipt of the Exercise Notice 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 of the
Exercise Price or the Warrant Shares within three (3) Business Days of such
disputed determination or arithmetic calculation being submitted to the Holder,
then the Company shall, within two (2) Business Days submit via facsimile
(a) the disputed determination of the Exercise Price to an independent,
reputable investment bank selected by the Company and approved by the Holder or
(b) the disputed arithmetic calculation of the Warrant Shares to the Company’s
independent, outside accountant. The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten 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.

13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other
remedies available under this Warrant and 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 right of the Holder to
pursue actual damages for any failure by the Company to comply with the terms of
this Warrant. 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 of this Warrant 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.

 

- 10 -

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

 

14. TRANSFER. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company, except as may otherwise be required
by Section 2(f) of the Securities Purchase Agreement.

15. SEVERABILITY. If any provision of this Warrant 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
Warrant so long as this Warrant 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).

16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall
have the following meanings:

(a) “Black Scholes Value” means the value of this Warrant based on the Black and
Scholes Option Pricing Model obtained from the “OV” function on Bloomberg
determined as of the day immediately following the public announcement of the
applicable Fundamental Transaction 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 this Warrant as of such date of request, (ii) an
expected volatility equal to 100%, (iii) the underlying price per share used in
such calculation shall be the sum of the price per share being offered in cash,
if any, plus the value of any non-cash consideration, if any, being offered in
the Fundamental Transaction and (iv) a 360 day annualization factor.

(b) “Bloomberg” means Bloomberg Financial Markets.

(c) “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.

(d) “Change of Control” means any Fundamental Transaction other than (i) any
merger, consolidation, reorganization, recapitalization or reclassification of
the Common Stock in which this Warrant remains exercisable for publicly traded
common stock (or its equivalent) of the Successor Entity and in which the
holders of the Company’s voting power immediately prior to such merger,
consolidation, reorganization, recapitalization or reclassification continue
after such merger, consolidation, reorganization, recapitalization or
reclassification to hold publicly traded securities and, directly or indirectly,
the voting power of

 

- 11 -

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

the Successor Entity necessary to elect a majority of the members of the board
of directors (or their equivalent if other than a corporation) of such Successor
Entity and to approve any measure requiring the approval of holders of a
majority of the common stock (or its equivalent) of the Successor Entity, (ii) a
license, distribution or development agreement relating to one or more of the
Company’s biotech products entered into on an arms length basis for reasonably
equivalent value with a Person that is not a direct or indirect affiliate of the
Company or any officer, director or employee thereof and that is in the business
of commercializing or developing biotech products or (iii) pursuant to a
migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.

(e) “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 the last trade price, respectively, of such security
prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly
the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing
Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the
case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 12. All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during the applicable calculation period.

(f) “Common Stock” means (i) the Company’s shares of Common Stock, par value
$0.01 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.

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

(h) “Eligible Market” means the Principal Market, any other market tier operated
by Pink OTC Markets Inc., The Nasdaq Capital Market, The NASDAQ Global Market,
The NASDAQ Global Select Market, The New York Stock Exchange, Inc., The NYSE
Amex or the OTC Bulletin Board.

 

- 12 -

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

 

(i) “Expiration Date” means December 23, 2010 or, if such date falls on a
Holiday, the next day that is not a Holiday.

(j) “Fundamental Transaction” means that (A) the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of the outstanding shares of
Common Stock (not including any shares of Common Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock or (B) any “person” or “group” (as
these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act)
is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the
1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding shares of Common Stock. Notwithstanding
the foregoing, the term “Fundamental Transaction” shall not include any issuance
of securities or any other transaction contemplated to occur at the Effective
Date pursuant to the Company’s Plan of Reorganization (as defined in the SPA
Securities).

(k) “Maximum Eligibility Number” means initially zero and such number shall be
increased, on December 22, 2010 if 80% of the Price Adjusted Market Price is
less than $0.91, to a number equal to the difference between (I) the quotient
determined by dividing (A) the aggregate principal amount of SPA Securities
purchased by the Holder (or such Holder’s assignee) on the Issuance Date by
(B) the greater of (1) $0.50 (subject to adjustment for stock splits, stock
dividends, recapitalizations or other similar events with respect to the
Company’s Common Stock) and (2) 80% of the Price Adjusted Market Price and (II)
the quotient determined by dividing the aggregate principal amount of SPA
Securities purchased by the Holder (or such Holder’s assignee) on the Issuance
Date by (B) $0.91 provided, that in no event shall the Maximum Eligibility
Number exceed the number of Warrant Shares set forth on the first page of this
Warrant (as adjusted pursuant to the terms set forth herein).

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

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

 

- 13 -

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

 

(n) “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.

(o) “Price Adjusted Market Price” means the arithmetic average of the Weighted
Average Prices during the period beginning on (and including) December 1, 2010
and ending on (and including) December 21, 2010.

(p) “Principal Market” means the OTCQX market tier operated by Pink OTC Markets
Inc. or such Eligible Market on which such security is then listed or traded as
reported by Bloomberg.

(q) “Required Holders” means the holders of the SPA Warrants representing at
least two-thirds of the shares of Common Stock underlying the SPA Warrants then
outstanding.

(r) “SPA Securities” means the Exchange Notes (as defined in the Securities
Purchase Agreement).

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

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

(u) “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 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, 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

 

- 14 -

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

makers for such security as reported in the “pink sheets” by Pink Sheets LLC
(formerly the National Quotation Bureau, 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 12 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 or other similar transaction during the
applicable calculation period.

[Signature Page Follows]

 

- 15 -

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

 

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

 

BIOVEST INTERNATIONAL, INC. By:  

 

  Name:   Title:

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

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

BIOVEST INTERNATIONAL, INC.

The undersigned holder hereby exercises the right to purchase
                     of the Common Stock (“Warrant Shares”) of Biovest
International, Inc., a company incorporated under the laws of Delaware (the
“Company”), evidenced by the attached Warrant to Purchase Common Stock (the
“Warrant”). Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant.

1. Form of Exercise Price. The Holder intends that payment of the Exercise Price
shall be made as:

             a “Cash Exercise” with respect to                      Warrant
Shares; and/or

             a “Cashless Exercise” with respect to                      Warrant
Shares.

2. Payment of Exercise Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$             to the Company in accordance with the terms of the Warrant.

3. Delivery of Warrant Shares. The Company shall deliver to the holder
                     Warrant Shares in accordance with the terms of the Warrant.

4. The undersigned holder hereby represents and warrants that after giving
effect to the exercise of the Warrant contemplated by this Exercise Notice, such
holder will not be in violation of the beneficial ownership limits specified in
Section 1(f) of the Warrant, as increased or decreased pursuant to terms
contained therein.

5. Is the Variable Price Formulation being relied on pursuant to Section 2.1(d)?
(check one) YES        NO        

Date:                  ,         

 

Account Number:  

 

(if electronic book entry transfer)

 

Transaction Code Number:  

 

(if electronic book entry transfer)

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

 

 

Name of Registered Holder  

 

  Name:   Title:

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

 

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs
StockTrans, Inc. to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated October [    ], 2010
from the Company and acknowledged and agreed to by StockTrans, Inc.

 

BIOVEST INTERNATIONAL, INC. By:  

 

  Name:   Title:

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

 

Exhibit C-1

PLEDGE, COLLATERAL ACCOUNT AND SECURITY AGREEMENT

PLEDGE, COLLATERAL ACCOUNT AND SECURITY AGREEMENT, dated as of October 19, 2010
(this “Agreement”), by and between Biovest International, Inc., a Delaware
corporation (the “Pledgor”), in favor of Empery Asset Master LTD, a Cayman
limited company, in its capacity as collateral agent (in such capacity, the
“Agent”) for the “Buyers” party to the Securities Purchase Agreement referred to
below.

W I T N E S S E T H:

WHEREAS, on November 10, 2008, (the “Petition Date”), Accentia
Biopharmaceuticals, Inc. (“Accentia”) and its Subsidiaries, the Pledgor,
Analytica International, Inc., TEAMM Pharmaceuticals, Inc., AccentRx, Inc.,
Accentia Specialty Pharmacy, Inc., Biovax, Inc., AutovaxID, Inc., Biolender, LLC
and Biolender II, LLC (hereinafter collectively referred to as the “Debtors”)
filed voluntary petitions (the “Chapter 11 Cases”) for relief under Chapter 11
of Title 11 of the United States Code, 11 U.S.C. §§ 101-1330 (as amended, the
“Bankruptcy Code”), with the United States Bankruptcy Court for the Middle
District of Florida (Tampa Division) (the “Bankruptcy Court”). Since the
Petition Date, the Debtors have continued to operate their businesses and manage
their properties as debtors in possession pursuant to Sections 1107(a) and 1108
of the Bankruptcy Code;

WHEREAS, the Pledgor has authorized the issuance of a new series of senior
secured convertible notes of the Pledgor (as amended, restated or otherwise
modified from time to time, together with any notes issued in exchange or
replacement therefor, the “Initial Notes”), pursuant to the terms of that
certain Securities Purchase Agreement, dated as of the date hereof (as amended,
restated or otherwise modified from time to time, the “Securities Purchase
Agreement”), by and among the Pledgor and the investors listed on the Schedule
of Buyers attached thereto.

WHEREAS, it is a condition precedent to the Buyers entering into the Securities
Purchase Agreement that the Pledgor execute and deliver to the Agent this
Agreement providing for the pledge to the Agent of, and the grant to the Agent
of a security interest in, account number 2000045511594 (the “Account”)
maintained by the Pledgor with Wells Fargo Bank, National Association or any
successor entity (the “Bank”), including, without limitation, all securities,
cash and investment property now or hereafter held in the Account;

NOW, THEREFORE, in consideration of the premises and the agreements herein and
in order to induce the Buyers to enter into the Securities Purchase Agreement,
the Pledgor hereby agrees with the Agent, for the benefit of the Buyers, as
follows:

SECTION 1. Definitions. All terms used in this Agreement which are defined in
the Securities Purchase Agreement or Article 8 or 9 of the Uniform Commercial
Code (the “Code”) in effect in the State of New York from time to time and which
are not otherwise defined herein shall have the same meanings herein as set
forth therein.

SECTION 2. Pledge and Grant of Security Interest. As collateral security for all
of the Obligations (as defined in Section 3 hereof), the Pledgor hereby pledges
and assigns to the Agent, for the benefit of the Buyers, and grants to the
Agent, for the benefit of the Buyers, a continuing security interest in, the
following (the “Collateral”):

(a) the Account, all securities, financial assets and cash which may from time
to time be in the Account and all certificates and instruments, if any, from
time to time representing or evidencing, the Account;

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

 

(b) all investments of cash now or hereafter in the Account and all promissory
notes, bonds, securities, certificates and instruments, if any, from time to
time representing or evidencing such investments;

(c) all interest, dividends, cash, instruments, promissory notes, certificates,
shares, units, earnings, securities (whether certificated or uncertificated),
options and other rights, contractual or otherwise, in respect thereof and all
other property from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of the then existing Collateral;

(d) all investment property contained in, arising from or related to the Account
and all securities entitlements of the Pledgor in the Account; and

(e) to the extent not described above, all proceeds of any and all of the
foregoing Collateral;

in each case, whether now owned or hereafter acquired by the Pledgor and
howsoever such interest therein may arise or appear (whether by ownership,
security interest, claim or otherwise).

SECTION 3. Security for Obligations. The security interest created hereby in the
Collateral constitutes continuing collateral security for all of the following
obligations whether now existing or hereafter incurred (the “Obligations”):

(a) the prompt payment by the Pledgor, as and when due and payable, of all
amounts from time to time owing by the Pledgor in respect of the the Initial
Notes, including, without limitation, principal of and interest on the Initial
Notes (including, without limitation, all interest that accrues after the
commencement of any case, proceeding or other action relating to the bankruptcy
or insolvency of the Pledgor, whether or not a claim for post-filing interest is
allowed in such proceeding), all fees, commissions, expense reimbursements,
indemnifications and all other amounts due or to become due under the
Transaction Documents; and

(b) the due performance and observance by the Pledgor of all of its other
obligations from time to time existing in respect of this Agreement, the
Securities Purchase Agreement, the Initial Notes, and the other Transaction
Documents.

SECTION 4. Establishment of Collateral Account; Delivery of the Collateral.

(a) The Pledgor has established and will maintain with the Bank the Account. The
Account shall be under the sole dominion and control of the Agent, for the
benefit of the Buyers, and the Agent, for the benefit of the Buyers, shall have
the sole right to make

 

-2-

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

withdrawals from the Account and to exercise rights with respect to the
securities, cash, financial assets and other investment property from time to
time on deposit or held therein. The Collateral shall be held by the Bank in the
Account pursuant to the terms hereof and the Deposit Account Control Agreement,
dated as of October 19, 2010 (the “Control Agreement”) among the Pledgor, the
Buyers and the Bank.

(b) If the Pledgor shall receive, by virtue of the Pledgor’s being or having
been an owner of any Collateral, any (i) stock certificate, promissory note or
other instrument, (ii) option or right, whether as an addition to, substitution
for, or in exchange for, any Collateral, or otherwise, or (iii) payment in cash
or in securities or other property, the Pledgor shall receive such promissory
note, instrument, option, right, payment or distribution in trust for the
benefit of the Agent, shall segregate it from the Pledgor’s other property and
shall deliver it forthwith to the Agent or the Bank in the exact form received,
with any necessary endorsement and/or appropriate stock powers duly executed in
blank, to be held by the Agent or the Bank as Collateral and as further
collateral security for the Obligations.

SECTION 5. Representations and Warranties. The Pledgor represents and warrants
as follows:

(a) The Pledgor is duly organized and validly existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
power and authorization to own its properties and to carry on its business as
now being conducted. Subject only to Bankruptcy Court approval, the Pledgor has
the requisite power and authority to enter into and perform its obligations
under this Agreement. The execution and delivery of this Agreement by the
Pledgor and the consummation by the Pledgor of the transactions contemplated
hereby have been duly authorized by the Pledgor’s Board of Directors and no
further filing, consent, or authorization is required by the Pledgor, its Board
of Directors or its stockholders.

(b) The execution, delivery and performance by the Pledgor of this Agreement,
and the exercise by the Agent of any of its rights and remedies hereunder,
(i) do not and will not contravene any law or regulation (including, without
limitation, Regulation T, U or X of the Board of Governors of the Federal
Reserve System of the United States), or any contractual restriction binding on
or affecting the Pledgor or any of the Pledgor’s properties, and (ii) do not and
will not result in or require the creation of any security interest or other
charge or encumbrance upon or with respect to any of the Pledgor’s properties,
other than in favor of the Agent.

(c) This Agreement is a legal, valid and binding obligation of the Pledgor,
enforceable against the Pledgor in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or limiting creditor’s rights generally or by
equitable principles relating to enforceability (whether enforcement is sought
in equity or at law).

(d) There is no action, suit or proceeding pending or, to the Pledgor’s
knowledge, threatened or otherwise affecting the Pledgor or the Account before
any court or other governmental authority or arbitrator that is reasonably
likely to materially adversely affect the financial condition of the Pledgor or
the Pledgor’s ability to perform the obligations of the Pledgor hereunder and
under the other Transaction Documents.

 

-3-

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

 

(e) No authorization or approval or other action by, and no notice to or filing
with, any governmental authority or other regulatory body or any other Person is
required for (i) the due execution, delivery and performance by the Pledgor of
this Agreement, (ii) the grant by the Pledgor, or the perfection, of the
security interest purported to be created hereby in the Collateral or (iii) the
exercise by the Agent of any of its rights and remedies hereunder.

(f) The Pledgor is and will be at all times the legal and beneficial owner of
the Collateral, free and clear of any lien, security interest, option or other
charge or encumbrance except for the security interest created by this Agreement
and any security interest of the Bank in the Account. There is no financing
statement naming the Pledgor as debtor (or similar document or instrument of
registration under the law of any jurisdiction) now on file or registered in any
public office covering any interest of the Pledgor in any of the Collateral.

(g) This Agreement creates a valid security interest in favor of the Agent in
the Collateral, as security for the Obligations. The Bank’s having possession in
the Account of all certificates, instruments and cash constituting Collateral
from time to time and the execution and delivery of the Control Agreement
results in the perfection of such security interest. Such security interest is,
or in the case of Collateral in which the Pledgor obtains rights after the date
hereof, will be, a perfected, first priority security interest. All action
necessary or desirable to perfect and protect such security interest has been
duly taken, except the Agent’s and/or the Bank’s having possession of
certificates, instruments and cash constituting Collateral after the date
hereof.

SECTION 6. Covenants as to the Collateral. The Pledgor will, unless the Agent
shall otherwise consent in writing:

(a) Keep adequate records concerning the Collateral and permit the Agent or any
agents or representatives thereof at any reasonable time and from time to time
to examine and make copies of and abstracts from such records.

(b) At the Pledgor’s expense, promptly deliver to the Agent a copy of each
notice or other communication received by the Pledgor in respect of the
Collateral, together with a copy of any reply by the Pledgor thereto.

(c) At the Pledgor’s expense, defend the Agent’s right, title and security
interest in and to the Collateral against the claims of any person.

(d) At the Pledgor’s expense, at any time and from time to time, promptly
execute and deliver all further instruments and documents and take all further
action that may be necessary or desirable or that the Agent may reasonably
request in order to (i) perfect and protect the security interest purported to
be created hereby (whether pursuant to laws, rules, regulations or general
practices currently in effect or adopted subsequent to the date hereof),
(ii) enable the Agent to exercise and enforce its rights and remedies hereunder
in respect of the Collateral, or (iii) otherwise effect the purposes of this
Agreement, including, without limitation, delivering to the Agent irrevocable
proxies in respect of the Collateral and executing

 

-4-

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

and filing such financing or continuation statements, or amendments thereto, as
may be necessary or that the Agent may reasonably request in order to perfect
and preserve the security interest purported to be created hereby.

(e) Not sell, assign (by operation of law or otherwise), exchange or otherwise
dispose of any Collateral or any interest therein.

(f) Not create or suffer to exist any lien, security interest or other charge or
encumbrance upon or with respect to any Collateral except for the security
interest created hereby and the security interest of the Bank.

(g) Not make or consent to any amendment or other modification or waiver with
respect to any Collateral or enter into any agreement or permit to exist any
restriction with respect to any Collateral other than pursuant hereto.

(h) Not take any action which would in any manner impair the value or
enforceability of the Agent’s security interest in any Collateral.

SECTION 7. Withdrawal and Disposition of Collateral.

(a) All Collateral (including, without limitation, all cash and investment
property from time to time in the Account, and the proceeds thereof), shall
remain in the Account (except for withdrawals by the Agent in accordance with
the terms of the Securities Purchase Agreement) and the Pledgor may not withdraw
any part of the Collateral from the Account.

(b) The Agent may make withdrawals of all or any part of the Collateral from the
Account from time to time in accordance with the terms of the Securities
Purchase Agreement.

SECTION 8. Additional Provisions Concerning the Collateral.

(a) The Pledgor hereby authorizes the Agent to file, without the signature of
the Pledgor where permitted by law, one or more financing or continuation
statements, and amendments thereto, relating to the Collateral.

(b) The Pledgor hereby irrevocably appoints the Agent the Pledgor’s
attorney-in-fact and proxy, with full authority in the place and stead of the
Pledgor and in the name of the Pledgor or otherwise, from time to time in the
Agent’s discretion, to take any action and to execute any instrument (at the
expense of the Pledgor) which the Agent may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation, at any time and from time to time, to register, or to direct that
the Bank register, all or any item of Collateral in the Agent’s own name or in
the name of its nominee or designee, to receive, indorse and collect all
instruments made payable to the Pledgor representing any distribution in respect
of any Collateral and to give full discharge for the same.

(c) If the Pledgor fails to perform any agreement or obligation contained
herein, the Agent may itself perform, or cause performance of, such agreement or

 

-5-

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

obligation, and the expenses of the Agent incurred in connection therewith shall
be payable by the Pledgor pursuant to Section 10 hereof, together with interest
from the date such expenses are paid by the Agent until repaid in full, at the
rate for overdue principal under the Initial Notes all payable on demand. The
powers conferred on the Agent hereunder are solely to protect its interest in
the Collateral and shall not impose any duty upon it to exercise any such
powers.

(d) Other than the exercise of reasonable care to assure the safe custody of the
Collateral while held by the Agent hereunder, the Agent shall have no duty or
liability to preserve rights pertaining thereto and shall be relieved of all
responsibility for the Collateral upon surrendering it or tendering surrender of
it to the Pledgor. The Agent shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which the Agent
accords its own property, it being understood that the Agent shall not have
responsibility for (i) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relating to any
Collateral, whether or not the Agent has or is deemed to have knowledge of such
matters, or (ii) taking any necessary steps to preserve rights against any
parties with respect to any Collateral.

SECTION 9. Remedies Upon Event of Default. If any Event of Default shall have
occurred and be continuing:

(a) The Agent may exercise in respect of the Collateral, in addition to other
rights and remedies provided for herein or otherwise available to it, all of the
rights and remedies of a secured party on default under the Code then in effect
in the State of New York (whether or not the Code applies to the affected
Collateral); and without limiting the generality of the foregoing and without
notice except as specified below, sell the Collateral or any part thereof in one
or more parcels at public or private sale, at any exchange or broker’s board or
elsewhere, at such price or prices and on such other terms as the Agent may deem
commercially reasonable. In addition, the Agent may, at any time and from time
to time, upon the occurrence and during the continuance of an Event of Default,
direct that the Bank immediately deliver to the Agent all or part of the
Collateral. The Agent may apply all or part of the cash and/or other investment
property constituting Collateral to the payment of all or any part of the
Obligations in such manner as the Agent may elect. The Pledgor agrees that, to
the extent notice of sale shall be required by law, at least three (3) days’
notice to the Pledgor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Agent shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned.

(b) The Pledgor agrees that in any sale of any Collateral hereunder the Agent is
hereby authorized to comply with any limitation or restriction in connection
with such sale as it may be advised by counsel is necessary in order to avoid
any violation of applicable law (including, without limitation, compliance with
such procedures as may restrict the number of prospective bidders and
purchasers, require that such prospective bidders and purchasers have certain
qualifications, and restrict such prospective bidders and purchasers to persons
who will represent and agree that they are purchasing for their own account for
investment and not with a

 

-6-

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

view to the distribution or resale of such Collateral), or in order to obtain
any required approval of the sale or of the purchasers by any governmental
regulatory authority or official, and the Pledgor further agrees that such
compliance shall not result in such sale being considered or deemed not to have
been made in a commercially reasonable manner, nor shall the Agent be liable or
accountable to the Pledgor for any discount allowed by reason of the fact that
Collateral is sold in compliance with any such limitation or restriction.

(c) Any cash held by the Agent as Collateral and all cash proceeds received by
the Agent in respect of any sale of, collection from, or other realization upon,
all or any part of the Collateral may, in the discretion of the Agent, be held
by the Agent as collateral for, and/or then or any time thereafter applied
(after payment of any amounts payable to the Agent pursuant to Section 10
hereof) in whole or in part by the Agent against, all or any part of the
Obligations in such order as the Agent shall elect. Any surplus of such cash or
cash proceeds held by the Agent and remaining after payment in full of all of
the Obligations shall be paid over to whomsoever shall be lawfully entitled to
receive the same or as a court of competent jurisdiction shall direct.

(d) In the event that the proceeds of any such sale, collection or realization
are insufficient to pay all amounts to which the Agent is legally entitled, the
Pledgor shall be liable for the deficiency, together with interest thereon at
the highest rate specified in the Initial Notes for interest on overdue
principal thereof or such lesser rate as shall be fixed by applicable law,
together with the costs of collection and the fees, disbursements and other
client charges of any attorneys employed by the Agent to collect such
deficiency.

SECTION 10. Indemnity and Expenses.

(a) The Pledgor agrees to indemnify the Agent from and against any and all
claims, losses and liabilities growing out of or resulting from this Agreement
(including, without limitation, enforcement of this Agreement and any
obligations owed to the Bank), except claims, losses or liabilities resulting
solely and directly from the Agent’s gross negligence or willful misconduct as
determined by a final judgment of a court of competent jurisdiction.

(b) The Pledgor agrees to pay to the Agent on demand the amount of any and all
costs and expenses, including the fees, disbursements and other client charges
of the Agent’s counsel and of any experts and agents, which the Agent may incur
in connection with (i) the administration, amendment, modification or
termination of this Agreement, (ii) the custody, preservation, use or operation
of, or the sale of, collection from, or other realization upon, any Collateral,
(iii) the exercise or enforcement of any of the rights of the Agent hereunder,
or (iv) the failure by the Pledgor to perform or observe any of the provisions
hereof.

SECTION 11. Notices, Etc. All notices and other communications provided for
hereunder shall be given in accordance with the notice provisions in the
Securities Purchase Agreement.

SECTION 12. Miscellaneous.

(a) No amendment of any provision of this Agreement shall be effective unless it
is in writing and signed by the Pledgor and the Agent, and no waiver of any

 

-7-

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

provision of this Agreement, and no consent to any departure by the Pledgor
therefrom, shall be effective unless it is in writing and signed by the Agent,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.

(b) No failure on the part of the Agent to exercise, and no delay in exercising,
any right hereunder or under the other Transaction Documents shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The rights and remedies of the Agent provided herein and in the other
Transaction Documents are cumulative and are in addition to, and not exclusive
of, any rights or remedies provided by law. The rights of the Agent against the
Pledgor are not conditional or contingent on any attempt by the Agent to
exercise any of its rights under any other agreement, document or instrument
against the Pledgor or against any other Person.

(c) Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
hereof or thereof or affecting the validity or enforceability of such provision
in any other jurisdiction.

(d) This Agreement shall create a continuing security interest in the Collateral
and shall (i) remain in full force and effect until the satisfaction in full of
all Obligations after the Initial Notes have been returned to the Pledgor and
(ii) be binding on the Pledgor and its successors, transferees and assigns and
shall inure, together with all rights and remedies of the Agent hereunder, to
the benefit of the Agent and its successors, transferees and assigns. Without
limiting the generality of clause (ii) of the immediately preceding sentence,
the Agent may assign or otherwise transfer its interests hereunder or under the
other Transaction Documents, without notice to or consent of the Pledgor. None
of the rights or obligations of the Pledgor hereunder may be assigned or
otherwise transferred without the prior written consent of the Agent.

(e) Upon the satisfaction in full of all Obligations after the Initial Notes
have been returned to the Pledgor, (i) this Agreement and the security interest
created hereby shall terminate and all rights to the Collateral shall revert to
the Pledgor, and (ii) the Agent will, upon the request of the Pledgor and at the
Pledgor’s expense, (A) return to the Pledgor such of the Collateral held by the
Agent, and instruct the Bank to return to the Pledgor such of the Collateral
held in the Account, as shall not have been sold or otherwise disposed of or
applied pursuant to the terms hereof and (B) execute and deliver to the Pledgor
such documents as the Pledgor shall reasonably request to evidence such
termination.

(f) This Agreement shall be governed by and construed in accordance with the law
of the State of New York, except as required by mandatory provisions of law and
except to the extent that the validity or perfection and the effect of
perfection or non-perfection of the security interest created hereby, or
remedies hereunder, in respect of any particular Collateral are governed by the
law of a jurisdiction other than the State of New York.

(g) This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which shall be deemed
to be an

 

-8-

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

original, but all of which taken together shall constitute one in the same
agreement. Delivery of an executed counterpart of this Agreement by facsimile or
electronic mail shall be equally effective as delivery of an original executed
counterpart.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

-9-

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

 

IN WITNESS WHEREOF, the Pledgor has executed and delivered this Agreement on the
date first above written.

 

BIOVEST INTERNATIONAL, INC.

By:  

 

Name:   Title:  

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

 

ACCEPTED BY:

 

EMPERY ASSET MASTER LTD,

as Agent

By:  

 

Name:   Title:  

 

-11-

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

 

Exhibit C-2

LOGO [g109593ex101cpg012.jpg]

DEPOSIT ACCOUNT CONTROL AGREEMENT

(Access Restricted Immediately)

This Deposit Account Control Agreement (the “Agreement”), dated as of the date
specified on the initial signature page of this Agreement, is entered into by
and among Biovest International, Inc., a Delaware corporation (“Company”),
Empery Asset Master Ltd., (“Secured Party”) and Wells Fargo Bank, National
Association (“Bank”), and sets forth the rights of Secured Party and the
obligations of Bank with respect to the deposit accounts of Company at Bank
identified at the end of this Agreement as the Collateral Accounts (each
hereinafter referred to individually as a “Collateral Account” and collectively
as the “Collateral Accounts”). Each account designated as a Collateral Account
includes, for purposes of this Agreement, and without the necessity of
separately listing subaccount numbers, all subaccounts presently existing or
hereafter established for deposit reporting purposes and integrated with the
Collateral Account by an arrangement in which deposits made through subaccounts
are posted only to the Collateral Account. Each Collateral Account operated as a
“Multi-Currency Account” is a deposit account maintained with Bank’s Cayman
Islands Branch, which may be denominated in foreign currency.

 

1. Secured Party’s Interest in Collateral Accounts. Secured Party represents
that it is either (i) a lender who has extended credit to Company and has been
granted a security interest in the Collateral Accounts or (ii) the agent for a
group of such lenders. Company hereby confirms the security interest granted by
Company to Secured Party in all of Company’s right, title and interest in and to
the Collateral Accounts and all sums now or hereafter on deposit in or payable
or withdrawable from the Collateral Accounts (the “Collateral Account Funds”).
In furtherance of the intentions of the parties hereto, this Agreement
constitutes written notice by Secured Party to Bank and Bank’s Cayman Islands
Branch of Secured Party’s security interest in the Collateral Accounts.

 

2. Secured Party Control. Bank, Secured Party and Company each agree that Bank
will comply with instructions given to Bank by Secured Party directing
disposition of funds in the Collateral Accounts (“Disposition Instructions”)
without further consent by Company. Except as otherwise required by law, Bank
will not agree with any third party to comply with instructions for disposition
of funds in the Collateral Accounts originated by such third party.

 

3. No Company Access to Collateral Accounts. Unless separately agreed to in
writing by Secured Party, Company agrees that it will not be able to make debits
or withdrawals from or otherwise have access to the Collateral Accounts or any
Collateral Account Funds, and that Secured Party will have exclusive access to
the Collateral Accounts and Collateral Account Funds.

 

4.

Transfers in Response to Disposition Instructions. Without limiting the
provisions of the “Secured Party Control” section of this Agreement, Bank shall
comply with any Disposition Instructions by Secured Party directing the transfer
or disposition of any or all available funds in the Collateral Accounts within
two Business Days following receipt of such Disposition Instructions by Bank.
Any disposition of funds which Bank makes in response to any such Disposition
Instructions is subject to Bank’s standard policies, procedures and
documentation governing the type of disposition made; provided, however, that in
no circumstances will any such disposition require Company’s consent. To the
extent any Collateral Account is a certificate of deposit or time deposit, Bank
will be entitled to deduct any applicable early

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

 

withdrawal penalty prior to disbursing funds from such account in response to
Disposition Instructions. To the extent Secured Party requests that funds be
transferred from any Collateral Account in a currency different from the
currency denomination of the Collateral Account, the funds transfer will be made
after currency conversion at Bank’s then current buying rate for exchange
applicable to the new currency. A “Business Day” is any day on which Bank is
open to conduct its regular banking business, other than a Saturday, Sunday or
public holiday.

 

5. Lockboxes. To the extent items deposited to a Collateral Account have been
received in one or more post office lockboxes maintained for Company by Bank
(each a “Lockbox”) and processed by Bank for deposit, Company acknowledges that
Company has granted Secured Party a security interest in all such items (the
“Remittances”). During the term of this Agreement, Company will have no right or
ability to instruct Bank regarding the receipt, processing or deposit of
Remittances, and Secured Party alone will have the right and ability to so
instruct Bank. Company and Secured Party acknowledge and agree that Bank’s
operation of each Lockbox, and the receipt, retrieval, processing and deposit of
Remittances, will at all times be governed by Bank’s Master Agreement for
Treasury Management Services or other applicable treasury management services
agreement, and by Bank’s applicable standard lockbox Service Description.

 

6. Balance Reports and Bank Statements. Bank agrees, at the request of Secured
Party on any Business Day, to make available to Secured Party a report (“Balance
Report”) showing the opening available balance in the Collateral Accounts as of
the beginning of such Business Day, by a transmission method determined by Bank,
in Bank’s sole discretion. Company expressly consents to this transmission of
information. Bank shall provide duplicate copies of all periodic statements on
the Collateral Accounts to Secured Party at the address indicated for Secured
Party after its signature to this Agreement.

 

7. Returned Items. Secured Party and Company understand and agree that the face
amount (“Returned Item Amount”) of each Returned Item will be paid by Bank
debiting the Collateral Account to which the Returned Item was originally
credited, without prior notice to Secured Party or Company. As used in this
Agreement, the term “Returned Item” means (i) any item deposited to a Collateral
Account and returned unpaid, whether for insufficient funds or for any other
reason, and without regard to timeliness of the return or the occurrence or
timeliness of any drawee’s notice of non-payment; (ii) any item subject to a
claim against Bank of breach of transfer or presentment warranty under the
Uniform Commercial Code (as adopted in the applicable state) or Regulation CC
(12 C.F.R. §229), as in effect from time to time; (iii) any automated clearing
house (“ACH”) entry credited to a Collateral Account and returned unpaid or
subject to an adjustment entry under applicable clearing house rules, whether
for insufficient funds or for any other reason, and without regard to timeliness
of the return or adjustment; (iv) any credit to a Collateral Account from a
merchant card transaction, against which a contractual demand for chargeback has
been made; and (v) any credit to a Collateral Account made in error. Company
agrees to pay all Returned Item Amounts immediately on demand, without setoff or
counterclaim, to the extent there are not sufficient funds in the applicable
Collateral Account to cover the Returned Item Amounts on the day Bank attempts
to debit them from the Collateral Account. Secured Party agrees to pay all
Returned Item Amounts within fifteen (15) calendar days after demand, without
setoff or counterclaim, to the extent that (i) the Returned Item Amounts are not
paid in full by Company within five (5) calendar days after demand on Company by
Bank, and (ii) Secured Party has received proceeds from the corresponding
Returned Items under this Agreement.

 

8. [Reserved.]

 

Page 2

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

 

9. Bank Fees. Company agrees to pay all Bank’s fees and charges for the
maintenance and administration of the Collateral Accounts and for the treasury
management and other account services provided with respect to the Collateral
Accounts and any Lockboxes (collectively “Bank Fees”), including, but not
limited to, the fees for (a) Balance Reports provided on the Collateral
Accounts, (b) funds transfer services received with respect to the Collateral
Accounts, (c) lockbox processing services, (d) Returned Items, (e) funds
advanced to cover overdrafts in the Collateral Accounts (but without Bank being
in any way obligated to make any such advances), and (f) duplicate bank
statements. The Bank Fees will be paid by Company within five (5) calendar days
after demand from Bank. If Company fails to make such payments within such five
(5) calendar day period, Bank may debit one or more of the Collateral Accounts
for such Bank Fees, without notice to Secured Party or Company. If there are not
sufficient funds in the Collateral Accounts to cover fully the Bank Fees on the
Business Day Bank attempts to debit them from the Collateral Accounts, such
shortfall or the amount of such Bank Fees will be paid by Secured Party within
fifteen (15) calendar days after demand, without setoff or counterclaim.

 

10. Account Documentation. Except as specifically provided in this Agreement,
Secured Party and Company agree that the Collateral Accounts will be subject to,
and Bank’s operation of the Collateral Accounts will be in accordance with, the
terms of Bank’s applicable deposit account agreement governing the Collateral
Accounts (“Account Agreement”). In addition to the Account Agreement, each
Collateral Account operated as a “Multi-Currency Account” will be governed by
Bank’s Master Agreement for Treasury Management Services or other applicable
treasury management services agreement, and by Bank’s Multi-Currency Account
Service Description in effect from time to time. All documentation referenced in
this Agreement as governing any Collateral Account or the processing of any
Remittances is hereinafter collectively referred to as the “Account
Documentation”. In the event of any conflict or inconsistency between the terms
of any Account Documentation, on the one hand, and the terms of the Agreement,
on the other hand, then the terms of this Agreement shall govern and control.

 

11. Partial Subordination of Bank’s Rights. Bank hereby subordinates to the
security interest of Secured Party in the Collateral Accounts (i) any security
interest which Bank may have or acquire in the Collateral Accounts, and (ii) any
right which Bank may have or acquire to set off or otherwise apply any
Collateral Account Funds against the payment of any indebtedness from time to
time owing to Bank from Company, except for debits to the Collateral Accounts
permitted under this Agreement for the payment of Returned Item Amounts or Bank
Fees.

 

12. [Reserved.]

 

13. Legal Process, Legal Notices and Court Orders. Bank will comply with any
legal process, legal notice or court order it receives in relation to a
Collateral Account if Bank determines in its sole discretion that the legal
process, legal notice or court order is legally binding on it.

 

14.

Indemnification. Company will indemnify, defend and hold harmless Bank, its
officers, directors, employees, and agents (collectively, the “Indemnified
Parties”) from and against any and all claims, demands, losses, liabilities,
damages, costs and expenses (including reasonable attorneys’ fees) (collectively
“Losses and Liabilities”) Bank may suffer or incur as a result of or in
connection with (a) Bank complying with any binding legal process, legal notice
or court order referred to in the immediately preceding section of this
Agreement, (b) Bank following any instruction or request of Secured Party,
including but not limited to any Disposition Instructions, or (c) Bank complying
with its obligations under this Agreement, except to the extent such Losses and
Liabilities are caused by Bank’s gross negligence or willful misconduct. To the
extent such obligations of indemnity are not satisfied by Company within five
(5) days after demand on Company by Bank, Secured Party will indemnify, defend
and hold harmless Bank

 

Page 3

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

 

and the other Indemnified Parties against any and all Losses and Liabilities
Bank may suffer or incur as a result of or in connection with Bank following any
instruction or request of Secured Party, except to the extent such Losses and
Liabilities are caused by Bank’s gross negligence or willful misconduct.

 

15. Bank’s Responsibility. This Agreement does not create any obligations of
Bank, and Bank makes no express or implied representations or warranties with
respect to its obligations under this Agreement, except for those expressly set
forth herein. In particular, Bank need not investigate whether Secured Party is
entitled under Secured Party’s agreements with Company to give Disposition
Instructions. Bank may rely on any and all notices and communications it
believes are given by the appropriate party. Bank will not be liable to Company,
Secured Party or any other party for any Losses and Liabilities caused by
(i) circumstances beyond Bank’s reasonable control (including, without
limitation, computer malfunctions, interruptions of communication facilities,
labor difficulties, acts of God, wars, or terrorist attacks) or (ii) any other
circumstances, except to the extent such Losses and Liabilities are directly
caused by Bank’s gross negligence or willful misconduct. In no event will Bank
be liable for any indirect, special, consequential or punitive damages, whether
or not the likelihood of such damages was known to Bank, and regardless of the
form of the claim or action, or the legal theory on which it is based. Any
action against Bank by Company or Secured Party under or related to this
Agreement must be brought within twelve (12) months after the cause of action
accrues.

 

16. Termination. This Agreement may be terminated by Secured Party or Bank at
any time by either of them giving thirty (30) calendar days prior written notice
of such termination to the other parties to this Agreement at their contact
addresses specified after their signatures to this Agreement; provided, however,
that this Agreement may be terminated immediately upon written notice (i) from
Bank to Company and Secured Party should Company or Secured Party fail to make
any payment when due to Bank from Company or Secured Party under the terms of
this Agreement, or (ii) from Secured Party to Bank on termination or release of
Secured Party’s security interest in the Collateral Accounts; provided that any
notice from Secured Party under clause (ii) of this sentence must contain
Secured Party’s acknowledgement of the termination or release of its security
interest in the Collateral Accounts. Company’s and Secured Party’s respective
obligations to report errors in funds transfers and bank statements and to pay
Returned Items Amounts and Bank Fees, as well as the indemnifications made, and
the limitations on the liability of Bank accepted, by Company and Secured Party
under this Agreement will continue after the termination of this Agreement with
respect to all the circumstances to which they are applicable, existing or
occurring before such termination, and any liability of any party to this
Agreement, as determined under the provisions of this Agreement, with respect to
acts or omissions of such party prior to such termination will also survive such
termination. Upon any termination of this Agreement, (i) Bank will transfer all
collected and available balances in the Collateral Accounts on the date of such
termination in accordance with Secured Party’s written instructions, and
(ii) Bank will close any Lockbox and forward any mail received at the Lockbox
unopened to such address as is communicated to Bank by Secured Party under the
notice provisions of this Agreement for a period of three (3) months after the
effective termination date, unless otherwise arranged between Secured Party and
Bank, provided that Bank’s fees with respect to such disposition must be prepaid
directly to Bank at the time of termination by cashier’s check payable to Bank
or other payment method acceptable to Bank in its sole discretion.

 

Page 4

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

 

17. Modifications, Amendments, and Waivers. This Agreement may not be modified
or amended, or any provision thereof waived, except in a writing signed by all
the parties to this Agreement.

 

18. Notices. All notices from one party to another must be in writing, must be
delivered to Company, Secured Party and/or Bank at their contact addresses
specified after their signatures to this Agreement, or any other address of any
party communicated to the other parties in writing, and will be effective on
receipt. Any notice sent by a party to this Agreement to another party must also
be sent to all other parties to this Agreement. Bank is authorized by Company
and Secured Party to act on any instructions or notices received by Bank if
(a) such instructions or notices purport to be made in the name of Secured
Party, (b) Bank reasonably believes that they are so made, and (c) they do not
conflict with the terms of this Agreement as such terms may be amended from time
to time, unless such conflicting instructions or notices are supported by a
court order.

 

19. Successors and Assigns. Neither Company nor Secured Party may assign or
transfer its rights or obligations under this Agreement to any person or entity
without the prior written consent of Bank, which consent will not be
unreasonably withheld or delayed. Notwithstanding the foregoing, Secured Party
may transfer its rights and duties under this Agreement to (i) a transferee to
which, by contract or operation of law, Secured Party transfers substantially
all of its rights and duties under the financing or other arrangements between
Secured Party and Company, or (ii) if Secured Party is acting as a
representative in whose favor a security interest is created or provided for, a
transferee that is a successor representative; provided that as between Bank and
Secured Party, Secured Party will not be released from its obligations under
this Agreement unless and until Bank receives any such transferee’s binding
written agreement to assume all of Secured Party’s obligations hereunder. Bank
may not assign or transfer its rights or obligations under this Agreement to any
person or entity without the prior written consent of Secured Party, which
consent will not be unreasonably withheld or delayed; provided, however, that no
such consent will be required if such assignment or transfer takes place as part
of a merger, acquisition or corporate reorganization affecting Bank.

 

20. Governing Law. This Agreement will be governed by and be construed in
accordance with the laws of the state in which the office of Bank that maintains
the Collateral Accounts is located, without regard to conflict of laws
principles. This state will also be deemed to be Bank’s jurisdiction, for
purposes of Article 9 of the Uniform Commercial Code as it applies to this
Agreement.

 

21. Severability. To the extent that the terms of this Agreement are
inconsistent with, or prohibited or unenforceable under, any applicable law or
regulation, they will be deemed ineffective only to the extent of such
prohibition or unenforceability, and will be deemed modified and applied in a
manner consistent with such law or regulation. Any provision of this Agreement
which is deemed unenforceable or invalid in any jurisdiction will not affect the
enforceability or validity of the remaining provisions of this Agreement or the
same provision in any other jurisdiction.

 

22. Counterparts. This Agreement may be executed in any number of counterparts
each of which will be an original with the same effect as if the signatures were
on the same instrument. Delivery of an executed counterpart of a signature page
of this Agreement by telecopier or electronic image scan transmission (such as a
“pdf” file) will be effective as delivery of a manually executed counterpart of
the Agreement.

 

Page 5

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

 

23. Entire Agreement. This Agreement, together with the Account Documentation,
contains the entire and only agreement among all the parties to this Agreement
and between Bank and Company, on the one hand, and Bank and Secured Party, on
the other hand, with respect to (a) the interest of Secured Party in the
Collateral Accounts and Collateral Account Funds, and (b) Bank’s obligations to
Secured Party in connection with the Collateral Accounts and Collateral Account
Funds.

[SIGNATURE PAGES FOLLOW]

 

Page 6

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

 

This Agreement has been signed by the duly authorized officers or
representatives of Company, Secured Party and Bank on the date specified below.

Date:             , 2010

 

Collateral Account Numbers:    

 

BIOVEST INTERNATIONAL, INC.     EMPERY ASSET MASTER LTD.    

By: EMPERY ASSET MANAGEMENT, LP, its

Authorized Agent

By:

 

   

By: EMPERY AM GP, LLC, its General

Partner

Name:

   

By:

Title:

   

Name: Ryan M. Lane

   

Title: Managing Member

Address for Notices:     Address for Notices:

324 S. Hyde Park Avenue

   

120 Broadway

Suite 350

   

Suite 1019

Tampa, Florida 33606

   

New York, New York 10271

Attn: Alan Pearce

   

Attn: Ryan Lane

Fax: 813.258.6912

   

Fax: 212.608.3307

[SIGNATURE PAGES CONTINUE]

 

Page 7

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

 

WELLS FARGO BANK, NATIONAL

ASSOCIATION

By:

Name:

Title:

Address for Notices:

Wells Fargo Bank, National Association

c/o Wachovia Bank

Mail Address Code: D1129-072

301 South Tryon Street, 7th Floor

Charlotte, North Carolina 28282-1915

Attn: TM Legal Risk Mgmt- DACA Team

Fax: 704.374.4224

        with copy to:

Wells Fargo Bank, National Association

Mail Address Code: Z0307-102

100 S. Ashley Drive, 10th Floor

Tampa, Florida 33602

Attn: Valerie DiGennaro

Fax: 813.225.4330

 

Page 8

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

 

Exhibit D

TRANSFER AGENT INSTRUCTIONS

BIOVEST INTERNATIONAL, INC.

                , 2010

StockTrans, Inc.

[Address]

Telephone: [                ]

Facsimile: [                ]

Attention: [                ]

Ladies and Gentlemen:

Reference is made to that certain Securities Purchase Agreement, dated as of
October     , 2010 (the “Agreement”), by and among Biovest International, Inc.,
a Delaware corporation (the “Company”), and the investors named on the Schedule
of Buyers attached thereto (collectively, the “Holders”), pursuant to which the
Company is issuing to the Holders senior secured convertible notes (the “Initial
Notes”), which are convertible into shares of the common stock of the Company,
par value $0.01 per share (the “Common Stock”), and warrants (the “Initial
Warrants”), which are exercisable into shares of Common Stock.

On November 10, 2008, (the “Petition Date”), Accentia Biopharmaceuticals, Inc.
(“Accentia”) and its Subsidiaries, the Company, Analytica International, Inc.,
TEAMM Pharmaceuticals, Inc., AccentRx, Inc., Accentia Specialty Pharmacy, Inc.,
Biovax, Inc., AutovaxID, Inc., Biolender, LLC and Biolender II, LLC (hereinafter
collectively referred to as the “Debtors”) filed voluntary petitions (the
“Chapter 11 Cases”) for relief under Chapter 11 of Title 11 of the United States
Code, 11 U.S.C. §§ 101-1330 (as amended, the “Bankruptcy Code”), with the United
States Bankruptcy Court for the Middle District of Florida (Tampa Division) (the
“Bankruptcy Court”). On the effective date (the “Effective Date”) of the
Company’s Chapter 11 Plan of Reorganization (as amended, modified or
supplemented in accordance with its terms, the Bankruptcy Code or the Federal
Bankruptcy Procedure and local rules, the “Plan”), (i) the Initial Notes shall
be mandatorily exchangeable and exchanged by each Holder for an aggregate
principal amount of new convertible notes (the “Exchange Notes”) equal to the
aggregate principal amount of Initial Notes being exchanged by each such holder
thereof plus accrued but unpaid interest thereon and (ii) the Initial Warrants
shall be mandatorily exchangeable and exchanged by each Holder for new warrants
(the “Exchange Warrants”), representing the right to acquire the same number of
shares of Common Stock as the unexercised Initial Warrants.

Upon the exchange of (i) the Initial Notes for the Exchange Notes and (ii) the
Initial Warrants for the Exchange Warrants, the Exchange Notes and the Exchange
Warrants will be issued pursuant to Section 1145 of the Bankruptcy Code and upon
the issuance of the shares of Common Stock issuable upon conversion of the
Exchange Notes (the “Conversion Shares”) and exercise of the Exchange Warrants
(the “Warrant Shares”), such shares will be freely transferable without any
restrictions or limitations and without the requirement to be registered under
the Securities Act of 1933, as amended (the “Securities Act”).

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

 

This letter shall serve as our irrevocable authorization and direction to you
(provided that you are the transfer agent of the Company at such time):

(i) to issue Conversion Shares to or upon the order of a Holder from time to
time upon delivery to you of a properly completed and duly executed Conversion
Notice, in the form attached hereto as Exhibit I, which has been acknowledged by
the Company as indicated by the signature of a duly authorized officer of the
Company thereon; and

(ii) to issue Warrant Shares to or upon the order of a Holder from time to time
upon delivery to you of a properly completed and duly executed Exercise Notice,
in the form attached hereto as Exhibit II, which has been acknowledged by the
Company as indicated by the signature of a duly authorized officer of the
Company thereon.

You acknowledge and agree that, within three (3) business days after your
receipt of a notice of transfer, Conversion Notice or Exercise Notice, you shall
issue the Conversion Shares and/or the Warrant Shares, as applicable, so long as
you are participating in The Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, by crediting the aggregate number of Conversion
Shares and/or Warrant Shares to the applicable Holder’s or its designee’s
balance account with DTC through its Deposit/Withdrawal at Custodian system, or,
if you are not participating in the DTC Fast Automated Securities Transfer
Program, issue the Conversion Shares and/or Warrant Shares, as applicable,
registered in the names of such transferee or the Holder, as applicable, and
such certificates shall not bear any legend restricting the transfer of the
Conversion Shares and/or the Warrant Shares and shall not be subject to any
stop-transfer restriction.

Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions. Should you have any questions
concerning this matter, please contact me at                 .

 

Very truly yours,

BIOVEST INTERNATIONAL, INC.

By:  

 

  Name:   Title:

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

 

 

THE FOREGOING INSTRUCTIONS ARE ACKNOWLEDGED AND AGREED TO this      day of
            , 2010 STOCKTRANS, INC. By:  

 

  Name:  

 

  Title:  

 

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

 

Enclosures

cc: [Buyers]

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

 

EXHIBIT I

BIOVEST INTERNATIONAL, INC.

CONVERSION NOTICE

Reference is made to the Convertible Note (the “Note”) issued to the undersigned
by Biovest International, 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 par value $0.01 per share (the
“Common Stock”) of the Company, as of the date specified below.

 

Date of Conversion:

 

 

Aggregate Conversion Amount to be converted:

 

 

Please confirm the following information:

Conversion Price:

 

 

Number of shares of Common Stock to be issued:

 

 

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

Issue to:

 

 

 

 

 

 

Facsimile Number:

 

 

Authorization:

 

 

By:

 

 

Title:

 

 

Dated:  

 

Account Number:

 

 

    (if electronic book entry transfer)

Transaction Code Number:

 

 

    (if electronic book entry transfer)

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

 

ACKNOWLEDGMENT

The Company hereby acknowledges this Conversion Notice and hereby directs
StockTrans, Inc. to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated                 , 2010
from the Company and acknowledged and agreed to by StockTrans, Inc.

 

BIOVEST INTERNATIONAL, INC.

By:  

 

  Name:   Title:

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

 

EXHIBIT II

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

BIOVEST INTERNATIONAL, INC.

The undersigned holder hereby exercises the right to purchase                 
of the Common Stock (“Warrant Shares”) of Biovest International, Inc., a company
incorporated under the laws of Delaware (the “Company”), evidenced by the
attached Warrant to Purchase Common Stock (the “Warrant”). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.

1. Form of Exercise Price. The Holder intends that payment of the Exercise Price
shall be made as:

                 a “Cash Exercise” with respect to                  Warrant
Shares; and/or

                 a “Cashless Exercise” with respect to                  Warrant
Shares.

2. Payment of Exercise Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$             to the Company in accordance with the terms of the Warrant.

3. Delivery of Warrant Shares. The Company shall deliver to the holder
                 Warrant Shares in accordance with the terms of the Warrant.

4. The undersigned holder hereby represents and warrants that after giving
effect to the exercise of the Warrant contemplated by this Exercise Notice, such
holder will not be in violation of the beneficial ownership limits specified in
Section 1(f) of the Warrant, as increased or decreased pursuant to terms
contained therein.

5. Is the Variable Price being relied on pursuant to Section 2.1(d) of the
Warrant? (check one) YES              NO             

Date:                                              ,             

Account Number:                                                          

(if electronic book entry transfer)

Transaction Code Number:                                         

(if electronic book entry transfer)

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

 

 

Name of Registered Holder

 

Name:   Title:  

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

 

ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs
StockTrans, Inc. to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated October [    ], 2010
from the Company and acknowledged and agreed to by StockTrans, Inc.

 

BIOVEST INTERNATIONAL, INC. By:  

 

  Name:   Title:

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

 

Exhibit E-1

Ladies and Gentlemen:

We are of the opinion that:

1. Based solely on the Government Certificates, the Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, and the Company has all requisite corporate power and
authority to own, lease and operate its properties and to conduct its business
as presently conducted.

2. Subject to the Transaction Approval Order, the Company has the requisite
corporate power and authority to execute, deliver and perform all of its
obligations under the Transaction Documents, including, without limitation,
(a) the issuance of the Notes and Warrants pursuant to the Purchase Agreement,
the Conversion Shares pursuant to the Notes, and the Warrant Shares pursuant to
the Warrants, (b) the exchange of the Initial Notes for the Exchange Notes and
(c) the exchange of the Initial Warrants for the Exchange Warrants, in
accordance with the terms thereof. The execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated therein (including, without limitation, the issuance and sale of
the Initial Notes and the Initial Warrants to the Buyers and the exchange of the
Initial Warrants for the Exchange Warrants) have been duly authorized by the
Company’s Board of Directors and, subject to the Transaction Approval Order, no
further consent or authorization of the Company, its Board of Directors or its
stockholders is required therefor. Each of the Transaction Documents has been
duly executed and delivered by the Company. Each of the Transaction Documents
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms.

3. Subject to the Transaction Approval Order, Accentia has the corporate power,
capacity and authority under the Florida Business Corporation Act (the “FBCA”)
to enter into the Lock-Up Agreement to which it is a party. The execution and
delivery by Accentia of the Lock-Up Agreement to which Accentia is a party and
the consummation by it of the transactions contemplated therein have been duly
authorized by Accentia’s Board of Directors and, subject to the Transaction
Approval Order, no further consent of Accentia, its Board of Directors or its
shareholder is required under the FCBA. The Lock-Up Agreement to which Accentia
is a party has been duly executed and delivered by Accentia and constitutes a
valid and binding agreement or obligation of Accentia, enforceable against
Accentia in accordance with its terms

4. The execution, delivery and performance of the Transaction Documents by the
Company and the consummation by the Company of the transactions contemplated
thereby, including, without limitation, the issuance of the Securities, the
exchange of the Initial Notes for the Exchange Notes and the exchange of the
Initial Warrants for the Exchange Warrants, and the compliance by the Company
with the terms thereof (a) do not and will not result in a violation of, or
constitute a default (or an event which, with the giving of notice or lapse of
time or both, constitutes or would constitute a default) under, or give rise to
any right of termination, cancellation or acceleration under, (i) the Company
Certificate of Incorporation or the By-Laws, or (ii) any provision of the
Delaware General Corporation Law, the Securities Act, and the Florida Securities
and Investor Protection Act (the “Florida Securities Act”), in each case as are
customarily applicable to transactions of this nature, and (b) do not and will
not result in or require the creation of any lien, security interest or other
charge or encumbrance (other than pursuant to the Transaction Documents) upon or
with respect to any of its respective properties pursuant to the Company
Certificate of Incorporation or Company By-Laws.

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

 

5. When so issued, the Securities will be duly authorized and validly issued,
fully paid and nonassessable, and free of any and all liens and charges and
preemptive or similar rights contained in the Company Certificate of
Incorporation or the Company By-Laws. The Company has duly and validly adopted a
resolution reserving [        ] shares of Common Stock for issuance upon the
conversion of the Exchange Notes and the exercise of the Exchange Warrants.

6. As of the date hereof, the authorized capital stock of the Company consists
of 300,000,000 shares of Common Stock, par value $0.01 per share. None of the
Company’s capital stock is subject to preemptive rights or other rights of the
stockholders of the Company pursuant to the Company Certificate of Incorporation
or the Company By-Laws or under the Delaware General Corporation Law.

7. Subject to the accuracy of the Buyers’ representations in Section 2 of the
Purchase Agreement, the offer and sale of the Initial Notes and the Initial
Warrants in accordance with the Purchase Agreement and the issuance and delivery
of the Initial Conversion Shares and the Initial Warrant Shares in accordance
with the Transaction Documents constitute transactions exempt from the
registration requirements of the Securities Act.

8. Except for the Transaction Approval Order, no authorization, approval,
consent, filing or other order of any federal or state governmental body,
regulatory agency, self-regulatory organization or the stockholders of the
Company is required under the Delaware General Corporation Law, the Securities
Act or the Florida Securities Act to be obtained by the Company to enter into
and perform its obligations under the Transaction Documents to which it is a
party, or for the issuance and sale of the Securities, the exchange of the
Initial Notes for the Exchange Notes or the exchange of the Initial Warrants for
the Exchange Warrants in accordance with the Transaction Documents or for the
exercise of any rights and remedies under any Transaction Documents, except
(i) the filing of a Form D under Regulation D of the Securities Act, (ii) the
filing of a Form 8-K pursuant to the Securities Exchange Act of 1934, as amended
and (iii) any action necessary in order to qualify the Securities under
applicable state securities or “Blue Sky” laws of the states of the United
States.

9. Other than the Chapter 11 Cases and except as set forth in Schedule 3(t) to
the Purchase Agreement, to our knowledge, no action, suit, proceeding, inquiry
or investigation before or by any court, public board or body or any
governmental agency or self-regulatory organization is pending or threatened
against the Company or any of its properties or assets.

10. Based solely on factual representations made by the Company to us, the
Company is not an “investment company” or any entity controlled by an
“investment company,” as such term is defined in the Investment Company Act of
1940, as amended.

11. The sale of the Initial Notes, the use of the proceeds thereof and the other
transactions contemplated thereby or by the other Transaction Documents, will
not violate or be inconsistent with the provisions of Regulation T, U or X of
the Board of Governors of the Federal Reserve System of the United States.

12. The Security Agreement is effective to create in favor of the Collateral
Agent, for the benefit of the Buyers, as security for the payment of the
obligations purported to be secured thereby, a valid security interest (the
“Security Interest”) in the right, title and interest of the Company in and to
that portion of the Collateral in which a security interest may be created under
Article 9 of the New York UCC.

13. Assuming that the depository bank party to the Account Control Agreement is
a “bank” (as such term is defined in the New York UCC) and that the Account
covered by (and as defined

 

2

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

in) the Account Control Agreement is a Deposit Account (as such term is defined
in the New York UCC) and is and remains in the continued exclusive control of
such depository bank party, the Security Interest referred to in paragraph 12
above in the portion of the Collateral consisting of the Account and any funds
held therein pursuant to the Security Agreement and the Account Control
Agreement will perfect by “control” (within the meaning of Section 9-104 of the
New York UCC) as a result of the execution and delivery of the Account Control
Agreement by the parties thereto.

 

3

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

 

Exhibit E-2

Ladies and Gentlemen:

We are of the opinion that:

1. Based solely on the Government Certificate, the Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and the Company has all requisite corporate power and authority to
own, lease and operate its properties and to conduct its business as presently
conducted.

2. When so issued in accordance with the terms and conditions of the Purchase
Agreement, the Exchange Notes, the Exchange Conversion Shares, the Exchange
Warrants and the Exchange Warrant Shares will be duly authorized and validly
issued, fully paid and nonassessable, and free of any and all liens and charges
and preemptive or similar rights contained in the Certificate of Incorporation
or the By-Laws. The Company has duly and validly adopted a resolution reserving
[        ] shares of Common Stock for issuance upon the conversion of the
Exchange Notes and the exercise of the Exchange Warrants.

3. Other than the Chapter 11 Cases and except as set forth in Schedule 3(t) to
the Purchase Agreement, to our knowledge, no action, suit, proceeding, inquiry
or investigation before or by any court, public board or body or any
governmental agency or self-regulatory organization is pending or threatened
against the Company or any of its properties or assets.

4. Based solely on factual representations made by the Company to us, the
Company is not an “investment company” or any entity controlled by an
“investment company,” as such term is defined in the Investment Company Act of
1940, as amended.

5. The sale of the Exchange Notes, the use of the proceeds thereof and the other
transactions contemplated thereby or by the other Transaction Documents, will
not violate or be inconsistent with the provisions of Regulation T, U or X of
the Board of Governors of the Federal Reserve System of the United States.

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

 

Exhibit F

BIOVEST INTERNATIONAL, INC.

SECRETARY’S CERTIFICATE

The undersigned hereby certifies that he is the duly elected, qualified and
acting Secretary of Biovest International, Inc., a Delaware corporation (the
“Company”), and that as such he is authorized to execute and deliver this
certificate in the name and on behalf of the Company and in connection with the
Securities Purchase Agreement, dated as of October 19, 2010, by and among the
Company and the investors listed on the Schedule of Buyers attached thereto (the
“Securities Purchase Agreement”), and further certifies in his official
capacity, in the name and on behalf of the Company, the items set forth below.
Capitalized terms used but not otherwise defined herein shall have the meaning
set forth in the Securities Purchase Agreement.

 

1. Attached hereto as Exhibit A is a true, correct and complete copy of the
unanimous written consent of the Board of Directors of the Company, dated
October __, 2010. The resolutions contained in Exhibit A have not in any way
been amended, modified, revoked or rescinded, have been in full force and effect
since their adoption to and including the date hereof and are now in full force
and effect.

 

2. Attached hereto as Exhibit B is a true, correct and complete copy of the
Certificate of Incorporation of the Company, together with any and all
amendments thereto, and no action has been taken to further amend, modify or
repeal such Certificate of Incorporation, the same being in full force and
effect in the attached form as of the date hereof.

 

3. Attached hereto as Exhibit C is a true, correct and complete copy of the
Bylaws of the Company and any and all amendments thereto, and no action has been
taken to further amend, modify or repeal such Bylaws, the same being in full
force and effect in the attached form as of the date hereof.

 

4. Each person listed below has been duly elected or appointed to the
position(s) indicated opposite his name and is duly authorized to sign the
Securities Purchase Agreement and each of the Transaction Documents on behalf of
the Company, and the signature appearing opposite such person’s name below is
such person’s genuine signature.

 

Name

  

Position

  

Signature

Francis E. O’Donnell, Jr.    Chairman of the Board and Chief Executive Officer
  

 

Samuel S. Duffey    President and General Counsel   

 

David Moser    Secretary and Director of Legal Affairs   

 

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

 

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this     
day of                 , 2010.

 

 

[Name] Secretary

I, Francis E. O’Donnell, Jr., Chairman of the Board and Chief Executive Officer,
hereby certify that [Name] is the duly elected, qualified and acting Secretary
of the Company and that the signature set forth above is his true signature.

 

 

Francis E. O’Donnell, Jr. Chairman of the Board and Chief Executive Officer

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

 

EXHIBIT A

Resolutions

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

 

EXHIBIT B

Certificate of Incorporation

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

 

EXHIBIT C

Bylaws

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

 

Exhibit G

BIOVEST INTERNATIONAL, INC.

OFFICER’S CERTIFICATE

The undersigned Chief Executive Officer of Biovest International, Inc., a
Delaware corporation (the “Company”), hereby represents, warrants and certifies
to the Buyers (as defined below), pursuant to Section 7(viii) of the Agreement
(as defined below), as follows:

 

  1. The representations and warranties made by the Company set forth in
Section 3 of the Securities Purchase Agreement, dated as of October 19, 2010
(the “Agreement”), among the Company and the investors identified on the
Schedule of Buyers attached to the Agreement (the “Buyers”), are true and
correct as of the date hereof (except for representations and warranties that
speak as of a specific date, which shall be true and correct as of such
specified date).

 

  2. The Company has performed, satisfied or complied with all covenants,
agreements and conditions required to be performed, satisfied or complied with
by it under the Transaction Documents at or prior to the date hereof.

Capitalized terms used but not otherwise defined herein shall have the meaning
set forth in the Agreement.

IN WITNESS WHEREOF, the undersigned has executed this certificate this      day
of                 , 2010.

 

 

Name:   Samuel S. Duffey Title:   President/General Counsel

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

 

Exhibit H

BIOVEST INTERNATIONAL, INC.

Form of Lock-Up Agreement

October     , 2010

Biovest International, Inc.

324 South Hyde Park Avenue, Suite 350

Tampa, Florida 33606

Re: Biovest International, Inc. – Lock-Up Agreement

Dear Sirs:

This Lock-Up Agreement is being delivered to you in connection with the
Securities Purchase Agreement (the “Purchase Agreement”), dated as of
October 19, 2010 by and among Biovest International, Inc. (the “Company”) and
the investors party thereto (the “Buyers”), with respect to the issuance of
(i) secured convertible notes of the Company (the “Notes”) which Notes shall be
convertible into the Company’s common stock, par value $0.01 per share (the
“Common Stock”) and (ii) warrants (the “Warrants”) which Warrants will be
exercisable to purchase Common Stock. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings set forth in the
Purchase Agreement.

In order to induce the Buyers to enter into the Purchase Agreement, the
undersigned agrees that, commencing on the date hereof and ending on the date
that is 90 days following the Effective Date (as defined in the Purchase
Agreement) (the “Lock-Up Period”), the undersigned will not, and will cause all
“affiliates” (as defined in Rule 144 of the Securities Act of 1933, as amended,
and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder) of the undersigned or any person in privity with and
acting on behalf of the undersigned or any affiliate of the undersigned not to,
(i) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant
any option to purchase, make any short sale or otherwise dispose of or agree to
dispose of, directly or indirectly, any shares of Common Stock or Common Stock
Equivalents, or establish or increase a put equivalent position or liquidate or
decrease a call equivalent position within the meaning of Section 16 of the
Securities and Exchange Act of 1934, as amended, and the rules and regulations
of the Securities and Exchange Commission promulgated thereunder with respect to
any shares of Common Stock or Common Stock Equivalents owned directly by the
undersigned (including holding as a custodian) or with respect to which the
undersigned has beneficial ownership within the rules and regulations of the
Securities and Exchange Commission (collectively, the “Undersigned’s Shares”),
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of any of the
Undersigned’s Shares, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of shares of Common Stock or other
securities, in cash or otherwise, (iii) make any demand

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

for or exercise any right or cause to be filed a registration statement,
including any amendments thereto, with respect to the registration of any shares
of Common Stock or Common Stock Equivalents or (iv) publicly disclose the
intention to do any of the foregoing. Notwithstanding the foregoing, if the
transactions contemplated by the Purchase Agreement are not consummated by the
Effective Date, this Lock-Up Agreement shall terminate.

The foregoing restriction is expressly agreed to preclude the undersigned, and
any affiliate of the undersigned and any person in privity with and acting on
behalf of the undersigned or any affiliate of the undersigned, from engaging in
any hedging or other transaction which is designed to or which reasonably could
be expected to lead to or result in a sale or disposition of the Undersigned’s
Shares even if the Undersigned’s Shares would be disposed of by someone other
than the undersigned. Such prohibited hedging or other transactions would
include, without limitation, any short sale or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any of the Undersigned’s Shares or with respect to any security that
includes, relates to, or derives any significant part of its value from the
Undersigned’s Shares.

Notwithstanding the foregoing, the undersigned may transfer the Undersigned’s
Shares as a bona fide gift or gifts, provided that the donee or donees thereof
agree to be bound in writing by the restrictions set forth herein. The
undersigned now has, and, except as contemplated by the immediately preceding
sentence, for the duration of this Lock-Up Agreement will have, good and
marketable title to the Undersigned’s Shares, free and clear of all liens,
encumbrances, and claims whatsoever1. The undersigned also agrees and consents
to the entry of stop transfer instructions with the Company’s transfer agent and
registrar against the transfer of the Undersigned’s Shares except in compliance
with the foregoing restrictions.

In order to enforce this covenant, the Company shall impose irrevocable
stop-transfer instructions preventing the Transfer Agent from effecting any
actions in violation of this Lock-Up Agreement.

The undersigned acknowledges that the execution, delivery and performance of
this Lock-Up Agreement is a material inducement to each Buyer to complete the
transactions contemplated by the Purchase Agreement and that the Company shall
be entitled to specific performance of the undersigned’s obligations hereunder.
The undersigned hereby represents that the undersigned has the power and
authority to execute, deliver and perform this Lock-Up Agreement, that the
undersigned has received adequate consideration therefor and that the
undersigned will indirectly benefit from the closing of the transactions
contemplated by the Purchase Agreement.

 

 

1

For the agreement to be entered into by Accentia, add “except for security
interests granted to unrelated third parties securing obligations under which
the undersigned has no monetary payment obligations during the Lock-Up Period.”

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

 

The undersigned understands and agrees that this Lock-Up Agreement is
irrevocable and shall be binding upon the undersigned’s heirs, legal
representatives, successors, and assigns.

This Lock-Up Agreement may be executed in two counterparts, each of which shall
be deemed an original but both of which shall be considered one and the same
instrument.

This Lock-Up Agreement will be governed by and construed in accordance with the
laws of the State of New York, without giving effect to any choice of law or
conflicting provision or rule (whether of the State of New York, or any other
jurisdiction) that would cause the laws of any jurisdiction other than the State
of New York to be applied. In furtherance of the foregoing, the internal laws of
the State of New York will control the interpretation and construction of this
Lock-Up Agreement, even if under such jurisdiction’s choice of law or conflict
of law analysis, the substantive law of some other jurisdiction would ordinarily
apply.

[Remainder of page intentionally left blank]

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

 

Very truly yours,

 

Exact Name of Stockholder

 

Authorized Signature

 

Title

 

Agreed to and Acknowledged:

BIOVEST INTERNATIONAL, INC.

By:  

 

  Name:   Title:

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

 

Exhibit I

REAFFIRMATION AGREEMENT

REAFFIRMATION AGREEMENT, dated as of October     , 2010 (this “Agreement”), is
made by Biovest International, Inc., a Delaware corporation (the “Company”) in
favor of each of the investors (the “Buyers”) named on the Schedules of Buyers
attached to the Securities Purchase Agreement (the “Securities Purchase
Agreement”) dated as of October 19, 2010 by and among the Company and the
Buyers. Capitalized terms used herein but not specifically defined herein shall
have the meanings ascribed to them in the Securities Purchase Agreement.

WHEREAS, on November 10, 2008, Accentia Biopharmaceuticals, Inc. and its
Subsidiaries, the Company, Analytica International, Inc., TEAMM Pharmaceuticals,
Inc., AccentRx, Inc., Accentia Specialty Pharmacy, Inc., Biovax, Inc.,
AutovaxID, Inc., Biolender, LLC and Biolender II, LLC filed voluntary petitions
for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C.
§§ 101-1330 (as amended, the “Bankruptcy Code”), with the United States
Bankruptcy Court for the Middle District of Florida (Tampa Division);

WHEREAS, on August 16, 2010, the Company filed its First Amended Joint Plan of
Reorganization of Biovest International, Inc., Biovax, Inc., Autovaxid, Inc.,
Biolender, LLC, and Biolender II, LLC under Chapter 11 Plan of Title 11, United
States Code (as amended, modified or supplemented in accordance with its terms,
the Bankruptcy Code or the Federal Bankruptcy Procedure and local rules, the
“Plan”);

WHEREAS, on October     , 2010, the Bankruptcy Court entered the Order Granting
Debtor’s Emergency Motion For Authority To Obtain From [Empery Asset Master
Ltd.] Postpetition Financing And Grant Superpriority Administrative Expense
Status Pursuant To 11 U.S.C. §§ 364(c) and (d) and F.R.B.P. 4001 (the “Financing
Order”) pursuant to which, among other things, the Buyers were authorized to
make and the Company was authorized to incur post-petition loans and advances
secured by the Collateral (as defined in the Securities Purchase Agreement);

WHEREAS, in connection with the Financing Order, the Company and the Buyers,
entered into the Securities Purchase Agreement pursuant to which the Company
issued to the Buyers senior secured convertible notes (the “Initial Notes”) that
are convertible into shares of the common stock of the Company, par value $0.01
per share (the “Common Stock”), and warrants (the “Initial Warrants”), which are
exercisable into shares of Common Stock;

WHEREAS, on the effective date (the “Effective Date”) of the Plan, (i) the
Initial Notes are to be mandatorily exchangeable and exchanged by each Buyer for
an aggregate principal amount of new convertible notes (the “Exchange Notes”)
equal to the aggregate principal amount of Initial Notes being exchanged by each
such holder thereof plus accrued but unpaid interest thereon and (ii) the
Initial Warrants are to be mandatorily exchangeable and exchanged by each Buyer
for new warrants (the “Exchange Warrants”), representing the right to acquire
the same number of shares of Common Stock as the unexercised Initial Warrants;
and

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

 

WHEREAS, it is a condition precedent to the exchange of (i) the Initial Notes
for the Exchange Notes and (ii) the Initial Warrants for the Exchange Warrants
on the Effective Date of the Plan that the Company shall have executed and
delivered to the Buyers this Agreement.

NOW THEREFORE, in consideration of the premises and for other good and valuable
consideration, the parties hereto hereby agree as follows:

1. Reaffirmation and Confirmation. The Company hereby (a) confirms and agrees
that the Securities Purchase Agreement is, and following the Effective Date
shall continue to be, in full force and effect and is hereby ratified, assumed,
adopted, and confirmed in all respects, (b), as of the Effective Date,
acknowledges, agrees to be bound by, and reaffirms its obligations as set forth
in the Securities Purchase Agreement and (c) agrees to continue to comply with,
and be subject to, all of the terms, provisions, conditions, covenants,
agreements and obligations applicable to it in the Securities Purchase
Agreement, which remain in full force and effect following the Effective Date.

2. Agreement as a Transaction Document. The Company acknowledges and agrees that
this Agreement shall constitute a “Transaction Document” under the Securities
Purchase Agreement and the other Transaction Documents.

3. General Provisions.

(a) Effectiveness of Transaction Documents. This Agreement does not and shall
not affect any of the obligations of the Company under or arising from the
Securities Purchase Agreement or any other Transaction Document, all of which
obligations shall remain in full force and effect. The execution, delivery and
effectiveness of this Agreement shall not operate as a waiver of any right,
power or remedy of any Buyer under the Securities Purchase Agreement or any
other Transaction Document, nor constitute a waiver of any provision of the
Securities Purchase Agreement or any other Transaction Document.

(b) Representations and Warranties. The Company further represents and warrants
that (i) the execution, delivery and performance of this Agreement have been
duly authorized by all necessary action, (ii) it has duly executed and delivered
this Agreement, and (iii) this Agreement is a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as enforcement may be limited by equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or limiting creditors’ rights generally.

(c) CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO THE CONFLICTS OR CHOICE OF LAW PRINCIPLES THEREOF.

(d) JURY TRIAL WAIVER. THE PARTIES HERETO HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY
OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON

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

LAW OR STATUTORY CLAIMS. THE PARTIES HERETO REPRESENT THAT EACH HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

[SIGNATURE PAGE FOLLOWS]

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

 

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by
an officer thereunto duly authorized, as of the date first above written.

 

COMPANY:

BIOVEST INTERNATIONAL, INC.,

a Delaware corporation

By:  

 

Title:  

 

Reaffirmation Agreement