Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of April 4,
2012, is entered into by and among American Superconductor Corporation, a
Delaware corporation with offices located at 64 Jackson Road, Devens, MA 01434
(the “Company”), and each of the investors listed on the Schedule of Buyers
attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

RECITALS

A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by
Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and
Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”) under the 1933 Act (without
limiting any other such exemption which may apply to the transactions
contemplated by this Agreement).

B. The Company has authorized the issuance of senior convertible notes, in the
aggregate original principal amount of $40,000,000, in the form attached hereto
as Exhibit A (the “Notes”), which Notes shall be convertible into shares of the
Company’s common stock, $0.01 par value per share (the “Common Stock”), in
accordance with the terms of the Notes.

C. Each Buyer wishes to purchase, and the Company wishes to sell at the Initial
Closing (as defined below), upon the terms and conditions stated in this
Agreement, (a) a Note in the aggregate original principal amount set forth
opposite such Buyer’s name in column (3) on the Schedule of Buyers (which
aggregate principal amount for all Buyers shall not exceed $25,000,000)(each, an
“Initial Note”, and collectively, the “Initial Notes”)(as converted,
collectively, the “Initial Conversion Shares”) and (b) a warrant to acquire up
to that aggregate number of additional shares of Common Stock set forth opposite
such Buyer’s name in column (5) on the Schedule of Buyers, in the form attached
hereto as Exhibit B-1 (the “Series A Warrants”) (as exercised, collectively, the
“Series A Warrant Shares”).

D. Subject to the terms and conditions set forth in this Agreement, the Company
may require each Buyer to participate in an Additional Closing (as defined
below) for the purchase by such Buyer, and the sale by the Company, of (a) a
Note in an original principal amount of set forth opposite such Buyer’s name in
column (4) on the Schedule of Buyers (which aggregate principal amount for all
Buyers shall not exceed $15,000,000)(each an “Additional Note”, and
collectively, the “Additional Notes”)(as converted, collectively, the
“Additional Conversion Shares” and, collectively with the Initial Conversion
Shares, the “Conversion Shares”) and (b) a warrant to acquire up to that
aggregate number of additional shares of Common Stock equal to 50% of the
quotient of (x) the aggregate principal amount of Additional Notes being
purchased by such Buyer at the Closing, divided by (y) the Market Price (as
defined in the Additional Notes) as of the Additional Closing Date (such number
of shares of Common Stock with respect to such Buyer, the “Series B Warrant
Amount”), in the form attached hereto as Exhibit B-2 (the “Series B Warrants”,
and together with the Series A Warrants, the “Warrants”) (as exercised,
collectively, the “Series A Warrant Shares”, and together with the Series B
Warrant Shares, the “Warrant Shares”).

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E. The Notes may be entitled to interest, which, at the option of the Company
and subject to certain conditions, may be paid in shares of Common Stock (the
“Interest Shares”) or in cash.

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

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

AGREEMENT

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

 

1. PURCHASE AND SALE OF NOTES AND WARRANTS.

(a) Notes and Warrants.

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

(ii) Additional Closing. Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 1(b)(ii), 6(b) and 7(b) below, the Company
shall issue and sell to each Buyer, and each Buyer severally, but not jointly,
shall purchase from the Company on the Additional Closing Date (as defined
below), an Additional Note in the original principal amount as is set forth
opposite such Buyer’s name in column (4) on the Schedule of Buyers along with a
Series B Warrant to acquire up to that aggregate number of Series B Warrant
Shares as is equal to the Series B Warrant Amount of such Buyer (the “Additional
Closing”).

(b) Closings. The Initial Closing and the Additional Closing are each referred
to in this Agreement as a “Closing”. Each Closing shall occur at the offices of
Greenberg Traurig, LLP, MetLife Building, 200 Park Avenue, New York, NY 10166.

 

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(i) Initial Closing. The date and time of the Initial Closing (the “Initial
Closing Date”) shall be 10:00 a.m., New York time, on the first (1st) Business
Day (as defined below) (and including the date hereof if a Business Day) on
which the conditions to the Initial Closing set forth in Sections 6(a) and 7(a)
below are satisfied or waived (or such later date as is mutually agreed to by
the Company and each Buyer). As used herein “Business Day” means any day other
than a Saturday, Sunday or other day on which commercial banks in New York, New
York are authorized or required by law to remain closed.

(ii) Additional Closing.

(1) Additional Closing Date. If the Company delivers an Additional Closing
Notice (as defined below), the date and time of the Additional Closing (the
“Additional Closing Date,” and the Initial Closing Date and the Additional
Closing Date, each, a “Closing Date”) shall be 10:00 a.m., New York time, on the
date that is six months after the Initial Closing Date (or such later other date
as is mutually agreed to by the Company and each Buyer).

(2) Additional Closing Mechanics. Subject to the satisfaction (or waiver) of the
conditions set forth in this Section 1(b)(ii) and Sections 6(b) and 7(b) below,
the Company shall have the right to require Capital Ventures International
(“Capital Ventures”) to purchase an Additional Note in the original principal
amount not in excess of the amount set forth opposite its name in column (4) on
the Schedule of Buyers (the “Maximum Additional Note Amount”). Subject to the
satisfaction of the conditions to closing set forth in this Section 1(b)(ii) and
Sections 6(b) and 7(b) below, the Company may exercise its right to require an
Additional Closing by delivering on or prior to the fifteenth calendar date
immediately prior to the Additional Closing Date a written notice thereof by
facsimile and overnight courier to Capital Ventures (the “Additional Closing
Notice”). The Additional Closing Notice shall be irrevocable. The Additional
Closing Notice shall specify the aggregate principal amount of Additional Notes
to be purchased by Capital Ventures at the Additional Closing; provided,
however, that the Company may not require Capital Ventures to purchase
Additional Notes in excess of the Maximum Additional Note Amount (such aggregate
principal amount of Additional Notes set forth in such Additional Closing Notice
to be purchased by Capital Ventures (the “Additional Note Amount”). For the
avoidance of doubt, the Company shall not be entitled to effect an Additional
Closing if on the Additional Closing Date there is an Equity Conditions Failure
(as defined in the Initial Notes) or if either the Additional Closing Volume
Condition (as defined below) or the Additional Closing Price Condition (as
defined below) has not been satisfied in full on the Additional Closing Date.

(c) Purchase Price. The aggregate purchase price for the Initial Notes and the
Series A Warrants to be purchased by each Buyer (the “Initial Purchase Price”)
shall be the amount set forth opposite such Buyer’s name in column (6) on the
Schedule of Buyers. The aggregate purchase price for the Additional Notes and
the related Series B Warrants to be purchased by

 

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each Buyer shall be $1.00 for each $1.00 of original principal amount of the
Additional Note to be purchased by such Buyer at the Additional Closing (such
aggregate amount for such Buyer, the “Additional Purchase Price”, and together
with the Initial Purchase Price, each, a “Purchase Price”). The Buyers and the
Company agree that for purposes of applying Section 305 of the Internal Revenue
Code of 1986, as amended (the “Code”), the Company will apply Section 1273(c)(2)
of the Code as if the Notes and the Warrants constitute an “investment unit” for
purposes of Section 1273(c)(2) of the Code. The parties agree that the Purchase
Price shall be allocated between each Note and Warrant, in accordance with
Section 1273(c)(2) of the Code and Treasury Regulation Section 1.1273-2(h) as
mutually agreed to by the parties and none of the parties 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.

(i) On the Initial Closing Date, (A) each Buyer shall pay its respective Initial
Purchase Price (less, in the case of any Buyer, the amounts withheld pursuant to
Section 4(g)) to the Company for the Initial Notes and the Series A Warrants to
be issued and sold to such Buyer at the Initial Closing, by wire transfer of
immediately available funds in accordance with the Company’s written wire
instructions and (B) the Company shall deliver to each Buyer (x) an Initial Note
in the aggregate original principal amount as is set forth opposite such Buyer’s
name in column (3) of the Schedule of Buyers, and (y) a Series A Warrant
pursuant to which such Buyer shall have the right to acquire up to such
aggregate number of Series A Warrant Shares as is set forth opposite such
Buyer’s name in column (5) of the Schedule of Buyers, in each case, duly
executed on behalf of the Company and registered in the name of such Buyer or
its designee.

(ii) On the Additional Closing Date, (A) Capital Ventures shall pay the
Additional Purchase Price (less the amounts withheld pursuant to Section 4(g))
to the Company for the Additional Notes to be issued and sold to Capital
Ventures at the Additional Closing, by wire transfer of immediately available
funds in accordance with the Company’s written wire instructions and (B) the
Company shall deliver to Capital Ventures (x) an Additional Note in the
aggregate original principal amount as is set forth in the Additional Closing
Notice, and (y) a Series B Warrant pursuant to which Capital Ventures shall have
the right to acquire up to such aggregate number of Series B Warrant Shares as
is equal to the Series B Warrant Amount, in each case, duly executed on behalf
of the Company and registered in the name of Capital Ventures or its designee.

(e) Rank. Each Buyer acknowledges that the Initial Notes and the Additional
Notes shall be part of a single series of notes and shall rank pari passu with
each other.

 

2. BUYER’S REPRESENTATIONS AND WARRANTIES.

Each Buyer, severally and not jointly, represents and warrants to the Company
with respect to only itself that, as of the date hereof and as of each Closing
Date:

(a) Organization; Authority. Such Buyer is an entity duly organized, validly
existing

 

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and in good standing under the laws of the jurisdiction of its organization with
the requisite power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents (as defined below) to
which it is a party and otherwise to carry out its obligations hereunder and
thereunder.

(b) No Public Sale or Distribution. Such Buyer (i) is acquiring the Notes and
Warrants, (ii) upon conversion of the Notes will acquire the Conversion Shares
issuable upon conversion thereof, (iii) upon the issuance pursuant to the terms
of the Notes will acquire Interest Shares and (iv) upon exercise of its Warrants
will acquire the Warrant Shares issuable upon exercise thereof, in each case,
for its own account and not with a view towards, or for resale in connection
with, the public sale or distribution thereof in violation of applicable
securities laws, except pursuant to sales registered or exempted under the 1933
Act; provided, however, by making the representations herein, such Buyer does
not agree, or make any representation or warranty, to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption from registration under the 1933 Act. Such Buyer does
not presently have any agreement or understanding, directly or indirectly, with
any individual, limited liability company, partnership, joint venture,
corporation, trust, unincorporated organization, any other entity or government
or any department or agency thereof (each, a “Person”) to distribute any of the
Securities in violation of applicable securities laws.

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

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

(e) Information. Such Buyer and its advisors, if any, have been furnished with
copies of the SEC Documents (as defined below) and all other materials relating
to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities, which have been requested by such
Buyer. Such Buyer and its advisors, if any, have been afforded the opportunity
to ask questions of the Company.

(f) Experience. Such Buyer understands that its investment in the Securities
involves a high degree of risk. Such Buyer, either alone or together with its
representatives or agents, 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 understands that it must bear
the economic risk of this investment in the Securities indefinitely, and is able
to bear such risk and is able to afford a complete loss of such investment.

 

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(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) Transfer or Resale. Such Buyer understands that except as provided in the
Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company (if
requested by the Company) an opinion of counsel to such Buyer, in a form
reasonably acceptable to the Company, to the effect that such Securities to be
sold, assigned or transferred may be sold, assigned or transferred pursuant to
an exemption from such registration, or (C) such Buyer provides the Company with
reasonable assurance (as evidenced by a certificate of such Buyer, if requested
by the Company) 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 through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 1933
Act) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC promulgated thereunder; and (iii) neither the
Company nor any other Person is under any obligation to register the Securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.

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

(j) No Conflicts. The execution, delivery and performance by such Buyer of this
Agreement and the Registration Rights Agreement and the consummation by such
Buyer of the transactions contemplated hereby and thereby will not (i) result in
a violation of the organizational documents of such Buyer, (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.

(k) No Consents Required. No application, notice, order, registration,
qualification, waiver, consent, approval or other action is required to be
filed, given, obtained or taken by such Buyer by virtue of the execution,
delivery and performance of this Agreement and the Registration Rights Agreement
or the consummation of the transactions contemplated hereby and thereby, which
has not already been obtained.

 

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

(m) Certain Trading Activities. Such Buyer has not directly or indirectly, nor
has any Person acting on behalf of or pursuant to any understanding with such
Buyer, engaged in any transactions in the securities of the Company (including,
without limitation, any Short Sales (as defined below) involving the Company’s
securities) during the period commencing as of the time that such Buyer was
first contacted by the Placement Agent (as defined below) regarding the specific
investment in the Company contemplated by this Agreement and ending immediately
prior to the execution of this Agreement by such Buyer. “Short Sales” means all
“short sales” as defined in Rule 200 promulgated under Regulation SHO under the
1934 Act (as defined below) (but shall not be deemed to include the location
and/or reservation of borrowable shares of Common Stock). Such Buyer is aware
that Short Sales and other hedging activities may be subject to applicable
federal and state securities laws, rules and regulations and such Buyer
acknowledges that the responsibility of compliance with any such federal or
state securities laws, rules and regulations is solely the responsibility of
such Buyer.

(n) Brokers and Finders. No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company, any of its Subsidiaries or any Buyer for any
placement agent’s fees, financial advisory fees, broker’s commissions or other
similar compensation pursuant to any agreement, arrangement or understanding
entered into by or on behalf of such Buyer.

 

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents and warrants to each of the Buyers that, as of the date
hereof and as of each Closing Date:

(a) Organization and Qualification. Each of the Company and each of its
Subsidiaries are entities duly organized and validly existing and in good
standing under the laws of the jurisdiction in which they are formed, and have
the requisite power and authority to own their properties and to carry on their
business as now being conducted and as presently proposed to be conducted. Each
of the Company and each of its Subsidiaries is duly qualified as a foreign
entity to do business and is in good standing in every jurisdiction in which its
ownership of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not reasonably be expected to have a
Material Adverse Effect. As used in this Agreement, “Material Adverse Effect”
means any material adverse effect on (i) the business, properties, assets,
liabilities, operations (including results thereof), condition (financial or
otherwise) or prospects of the Company and its Subsidiaries, taken as a whole,
(ii) the transactions contemplated hereby or in any of the other Transaction
Documents or (iii) the authority or ability of the Company to perform its
obligations under any of the Transaction Documents (as defined below). Set forth
on Schedule 3(a) is a true and complete list of each of the subsidiaries of the
Company. For purposes of this Agreement, “Subsidiaries” means all “significant
subsidiary” (as such term is defined in Rule 1-02 of

 

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Regulation S-X under the Exchange Act as of the date hereof and as identified on
Schedule 3(a)); provided that, in the case of a subsidiary of the Company that
meets the criteria of clause (3) but not clause (1) or (2) thereof, such
subsidiary shall not be deemed to be a “significant subsidiary” unless the
subsidiary’s income from continuing operations before income taxes,
extraordinary items and cumulative effect of a change in accounting principle
exclusive of amounts attributable to any non-controlling interests for the last
completed fiscal year prior to the date of such determination exceeds $5,000,000
million, and each of the foregoing, individually, is a “Subsidiary.”

(b) Authorization; Enforcement; Validity. The Company has the requisite power
and authority to enter into and perform its obligations under this Agreement and
the other Transaction Documents and to issue the Securities in accordance with
the terms hereof and thereof. The execution and delivery of this Agreement and
the other 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, the reservation for issuance and issuance
of the Conversion Shares issuable upon conversion of the Notes, the reservation
for issuance and issuance of any Interest Shares issuable pursuant to the terms
of the Notes, the issuance of the Warrants and the reservation for issuance and
issuance of the Warrant Shares issuable upon exercise of the Warrants) have been
duly authorized by the Company’s Board of Directors and (other than as will be
required to be made or obtained under the Securities Act or the Securities
Exchange Act of 1934, as amended (the “1934 Act”) in connection with the
requirements of the Registration Rights Agreement, a Form D that will be
required to be filed with the SEC and any other filings as may be required by
any state securities or Blue Sky laws) no further filing, consent or
authorization is required by the Company, its Board of Directors or its
stockholders. This Agreement has been, and the other Transaction Documents to be
delivered on or prior to the applicable Closing will be prior to such Closing,
duly executed and delivered by the Company, and upon such execution will
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with its respective terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies and except as rights to indemnification and to contribution
may be limited by federal or state securities law. “Transaction Documents”
means, collectively, this Agreement, the Notes, the Warrants, the Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined below)
and each of the other agreements and instruments entered into or delivered by
any of the parties hereto in connection with the transactions contemplated
hereby and thereby, as may be amended from time to time.

(c) Issuance of Securities. The issuance of the Notes and the Warrants are duly
authorized and upon issuance in accordance with the terms of the Transaction
Documents shall be validly issued, fully paid and non-assessable and free from
all preemptive or similar rights, taxes, liens, charges and other encumbrances
with respect to the issuance thereof. As of the Closing, the Company shall have
reserved from its duly authorized capital stock not less than the sum of
(i) 120% of the maximum number of Conversion Shares issuable upon conversion of
the Notes (determined without taking into account any limitations on the
conversion of the Notes set forth therein and assuming that the Notes are
convertible at the initial Conversion Price (as defined in the Initial Notes)
and all Additional Notes issuable hereunder have been issued), (ii)

 

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the maximum number of Interest Shares issuable pursuant to the terms of the
Notes from the Initial Closing Date through the maturity date of the Additional
Notes (determined without taking into account any limitations on the conversion
of the Notes set forth therein and assuming that the Notes are convertible at
the initial Conversion Price (as defined in the Initial Notes) and all
Additional Notes issuable hereunder have been issued) and (iii) the maximum
number of Warrant Shares issuable upon exercise of the Warrants (without taking
into account any limitations on the exercise of the Warrants set forth therein).
Upon issuance or conversion 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, when issued, will be
validly issued, fully paid and nonassessable and free from all preemptive or
similar rights, taxes, liens, charges and other encumbrances with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. Subject to the accuracy of the representations and
warranties of the Buyers in this Agreement, the offer and issuance by the
Company of the Securities is exempt from registration under the 1933 Act.

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

(e) Consents. Except for such consents obtained on or prior to the Closing Date,
neither the Company nor any Subsidiary is required to obtain any consent from,
authorization or order of, or make any filing or registration with (other than
the filing with the SEC of one or more Registration Statements (as defined in
the Registration Rights Agreement) in accordance with the requirements of the
Registration Rights Agreement, a Form D with the SEC and any other filings as
may be required by any state securities agencies), any court, governmental
agency or any regulatory or self-regulatory agency or any other Person in order
for it to execute, deliver or perform any of its respective obligations under or
contemplated by the Transaction Documents, in each case, in accordance with the
terms hereof or thereof. All consents, authorizations, orders, filings and
registrations which the Company or any Subsidiary is required to obtain pursuant
to the preceding sentence have been or will be obtained or effected on or prior
to each Closing Date, and neither the Company nor any of its Subsidiaries are
aware of any facts or circumstances which might prevent the Company or any of
its Subsidiaries from obtaining or effecting any of the registration,
application or filings contemplated by the Transaction Documents. The Company is
not in violation of the requirements of the Principal Market and has no
knowledge of any facts or circumstances which could reasonably lead to delisting
or suspension of the Common Stock in the foreseeable future.

 

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(f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company
acknowledges and agrees that, to its knowledge, 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 its knowledge, a “beneficial owner” of more than 10% of the shares
of Common Stock (as defined for purposes of Rule 13d-3 of the 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 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 to which it
is a party 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. Other than Deutsche Bank
Securities, Inc. (the “Placement Agent”), neither the Company nor any of its
Subsidiaries has engaged any placement agent or other agent in connection with
the offer or sale of the Securities.

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

(i) Dilutive Effect. The Company understands and acknowledges that the number of
Conversion Shares, Interest Shares and Warrant Shares will increase in certain
circumstances. The Company further acknowledges that its obligation to issue the
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and the Notes, the Interest Shares in accordance with this Agreement and the
Notes and the Warrant Shares upon exercise of the

 

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Warrants in accordance with this Agreement and the Warrants is, absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.

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

(k) SEC Documents; Financial Statements. Except as set forth on Schedule 3(k),
since the date of its most recent Annual Report on Form 10-K, the Company has
timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the 1934 Act (all of the foregoing filed prior to the date hereof, as each
may have been amended, and all exhibits included therein and financial
statements, notes and schedules thereto and documents incorporated by reference
therein being hereinafter referred to as the “SEC Documents”). As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. Except as
set forth on Schedule 3(k), as of their respective dates, the financial
statements of the Company included in the SEC Documents complied in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto as in effect as of the time of
filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments which will not be
material, either individually or in the aggregate). No other information
provided by or on behalf of the Company to any of the Buyers which is not
included in the SEC Documents (including, without limitation, information
referred to in Section 2(e) of this Agreement), together with the SEC Documents,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein not misleading, in the
light of the circumstance under which they are or were made.

 

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

(m) No Undisclosed Events, Liabilities, Developments or Circumstances. Except as
disclosed in the SEC Documents, no event, liability, development or circumstance
has occurred or exists, or is reasonably expected to exist or occur with respect
to the Company, any of its Subsidiaries or the businesses, properties,
liabilities, prospects, operations (including results thereof) or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole,
that (i) 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 or
(ii) would reasonably be likely to have a Material Adverse Effect.

(n) Conduct of Business; Regulatory Permits. Neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under any certificate
of designation, preferences or rights of any other outstanding series of
preferred stock, the Bylaws or their organizational charter, respectively, or
the Certificate of Incorporation, certificate of formation or certificate of
incorporation, respectively. Neither the Company nor any of its Subsidiaries is
in violation of any judgment, decree or order or any statute, ordinance, rule or
regulation applicable to the Company or any of its Subsidiaries, and neither the
Company nor any of its Subsidiaries will conduct its business in violation of
any of the foregoing, except in all cases for possible violations which would
not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
Without limiting the generality of the foregoing, except as disclosed in the SEC

 

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Documents, the Company is not in violation of any of the rules, regulations or
requirements of the Principal Market and has no knowledge of any facts or
circumstances that could reasonably lead to delisting or suspension of the
Common Stock by the Principal Market in the foreseeable future. Since January 1,
2008, (i) the Common Stock has been listed or designated for quotation on the
Principal Market, (ii) trading in the Common Stock has not been suspended by the
SEC or the Principal Market and (iii) except as disclosed in the SEC Documents,
the Company has received no communication, written or oral, from the SEC or the
Principal Market regarding the suspension or delisting of the Common Stock from
the Principal Market. The Company and each of its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not
reasonably be expected to have, in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit that could reasonably likely have a Material Adverse
Effect.

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

(p) Sarbanes-Oxley Act. Other than any non-compliance resulting from the
material weaknesses in internal control over financial reporting related to
revenues and accounts receivable balances described in the Company’s Annual
Report on Form 10-K for the year ended March 31, 2011, the Company and each
Subsidiary is in compliance with all applicable requirements of the
Sarbanes-Oxley Act of 2002 and all applicable rules and regulations promulgated
by the SEC thereunder.

(q) Transactions With Affiliates. Except as disclosed in the SEC Documents, none
of the officers, directors, employees or affiliates of the Company or any of its
Subsidiaries is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for ordinary course services as employees, officers
or directors and immaterial transactions), 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, employee or affiliate, or, to
the knowledge of the Company or any of its Subsidiaries, any corporation,
partnership, trust or other Person in which any such officer, director, or
employee has a substantial interest or is an employee, officer, director,
trustee, affiliate or partner.

(r) Equity Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of 150,000,000 shares of Common Stock, of which,
51,977,943 (as determined as of April 2, 2012) are issued and outstanding and
5,649,772 shares are reserved for issuance pursuant to an Approved Stock Plan

 

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(as defined below) or securities (other than the Notes and the Warrants)
exercisable or exchangeable for, or convertible into, shares of Common Stock.
All of such outstanding shares are duly authorized and have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. Based
solely on a review of investor filings with the SEC, 12,317,582 shares of the
Company’s issued and outstanding Common Stock on the date hereof are owned by
Persons who are “affiliates” (as defined in Rule 405 of the 1933 Act and
calculated based on the assumption that only officers, directors and holders of
at least 10% of the Company’s issued and outstanding Common Stock are
“affiliates” without conceding that any such Persons are “affiliates” for
purposes of federal securities laws) of the Company or any of its Subsidiaries.
To the Company’s knowledge, except as disclosed in the SEC Documents, no Person
owns 10% or more of the Company’s issued and outstanding shares of Common Stock
(calculated based on the assumption that all Convertible Securities (as defined
below), whether or not presently exercisable or convertible, have been fully
exercised or converted (as the case may be) taking account of any limitations on
exercise or conversion (including “blockers”) contained therein without
conceding that such identified Person is a 10% stockholder for purposes of
federal securities laws). (i) None of the Company’s or any Subsidiary’s capital
stock is subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company or any Subsidiary;
(ii) except as disclosed in the SEC Documents, there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional capital stock of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any capital stock of the Company or any of its
Subsidiaries; (iii) except as disclosed in the SEC Documents, there are no
financing statements securing obligations in any material amounts filed in
connection with the Company or any of its Subsidiaries; (iv) except as disclosed
in the SEC Documents, there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except pursuant to the Registration Rights
Agreement); (v) except as disclosed in the SEC Documents, there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (vii) other than provided in an Approved Stock Plan, neither the
Company nor any Subsidiary has any stock appreciation rights or “phantom stock”
plans or agreements or any similar plan or agreement; and (viii) neither the
Company nor any of its Subsidiaries have any liabilities or obligations required
to be disclosed in the SEC Documents which are not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company’s or
its Subsidiaries’ respective businesses and which, individually or in the
aggregate, do not or could not have a Material Adverse Effect. The Company has
furnished to the Buyers true, correct and complete copies of the Company’s
Restated Certificate of Incorporation, as amended and as in effect on the date
hereof (the “Certificate of Incorporation”), and the Company’s Amended and
Restated Bylaws, as amended and as in effect on the date hereof (the “Bylaws”).

 

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(s) Indebtedness and Other Contracts. Except as disclosed in the SEC Documents
or on Schedule 3(s), neither the Company nor any of its Subsidiaries, (i) has
any outstanding Indebtedness (as defined below), (ii) is a party to any
contract, agreement or instrument, the violation of which, or default under
which, by the other party(ies) to such contract, agreement or instrument could
reasonably be expected to result in a Material Adverse Effect, (iii) is in
violation of any term of, or in default under, any contract, agreement or
instrument relating to any Indebtedness, except where such violations and
defaults would not reasonably be expected to result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company’s officers, has or is expected to have a Material
Adverse Effect. For purposes of this Agreement: (x) “Indebtedness” of any Person
means, without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (including, without limitation, “capital leases” in
accordance with generally accepted accounting principles) (other than accrued
expenses or trade payables entered into in the ordinary course of business),
(C) all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, claim, lien, tax, right
of first refusal, pledge, charge, security interest or other encumbrance upon or
in any property or assets (including accounts and contract rights) owned by any
Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (A) through (G) above; and (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.

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

 

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material to the Company or any of its Subsidiaries. which would, if determined
adversely, have a Material Adverse Effect. Without limitation of the foregoing,
there has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the SEC involving the Company, any of its
Subsidiaries or any current or former director or officer of the Company or any
of its Subsidiaries. The SEC has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
under the 1933 Act or the 1934 Act.

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

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

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

 

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(x) Intellectual Property Rights. Except as disclosed in the SEC Documents, the
Company and its Subsidiaries own or possess adequate rights or licenses to use
all trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, original works, inventions, licenses,
approvals, governmental authorizations, trade secrets and other intellectual
property rights and all applications and registrations therefor (“Intellectual
Property Rights”) where the failure to own or possess could be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect.
None of the Company’s or its Subsidiaries’ Intellectual Property Rights have
expired, terminated or been abandoned, or are expected to expire, terminate or
be abandoned, within three years from the date of this Agreement where such
expiration, termination or abandonment could be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect. Except as disclosed
in the SEC Documents, the Company has no knowledge of any infringement by the
Company or any of its Subsidiaries of Intellectual Property Rights of others
that could reasonably be expected to result in a Material Adverse Effect. Except
as disclosed in the SEC Documents, there is no claim, action or proceeding being
made or brought, or to the knowledge of the Company, being threatened, against
the Company or any of its Subsidiaries regarding their Intellectual Property
Rights that could reasonably be expected to result in a Material Adverse Effect.
Except as disclosed in the SEC Documents, the Company is not aware of any facts
or circumstances which might give rise to any of the foregoing infringements or
claims, actions or proceedings. The Company and each of its Subsidiaries have
taken reasonable security measures to protect the secrecy, confidentiality and
value of all of their Intellectual Property Rights.

(y) Environmental Laws. Except as disclosed in the SEC Documents, the Company
and its Subsidiaries (i) are in compliance with all Environmental Laws (as
defined below), (ii) have received all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any such
permit, license or approval, except where, in each of the foregoing clauses (i),
(ii) and (iii), the failure would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect. The term
“Environmental Laws” means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants, or toxic
or hazardous substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

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

(aa) Tax Status. The Company and each of its Subsidiaries (i) has timely made or
filed all foreign, federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject, (ii) has
timely paid all taxes and other

 

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governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply, except in all
cases for failures which would not, in the aggregate, reasonably be expected to
have a Material Adverse Effect. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the officers
of the Company and its Subsidiaries know of no basis for any such claim. The
Company is not operated in such a manner as to qualify as a passive foreign
investment company, as defined in Section 1297 of the Code.

(bb) Internal Accounting and Disclosure Controls. Other than any material
weaknesses related to revenues and accounts receivable balances described in the
Company’s Annual Report on Form 10-K for the year ended March 31, 2011, the
Company and each of its Subsidiaries maintains internal control over financial
reporting (as such term is defined in Rule 13a-15(f) under the 1934 Act) that is
effective to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles, including 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. Other than any material weaknesses related to
revenues and accounts receivable balances described in the Company’s Annual
Report on Form 10-K for the year ended March 31, 2011, the Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-15(e)
under the 1934 Act) that are effective in ensuring that information required to
be disclosed by the Company in the reports that it files or submits under the
1934 Act is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
1934 Act is accumulated and communicated to the Company’s management, including
its principal executive officer or officers and its principal financial officer
or officers, as appropriate, to allow timely decisions regarding required
disclosure. Except as described in the SEC Documents, since the end of the
Company’s most recent audited fiscal year, (i) the Company is not aware of any
material weakness in the Company’s internal control over financial reporting or
disclosure controls and procedures (whether or not remediated) and (ii) no
change in the Company’s internal control over financial reporting or disclosure
controls and procedures has occurred that has materially and adversely affected,
or is reasonably likely to materially and adversely affect, the Company’s
internal control over financial reporting or disclosure controls and procedures.

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

 

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

(ee) Acknowledgement Regarding Buyers’ Trading Activity. It is understood and
acknowledged by the Company that (i) following the public disclosure of the
transactions contemplated by the Transaction Documents, in accordance with the
terms thereof, none of the Buyers have been asked by the Company or any of its
Subsidiaries to agree, nor has any Buyer agreed with the Company or any of its
Subsidiaries, to desist from effecting any transactions in or with respect to
(including, without limitation, purchasing or selling, long and/or short) any
securities of the Company, or “derivative” securities based on securities issued
by the Company or to hold any of the Securities for any specified term; (ii) any
Buyer, and counterparties in “derivative” transactions to which any such Buyer
is a party, directly or indirectly, presently may have a “short” position in the
Common Stock which was established prior to such Buyer’s knowledge of the
transactions contemplated by the Transaction Documents; and (iii) each Buyer
shall not be deemed to have any affiliation with or control over any arm’s
length counterparty in any “derivative” transaction (it being understood, among
the parties, that the obligations for compliance with any applicable federal and
state securities laws, rules and regulations with respect thereto solely is the
responsibility of the applicable Buyer). The Company further understands and
acknowledges that following the public disclosure of the transactions
contemplated by the Transaction Documents pursuant to the 8-K Filings (as
defined below) 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
and/or number of the Warrant Shares, the Interest Shares or Conversion Shares,
as applicable, deliverable with respect to the Securities are being determined
and (b) such hedging and/or trading activities, if any, can reduce the value of
the existing stockholders’ equity interest in the Company both at and after the
time the hedging and/or trading activities are being conducted (it being
understood, among the parties, that the obligations for compliance with any
applicable federal and state securities laws, rules and regulations with respect
thereto solely is the responsibility of the applicable Buyer). 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 other
Transaction Document or any of the documents executed in connection herewith or
therewith (it being understood, among the parties, that the obligations for
compliance with any applicable federal and state securities laws, rules and
regulations with respect thereto solely is the responsibility of the applicable
Buyer).

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

 

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(gg) U.S. Real Property Holding Corporation. Neither the Company nor any of its
Subsidiaries is, and neither the Company nor, during the time they have been
subsidiaries of the Company, any Subsidiary, has ever been a U.S. real property
holding corporation within the meaning of Section 897 of the Internal Revenue
Code of 1986, as amended, and the Company and each Subsidiary shall so certify
upon any Buyer’s request.

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

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

(jj) Shell Company Status. The Company is not, and has never been, an issuer
identified in, or subject to, Rule 144(i) promulgated under the 1933 Act.

(kk) Illegal or Unauthorized Payments; Political Contributions. Neither the
Company nor any of its Subsidiaries nor, to the best of the Company’s knowledge,
any of the officers, directors, employees, agents or other representatives of
the Company or any of its Subsidiaries, has, directly or indirectly, made or
authorized any payment, contribution or gift of money, property, or services,
(a) as a kickback or bribe to any Person or (b) to any political organization,
or the holder of or any aspirant to any elective or appointive public office
except for personal political contributions not involving the direct or indirect
use of funds of the Company or any of its Subsidiaries in either such case in
violation of applicable law.

(ll) Money Laundering. The Company and its Subsidiaries are in compliance with,
and have not previously violated, the USA Patriot Act of 2001 and all other
applicable U.S. and non-U.S. anti-money laundering laws and regulations,
including, but not limited to, the laws, regulations and Executive Orders and
sanctions programs administered by the U.S. Office of Foreign Assets Control,
including, but not limited, to (i) Executive Order 13224 of September 23, 2001
entitled, “Blocking Property and Prohibiting Transactions With Persons Who
Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001));
and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.

 

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(mm) Management. During the past five year period, to the knowledge of the
Company, no current officer or director of the Company or any of its
Subsidiaries has been the subject of:

(i) a petition under bankruptcy laws or any other insolvency or moratorium law
or the appointment by a court of a receiver, fiscal agent or similar officer for
such Person, or any partnership in which such person was a general partner at or
within two years before the filing of such petition or such appointment, or any
corporation or business association of which such person was an executive
officer at or within two years before the time of the filing of such petition or
such appointment;

(ii) a conviction in a criminal proceeding or a named subject of a pending
criminal proceeding (excluding traffic violations that do not relate to driving
while intoxicated or driving under the influence);

(iii) any order, judgment or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining any such person from, or otherwise limiting, the following activities:

(1) Acting as a futures commission merchant, introducing broker, commodity
trading advisor, commodity pool operator, floor broker, leverage transaction
merchant, any other person regulated by the United States Commodity Futures
Trading Commission or an associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;

(2) Engaging in any type of business practice; or

(3) Engaging in any activity in connection with the purchase or sale of any
security or commodity or in connection with any violation of securities laws or
commodities laws;

(iv) any order, judgment or decree, not subsequently reversed, suspended or
vacated, of any authority barring, suspending or otherwise limiting for more
than 60 days the right of any such person to engage in any activity described in
the preceding sub paragraph, or to be associated with persons engaged in any
such activity;

(v) a finding by a court of competent jurisdiction in a civil action or by the
SEC or other authority to have violated any securities law, regulation or decree
and the judgment in such civil action or finding by the SEC or any other
authority has not been subsequently reversed, suspended or vacated; or

(vi) a finding by a court of competent jurisdiction in a civil action or by the
Commodity Futures Trading Commission to have violated any federal commodities
law, and the judgment in such civil action or finding has not been subsequently
reversed, suspended or vacated.

(nn) 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.

 

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(oo) Public Utility Holding Act. None of the Company nor any of its Subsidiaries
is a “holding company,” or an “affiliate” of a “holding company,” as such terms
are defined in the Public Utility Holding Act of 2005.

(pp) Federal Power Act. None of the Company nor any of its Subsidiaries is
subject to regulation as a “public utility” under the Federal Power Act, as
amended.

(qq) Ranking of Notes. Other than Permitted Indebtedness (as defined in the
Notes) secured by Permitted Liens (as defined in the Notes), no Indebtedness of
the Company, at such Closing, will be senior to, or pari passu with, the Notes
in right of payment, whether with respect to payment or redemptions, interest,
damages, upon liquidation or dissolution or otherwise.

(rr) Disclosure. Except as disclosed in the 8-K Filing, 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, non-public information
concerning the Company or any of its Subsidiaries, other than the existence of
the transactions contemplated by this Agreement and the other Transaction
Documents. The Company understands and confirms that each of the Buyers will
rely on the foregoing representations in effecting transactions in securities of
the Company. All disclosure provided to the Buyers regarding the Company and its
Subsidiaries, their businesses and the transactions contemplated hereby,
including the schedules to this Agreement, furnished by or on behalf of the
Company or any of its Subsidiaries is true and correct and does not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. No event or circumstance has
occurred or information exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, liabilities, prospects,
operations (including results thereof) or conditions (financial or otherwise),
which, under applicable law, rule or regulation, requires public disclosure at
or before the date hereof or announcement by the Company but which has not been
so publicly 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.

 

4. COVENANTS.

(a) Reasonable Best Efforts. Each Buyer shall use its reasonable best efforts to
timely satisfy each of the conditions to be satisfied by it as provided in
Section 6 of this Agreement. The Company shall use its best efforts to timely
satisfy each of the conditions to be satisfied by it as provided in Section 7 of
this Agreement.

(b) Form D and Blue Sky. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each
Buyer promptly after such filing. The Company shall, on or before each Closing
Date, take such action as the Company shall reasonably determine is necessary in
order to obtain an exemption for, or to qualify, the Securities being sold at
such Closing for sale to the Buyers at such 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

 

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such action so taken to the Buyers on or prior to such Closing Date. Without
limiting any other obligation of the Company under this Agreement, the Company
shall timely make all filings and reports relating to the offer and sale of the
Securities required under all applicable securities laws (including, without
limitation, all applicable federal securities laws and all applicable “Blue Sky”
laws), and the Company shall comply with all applicable federal, foreign, state
and local laws, statutes, rules, regulations and the like relating to the
offering and sale of the Securities to the Buyers.

(c) Reporting Status. Until the end of the Registration Period (as defined in
the Registration Rights Agreement) with respect to all Registrable Securities
(as defined in the Registration Rights Agreement), the Company shall timely file
all reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would no longer require or otherwise permit such termination. From the time Form
S-3 is available to the Company for the registration of the Registrable
Securities until the end of the Registration Period with respect to all
Registrable Securities, the Company shall take all actions necessary to maintain
its eligibility to register the Registrable Securities for resale by the Buyers
on Form S-3.

(d) Use of Proceeds. The Company will use the proceeds from the sale of the
Securities for general corporation purposes; provided, however, the proceeds
will not be used for (i) the repayment of any outstanding Indebtedness of the
Company or any of its Subsidiaries, other than Indebtedness set forth on
Schedule 3(s), or (ii) redemption or repurchase of any securities of the Company
or any of its Subsidiaries.

(e) Financial Information. The Company agrees to send the following to each
Investor (as defined in the Registration Rights Agreement) during the
Registration Period (i) unless the following are filed with the SEC through
EDGAR and are available to the public through the EDGAR system, within one
(1) Business Day after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-K and Quarterly Reports on Form 10-Q, any Current Reports on
Form 8-K and any registration statements (other than on Form S-8) or amendments
filed pursuant to the 1933 Act, (ii) unless the following are either filed with
the SEC through EDGAR or are otherwise widely disseminated via a recognized news
release service (such as PR Newswire), on the same day as the release thereof,
facsimile copies of all press releases issued by the Company or any of its
Subsidiaries and (iii) unless the following are filed with the SEC through
EDGAR, 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.

(f) Listing. The Company shall use reasonable best efforts to promptly secure
the listing or designation for quotation (as the case may be) of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which the Common Stock is then listed or designated for quotation (as the case
may be) (subject to official notice of issuance) and shall use reasonable best
efforts to maintain such listing or designation for quotation (as the case may
be) of all Registrable Securities from time to time issuable under the terms of
the Transaction Documents on a national securities exchange or automated
quotation system. The Company shall use

 

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reasonable best efforts to maintain the Common Stock’s listing or authorization
for quotation (as the case may be) on one of the Principal Market, The New York
Stock Exchange, the NYSE Amex LLC, the Nasdaq Global Market or the Nasdaq
Capital Market (each, an “Eligible Market”), as selected by the Company. Neither
the Company nor any of its Subsidiaries shall take any action which would be
reasonably be expected to result in the delisting or suspension of the Common
Stock on an Eligible Market. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(f).

(g) Fees. The Company shall reimburse the Buyers for all reasonable costs and
expenses incurred by it in connection with preparing and delivering the
Transaction Documents (including, without limitation, all reasonable legal fees
and disbursements in connection therewith, and due diligence in connection with
the transactions contemplated thereby), which amount may be withheld by each
Buyer from its applicable Purchase Price at each Closing or paid by the Company
on demand by the Buyer, less, in the case of Capital Ventures, $30,000 which was
previously advanced to Capital Ventures by the Company. The Company shall be
responsible for the payment of any placement agent’s fees, financial advisory
fees, transfer agent fees, DTC (as defined below) 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
payable to the Placement Agent, who is the Company’s sole placement agent in
connection with the transactions contemplated by this Agreement). The Company
shall pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, reasonable attorneys’ fees and out-of-pocket
expenses) arising in connection with any claim relating to any such payment.
Except as otherwise set forth in the Transaction Documents, each party to this
Agreement shall bear its own expenses in connection with the sale of the
Securities to the Buyers.

(h) Pledge of Securities. Notwithstanding anything to the contrary contained in
this Agreement, the Company acknowledges and agrees that the Securities may be
pledged by a Buyer 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 effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document. The Company hereby agrees to execute and deliver such documentation as
a pledgee of the Securities may reasonably request in connection with a pledge
of the Securities to such pledgee by a Buyer.

(i) Disclosure of Transactions and Other Material Information. The Company
shall, on or before 8:30 a.m., New York time, on the date of this Agreement,
file a Current Report on Form 8-K describing all the material terms of the
transactions contemplated by the Transaction Documents in the form required by
the 1934 Act and attaching all the material Transaction Documents (including,
without limitation, this Agreement, the form of Notes, the form of the Warrants
and the form of the Registration Rights Agreement) (including all attachments,
the “Initial 8-K Filing”). From and after the filing of the Initial 8-K Filing
(but prior to the delivery of an Additional Closing Notice to the Buyers), the
Company shall have disclosed all material, non-public information (if any)
provided to any of the Buyers by the Company or any of its Subsidiaries or any
of their respective officers, directors, employees or agents in connection with
the transactions contemplated by the

 

24

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Transaction Documents. The Company shall, on or before 8:30 a.m., New York time,
on the first (1st) Business Day after the Company delivers an Additional Closing
Notice to Capital Ventures, either issue a press release (the “Additional Press
Release”) or file a Current Report on Form 8-K (the “Additional 8-K Filing”), in
each case reasonably acceptable to Capital Ventures, disclosing that the Company
has elected to deliver an Additional Closing Notice to Capital Ventures. From
and after the filing of the Additional Press Release or Additional 8-K Filing,
the Company shall have disclosed all material, non-public information (if any)
provided to Capital Ventures by the Company or any of its Subsidiaries or any of
their respective officers, directors, employees or agents in connection with the
transactions contemplated by the Transaction Documents. Except with respect to
the delivery of the Additional Closing Notice in accordance with
Section 1(b)(ii) and as required by Section 4(o) below, the Company shall not,
and the Company shall cause each of its Subsidiaries and each of its and their
respective officers, directors, employees and agents not to, provide any Buyer
with any material, non-public information regarding the Company or any of its
Subsidiaries from and after the issuance of the Additional Press Release without
the express prior written consent of such Buyer. 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, 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 as is required by applicable law,
rules and regulations. Without the prior written consent of the applicable
Buyer, the Company shall not (and shall cause each of its Subsidiaries and
affiliates to not) disclose the name of such Buyer in any filing, announcement,
release or otherwise. Notwithstanding anything contained in this Agreement to
the contrary and without implication that the contrary would otherwise be true,
the Company expressly acknowledges and agrees that no Buyer has had, and no
Buyer shall have (unless expressly agreed to by a particular Buyer after the
date hereof (it being understood and agreed that no Buyer may bind any other
Buyer with respect thereto)), any duty of confidentiality with respect to, or a
duty not to trade on the basis of, any information regarding the Company or any
of its Subsidiaries.

(j) Additional Registration Statements. Until the nine month anniversary of the
Initial Closing Date (or, if a Current Public Information Failure (as defined in
the Registration Rights Agreement) has occurred and is continuing, such later
date after which the Company has cured such Current Public Information Failure )
(the “Applicable Date”) and at any time thereafter while any Registration
Statement (as defined in the Registration Rights Agreement) is not effective or
the prospectus contained therein is not available for use, the Company shall not
file a registration statement under the 1933 Act relating to securities that are
not the Registrable Securities (as defined in the Registration Rights Agreement)
(other than any registration statement on Form S-8 or any successor form thereto
or a resale registration statement on Form S-3 registering any Excluded
Securities).

(k) Additional Issuance of Securities. So long as any Buyer beneficially owns
any Securities, the Company will not, without the prior written consent of
Buyers holding a majority in aggregate principal amount of the Notes then
outstanding, issue any Notes (other than to the Buyers as contemplated hereby)
and the Company shall not issue any other securities that would cause a breach
or default under the Notes or the Warrants. The Company agrees that for the
period commencing on the date hereof and ending on the Applicable Date (the
“Restricted Period”), neither the Company nor any of its Subsidiaries shall
directly or indirectly issue, offer,

 

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sell, grant any option or right to purchase, or otherwise dispose of (or
announce any issuance, offer, sale, grant of any option or right to purchase or
other disposition of) any equity security or any equity-linked or related
security (including, without limitation, any “equity security” (as that term is
defined under Rule 405 promulgated under the 1933 Act), any Convertible
Securities (as defined below), any preferred stock or any purchase rights) (any
such issuance, offer, sale, grant, disposition or announcement (whether
occurring during the Restricted Period or at any time thereafter) is referred to
as a “Subsequent Placement”). Notwithstanding the foregoing, this Section 4(k)
shall not apply in respect of the issuance of (i) shares of Common Stock,
Options, stock appreciation rights, restricted shares of Common Stock,
restricted stock units and other stock-based awards to directors, officers,
employees or consultants of the Company in their capacity as such pursuant to an
Approved Stock Plan (as defined below); (ii) Convertible Securities or Options
and shares of Common Stock issued upon the conversion or exercise of such
Convertible Securities or Options, in each case, issued pursuant to a Rights
Plan approved by the Board of Directors of the Company, (iii) shares of Common
Stock issued upon the conversion or exercise of Convertible Securities (other
than options to purchase Common Stock issued pursuant to an Approved Stock Plan
that are covered by clause (i) above) issued prior to the date hereof; provided
that the conversion price of any such Convertible Securities (other than options
to purchase Common Stock issued pursuant to an Approved Stock Plan that are
covered by clause (i) above) is not lowered, none of such Convertible Securities
(other than options to purchase Common Stock issued pursuant to an Approved
Stock Plan that are covered by clause (i) above) are amended to increase the
number of shares issuable thereunder and none of the terms or conditions of any
such Convertible Securities (other than options to purchase Common Stock issued
pursuant to an Approved Stock Plan that are covered by clause (i) above) are
otherwise materially changed in any manner that adversely affects any of the
Buyers; (iv) the shares of Common Stock or Options issued to financial
institutions or lessors in connection with commercial credit arrangements,
equipment financings or similar transactions (excluding any shares of Common
Stock issuable upon conversion or exercise of any Convertible Securities);
(v) the shares of Common Stock or Options issued in connection with strategic
alliances, acquisitions, mergers, and strategic partnerships, provided, that
(A) the primary purpose of such issuance is not to raise capital as determined
in good faith by the Board of Directors of the Company, (B) the purchaser or
acquirer of the securities in such issuance solely consists of either (x) the
actual participants in such strategic alliance or strategic partnership, (y) the
actual owners of such assets or securities acquired in such acquisition or
merger or (z) the stockholders, partners or members of the foregoing Persons and
(C) number or amount of securities issued to such Person by the Company shall
not be disproportionate (as determined in good faith by the Board of Directors
of the Company) to either (x) the fair market value of such Person’s actual
contribution to such strategic alliance or strategic partnership or (y) the
proportional ownership of such assets or securities to be acquired by the
Company, as applicable; or (vi) shares of Common Stock or Options issued to
vendors to settle bona fide trade liabilities, (vii) the Conversion Shares,
(viii) the Interest Shares, (ix) the Warrant Shares, (x) the Additional Notes
and (xi) the Series B Warrants (each of the foregoing in clauses (i) through
(xi), collectively the “Excluded Securities”). “Approved Stock Plan” means any
employee benefit plan which has been approved by the Board of Directors of the
Company prior to or subsequent to the date hereof pursuant to which (i) shares
of Common Stock, stock options, restricted stock units, stock appreciation
rights and other equity compensation may be issued to any employee, officer,
consultant or director for services provided to the Company in their capacity as
such or (ii)

 

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shares of Common Stock may be purchased by employees of the Company.
“Convertible Securities” means any capital stock or other security of the
Company or any of its Subsidiaries that is at any time and under any
circumstances directly or indirectly convertible into, exercisable or
exchangeable for, or which otherwise entitles the holder thereof to acquire, any
capital stock or other security of the Company (including, without limitation,
Common Stock) or any of its Subsidiaries. “Options” means any rights, warrants
or options to subscribe for or purchase shares of Common Stock or Convertible
Securities.

(l) Reservation of Shares. So long as any Notes or Warrants remain outstanding,
the Company shall take all actions reasonably necessary (including, without
limitation increasing any such reserve, as necessary, prior to the consummation
of any Subsequent Placement (as defined below) to at all times have authorized,
and reserved for the purpose of issuance, no less than the sum of (i) 120% of
the maximum number of Conversion Shares issuable upon conversion of the Notes
(determined without taking into account any limitations on the conversion of the
Notes set forth therein and assuming that the Notes are convertible at the
initial Conversion Price (as defined in the Initial Notes) and all Additional
Notes issuable hereunder have been issued), (ii) the maximum number of Interest
Shares issuable pursuant to the terms of the Notes from the Initial Closing Date
through the maturity date of the Additional Notes (determined without taking
into account any limitations on the conversion of the Notes set forth therein
and assuming that the Notes are convertible at the initial Conversion Price (as
defined in the Initial Notes) and all Additional Notes issuable hereunder have
been issued) and (iii) the maximum number of Warrant Shares issuable upon
exercise of the Warrants (without taking into account any limitations on the
exercise of the Warrants set forth therein).

(m) Conduct of Business. The business of the Company and its Subsidiaries shall
not be conducted in violation of any law, ordinance or regulation of any
governmental entity, except where such violations would not reasonably be
expected to result, either individually or in the aggregate, in a Material
Adverse Effect.

(n) Variable Securities. So long as any Notes remain outstanding, the Company
and each Subsidiary shall be prohibited from effecting or entering into an
agreement to effect any Subsequent Placement involving a Variable Rate
Transaction. “Variable Rate Transaction” means a transaction in which the
Company or any Subsidiary (i) issues or sells any Convertible Securities either
(A) at a conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of or quotations for the shares of Common
Stock at any time after the initial issuance of such Convertible Securities, or
(B) with a conversion, exercise or exchange price that is subject to being reset
at some future date after the initial issuance of such Convertible Securities or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock, other
than pursuant to a customary “weighted average” anti-dilution provision or
(ii) enters into any agreement (including, without limitation, an equity line of
credit) whereby the Company or any Subsidiary may sell securities at a future
determined price (other than standard and customary “preemptive” or
“participation” rights). Each Buyer shall be entitled to obtain injunctive
relief against the Company and its Subsidiaries to preclude any such issuance,
which remedy shall be in addition to any right to collect damages.

 

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(o) Participation Right. From the date hereof through the second anniversary of
the Initial Closing Date, neither the Company nor any of its Subsidiaries shall,
directly or indirectly, effect any Subsequent Placement unless the Company shall
have first complied with this Section 4(o). The Company acknowledges and agrees
that the right set forth in this Section 4(o) is a right granted by the Company,
separately, to each Buyer.

(i) At least three (3) Trading Days (as defined in the Notes) prior to any
proposed or intended Subsequent Placement, the Company shall deliver to each
Buyer a written notice of its proposal or intention to effect a Subsequent
Placement (each such notice, a “Pre-Notice”), which Pre-Notice shall not contain
any information (including, without limitation, material, non-public
information) other than a statement that the Company proposes or intends to give
material non-public information to the Company upon such Buyer’s written
request. Upon the written request of a Buyer within three (3) Trading Days after
the Company’s delivery to such Buyer of such Pre-Notice, and only upon a written
request by such Buyer, the Company shall promptly, but no later than one
(1) Trading Day after such request, deliver to such Buyer an irrevocable written
notice (the “Offer Notice”) of the proposed or intended Subsequent Placement
(the “Offer”) which Offer Notice shall (w) identify and describe the securities
being offered (the “Offered Securities”), (x) describe the price and other terms
upon which they are to be issued, sold or exchanged, and the number or amount of
the Offered Securities to be issued, sold or exchanged, (y) identify the Persons
(if known) to which or with which the Offered Securities are to be offered,
issued, sold or exchanged and (z) offer to issue and sell to or exchange with
such Buyer in accordance with the terms of the Offer such Buyer’s pro rata
portion of 30% of the Offered Securities, provided that the number of Offered
Securities which such Buyer shall have the right to subscribe for under this
Section 4(o) shall be (a) based on such Buyer’s pro rata portion of the
aggregate original principal amount of the Notes purchased hereunder by all
Buyers (the “Basic Amount”), and (b) with respect to each Buyer that elects to
purchase its Basic Amount, any additional portion of the Offered Securities
attributable to the Basic Amounts of other Buyers as such Buyer shall indicate
it will purchase or acquire should the other Buyers subscribe for less than
their Basic Amounts (the “Undersubscription Amount”).

(ii) To accept an Offer, in whole or in part, such Buyer must deliver a written
notice to the Company prior to the end of the third (3rd) Business Day after
such Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth the
portion of such Buyer’s Basic Amount that such Buyer elects to purchase and, if
such Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Buyer elects to purchase (in either
case, the “Notice of Acceptance”). If the Basic Amounts subscribed for by all
Buyers are less than the total of all of the Basic Amounts, then such Buyer who
has set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, if the
Undersubscription Amounts subscribed for exceed the difference between the total
of all the Basic Amounts and the Basic Amounts subscribed for (the “Available
Undersubscription Amount”), such Buyer who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Basic Amount of such Buyer bears to
the total Basic Amounts of all Buyers that have subscribed for Undersubscription
Amounts, subject to

 

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rounding by the Company to the extent it deems reasonably necessary.
Notwithstanding the foregoing, if the Company desires to modify or amend the
terms and conditions of the Offer prior to the expiration of the Offer Period,
the Company may deliver to each Buyer a new Offer Notice and the Offer Period
shall expire on the third (3rd) Business Day after such Buyer’s receipt of such
new Offer Notice.

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

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

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

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

 

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(vii) The Company and each Buyer agree that if any Buyer elects to participate
in the Offer, neither the Subsequent Placement Agreement with respect to such
Offer nor any other transaction documents related thereto (collectively, the
“Subsequent Placement Documents”) shall include any term or provision whereby
such Buyer shall be required to agree to any restrictions on trading as to any
securities of the Company or be required to consent to any amendment to or
termination of, or grant any waiver, release or the like under or in connection
with, any agreement previously entered into with the Company or any instrument
received from the Company.

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

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

(p) Dilutive Issuances. For so long as any Notes or Warrants remain outstanding,
the Company shall not, in any manner, enter into or affect any Dilutive Issuance
(as defined in the Notes) if the effect of such Dilutive Issuance is to cause
the Company to be required to issue upon conversion of any Notes or exercise of
any Warrant any shares of Common Stock in excess of that number of shares of
Common Stock which the Company may issue upon conversion of the Notes and
exercise of the Warrants without breaching the Company’s obligations under the
rules or regulations of the Principal Market.

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

(r) Restriction on Redemption and Cash Dividends. So long as any Notes are
outstanding, the Company shall not, directly or indirectly, redeem, or declare
or pay any cash dividend or distribution on, any securities of the Company
without the prior express written consent of the Buyers.

 

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(s) Corporate Existence. So long as any Buyer owns any Notes or Warrants, the
Company 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.

(t) Conversion and Exercise Procedures. Each of the form of Exercise Notice
included in the Warrants and the form of Conversion Notice included in the Notes
set forth the totality of the procedures required of the Buyers in order to
exercise the Warrants or convert the Notes. Except as provided in Section 5(d),
no additional legal opinion, other information or instructions shall be required
of the Buyers to exercise their Warrants or convert their Notes. The Company
shall honor exercises of the Warrants and conversions of the Notes and shall
deliver the Conversion Shares, Interest Shares and Warrant Shares in accordance
with the terms, conditions and time periods set forth in the Notes and Warrants.

(u) Dilutive Issuances Below Exercise Floor Price. So long as any Warrants
remain outstanding, unless the Company has obtained the written approval of its
stockholders providing for the Company’s issuance of all of the Securities as
described in the Transaction Documents in accordance with applicable law and the
rules and regulations of the Principal Market, the Company shall not, in any
manner, enter into or affect any Dilutive Issuance (as defined in the Warrant)
if the effect of such Dilutive Issuance would, either (i) but for the
application of the Exercise Floor Price (as defined in the Series A Warrant),
cause the Exercise Price (as defined in the Series A Warrant) to be reduced
below the Exercise Floor Price (as defined in the Series A Warrant) or (ii) but
for the application of the Exercise Floor Price (as defined in the Series B
Warrant), cause the Exercise Price (as defined in the Series B Warrant) to be
reduced below the Exercise Floor Price (as defined in the Series B Warrant).

(v) Closing Documents. On or prior to sixty (60) calendar days after the Initial
Closing Date, the Company agrees to deliver, or cause to be delivered, to each
Buyer and Greenberg Traurig, LLP executed copies of the Transaction Documents,
Securities and other document required to be delivered to any party pursuant to
Section 7 hereof.

(w) Tax Matters. Each Buyer acknowledges and agreed to be bound by the
provisions of Section 30 of the Notes and Section 16 of the Warrants

 

5. REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND.

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

 

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

(c) Legends. Each Buyer understands that the Securities have been issued (or
will be issued in the case of the Conversion Shares, the Interest Shares and the
Warrant Shares) pursuant to an exemption from registration or qualification
under the 1933 Act and applicable state securities laws, and except as set forth
below, the Securities 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,

 

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AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN EXEMPTION
THEREFROM. PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH THE
FOREGOING, THE COMPANY RESERVES THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL
OPINIONS (UNLESS SUCH SECURITIES ARE ELIGIBLE TO BE SOLD WITHOUT RESTRICTION OR
HAVE BEEN SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT), CERTIFICATIONS
OR OTHER EVIDENCE AS MAY REASONABLY BE REQUIRED IN ORDER TO DETERMINE THAT THE
PROPOSED TRANSFER IS BEING MADE IN COMPLIANCE WITH THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS. “TRANSFER” MEANS ANY SALE, ASSIGNMENT OR OTHER
TRANSFER. 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.

(d) Removal of Legends. Certificates evidencing Securities shall not be required
to contain the legend set forth in Section 5(c) above or any other similar
legend (i) while a registration statement (including a Registration Statement)
covering the resale of such Securities is effective under the 1933 Act
(provided, that the Investor (as defined in the Registration Rights Agreement)
agrees to sell such Securities only during such time that such Registration
Statement (as defined in the Registration Rights Agreement) is effective and not
withdrawn or suspended, and only as permitted by such Registration Statement),
(ii) following any sale of such Securities pursuant to Rule 144 (assuming the
transferor is not an affiliate of the Company), (iii) if such Securities are
eligible to be sold, assigned or transferred under Rule 144 (provided that a
Buyer provides the Company with reasonable assurances that such Securities are
eligible for sale, assignment or transfer under Rule 144 which shall not include
an opinion of counsel), (iv) in connection with a sale, assignment or other
transfer (other than under Rule 144), provided that such Buyer provides the
Company with an opinion of counsel to such Buyer, in a generally acceptable
form, to the effect that such sale, assignment or transfer of the Securities may
be made without registration under the applicable requirements of the 1933 Act
or (v) if such legend is not required under applicable requirements of the 1933
Act (including, without limitation, controlling judicial interpretations and
pronouncements issued by the SEC). If a legend is not required pursuant to the
foregoing, the Company shall no later than three (3) Trading Days following the
delivery by a Buyer to the Company or the transfer agent (with notice to the
Company) of a legended certificate representing such Securities (endorsed or
with stock powers attached, signatures guaranteed, and otherwise in form
necessary to affect the reissuance and/or transfer, if applicable), together
with any other deliveries from such Buyer as may be required above in this
Section 5(d), as directed by such Buyer, either: (A) provided that the Company’s
transfer agent is participating in the DTC Fast Automated Securities Transfer
Program and such Securities are Conversion Shares, Interest Shares or Warrant
Shares, credit the aggregate number of shares of Common Stock to which such
Buyer shall be entitled to such Buyer’s or its designee’s balance account with
DTC through its Deposit/Withdrawal at Custodian system or (B) if the Company’s
transfer agent is not participating in the DTC Fast Automated Securities

 

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Transfer Program, issue and deliver (via reputable overnight courier) to such
Buyer, a certificate representing such Securities that is free from all
restrictive and other legends, registered in the name of such Buyer or its
designee (the date by which such credit is so required to be made to the balance
account of such Buyer’s or such Buyer’s nominee with DTC or such certificate is
required to be delivered to such Buyer pursuant to the foregoing is referred to
herein as the “Required Delivery Date”). The Company shall be responsible for
any transfer agent fees or DTC fees with respect to any issuance of Securities
or the removal of any legends with respect to any Securities in accordance
herewith.

(e) Failure to Timely Deliver; Buy-In. If the Company fails to (i) issue and
deliver (or cause to be delivered) to a Buyer by the Required Delivery Date a
certificate representing the Securities so delivered to the Company by such
Buyer that is free from all restrictive and other legends or (ii) credit the
balance account of such Buyer’s or such Buyer’s nominee with DTC for such number
of Conversion Shares or Warrant Shares so delivered to the Company, and if on or
after the Required Delivery Date such Buyer (or any other Person in respect, or
on behalf, of such Buyer) purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by such Buyer of all
or any portion of the number of shares of Common Stock, or a sale of a number of
shares of Common Stock equal to all or any portion of the number of shares of
Common Stock, that such Buyer so anticipated receiving from the Company without
any restrictive legend, then, in addition to all other remedies available to
such Buyer, the Company shall, within five (5) Trading Days (as defined in the
Note) after such Buyer’s request and in such Buyer’s sole discretion, either
(i) pay cash to such Buyer in an amount equal to such Buyer’s total purchase
price (including brokerage commissions and other out-of-pocket expenses, if any)
for the shares of Common Stock so purchased (including brokerage commissions and
other out-of-pocket expenses, if any) (the “Buy-In Price”), at which point the
Company’s obligation to so deliver such certificate or credit such Buyer’s
balance account shall terminate and such shares shall be cancelled, or
(ii) promptly honor its obligation to so deliver to such Buyer a certificate or
certificates or credit such Buyer’s DTC account representing such number of
shares of Common Stock that would have been so delivered if the Company timely
complied with its obligations hereunder and pay cash to such Buyer in an amount
equal to the excess (if any) of the Buy-In Price over the product of (A) such
number of shares of Conversion Shares or Warrant Shares (as the case may be)
that the Company was required to deliver to such Buyer by the Required Delivery
Date multiplied by (B) the lowest Closing Sale Price (as defined in the
Warrants) of the Common Stock on any Trading Day during the period commencing on
the date of the delivery by such Buyer to the Company of the applicable
Conversion Shares or Warrant Shares (as the case may be) and ending on the date
of such delivery and payment under this clause (ii).

 

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

(a) The obligation of the Company hereunder to issue and sell the Initial Notes
and the related Series A Warrants to each Buyer at the Initial Closing is
subject to the satisfaction, at or before the Initial 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 other Transaction Documents to
which it is a party and delivered the same to the Company.

 

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(ii) Such Buyer and each other Buyer shall have delivered to the Company the
Initial Purchase Price (less, in the case of any Buyer, the amounts withheld by
such Buyer pursuant to Section 4(g)) for the Initial Note and the related Series
A Warrants being purchased by such Buyer at such Initial Closing by wire
transfer of immediately available funds pursuant to the wire instructions
provided by the Company.

(iii) The representations and warranties of such Buyer shall be true and correct
in all material respects as of the date when made and as of the Initial Closing
Date as though originally made at that time (except for representations and
warranties that speak as of a specific date, which shall be true and correct as
of such specific 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 Initial Closing Date.

(b) The obligation of the Company hereunder to issue and sell the Additional
Notes and the related Series B Warrants to Capital Ventures at the Additional
Closing is subject to the satisfaction, at or before the Additional 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 Capital Ventures with prior written notice
thereof:

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

(ii) Capital Ventures shall have delivered to the Company the Additional
Purchase Price (less the amounts withheld by Capital Ventures pursuant to
Section 4(g)) for the Additional Note and the related Series B Warrants being
purchased by Capital Ventures at such Additional Closing by wire transfer of
immediately available funds pursuant to the wire instructions provided by the
Company.

(iii) The representations and warranties of Capital Ventures shall be true and
correct in all material respects as of the date when made and as of the
Additional Closing Date as though originally made at that time (except for
representations and warranties that speak as of a specific date, which shall be
true and correct as of such specific date), and Capital Ventures 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 Capital Ventures at or prior to the Additional Closing Date.

 

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

(a) The obligation of each Buyer hereunder to purchase its Initial Note and its
related Series A Warrants at the Initial Closing is subject to the satisfaction,
at or before the Initial 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 each of the
Transaction Documents to which it is a party and the Company shall have duly
executed and delivered to such Buyer an Initial Note (in such original principal
amount as is set forth across from such Buyer’s name in column (3) of the
Schedule of Buyers) and the related Series A Warrants (initially for such
aggregate number of shares of Series A Warrant Shares as is set forth across
from such Buyer’s name in column (5) of the Schedule of Buyers) being purchased
by such Buyer at such Initial Closing pursuant to this Agreement.

(ii) Such Buyer shall have received the opinion of Latham & Watkins LLP, the
Company’s counsel, dated as of the Initial Closing Date, acceptable to such
Buyer.

(iii) The Company shall have delivered to such Buyer a copy of the Irrevocable
Transfer Agent Instructions, in the form acceptable to such Buyer, 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, in the form
acceptable to such Buyer, executed by the Secretary of the Company and dated as
of the Initial 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 of the Company
and (iii) the Bylaws of the Company, each as in effect at the Initial Closing.

(v) Each and every representation and warranty of the Company shall be true and
correct in all material respects (other than representations and warranties that
are already qualified by materiality or Material Adverse Effect which shall be
true and correct in all respects) as of the date when made and as of the Initial
Closing Date as though originally made at that time (except for representations
and warranties that speak as of a specific date, which shall be true and correct
as of such specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required to be performed, satisfied or complied with by the Company at or prior
to the Initial Closing Date. Such Buyer shall have received a certificate, duly
executed by the Chief Executive Officer of the Company, dated as of such Initial
Closing Date, to certifying that that Company has performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required to be performed, satisfied or complied with by the Company at or prior
to the Initial Closing Date and as to such other matters as may be reasonably
requested by such Buyer in the form acceptable to such Buyer.

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

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

 

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

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

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

(xi) Such Buyer shall have received a letter on the letterhead of the Company,
duly executed by an officer of the Company, setting forth the wire instructions
of the Company.

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

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

(i) The Company and each Subsidiary (as the case may be) shall have duly
executed and delivered to Capital Ventures each of the Transaction Documents to
which it is a party and the Company shall have duly executed and delivered to
Capital Ventures an Additional Note (in such original principal amount equal to
the Additional Note Amount) and the related Series B Warrants (initially for
such aggregate number of shares of Series B Warrant Shares as equal to the
Series B Warrant Amount) being purchased by Capital Ventures at such Additional
Closing pursuant to this Agreement.

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

(iii) The Company shall have delivered to Capital Ventures a certificate, in the
form acceptable to Capital Ventures, executed by the Secretary of the Company
and dated as of such Additional 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 Capital Ventures, (ii) the Certificate of
Incorporation of the Company and (iii) the Bylaws of the Company, each as in
effect at such Initial Closing.

 

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(iv) Each and every representation and warranty of the Company shall be true and
correct in all material respects (other than representations and warranties that
are already qualified by materiality or Material Adverse Effect which shall be
true and correct in all respects) as of the date when made and as of the
Additional Closing Date as though originally made at that time (except for
representations and warranties that speak as of a specific date, which shall be
true and correct as of such specific date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required to be performed, satisfied or complied with by the
Company at or prior to the Additional Closing Date. Capital Ventures shall have
received a certificate, duly executed by the Chief Executive Officer of the
Company, dated as of the Additional Closing Date, to the foregoing effect and as
to such other matters as may be reasonably requested by Capital Ventures in the
form acceptable to Capital Ventures.

(v) The Company shall have delivered to Capital Ventures a letter from the
Company’s transfer agent certifying the number of shares of Common Stock
outstanding on the date immediately prior to the Additional Closing Date.

(vi) The Common Stock (I) shall be designated for quotation or listed (as
applicable) on the Principal Market and (II) shall not have been suspended, as
of the Additional 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 Additional Closing Date, either (A) in writing
by the SEC or the Principal Market or (B) by falling below the minimum
maintenance requirements of the Principal Market.

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

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

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

(x) The Company shall have obtained approval of the Principal Market to list or
designate for quotation (as the case may be) the Conversion Shares and the
Warrant Shares.

(xi) Capital Ventures shall have received a letter on the letterhead of the
Company, duly executed by an officer of the Company, setting forth the wire
instructions of the Company.

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

 

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(xiii) all of the Conversion Shares issued and issuable upon conversion of the
Notes (assuming the conversion in full of such Notes on or prior to the
Additional Closing Eligibility Date and a conversion price of the Additional
Notes calculated as if the Notes were issued on the Additional Closing Date) may
be completed by the Company without violating the rules and regulations of the
Principal Market.

(xiv) the initial Effective Date (as defined in the Registration Rights
Agreement) shall have occurred.

(xv) the aggregate dollar trading volume (as reported on Bloomberg) of the
Common Stock on the Principal Market on at least twenty-five (25) of the thirty
(30) consecutive Trading Day period ending on the Trading Day immediately
preceding the Additional Closing Date is greater than $2,250,000 (as adjusted
for any stock splits, stock dividends, stock combinations, recapitalizations or
other similar transactions) (the “Additional Closing Volume Condition”).

(xvi) the Market Price (as defined in the Initial Notes) on each Trading Day (as
defined in the Initial Notes) during the thirty (30) consecutive Trading Day
period ending on the Trading Day immediately preceding the Additional Closing
Date exceeds $2.50 (as adjusted for any stock splits, stock dividends, stock
combinations, recapitalizations or other similar transactions) (the “Additional
Closing Price Condition”).

(xvii) there has been no Equity Conditions Failure (as defined in the Initial
Notes).

 

8. TERMINATION.

In the event that the Initial Closing shall not have occurred within five
(5) days of the date hereof, then each Buyer shall have the right to terminate
its obligations under this Agreement with respect to itself at any time on or
after the close of business on such date without liability of such Buyer to any
other party; provided, however, (i) the right to terminate this Agreement under
this Section 8 shall not be available to such Buyer if the failure of the
transactions contemplated by this Agreement to have been consummated by such
date is the result of such Buyer’s breach of this Agreement and (ii) the
abandonment of the sale and purchase of the Notes and the Warrants shall be
applicable only to the Buyer providing such written notice; provided further
that no such termination shall affect any obligation of the Company under this
Agreement to reimburse such Buyer for the expenses described in Section 4(g)
above. Nothing contained in this Section 8 shall be deemed to release any party
from any liability for any breach by such party of the terms and provisions of
this Agreement or the other Transaction Documents or to impair the right of any
party to compel specific performance by any other party of its obligations under
this Agreement or the other Transaction Documents.

 

9. MISCELLANEOUS.

(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the

 

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

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

(c) Headings; Gender. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement. Unless the context clearly indicates otherwise, each pronoun herein
shall be deemed to include the masculine, feminine, neuter, singular and plural
forms thereof. The terms “including,” “includes,” “include” and words of like
import shall be construed broadly as if followed by the words “without
limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import
refer to this entire Agreement instead of just the provision in which they are
found.

(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

 

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

(e) Entire Agreement; Amendments. This Agreement, the other Transaction
Documents and the schedules and exhibits attached hereto and thereto and the
instruments referenced herein and therein supersede all other prior oral or
written agreements between the Buyers, the Company, its Subsidiaries, and
Persons acting on their behalf solely with respect to the matters contained
herein and therein, and this Agreement, the other Transaction Documents, the
schedules and exhibits attached hereto and thereto and the instruments
referenced herein and therein contain the entire understanding of the parties
solely with respect to the matters covered herein and therein; provided,
however, nothing contained in this Agreement or any other Transaction Document
shall (or shall be deemed to) (i) have any effect on any agreements any Buyer
has entered into with, or any instruments any Buyer has received from, the
Company or any of its Subsidiaries prior to the date hereof with respect to any
prior investment made by such Buyer in the Company or (ii) waive, alter, modify
or amend in any respect any obligations of the Company or any of its
Subsidiaries, or any rights of or benefits to any Buyer or any other Person, in
any agreement entered into prior to the date hereof between or among the Company
and/or any of its Subsidiaries and any Buyer, or any instruments any Buyer
received from the Company and/or any of its Subsidiaries prior to the date
hereof, and all such agreements and instruments shall continue in full force and
effect. 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. For clarification purposes, the Recitals are part of
this Agreement. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the Required Holders (as defined
below), and any amendment to any provision of this Agreement made in conformity
with the provisions of this Section 9(e) shall be binding on all Buyers and
holders of Securities, as applicable, provided that no such amendment shall be
effective to the extent that it (1) applies to less than all of the holders of
the Securities then outstanding or (2) imposes any obligation or liability on
any Buyer without such Buyer’s prior

 

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written consent (which may be granted or withheld in such Buyer’s sole
discretion). No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party, provided that the Required
Holders may waive any provision of this Agreement, and any waiver of any
provision of this Agreement made in conformity with the provisions of this
Section 9(e) shall be binding on all Buyers and holders of Securities, as
applicable, provided that no such waiver shall be effective to the extent that
it (1) applies to less than all of the holders of the Securities then
outstanding (unless a party gives a waiver as to itself only) or (2) imposes any
obligation or liability on any Buyer without such Buyer’s prior written consent
(which may be granted or withheld in such Buyer’s sole discretion). Other than
the Transaction Documents, 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 or the other Transaction Documents,
no Buyer has made any commitment or promise or has any other obligation to
provide any financing to the Company, any Subsidiary or otherwise. As a material
inducement for each Buyer to enter into this Agreement, the Company expressly
acknowledges and agrees that (i) no due diligence or other investigation or
inquiry conducted by a Buyer, any of its advisors or any of its representatives
shall affect such Buyer’s right to rely on, or shall modify or qualify in any
manner or be an exception to any of, the Company’s representations and
warranties contained in this Agreement or any other Transaction Document and
(ii) unless a provision of this Agreement or any other Transaction Document is
expressly preceded by the phrase “except as disclosed in the SEC Documents,”
nothing contained in any of the SEC Documents shall affect such Buyer’s right to
rely on, or shall modify or qualify in any manner or be an exception to any of,
the Company’s representations and warranties contained in this Agreement or any
other Transaction Document. “Required Holders” means (i) prior to the Additional
Closing Date, each Buyer entitled to purchase Notes at a Closing hereunder and
(ii) on or after Additional Closing Date, holders of all Securities (excluding
any Securities held by the Company or any of its Subsidiaries) issued or
issuable hereunder or pursuant to the Notes and/or the Warrants (on an
as-converted basis).

(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, if delivered
personally; (ii) when sent, if sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); (iii) when sent, if sent by e-mail (provided that such sent
e-mail is kept on file (whether electronically or otherwise) by the sending
party and the sending party does not receive an automatically generated message
from the recipient’s e-mail server that such e-mail could not be delivered to
such recipient) and (iv) if sent by overnight courier service, one (1) Business
Day after deposit with an overnight courier service with next day delivery
specified, in each case, properly addressed to the party to receive the same.
The addresses, facsimile numbers and e-mail addresses for such communications
shall be

If to the Company:

American Superconductor Corporation

64 Jackson Road

Devens, MA 01434

 

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Telephone: (978) 842-3539

Facsimile: (978) 842-3530

Attention: General Counsel

With a copy (for informational purposes only) to:

Latham & Watkins LLP

John Hancock Tower, 20th Floor

200 Clarendon Street

Boston, MA 02116

Telephone: (617) 948-6060

Facsimile: (617) 948-6001

Attention: Peter N. Handrinos, Esq.

If to the Transfer Agent:

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, NY 11219

Telephone: (718) 921-8208

Facsimile: (718) 765-8713

Attention: Alexandra M. Albrecht

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

with a copy (for informational purposes only) to:

Greenberg Traurig, LLP

MetLife Building

200 Park Avenue

New York, NY 10166

Telephone: (212) 801-9200

Facsimile: (212) 805-9222

Attention: Michael A. Adelstein, Esq.

or to such other address, facsimile number or e-mail address and/or to the
attention of such other Person as the recipient party has specified by written
notice given to each other party five (5) days prior to the effectiveness of
such change, provided that Greenberg Traurig, LLP shall only be provided copies
of notices sent to Capital Ventures. 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 and recipient facsimile number 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 (iv) above, respectively. A copy of the e-mail
transmission containing the time, date and recipient e-mail address shall be
rebuttable evidence of receipt by e-mail in accordance with clause (iii) above.

 

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(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 assignee of any of the Securities. The Company shall not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Required Holders, including, without limitation, by way of a
Fundamental Transaction (as defined in the Warrants) (unless the Company is in
compliance with the applicable provisions governing Fundamental Transactions set
forth in the Warrants) or a 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). Provided a Buyer provides the
Company with written notice thereof, a Buyer may assign some or all of its
rights hereunder in connection with any transfer of any of its Securities
without the consent of the Company, in which event such assignee shall be deemed
to be a Buyer hereunder with respect to such assigned rights.

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

(i) Survival. The representations, warranties, agreements and covenants shall
survive each 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.

(k) Indemnification. In consideration of each Buyer’s execution and delivery of
the Transaction Documents and acquiring the Securities thereunder and in
addition to all of the Company’s other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each holder of any Securities and all of their stockholders, partners,
members, officers, directors, employees and direct or indirect investors and any
of the foregoing Persons’ agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys’ fees and disbursements
(the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company or any Subsidiary in any of the
Transaction Documents, (b) any breach of any covenant, agreement or obligation
of the Company or any Subsidiary contained in any of the Transaction Documents
or (c) any cause of action, suit, proceeding or claim brought or made against
such Indemnitee by a third party (including for these purposes a derivative
action brought on behalf of the Company or any Subsidiary) or which otherwise
involves such Indemnitee that arises out of or results from (i) the execution,
delivery, performance or enforcement of any of the

 

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Transaction Documents, (ii) any transaction financed or to be financed in whole
or in part, directly or indirectly, with the proceeds of the issuance of the
Securities, or (iii) the status of such Buyer or holder of the Securities either
as an investor in the Company pursuant to the transactions contemplated by the
Transaction Documents or as a party to this Agreement (including, without
limitation, as a party in interest or otherwise in any action or proceeding for
injunctive or other equitable relief); provided, however, that no Buyer will be
entitled to indemnification hereunder for any Indemnified Liabilities
proximately resulting from such Buyer’s material breach of applicable laws,
rules or regulations, including, without limitation, any breach by such Buyer of
any federal or state securities laws, rules or regulations with respect to Short
Sales or other hedging activities. To the extent that the foregoing undertaking
by the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 9(k) shall be the same as those set forth in
Section 6 of the Registration Rights Agreement.

(l) 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. No specific
representation or warranty shall limit the generality or applicability of a more
general representation or warranty. Each and every reference to share prices,
shares of Common Stock and any other numbers in this Agreement that relate to
the Common Stock shall be automatically adjusted for any stock splits, stock
dividends, stock combinations, recapitalizations or other similar transactions
that occur with respect to the Common Stock after the date of this Agreement.

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

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

 

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

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

 

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convenience of the Company and its Subsidiaries and not because it was required
or requested to do so by any Buyer. It is expressly understood and agreed that
each provision contained in this Agreement and in each other Transaction
Document is between the Company, each Subsidiary and a Buyer, solely, and not
between the Company, its Subsidiaries and the Buyers collectively and not
between and among the Buyers.

[signature pages follow]

 

47

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

 

COMPANY:

AMERICAN SUPERCONDUCTOR CORPORATION

By:  

/s/ David A. Henry

  Name:   David A. Henry   Title:   Senior Vice President, Chief Financial    
Officer and Treasurer

 

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

 

BUYER: CAPITAL VENTURES INTERNATIONAL By:  

Heights Capital Management,

the authorized agent

By:  

/s/ Martin Kobinger

  Name: Martin Kobinger   Title: Investment Manager

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SCHEDULE OF BUYERS

 

(1)    (2)    (3)      (4)      (5)    (6)    (7)

Buyer

  

Address and Facsimile Number

   Original
Principal
Amount of
Initial Notes      Original
Principal
Amount of
Additional Notes      Aggregate
Number of
Series A
Warrant Shares    Initial
Purchase Price   

Legal Representative’s

Address and Facsimile Number

Capital Ventures International   

c/o Heights Capital Management

101 California Street, Suite 3250

San Francisco, CA 94111

Attention: Martin Kobinger, Investment Manager

Facsimile: 415-403-6525

Telephone: 415-403-6500

Residence: Cayman Islands

   $ 25,000,000       $ 15,000,000       3,094,060    $25,000,000   

Greenberg Traurig, LLP

MetLife Building

200 Park Avenue

New York, NY 10166

Telephone: (212) 801-9200

Facsimile: (212) 805-9222

Attention: Michael A. Adelstein, Esq.

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Schedule 3(a)

Subsidiaries

AMSC Australia Pty Ltd

AMSC India Private Limited

AMSC Austria GmbH (*)

AMSC Finland Holdings OY

AMSC Wisconsin Wind LLC

AMSC United Kingdom Limited

ASC Devens LLC

ASC Securities Corp.

NST Asset Holding Corporation

Superconductivity, Inc.

Suzhou AMSC Super Conductor Co., Ltd. (*)

American Superconductor Europe LLC

American Superconductor Europe GmbH

American Superconductor Korea Co., Ltd.

American Superconductor Canada Limited

American Superconductor Singapore PTE. Ltd.

American Superconductor Europe C.V. (*)

American Superconductor Europe B.V.

American Superconductor Spain Holdings S.L.

Blade Dynamics Limited (UK)

Tres Amigas, LLC

 

 

* “significant subsidiary”

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Schedule 3(k)

SEC Documents; Financial Statements

Late Filings

Annual Report on Form 10-K for the fiscal year ended March 31, 2011

Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011

Restatement Financial Statements

Financial Statements for the fiscal quarter ended September 30, 2010

Financial Statements for the fiscal quarter ended December 31, 2010

Financial Statements for the fiscal year ended March 31, 2011

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Schedule 3(s)

Indebtedness

 

  •  

Indebtedness constituting reimbursement obligations with respect to letters of
credit issued in the ordinary course of business, including letters of credit in
respect of workers’ compensation claims, or other Indebtedness with respect to
reimbursement of the types of obligations regarding workers’ compensation
claims.

 

  •  

Indebtedness arising from agreements providing for indemnification, adjustment
of purchase price, earnouts or similar obligations, in each case, incurred or
assumed in connection with the disposition of any business, assets or a
subsidiary.

 

  •  

Intercompany Indebtedness.

 

  •  

Hedging obligations (excluding hedging obligations entered into for speculative
purposes) for the purposes of limiting (a) interest rate risk, (b) exchange rate
risk with respect to any currency exchange or (c) commodity pricing risk with
respect to any commodity.

 

  •  

Obligations in respect of performance, bid, appeal and surety bonds and
completion guarantees and similar obligations provided in the ordinary course of
business.

 

  •  

Indebtedness arising from the honoring by a bank or other financial institution
of a check, draft or similar instrument drawn against insufficient funds in the
ordinary course of business.

 

  •  

Indebtedness supported by a letter of credit excess of the amount of the
Indebtedness.

 

  •  

Indebtedness consisting of the financing of insurance premiums or take-or-pay
obligations contained in supply arrangements in each case, incurred in the
ordinary course of business.

 

  •  

Customer deposits and advance payments received in the ordinary course of
business from customers for goods purchased in the ordinary course of business.

 

  •  

Indebtedness incurred in connection with bankers’ acceptances, discounted bills
of exchange or the discounting or factoring of receivables for credit management
purposes, in each case incurred or undertaken in the ordinary course of business
on arm’s length commercial terms on a recourse basis.

 

  •  

Capital leases entered into in the ordinary course of business.

 

  •  

Any item described in clauses (A) through (H) of the definition of Indebtedness
that was not Indebtedness on the date of the Securities Purchase Agreement that
becomes Indebtedness after the date of the Securities Purchase Agreement as a
result of a change in GAAP.

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EXHIBIT A

Senior Convertible Notes

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[FORM OF SENIOR CONVERTIBLE NOTE]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN EXEMPTION THEREFROM. PRIOR TO THE REGISTRATION OF ANY
TRANSFER IN ACCORDANCE WITH THE FOREGOING, THE COMPANY RESERVES THE RIGHT TO
REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS (UNLESS SUCH SECURITIES ARE ELIGIBLE
TO BE SOLD WITHOUT RESTRICTION OR HAVE BEEN SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT), CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE
REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN
COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
“TRANSFER” MEANS ANY SALE, ASSIGNMENT OR OTHER TRANSFER. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTIONS 3(c)(iii) AND 19(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED
BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION
3(c)(iii) OF THIS NOTE.

AMERICAN SUPERCONDUCTOR CORPORATION

SENIOR CONVERTIBLE NOTE

 

Issuance Date:             , 2012      Original Principal Amount: U.S.
$[        ]

FOR VALUE RECEIVED, American Superconductor Corporation, a Delaware corporation
(the “Company”), hereby promises to pay to the order of [BUYER] or its
registered assigns (“Holder”) the amount set forth above as the Original
Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, the “Principal”) when due, whether on the
Maturity Date or any Installment Date with respect to the corresponding
Installment Amount due (each as defined below), or upon acceleration, redemption
or otherwise (in each case in accordance with the terms hereof) and to pay
interest (“Interest”) on any outstanding Principal at the applicable Interest
Rate (as defined below) from the date set forth above as the Issuance Date (the
“Issuance Date”) until the same becomes due and payable, whether upon the
Maturity Date, on any Installment Date with respect to the Installment Amount
due on such Installment Date, acceleration, conversion, redemption or otherwise
(in each case in accordance with the terms hereof). This Senior Convertible Note
(including all Senior Convertible Notes issued in exchange, transfer or
replacement hereof, this

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

“Note”) is one of a series of Senior Convertible Notes issued pursuant to the
Securities Purchase Agreement (as defined below) either on the Initial Closing
Date (as defined below) or, if applicable, on the Additional Closing Date (as
defined below) (collectively, the “Notes” and such other Senior Convertible
Notes, the “Other Notes”). Certain capitalized terms used herein are defined in
Section 31.

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

2. INTEREST; INTEREST RATE.

(a) Interest on this Note shall commence accruing on the Issuance Date and shall
(i) be computed on the basis of a 360-day year and twelve 30-day months,
(ii) shall compound each month and (iii) shall be payable on each Installment
Date in accordance with Section 8 below or otherwise in accordance with the
terms of this Note.

(b) Prior to the payment of Interest on an Installment Date, Interest on this
Note shall accrue at the Interest Rate and be payable by way of inclusion of the
Interest in the Conversion Amount on each Conversion Date in accordance with
Section 3(b)(i), on each Installment Date in accordance with Section 8 below or
upon any redemption in accordance with Section 11. From and after the occurrence
and during the continuance of an Event of Default (as defined below), the
Interest Rate shall be increased to fifteen percent (15.0%). In the event that
such Event of Default is subsequently cured, the automatic increase to the
Interest Rate referred to in the preceding sentence shall cease to be effective
as of the date of such cure; provided that the Interest as calculated and unpaid
at such increased rate during the continuance of such Event of Default shall
continue to apply to the extent relating to the days after the occurrence of
such Event of Default through and including the date of such cure of such Event
of Default.

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

(a) Conversion Right. Subject to the provisions of Section 3(d), at any time or
times on or after the Issuance Date, the Holder shall be entitled to convert any
portion of the outstanding and unpaid Conversion Amount (as defined below) into
validly issued, fully paid and non-assessable shares of Common Stock in
accordance with Section 3(c), at the Conversion Rate (as defined below). The
Company shall not issue any fractional shares of Common Stock upon conversion of
any portion of the outstanding and unpaid Conversion Amount. If any fractional
share of Common Stock would be issuable upon the conversion of any portion of
the outstanding Conversion Amount, the Company shall round such fractional share
of Common Stock to the nearest whole share. The Company

 

2

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shall pay any and all transfer, stamp, issuance and similar taxes that may be
payable with respect to the issuance of stock certificates, if any, in respect
of shares of Common Stock deliverable upon conversion of any Conversion Amount.
The Company shall not, however, be required to pay any such tax which may be
payable in respect of any transfer involved in the issuance and delivery of
Common Stock in any name other than that of the Holder of this Note.

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

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

(ii) “Conversion Price” means, as of any Conversion Date (as defined below) or
other date of determination, $[        ]1, subject to adjustment as provided
herein.

(c) Mechanics of Conversion.

(i) Optional Conversion. To convert any Conversion Amount into shares of Common
Stock on any date (a “Conversion Date”), the Holder shall deliver (whether via
facsimile or otherwise), for receipt on or prior to 5:00 p.m., New York City
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. On or
before the first (1st) Trading Day following the date of receipt of a Conversion
Notice, the Company shall transmit by facsimile an acknowledgment of
confirmation, in the form attached hereto as Exhibit II, 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
Company shall (1) provided that the Company’s transfer agent (the “Transfer
Agent”) is participating in The Depository Trust Company’s (“DTC”) Fast
Automated Securities Transfer Program, credit such aggregate number of shares of
Common Stock to which the Holder shall be entitled to the Holder’s or its
designee’s balance account with DTC through its Deposit/Withdrawal at Custodian
system or (2) otherwise issue and deliver (via reputable overnight courier) to
the address as specified in the Conversion Notice, a certificate, registered in
the name of the Holder or its designee, for the number of shares of Common Stock
to which the Holder shall be entitled. If required by Section 3(c)(ii), within
three (3) Trading Days following a conversion of this Note as

 

 

1 

Insert [INSERT IN INITIAL NOTES: $4.85] [INSERT IN ADDITIONAL NOTES: price equal
to the lesser of (x) $4.85 (as adjusted for stock splits, recapitalizations and
similar events) and (y) 120% of the Market Price as of the Additional Closing
Date (as defined in the Securities Purchase Agreement)].

3

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aforesaid, the Holder shall surrender this Note (or an indemnification
undertaking with respect to this Note in the case of its loss, theft or
destruction as contemplated by Section 19(b)) to the Company. If this Note is
physically surrendered for conversion and the outstanding Principal of this Note
is greater than the Principal portion of the Conversion Amount being converted,
then the Company shall as soon as practicable and in no event later than three
(3) Business Days after receipt of this Note and at its own expense, issue and
deliver to the Holder (or its designee) a new Note (in accordance with
Section 19(d)) representing the outstanding Principal not converted. Subject to
Section 3(d)(i), the Person or Persons entitled to receive the shares of Common
Stock issuable upon a conversion of this Note shall be treated for all purposes
as the record holder or holders of such shares of Common Stock on the Conversion
Date. In the event of a partial conversion of this Note pursuant hereto, the
Principal amount converted shall be deducted from the Installment Amount(s)
relating to the Installment Date(s) as set forth in the applicable Conversion
Notice.

(ii) Company’s Failure to Timely Convert. If the Company shall fail, for any
reason or for no reason, to issue to the Holder within three (3) Trading Days
after the Company’s receipt of a Conversion Notice (whether via facsimile or
otherwise) (the “Share Delivery Deadline”), a certificate for the number of
shares of Common Stock to which the Holder is entitled and register such shares
of Common Stock on the Company’s share register or to credit the Holder’s or its
designee’s balance account with DTC for such number of shares of Common Stock to
which the Holder is entitled upon the Holder’s conversion of any Conversion
Amount (as the case may be) (a “Conversion Failure”) and if on or after such
Share Delivery Deadline the Holder (or any other Person in respect, or on
behalf, of 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 all
or any portion of the number of shares of Common Stock, or a sale of a number of
shares of Common Stock equal to all or any portion of the number of shares of
Common Stock, issuable upon such conversion that the Holder so anticipated
receiving from the Company, then, in addition to all other remedies available to
the Holder, the Company shall, within three (3) Business Days after receipt of
the Holder’s written request and in the Holder’s discretion, either: (i) pay
cash to the Holder in an amount equal to the Holder’s total purchase price
(including brokerage commissions and other out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (including, without limitation, by any
other Person in respect, or on behalf, of the Holder) (the “Buy-In Price”), at
which point the Company’s obligation to so issue and deliver such certificate or
credit the Holder’s balance account with DTC for the number of shares of Common
Stock to which the Holder is entitled upon the Holder’s conversion hereunder (as
the case may be) (and to issue such shares of Common Stock) shall terminate, or
(ii) promptly honor its obligation to so issue and deliver to the Holder a
certificate or certificates representing such shares of Common Stock or credit
the Holder’s balance account with DTC for the number of shares of Common Stock
to which the Holder is entitled upon the Holder’s conversion hereunder (as the
case may be) and pay cash to the Holder in an amount equal to the excess (if
any) of the Buy-In Price over the product of (A) such number of shares of Common
Stock multiplied by (B) the lowest Closing Sale Price of the Common Stock on any
Trading Day during the period commencing on the date of the applicable
Conversion Notice and ending on the date of such issuance and payment under this
clause (ii).

 

4

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(iii) Registration; Book-Entry. The Company shall maintain a register (the
“Register”) for the recordation of the names and addresses of the holders of
each Note and the principal amount of the Notes 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 Holder of this Note
shall treat the Person recorded in the Register as the owner of this Note for
all purposes (including, without limitation, the right to receive payments of
Principal and Interest hereunder) notwithstanding notice to the contrary. A
Registered Note may be assigned, transferred or sold in whole or in part only by
registration of such assignment or sale on the Register. Upon its receipt of a
written request to assign, transfer or sell all or part of any Registered Note
by the holder thereof, together with any required documentation under the
Transaction Documents (as defined in the Securities Purchase Agreement)
including any legal opinions, 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 19, provided
that if the Company does not so record an assignment, transfer or sale (as the
case may be) of all or part of any Registered Note within two (2) Business Days
of its receipt of (I) such a request and (II) the required documentation under
the Transaction Documents including any legal opinions with respect to such
transfer, then the Register shall be automatically updated to reflect such
assignment, transfer or sale (as the case may be). Notwithstanding anything to
the contrary set forth in this Section 3, following conversion of any portion of
this Note in accordance with the terms hereof, the Holder shall not be required
to physically surrender this Note to the Company unless (A) the full Conversion
Amount represented by this Note is being converted (in which event this Note
shall be delivered to the Company following conversion thereof as contemplated
by Section 3(c)(i)) or (B) the Holder has provided the Company with prior
written notice (which notice may be included in a Conversion Notice) requesting
reissuance of this Note upon physical surrender of this Note. The Holder and the
Company shall maintain records showing the Principal and Interest converted
and/or paid (as the case may be) and the dates of such conversions and/or
payments (as the case may be) or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require physical
surrender of this Note upon conversion.

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

 

5

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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 24.

(d) Limitations on Conversions.

(i) Beneficial Ownership. Notwithstanding anything to the contrary contained in
this Note, this Note shall not be convertible by the Holder hereof, and the
Company shall not effect any conversion of this Note or otherwise issue any
shares of Common Stock pursuant hereto, to the extent (but only to the extent)
that after giving effect to such conversion or other share issuance hereunder
the Holder or any of its affiliates would beneficially own in excess of 4.99%
(the “Maximum Percentage”) of the Common Stock. To the extent the above
limitation applies, the determination of whether this Note shall be convertible
(vis-à-vis other convertible, exercisable or exchangeable securities owned by
the Holder or any of its affiliates) and of which such securities shall be
convertible, exercisable or exchangeable (as among all such securities owned by
the Holder and its affiliates) shall, subject to such Maximum Percentage
limitation, be determined on the basis of the first submission to the Company
for conversion, exercise or exchange (as the case may be). No prior inability to
convert this Note, or to issue shares of Common Stock, pursuant to this
paragraph shall have any effect on the applicability of the provisions of this
paragraph with respect to any subsequent determination of convertibility. For
purposes of this paragraph, beneficial ownership and all determinations and
calculations (including, without limitation, with respect to calculations of
percentage ownership) shall be determined in accordance with Section 13(d) of
the 1934 Act (as defined in the Securities Purchase Agreement) and the rules and
regulations promulgated thereunder. The provisions of this paragraph shall be
implemented in a manner otherwise than in strict conformity with the terms of
this paragraph to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Maximum Percentage beneficial
ownership limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such Maximum Percentage
limitation. The limitations contained in this paragraph shall apply to a
successor Holder of this Note. The holders of Common Stock shall be third party
beneficiaries of this paragraph and the Company may not waive this paragraph
without the consent of holders of a majority of its Common Stock. For any reason
at any time, upon the written or oral request of the Holder, the Company shall
within one (1) Business Day confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding, including by virtue of any
prior conversion or exercise of convertible or exercisable securities into
Common Stock, including, without limitation, pursuant to this Note or securities
issued pursuant to the Securities Purchase Agreement. By written notice to the
Company, any 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 61st day after such notice
is delivered to the Company, and (ii) any such increase or decrease will apply
only to the Holder sending such notice and not to any other holder of Notes.

 

6

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(ii) Principal Market Regulation. The Company shall not issue any shares of
Common Stock upon conversion of this Note or otherwise pursuant to the terms of
this Note if the issuance of such shares of Common Stock would exceed the
aggregate number of shares of Common Stock which the Company may issue upon
conversion of the Notes or otherwise pursuant to the terms of the Notes without
breaching the Company’s obligations under the rules or regulations of the
Principal Market (the number of shares which may be issued without violating
such rules and regulations, the “Exchange Cap”), except that such limitation
shall not apply in the event that the Company (A) obtains the approval of its
stockholders as required by the applicable rules of the Principal Market for
issuances of shares of Common Stock in excess of such amount or (B) obtains a
written opinion from outside counsel to the Company that such approval is not
required, which opinion shall be reasonably satisfactory to the Holder. Until
such approval or such written opinion is obtained, no Buyer (as defined in the
Securities Purchase Agreement) shall be issued in the aggregate, upon conversion
of any Notes or any other issuance pursuant to the terms of the Notes, shares of
Common Stock in an amount greater than the product of (i) the Exchange Cap as of
the Issuance Date multiplied by (ii) the quotient of (1) the aggregate maximum
original principal amount of Notes issued or issuable to such Buyer pursuant to
the Securities Purchase Agreement at any Closing (as defined in the Securities
Purchase Agreement) divided by (2) the maximum aggregate original principal
amount of all Notes issued or issuable to the Buyers pursuant to the Securities
Purchase Agreement at any Closing (with respect to each Buyer, the “Exchange Cap
Allocation”). In the event that any Buyer shall sell or otherwise transfer any
of such Buyer’s Notes, the transferee shall be allocated a pro rata portion of
such Buyer’s Exchange Cap Allocation with respect to such portion of such Notes
so transferred, and the restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Exchange Cap Allocation so
allocated to such transferee. Upon conversion in full of a holder’s Notes, the
difference (if any) between such holder’s Exchange Cap Allocation and the number
of shares of Common Stock actually issued to such holder upon such holder’s
conversion in full of such Notes shall be allocated to the respective Exchange
Cap Allocations of the remaining holders of Notes on a pro rata basis in
proportion to the shares of Common Stock underlying the Notes then held by each
such holder. In the event that the Company is prohibited from issuing shares of
Common Stock pursuant to this Section 3(d)(ii) (the “Exchange Cap Shares”), the
Company shall pay cash in exchange for the cancellation of such shares of Common
Stock at a price equal to the sum of (i) the product of (x) such number of
Exchange Cap Shares and (y) the Closing Sale Price on the Trading Day
immediately preceding the date such Exchange Cap Shares would otherwise be
required to be delivered to the Holder hereunder and (ii) to the extent the
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of Exchange Cap Shares,
any brokerage commissions and other out-of-pocket expenses, if any, of the
Holder incurred in connection therewith.

 

7

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4. RIGHTS UPON EVENT OF DEFAULT.

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

(i) the suspension from trading or the failure of the Common Stock to be traded
or listed (as applicable) on an Eligible Market for a period of ten
(10) consecutive Trading Days or for more than an aggregate of 30 days in any
365-day period;

(ii) the Company’s (A) failure to cure a Conversion Failure with respect to this
Note or a Delivery Failure (as defined in the Warrants) with respect to Warrants
held by the Holder, as applicable, by delivery of the required number of shares
of Common Stock within ten (10) Trading Days after Conversion Date or exercise
date, as applicable, or (B) notice, written or oral, to the Holder of this Note
or, including, without limitation, by way of public announcement or through any
of its agents, at any time, of its intention not to comply, as required, with a
request for conversion of any Notes into shares of Common Stock that is
requested in accordance with the provisions of the Notes, other than pursuant to
Section 3(d), or a request for exercise of the Warrants for Warrant Shares (as
defined in the Warrants) in accordance with the provisions of the Warrants held
by the Holder;

(iii) the Company’s breach of the provision of Section 10(b) of this Note;

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

(v) the Company’s failure to remove any restrictive legend on any certificate or
any shares of Common Stock issued to the Holder upon conversion or exercise (as
the case may be) of this Note or any Warrant held by the Holder as and when
required by such Note or Warrant or the Securities Purchase Agreement, unless
otherwise not in accordance with state or federal securities laws, and any such
failure remains uncured for at least five (5) days;

(vi) the occurrence of any default under, redemption of or acceleration prior to
maturity of an aggregate amount of Indebtedness (as defined in the Securities
Purchase Agreement) in excess of $2,000,000 of the Company or any of its
Subsidiaries, other than with respect to any Other Notes;

 

8

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

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

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

(x) except with respect to any present or future claims relating to the
controversies existing as of the date hereof and disclosed on Schedule 4(a)(x)
attached hereto, a final judgment or judgments for the payment of money
aggregating in excess of $2,000,000 are rendered against the Company and/or any
of its Subsidiaries and which judgments are not, within thirty (30) days after
the entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within

 

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thirty (30) days after the expiration of such stay; provided, however, any
judgment which is covered by insurance or an indemnity from a credit worthy
party shall not be included in calculating the $2,000,000 amount set forth above
so long as the Company provides the Holder a written statement from such insurer
or indemnity provider (which written statement shall be reasonably satisfactory
to the Holder) to the effect that such judgment is covered by insurance or an
indemnity and the Company or such Subsidiary (as the case may be) will receive
the proceeds of such insurance or indemnity within thirty (30) days of the
issuance of such judgment;

(xi) except with respect to any present or future claims relating to the
controversies existing as of the date hereof and disclosed on Schedule 4(a)(xi)
attached hereto, the Company and/or any Subsidiary, individually or in the
aggregate, either (i) fails to pay, when due, or within any applicable grace
period, any payment with respect to any Indebtedness in excess of $2,000,000 due
to any third party (other than, with respect to unsecured Indebtedness only,
payments contested by the Company and/or such Subsidiary (as the case may be) in
good faith by proper proceedings and with respect to which adequate reserves
have been set aside for the payment thereof in accordance with GAAP) or is
otherwise in breach or violation of any agreement for monies owed or owing in an
amount in excess of $2,000,000, which breach or violation permits the other
party thereto to declare a default or otherwise accelerate amounts due
thereunder, or (ii) suffer to exist any other circumstance or event that would,
with or without the passage of time or the giving of notice, result in a default
or event of default under any agreement binding the Company or any Subsidiary,
which default or event of default would or is likely to have a material adverse
effect on the business, assets, operations (including results thereof),
liabilities, properties, condition (including financial condition) or prospects
of the Company or any of its Subsidiaries, individually or in the aggregate;

(xii) other than as specifically set forth in another clause of this
Section 4(a), the Company or any Subsidiary breaches any material
representation, warranty, covenant or other term or condition of any Transaction
Document (as defined in the Securities Purchase Agreement), except, in the case
of a breach of a covenant or other term or condition that is curable, only if
such breach remains uncured for a period of ten (10) consecutive Trading Days
after notice to the Company from a Holder;

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

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

(b) Notice of an Event of Default; Redemption Right. Upon the occurrence of an
Event of Default with respect to this Note, the Company shall promptly, but in
no event later than two (2) Business Day after becoming aware of such Event of
Default, deliver written notice thereof via facsimile and overnight courier
(with next day delivery specified) (an “Event of Default Notice”) to the Holder.
At any time after the earlier of the Holder’s receipt of an Event of Default
Notice and the Holder becoming aware of an

 

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Event of Default, the Holder may require the Company to redeem (regardless of
whether such Event of Default has been cured) all or any portion of this Note by
delivering written notice thereof (the “Event of Default Redemption Notice”) to
the Company, which Event of Default Redemption Notice shall indicate the portion
of this Note the Holder is electing to redeem. Each portion of this Note subject
to redemption by the Company pursuant to this Section 4(b) shall be redeemed in
cash by the Company at a price equal to the greater of (i) the product of
(A) the Conversion Amount to be redeemed multiplied by (B) the Redemption
Premium and (ii) the product of (X) the Conversion Rate with respect to the
Conversion Amount in effect at such time as the Holder delivers an Event of
Default Redemption Notice multiplied by (Y) the greatest Closing Sale Price of
the Common Stock on any Trading Day during the period commencing on the date
immediately preceding such Event of Default and ending on the date the Company
makes the entire payment required to be made under this Section 4(b) (the “Event
of Default Redemption Price”). Redemptions required by this Section 4(b) shall
be made in accordance with the provisions of Section 11. To the extent
redemptions required by this Section 4(b) are deemed or determined by a court of
competent jurisdiction to be prepayments of this Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 4, but subject to Section 3(d), until
the Event of Default Redemption Price is paid in full, the Conversion Amount
submitted for redemption under this Section 4(b) may be converted, in whole or
in part, by the Holder into Common Stock pursuant to the terms of this Note. In
the event of a partial redemption of this Note pursuant hereto, the Principal
amount redeemed shall be deducted from the Installment Amount(s) relating to the
applicable Installment Date(s) as set forth in the Event of Default Redemption
Notice. In the event of the Company’s redemption of any portion of this Note
under this Section 4(b), the Holder’s damages would be uncertain and difficult
to estimate because of the parties’ inability to predict future interest rates
and the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any redemption premium due under this
Section 4(b) is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder’s actual loss of its investment opportunity and not as a
penalty

5. RIGHTS UPON FUNDAMENTAL TRANSACTION.

(a) Assumption. The Company shall not enter into or be party to a Fundamental
Transaction unless (i) the Successor Entity assumes in writing (or, if prior to
the consummation of such Fundamental Transaction, such applicable agreement
requires the assumption of) all of the obligations of the Company under this
Note and the other Transaction Documents (as defined in the Securities Purchase
Agreement) in accordance with the provisions of this Section 5(a), including
agreements to deliver to each holder of Notes in exchange for such Notes a
security of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to the Notes, including, without limitation,
having a principal amount and interest rate equal to the principal amounts then
outstanding and the interest rates of the Notes held by such holder, having
similar conversion rights as the Notes and having similar ranking to the Notes,
and satisfactory to the Holder and (ii) the Successor Entity (including its
Parent Entity) is a publicly traded corporation whose common stock is quoted on
or listed for

 

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trading on an Eligible Market. Upon the occurrence of any Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of
this Note and the other Transaction Documents referring to the “Company” shall
refer instead to the Successor Entity), and may exercise every right and power
of the Company and shall assume all of the obligations of the Company under this
Note and the other Transaction Documents with the same effect as if such
Successor Entity had been named as the Company herein. Upon consummation of a
Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon conversion or redemption of this
Note at any time after the consummation of such Fundamental Transaction, in lieu
of the shares of the Company’s Common Stock (or other securities, cash, assets
or other property (except such items still issuable under Sections 6 and 16,
which shall continue to be receivable thereafter) issuable upon the conversion
or redemption of the Notes prior to such Fundamental Transaction, such shares of
the publicly traded common stock (or their equivalent) of the Successor Entity
(including its Parent Entity) which the Holder would have been entitled to
receive upon the happening of such Fundamental Transaction had this Note been
converted immediately prior to such Fundamental Transaction (without regard to
any limitations on the conversion of this Note), as adjusted in accordance with
the provisions of this Note. Notwithstanding the foregoing, the Holder may
elect, at its sole option, by delivery of written notice to the Company to waive
this Section 5(a) to permit the Fundamental Transaction without the assumption
of this Note. The provisions of this Section 5 shall apply similarly and equally
to successive Fundamental Transactions and shall be applied without regard to
any limitations on the conversion of this Note.

(b) Notice of a Change of Control; Redemption Right. No earlier than twenty
(20) Trading Days nor later than ten (10) Trading Days prior to the consummation
of a Change of Control (the “Change of Control Date”), but not prior to the
public announcement of such Change of Control, the Company shall deliver written
notice thereof via facsimile and overnight courier to the Holder (a “Change of
Control Notice”). At any time during the period beginning after the Holder’s
receipt of a Change of Control Notice or the Holder becoming aware of a Change
of Control if a Change of Control Notice is not delivered to the Holder in
accordance with the immediately preceding sentence (as applicable) and ending on
the later of twenty (20) Trading Days after (A) consummation of such Change of
Control or (B) the date of receipt of such Change of Control Notice, the Holder
may require the Company to redeem all or any portion of this Note by delivering
written notice thereof (“Change of Control Redemption Notice”) to the Company,
which Change of Control Redemption Notice shall indicate the Conversion Amount
the Holder is electing to redeem. The portion of this Note subject to redemption
pursuant to this Section 5 shall be redeemed by the Company in cash at a price
equal to the greater of (i) the product of (w) the Change of Control Redemption
Premium multiplied by (y) the Conversion Amount being redeemed, (ii) the product
of (A) the Conversion Amount being redeemed multiplied by (B) the quotient
determined by dividing (I) the greatest Closing Sale Price of the shares of
Common Stock during the period beginning on the date immediately preceding the
earlier to occur of (1) the consummation of the applicable Change of Control and
(2) the public announcement of such Change of Control and ending on the date the
Holder delivers the

 

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Change of Control Redemption Notice by (II) the Conversion Price then in effect
at the time of delivery by the Holder of the Change of Control Redemption Notice
and (iii) the product of (A) the Conversion Amount being redeemed multiplied by
(B) the quotient of (I) the aggregate cash consideration and the aggregate cash
value of any non-cash consideration per share of Common Stock to be paid to the
holders of the shares of Common Stock upon consummation of such Change of
Control (any such non-cash consideration constituting publicly-traded securities
shall be valued at the highest of the Closing Sale Price of such securities as
of the Trading Day immediately prior to the consummation of such Change of
Control, the Closing Sale Price of such securities on the Trading Day
immediately following the public announcement of such proposed Change of Control
and the Closing Sale Price of such securities on the Trading Day immediately
prior to the public announcement of such proposed Change of Control) divided by
(II) the Conversion Price then in effect (the “Change of Control Redemption
Price”). Redemptions required by this Section 5 shall be made in accordance with
the provisions of Section 11 and shall have priority to payments to stockholders
in connection with such Change of Control. To the extent redemptions required by
this Section 5(b) are deemed or determined by a court of competent jurisdiction
to be prepayments of this Note by the Company, such redemptions shall be deemed
to be voluntary prepayments. Notwithstanding anything to the contrary in this
Section 5, but subject to Section 3(d), until the Change of Control Redemption
Price is paid in full, the Conversion Amount submitted for redemption under this
Section 5(b) may be converted, in whole or in part, by the Holder into Common
Stock pursuant to Section 3. In the event of a partial redemption of this Note
pursuant hereto, the Principal amount redeemed shall be deducted from the
Installment Amount(s) relating to the applicable Installment Date(s) as set
forth in the Change of Control Redemption Notice. In the event of the Company’s
redemption of any portion of this Note under this Section 5(b), the Holder’s
damages would be uncertain and difficult to estimate because of the parties’
inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any redemption premium due under this Section 5(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of the Holder’s
actual loss of its investment opportunity and not as a penalty.

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

(a) Purchase Rights. In addition to any adjustments pursuant to Section 7 below,
if at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of Common Stock (the “Purchase
Rights”), then the Holder will be entitled to acquire, upon the terms applicable
to such Purchase Rights, the aggregate Purchase Rights which the Holder could
have acquired if the Holder had held the number of shares of Common Stock
acquirable upon complete conversion of this Note (without taking into account
any limitations or restrictions on the convertibility of this Note) immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights (provided, however, to the extent that the Holder’s
right to participate in

 

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any such Purchase Right would result in the Holder exceeding the Maximum
Percentage, then the Holder shall not be entitled to participate in such
Purchase Right to such extent (or beneficial ownership of such shares of Common
Stock as a result of such Purchase Right to such extent) and such Purchase Right
to such extent shall be held in abeyance for the Holder until such time, if
ever, as its right thereto would not result in the Holder exceeding the Maximum
Percentage).

(b) Other Corporate Events. In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a “Corporate Event”), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon a
conversion of this Note in lieu of the shares of Common Stock otherwise
receivable upon such conversion, such securities or other assets received by the
holders of shares of Common Stock in connection with the consummation of such
Corporate Event in such amounts as the Holder would have been entitled to
receive had this Note initially been issued with conversion rights for the form
of such consideration (as opposed to shares of Common Stock) at a conversion
rate for such consideration commensurate with the Conversion Rate. Provision
made pursuant to the preceding sentence shall be in a form and substance
satisfactory to the Holder. The provisions of this Section 6 shall apply
similarly and equally to successive Corporate Events and shall be applied
without regard to any limitations on the conversion or redemption of this Note.

7. RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

(a) Adjustment of Conversion Price upon Issuance of Common Stock. If and
whenever on or after the Subscription Date the Company issues or sells, or in
accordance with this Section 7(a) is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company, but excluding any Excluded
Securities issued or sold or deemed to have been issued or sold) for
consideration per share (the “New Issuance Price”) less than the Conversion
Price in effect immediately prior to such issue or sale or deemed issuance or
sale (such Conversion Price then in effect is referred to herein as the
“Applicable Price”) (the foregoing a “Dilutive Issuance”) (other than a stock
dividend or other distribution of shares of Common Stock to all holders of
Common Stock) (such number being appropriately adjusted to reflect the
occurrence of any event described in Section 7(b)), then, immediately after such
Dilutive Issuance, the Conversion Price then in effect shall be reduced to an
amount equal to the product of (A) the Applicable Price and (B) the quotient
determined by dividing (1) the sum of (I) the product derived by multiplying the
Applicable Price and the number of shares of Common Stock Deemed Outstanding
immediately prior to such Dilutive Issuance plus (II) the consideration, if any,
received by the Company upon such Dilutive Issuance, by (2) the product derived
by multiplying (I) the Applicable Price by (II) the number of shares of Common
Stock Deemed Outstanding immediately after such Dilutive Issuance. For all
purposes of the foregoing (including, without limitation, determining the
adjusted Conversion Price, the consideration per share and the New Issuance
Price under this Section 7(a)), the following shall be applicable:

 

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(i) Issuance of Options. If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 7(a)(i), the “lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option” shall be equal to (1) the lower of (x) 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 such Option, upon exercise of such Option and upon conversion, exercise or
exchange of any Convertible Security issuable upon exercise of such Option and
(y) the lowest exercise price set forth in such Option for which one share of
Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option minus (2) the sum of all amounts paid or payable to
the holder of such Option (or any other Person) 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 plus
the value of any other consideration received or receivable by, or benefit
conferred on, the holder of such Option (or any other Person). Except as
contemplated below, no further adjustment of the Conversion Price shall be made
upon the actual issuance of such share of Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of such
share of Common Stock upon conversion, exercise or exchange of such Convertible
Securities.

(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 (1) the lower of (x) 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 and (y) the lowest conversion price set forth in such
Convertible Security for which one share of Common Stock is issuable upon
conversion, exercise or exchange thereof minus (2) the sum of all amounts paid
or payable to the holder of such Convertible Security (or any other Person) upon
the issuance or sale of such Convertible Security plus the value of any other
consideration received or receivable by, or benefit conferred on, the holder of
such Convertible Security (or any other Person). Except as contemplated below,
no further adjustment of the Conversion Price shall be made upon the actual
issuance of

 

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such share of Common Stock upon conversion, exercise or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Conversion Price has been or is to be made pursuant to other provisions of this
Section 7(a), except as contemplated below, no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.

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

(iv) Calculation of Consideration Received. If any Option or Convertible
Security or Adjustment Right is issued or deemed issued in connection with the
issuance or sale or deemed issuance or sale of any other securities of the
Company, together comprising one integrated transaction, (x) such Option or
Convertible Security (as applicable) or Adjustment Right (as applicable) will be
deemed to have been issued for consideration equal to the Black Scholes
Consideration Value thereof and (y) the other securities issued or sold or
deemed to have been issued or sold in such integrated transaction shall be
deemed to have been issued for consideration equal to the difference of (I) the
aggregate consideration received or receivable by the Company minus (II) the
Black Scholes Consideration Value of each such Option or Convertible Security
(as applicable) or Adjustment Right (as applicable). 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 of consideration received by the Company therefor. If any
shares of Common Stock, Options or Convertible Securities are issued or sold for
a consideration other than cash, the amount of such consideration received by
the Company will be the fair value of such consideration, except where such
consideration consists of publicly traded securities, in which case the amount
of consideration received by the Company for such securities will be the average
VWAP of such security for the five (5) Trading Day period immediately preceding
the date of receipt. If any shares of Common Stock,

 

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Options or Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the surviving
entity, the amount of consideration therefor will be deemed to be the fair value
of such portion of the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or Convertible Securities
(as the case may be). The fair value of any consideration other than cash or
publicly traded securities will be determined jointly by the Company and the
Holder. If such parties are unable to reach agreement within ten (10) days after
the occurrence of an event requiring valuation (the “Valuation Event”), the fair
value of such consideration will be determined within five (5) Trading Days
after the tenth (10th) day following such Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the Holder. The
determination of such appraiser shall be final and binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be borne
by the Company.

(v) Record Date. If the Company takes a record of the holders of shares of
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in 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) Adjustment of Conversion Price upon Subdivision or Combination of Common
Stock. Without limiting any provision of Section 5 or Section 7(a), 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. Without limiting any provision of Section 5 or
Section 7(a), if the Company at any time on or after the Subscription Date
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased. Any adjustment pursuant to this Section 7(b) shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this Section 7(b) occurs
during the period that a Conversion Price is calculated hereunder, then the
calculation of such Conversion Price shall be adjusted appropriately to reflect
such event.

(c) Holder’s Right of Alternative Conversion Price. Subject to Section 4(n) of
the Securities Purchase Agreement, in addition to and not in limitation of the
other provisions of this Section 7, if the Company in any manner issues or sells
or enters into any agreement to issue or sell, any Common Stock, Options or
Convertible Securities (any such securities, “Variable Price Securities”) after
the Subscription Date that are issuable pursuant to such agreement or
convertible into or exchangeable or exercisable for shares of Common Stock
pursuant to such Options or Convertible Securities, as

 

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applicable, at a price which varies or may vary with the market price of the
shares of Common Stock, including by way of one or more reset(s) to a fixed
price, but exclusive of such formulations reflecting customary anti-dilution
provisions (such as share splits, share combinations, share dividends and
similar transactions) (each of the formulations for such variable price being
herein referred to as, the “Variable Price”), the Company shall provide written
notice thereof via facsimile and overnight courier to the Holder on the date of
such agreement and/or the issuance of such Convertible Securities or Options, as
applicable. Subject to Section 4(n) of the Securities Purchase Agreement, from
and after the date the Company enters into such agreement or issues any such
Convertible Securities or Options with a Variable Price, the Holder shall have
the right, but not the obligation, in its sole discretion to substitute the
Variable Price for the Conversion Price upon conversion of this Note by
designating in the Conversion Notice delivered upon any conversion of this Note
that solely for purposes of such conversion the Holder is relying on the
Variable Price rather than the Conversion Price then in effect. The Holder’s
election to rely on a Variable Price for a particular conversion of this Note
shall not obligate the Holder to rely on a Variable Price for any future
conversion of this Note.

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

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

8. COMPANY INSTALLMENT CONVERSION OR REDEMPTION.

(a) General. On each applicable Installment Date, the Company shall pay to the
Holder of this Note the applicable Installment Amount due on such date by
converting such Installment Amount in accordance with this Section 8 (a “Company
Conversion”); provided, however, the Company may, at its option as described
below, pay all or any part of such Installment Amount by redeeming such
Installment Amount in cash (a “Company Redemption”) or by any combination of a
Company Conversion and

 

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a Company Redemption so long as the entire amount of such Installment Amount due
shall be converted and/or redeemed by the Company on the applicable Installment
Date, subject to the provisions of this Section 8, provided further that the
Company shall not be entitled to effect a Company Conversion with respect to any
portion of such Installment Amount and shall be required to elect and to pay the
entire amount of such Installment Amount in cash pursuant to a Company
Redemption if on the applicable Installment Notice Due Date or on the applicable
Installment Date (as the case may be) there is an Equity Conditions Failure,
except that a Company Conversion may still occur on the applicable Installment
Date in accordance with Section 8(c) with the written consent of the Holder if
the Company properly elected a Company Conversion with respect to such
Installment Date, provided further that, notwithstanding the foregoing, if
(i) the Company has elected to effect a Company Conversion pursuant to this
Section 8 with respect to the applicable Installment Date, (ii) the Company is
permitted pursuant to this Section 8 to effect such Company Conversion on such
Installment Date (without regard to any failure to satisfy Section 3(d)(i) of
this Note in accordance with clause (iv) of the definition of “Equity
Conditions”) and (iii) if such Company Conversion would otherwise violate
Section 3(d)(i) of this Note, the Installment Amount of the Holder for such
Installment Date shall be automatically reduced until such reduced Installment
Amount would no longer result in a violation of Section 3(d)(i) if such Company
Conversion were effected (the amount of such reduction is referred to herein as
the “Designated Specified Amount”), and such Designated Specified Amount shall
be automatically deferred to the immediately subsequent Installment Date (or
such other Installment Date as elected in a writing delivered to the Company by
the Holder). For the avoidance of doubt, after giving effect to such reduction
of the Designated Specified Amount, clause (iv) of the definition of “Equity
Conditions” shall be deemed to be satisfied with respect to such Company
Conversion.

(b) Mechanics of Company Installment Payments. On or prior to the date which is
the thirteenth (13th) Trading Day prior to each Installment Date (each, an
“Installment Notice Due Date”), the Company shall deliver written notice (each,
a “Company Installment Notice” and the date all of the holders receive such
notice is referred to as to the “Company Installment Notice Date”), to each
holder of Notes and such Company Installment Notice shall (i) either (A) confirm
that the applicable Installment Amount of such holder’s Note shall be converted
in whole pursuant to a Company Conversion or (B) (1) state that the Company
elects to redeem, or is required to elect and redeem in accordance with the
provisions of the Notes, in whole or in part, the applicable Installment Amount
pursuant to a Company Redemption and (2) specify the portion of the applicable
Installment Amount which the Company elects, or is required to elect and redeem,
pursuant to a Company Redemption (such amount to be redeemed in cash, the
“Company Redemption Amount”) and the portion of the applicable Installment
Amount, if any, with respect to which the Company will, and is permitted to,
effect a Company Conversion (such amount of the applicable Installment Amount so
specified to be so converted pursuant to this Section 8 (subject to adjustment
pursuant to Section 8(f) below) is referred to herein as the “Company Conversion
Amount”), which amounts when added together, must equal the entire applicable
Installment Amount, (ii) specify whether any Additional Installment Amounts (as
defined below) with respect to such Installment Date will be converted pursuant
to a Company Conversion or, at the sole

 

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election of the Company, paid pursuant to a Company Redemption, in accordance
with this Section 8(b) and Section 8(f) below, and (iii) if the applicable
Installment Amount is to be paid, in whole or in part, pursuant to a Company
Conversion, certify that there is not then an Equity Conditions Failure as of
the date of the applicable Company Installment Notice. Each Company Installment
Notice shall be irrevocable and may not be revoked by the Company. If the
Company elects not to deliver, or any Company Installment Notice is not timely
delivered, a Company Installment Notice in accordance with this Section 8 with
respect to a particular Installment Date, then the Company shall be deemed to
have delivered an irrevocable Company Installment Notice confirming a Company
Conversion of the entire Installment Amount payable on such Installment Date and
shall be deemed to have certified that there is not then an Equity Conditions
Failure on the applicable Installment Notice Due Date and the applicable
Installment Date. For the avoidance of doubt, no failure to deliver a Company
Installment Notice will result in an Event of Default to the extent that,
pursuant to this Section 8(b), the Company is permitted to elect a Company
Conversion with respect to such Installment Date. Except as expressly provided
in this Section 8(b), the Company shall convert and/or redeem the applicable
Installment Amount of this Note pursuant to this Section 8 and the corresponding
Installment Amounts of the Other Notes pursuant to the corresponding provisions
of the Other Notes in the same ratio of the applicable Installment Amount being
converted and/or redeemed hereunder. The applicable Company Conversion Amount
(whether set forth in the applicable Company Installment Notice or by operation
of this Section 8) shall be converted in accordance with Section 8(c) and the
applicable Company Redemption Amount shall be redeemed in accordance with
Section 8(d). No later than three (3) Trading Days after delivery of the
applicable Company Installment Notice setting forth a Company Conversion Amount,
the Company shall deliver to the Holder’s account with DTC such number of shares
of Common Stock (the “Pre-Installment Conversion Shares”) equal to the quotient
of (x) such Company Conversion Amount divided by (y) the Pre-Installment Period
Conversion Price, and as to which the Holder shall be the owner thereof as of
such time of delivery or deemed delivery (as the case may be) of such Company
Installment Notice. Except as expressly provided in this Section 8(b), the
Company shall convert and/or redeem the applicable Installment Amount of this
Note pursuant to this Section 8 and the corresponding Installment Amounts of the
Other Notes pursuant to the corresponding provisions of the Other Notes in the
same ratio of the applicable Installment Amount being converted and/or redeemed
hereunder. The applicable Company Conversion Amount (whether set forth in the
applicable Company Installment Notice or by operation of this Section 8) shall
be converted in accordance with Section 8(c) and the applicable Company
Redemption Amount shall be redeemed in accordance with Section 8(d).

(c) Mechanics of Company Conversion. Subject to Section 3(d), if the Company
delivers a Company Installment Notice and elects, or is deemed to have delivered
a Company Installment Notice and deemed to have elected, in whole or in part, a
Company Conversion in accordance with Section 8(b), then the remainder of this
Section 8(c) shall apply. The applicable Company Conversion Amount, if any,
which remains outstanding as of the applicable Installment Date shall be
converted as of the applicable Installment Date by converting on such
Installment Date such Company Conversion Amount at the Company Conversion Price
and the Company shall (subject to the reduction

 

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contemplated by the immediately following sentence and, if applicable, the last
sentence of this Section 8(c)), on the applicable Installment Date (1) provided
that the Transfer Agent is participating in DTC’s Fast Automated Securities
Transfer Program, credit such aggregate number of shares of Common Stock to
which the Holder shall be entitled to the Holder’s or its designee’s balance
account with DTC through its Deposit/Withdrawal at Custodian system or (2) if
the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver (via reputable overnight courier) to the
address as specified in the Conversion Notice, a certificate, registered in the
name of the Holder or its designee, for the number of shares of Common Stock to
which the Holder shall be entitled; provided that there is no Equity Conditions
Failure as of such Installment Date and a Company Conversion is not otherwise
prohibited under any other provision of this Note. The number of shares of
Common Stock to be delivered upon such Company Conversion shall be reduced by
the number of any Pre-Installment Conversion Shares delivered in connection with
such Installment Date. Notwithstanding anything herein to the contrary, with
respect to any Installment Date other than the Maturity Date, if the number of
Pre-Installment Conversion Shares delivered in connection with such Installment
Date exceeds the Installment Conversion Shares required to be delivered in
connection with such Installment Date, the Company’s obligation to deliver
Pre-Installment Conversion Shares in connection with the immediately subsequent
Installment Date, if any, shall be reduced by such excess number of shares of
Common Stock (which, for purposes of this Section 8, shall be deemed to have
been timely and properly delivered as Pre-Installment Conversion Shares for such
immediately subsequent Installment Date). Notwithstanding anything herein to the
contrary, if the number of Pre-Installment Conversion Shares delivered in
connection with the Maturity Date exceeds the Installment Conversion Shares
required to be delivered on the Maturity Date, the Holder shall return the
excess number of shares of Common Stock delivered in connection with the
Maturity Date. If an Event of Default occurs during any period from the delivery
of the Company Installment Notice to the Installment Date, then either (i) the
Holder shall return any Pre-Installment Conversion Shares delivered in
connection with the applicable Installment Date or (ii) the Conversion Amount
used to calculate the Event of Default Redemption Price shall be reduced by the
product of (x) the Company Conversion Amount applicable to such Installment Date
multiplied by (y) the Conversion Share Ratio (as defined below). If there is an
Equity Conditions Failure as of such Installment Date or a Company Conversion is
not otherwise permitted under any other provision of this Note, then (i) the
Holder may, by written notice to the Company, require the Company to redeem in
cash all or any part of the Company Conversion Amount as designated by the
Holder (the “Designated Redemption Amount”) and the Company shall pay to the
Holder within three (3) Trading Days of such Installment Date, by wire transfer
of immediately available funds, an amount in cash equal to 125% of such
Designated Redemption Amount, and/or (ii) the Company Conversion shall be null
and void with respect to all or any part designated by the Holder of the
unconverted Company Conversion Amount and the Holder shall be entitled to all
the rights of a holder of this Note with respect to such designated part of the
Company Conversion Amount; provided, however, the Conversion Price for such
designated part of such unconverted Company Conversion Amount shall thereafter
be adjusted to equal the lesser of (A) the Company Conversion Price as in effect
on the date

 

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on which the Holder voided the Company Conversion and (B) the Company Conversion
Price that will be in effect on the date on which the Holder delivers a
Conversion Notice relating thereto as if such date was an Installment Date. In
addition, if any of the Equity Conditions are not satisfied (or waived in
writing by the Holder) on such Installment Date or a Company Conversion is not
otherwise permitted under any other provision of this Note, then, at the
Holder’s option, either (I) the Holder shall return any Pre-Installment
Conversion Shares delivered in connection with the applicable Installment Date
or (II) the applicable Designated Redemption Amount shall be reduced by the
product of (X) the Company Conversion Amount applicable to such Installment Date
multiplied by (Y) the Conversion Share Ratio. If the Company fails to redeem any
Designated Redemption Amount by the third (3rd) Trading Day following the
applicable Installment Date by payment of such amount on the applicable
Installment Date, then the Holder shall have the rights set forth in
Section 11(a) as if the Company failed to pay the applicable Company Installment
Redemption Price (as defined below) and all other rights under this Note
(including, without limitation, such failure constituting an Event of Default
described in Section 4(a)(xiii)). Notwithstanding anything to the contrary in
this Section 8(c), but subject to Section 3(d), until the Company delivers
Common Stock representing the Company Conversion Amount to the Holder, the
Company Conversion Amount may be converted by the Holder into Common Stock
pursuant to Section 3. In the event that the Holder elects to convert the
Company Conversion Amount prior to the applicable Installment Date as set forth
in the immediately preceding sentence, the Company Conversion Amount so
converted shall be deducted from the Installment Amount(s) relating to the
applicable Installment Date(s) as set forth in the applicable Conversion Notice.
The Company shall pay any and all taxes that may be payable with respect to the
issuance and delivery of any shares of Common Stock in any Company Conversion
hereunder. The Company shall not, however, be required to pay any such tax which
may be payable in respect of any transfer involved in the issue and delivery of
Common Stock in any name other than that of the Holder of this Note.

(d) Mechanics of Company Redemption. If the Company elects, or is required to
elect, a Company Redemption, in whole or in part, in accordance with
Section 8(b), then the Company Redemption Amount, if any, which is to be paid to
the Holder on the applicable Installment Date shall be redeemed by the Company
on such Installment Date in an amount of cash, and the Company shall pay to the
Holder on such Installment Date, by wire transfer of immediately available funds
an amount, equal to the applicable Company Redemption Amount (the “Company
Installment Redemption Price”). If the Company fails to redeem the applicable
Company Redemption Amount on the applicable Installment Date by payment of the
Company Installment Redemption Price on such date, then, at the option of the
Holder designated in writing to the Company on or prior to such Installment Date
(any such designation shall be a “Conversion Notice” for purposes of this Note),
the Holder may require the Company to convert all or any part of the Company
Redemption Amount at the Company Conversion Price (determined as of the date of
such designation as if such date were an Installment Date). Conversions required
by this Section 8(d) shall be made in accordance with the provisions of
Section 3(c). Notwithstanding anything to the contrary in this Section 8(d), but
subject to Section 3(d), until the Company Installment Redemption Price is paid
in full, the Company Redemption Amount may be converted, in whole or in part, by
the Holder into Common

 

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Stock pursuant to Section 3. In the event the Holder elects to convert all or
any portion of the Company Redemption Amount prior to the applicable Installment
Date as set forth in the immediately preceding sentence, the Company Redemption
Amount so converted shall be deducted from the Installment Amounts relating to
the applicable Installment Date(s) as set forth in the applicable Conversion
Notice. Redemptions required by this Section 8(d) shall be made in accordance
with the provisions of Section 11.

(e) Deferred Installment Amount. Notwithstanding any provision of this Section 8
to the contrary, the Holder may, at its option and in its sole discretion,
deliver a written notice to the Company no later than the eleventh
(11th) Trading Day prior to the applicable Installment Date (the “Installment
Notification Deadline Date”) electing to have the payment of all or any portion
of an Installment Amount payable on such Installment Date deferred (such amount
deferred, the “Deferral Amount”) until any subsequent Installment Date selected
by the Holder, in its sole discretion, in which case, the Deferral Amount shall
be added to, and become part of, such subsequent Installment Amount and such
Deferral Amount shall continue to accrue Interest hereunder. Any notice
delivered by the Holder pursuant to this Section 8(d) shall set forth (i) the
Deferral Amount and (ii) the date that such Deferral Amount shall now be
payable.

(f) Additional Installment Amounts. Notwithstanding any provision of this
Section 8 to the contrary, following the earlier of (x) the initial
Effectiveness Deadline (as defined in the Registration Rights Agreement) and
(y) the effective date of the Initial Registration Statement registering the
resale of the Required Initial Registration Amount (as defined in the
Registration Rights Agreement), no later than the applicable Installment
Notification Deadline Date, the Holder may, at its option and in its sole
discretion, increase the Installment Amount then in effect with respect to such
Installment Date to an amount not to exceed (together with the Installment
Amount set forth in the applicable Company Installment Notice) the outstanding
principal amount of this Note then outstanding (such additional amount, the
“Additional Installment Amount”) by delivery of written notice to the Company on
or prior to the Installment Notification Deadline Date (each, an “Additional
Installment Notice”, and such date, the “Additional Installment Notice Date”)
setting forth (i) such Additional Installment Amount and (ii) specifying the
extent one or more Installment Amount(s) related to such other Installment
Date(s) shall be reduced as a result therefrom. In each Company Installment
Notice, the Company shall elect to have any Additional Installment Amounts with
respect to the applicable Installment Date converted into Common Stock pursuant
to a Company Conversion hereunder (it being understood and agreed that the
delivery of a valid Additional Installment Notice must include a representation
that, after giving effect to the conversion of such Additional Installment
Amount, the Holder will not have direct or indirect beneficial ownership of a
number of shares of Common Stock which exceeds the Maximum Percentage as of the
date of such Additional Installment Notice and, to the extent the Company
delivers a notice to the Holder that any of the Equity Conditions have not been
met, all such Equity Conditions shall be deemed to be automatically waived by
such Holder solely with respect to the shares of Common Stock to be delivered in
connection with such Additional Installment Notice unless the Holder delivers a
subsequent written notice to the Company electing to revoke, cancel or terminate
such Additional Installment Notice (in which case such Additional Installment

 

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Notice shall be null and void and in no further force and effect and, if
applicable, the Holder shall promptly return such number of shares of Common
Stock previously delivered to the Holder in connection with such Additional
Installment Notice)) or shall elect to pay such Additional Installment Amounts
for such Installment Date in a Company Redemption; provided, that the failure to
deliver a Company Installment Notice with respect to an Installment Date shall
be deemed to be an election by the Company to effect a Company Conversion with
respect to any Additional Installment Amounts with respect to such Installment
Date and will not result in a default hereunder. If the Company elects to pay
Additional Installment Amounts in cash, the applicable Company Redemption Amount
in effect for such Installment Date shall be deemed to have been automatically
increased by an amount equal to such Additional Installment Amount for all
purposes hereunder. If the Company elects or is deemed to have elected to cause
the Additional Installment Amounts to be converted into Common Stock in a
Company Conversion, from and after each Additional Installment Notice Date, the
applicable Company Conversion Amount in effect for such Installment Date shall
be deemed to have been automatically increased by an amount equal to such
Additional Installment Amount for all purposes hereunder. Notwithstanding
anything herein to the contrary, during the period commencing on an Installment
Date (a “Current Installment Date”) and ending on the Trading Day immediately
prior to the Installment Notice Due Date with respect to the next Installment
Date, at the option of the Holder, at one or more times, the Holder may convert
other Installment Amounts, in whole or in part, at the Company Conversion Price
of such Current Installment Date in accordance with the conversion procedures
set forth in Section 3 hereunder, mutatis mutandis. Notwithstanding the
foregoing, with respect to any Installment Date, the Holder may not elect to
increase any Installment Amount or effect any conversion of any other
Installment Amount pursuant to this Section 8(f), in the aggregate, in excess of
the sum of three (3) Installment Amounts pursuant to this Section 8(f) and in
any twelve (12) month period, the total amount of all Additional Installment
Amounts and other Installment Amounts converted pursuant to this Section 8(f)
shall not exceed the sum of seven (7) Installment Amounts.

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

 

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10. RESERVATION OF AUTHORIZED SHARES.

(a) Reservation. The Company shall initially reserve out of its authorized and
unissued Common Stock a number of shares of Common Stock equal to the sum of
(i) 120% of the maximum number of Conversion Shares issued and issuable pursuant
to the Notes (determined without taking into account any limitations on the
conversion of the Notes set forth therein and assuming that the Notes are
convertible at the initial Conversion Price and all Additional Notes issuable
pursuant to the Securities Purchase Agreement have been issued), (ii) the
maximum number of Interest Shares (as defined in the Securities Purchase
Agreement) issued and issuable pursuant to the terms of the Notes from the
Initial Closing Date through the maturity date of the Additional Notes
(determined without taking into account any limitations on the conversion of the
Notes set forth therein and assuming that the Notes are convertible at the
initial Conversion Price and all Additional Notes issuable pursuant to the
Securities Purchase Agreement have been issued) and (iii) the maximum number of
Warrant Shares issued and issuable pursuant to the Warrants, in each case, as of
the Trading Day (as defined in the Warrants) immediately preceding the
applicable date of determination (without taking into account any limitations on
the exercise of the Warrants set forth therein). So long as any of the Notes are
outstanding, the Company shall take all action reasonably necessary (including,
without limitation increasing any such reserve, as necessary, prior to the
consummation of any Subsequent Placement (as defined in the Securities Purchase
Agreement) to reserve and keep available out of its authorized and unissued
Common Stock, equal to the sum of (i) the maximum number of Conversion Shares
issued and issuable pursuant to the Notes (determined without taking into
account any limitations on the conversion of the Notes set forth therein and
assuming that the Notes are convertible at the Conversion Price and, if prior to
the Additional Closing Date, all Additional Notes issuable pursuant to the
Securities Purchase Agreement have been issued), (ii) 120% of the maximum number
of Interest Shares (as defined in the Securities Purchase Agreement) issued and
issuable pursuant to the terms of the Notes from the Initial Closing Date
through the maturity date of the Additional Notes (determined without taking
into account any limitations on the conversion of the Notes set forth therein
and assuming that the Notes are convertible at the Conversion Price and, if
prior to the Additional Closing Date, all Additional Notes issuable pursuant to
the Securities Purchase Agreement have been issued) and (iii) the maximum number
of Warrant Shares issued and issuable pursuant to the Warrants, in each case, as
of the Trading Day (as defined in the Warrants) immediately preceding the
applicable date of determination (without taking into account any limitations on
the exercise of the Warrants set forth therein) (collectively, the “Required
Reserve Amount”). The initial number of shares of Common Stock reserved for
conversions of the Notes and each increase in the number of shares so reserved
shall be allocated pro rata among the holders of the Notes based on the original
principal amount of the Notes held by each holder on the Initial Closing Date or
increase in the number of reserved shares (as the case may be) (the “Authorized
Share Allocation”). In the event that a holder shall sell or otherwise transfer
any of such holder’s Notes, each transferee shall be allocated a pro rata
portion of such holder’s Authorized Share Allocation. Any shares of Common Stock
reserved and allocated to any Person which ceases to hold any Notes shall be
allocated to the remaining holders of Notes, pro rata based on the principal
amount of the Notes then held by such holders.

 

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(b) Insufficient Authorized Shares. If, notwithstanding Section 10(a), and not
in limitation thereof, at any time while any of the Notes remain outstanding the
Company determines that it does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation under Section 10(a)
(an “Authorized Share Failure”), then the Company shall use reasonable best
efforts to take all action necessary to increase the Company’s authorized shares
of Common Stock to an amount sufficient to allow the Company to comply with
Section 10(a). 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. Nothing contained in Section 10(a) or this Section 10(b) shall
limit any obligations of the Company under any provision of the Securities
Purchase Agreement

11. HOLDER’S REDEMPTIONS.

(a) Mechanics. The Company shall deliver the applicable Event of Default
Redemption Price to the Holder in cash within five (5) Business Days after the
Company’s receipt of the Holder’s Event of Default Redemption Notice (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 in cash concurrently
with the consummation of such Change of Control if such notice is received prior
to the consummation of such Change of Control and within five (5) Business Days
after the Company’s receipt of such notice otherwise. The Company shall deliver
the applicable Company Installment Redemption Price to the Holder in cash on the
applicable Installment Date. The Company shall deliver the applicable Sale
Redemption Price to the Holder in cash on the applicable Sale Redemption Date.
The Company shall deliver the applicable Company Optional Redemption Price to
the Holder in cash on the applicable 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 19(d)) representing the outstanding Principal
which has not been redeemed. In the event that the Company does not pay the
applicable Redemption Price to the Holder within the time period required, at
any time thereafter and until the Company pays such unpaid Redemption Price in
full, the Holder shall have the option, in lieu of redemption, to require the
Company to promptly return to the Holder all or any portion of this Note
representing the Conversion Amount that was submitted for redemption and for
which the applicable Redemption Price 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

 

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19(d)), to the Holder, and in each case the principal amount of this Note or
such new Note (as the case may be) shall be increased by an amount equal to the
difference between (1) the applicable Redemption Price minus (2) the Principal
portion of the Conversion Amount submitted for redemption and (z) the Conversion
Price of this Note or such new Notes (as the case may be) shall be automatically
adjusted with respect to each conversion effected thereafter by the Holder to
the lowest of (A) the Conversion Price as in effect on the date on which the
applicable Redemption Notice is voided and (B) 85% of the lowest Closing Bid
Price of the Common Stock during the period beginning on and including the date
on which the applicable Redemption Notice is delivered 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
applicable Redemption Notice and ending on and including the date which is three
(3) Business Days after the Company’s receipt of the Holder’s applicable
Redemption Notice and the Company is unable to redeem all principal, interest
and other amounts designated in such Redemption Notice and such Other Redemption
Notices received during such seven (7) Business Day period, then the Company
shall redeem a pro rata amount from each holder of the Notes (including the
Holder) based on the principal amount of the Notes submitted for redemption
pursuant to such Redemption Notice and such Other Redemption Notices received by
the Company during such seven (7) Business Day period.

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

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

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

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

 

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

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

(e) Restriction on Redemption and Cash Dividends. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
redeem, repurchase or declare or pay any cash dividend or distribution on any of
its capital stock.

(f) Restriction on Transfer of Assets. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, sell,
lease, assign, transfer, spin-off, split-off, close, convey or otherwise dispose
of any assets or rights of the Company or any Subsidiary owned or hereafter
acquired whether in a single transaction or a series of related transactions,
other than (i) sales, leases, assignments, transfers, conveyances and other
dispositions of such assets or rights by the Company and its Subsidiaries that,
in the aggregate, do not have a fair market value in excess of $50,000,000 in
any twelve (12) month period and (ii) sales of inventory and licensing in the
ordinary course of business.

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

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

(i) Preservation of Existence, Etc. The Company shall maintain and preserve, and
cause each of its Subsidiaries to maintain and preserve, its existence, rights
and privileges, and become or remain, and cause each of its Subsidiaries to
become or

 

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remain, duly qualified and in good standing in each jurisdiction in which the
character of the properties owned or leased by it or in which the transaction of
its business makes such qualification necessary, except where the failure to be
so qualified would not result in a Material Adverse Event (as defined in the
Securities Purchase Agreement).

(j) Maintenance of Properties, Etc. The Company shall maintain and preserve, and
cause each of its Subsidiaries to maintain and preserve, all of its properties
which are necessary or useful in the proper conduct of its business in good
working order and condition, ordinary wear and tear excepted, and comply in all
material respects, and cause each of its Subsidiaries to comply in all material
respects, 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 material
loss or forfeiture thereof or thereunder.

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

14. Company Optional Redemption. If at any time after the first anniversary of
the Issuance Date, (i) the Closing Sale Price of the Common Stock listed on the
Principal Market exceeds $9.70 (as adjusted for stock splits, recapitalizations
and similar events) for thirty (30) consecutive Trading Days (the “Company
Optional Redemption Measuring Period”), and (ii) no Equity Conditions Failure
then exists, 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”) on the Company Optional Redemption Date (as defined below)
(a “Company Optional Redemption”). The portion of this Note subject to
redemption pursuant to this Section 14 shall be redeemed by the Company in cash
at a price (the “Company Optional Redemption Price”) equal to the sum of
(x) 100% of such portion of the Principal of this Note then outstanding and
subject to such Company Optional Redemption and (y) all accrued and unpaid
Interest with respect to such portion of such Principal. The Company may
exercise its right to require redemption under this Section 14 by delivering an
irrevocable 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 of Notes received such notice is
referred to as the “Company Optional Redemption Notice Date”). The Company may
deliver only one Company Optional Redemption Notice in any ninety (90) day
period. The Company Optional Redemption Notice shall (x) state the date on which
the Company Optional Redemption shall occur (the “Company Optional Redemption
Date”) which date shall not be less than twenty (20) calendar days nor more than
thirty (30) Trading Days following the Company Optional Redemption Notice Date,
(y) certify that there has been no Equity Conditions Failure, and (z) state the
aggregate Conversion Amount of the Notes which is being redeemed in such Company
Optional Redemption from the Holder and all of the other holders of the Notes

 

 

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pursuant to this Section 14 (and analogous provisions under the Other Notes) on
the Company Optional Redemption Date. Notwithstanding anything herein to the
contrary, (i) if an Equity Conditions Failure occurs at any time prior to the
Company Optional Redemption Date, (A) the Company shall provide the Holder a
subsequent notice to that effect and (B) unless the Holder waives the applicable
Equity Conditions Failure, as applicable, the Company Optional Redemption shall
be cancelled and the applicable Company Optional Redemption Notice shall be null
and void and (ii) at any time prior to the date the Company Optional Redemption
Price is paid, in full, the Company Optional Redemption Amount may be converted,
in whole or in part, by the Holders into Common Shares pursuant to Section 3.
All Conversion Amounts converted by the Holder after the Company Optional
Redemption Notice Date shall reduce the Company Optional Redemption Amount of
this Note required to be redeemed on the Company Optional Redemption Date.
Redemptions made pursuant to this Section 14 shall be made in accordance with
Section 11.

15. SALE REDEMPTION. No earlier than fifteen (15) days prior to nor later than
ten (10) days following the consummation of any Sale (or series of related
Sales, as applicable), with respect to assets or other property with an
aggregate fair market value in excess of $25,000,000, the Company shall deliver
written notice thereof via facsimile and overnight courier (a “Sale Notice”) to
the Holder, which shall include the calculations of the amount of Net Sale
Proceeds for such Sale. At any time prior to the later of (i) ten (10) Business
Days following the consummation of such Sale and (ii) ten (10) Business Days
following receipt of the Sale Notice, the Holder may, at its sole option and in
its sole discretion, require the Company to redeem (a “Sale Redemption”), with
the Net Sale Proceeds of such Sale, all or part of the Conversion Amount of this
Note (which amount shall not exceed the applicable Sale Redemption Eligibility
Amount) (the “Sale Redemption Amount”) by delivering written notice thereof (the
“Sale Redemption Notice”) to the Company. The Sale Redemption Notice shall state
(i) the date the Company is required to pay to the Holder the Sale Redemption
Price (as defined below) (the “Sale Redemption Date”), which date shall be no
earlier than ten (10) Business Days following the date of delivery of such Sale
Redemption Notice and (ii) the allocation of such Sale Redemption Amount between
this Note and any Notes held by the Holder. Each portion of this Note subject to
redemption pursuant to this Section 5 shall be redeemed by the Company at a
price equal to 125% of the applicable Sale Redemption Amount (the “Sale
Redemption Price”). Redemptions required by this Section 15 shall be made in
accordance with the provisions of Section 11. To the extent redemptions required
by this Section 15 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.

16. PARTICIPATION. In addition to any adjustments pursuant to Section 7, the
Holder, as the holder of this Note, shall be entitled to receive such dividends
paid and distributions made to the holders of Common Stock (other than shares of
Common Stock to the extent the Company complies with Section 7(b) hereof in
connection therewith) to the same extent as if the Holder had converted this
Note into Common Stock (without regard to any limitations on conversion set
forth in Section 3(d)) and had held such shares of Common Stock on the record
date for such dividends and distributions. Payments under the preceding sentence
shall be made concurrently with the dividend or distribution to the holders of
Common Stock (provided, however, to the extent that the Holder’s right to
participate in any such dividend or distribution would result in the Holder
exceeding the Maximum Percentage, then the Holder

 

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shall not be entitled to participate in such dividend or distribution to such
extent such dividend or distribution (or the beneficial ownership of any such
shares of Common Stock as a result of such dividend or distribution to such
extent) will cause the Holder to exceed the Maximum Percentage, and the forgone
right to participate in such dividend or distribution such shall be held in
abeyance for the benefit of the Holder until such time, if ever, that its
participation would not result in the Holder exceeding the Maximum Percentage.

17. AMENDING THE TERMS OF THIS NOTE. Any amendment with the prior written
consent of holders of majority of the aggregate principal amount of outstanding
Notes shall be binding on the Holder of the Note except that without the prior
written consent of the Holder, the Note shall not be amended to:

(a) reduce the Redemption Premium or any of the Redemption Prices payable with
respect to the Note;

(b) increase the Conversion Price;

(c) change the Principal, Interest Rate or Maturity Date;

(d) change the Company’s obligation to redeem the Note in a manner adverse to
the Holder;

(e) to change the Company’s installment obligations under Section 8 in a manner
adverse to the Holder; or

(f) to impair the right of a Holder to convert the Note or reduce the amount of
cash or the number of shares of Common Stock (or any other property) receivable
upon conversion.

Without limiting the foregoing, any change or amendment to this Note may be made
with the prior written consent of the Holder. No waiver of any provision of this
Note shall be effective unless it is in writing and signed by an authorized
representative of the waiving party.

18. 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(h) of
the Securities Purchase Agreement and applicable securities laws.

19. 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 19(d)),
registered as the Holder may request, representing the outstanding Principal
being transferred by the Holder and, if less than the entire outstanding
Principal is being transferred, a new Note (in accordance with Section 19(d)) to
the Holder representing the outstanding Principal not being transferred. The
Holder and any assignee, by acceptance of this Note, acknowledge and agree that,
by reason of the provisions of Section 3(c)(iii) following conversion or
redemption of any portion of this Note, the outstanding Principal represented by
this Note may be less than the Principal stated on the face of this Note.

 

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(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note (as to which a written certification and the
indemnification contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of this Note, the Company shall
execute and deliver to the Holder a new Note (in accordance with Section 19(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 19(d) and in principal
amounts of at least $1,000) representing in the aggregate the outstanding
Principal of this Note, and each such new Note will represent such portion of
such outstanding Principal as is designated by the Holder at the time of such
surrender.

(d) Issuance of New Notes. Whenever the Company is required to issue a new Note
pursuant to the terms of this Note, such new Note (i) shall be of like tenor
with this Note, (ii) shall represent, as indicated on the face of such new Note,
the Principal remaining outstanding (or in the case of a new Note being issued
pursuant to Section 19(a) or Section 19(c), the Principal designated by the
Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued and unpaid
Interest on this Note, from the Issuance Date.

20. 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 (as defined in the Securities Purchase Agreement) 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 damages for any
failure by the Company to comply with the terms of this Note; provided, however,
that the Holder waives any consequential damages it may suffer from any failure
by the Company to comply with the terms of this Note. The Company covenants to
the Holder that there shall be no characterization concerning this instrument
other than as expressly provided herein. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all

 

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other available remedies, to an injunction restraining any such breach or any
such threatened breach, without the necessity of showing economic loss and
without any bond or other security being required. The Company shall provide all
information and documentation to the Holder that is requested by the Holder to
enable the Holder to confirm the Company’s compliance with the terms and
conditions of this Note (including, without limitation, compliance with
Section 7).

21. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is
placed in the hands of an attorney for collection or enforcement or is collected
or enforced through any legal proceeding or the Holder otherwise takes action to
collect amounts due under this Note or to enforce the provisions of this Note or
(b) there occurs any bankruptcy, reorganization, receivership of the Company or
other proceedings affecting Company creditors’ rights and involving a claim
under this Note, then the Company shall pay the costs incurred by the Holder for
such collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, without limitation,
reasonable attorneys’ fees and disbursements. The Company expressly acknowledges
and agrees that no amounts due under this Note shall be affected, or limited, by
the fact that the Purchase Price (as defined in the Securities Purchase
Agreement) paid for this Note was less than the original Principal amount
hereof.

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

23. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege. No waiver shall be effective unless it is in writing
and signed by an authorized representative of the waiving party.

24. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Conversion Price, the Company Conversion Price, any Redemption Price, the
Closing Bid Price, the Closing Sale Price or fair market value (as the case may
be) or the arithmetic calculation of the Conversion Rate or the applicable
Redemption Price (as the case may be), the Company or the Holder (as the case
may be) shall submit the disputed determinations or arithmetic calculations (as
the case may be) via facsimile (i) within two (2) Business Days after receipt of
the applicable notice giving rise to such dispute to the Company or the Holder
(as the case may be) or (ii) if no notice gave rise to such dispute, at any time
after the Holder learned of the circumstances giving rise to such dispute
(including, without limitation, as to whether any issuance or sale or deemed
issuance or sale was an issuance or sale or deemed issuance or sale of Excluded
Securities). If the Holder and the Company are unable to agree upon such
determination or calculation within two (2) Business Days of such disputed
determination or arithmetic calculation (as the case may be) being submitted to
the Company or the Holder (as the case may be), then the Company shall, within
two (2) Business Days, submit via facsimile (a) the

 

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disputed determination of the Conversion Price, the Company Conversion Price,
any Redemption Price, the Closing Bid Price, the Closing Sale Price or fair
market value (as the case may be) to an independent, reputable investment bank
selected by the Company and reasonably acceptable to the Holder or (b) the
disputed arithmetic calculation of the Conversion Rate or any Redemption Price
(as the case may be) to the Company’s independent, outside accountant. The
Company shall cause at its expense the investment bank or the accountant (as the
case may be) to perform the determinations or calculations (as the case may be)
and notify the Company and the Holder of the results no later than ten
(10) Business Days from the time it receives such disputed determinations or
calculations (as the case may be). Such investment bank’s or accountant’s
determination or calculation (as the case may be) shall be binding upon all
parties absent manifest error.

25. NOTICES; PRE-NOTICES; CURRENCY; PAYMENTS.

(a) Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company 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 ten (10) days prior to the date on which the
Company closes its books or takes a record with respect to (A) any dividend or
distribution upon the Common Stock, (B) 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 generally or
(C) any determination of rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation; provided that 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 (and the Holder acknowledges that the
Company making such notice and information publicly available in a filing with
the SEC shall satisfy the Company’s obligations hereunder).

(b) Pre-Notice. In the event that the Company is required to provide the Holder
notice or obtain the approval of the Holder under this Note, and the Company
reasonably determines that such notice or obtaining such approval would require
the Company to disclose to the Holder material, non-public information, the
Company shall deliver to the Holder a written notice (the “Pre-Notice”) that
shall not contain any information other than a statement that the Company
proposes to provide material, non-public information to the Holder upon the
Holder’s written request. Upon the written request of the Holder within three
(3) Trading Days after the Company’s delivery to the Holder of such Pre-Notice,
and only upon such a written request by the Holder, the Company shall promptly
disclose the material, non-public information to the Holder. If the Holder
elects not to receive the material, non-public information, or fails to respond
to the Pre-Notice within three (3) Trading Days after the Company’s delivery to
the Holder of such Pre-Notice, the Holder shall be deemed to have waived its
right to such notice under this Note and, if applicable, shall be deemed to have
provided the required approval by the Holder under this Note.

(c) Currency. All dollar amounts referred to in this Note are in United States
Dollars (“U.S. Dollars”), and all amounts owing under this Note shall be paid in
U.S.

 

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Dollars. All amounts denominated in other currencies (if any) shall be converted
into the U.S. Dollar equivalent amount in accordance with the Exchange Rate on
the date of calculation. “Exchange Rate” means, in relation to any amount of
currency to be converted into U.S. Dollars pursuant to this Note, the
U.S. Dollar exchange rate as published in the Wall Street Journal on the
relevant date of calculation (it being understood and agreed that where an
amount is calculated with reference to, or over, a period of time, the date of
calculation shall be the final date of such period of time).

(d) Payments. Whenever any payment of cash is to be made by the Company to any
Person pursuant to this Note, unless otherwise expressly set forth herein, such
payment shall be made in lawful money of the United States of America by a
certified check drawn on the account of the Company and sent via overnight
courier service to such Person at such address as previously provided to the
Company in writing (which address, in the case of each of the Buyers (as defined
in the Securities Purchase Agreement), 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.

26. 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.

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

28. GOVERNING LAW. This Note shall be governed by and 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 regard to conflict of law principles that
would result in the application of any laws other than the laws of the State of
New York. Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in The City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
Section 9(f) of the Securities Purchase Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.

 

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In the event that any provision of this Note is invalid or unenforceable under
any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of this Note. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

29. MAXIMUM PAYMENTS. Without limiting Section 9(d) of the Securities Purchase
Agreement, nothing contained herein shall be deemed to establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest required to
be paid or other charges hereunder exceed the maximum permitted by law, any
payments in excess of such maximum shall be credited against amounts owed by the
Company to the Holder and thus refunded to the Company.

30. TAX MATTERS.

The Holder of this Note, by accepting this Note, acknowledges and agrees as
follows:

(a) The Company will treat this Note as equity for U.S. withholding tax purposes
and reporting purposes. The Company agrees to provide Holders reasonable
assistance in seeking a refund of any taxes withheld with respect to the Notes.

(b) On or prior to the date it acquires the Notes, the Holder will timely
furnish the Company or its agents any United States federal income tax form or
certification (such as IRS Form W-8BEN, Form W-8IMY, IRS Form W-9, or IRS Form
W-8ECI or any successors to such IRS forms), or other information, form or
certificate (including any information or certifications specified under
Sections 1471-1474 of the Internal Revenue Code of 1986, as amended (the
“Code”), that the Company or its agents may reasonably request and will update
or replace such form or certification in accordance with its terms or its
subsequent amendments.

(c) If the Company pays withholding taxes with respect to the Notes that it
cannot immediately offset by reducing the amount of a related payment (such as
withholding taxes imposed as a result of the application of Section 305(c) of
the Code), the Holder shall, within 10 business days of written notice,
reimburse the Company for the amounts specified in such notice.

(d) The Holder agrees to file all tax returns in a manner consistent with
Section 1(c) of the Securities Purchase Agreement unless otherwise required to
take a different position following a determination within the meaning of
Section 1313 of the Code to the contrary.

 

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

(a) “Additional Closing Date” shall have the meaning ascribed to such term in
the Securities Purchase Agreement, which date is the date the Company initially
issued Additional Notes (as defined in the Securities Purchase Agreement)
pursuant to the terms of the Securities Purchase Agreement.

(b) “Additional Notes” shall have the meaning ascribed to such term in the
Securities Purchase Agreement, and shall include all notes issued in exchange
therefor or replacement thereof.

(c) “Adjustment Right” means any right granted with respect to any securities
issued in connection with, or with respect to, any issuance or sale (or deemed
issuance or sale in accordance with Section 7) of shares of Common Stock (other
than rights of the type described in Section 6(a) hereof) that could result in a
decrease in the net consideration received by the Company in connection with, or
with respect to, such securities (including, without limitation, any cash
settlement rights, cash adjustment or other similar rights).

(d) “Approved Stock Plan” means any employee benefit or incentive plan which has
been approved by the Board of Directors of the Company prior to or subsequent to
the date hereof pursuant to which shares of Common Stock, options to purchase
Common Stock, stock appreciation rights, restricted shares of Common Stock,
restricted stock units and other stock-based awards may be issued to any
employee, officer, director, or consultant for services provided to the Company
in their capacity as such.

(e) “Black Scholes Consideration Value” means the value of the applicable
Option, Convertible Security or Adjustment Right (as the case may be) as of the
date of issuance thereof calculated using the Black Scholes Option Pricing Model
obtained from the “OV” function on Bloomberg utilizing (i) an underlying price
per share equal to the Closing Sale Price of the Common Stock on the Trading Day
immediately preceding the public announcement of the execution of definitive
documents with respect to the issuance of such Option, Convertible Security or
Adjustment Right (as the case may be), (ii) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term
of such Option, Convertible Security or Adjustment Right (as the case may be) as
of the date of issuance of such Option, Convertible Security or Adjustment Right
(as the case may be), (iii) zero cost of borrow and (iv) an expected volatility
equal to the greater of 100% and the 100 day volatility obtained from the “HVT”
function on Bloomberg (determined utilizing a 260 day annualization factor) as
of the Trading Day immediately following the date of issuance of such Option,
Convertible Security or Adjustment Right (as the case may be).

(f) “Bloomberg” means Bloomberg, L.P.

(g) “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.

 

37

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(h) “Change of Control” means any Fundamental Transaction other than (i) any
merger of the Company or any of its, direct or indirect, wholly-owned
Subsidiaries with or into any of the foregoing Persons, (ii) any reorganization,
recapitalization or reclassification of the shares of Common Stock in which
holders of the Company’s voting power immediately prior to such reorganization,
recapitalization or reclassification continue after such reorganization,
recapitalization or reclassification to hold publicly traded securities and,
directly or indirectly, are, in all material respects, the holders of the voting
power of the surviving entity (or entities with the authority or voting power to
elect the members of the board of directors (or their equivalent if other than a
corporation) of such entity or entities) after such reorganization,
recapitalization or reclassification, (iii) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Company or any of its Subsidiaries or (iv) a merger in connection with a
bona fide acquisition by the Company of any Person (x) in which the shareholders
of the Company prior to such merger own at least 51% of the Voting Stock of the
Company after such merger and (y) such merger does not contemplate a change in a
majority of the identity of the Board of Directors of the Company.

(i) “Change of Control Redemption Premium” means 125%.

(j) “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 City time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the “pink sheets” by OTC Markets Group Inc.
(formerly Pink Sheets LLC). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of
such security on such date shall be the fair market value as mutually determined
by the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
in accordance with the procedures in Section 24. All such determinations shall
be appropriately adjusted for any stock splits, stock dividends, stock
combinations, recapitalizations or other similar transactions during such
period.

(k) “Common Stock” means (i) the Company’s shares of common stock, $0.01 par
value per share, and (ii) any capital stock into which such common stock shall
have been changed or any share capital resulting from a reclassification of such
common stock.

 

38

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(l) “Common Stock Deemed Outstanding” means, at any given time, the number of
shares of Common Stock actually outstanding at such time, but excluding any
shares of Common Stock owned or held by or for the account of the Company or
issuable upon conversion and exercise, as applicable, of the Notes and the
Warrants.

(m) “Company Conversion Price” means, with respect to a particular date of
determination, the lower of (i) the Conversion Price then in effect and (ii) the
price which shall be computed as 85% of Market Price as of the Trading Day
immediately prior to the applicable Installment Date. All such determinations to
be appropriately adjusted for any stock split, stock dividend, stock
combination, recapitalization or other similar transaction during any such
measuring period.

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

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

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

(q) “Eligible Market” means The New York Stock Exchange, the NYSE Amex, the
Nasdaq Capital Market, the Nasdaq Global Market or the Principal Market.

(r) “Equity Conditions” means: (i) on each day during the period beginning one
month prior to the applicable date of determination and ending on and including
the applicable date of determination either (x) one or more Registration
Statements filed pursuant to the Registration Rights Agreement shall be
effective and the prospectus contained therein shall be available for the resale
by the Holder of all of the [INSERT IN INITIAL NOTES: Initial][INSERT IN
ADDITIONAL NOTES: Additional] Registrable Securities (as defined in the
Registration Rights Agreement) (which, solely for clarification purposes,
includes all shares of Common Stock issuable upon conversion of this Note or
otherwise pursuant to the terms of this Note and upon exercise of the Warrants)
in accordance with the terms of the Registration Rights Agreement and there
shall not have been during such period any Grace Periods (as defined in the
Registration Rights Agreement) or (y) all [INSERT IN INITIAL NOTES:
Initial][INSERT IN ADDITIONAL NOTES: Additional] Registrable Securities shall be
eligible for sale

 

39

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

pursuant to Rule 144 without the need for registration under any applicable
federal or state securities laws (in each case, disregarding any limitation on
conversion of the Notes, other issuance of securities with respect to the Notes
and exercise of the Warrants) and no Current Information Failure (as defined in
the Registration Rights Agreement) exists or is continuing; (ii) on each day
during the period beginning one month prior to the applicable date of
determination and ending on and including the applicable date of determination
(the “Equity Conditions Measuring Period”), the Common Stock (including all
Registrable Securities) is listed or designated for quotation (as applicable) on
an Eligible Market and shall not have been suspended from trading on an Eligible
Market (other than suspensions of not more than two (2) days and occurring prior
to the applicable date of determination due to business announcements by the
Company) nor shall delisting or suspension by an Eligible Market have been
threatened (with a reasonable prospect of delisting occurring) or pending either
(A) in writing by such Eligible Market or (B) by falling below the minimum
listing maintenance requirements of the Eligible Market on which the Common
Stock is then listed or designated for quotation (as applicable); (iii) on each
day during the Equity Conditions Measuring Period, the Company shall have
delivered all shares of Common Stock issuable upon conversion of this Note on a
timely basis as set forth in Section 3 hereof and all other shares of capital
stock required to be delivered by the Company on a timely basis as set forth in
the other Transaction Documents; (iv) any shares of Common Stock to be issued in
connection with the event requiring determination may be issued in full without
violating Section 3(d) hereof (other than a violation of Section 3(d)(i) solely
in connection with a Company Optional Redemption or after giving effect to any
Designated Specified Amount adjustment in accordance with Section 8(a)); (v) any
shares of Common Stock to be issued in connection with the event requiring
determination may be issued in full without violating the rules or regulations
of the Eligible Market on which the Common Stock is then listed or designated
for quotation (as applicable); (vi) on each day during the Equity Conditions
Measuring Period, no public announcement of a pending, proposed or intended
Fundamental Transaction shall have occurred which has not been abandoned,
terminated or consummated; (vii) the Company shall have no knowledge of any fact
that would reasonably be expected to cause (1) any Registration Statement
required to be filed pursuant to the Registration Rights Agreement to not be
effective or the prospectus contained therein to not be available for the resale
of all of the [INSERT IN INITIAL NOTES: Initial][INSERT IN ADDITIONAL NOTES:
Additional] Registrable Securities in accordance with the terms of the
Registration Rights Agreement or (2) any [INSERT IN INITIAL NOTES:
Initial][INSERT IN ADDITIONAL NOTES: Additional] Registrable Securities to not
be eligible for sale pursuant to Rule 144 without the need for registration
under any applicable federal or state securities laws (in each case,
disregarding any limitation on conversion of the Notes, other issuance of
securities with respect to the Notes and exercise of the Warrants) and no
Current Information Failure exists or is continuing; (viii) the Holder shall not
be in (and no other Buyer shall be in) possession of any material, non-public
information provided to any of them by the Company, any of its affiliates or any
of their respective employees, officers, representatives, agents or the like;
(ix) on each day during the Equity Conditions Measuring Period, the Company
otherwise shall have been in compliance with each, and shall not have breached
any material provision, covenant, representation or warranty of

 

40

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

any Transaction Document (except to the extent such breach has been cured);
(x) (A) with respect to Section 8 of this Note, on each day during the period
commencing on the Trading Day immediately prior to the applicable Installment
Notice Due Date and ending on, and including, the immediately subsequent
Installment Date, or (B) with respect to Section 14 of this Note, on each day
during the period commencing on the first Trading Day of the applicable Company
Optional Redemption Measuring Period and ending on and including the applicable
Company Optional Redemption Date, there shall not have occurred any Volume
Failure or Price Failure with respect to any such day; and (xi) on each day
during the Equity Conditions Measuring Period, there shall not have occurred an
Event of Default or an event that with the passage of time or giving of notice
would constitute an Event of Default.

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

(t) “Excluded Securities” means any (i) shares of Common Stock, Options, stock
appreciation rights, restricted shares of Common Stock, restricted stock units
and other stock-based awards to directors, officers, employees or consultants of
the Company in their capacity as such pursuant to an Approved Stock Plan (as
defined below); (ii) Convertible Securities or Options and shares of Common
Stock issued upon the conversion or exercise of such Convertible Securities or
Options, in each case, issued pursuant to a Rights Plan (as defined in the
Securities Purchase Agreement) approved by the Board of Directors of the
Company, (iii) shares of Common Stock issued upon the conversion or exercise of
Convertible Securities (other than options to purchase Common Stock issued
pursuant to an Approved Stock Plan that are covered by clause (i) above) issued
prior to the date hereof; provided that the conversion price of any such
Convertible Securities (other than options to purchase Common Stock issued
pursuant to an Approved Stock Plan that are covered by clause (i) above) is not
lowered, none of such Convertible Securities (other than options to purchase
Common Stock issued pursuant to an Approved Stock Plan that are covered by
clause (i) above) are amended to increase the number of shares issuable
thereunder and none of the terms or conditions of any such Convertible
Securities (other than options to purchase Common Stock issued pursuant to an
Approved Stock Plan that are covered by clause (i) above) are otherwise
materially changed in any manner that adversely affects any of the Buyers;
(iv) the shares of Common Stock issuable upon conversion of the Notes or
otherwise pursuant to the terms of the Notes, (v) the shares of Common Stock
issuable upon exercise of the Warrants, (vi) the shares of Common Stock or
Options issued to financial institutions or lessors in connection with
commercial credit arrangements, equipment financings or similar transactions
(excluding any shares of Common Stock issuable upon conversion or exercise of
any Convertible Securities); (vii) the shares of Common Stock or Options issued
in connection with strategic alliances, acquisitions, mergers, and strategic
partnerships, provided, that (A) the primary purpose of such issuance is not to
raise capital as determined in good faith by the Board of Directors of the
Company, (B) the purchaser or acquirer of the securities in such issuance solely
consists of either (x) the actual participants in such strategic alliance

 

41

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or strategic partnership, (y) the actual owners of such assets or securities
acquired in such acquisition or merger or (z) the stockholders, partners or
members of the foregoing Persons and (C) number or amount of securities issued
to such Person by the Company shall not be disproportionate (as determined in
good faith by the Board of Directors of the Company) to either (x) the fair
market value of such Person’s actual contribution to such strategic alliance or
strategic partnership or (y) the proportional ownership of such assets or
securities to be acquired by the Company, as applicable; and (viii) shares of
Common Stock or Options issued to vendors to settle bona fide trade liabilities.

(u) “Fundamental Transaction” means that (i) directly or indirectly, in one or
more related transactions, (1) the Company or any of its Subsidiaries shall
consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) the Company
and its Subsidiaries shall, as determined on a consolidated basis, sell, lease,
license, assign, transfer, convey or otherwise dispose of all or substantially
all of their properties or assets to any other Person, or (3) the Company or any
of its Subsidiaries shall allow any other Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than 50% of the
outstanding shares of Voting Stock of the Company (not including any shares of
Voting Stock of the Company 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 (4) the Company or any of its Subsidiaries shall
consummate a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with any other Person whereby such other Person acquires
more than 50% of the outstanding shares of Voting Stock of the Company (not
including any shares of Voting Stock of the Company 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 or share purchase agreement or other
business combination), or (5) the Company shall reorganize, recapitalize or
reclassify the Common Stock, or (ii) any “person” or “group” (as these terms are
used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and
regulations promulgated thereunder) 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 Voting
Stock of the Company.

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

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

(x) “Initial Closing Date” shall have the meaning ascribed to such term in the
Securities Purchase Agreement, which date is the date the Company initially
issued Initial Notes (as defined in the Securities Purchase Agreement) pursuant
to the terms of the Securities Purchase Agreement.

 

42

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(y) “Initial Notes” shall have the meaning ascribed to such term in the
Securities Purchase Agreement, and shall include all notes issued in exchange
therefor or replacement thereof.

(z) “Installment Amount” means (i) with respect to any Installment Date other
than the Maturity Date, the lesser of (A) $[         ]2 and (B) the Principal
amount then outstanding under this Note as of such Installment Date, and
(ii) with respect to the Installment Date that is the Maturity Date, the
Principal amount then outstanding under this Note as of such Installment Date,
in each case, as any such Installment Amount may be reduced or increased
pursuant to the terms of this Note, whether upon conversion, redemption or
otherwise, together with, in each case of clauses (i) and (ii), the sum of any
accrued and unpaid Interest as of such Installment Date under this Note. In the
event the Holder shall sell or otherwise transfer any portion of this Note, the
transferee shall be allocated a pro rata portion of each unpaid Installment
Amount hereunder.

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

(bb) “Installment Date” means (i) initially, the date that is four months after
the [INSERT IN INITIAL NOTES: Initial][INSERT IN ADDITIONAL NOTES: Additional]
Closing Date, (ii) then, on each subsequent first (1st) Trading Day of each
calendar month thereafter, but prior to the calendar month in which the Maturity
Date occurs and (iii) the Maturity Date.

(cc) “Interest Rate” means seven percent (7%) per annum, as may be adjusted from
time to time in accordance with Section 2.

(dd) “Market Price” means, for any given date, the lesser of (x) the VWAP of the
Common Stock on the Trading Day immediately preceding such given date and
(y) quotient of (I) the sum of the VWAP of the Common Stock for each of the
Trading Days during the ten (10) consecutive Trading Day period ending and
including the Trading Day immediately prior to such given date, divided by (II)
ten (10) (such period, the “Market Price Measuring Period”). All such
determinations to be appropriately adjusted for any stock splits, stock
dividends, stock combinations, recapitalizations or other similar transactions
during such Market Price Measuring Period.

(ee) “Maturity Date” means [        ]3; provided, however, the Maturity Date may
be extended at the option of the Holder (i) in the event that, and for so long
as, an Event of Default shall have occurred and be continuing or any event shall
have occurred and be continuing that with the passage of time and the failure to
cure would result in an Event of Default or (ii) through the date that is twenty
(20) Business Days after the consummation of a Fundamental Transaction in the
event that a Fundamental Transaction

 

 

2 

Insert [INSERT IN INITIAL NOTES: $925,925.93] [INSERT IN ADDITIONAL NOTES: the
amount equal to the quotient of (x) the original principal amount of Notes
issued on the Additional Closing Date, divided by (y) the number of Installment
Dates hereunder].

3 

Insert [INSERT IN INITIAL NOTES: October 4, 2014] [INSERT IN ADDITIONAL NOTES:
the date of the thirty month anniversary of the Additional Closing Date]

 

43

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

is publicly announced or a Fundamental Transaction Notice is delivered prior to
the Maturity Date, provided further that if a Holder elects to convert some or
all of this Note pursuant to Section 3 hereof, and the Conversion Amount would
be limited pursuant to Section 3(d) hereunder, the Maturity Date shall
automatically be extended until such time as such provision shall not limit the
conversion of this Note.

(ff) “Net Sale Proceeds” means, with respect to any Sale, the absolute value of
(i) $25,000,000 minus (ii) an amount equal to: (A) the sum of cash payments and
cash equivalents received by the Company or any of its Subsidiaries, from such
Sale (including any cash or cash equivalents received by way of deferred payment
pursuant to, or by monetization of, a note receivable or otherwise, but only as
and when so received), minus (B) any reasonable direct out-of-pocket actual and
estimated professional fees and other costs or expenses incurred in connection
with such Sale.

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

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

(ii) “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.

(jj) “Permitted Indebtedness” means (i) Indebtedness evidenced by this Note and
the Other Notes; (ii) Permitted Senior Indebtedness, (iii) 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 which Indebtedness does not provide at
any time for (1) 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 (2) total interest and
fees at a rate in excess of seven percent (7%) per annum (collectively, the
“Subordinated Indebtedness”), (iv) Indebtedness described in Schedule 3(s) of
the Securities Purchase Agreement as in effect as of the Subscription Date;
provided, that the principal amount of such Indebtedness is not increased, the
terms of such Indebtedness are not modified to impose more burdensome terms upon
the Company or any of its Subsidiaries and the terms of such Indebtedness are
not materially changed in any manner that adversely affects the Holder or any of
the Buyers, (v) Indebtedness constituting reimbursement obligations with respect
to letters of credit issued in the ordinary course of business, including
letters of credit in respect of workers’ compensation claims, or other
Indebtedness with respect to reimbursement of the types of obligations regarding
workers’ compensation claims, (vi) Indebtedness arising from

 

44

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agreements providing for indemnification, adjustment of purchase price, earnouts
or similar obligations, in each case, incurred or assumed in connection with the
disposition of any business, assets or a subsidiary, (vii) intercompany
Indebtedness, (viii) hedging obligations (excluding hedging obligations entered
into for speculative purposes) for the purposes of limiting (a) interest rate
risk with respect to any Indebtedness that is permitted by the terms of this
Note, (b) exchange rate risk with respect to any currency exchange or
(c) commodity pricing risk with respect to any commodity, (ix) obligations in
respect of performance, bid, appeal and surety bonds and completion guarantees
and similar obligations provided in the ordinary course of business,
(x) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument drawn against insufficient
funds in the ordinary course of business, (xi) Indebtedness supported by a
letter of credit excess of the amount of the Indebtedness, (xii) Indebtedness
consisting of the financing of insurance premiums or take-or-pay obligations
contained in supply arrangements in each case, incurred in the ordinary course
of business, (xiii) customer deposits and advance payments received in the
ordinary course of business from customers for goods purchased in the ordinary
course of business (xiv) Indebtedness incurred in connection with bankers’
acceptances, discounted bills of exchange or the discounting or factoring of
receivables for credit management purposes, in each case incurred or undertaken
in the ordinary course of business on arm’s length commercial terms on a
recourse basis, (xv) capital leases entered into in the ordinary course of
business and (xvi) any item described in clauses (A) through (H) of the
definition of Indebtedness that was not Indebtedness on the date of the
Securities Purchase Agreement that becomes Indebtedness after the date of the
Securities Purchase Agreement as a result of a change in GAAP.

(kk) “Permitted Senior Indebtedness” means the principal of (and premium, if
any), interest on, and all fees and other amounts (including, without
limitation, any reasonable out-of-pocket costs, enforcement expenses (including
reasonable out-of-pocket legal fees and disbursements), collateral protection
expenses and other reimbursement or indemnity obligations relating thereto)
payable by Company and/or its Subsidiaries under or in connection with any
credit facility to be entered into by the Company and/or its Subsidiaries with
one or more financial institutions (and on terms and conditions), in form and
substance reasonably satisfactory to the Required Holders (subject, for the
avoidance of doubt, to Section 25(b)); provided, however, that the aggregate
outstanding principal amount of such Indebtedness does not at any time exceed
$10,000,000.

(ll) “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

 

45

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lease of such equipment, or (B) existing on such equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment, in either
case, with respect to indebtedness in an aggregate amount not to exceed
$10,000,000, (v) Liens on property or shares of stock or other assets of a
Person at the time such Person becomes a Subsidiary, provided that such Liens
are not created or incurred in connection with, or in contemplation of, such
other Person becoming a Subsidiary, (vi) Liens on property or other assets at
the time the Company or a Subsidiary acquired the property or such other assets,
including any acquisition by means of a merger or consolidation with or into the
Company or any Subsidiary, provided that such Liens are not created or incurred
in connection with, or in contemplation of, such acquisition, (vii) Liens
existing on the Subscription Date, (viii) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of the
type described in clause (iv), (v), (vi) or (vii) 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, (ix) 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, (x) 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,
(xi) Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Section 4(a)(x), (xii) pledges or
deposits under workmen’s compensation laws, unemployment insurance laws or
similar legislation, (xiii) good faith deposits, prepayments or cash pledges to
secure bids, tenders, contracts (other than for the payment of Indebtedness) or
leases to which the Company is a party, (xiv) deposits to secure public or
statutory obligations of the Company or deposits of cash or U.S. Government
bonds to secure surety or appeal bonds to which the Company is a party, in each
case incurred in the ordinary course of business. (xv) letters of credit issued
pursuant to the request of and for the account of the Company in the ordinary
course of its business, (xvi) minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others for, licenses, rights-of-way,
sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of real properties or
Liens incidental to the conduct of business of the Company or the ownership of
its properties, in each case, which were not incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect the
value of said properties and materially impair their use in the operation of the
business of the Company; (xvii) liens on specific items of inventory or other
goods and proceeds of the Company securing the Company’s obligations in respect
of bankers’ acceptances issued or created for the account of the Company to
facilitate the purchase, shipment or storage of such inventory or other goods,
(xviii) Liens arising from financing statement filings under the Uniform
Commercial Code or similar state laws regarding operating leases entered into by
the Company in the ordinary course of business, (xix) Liens on inventory or
equipment of the Company granted in the ordinary course of business to the
Company’s client at which such inventory or equipment is located, (xx) deposits
in the ordinary course of business to secure liability to insurance carriers,
(xxi) Liens (a) of a collection bank arising under Section 4-210 of the Uniform
Commercial Code or any

 

46

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comparable or successor provision, on items in the course of collection,
(b) attaching to commodity trading accounts or other commodity brokerage
accounts incurred in the ordinary course of business and (c) in favor of banking
institutions arising as a matter of law encumbering deposits (including the
right of set-off) and which are within the general parameters customary in the
banking industry, (xxii) Liens that are contractual rights of set-off
(a) relating to the establishment of depository relations with banks not given
in connection with the issuance of Indebtedness, (b) relating to pooled deposit
or sweep accounts of the Company to permit satisfaction of overdraft or similar
obligations incurred in the ordinary course of business of the Company or
(c) relating to purchase orders and other agreements entered into with customers
of the Company in its ordinary course of business, (xxiii) Liens encumbering
reasonably customary initial deposits and margin deposits and similar Liens
attaching to commodity trading accounts or other brokerage accounts incurred in
the ordinary course of business and not for speculative purposes, (xxiv) Liens
securing hedging obligations of the Company, provided that to the extent any
such hedging obligation is related to Indebtedness, such related Indebtedness
is, and is permitted to be under this Note, secured by a Lien on the same
property securing such hedging obligations, (xxv) Liens securing the Company’s
obligations under the Notes; and (xxvi) any Lien securing Permitted Senior
Indebtedness.

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

(nn) “Pre-Installment Period Conversion Price” means, with respect to a
particular date of determination, the lower of (i) the Conversion Price then in
effect and (ii) 85% of the Market Price as of the Trading Day immediately
preceding the delivery or deemed delivery of the applicable Company Installment
Notice. All such determinations to be appropriately adjusted for any stock
split, stock dividend, stock combination or other similar transaction during any
such measuring period.

(oo) “Price Failure” means, with respect to a particular date of determination,
that the quotient of (I) the sum of the VWAP of the Common Stock for each
Trading Day in the thirty (30) consecutive Trading Day period ending and
including the Trading Day immediately preceding such date of determination,
divided by (II) thirty (30) is less than $2.50 (as adjusted for stock splits,
stock dividends, stock combinations, recapitalizations or other similar
transactions).

(pp) “Principal Market” means the Nasdaq Global Select Market.

(qq) “Redemption Notices” means, collectively, the Event of Default Redemption
Notices, the Company Installment Notices with respect to any Company Redemption,
the Company Optional Redemption Notice, the Sale Redemption Notice and the
Change of Control Redemption Notices, and each of the foregoing, individually, a
“Redemption Notice.”

(rr) “Redemption Premium” means (i) in the case of the Events of Default
described in Section 4(a) (other than Sections 4(a)(vi) through 4(a)(viii)),
125% or (ii) in the case of the Events of Default described in Sections 4(a)(vi)
through 4(a)(viii), 100%.

 

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

(tt) “Registration Rights Agreement” means that certain registration rights
agreement, dated as of the Initial Closing Date, by and among the Company and
the initial holders of the Notes relating to, among other things, the
registration of the resale of the Common Stock issuable upon conversion of the
Notes or otherwise pursuant to the terms of the Notes and exercise of the
Warrants, as may be amended from time to time.

(uu) “Sale” means any sale, lease or sub-lease (as lessor or sublessor), sale
and leaseback, assignment, conveyance, transfer or other disposition to, or any
exchange of property with, any Person, in an arm’s length transaction or a
series of such transactions, of all or any part of the Company’s or any of its
Subsidiaries’ businesses, assets or properties of any kind, whether real,
personal, or mixed and whether tangible or intangible, whether now owned or
hereafter acquired, including the sale or issuance of capital stock of any of
the Company’s Subsidiaries, other than inventory or other assets sold, licensed
or leased in the ordinary course of business of the Company or any of its
Subsidiaries or the sale or disposition of obsolete, worn out or surplus
property.

(vv) “Sale Redemption Eligibility Amount” means, with respect to any Sale, the
product of (i) the Holder Pro Rata Amount and (ii) 50% of the Net Sale Proceeds
for such Sale.

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

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

(yy) “Subscription Date” means April 4, 2012

(zz) “Significant Subsidiary” means a Subsidiary of the Company that meets the
definition of “significant subsidiary” in Article 1, Rule 1-02(w) of Regulation
S-X under the Exchange Act; provided that, in the case of a Subsidiary of the
Company that meets the criteria of clause (3) but not clause (1) or (2) thereof,
such Subsidiary shall not be deemed to be a Significant Subsidiary unless the
Subsidiary’s income from continuing operations before income taxes,
extraordinary items and cumulative effect of a change in accounting principle
exclusive of amounts attributable to any non-controlling interests for the last
completed fiscal year prior to the date of such determination exceeds $5,000,000
million.

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

 

48

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

(ccc) “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 City time).

(ddd) “Volume Failure” means, with respect to a particular date of
determination, that the aggregate daily dollar trading volume (as reported on
Bloomberg) of the Common Stock on the Eligible Market on which the Common Stock
is listed or designated for quotation on any of the twenty-five (25) Trading
Days with the highest such aggregate daily trading volume during the thirty
(30) consecutive Trading Day period ending on the Trading Day immediately
preceding such date of determination is less than $1,500,000 (as adjusted for
any stock splits, stock dividends, stock combinations, recapitalizations or
other similar transactions).

(eee) “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, trustees or other similar governing body 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).

(fff) “VWAP” means, for any security as of any date, the dollar volume-weighted
average price for such security on the Principal Market (or, if the Principal
Market is not the principal trading market for such security, then on the
principal securities exchange or securities market on which such security is
then traded) during the period beginning at 9:30:01 a.m., New York City time,
and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg through
its “Volume at Price” function or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City
time, as reported by Bloomberg, or, if no dollar volume-weighted average price
is reported for such security by Bloomberg for such hours, the average of the
highest Closing Bid Price and the lowest Closing Sale Price of any of the market
makers for such security as reported in the “pink sheets” by OTC Markets Group
Inc. (formerly

 

49

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Pink Sheets LLC). If the VWAP cannot be calculated for such security on such
date on any of the foregoing bases, the VWAP of such security on such date shall
be the fair market value as mutually determined by the Company and the Holder.
If the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved in accordance with the
procedures in Section 24. All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination,
recapitalization or other similar transaction during such period.

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

32. DISCLOSURE. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
non-public information relating to the Company or any of its Subsidiaries, the
Company shall within two (2) Business Days after any such receipt or delivery
publicly disclose such material, non-public information on a press release,
Current Report on Form 8-K or otherwise. In the event that the Company believes
that a notice contains material, non-public information relating to the Company
or any of its Subsidiaries, the Company so shall indicate to 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, non-public information relating to the
Company or its Subsidiaries. Nothing contained in this Section 32 shall limit
any obligations of the Company, or any rights of the Holder, under Section 4(i)
of the Securities Purchase Agreement.

[signature page follows]

 

50

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

 

AMERICAN SUPERCONDUCTOR CORPORATION

By:

 

 

 

Name:

 

Title:

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

SCHEDULE 4(a)(x)

Controversy with Sinovel Wind Group Co., Ltd.

Controversy with S & C Electric Company

Controversy with Ghodawat Energy Pvt Ltd.

Controversy with John J. Kenney, Jr.

Controversies with respect to securities litigation disclosed in the SEC
Documents (as defined in the Securities Purchase Agreement)

Controversies arising out of or related to any adverse purchase commitment
described below:

Adverse purchase commitments in excess of the Company’s estimated future demand
from certain of its customers in China

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

SCHEDULE 4(a)(xi)

Controversy with Sinovel Wind Group Co., Ltd.

Controversy with S & C Electric Company

Controversy with Ghodawat Energy Pvt Ltd.

Controversy with John J. Kenney, Jr.

Controversies with respect to securities litigation disclosed in the SEC
Documents (as defined in the Securities Purchase Agreement)

Controversies arising out of or related to any adverse purchase commitment
described below:

Adverse purchase commitments in excess of the Company’s estimated future demand
from certain of its customers in China

 

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EXHIBIT I

AMERICAN SUPERCONDUCTOR CORPORATION

CONVERSION NOTICE

Reference is made to the Senior Convertible Note (the “Note”) issued to the
undersigned by American Superconductor Corporation (the “Company”). In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into shares of Common Stock, $0.01 par value per share (the “Common
Stock”), of the Company, as of the date specified below.

 

Date of Conversion:

 

 

 

Aggregate Principal to be converted:

 

 

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

 

 

AGGREGATE CONVERSION AMOUNT TO BE CONVERTED:

 

 

Please confirm the following information:  

 

Conversion Price:

 

 

 

Number of shares of Common Stock to be issued:

 

 

 

By delivering this Conversion Notice, the Holder hereby represents that, after
giving effect to the conversion provided for in this Conversion Notice, the
Holder will not have direct or indirect beneficial ownership of a number of
shares of Common Stock which exceeds the Maximum Percentage (as defined in the
Note) as of the date of this Conversion Notice.

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:

  

 

 

Holder:

  

 

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

By:

 

 

 

Title:

 

 

 

Dated:  

 

 

Account Number:

 

 

(if electronic book entry transfer)

  

 

Transaction Code Number:

 

 

(if electronic book entry transfer)

  

 

Installment Amount(s) to be reduced (and corresponding Installment Date(s)) and
amount of reduction:  

 

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Exhibit II

ACKNOWLEDGMENT

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

 

AMERICAN SUPERCONDUCTOR CORPORATION By:  

 

  Name:   Title:

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EXHIBIT B-1

Series A Warrant

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[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 TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN EXEMPTION THEREFROM. PRIOR TO THE REGISTRATION OF ANY
TRANSFER IN ACCORDANCE WITH THE FOREGOING, THE COMPANY RESERVES THE RIGHT TO
REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS (UNLESS SUCH SECURITIES ARE ELIGIBLE
TO BE SOLD WITHOUT RESTRICTION OR HAVE BEEN SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT), CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE
REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN
COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
“TRANSFER” MEANS ANY SALE, ASSIGNMENT OR OTHER TRANSFER. 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.

AMERICAN SUPERCONDUCTOR CORPORATION

SERIES A WARRANT TO PURCHASE COMMON STOCK

Warrant No.: A-1

Date of Issuance: [            ], 2012 (“Issuance Date”)

American Superconductor Corporation, a Delaware corporation (the “Company”),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Capital Ventures International,
the initial registered holder hereof and/or its permitted assigns who become
subsequent registered holders hereof (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 exercise 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 date that is six months after the Issuance Date (the “Initial Exercisability
Date”), but not after 5:00 p.m., New York City time, on the Expiration Date (as
defined below), 3,094,060 (subject to adjustment as provided herein) fully paid
and non-assessable shares of Common Stock (as defined below) (the “Warrant
Shares”). Except as otherwise defined herein, capitalized terms in this Warrant
shall have the meanings set forth in Section 17. This Warrant is one of the
Warrants to Purchase Common

 

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Stock (the “SPA Warrants”) issued pursuant to Section 1 of that certain
Securities Purchase Agreement, dated as of April 4, 2012, 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 day on or after the Initial
Exercisability Date, in whole or in part, by delivery (whether via facsimile or
otherwise) of a written notice, in the form attached hereto as Exhibit A (the
“Exercise Notice”), of the Holder’s election to exercise this Warrant. Within
one (1) Trading Day following an exercise of this Warrant as aforesaid, the
Holder shall deliver payment to the Company of an amount equal to the Exercise
Price (as defined in Section 1(b)) in effect on the date of such exercise
multiplied by the number of Warrant Shares as to which this Warrant was so
exercised (the “Aggregate Exercise Price”) in cash or via wire transfer of
immediately available funds if the Holder did not notify the Company in such
Exercise Notice that such exercise was made pursuant to a Cashless Exercise (as
defined in Section 1(d)). The Holder shall not be required to deliver the
original of this Warrant in order to effect an exercise hereunder. Execution and
delivery of an Exercise Notice with respect to less than all of the Warrant
Shares shall have the same effect as cancellation of the original of this
Warrant and issuance of a new Warrant evidencing the right to purchase the
remaining number of Warrant Shares. Execution and delivery of an Exercise Notice
for all of the then-remaining Warrant Shares shall have the same effect as
cancellation of the original of this Warrant after delivery of the Warrant
Shares in accordance with the terms hereof. On or before the first (1st) Trading
Day following the date on which the Company has received an Exercise Notice, the
Company shall transmit by facsimile an acknowledgment of confirmation of receipt
of such Exercise Notice, in the form attached hereto as Exhibit B, 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 such
Exercise Notice, 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 shares of Common Stock 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) otherwise issue and deliver to
the Holder or, at the Holder’s instruction pursuant to the Exercise Notice, the
Holder’s agent or designee, in each case, sent by reputable overnight courier to
the address as specified in the applicable Exercise Notice, a certificate,
registered in the Company’s share register in the name of the Holder or its
designee (as indicated in the applicable Exercise Notice), for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise. Upon delivery of an Exercise Notice, 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, at the request of the Holder, the Company shall
as soon as practicable and in no event later than three (3) Business Days after
any exercise and at its own expense, issue and deliver to the Holder (or its
designee) a new

 

2

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Warrant (in accordance with Section 7(d)) representing the right to purchase the
number of Warrant Shares purchasable immediately prior to such exercise under
this Warrant, less the number of Warrant Shares with respect to which this
Warrant is exercised. The Company shall not issue any fractional shares of
Common Stock upon the exercise of this Warrant. If any fractional share of
Common Stock would be issuable upon any exercise of the this Warrant, the
Company shall round such fractional share of Common Stock to the nearest whole
share. The Company shall pay any and all taxes and fees which may be payable
with respect to the issuance and delivery of Warrant Shares upon exercise of
this Warrant. The Company shall not, however, be required to pay any such tax
which may be payable in respect of any transfer involved in the issuance and
delivery of Common Stock in any name other than that of the Holder of this
Warrant. Notwithstanding the foregoing, except in the case where an exercise of
this Warrant is validly made pursuant to a Cashless Exercise (as defined in
Section 1(d)), the Company’s failure to deliver Warrant Shares to the Holder on
or prior to the second (2nd) Trading Day after the Company’s receipt of the
Aggregate Exercise Price shall not be deemed to be a breach of this Warrant.

(b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $5.45,
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 the later of
(i) three (3) Trading Days after receipt of the applicable Exercise Notice and
(ii) two (2) Trading Days after the Company’s receipt of the Aggregate Exercise
Price (or valid notice of a Cashless Exercise) (such later date, the “Share
Delivery Deadline”), 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 (as the case may be) (a “Delivery Failure”)
and if on or after such Share Delivery Deadline the Holder (or any other Person
in respect, or on behalf, of 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 all or any portion of the number of shares of Common
Stock, or a sale of a number of shares of Common Stock equal to all or any
portion of the number of shares of Common Stock, issuable upon such exercise
that the Holder so anticipated receiving from the Company, then, in addition to
all other remedies available to the Holder, the Company shall, within three
(3) Business Days after the Holder’s request and in the Holder’s discretion,
either (i) pay cash to the Holder in an amount equal to the Holder’s total
purchase price (including brokerage commissions and other out-of-pocket
expenses, if any) for the shares of Common Stock so purchased (including,
without limitation, by any other Person in respect, or on behalf, of the Holder)
(the “Buy-In Price”), at which point the Company’s obligation to so issue and
deliver such certificate or credit the Holder’s balance account with DTC for the
number of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise hereunder (as the case may be) (and to issue such shares of
Common Stock) shall terminate, or (ii) promptly honor its obligation to so issue
and deliver to the Holder a certificate or certificates representing such

 

3

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shares of Common Stock or credit the Holder’s balance account with DTC for the
number of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise hereunder (as the case may be) and pay cash to the Holder in
an amount equal to the excess (if any) of the Buy-In Price over the product of
(A) such number of shares of Common Stock multiplied by (B) the lowest Closing
Sale Price of the Common Stock on any Trading Day during the period commencing
on the date of the applicable Exercise Notice and ending on the date of such
issuance and payment under this clause (ii).

(d) Cashless Exercise. Notwithstanding anything contained herein to the contrary
(other than Section 1(f) below), if at the time of exercise hereof a
Registration Statement (as defined in the Registration Rights Agreement (as
defined in the Securities Purchase Agreement)) is not effective (or the
prospectus contained therein is not available for use) for use on a continuous
basis for the resale by the Holder of all of the Warrant Shares at market prices
from time to time, then 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)                   D For purposes of the
foregoing formula:

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

B=the quotient of (x) the sum of the VWAP of the Common Stock of each of the
five (5) Trading Days ending at the close of business on the Principal Market
immediately prior to the time of exercise as set forth in the applicable
Exercise Notice, divided by (y) five (5).

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

D= the VWAP of the Common Stock at the close of business on the Principal Market
on the date of the delivery of the applicable Exercise Notice.

(e) Disputes. In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the number of Warrant Shares to be issued
pursuant to the terms hereof, 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 13.

(f) Limitations on Exercises. Notwithstanding anything to the contrary contained
in this Warrant, this Warrant shall not be exercisable by the Holder hereof to
the extent (but only to the extent) that the Holder or any of its affiliates
would beneficially own in excess of 4.99% (the “Maximum Percentage”) of the
Common Stock. To the extent the above limitation applies, the

 

4

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determination of whether this Warrant shall be exercisable (vis-à-vis other
convertible, exercisable or exchangeable securities owned by the Holder or any
of its affiliates) and of which such securities shall be exercisable (as among
all such securities owned by the Holder) shall, subject to such Maximum
Percentage limitation, be determined on the basis of the first submission to the
Company for conversion, exercise or exchange (as the case may be). No prior
inability to exercise this Warrant pursuant to this paragraph shall have any
effect on the applicability of the provisions of this paragraph with respect to
any subsequent determination of exercisability. For the purposes of this
paragraph, beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(d) of the 1934 Act
(as defined in the Securities Purchase Agreement) and the rules and regulations
promulgated thereunder. The provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the terms of this paragraph to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Maximum Percentage limitation. The
limitations contained in this paragraph shall apply to a successor Holder of
this Warrant. The holders of Common Stock shall be third party beneficiaries of
this paragraph and the Company may not waive this paragraph without the consent
of holders of a majority of its Common Stock. For any reason at any time, upon
the written or oral request of the Holder, the Company shall within one
(1) Business Day confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding, including by virtue of any prior
conversion or exercise of convertible or exercisable securities into Common
Stock, including, without limitation, pursuant to this Warrant or securities
issued pursuant to the Securities Purchase Agreement. By written notice to the
Company, any 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 61st day after such notice
is delivered to the Company, and (ii) any such increase or decrease will apply
only to the Holder sending such notice and not to any other holder of SPA
Warrants.

(g) Insufficient Authorized Shares. So long as any of the SPA Warrants are
outstanding, the Company shall maintain duly and validly reserved for issuance,
authorized and unissued shares of Common Stock issuable upon exercise of the SPA
Warrants (including, without limitation, increasing such reserve, as necessary,
prior to the consummation of any Subsequent Placement (as defined in the
Securities Purchase Agreement). If, notwithstanding the foregoing, and not in
limitation thereof, at any time while any of the SPA Warrants remain outstanding
the Company does not have sufficient authorized and unreserved shares of Common
Stock (an “Authorized Share Failure”) to satisfy its obligation to reserve for
issuance upon exercise of the SPA Warrants, then the Company shall use
reasonable best efforts to take all action necessary to increase the Company’s
authorized shares of Common Stock sufficient to satisfy this Section 1(g).
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.

 

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(h) Registration; Book-Entry. The Company shall maintain a register (the
“Register”) for the recordation of the names and addresses of the holders of the
SPA Warrants and the aggregate number of Warrant Shares of such SPA Warrants
held by such holders (the “Registered Warrants”). The entries in the Register
shall be conclusive and binding for all purposes absent manifest error. The
Company and the Holder of this Warrant shall treat the Person recorded in the
Register as the owner of this Warrant for all purposes notwithstanding notice to
the contrary. A Registered Warrant may be assigned, transferred or sold in whole
or in part only by registration of such assignment or sale on the Register. Upon
its receipt of a written request to assign, transfer or sell all or part of any
Registered Warrant by the holder thereof, together with any required
documentation under the Transaction Documents (as defined in the Securities
Purchase Agreement) including any legal opinions, the Company shall record the
information contained therein in the Register and issue one or more new
Registered Warrants in the same notional amount as the notional amount of the
surrendered Registered Warrant to the designated assignee or transferee pursuant
to Section 7, provided that if the Company does not so record an assignment,
transfer or sale (as the case may be) of all or part of any Registered Warrant
within two (2) Business Days of its receipt of (I) such a request and (II) the
required documentation under the Transaction Documents including any legal
opinions with respect to such transfer, then the Register shall be automatically
updated to reflect such assignment, transfer or sale (as the case may be).
Notwithstanding anything to the contrary set forth in this Section 1(h),
following the exercise of any portion of this Warrant in accordance with the
terms hereof, the Holder shall not be required to physically surrender this
Warrant to the Company unless (A) the full number of Warrant Shares represented
by this Warrant is being exercised (in which event this Warrant shall be
delivered to the Company following exercise thereof as contemplated by
Section 1(a)) or (B) the Holder has provided the Company with prior written
notice (which notice may be included in an Exercise Notice) requesting
reissuance of this Warrant upon physical surrender of this Warrant. The Holder
and the Company shall maintain records showing the Warrant Shares delivered and
the dates of such exercise and/or payments (as the case may be) or shall use
such other method, reasonably satisfactory to the Holder and the Company, so as
not to require physical surrender of this Warrant upon exercise.

2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price
and number of Warrant Shares issuable upon exercise of this Warrant are subject
to adjustment from time to time as set forth in this Section 2.

(a) Stock Dividends and Splits. Without limiting any provision of Section 2(b)
or Section 4, if the Company, at any time on or after the date of the Securities
Purchase Agreement, (i) pays a stock dividend on one or more classes of its then
outstanding shares of Common Stock or otherwise makes a distribution on any
class of capital stock that is payable in shares of Common Stock,
(ii) subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its then outstanding shares of Common Stock
into a larger number of shares or (iii) combines (by combination, reverse stock
split or otherwise) one or more classes of its then outstanding shares of Common
Stock into a smaller number of shares, then in each such case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such

 

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dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of
this paragraph shall become effective immediately after the effective date of
such subdivision or combination. If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated
hereunder, then the calculation of such Exercise Price shall be adjusted
appropriately to reflect such event.

(b) Adjustment Upon Issuance of Shares of Common Stock. If and whenever on or
after the date of the Securities Purchase Agreement, 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 any
Excluded Securities issued or sold or deemed to have been issued or sold) for
consideration per share (the “New Issuance Price”) less than the Exercise Price
in effect immediately prior to such issue or sale or deemed issuance or sale
(such Exercise Price then in effect is referred to as the “Applicable Price”,
and the foregoing a “Dilutive Issuance”) (such number being appropriately
adjusted to reflect the occurrence of any event described in Section 2(a)),
then, immediately after such Dilutive Issuance, the Exercise Price then in
effect shall be reduced to an amount equal to the product of (A) the Applicable
Price and (B) the quotient determined by dividing (1) the sum of (I) the product
derived by multiplying the Applicable Price and the number of shares of Common
Stock Deemed Outstanding immediately prior to such Dilutive Issuance plus (II)
the consideration, if any, received by the Company upon such Dilutive Issuance,
by (2) the product derived by multiplying (I) the Applicable Price by (II) the
number of shares of Common Stock Deemed Outstanding immediately after such
Dilutive Issuance. For all purposes of the foregoing (including, without
limitation, determining the adjusted Exercise Price, the consideration per share
and the New Issuance Price under this Section 2(b)), the following shall be
applicable:

(i) Issuance of Options. If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 2(b)(i), the “lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option” shall be equal to (1) the lower of (x) 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 such Option, upon exercise of such Option and upon conversion, exercise or
exchange of any Convertible Security issuable upon exercise of such Option and
(y) the lowest exercise price set forth in such Option for which one share of
Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option minus (2) the sum of all amounts paid or payable to
the holder of such Option (or any other Person) 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 plus
the value of any other consideration received or receivable by, or benefit
conferred

 

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on, the holder of such Option (or any other Person). Except as contemplated
below, no further adjustment of the Exercise 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 2(b)(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 (1) the lower of (x) 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 and (y) the lowest conversion price set forth in such
Convertible Security for which one share of Common Stock is issuable upon
conversion, exercise or exchange thereof minus (2) the sum of all amounts paid
or payable to the holder of such Convertible Security (or any other Person) upon
the issuance or sale of such Convertible Security plus the value of any other
consideration received or receivable by, or benefit conferred on, the holder of
such Convertible Security (or any other Person). Except as contemplated below,
no further adjustment of the Exercise 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 this
Warrant has been or is to be made pursuant to other provisions of this
Section 2(b), except as contemplated below, no further adjustment of the
Exercise Price shall be made by reason of such issue or sale.

(iii) Change in Option Price or Rate of Conversion. If the purchase or exercise
price provided for in any Options referred to in Section 2(b)(i), the additional
consideration, if any, payable upon the issue, conversion, exercise or exchange
of any Convertible Securities referred to in Section 2(b)(i) or 2(b)(ii), or the
rate at which any Convertible Securities referred to in Section 2(b)(i) or
2(b)(ii) are convertible into or exercisable or exchangeable for shares of
Common Stock increases or decreases at any time, the Exercise Price in effect at
the time of such increase or decrease shall be adjusted to the Exercise Price
which would have been in effect at such time had such Options or Convertible
Securities provided for such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the case may be, at
the time initially granted, issued or sold. For purposes of this
Section 2(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are increased or
decreased in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the shares of Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or decrease. No adjustment pursuant
to this Section 2(b) shall be made if such adjustment would result in an
increase of the Exercise Price then in effect.

 

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(iv) Calculation of Consideration Received. If any Option or Convertible
Security or Adjustment Right is issued in connection with the issuance or sale
or deemed issuance or sale of any other securities of the Company, together
comprising one integrated transaction, (x) such Option or Convertible Security
(as applicable) or Adjustment Right (as applicable) will be deemed to have been
issued for consideration equal to the Black Scholes Consideration Value thereof
and (y) the other securities issued or sold or deemed to have been issued or
sold in such integrated transaction shall be deemed to have been issued for
consideration equal to the difference of (I) the aggregate consideration
received or receivable by the Company minus (II) the Black Scholes Consideration
Value of each such Option or Convertible Security (as applicable) or Adjustment
Right (as applicable). 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 of
consideration received by the Company therefor. If any shares of Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists of
publicly traded securities, in which case the amount of consideration received
by the Company for such securities will be the arithmetic average of the VWAPs
of such security for each of the five (5) Trading Days immediately preceding the
date of receipt. If any shares of Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such shares of Common Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or publicly traded
securities will be determined jointly by the Company and the Holder. If such
parties are unable to reach agreement within ten (10) days after the occurrence
of an event requiring valuation (the “Valuation Event”), the fair value of such
consideration will be determined within five (5) Trading Days after the tenth
(10th) day following such Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the Holder. The determination of such
appraiser shall be final and binding upon all parties absent manifest error and
the fees and expenses of such appraiser shall be borne by the Company.

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

 

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(c) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise
Price pursuant to paragraph (a) of this Section 2, the number of Warrant Shares
that may be purchased upon exercise of this Warrant shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the adjusted number of Warrant Shares shall be the
same as the aggregate Exercise Price in effect immediately prior to such
adjustment (without regard to any limitations on exercise contained herein).

(d) Holder’s Right of Alternative Exercise Price Following Issuance of Certain
Options or Convertible Securities. In addition to and not in limitation of the
other provisions of this Section 2, if the Company in any manner issues or sells
any Options or Convertible Securities after the Subscription 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 Common Shares,
including by way of one or more reset(s) to a fixed price, but exclusive of such
formulations reflecting customary anti-dilution provisions (such as share
splits, share combinations, share dividends and similar transactions) (each of
the formulations for such variable price being herein referred to as, the
“Variable Price”), the Company shall provide written notice thereof via
facsimile and overnight courier to the Holder on the date of issuance of such
Convertible Securities or Options. From and after the date the Company issues
any such Convertible Securities or Options with a Variable Price, the Holder
shall have the right, but not the obligation, in its sole discretion to
substitute the Variable Price for the Exercise Price upon exercise of this
Warrant by designating in the Exercise Notice delivered upon any exercise of
this Warrant that solely for purposes of such exercise the Holder is relying on
the Variable Price rather than the Exercise Price then in effect. The Holder’s
election to rely on a Variable Price for a particular exercise of this Warrant
shall not obligate the Holder to rely on a Variable Price for any future
exercises of this Warrant.

(e) Stock Combination Event Adjustment. If at any time and from time to time on
or after the Issuance Date there occurs any stock split, stock dividend, stock
combination recapitalization or other similar transaction involving the Common
Stock (each, a “Stock Combination Event”) and the product of (i) the quotient
determined by dividing (A) the Exercise Price in effect immediately prior to the
Stock Combination Event by (B) the arithmetic average of the VWAPs during the
fifteen (15) Trading Days immediately prior to the Stock Combination Event; and
(ii) the arithmetic average of the VWAPs during the fifteen (15) Trading Days
immediately following the date of such Stock Combination Event (each, an “Event
Market Price”) is less than the Exercise Price then in effect (after giving
effect to the adjustment in clause (b) above), then on the sixteenth
(16th) Trading Day immediately following such Stock Combination Event, the
Exercise Price then in effect on such sixteenth (16th) Trading Day (after giving
effect to the adjustment in clause (b) above) shall be reduced (but in no event
increased) to the Event Market Price. 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.

(f) Other Events. In the event that the Company (or any Subsidiary (as defined
in the Securities Purchase Agreement)) shall take any action to which the
provisions hereof are not strictly applicable, or, if applicable, would not
operate to protect the Holder from dilution or if any event occurs of the type
contemplated by the provisions of this Section 2 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation

 

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rights, phantom stock rights or other rights with equity features), then the
Company’s Board of Directors shall in good faith determine and implement an
appropriate adjustment in the Exercise Price and the number of Warrant Shares
(if applicable) so as to protect the rights of the Holder, provided that no such
adjustment pursuant to this Section 2(f) will increase the Exercise Price or
decrease the number of Warrant Shares as otherwise determined pursuant to this
Section 2, provided further that if the Holder does not accept such adjustments
as appropriately protecting its interests hereunder against such dilution, then
the Company’s Board of Directors and the Holder shall agree, in good faith, upon
an independent investment bank of nationally recognized standing to make such
appropriate adjustments, whose determination shall be final and binding and
whose fees and expenses shall be borne by the Company.

(g) Calculations. All calculations under this Section 2 shall be made by
rounding to the nearest cent or the nearest 1/100th of a share, as applicable.
The number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.

(h) Exercise Floor Price. Notwithstanding the foregoing, no adjustment pursuant
to clauses (b), (d) or (e) of this Section 2 shall cause the Exercise Price to
be less than $4.01 (as adjusted for any stock dividend, stock split, stock
combination, reclassification or similar transaction occurring after the date of
the Securities Purchase Agreement) (the “Exercise Floor Price”); provided, that
nothing contained in this Section 2(h) shall apply after the Company has
obtained the written approval of its stockholders providing for the Company’s
issuance of all of the Securities (as defined in the Securities Purchase
Agreement) in accordance with applicable law and the rules and regulations of
the Principal Market prior to such date.

3. RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant
to Section 2 above, 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 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 (other than a stock dividend or other distribution of shares
of Common Stock to the extent the Company complies with Section 2(a) hereof in
connection therewith) (a “Distribution”), at any time after the Issuance Date,
then, in each such case, the Holder shall be entitled to participate in such
Distribution to the same extent that the Holder would have participated therein
if the Holder had held the number of shares of Common Stock acquirable upon
complete exercise of this Warrant by Cashless Exercise (without regard to any
limitations on exercise hereof, including without limitation, the Maximum
Percentage) immediately before 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 shares of Common Stock are to be determined for the participation in
such Distribution (provided, however, to the extent that the Holder’s right to
participate in any such Distributions would result in the Holder exceeding the
Maximum Percentage, then the Holder shall not be entitled to participate in such
Distribution to such extent (or the beneficial ownership of any such shares of
Common Stock as a result of such Distribution to such extent) and such
Distribution to such extent shall be held in abeyance for the benefit of the
Holder until such time, if ever, as its right thereto would not result in the
Holder exceeding the Maximum Percentage).

 

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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 shares 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 exercise hereof, including without limitation, the Maximum
Percentage) 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 (provided,
however, to the extent that the Holder’s right to participate in any such
Purchase Right would result in the Holder exceeding the Maximum Percentage, then
the Holder shall not be entitled to participate in such Purchase Right to such
extent (or beneficial ownership of such shares of Common Stock as a result of
such Purchase Right to such extent) and such Purchase Right to such extent shall
be held in abeyance for the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum Percentage).

(b) Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing (or,
if prior to the consummation of such Fundamental Transaction, such applicable
agreement requires the assumption of) all of the obligations of the Company
under this Warrant and the other Transaction Documents (as defined in the
Securities Purchase Agreement) in accordance with the provisions of this
Section 4(b), including agreements to deliver to the Holder in exchange for this
Warrant a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant, including, without
limitation, which is 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 with an exercise price
which applies the exercise price hereunder to such shares of capital stock (but
taking into account the relative value of the shares of Common Stock pursuant to
such Fundamental Transaction and the value of such shares of capital stock, such
adjustments to the number of shares of capital stock and such exercise price
being for the purpose of protecting the economic value of this Warrant
immediately prior to the consummation of such Fundamental Transaction) 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 consummation of each Fundamental Transaction, the Successor
Entity shall succeed to, and be substituted for (so that from and after the date
of the applicable Fundamental Transaction, the provisions of this Warrant and
the other Transaction Documents referring to the “Company” shall refer instead
to the Successor Entity), and may exercise every right and power of the Company
and shall assume all of the obligations of the Company under this Warrant and
the other Transaction Documents with the same effect as if such Successor Entity
had been named as the Company herein. Upon consummation of each 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 applicable Fundamental Transaction, in lieu of the shares of
Common

 

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Stock (or other securities, cash, assets or other property (except such items
still issuable under Sections 3 and 4(a) above, which shall continue to be
receivable thereafter)) issuable upon the exercise of this Warrant prior to the
applicable Fundamental Transaction, such shares of publicly traded common stock
(or its equivalent) of the Successor Entity (including its Parent Entity) which
the Holder would have been entitled to receive upon the happening of the
applicable Fundamental Transaction had this Warrant been exercised immediately
prior to the applicable Fundamental Transaction (without regard to any
limitations on the exercise of this Warrant), as adjusted in accordance with the
provisions of this Warrant. Notwithstanding the foregoing, and without limiting
Section 1(f) hereof, the Holder may elect, at its sole option, by delivery of
written notice to the Company to waive this Section 4(b) to permit the
Fundamental Transaction without the assumption of this Warrant. In addition to
and not in substitution for any other rights hereunder, prior to the
consummation of each 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 applicable Fundamental Transaction but prior to the
Expiration Date, in lieu of the shares of the Common Stock (or other securities,
cash, assets or other property (except such items still issuable under Sections
3 and 4(a) above, which shall continue to be receivable thereafter)) issuable
upon the exercise of the Warrant prior to such Fundamental Transaction, such
shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder
would have been entitled to receive upon the happening of the applicable
Fundamental Transaction had this Warrant been exercised immediately prior to the
applicable Fundamental Transaction (without regard to any limitations on the
exercise of this Warrant).

(c) Black Scholes Value. Notwithstanding the foregoing and the provisions of
Section 4(a) above, at the request of the Holder delivered at any time
commencing on the earliest to occur of (x) the public disclosure of any
Fundamental Transaction, (y) the consummation of any Fundamental Transaction and
(z) the Holder first becoming aware of any Fundamental Transaction (including,
without limitation, a Fundamental Transaction that is publicly disclosed,
consummated or of which the Holder first becomes aware (as the case may be)
prior to the Initial Exercisability Date) through the date that is ninety
(90) days after the public disclosure of the consummation of such Fundamental
Transaction by the Company pursuant to a Current Report on Form 8-K filed with
the SEC, the Company or the Successor Entity (as the case may be) shall promptly
purchase this Warrant from the Holder (but in no event prior to the later of
(A) the third (3rd) Trading Day after the date of such request and (B) the date
of the consummation of such Fundamental Transaction) by paying to the Holder
cash in an amount equal to the Black Scholes Value.

(d) Application. The provisions of this Section 4 shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied as if this Warrant (and any such subsequent warrants) were fully
exercisable and without regard to any limitations on the exercise of this
Warrant (provided that the Holder shall continue to be entitled to the benefit
of the Maximum Percentage, applied however with respect to shares of capital
stock registered under the 1934 Act and thereafter receivable upon exercise of
this Warrant (or any such other warrant)).

 

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5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of its Articles of Incorporation (as defined in the
Securities Purchase Agreement), Bylaws (as defined in the Securities Purchase
Agreement) or through any reorganization, transfer of assets, consolidation,
merger, scheme of arrangement, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this 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 reasonably
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable 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, the maximum 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 its 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 its 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 it 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 (that are not filed with
or furnished to the SEC) 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

 

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Warrant (as to which a written certification and the indemnification
contemplated below shall suffice as such evidence), and, in the case of loss,
theft or destruction, of any indemnification undertaking by the Holder to the
Company in customary and reasonable form and, in the case of mutilation, upon
surrender and cancellation of this 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, 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 each adjustment of the
Exercise Price and the number of Warrant Shares, setting forth in reasonable
detail, and certifying, the calculation of such adjustment(s) 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 and (iii) at least ten (10) Trading Days prior to the
consummation of any Fundamental Transaction. To the extent that any notice
provided hereunder constitutes, or contains, material, non-public information
regarding the Company or any of its Subsidiaries, the Company shall
simultaneously file such notice with the SEC (as defined in the Securities
Purchase Agreement) pursuant to a Current Report on Form 8-K. It is expressly
understood and agreed that the time of execution specified by the Holder in each
Exercise Notice shall be definitive and may not be disputed or challenged by the
Company.

 

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9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of
this Warrant (other than Section 1(f)) 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
Holder. No waiver shall be effective unless it is in writing and signed by an
authorized representative of the waiving party.

10. 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).

11. 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 regard to conflict of law
principles that would result in the application of any laws other than the laws
of the State of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
Section 9(f) of the Securities Purchase Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

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

 

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13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price, the Closing Sale Price or fair market value or the arithmetic
calculation of the Warrant Shares (as the case may be), the Company or the
Holder (as the case may be) shall submit the disputed determinations or
arithmetic calculations (as the case may be) via facsimile (i) within two
(2) Business Days after receipt of the applicable notice giving rise to such
dispute to the Company or the Holder (as the case may be) or (ii) if no notice
gave rise to such dispute, at any time after the Holder learned of the
circumstances giving rise to such dispute (including, without limitation, as to
whether any issuance or sale or deemed issuance or sale was an issuance or sale
or deemed issuance or sale of Excluded Securities). If the Holder and the
Company are unable to agree upon such determination or calculation (as the case
may be) of the Exercise Price, the Closing Sale Price or fair market value or
the number of Warrant Shares (as the case may be) within three (3) Business Days
of such disputed determination or arithmetic calculation being submitted to the
Company or the Holder (as the case may be), then the Company shall, within two
(2) Business Days submit via facsimile (a) the disputed determination of the
Exercise Price, the Closing Sale Price or fair market value (as the case may be)
to an independent, reputable investment bank selected by the Company and
reasonably acceptable to 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 (as the case may be)
and notify the Company and the Holder of the results no later than ten
(10) Business Days from the time it receives such disputed determinations or
calculations (as the case may be). Such investment bank’s or accountant’s
determination or calculation (as the case may be) shall be binding upon all
parties absent manifest error.

14. REMEDIES, CHARACTERIZATION, 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; provided, however, that the Holder waives
any consequential damages it may suffer from any failure by the Company to
comply with the terms of this Warrant. The Company covenants to the Holder that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, exercises 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 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. The Company shall provide all
information and documentation to the Holder that is requested by the Holder to
enable the Holder to confirm the Company’s compliance with the terms and
conditions of this Warrant

 

17

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(including, without limitation, compliance with Section 2 hereof). The issuance
of shares and certificates for shares as contemplated hereby upon the exercise
of this Warrant shall be made without charge to the Holder or such shares for
any issuance tax or other costs in respect thereof, provided that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than the Holder or its agent on its behalf.

15. TRANSFER. Subject to Section 1(h), 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(h) of the Securities Purchase Agreement.

16. TAX MATTERS.

The Holder of this Warrant, by accepting this Warrant, acknowledges and agrees
as follows:

(a) On or prior to the date it acquires this Warrant, the Holder will timely
furnish the Company or its agents any United States federal income tax form or
certification (such as IRS Form W-8BEN, Form W-8IMY, IRS Form W-9, or IRS Form
W-8ECI or any successors to such IRS forms), or other information, form or
certificate (including any information or certifications specified under
Sections 1471-1474 of the Internal Revenue Code of 1986, as amended (the
“Code”), that the Company or its agents may reasonably request and will update
or replace such form or certification in accordance with its terms or its
subsequent amendments.

(b) If the Company pays withholding taxes on behalf of the Holder with respect
to this Warrant that it cannot immediately offset by reducing the amount of a
related payment (such as withholding taxes imposed as a result of the
application of Section 305(c) of the Code), the Holder will, within 10 business
days of written notice. reimburse the Company for the amounts specified in such
notice.

(c) The Holder will file all tax returns in a manner consistent with
Section 1(c) of the Securities Purchase Agreement unless otherwise required to
take a different position following a determination within the meaning of
Section 1313 of the Code to the contrary.

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

(a) “Additional Notes” shall have the meaning ascribed to such term in the
Securities Purchase Agreement, and shall include all notes issued in exchange
therefor or replacement thereof.

(b) “Adjustment Right” means any right granted with respect to any securities
issued in connection with, or with respect to, any issuance or sale (or deemed
issuance or sale in accordance with Section 2) of shares of Common Stock (other
than rights of the type described in Sections 3 and 4 hereof) that could result
in a decrease in the net consideration received by the Company in connection
with, or with respect to, such securities (including, without limitation, any
cash settlement rights, cash adjustment or other similar rights).

 

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(c) “Approved Stock Plan” means any employee benefit or incentive plan which has
been approved by the Board of Directors of the Company prior to or subsequent to
the date hereof pursuant to which shares of Common Stock, options to purchase
Common Stock, stock appreciation rights, restricted shares of Common Stock,
restricted stock units and other stock-based awards may be issued to any
employee, officer, director or consultant for services provided to the Company
in their capacity as such.

(d) “Black Scholes Consideration Value” means the value of the applicable
Option, Convertible Security or Adjustment Right (as the case may be) as of the
date of issuance thereof calculated using the Black Scholes Option Pricing Model
obtained from the “OV” function on Bloomberg utilizing (i) an underlying price
per share equal to the Closing Sale Price of the Common Stock on the Trading Day
immediately preceding the public announcement of the execution of definitive
documents with respect to the issuance of such Option, Convertible Security or
Adjustment Right (as the case may be), (ii) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term
of such Option, Convertible Security or Adjustment Right (as the case may be) as
of the date of issuance of such Option, Convertible Security or Adjustment Right
(as the case may be), (iii) a zero cost of borrow and (iv) an expected
volatility equal to the greater of 100% and the 100 day volatility obtained from
the HVT function on Bloomberg (determined utilizing a 260 day annualization
factor) as of the Trading Day immediately following the date of issuance of such
Option, Convertible Security or Adjustment Right (as the case may be).

(e) “Black Scholes Value” means the value of the unexercised portion of this
Warrant remaining on the date of the Holder’s request pursuant to Section 4(c),
which value is calculated using the Black Scholes Option Pricing Model obtained
from the “OV” function on Bloomberg utilizing (i) an underlying price per share
equal to the greater of (1) the highest Closing Sale Price of the Common Stock
during the period beginning on the Trading Day immediately preceding the
earliest to occur of (x) the public disclosure of the applicable Fundamental
Transaction, (y) the consummation of the applicable Fundamental Transaction and
(z) the date on which the Holder first became aware of the applicable
Fundamental Transaction and ending on the Trading Day of the Holder’s request
pursuant to Section 4(c) and (2) the sum of the price per share being offered in
cash in the applicable Fundamental Transaction (if any) plus the value of the
non-cash consideration being offered in the applicable Fundamental Transaction
(if any), (ii) a strike price equal to the Exercise Price in effect on the date
of the Holder’s request pursuant to Section 4(c), (iii) a zero cost of borrow,
(iv) a risk-free interest rate corresponding to the U.S. Treasury rate for a
period equal to the greater of (1) the remaining term of this Warrant as of the
date of the Holder’s request pursuant to Section 4(c) and (2) the remaining term
of this Warrant as of the date of consummation of the applicable Fundamental
Transaction or as of the date of the Holder’s request pursuant to Section 4(c)
if such request is prior to the date of the consummation of the applicable
Fundamental Transaction, and (v) an expected volatility equal to the greater of
100% and the 30 day volatility obtained from the HVT function on Bloomberg
(determined utilizing a 260 day annualization factor) as of the Trading Day
immediately following the public disclosure of the applicable Fundamental
Transaction (or, solely to the extent such Fundamental Transaction is not
disclosed to the public, the date of the consummation of the such Fundamental
Transaction).

 

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(f) “Bloomberg” means Bloomberg, L.P.

(g) “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.

(h) “Closing Sale Price” means, for any security as of any date, the last
closing trade price 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 trade price, then the last trade price
of such security prior to 4:00:00 p.m., New York City time, as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange
or trading market for such security, the last trade price 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 does not apply,
the last trade price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
last trade price is reported for such security by Bloomberg, the average of the
ask prices of any market makers for such security as reported in the “pink
sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the Closing
Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Sale 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 in accordance with the
procedures in Section 13. All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination,
recapitalization or other similar transaction during such period.

(i) “Common Stock” means (i) the Company’s shares of common stock, $0.01 par
value per share, and (ii) any capital stock into which such common stock shall
have been changed or any share capital resulting from a reclassification of such
common stock.

(i) “Common Stock Deemed Outstanding” means, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 2(b)(i) and
2(b)(ii) hereof regardless of whether the Options or Convertible Securities are
actually exercisable at such time, but excluding any shares of Common Stock
owned or held by or for the account of the Company or issuable upon conversion
and exercise, as applicable, of the Notes and the Warrants.

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

(k) “Eligible Market” means The New York Stock Exchange, the NYSE Amex, the
Nasdaq Global Market, the Nasdaq Capital Market or the Principal Market.

(l) “Excluded Securities” means any (i) shares of Common Stock, Options, stock
appreciation rights, restricted shares of Common Stock, restricted stock units
and other stock-based awards to directors, officers, employees or consultants of
the Company in their capacity as such pursuant to an Approved Stock Plan (as
defined below); (ii) Convertible Securities or Options and shares of Common
Stock issued upon the conversion or exercise of such

 

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Convertible Securities or Options, in each case, issued pursuant to a Rights
Plan (as defined in the Securities Purchase Agreement) approved by the Board of
Directors of the Company, (iii) shares of Common Stock issued upon the
conversion or exercise of Convertible Securities (other than options to purchase
Common Stock issued pursuant to an Approved Stock Plan that are covered by
clause (i) above) issued prior to the date hereof; provided that the conversion
price of any such Convertible Securities (other than options to purchase Common
Stock issued pursuant to an Approved Stock Plan that are covered by clause
(i) above) is not lowered, none of such Convertible Securities (other than
options to purchase Common Stock issued pursuant to an Approved Stock Plan that
are covered by clause (i) above) are amended to increase the number of shares
issuable thereunder and none of the terms or conditions of any such Convertible
Securities (other than options to purchase Common Stock issued pursuant to an
Approved Stock Plan that are covered by clause (i) above) are otherwise
materially changed in any manner that adversely affects any of the Buyers;
(iv) the shares of Common Stock issuable upon conversion of the Notes or
otherwise pursuant to the terms of the Notes, (v) the shares of Common Stock
issuable upon exercise of the SPA Warrants, (vi) the shares of Common Stock or
Options issued to financial institutions or lessors in connection with
commercial credit arrangements, equipment financings or similar transactions
(excluding any shares of Common Stock issuable upon conversion or exercise of
any Convertible Securities); (vii) the shares of Common Stock or Options issued
in connection with strategic alliances, acquisitions, mergers, and strategic
partnerships, provided, that (A) the primary purpose of such issuance is not to
raise capital as determined in good faith by the Board of Directors of the
Company, (B) the purchaser or acquirer of the securities in such issuance solely
consists of either (x) the actual participants in such strategic alliance or
strategic partnership, (y) the actual owners of such assets or securities
acquired in such acquisition or merger or (z) the stockholders, partners or
members of the foregoing Persons and (C) number or amount of securities issued
to such Person by the Company shall not be disproportionate (as determined in
good faith by the Board of Directors of the Company) to either (x) the fair
market value of such Person’s actual contribution to such strategic alliance or
strategic partnership or (y) the proportional ownership of such assets or
securities to be acquired by the Company, as applicable; and (viii) shares of
Common Stock or Options issued to vendors to settle bona fide trade liabilities.

(m) “Expiration Date” means the date that is the fifth (5th) anniversary of 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 date that is not a Holiday.

(n) “Fundamental Transaction” means that (i) directly or indirectly, in one or
more related transactions, (1) the Company or any of its Subsidiaries shall
consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) the Company
and its Subsidiaries shall, as determined on a consolidated basis, sell, lease,
license, assign, transfer, convey or otherwise dispose of all or substantially
all of their properties or assets to any other Person, or (3) the Company or any
of its Subsidiaries shall allow any other Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than 50% of the
outstanding shares of Voting Stock of the Company (not including any shares of
Voting Stock of the Company 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 (4) the Company or any of its Subsidiaries shall
consummate a stock or share purchase agreement or other business combination
(including, without limitation, a

 

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reorganization, recapitalization, spin-off or scheme of arrangement) with any
other Person whereby such other Person acquires more than 50% of the outstanding
shares of Voting Stock of the Company (not including any shares of Voting Stock
of the Company 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
or share purchase agreement or other business combination), or (5) the Company
shall reorganize, recapitalize or reclassify the Common Stock, or (ii) any
“person” or “group” (as these terms are used for purposes of Sections 13(d) and
14(d) of the 1934 Act and the rules and regulations promulgated thereunder) 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 Voting Stock of the Company.

(o) “Initial Notes” shall have the meaning ascribed to such term in the
Securities Purchase Agreement, and shall include all notes issued in exchange
therefor or replacement thereof.

(p) “Notes” means, collectively, the Initial Notes and the Additional Notes.

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

(r) “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.

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

(t) “Principal Market” means the Nasdaq Global Select Market.

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

(v) “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 City time).

 

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(w) “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).

(x) “VWAP” means, for any security as of any date, the dollar volume weighted
average price for such security on the Principal Market (or, if the Principal
Market is not the principal trading market for such security, then on the
principal securities exchange or securities market on which such security is
then traded) during the period beginning at 9:30:01 a.m., New York City time,
and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg through
its “Volume at Price” function or, if the foregoing does not apply, the dollar
volume weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City
time, as reported by Bloomberg, or, if no dollar volume weighted average price
is reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the “pink sheets” by OTC Markets Group
Inc. (formerly Pink Sheets LLC). If VWAP cannot be calculated for such security
on such date on any of the foregoing bases, the VWAP of such security on such
date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute shall be resolved in accordance
with the procedures in Section 13. All such determinations shall be
appropriately adjusted for any stock splits, stock dividends, stock
combinations, recapitalizations or other similar transactions during such
period.

[signature page follows]

 

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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.

 

AMERICAN SUPERCONDUCTOR CORPORATION

By:  

 

  Name:   Title:

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EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

AMERICAN SUPERCONDUCTOR CORPORATION

The undersigned holder hereby exercises the right to purchase
                    of the shares of Common Stock (“Warrant Shares”) of American
Superconductor Corporation, a Delaware corporation (the “Company”), evidenced by
the Warrant to Purchase Common Stock No.             (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, or its
designee or agent as specified below,              Warrant Shares in accordance
with the terms of the Warrant. Delivery shall be made to the Holder, or for its
benefit, to the following address:

 

                                                 

 

                                                 

 

                                                 

4. Compliance with Maximum Percentage. By delivering this Exercise Notice, the
Holder hereby represents that, after giving effect to the exercise provided for
in this Exercise Notice, the Holder will not have direct or indirect beneficial
ownership of a number of shares of Common Stock which exceeds the Maximum
Percentage (as defined in the Warrant) as of the date of this Exercise Notice.

 

 

Name of Registered Holder By:  

 

  Name:   Title:

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EXHIBIT B

ACKNOWLEDGMENT

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

 

AMERICAN SUPERCONDUCTOR CORPORATION

By:  

 

  Name:   Title:

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EXHIBIT B-2

Series B Warrant

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[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 TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN EXEMPTION THEREFROM. PRIOR TO THE REGISTRATION OF ANY
TRANSFER IN ACCORDANCE WITH THE FOREGOING, THE COMPANY RESERVES THE RIGHT TO
REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS (UNLESS SUCH SECURITIES ARE ELIGIBLE
TO BE SOLD WITHOUT RESTRICTION OR HAVE BEEN SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT), CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE
REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN
COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
“TRANSFER” MEANS ANY SALE, ASSIGNMENT OR OTHER TRANSFER. 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.

AMERICAN SUPERCONDUCTOR CORPORATION

SERIES B WARRANT TO PURCHASE COMMON STOCK

Warrant No.: B-1

Date of Issuance: [            ], 2012 (“Issuance Date”)

American Superconductor Corporation, a Delaware corporation (the “Company”),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Capital Ventures International,
the initial registered holder hereof and/or its permitted assigns who become
subsequent registered holders hereof (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 exercise 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 date that is six months after the Issuance Date (the “Initial Exercisability
Date”), but not after 5:00 p.m., New York City time, on the Expiration Date (as
defined below), [            ]1 (subject to adjustment as provided herein) fully
paid and non-assessable shares of Common Stock (as defined below) (the “Warrant
Shares”). Except as otherwise defined herein, capitalized terms in this Warrant
shall have the meanings set forth in Section 17. This Warrant is one of the
Warrants to Purchase Common

 

 

1 

Insert number of warrant shares equal 50% of the quotient of (x) the aggregate
principal of Notes purchased by the Holder on the Additional Closing Date (as
defined in the Securities Purchase Agreement), divided by (y) the Market Price
(as defined in the Initial Notes) as of the Additional Closing Date

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Stock (the “SPA Warrants”) issued pursuant to Section 1 of that certain
Securities Purchase Agreement, dated as of April 4, 2012, 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 day on or after the Initial
Exercisability Date, in whole or in part, by delivery (whether via facsimile or
otherwise) of a written notice, in the form attached hereto as Exhibit A (the
“Exercise Notice”), of the Holder’s election to exercise this Warrant. Within
one (1) Trading Day following an exercise of this Warrant as aforesaid, the
Holder shall deliver payment to the Company of an amount equal to the Exercise
Price (as defined in Section 1(b)) in effect on the date of such exercise
multiplied by the number of Warrant Shares as to which this Warrant was so
exercised (the “Aggregate Exercise Price”) in cash or via wire transfer of
immediately available funds if the Holder did not notify the Company in such
Exercise Notice that such exercise was made pursuant to a Cashless Exercise (as
defined in Section 1(d)). The Holder shall not be required to deliver the
original of this Warrant in order to effect an exercise hereunder. Execution and
delivery of an Exercise Notice with respect to less than all of the Warrant
Shares shall have the same effect as cancellation of the original of this
Warrant and issuance of a new Warrant evidencing the right to purchase the
remaining number of Warrant Shares. Execution and delivery of an Exercise Notice
for all of the then-remaining Warrant Shares shall have the same effect as
cancellation of the original of this Warrant after delivery of the Warrant
Shares in accordance with the terms hereof. On or before the first (1st) Trading
Day following the date on which the Company has received an Exercise Notice, the
Company shall transmit by facsimile an acknowledgment of confirmation of receipt
of such Exercise Notice, in the form attached hereto as Exhibit B, 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 such
Exercise Notice, 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 shares of Common Stock 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) otherwise issue and deliver to
the Holder or, at the Holder’s instruction pursuant to the Exercise Notice, the
Holder’s agent or designee, in each case, sent by reputable overnight courier to
the address as specified in the applicable Exercise Notice, a certificate,
registered in the Company’s share register in the name of the Holder or its
designee (as indicated in the applicable Exercise Notice), for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise. Upon delivery of an Exercise Notice, 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, at the request of the Holder, the Company shall
as soon as practicable and in no event later than three (3) Business Days after
any exercise and at its own expense, issue and deliver to the Holder (or its
designee) a new

 

2

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Warrant (in accordance with Section 7(d)) representing the right to purchase the
number of Warrant Shares purchasable immediately prior to such exercise under
this Warrant, less the number of Warrant Shares with respect to which this
Warrant is exercised. The Company shall not issue any fractional shares of
Common Stock upon the exercise of this Warrant. If any fractional share of
Common Stock would be issuable upon any exercise of the this Warrant, the
Company shall round such fractional share of Common Stock to the nearest whole
share. The Company shall pay any and all taxes and fees which may be payable
with respect to the issuance and delivery of Warrant Shares upon exercise of
this Warrant. The Company shall not, however, be required to pay any such tax
which may be payable in respect of any transfer involved in the issuance and
delivery of Common Stock in any name other than that of the Holder of this
Warrant. Notwithstanding the foregoing, except in the case where an exercise of
this Warrant is validly made pursuant to a Cashless Exercise (as defined in
Section 1(d)), the Company’s failure to deliver Warrant Shares to the Holder on
or prior to the second (2nd) Trading Day after the Company’s receipt of the
Aggregate Exercise Price shall not be deemed to be a breach of this Warrant.

(b) Exercise Price. For purposes of this Warrant, “Exercise Price” means
$[        ]2, 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 the later of
(i) three (3) Trading Days after receipt of the applicable Exercise Notice and
(ii) two (2) Trading Days after the Company’s receipt of the Aggregate Exercise
Price (or valid notice of a Cashless Exercise) (such later date, the “Share
Delivery Deadline”), 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 (as the case may be) (a “Delivery Failure”)
and if on or after such Share Delivery Deadline the Holder (or any other Person
in respect, or on behalf, of 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 all or any portion of the number of shares of Common
Stock, or a sale of a number of shares of Common Stock equal to all or any
portion of the number of shares of Common Stock, issuable upon such exercise
that the Holder so anticipated receiving from the Company, then, in addition to
all other remedies available to the Holder, the Company shall, within three
(3) Business Days after the Holder’s request and in the Holder’s discretion,
either (i) pay cash to the Holder in an amount equal to the Holder’s total
purchase price (including brokerage commissions and other out-of-pocket
expenses, if any) for the shares of Common Stock so purchased (including,
without limitation, by any other Person in respect, or on behalf, of the Holder)
(the “Buy-In Price”), at which point the Company’s obligation to so issue and
deliver such certificate or credit the Holder’s balance account with DTC for the
number of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise hereunder (as the case may be) (and to issue such shares of
Common Stock) shall terminate, or (ii) promptly honor its obligation to so issue
and deliver to the Holder a certificate or certificates representing such

 

 

2 

Insert 135% of the Market Price as of the Additional Closing Date

3

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shares of Common Stock or credit the Holder’s balance account with DTC for the
number of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise hereunder (as the case may be) and pay cash to the Holder in
an amount equal to the excess (if any) of the Buy-In Price over the product of
(A) such number of shares of Common Stock multiplied by (B) the lowest Closing
Sale Price of the Common Stock on any Trading Day during the period commencing
on the date of the applicable Exercise Notice and ending on the date of such
issuance and payment under this clause (ii).

(d) Cashless Exercise. Notwithstanding anything contained herein to the contrary
(other than Section 1(f) below), if at the time of exercise hereof a
Registration Statement (as defined in the Registration Rights Agreement (as
defined in the Securities Purchase Agreement)) is not effective (or the
prospectus contained therein is not available for use) for use on a continuous
basis for the resale by the Holder of all of the Warrant Shares at market prices
from time to time, then 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)

D

For purposes of the foregoing formula:

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

B=the quotient of (x) the sum of the VWAP of the Common Stock of each of the
five (5) Trading Days ending at the close of business on the Principal Market
immediately prior to the time of exercise as set forth in the applicable
Exercise Notice, divided by (y) five (5).

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

D= the VWAP of the Common Stock at the close of business on the Principal Market
on the date of the delivery of the applicable Exercise Notice.

(e) Disputes. In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the number of Warrant Shares to be issued
pursuant to the terms hereof, 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 13.

(f) Limitations on Exercises. Notwithstanding anything to the contrary contained
in this Warrant, this Warrant shall not be exercisable by the Holder hereof to
the extent (but only to the extent) that the Holder or any of its affiliates
would beneficially own in excess of 4.99% (the “Maximum Percentage”) of the
Common Stock. To the extent the above limitation applies, the

 

4

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determination of whether this Warrant shall be exercisable (vis-à-vis other
convertible, exercisable or exchangeable securities owned by the Holder or any
of its affiliates) and of which such securities shall be exercisable (as among
all such securities owned by the Holder) shall, subject to such Maximum
Percentage limitation, be determined on the basis of the first submission to the
Company for conversion, exercise or exchange (as the case may be). No prior
inability to exercise this Warrant pursuant to this paragraph shall have any
effect on the applicability of the provisions of this paragraph with respect to
any subsequent determination of exercisability. For the purposes of this
paragraph, beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(d) of the 1934 Act
(as defined in the Securities Purchase Agreement) and the rules and regulations
promulgated thereunder. The provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the terms of this paragraph to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Maximum Percentage limitation. The
limitations contained in this paragraph shall apply to a successor Holder of
this Warrant. The holders of Common Stock shall be third party beneficiaries of
this paragraph and the Company may not waive this paragraph without the consent
of holders of a majority of its Common Stock. For any reason at any time, upon
the written or oral request of the Holder, the Company shall within one
(1) Business Day confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding, including by virtue of any prior
conversion or exercise of convertible or exercisable securities into Common
Stock, including, without limitation, pursuant to this Warrant or securities
issued pursuant to the Securities Purchase Agreement. By written notice to the
Company, any 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 61st day after such notice
is delivered to the Company, and (ii) any such increase or decrease will apply
only to the Holder sending such notice and not to any other holder of SPA
Warrants.

(g) Insufficient Authorized Shares. So long as any of the SPA Warrants are
outstanding, the Company shall maintain duly and validly reserved for issuance,
authorized and unissued shares of Common Stock issuable upon exercise of the SPA
Warrants (including, without limitation, increasing such reserve, as necessary,
prior to the consummation of any Subsequent Placement (as defined in the
Securities Purchase Agreement). If, notwithstanding the foregoing, and not in
limitation thereof, at any time while any of the SPA Warrants remain outstanding
the Company does not have sufficient authorized and unreserved shares of Common
Stock (an “Authorized Share Failure”) to satisfy its obligation to reserve for
issuance upon exercise of the SPA Warrants, then the Company shall use
reasonable best efforts to take all action necessary to increase the Company’s
authorized shares of Common Stock sufficient to satisfy this Section 1(g).
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.

 

5

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(h) Registration; Book-Entry. The Company shall maintain a register (the
“Register”) for the recordation of the names and addresses of the holders of the
SPA Warrants and the aggregate number of Warrant Shares of such SPA Warrants
held by such holders (the “Registered Warrants”). The entries in the Register
shall be conclusive and binding for all purposes absent manifest error. The
Company and the Holder of this Warrant shall treat the Person recorded in the
Register as the owner of this Warrant for all purposes notwithstanding notice to
the contrary. A Registered Warrant may be assigned, transferred or sold in whole
or in part only by registration of such assignment or sale on the Register. Upon
its receipt of a written request to assign, transfer or sell all or part of any
Registered Warrant by the holder thereof, together with any required
documentation under the Transaction Documents (as defined in the Securities
Purchase Agreement) including any legal opinions, the Company shall record the
information contained therein in the Register and issue one or more new
Registered Warrants in the same notional amount as the notional amount of the
surrendered Registered Warrant to the designated assignee or transferee pursuant
to Section 7, provided that if the Company does not so record an assignment,
transfer or sale (as the case may be) of all or part of any Registered Warrant
within two (2) Business Days of its receipt of (I) such a request and (II) the
required documentation under the Transaction Documents including any legal
opinions with respect to such transfer, then the Register shall be automatically
updated to reflect such assignment, transfer or sale (as the case may be).
Notwithstanding anything to the contrary set forth in this Section 1(h),
following the exercise of any portion of this Warrant in accordance with the
terms hereof, the Holder shall not be required to physically surrender this
Warrant to the Company unless (A) the full number of Warrant Shares represented
by this Warrant is being exercised (in which event this Warrant shall be
delivered to the Company following exercise thereof as contemplated by
Section 1(a)) or (B) the Holder has provided the Company with prior written
notice (which notice may be included in an Exercise Notice) requesting
reissuance of this Warrant upon physical surrender of this Warrant. The Holder
and the Company shall maintain records showing the Warrant Shares delivered and
the dates of such exercise and/or payments (as the case may be) or shall use
such other method, reasonably satisfactory to the Holder and the Company, so as
not to require physical surrender of this Warrant upon exercise.

2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price
and number of Warrant Shares issuable upon exercise of this Warrant are subject
to adjustment from time to time as set forth in this Section 2.

(a) Stock Dividends and Splits. Without limiting any provision of Section 2(b)
or Section 4, if the Company, at any time on or after the date of the Securities
Purchase Agreement, (i) pays a stock dividend on one or more classes of its then
outstanding shares of Common Stock or otherwise makes a distribution on any
class of capital stock that is payable in shares of Common Stock,
(ii) subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its then outstanding shares of Common Stock
into a larger number of shares or (iii) combines (by combination, reverse stock
split or otherwise) one or more classes of its then outstanding shares of Common
Stock into a smaller number of shares, then in each such case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such

 

6

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dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of
this paragraph shall become effective immediately after the effective date of
such subdivision or combination. If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated
hereunder, then the calculation of such Exercise Price shall be adjusted
appropriately to reflect such event.

(b) Adjustment Upon Issuance of Shares of Common Stock. If and whenever on or
after the date of the Securities Purchase Agreement, 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 any
Excluded Securities issued or sold or deemed to have been issued or sold) for
consideration per share (the “New Issuance Price”) less than the Exercise Price
in effect immediately prior to such issue or sale or deemed issuance or sale
(such Exercise Price then in effect is referred to as the “Applicable Price”,
and the foregoing a “Dilutive Issuance”) (such number being appropriately
adjusted to reflect the occurrence of any event described in Section 2(a)),
then, immediately after such Dilutive Issuance, the Exercise Price then in
effect shall be reduced to an amount equal to the product of (A) the Applicable
Price and (B) the quotient determined by dividing (1) the sum of (I) the product
derived by multiplying the Applicable Price and the number of shares of Common
Stock Deemed Outstanding immediately prior to such Dilutive Issuance plus (II)
the consideration, if any, received by the Company upon such Dilutive Issuance,
by (2) the product derived by multiplying (I) the Applicable Price by (II) the
number of shares of Common Stock Deemed Outstanding immediately after such
Dilutive Issuance. For all purposes of the foregoing (including, without
limitation, determining the adjusted Exercise Price, the consideration per share
and the New Issuance Price under this Section 2(b)), the following shall be
applicable:

(i) Issuance of Options. If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 2(b)(i), the “lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option” shall be equal to (1) the lower of (x) 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 such Option, upon exercise of such Option and upon conversion, exercise or
exchange of any Convertible Security issuable upon exercise of such Option and
(y) the lowest exercise price set forth in such Option for which one share of
Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option minus (2) the sum of all amounts paid or payable to
the holder of such Option (or any other Person) 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 plus
the value of any other consideration received or receivable by, or benefit
conferred

 

7

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on, the holder of such Option (or any other Person). Except as contemplated
below, no further adjustment of the Exercise 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 2(b)(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 (1) the lower of (x) 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 and (y) the lowest conversion price set forth in such
Convertible Security for which one share of Common Stock is issuable upon
conversion, exercise or exchange thereof minus (2) the sum of all amounts paid
or payable to the holder of such Convertible Security (or any other Person) upon
the issuance or sale of such Convertible Security plus the value of any other
consideration received or receivable by, or benefit conferred on, the holder of
such Convertible Security (or any other Person). Except as contemplated below,
no further adjustment of the Exercise 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 this
Warrant has been or is to be made pursuant to other provisions of this
Section 2(b), except as contemplated below, no further adjustment of the
Exercise Price shall be made by reason of such issue or sale.

(iii) Change in Option Price or Rate of Conversion. If the purchase or exercise
price provided for in any Options referred to in Section 2(b)(i), the additional
consideration, if any, payable upon the issue, conversion, exercise or exchange
of any Convertible Securities referred to in Section 2(b)(i) or 2(b)(ii), or the
rate at which any Convertible Securities referred to in Section 2(b)(i) or
2(b)(ii) are convertible into or exercisable or exchangeable for shares of
Common Stock increases or decreases at any time, the Exercise Price in effect at
the time of such increase or decrease shall be adjusted to the Exercise Price
which would have been in effect at such time had such Options or Convertible
Securities provided for such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the case may be, at
the time initially granted, issued or sold. For purposes of this
Section 2(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are increased or
decreased in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the shares of Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or decrease. No adjustment pursuant
to this Section 2(b) shall be made if such adjustment would result in an
increase of the Exercise Price then in effect.

 

8

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(iv) Calculation of Consideration Received. If any Option or Convertible
Security or Adjustment Right is issued in connection with the issuance or sale
or deemed issuance or sale of any other securities of the Company, together
comprising one integrated transaction, (x) such Option or Convertible Security
(as applicable) or Adjustment Right (as applicable) will be deemed to have been
issued for consideration equal to the Black Scholes Consideration Value thereof
and (y) the other securities issued or sold or deemed to have been issued or
sold in such integrated transaction shall be deemed to have been issued for
consideration equal to the difference of (I) the aggregate consideration
received or receivable by the Company minus (II) the Black Scholes Consideration
Value of each such Option or Convertible Security (as applicable) or Adjustment
Right (as applicable). 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 of
consideration received by the Company therefor. If any shares of Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists of
publicly traded securities, in which case the amount of consideration received
by the Company for such securities will be the arithmetic average of the VWAPs
of such security for each of the five (5) Trading Days immediately preceding the
date of receipt. If any shares of Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such shares of Common Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or publicly traded
securities will be determined jointly by the Company and the Holder. If such
parties are unable to reach agreement within ten (10) days after the occurrence
of an event requiring valuation (the “Valuation Event”), the fair value of such
consideration will be determined within five (5) Trading Days after the tenth
(10th) day following such Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the Holder. The determination of such
appraiser shall be final and binding upon all parties absent manifest error and
the fees and expenses of such appraiser shall be borne by the Company.

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

 

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(c) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise
Price pursuant to paragraph (a) of this Section 2, the number of Warrant Shares
that may be purchased upon exercise of this Warrant shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the adjusted number of Warrant Shares shall be the
same as the aggregate Exercise Price in effect immediately prior to such
adjustment (without regard to any limitations on exercise contained herein).

(d) Holder’s Right of Alternative Exercise Price Following Issuance of Certain
Options or Convertible Securities. In addition to and not in limitation of the
other provisions of this Section 2, if the Company in any manner issues or sells
any Options or Convertible Securities after the Subscription 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 Common Shares,
including by way of one or more reset(s) to a fixed price, but exclusive of such
formulations reflecting customary anti-dilution provisions (such as share
splits, share combinations, share dividends and similar transactions) (each of
the formulations for such variable price being herein referred to as, the
“Variable Price”), the Company shall provide written notice thereof via
facsimile and overnight courier to the Holder on the date of issuance of such
Convertible Securities or Options. From and after the date the Company issues
any such Convertible Securities or Options with a Variable Price, the Holder
shall have the right, but not the obligation, in its sole discretion to
substitute the Variable Price for the Exercise Price upon exercise of this
Warrant by designating in the Exercise Notice delivered upon any exercise of
this Warrant that solely for purposes of such exercise the Holder is relying on
the Variable Price rather than the Exercise Price then in effect. The Holder’s
election to rely on a Variable Price for a particular exercise of this Warrant
shall not obligate the Holder to rely on a Variable Price for any future
exercises of this Warrant.

(e) Stock Combination Event Adjustment. If at any time and from time to time on
or after the Issuance Date there occurs any stock split, stock dividend, stock
combination recapitalization or other similar transaction involving the Common
Stock (each, a “Stock Combination Event”) and the product of (i) the quotient
determined by dividing (A) the Exercise Price in effect immediately prior to the
Stock Combination Event by (B) the arithmetic average of the VWAPs during the
fifteen (15) Trading Days immediately prior to the Stock Combination Event; and
(ii) the arithmetic average of the VWAPs during the fifteen (15) Trading Days
immediately following the date of such Stock Combination Event (each, an “Event
Market Price”) is less than the Exercise Price then in effect (after giving
effect to the adjustment in clause (b) above), then on the sixteenth
(16th) Trading Day immediately following such Stock Combination Event, the
Exercise Price then in effect on such sixteenth (16th) Trading Day (after giving
effect to the adjustment in clause (b) above) shall be reduced (but in no event
increased) to the Event Market Price. 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.

(f) Other Events. In the event that the Company (or any Subsidiary (as defined
in the Securities Purchase Agreement)) shall take any action to which the
provisions hereof are not strictly applicable, or, if applicable, would not
operate to protect the Holder from dilution or if any event occurs of the type
contemplated by the provisions of this Section 2 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation

 

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rights, phantom stock rights or other rights with equity features), then the
Company’s Board of Directors shall in good faith determine and implement an
appropriate adjustment in the Exercise Price and the number of Warrant Shares
(if applicable) so as to protect the rights of the Holder, provided that no such
adjustment pursuant to this Section 2(f) will increase the Exercise Price or
decrease the number of Warrant Shares as otherwise determined pursuant to this
Section 2, provided further that if the Holder does not accept such adjustments
as appropriately protecting its interests hereunder against such dilution, then
the Company’s Board of Directors and the Holder shall agree, in good faith, upon
an independent investment bank of nationally recognized standing to make such
appropriate adjustments, whose determination shall be final and binding and
whose fees and expenses shall be borne by the Company.

(g) Calculations. All calculations under this Section 2 shall be made by
rounding to the nearest cent or the nearest 1/100th of a share, as applicable.
The number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.

(h) Exercise Floor Price. Notwithstanding the foregoing, no adjustment pursuant
to clauses (b), (d) or (e) of this Section 2 shall cause the Exercise Price to
be less than $4.01 (as adjusted for any stock dividend, stock split, stock
combination, reclassification or similar transaction occurring after the date of
the Securities Purchase Agreement) (the “Exercise Floor Price”); provided, that
nothing contained in this Section 2(h) shall apply after the Company has
obtained the written approval of its stockholders providing for the Company’s
issuance of all of the Securities (as defined in the Securities Purchase
Agreement) in accordance with applicable law and the rules and regulations of
the Principal Market prior to such date.

3. RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant
to Section 2 above, 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 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 (other than a stock dividend or other distribution of shares
of Common Stock to the extent the Company complies with Section 2(a) hereof in
connection therewith) (a “Distribution”), at any time after the Issuance Date,
then, in each such case, the Holder shall be entitled to participate in such
Distribution to the same extent that the Holder would have participated therein
if the Holder had held the number of shares of Common Stock acquirable upon
complete exercise of this Warrant by Cashless Exercise (without regard to any
limitations on exercise hereof, including without limitation, the Maximum
Percentage) immediately before 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 shares of Common Stock are to be determined for the participation in
such Distribution (provided, however, to the extent that the Holder’s right to
participate in any such Distributions would result in the Holder exceeding the
Maximum Percentage, then the Holder shall not be entitled to participate in such
Distribution to such extent (or the beneficial ownership of any such shares of
Common Stock as a result of such Distribution to such extent) and such
Distribution to such extent shall be held in abeyance for the benefit of the
Holder until such time, if ever, as its right thereto would not result in the
Holder exceeding the Maximum Percentage).

 

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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 shares 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 exercise hereof, including without limitation, the Maximum
Percentage) 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 (provided,
however, to the extent that the Holder’s right to participate in any such
Purchase Right would result in the Holder exceeding the Maximum Percentage, then
the Holder shall not be entitled to participate in such Purchase Right to such
extent (or beneficial ownership of such shares of Common Stock as a result of
such Purchase Right to such extent) and such Purchase Right to such extent shall
be held in abeyance for the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum Percentage).

(b) Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing (or,
if prior to the consummation of such Fundamental Transaction, such applicable
agreement requires the assumption of) all of the obligations of the Company
under this Warrant and the other Transaction Documents (as defined in the
Securities Purchase Agreement) in accordance with the provisions of this
Section 4(b), including agreements to deliver to the Holder in exchange for this
Warrant a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant, including, without
limitation, which is 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 with an exercise price
which applies the exercise price hereunder to such shares of capital stock (but
taking into account the relative value of the shares of Common Stock pursuant to
such Fundamental Transaction and the value of such shares of capital stock, such
adjustments to the number of shares of capital stock and such exercise price
being for the purpose of protecting the economic value of this Warrant
immediately prior to the consummation of such Fundamental Transaction) 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 consummation of each Fundamental Transaction, the Successor
Entity shall succeed to, and be substituted for (so that from and after the date
of the applicable Fundamental Transaction, the provisions of this Warrant and
the other Transaction Documents referring to the “Company” shall refer instead
to the Successor Entity), and may exercise every right and power of the Company
and shall assume all of the obligations of the Company under this Warrant and
the other Transaction Documents with the same effect as if such Successor Entity
had been named as the Company herein. Upon consummation of each 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 applicable Fundamental Transaction, in lieu of the shares of
Common

 

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Stock (or other securities, cash, assets or other property (except such items
still issuable under Sections 3 and 4(a) above, which shall continue to be
receivable thereafter)) issuable upon the exercise of this Warrant prior to the
applicable Fundamental Transaction, such shares of publicly traded common stock
(or its equivalent) of the Successor Entity (including its Parent Entity) which
the Holder would have been entitled to receive upon the happening of the
applicable Fundamental Transaction had this Warrant been exercised immediately
prior to the applicable Fundamental Transaction (without regard to any
limitations on the exercise of this Warrant), as adjusted in accordance with the
provisions of this Warrant. Notwithstanding the foregoing, and without limiting
Section 1(f) hereof, the Holder may elect, at its sole option, by delivery of
written notice to the Company to waive this Section 4(b) to permit the
Fundamental Transaction without the assumption of this Warrant. In addition to
and not in substitution for any other rights hereunder, prior to the
consummation of each 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 applicable Fundamental Transaction but prior to the
Expiration Date, in lieu of the shares of the Common Stock (or other securities,
cash, assets or other property (except such items still issuable under Sections
3 and 4(a) above, which shall continue to be receivable thereafter)) issuable
upon the exercise of the Warrant prior to such Fundamental Transaction, such
shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder
would have been entitled to receive upon the happening of the applicable
Fundamental Transaction had this Warrant been exercised immediately prior to the
applicable Fundamental Transaction (without regard to any limitations on the
exercise of this Warrant).

(c) Black Scholes Value. Notwithstanding the foregoing and the provisions of
Section 4(a) above, at the request of the Holder delivered at any time
commencing on the earliest to occur of (x) the public disclosure of any
Fundamental Transaction, (y) the consummation of any Fundamental Transaction and
(z) the Holder first becoming aware of any Fundamental Transaction (including,
without limitation, a Fundamental Transaction that is publicly disclosed,
consummated or of which the Holder first becomes aware (as the case may be)
prior to the Initial Exercisability Date) through the date that is ninety
(90) days after the public disclosure of the consummation of such Fundamental
Transaction by the Company pursuant to a Current Report on Form 8-K filed with
the SEC, the Company or the Successor Entity (as the case may be) shall promptly
purchase this Warrant from the Holder (but in no event prior to the later of
(A) the third (3rd) Trading Day after the date of such request and (B) the date
of the consummation of such Fundamental Transaction) by paying to the Holder
cash in an amount equal to the Black Scholes Value.

(d) Application. The provisions of this Section 4 shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied as if this Warrant (and any such subsequent warrants) were fully
exercisable and without regard to any limitations on the exercise of this
Warrant (provided that the Holder shall continue to be entitled to the benefit
of the Maximum Percentage, applied however with respect to shares of capital
stock registered under the 1934 Act and thereafter receivable upon exercise of
this Warrant (or any such other warrant)).

 

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5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of its Articles of Incorporation (as defined in the
Securities Purchase Agreement), Bylaws (as defined in the Securities Purchase
Agreement) or through any reorganization, transfer of assets, consolidation,
merger, scheme of arrangement, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this 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 reasonably
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable 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, the maximum 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 its 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 its 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 it 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 (that are not filed with
or furnished to the SEC) 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

 

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Warrant (as to which a written certification and the indemnification
contemplated below shall suffice as such evidence), and, in the case of loss,
theft or destruction, of any indemnification undertaking by the Holder to the
Company in customary and reasonable form and, in the case of mutilation, upon
surrender and cancellation of this 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, 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 each adjustment of the
Exercise Price and the number of Warrant Shares, setting forth in reasonable
detail, and certifying, the calculation of such adjustment(s) 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 and (iii) at least ten (10) Trading Days prior to the
consummation of any Fundamental Transaction. To the extent that any notice
provided hereunder constitutes, or contains, material, non-public information
regarding the Company or any of its Subsidiaries, the Company shall
simultaneously file such notice with the SEC (as defined in the Securities
Purchase Agreement) pursuant to a Current Report on Form 8-K. It is expressly
understood and agreed that the time of execution specified by the Holder in each
Exercise Notice shall be definitive and may not be disputed or challenged by the
Company.

 

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9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of
this Warrant (other than Section 1(f)) 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
Holder. No waiver shall be effective unless it is in writing and signed by an
authorized representative of the waiving party.

10. 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).

11. 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 regard to conflict of law
principles that would result in the application of any laws other than the laws
of the State of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
Section 9(f) of the Securities Purchase Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

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

 

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13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price, the Closing Sale Price or fair market value or the arithmetic
calculation of the Warrant Shares (as the case may be), the Company or the
Holder (as the case may be) shall submit the disputed determinations or
arithmetic calculations (as the case may be) via facsimile (i) within two
(2) Business Days after receipt of the applicable notice giving rise to such
dispute to the Company or the Holder (as the case may be) or (ii) if no notice
gave rise to such dispute, at any time after the Holder learned of the
circumstances giving rise to such dispute (including, without limitation, as to
whether any issuance or sale or deemed issuance or sale was an issuance or sale
or deemed issuance or sale of Excluded Securities). If the Holder and the
Company are unable to agree upon such determination or calculation (as the case
may be) of the Exercise Price, the Closing Sale Price or fair market value or
the number of Warrant Shares (as the case may be) within three (3) Business Days
of such disputed determination or arithmetic calculation being submitted to the
Company or the Holder (as the case may be), then the Company shall, within two
(2) Business Days submit via facsimile (a) the disputed determination of the
Exercise Price, the Closing Sale Price or fair market value (as the case may be)
to an independent, reputable investment bank selected by the Company and
reasonably acceptable to 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 (as the case may be)
and notify the Company and the Holder of the results no later than ten
(10) Business Days from the time it receives such disputed determinations or
calculations (as the case may be). Such investment bank’s or accountant’s
determination or calculation (as the case may be) shall be binding upon all
parties absent manifest error.

14. REMEDIES, CHARACTERIZATION, 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; provided, however, that the Holder waives
any consequential damages it may suffer from any failure by the Company to
comply with the terms of this Warrant. The Company covenants to the Holder that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, exercises 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 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. The Company shall provide all
information and documentation to the Holder that is requested by the Holder to
enable the Holder to confirm the Company’s compliance with the terms and
conditions of this Warrant

 

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(including, without limitation, compliance with Section 2 hereof). The issuance
of shares and certificates for shares as contemplated hereby upon the exercise
of this Warrant shall be made without charge to the Holder or such shares for
any issuance tax or other costs in respect thereof, provided that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than the Holder or its agent on its behalf.

15. TRANSFER. Subject to Section 1(h), 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(h) of the Securities Purchase Agreement.

 

16. TAX MATTERS.

The Holder of this Warrant, by accepting this Warrant, acknowledges and agrees
as follows:

(a) On or prior to the date it acquires this Warrant, the Holder will timely
furnish the Company or its agents any United States federal income tax form or
certification (such as IRS Form W-8BEN, Form W-8IMY, IRS Form W-9, or IRS Form
W-8ECI or any successors to such IRS forms), or other information, form or
certificate (including any information or certifications specified under
Sections 1471-1474 of the Internal Revenue Code of 1986, as amended (the
“Code”), that the Company or its agents may reasonably request and will update
or replace such form or certification in accordance with its terms or its
subsequent amendments.

(b) If the Company pays withholding taxes on behalf of the Holder with respect
to this Warrant that it cannot immediately offset by reducing the amount of a
related payment (such as withholding taxes imposed as a result of the
application of Section 305(c) of the Code), the Holder will, within 10 business
days of written notice. reimburse the Company for the amounts specified in such
notice.

(c) The Holder will file all tax returns in a manner consistent with
Section 1(c) of the Securities Purchase Agreement unless otherwise required to
take a different position following a determination within the meaning of
Section 1313 of the Code to the contrary.

 

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

(a) “Additional Notes” shall have the meaning ascribed to such term in the
Securities Purchase Agreement, and shall include all notes issued in exchange
therefor or replacement thereof.

(b) “Adjustment Right” means any right granted with respect to any securities
issued in connection with, or with respect to, any issuance or sale (or deemed
issuance or sale in accordance with Section 2) of shares of Common Stock (other
than rights of the type described in Sections 3 and 4 hereof) that could result
in a decrease in the net consideration received by the Company in connection
with, or with respect to, such securities (including, without limitation, any
cash settlement rights, cash adjustment or other similar rights).

 

18

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(c) “Approved Stock Plan” means any employee benefit or incentive plan which has
been approved by the Board of Directors of the Company prior to or subsequent to
the date hereof pursuant to which shares of Common Stock, options to purchase
Common Stock, stock appreciation rights, restricted shares of Common Stock,
restricted stock units and other stock-based awards may be issued to any
employee, officer, director or consultant for services provided to the Company
in their capacity as such.

(d) “Black Scholes Consideration Value” means the value of the applicable
Option, Convertible Security or Adjustment Right (as the case may be) as of the
date of issuance thereof calculated using the Black Scholes Option Pricing Model
obtained from the “OV” function on Bloomberg utilizing (i) an underlying price
per share equal to the Closing Sale Price of the Common Stock on the Trading Day
immediately preceding the public announcement of the execution of definitive
documents with respect to the issuance of such Option, Convertible Security or
Adjustment Right (as the case may be), (ii) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term
of such Option, Convertible Security or Adjustment Right (as the case may be) as
of the date of issuance of such Option, Convertible Security or Adjustment Right
(as the case may be), (iii) a zero cost of borrow and (iv) an expected
volatility equal to the greater of 100% and the 100 day volatility obtained from
the HVT function on Bloomberg (determined utilizing a 260 day annualization
factor) as of the Trading Day immediately following the date of issuance of such
Option, Convertible Security or Adjustment Right (as the case may be).

(e) “Black Scholes Value” means the value of the unexercised portion of this
Warrant remaining on the date of the Holder’s request pursuant to Section 4(c),
which value is calculated using the Black Scholes Option Pricing Model obtained
from the “OV” function on Bloomberg utilizing (i) an underlying price per share
equal to the greater of (1) the highest Closing Sale Price of the Common Stock
during the period beginning on the Trading Day immediately preceding the
earliest to occur of (x) the public disclosure of the applicable Fundamental
Transaction, (y) the consummation of the applicable Fundamental Transaction and
(z) the date on which the Holder first became aware of the applicable
Fundamental Transaction and ending on the Trading Day of the Holder’s request
pursuant to Section 4(c) and (2) the sum of the price per share being offered in
cash in the applicable Fundamental Transaction (if any) plus the value of the
non-cash consideration being offered in the applicable Fundamental Transaction
(if any), (ii) a strike price equal to the Exercise Price in effect on the date
of the Holder’s request pursuant to Section 4(c), (iii) a zero cost of borrow,
(iv) a risk-free interest rate corresponding to the U.S. Treasury rate for a
period equal to the greater of (1) the remaining term of this Warrant as of the
date of the Holder’s request pursuant to Section 4(c) and (2) the remaining term
of this Warrant as of the date of consummation of the applicable Fundamental
Transaction or as of the date of the Holder’s request pursuant to Section 4(c)
if such request is prior to the date of the consummation of the applicable
Fundamental Transaction, and (v) an expected volatility equal to the greater of
100% and the 30 day volatility obtained from the HVT function on Bloomberg
(determined utilizing a 260 day annualization factor) as of the Trading Day
immediately following the public disclosure of the applicable Fundamental
Transaction (or, solely to the extent such Fundamental Transaction is not
disclosed to the public, the date of the consummation of the such Fundamental
Transaction).

(f) “Bloomberg” means Bloomberg, L.P.

 

19

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(g) “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.

(h) “Closing Sale Price” means, for any security as of any date, the last
closing trade price 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 trade price, then the last trade price
of such security prior to 4:00:00 p.m., New York City time, as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange
or trading market for such security, the last trade price 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 does not apply,
the last trade price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
last trade price is reported for such security by Bloomberg, the average of the
ask prices of any market makers for such security as reported in the “pink
sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the Closing
Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Sale 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 in accordance with the
procedures in Section 13. All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination,
recapitalization or other similar transaction during such period.

(i) “Common Stock” means (i) the Company’s shares of common stock, $0.01 par
value per share, and (ii) any capital stock into which such common stock shall
have been changed or any share capital resulting from a reclassification of such
common stock.

(i) “Common Stock Deemed Outstanding” means, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 2(b)(i) and
2(b)(ii) hereof regardless of whether the Options or Convertible Securities are
actually exercisable at such time, but excluding any shares of Common Stock
owned or held by or for the account of the Company or issuable upon conversion
and exercise, as applicable, of the Notes and the Warrants.

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

(k) “Eligible Market” means The New York Stock Exchange, the NYSE Amex, the
Nasdaq Global Market, the Nasdaq Capital Market or the Principal Market.

(l) “Excluded Securities” means any (i) shares of Common Stock, Options, stock
appreciation rights, restricted shares of Common Stock, restricted stock units
and other stock-based awards to directors, officers, employees or consultants of
the Company in their capacity as such pursuant to an Approved Stock Plan (as
defined below); (ii) Convertible Securities or Options and shares of Common
Stock issued upon the conversion or exercise of such

 

20

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Convertible Securities or Options, in each case, issued pursuant to a Rights
Plan (as defined in the Securities Purchase Agreement) approved by the Board of
Directors of the Company, (iii) shares of Common Stock issued upon the
conversion or exercise of Convertible Securities (other than options to purchase
Common Stock issued pursuant to an Approved Stock Plan that are covered by
clause (i) above) issued prior to the date hereof; provided that the conversion
price of any such Convertible Securities (other than options to purchase Common
Stock issued pursuant to an Approved Stock Plan that are covered by clause
(i) above) is not lowered, none of such Convertible Securities (other than
options to purchase Common Stock issued pursuant to an Approved Stock Plan that
are covered by clause (i) above) are amended to increase the number of shares
issuable thereunder and none of the terms or conditions of any such Convertible
Securities (other than options to purchase Common Stock issued pursuant to an
Approved Stock Plan that are covered by clause (i) above) are otherwise
materially changed in any manner that adversely affects any of the Buyers;
(iv) the shares of Common Stock issuable upon conversion of the Notes or
otherwise pursuant to the terms of the Notes, (v) the shares of Common Stock
issuable upon exercise of the SPA Warrants, (vi) the shares of Common Stock or
Options issued to financial institutions or lessors in connection with
commercial credit arrangements, equipment financings or similar transactions
(excluding any shares of Common Stock issuable upon conversion or exercise of
any Convertible Securities); (vii) the shares of Common Stock or Options issued
in connection with strategic alliances, acquisitions, mergers, and strategic
partnerships, provided, that (A) the primary purpose of such issuance is not to
raise capital as determined in good faith by the Board of Directors of the
Company, (B) the purchaser or acquirer of the securities in such issuance solely
consists of either (x) the actual participants in such strategic alliance or
strategic partnership, (y) the actual owners of such assets or securities
acquired in such acquisition or merger or (z) the stockholders, partners or
members of the foregoing Persons and (C) number or amount of securities issued
to such Person by the Company shall not be disproportionate (as determined in
good faith by the Board of Directors of the Company) to either (x) the fair
market value of such Person’s actual contribution to such strategic alliance or
strategic partnership or (y) the proportional ownership of such assets or
securities to be acquired by the Company, as applicable; and (viii) shares of
Common Stock or Options issued to vendors to settle bona fide trade liabilities.

(m) “Expiration Date” means the date that is the fifth (5th) anniversary of 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 date that is not a Holiday.

(n) “Fundamental Transaction” means that (i) directly or indirectly, in one or
more related transactions, (1) the Company or any of its Subsidiaries shall
consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) the Company
and its Subsidiaries shall, as determined on a consolidated basis, sell, lease,
license, assign, transfer, convey or otherwise dispose of all or substantially
all of their properties or assets to any other Person, or (3) the Company or any
of its Subsidiaries shall allow any other Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than 50% of the
outstanding shares of Voting Stock of the Company (not including any shares of
Voting Stock of the Company 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 (4) the Company or any of its Subsidiaries shall
consummate a stock or share purchase agreement or other business combination
(including, without limitation, a

 

21

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reorganization, recapitalization, spin-off or scheme of arrangement) with any
other Person whereby such other Person acquires more than 50% of the outstanding
shares of Voting Stock of the Company (not including any shares of Voting Stock
of the Company 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
or share purchase agreement or other business combination), or (5) the Company
shall reorganize, recapitalize or reclassify the Common Stock, or (ii) any
“person” or “group” (as these terms are used for purposes of Sections 13(d) and
14(d) of the 1934 Act and the rules and regulations promulgated thereunder) 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 Voting Stock of the Company.

(o) “Initial Notes” shall have the meaning ascribed to such term in the
Securities Purchase Agreement, and shall include all notes issued in exchange
therefor or replacement thereof.

(p) “Notes” means, collectively, the Initial Notes and the Additional Notes.

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

(r) “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.

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

(t) “Principal Market” means the Nasdaq Global Select Market.

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

(v) “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 City time).

 

22

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(w) “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).

(x) “VWAP” means, for any security as of any date, the dollar volume weighted
average price for such security on the Principal Market (or, if the Principal
Market is not the principal trading market for such security, then on the
principal securities exchange or securities market on which such security is
then traded) during the period beginning at 9:30:01 a.m., New York City time,
and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg through
its “Volume at Price” function or, if the foregoing does not apply, the dollar
volume weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City
time, as reported by Bloomberg, or, if no dollar volume weighted average price
is reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the “pink sheets” by OTC Markets Group
Inc. (formerly Pink Sheets LLC). If VWAP cannot be calculated for such security
on such date on any of the foregoing bases, the VWAP of such security on such
date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute shall be resolved in accordance
with the procedures in Section 13. All such determinations shall be
appropriately adjusted for any stock splits, stock dividends, stock
combinations, recapitalizations or other similar transactions during such
period.

[signature page follows]

 

23

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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.

 

AMERICAN SUPERCONDUCTOR CORPORATION

By:

 

 

  Name:   Title:

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EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

AMERICAN SUPERCONDUCTOR CORPORATION

The undersigned holder hereby exercises the right to purchase
                     of the shares of Common Stock (“Warrant Shares”) of
American Superconductor Corporation, a Delaware corporation (the “Company”),
evidenced by the Warrant to Purchase Common Stock No.                      (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, or its
designee or agent as specified below,                      Warrant Shares in
accordance with the terms of the Warrant. Delivery shall be made to the Holder,
or for its benefit, to the following address:

 

                                         

                                         

                                         

4. Compliance with Maximum Percentage. By delivering this Exercise Notice, the
Holder hereby represents that, after giving effect to the exercise provided for
in this Exercise Notice, the Holder will not have direct or indirect beneficial
ownership of a number of shares of Common Stock which exceeds the Maximum
Percentage (as defined in the Warrant) as of the date of this Exercise Notice.

 

 

    Name of Registered Holder

 

By:  

 

  Name:   Title:

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EXHIBIT B

ACKNOWLEDGMENT

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

 

AMERICAN SUPERCONDUCTOR CORPORATION

By:  

 

  Name:   Title:

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EXHIBIT C

Registration Rights Agreement

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

[FORM OF REGISTRATION RIGHTS AGREEMENT]

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of April 4,
2012, is entered into by and among American Superconductor Corporation, a
Delaware corporation with offices located at 64 Jackson Road, Devens, MA 01434
(the “Company”), and the undersigned buyers (each, a “Buyer,” and collectively,
the “Buyers”).

RECITALS

A. In connection with the Securities Purchase Agreement by and among the parties
hereto, dated as of April 2, 2012 (the “Securities Purchase Agreement”), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to each Buyer at the Initial
Closing (as defined in the Securities Purchase Agreement) (i) the Initial Notes
(as defined in the Securities Purchase Agreement) which will be convertible into
Conversion Shares (as defined in the Securities Purchase Agreement) in
accordance with the terms of the Initial Notes and (ii) the Series A Warrants
(as defined in the Securities Purchase Agreement) which will be exercisable to
purchase Warrant Shares (as defined in the Securities Purchase Agreement) in
accordance with the terms of the Series A Warrants.

B. Subject to the terms and conditions set forth in the Securities Purchase
Agreement, the Company may require one of the Buyers to participate in an
Additional Closing (as defined in the Securities Purchase Agreement) for the
purchase by such Buyer, and the sale by the Company, of (i) the Additional Notes
(as defined in the Securities Purchase Agreement) and (ii) the Series B Warrants
(as defined in the Securities Purchase Agreement).

C. The Initial Notes and Additional Notes may be entitled to interest, which, at
the option of the Company and subject to certain conditions, may be paid in
Interest Shares (as defined in the Securities Purchase Agreement) or in cash.

D. To induce the Buyers to consummate the transactions contemplated by the
Securities Purchase Agreement, the Company has agreed to provide the Buyers
certain registration rights under the Securities Act of 1933, as amended, and
the rules and regulations thereunder, or any similar successor statute
(collectively, the “1933 Act”), and applicable state securities laws.

AGREEMENT

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

 

1. Definitions.

Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement. As used in
this Agreement, the following terms shall have the following meanings:

(a) “Additional Closing Date” shall have the meaning set forth in the Securities
Purchase Agreement.

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(b) “Additional Registrable Securities” means (i) the Conversion Shares issuable
upon conversion of the Additional Notes, (ii) the Interest Shares issuable
pursuant to the Additional Notes, (iii) the Warrant Shares issuable upon
exercise of the Series B Warrants and (iv) any capital stock of the Company
issued or issuable with respect to such Conversion Shares, such Warrant Shares,
such Interest Shares, the Additional Notes or the Series B Warrants, including,
without limitation, (1) as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise and (2) shares of
capital stock of the Company into which the shares of Common Stock (as defined
in the Additional Notes) are converted or exchanged and shares of capital stock
of a Successor Entity (as defined in the Series B Warrants) into which the
shares of Common Stock are converted or exchanged, in each case, without regard
to any limitations on conversion of the Additional Notes or exercise of the
Series B Warrants; provided, however, that Additional Registrable Securities
shall not include any equity securities which (A) have been sold in a registered
offering pursuant to the 1933 Act or (B) are eligible for resale by a Person who
is not an “affiliate” (as defined in Rule 144) of the Company pursuant to Rule
144 without restriction (including, without limitation, volume restrictions) and
without the need for current public information required by Rule 144(c)(1) (or
Rule 144(i)(2), if applicable).

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

(d) “Effective Date” means the date that the applicable Registration Statement
has been declared effective by the SEC.

(e) “Effectiveness Deadline” means (i) with respect to the initial Registration
Statement required to be filed pursuant to Section 2(a), the earlier of the
(A) 90th calendar day after the Initial Closing Date (or the 120th calendar day
after the Initial Closing Date in the event that such Registration Statement is
subject to a limited or full review by the SEC) and (B) 2nd Business Day after
the date the Company is notified (orally or in writing, whichever is earlier) by
the SEC that such Registration Statement will not be reviewed or will not be
subject to further review, (ii) with respect to the initial Registration
Statement required to be filed pursuant to Section 2(b), the earlier of the
(A) 90th calendar day after the Additional Closing Date (or the 120th calendar
day after the Additional Closing Date in the event that such Registration
Statement is subject to a limited or full review by the SEC) and (B) 2nd
Business Day after the date the Company is notified (orally or in writing,
whichever is earlier) by the SEC that such Registration Statement will not be
reviewed or will not be subject to further review, and (iii) with respect to any
additional Registration Statements that may be required to be filed by the
Company pursuant to this Agreement, the earlier of the (A) 90th calendar day
following the date on which the Company was required to file such additional
Registration Statement (or the 120th calendar following the date on which the
Company was required to file such additional Registration Statement in the event
that such Registration Statement is subject to a limited or full review by the
SEC) and (B) 2nd Business Day after the date the Company is notified (orally or
in writing, whichever is earlier) by the SEC that such Registration Statement
will not be reviewed or will not be subject to further review.

 

2

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(f) “Filing Deadline” means (i) with respect to the initial Registration
Statement required to be filed pursuant to Section 2(a), the 30th calendar day
after the Initial Closing Date, (ii) with respect to the initial Registration
Statement required to be filed pursuant to Section 2(b), the 5th calendar day
after the Additional Closing Date, and (ii) with respect to any additional
Registration Statements that may be required to be filed by the Company pursuant
to this Agreement, the date on which the Company was required to file such
additional Registration Statement pursuant to the terms of this Agreement.

(g) “Initial Closing Date” shall have the meaning set forth in the Securities
Purchase Agreement.

(h) “Initial Registrable Securities” means (i) the Conversion Shares issuable
upon conversion of the Initial Notes, (ii) the Interest Shares issuable pursuant
to the Initial Notes, (iii) the Warrant Shares issuable upon exercise of the
Series A Warrants and (iv) any capital stock of the Company issued or issuable
with respect to such Conversion Shares, such Warrant Shares, such Interest
Shares, the Initial Notes or the Series A Warrants, including, without
limitation, (1) as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise and (2) shares of
capital stock of the Company into which the shares of Common Stock (as defined
in the Initial Notes) are converted or exchanged and shares of capital stock of
a Successor Entity (as defined in the Series A Warrants) into which the shares
of Common Stock are converted or exchanged, in each case, without regard to any
limitations on conversion of the Initial Notes or exercise of the Series A
Warrants; provided, however, that Initial Registrable Securities shall not
include any equity securities which (A) have been sold in a registered offering
pursuant to the 1933 Act or (B) are eligible for resale by a Person who is not
an “affiliate” (as defined in Rule 144) of the Company pursuant to Rule 144
without restriction (including, without limitation, volume restrictions) and
without the need for current public information required by Rule 144(c)(1) (or
Rule 144(i)(2), if applicable).

(i) “Investor” means a Buyer or any transferee or assignee of any Registrable
Securities, Notes or Warrants, as applicable, to whom a Buyer assigns its rights
under this Agreement and who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 and any transferee or assignee thereof to
whom a transferee or assignee of any Registrable Securities, Notes or Warrants,
as applicable, assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9.

(j) “Notes” means the Initial Notes and the Additional Notes, as applicable.

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

(l) “register,” “registered,” and “registration” refer to a registration
effected by preparing and filing one or more Registration Statements in
compliance with the 1933 Act and pursuant to Rule 415 and the declaration of
effectiveness of such Registration Statement(s) by the SEC.

 

3

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(m) “Registrable Securities” means the Initial Registrable Securities and the
Additional Registrable Securities.

(n) “Registration Statement” means a registration statement or registration
statements of the Company filed under the 1933 Act covering Registrable
Securities.

(o) “Required Holders” means the holders of 2/3rds of the Registrable Securities
(excluding any Registrable Securities held by the Company or any of its
Subsidiaries).

(p) “Required Additional Registration Amount” means the sum of (i) 120% of the
maximum number of Conversion Shares issued and issuable pursuant to the
Additional Notes (determined without taking into account any limitations on the
conversion of the Additional Notes set forth therein and assuming that the
Additional Notes are convertible at the initial Conversion Price (as defined in
the Additional Notes)), (ii) the maximum number of Interest Shares issued and
issuable pursuant to the terms of the Additional Notes from the Additional
Closing Date through the maturity date of the Additional Notes (determined
without taking into account any limitations on the conversion of the Additional
Notes set forth therein and assuming that the Additional Notes are convertible
at the initial Conversion Price (as defined in the Additional Notes, and
assuming no anti-dilution adjustments)) and (iii) the maximum number of Warrant
Shares issued and issuable pursuant to the Series B Warrants, in each case, as
of the Trading Day (as defined in the Series B Warrants) immediately preceding
the applicable date of determination (determined without taking into account any
limitations on the exercise of the Series B Warrants set forth therein, and
assuming no anti-dilution adjustments); provided, however, that the Required
Additional Registration Amount will not include any Conversion Shares, Interest
Shares and Warrant Shares that are no longer Additional Registrable Securities.

(q) “Required Initial Registration Amount” means the sum of (i) 120% of the
maximum number of Conversion Shares issued and issuable pursuant to the Initial
Notes (determined without taking into account any limitations on the conversion
of the Initial Notes set forth therein and assuming that the Initial Notes are
convertible at the initial Conversion Price (as defined in the Initial Notes)),
(ii) the maximum number of Interest Shares issued and issuable pursuant to the
terms of the Initial Notes from the Initial Closing Date through the maturity
date of the Initial Notes (determined without taking into account any
limitations on the conversion of the Initial Notes set forth therein and
assuming that the Initial Notes are convertible at the initial Conversion Price
(as defined in the Initial Notes)) and (iii) the maximum number of Warrant
Shares issued and issuable pursuant to the Series A Warrants, in each case, as
of the Trading Day (as defined in the Series A Warrants) immediately preceding
the applicable date of determination (without taking into account any
limitations on the exercise of the Series A Warrants set forth therein);
provided, however, that the Required Additional Registration Amount will not
include any Conversion Shares, Interest Shares and Warrant Shares that are no
longer Initial Registrable Securities.

(r) “Required Registration Amount” means the Required Initial Registration
Amount or the Required Additional Registration Amount, as applicable.

(s) “Rule 144” means Rule 144 promulgated by the SEC under the 1933 Act, as such
rule may be amended from time to time, or any other similar or successor rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration.

 

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(t) “Rule 415” means Rule 415 promulgated by the SEC under the 1933 Act, as such
rule may be amended from time to time, or any other similar or successor rule or
regulation of the SEC providing for offering securities on a continuous or
delayed basis.

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

(v) “Warrants” means the Series A Warrants and the Series B Warrants, as
applicable.

 

2. Registration.

(a) Mandatory Initial Registration. Following the Initial Closing, the Company
shall prepare and, as soon as practicable, but in no event later than the
applicable Filing Deadline, file with the SEC an initial Registration Statement
on Form S-1 covering the resale of all of the Initial Registrable Securities,
provided that such initial Registration Statement shall register for resale at
least the number of shares of Common Stock equal to the Required Initial
Registration Amount as of the date such Registration Statement is initially
filed with the SEC. Such initial Registration Statement, and each other
Registration Statement required to be filed pursuant to the terms of this
Agreement, shall contain (except if otherwise directed by the Required Holders)
the “Selling Stockholders” and “Plan of Distribution” sections in substantially
the form attached hereto as Exhibit B. The Company shall use reasonable best
efforts to have such initial Registration Statement, and each other Registration
Statement required to be filed pursuant to the terms of this Agreement, declared
effective by the SEC as soon as practicable, but in no event later than the
applicable Effectiveness Deadline for such Registration Statement.

(b) Mandatory Additional Registration. Following the Additional Closing, the
Company shall prepare and, as soon as practicable, but in no event later than
the applicable Filing Deadline, file with the SEC an initial Registration
Statement on Form S-1 covering the resale of all of the Additional Registrable
Securities, provided that such initial Registration Statement shall register for
resale at least the number of shares of Common Stock equal to the Required
Additional Registration Amount as of the date such Registration Statement is
initially filed with the SEC. Such initial Registration Statement, and each
other Registration Statement required to be filed pursuant to the terms of this
Agreement, shall contain (except if otherwise directed by the Required Holders)
the “Selling Stockholders” and “Plan of Distribution” sections in substantially
the form attached hereto as Exhibit B. The Company shall use reasonable best
efforts to have such initial Registration Statement, and each other Registration
Statement required to be filed pursuant to the terms of this Agreement, declared
effective by the SEC as soon as practicable, but in no event later than the
applicable Effectiveness Deadline for such Registration Statement.

(c) Legal Counsel. Subject to Section 5 hereof, Greenberg Traurig, LLP, counsel
solely to the lead investor (“Legal Counsel”) shall review and oversee any
registration, solely on behalf of the lead investor, pursuant to this Section 2.

 

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(d) Ineligibility to Use Form S-3. During the Registration Period, in the event
that Form S-3 is not available for the registration of the resale of Registrable
Securities hereunder and the Company registers the resale of such Registrable
Securities on Form S-1 (or such other form as permitted by the SEC, from time to
time), the Company shall undertake to register the resale of such Registrable
Securities on Form S-3 as soon as such form is available, provided that the
Company shall maintain the effectiveness of all Registration Statements with
respect to such Registrable Securities then in effect until such time as a
Registration Statement on Form S-3 covering the resale of such Registrable
Securities has been declared effective by the SEC and the prospectus contained
therein is available for use.

(e) Sufficient Number of Shares Registered. In the event the number of shares
available under any Registration Statement is insufficient to cover all of the
Registrable Securities required to be covered by such Registration Statement or
an Investor’s allocated portion of the Registrable Securities pursuant to
Section 2(i), the Company shall amend such Registration Statement (if
permissible), or file with the SEC a new Registration Statement (on the short
form available therefor, if applicable), or both, so as to cover at least the
Required Registration Amount as of the Trading Day (as defined in the Notes and
the Warrants) immediately preceding the date of the filing of such amendment or
new Registration Statement, in each case, as soon as practicable, but in any
event not later than fifteen (15) days after the necessity therefor arises (but
taking account of any position of the staff of the SEC (the “Staff”) with
respect to the date on which the Staff will permit such amendment to the
Registration Statement and/or such new Registration Statement (as the case may
be) to be filed with the SEC). The Company shall use its reasonable best efforts
to cause such amendment to such Registration Statement and/or such new
Registration Statement (as the case may be) to become effective as soon as
practicable following the filing thereof with the SEC, but in no event later
than the applicable Effectiveness Deadline for such Registration Statement. For
purposes of the foregoing provision, the number of shares available under a
Registration Statement shall be deemed “insufficient to cover all of the
Registrable Securities” if at any time the number of shares of Common Stock
available for resale under the applicable Registration Statement is less than
the product determined by multiplying (i) the applicable Required Registration
Amount as of such time by (ii) 0.90. The calculation set forth in the foregoing
sentence shall be made without regard to any limitations on (i) conversion of
the Notes (and such calculation shall assume that the Notes are then fully
convertible into shares of Common Stock at the then-prevailing applicable
Conversion Price (as defined in the Notes)) and (ii) exercise of the Warrants
(and such calculation shall assume that the Warrants are then fully exercisable
for shares of Common Stock at the then-prevailing applicable Exercise Price (as
defined in the Warrants)).

(f) Effect of Failure to File and Obtain and Maintain Effectiveness of any
Registration Statement. If (i) a Registration Statement covering the resale of
all of the Registrable Securities required to be covered thereby (disregarding
any reduction pursuant to Section 2(g)) and required to be filed by the Company
pursuant to this Agreement is (A) not filed with the SEC on or before the Filing
Deadline for such Registration Statement (a “Filing Failure”) (it being
understood that if the Company files a Registration Statement without affording
each Investor the opportunity to review and comment on the same as required by
Section 3(c) hereof, the Company shall be deemed to not have satisfied this
clause (i)(A) and such event shall be deemed to be a Filing Failure) or (B) not
declared effective by the SEC on or

 

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before the Effectiveness Deadline for such Registration Statement (an
“Effectiveness Failure”) (it being understood that if on the Business Day
immediately following the Effective Date for such Registration Statement the
Company shall not have filed a “final” prospectus for such Registration
Statement with the SEC under Rule 424(b) in accordance with Section 3(b)
(whether or not such a prospectus is technically required by such rule), the
Company shall be deemed to not have satisfied this clause (i)(B) and such event
shall be deemed to be an Effectiveness Failure), (ii) other than during an
Allowable Grace Period (as defined below), on any day after the Effective Date
of a Registration Statement sales of all of the Registrable Securities required
to be included on such Registration Statement (disregarding any reduction
pursuant to Section 2(g)) cannot be made pursuant to such Registration Statement
(including, without limitation, because of a failure to keep such Registration
Statement effective, a failure to disclose such information as is necessary for
sales to be made pursuant to such Registration Statement, a suspension or
delisting of (or a failure to timely list) the shares of Common Stock on the
Principal Market (as defined in the Securities Purchase Agreement), or a failure
to register a sufficient number of shares of Common Stock or by reason of a stop
order) or the prospectus contained therein is not available for use for any
reason (a “Maintenance Failure”), or (iii) if a Registration Statement is not
effective for any reason or the prospectus contained therein is not available
for use for any reason, the Company fails to file with the SEC any required
reports under Section 13 or 15(d) of the 1934 Act such that it is not in
compliance with Rule 144(c)(1) (or Rule 144(i)(2), if applicable) (a “Current
Public Information Failure”) as a result of which any of the Investors are
unable to sell Registrable Securities under Rule 144, then, as the sole monetary
relief for the damages to any holder by reason of any such delay in, or
reduction of, its ability to sell the underlying shares of Common Stock (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Company shall pay to each holder of Registrable Securities relating
to such Registration Statement an amount in cash equal to two percent (2%) of
the principal amount then outstanding of such Investor’s Note (1) on the date of
such Filing Failure, Effectiveness Failure, Maintenance Failure or Current
Public Information Failure, as applicable (provided, however, there shall be
only one payment of any such amount if there exists multiple failures at the
same time), and (2) on every thirty (30) day anniversary of (I) a Filing Failure
until such Filing Failure is cured; (II) an Effectiveness Failure until such
Effectiveness Failure is cured; (III) a Maintenance Failure until such
Maintenance Failure is cured; and (IV) a Current Public Information Failure
until the earlier of (i) the date such Current Public Information Failure is
cured and (ii) such time that such public information is no longer required
pursuant to Rule 144 (in each case, pro rated for periods totaling less than
thirty (30) days) (provided, however, there shall be only one payment of any
such amount for any Registration Statement if there exists multiple failures at
the same time). The payments to which a holder of Registrable Securities shall
be entitled pursuant to this Section 2(f) are referred to herein as
“Registration Delay Payments.” Following the initial Registration Delay Payment
for any particular event or failure (which shall be paid on the date of such
event or failure, as set forth above), without limiting the foregoing, if an
event or failure giving rise to the Registration Delay Payments is cured prior
to the thirtieth (30th) day after such event or failure, then such Registration
Delay Payment shall be made on the third (3rd) Business Day after such cure.
Notwithstanding the foregoing, no Registration Delay Payments shall accrue or
otherwise become payable to an Investor (other than with respect to a
Maintenance Failure resulting from a suspension or delisting of (or a failure to
timely list) the shares of Common Stock on an Eligible Market (as defined in the
Notes)) with respect to any period during which all of such Investor’s

 

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Registrable Securities may be sold by such Investor without restriction under
Rule 144 (including, without limitation, volume restrictions) and without the
need for current public information required by Rule 144(c)(1) (or Rule
144(i)(2), if applicable).

(g) Offering. Notwithstanding anything to the contrary contained in this
Agreement, in the event the Staff or the SEC seeks to characterize any offering
pursuant to a Registration Statement filed pursuant to this Agreement as
constituting an offering of securities by, or on behalf of, the Company, or in
any other manner, such that the Staff or the SEC do not permit such Registration
Statement to become effective and used for resales in a manner that does not
constitute such an offering and that permits the continuous resale at the market
by the Investors participating therein (or as otherwise may be acceptable to
each Investor) without being named therein as an “underwriter,” then the Company
shall reduce the number of shares to be included in such Registration Statement
by all Investors until such time as the Staff and the SEC shall so permit such
Registration Statement to become effective as aforesaid. In making such
reduction, the Company shall reduce the number of shares to be included by all
Investors on a pro rata basis (based upon the number of Registrable Securities
otherwise required to be included for each Investor) unless the inclusion of
shares by a particular Investor or a particular set of Investors are resulting
in the Staff or the SEC’s “by or on behalf of the Company” offering position, in
which event the shares held by such Investor or set of Investors shall be the
only shares subject to reduction (and if by a set of Investors on a pro rata
basis by such Investors or on such other basis as would result in the exclusion
of the least number of shares by all such Investors); provided, that, with
respect to such pro rata portion allocated to any Investor, such Investor may
elect the allocation of such pro rata portion among the Registrable Securities
of such Investor. In addition, in the event that the Staff or the SEC requires
any Investor seeking to sell securities under a Registration Statement filed
pursuant to this Agreement to be specifically identified as an “underwriter” in
order to permit such Registration Statement to become effective, and such
Investor does not consent to being so named as an underwriter in such
Registration Statement, then, in each such case, the Company shall reduce the
total number of Registrable Securities to be registered on behalf
of such Investor, until such time as the Staff or the SEC does not require such
identification or until such Investor accepts such identification and the manner
thereof. Any reduction pursuant to this paragraph will first reduce all
Registrable Securities other than those issued pursuant to the Securities
Purchase Agreement. In the event of any reduction in Registrable Securities
pursuant to this paragraph, an affected Investor shall have the right to
require, upon delivery of a written request to the Company signed by such
Investor, the Company to file a Registration Statement within thirty (30) days
of such request (subject to any restrictions imposed by Rule 415 or required by
the Staff or the SEC) for resale by such Investor in a manner reasonably
acceptable to such Investor, and the Company shall, following such
request, cause to be and keep effective such registration statement in the same
manner as otherwise contemplated in this Agreement for registration statements
hereunder, in each case until such time as: (i) all Registrable Securities held
by such Investor have been registered and sold pursuant to an effective
Registration Statement in a manner reasonably acceptable to such Investor or
(ii) all Registrable Securities may be resold by such Investor without
restriction (including, without limitation, volume limitations) pursuant to Rule
144 (taking account of any Staff position with respect to “affiliate” status)
and without the need for current public information required by Rule 144(c)(1)
(or Rule 144(i)(2), if applicable) or (iii) such Investor agrees to be named as
an underwriter in any such Registration Statement in a manner reasonably
acceptable to such Investor as to all Registrable Securities held by such
Investor and that have

 

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not theretofore been included in a Registration Statement under this Agreement
(it being understood that the special demand right under this sentence may be
exercised by an Investor multiple times and with respect to limited amounts of
Registrable Securities in order to permit the resale thereof by such Investor as
contemplated above).

(h) Piggyback Registrations. Without limiting any obligation of the Company
hereunder or under the Securities Purchase Agreement, if there is not an
effective Registration Statement covering all of the Registrable Securities or
the prospectus contained therein is not available for use and the Company shall
determine to prepare and file with the SEC a registration statement relating to
an offering for its own account or the account of others under the 1933 Act of
any of its equity securities (other than on Form S-4 or Form S-8 (each as
promulgated under the 1933 Act) or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with the Company’s stock
option or other employee benefit plans), then the Company shall deliver to each
Investor a written notice of such determination and, if within fifteen (15) days
after the date of the delivery of such notice, any such Investor shall so
request in writing, the Company shall include in such registration statement all
or any part of such Registrable Securities such Investor requests to be
registered; provided, however, the Company shall not be required to register any
Registrable Securities pursuant to this Section 2(h) that are eligible for
resale pursuant to Rule 144 without restriction (including, without limitation,
volume restrictions) and without the need for current public information
required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or that are the
subject of a then-effective Registration Statement.

(i) Allocation of Registrable Securities. The initial number of Registrable
Securities included in any Registration Statement and any increase in the number
of Registrable Securities included therein shall be allocated pro rata among the
Investors based on the number of Registrable Securities held by each Investor at
the time such Registration Statement covering such initial number of Registrable
Securities or increase thereof is declared effective by the SEC. In the event
that an Investor sells or otherwise transfers any of such Investor’s Registrable
Securities, each transferee or assignee (as the case may be) that becomes an
Investor shall be allocated a pro rata portion of the then-remaining number of
Registrable Securities included in such Registration Statement for such
transferor or assignee (as the case may be). Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities covered by such Registration Statement
shall be allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors which are covered by such
Registration Statement.

(j) No Inclusion of Other Securities. In no event shall the Company include any
securities other than Registrable Securities on any Registration Statement (or
enter into any agreement which would permit or require the Company to include
any securities other than Registrable Securities on any Registration Statement
filed pursuant to Sections 2(a) or 2(b) above) without the prior written consent
of the Required Holders. Until the Applicable Date (as defined in the Securities
Purchase Agreement), the Company shall not enter into any agreement providing
any registration rights to any of its security holders that have any priority to
any of the Investor’s rights contained in this Agreement or adversely affect any
Investor’s rights under this Agreement.

 

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3. Related Obligations.

The Company shall use its reasonable best efforts to effect the registration of
the Registrable Securities in accordance with the intended method of disposition
thereof, and, pursuant thereto, the Company shall have the following
obligations:

(a) The Company shall promptly prepare and file with the SEC a Registration
Statement with respect to all the Initial Registrable Securities or Additional
Registrable Securities, as applicable, (but in no event later than the
applicable Filing Deadline) and use its reasonable best efforts to cause such
Registration Statement to become effective as soon as practicable after such
filing (but in no event later than the Effectiveness Deadline). Subject to
Allowable Grace Periods, the Company shall use its reasonable best efforts to
keep each Registration Statement effective (and the prospectus contained therein
available for use) pursuant to Rule 415 for resales by the Investors on a
delayed or continuous basis at then-prevailing market prices (and not fixed
prices) at all times until the earlier of (i) the date as of which all of the
Investors may sell all of such Registrable Securities required to be covered by
such Registration Statement (disregarding any reduction pursuant to
Section 2(g)) without restriction pursuant to Rule 144 (including, without
limitation, volume restrictions) and without the need for current public
information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or
(ii) the date on which the Investors shall have sold all of such Registrable
Securities covered by such Registration Statement (the “Registration Period”).
Notwithstanding anything to the contrary contained in this Agreement, the
Company shall use reasonable best efforts to ensure that, when filed and at all
times while effective, each Registration Statement (including, without
limitation, all amendments and supplements thereto) and the prospectus
(including, without limitation, all amendments and supplements thereto) used in
connection with such Registration Statement shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein (in the case of
prospectuses, in the light of the circumstances in which they were made) not
misleading. The Company shall submit to the SEC, within one (1) Business Day
after the later of the date that (i) the Company learns that no review of a
particular Registration Statement will be made by the Staff or that the Staff
has no further comments on a particular Registration Statement (as the case may
be) and (ii) the consent of Legal Counsel is obtained pursuant to Section 3(c)
(which consent shall be immediately sought), a request for acceleration of
effectiveness of such Registration Statement to a time and date not later than
twenty-four (24) hours after the submission of such request.

(b) Subject to Section 3(r) of this Agreement, the Company shall use reasonable
best efforts to prepare and file with the SEC such amendments (including,
without limitation, post-effective amendments) and supplements to each
Registration Statement and the prospectus used in connection with each such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep each such
Registration Statement effective at all times during the applicable Registration
Period for such Registration Statement, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company required to be covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement; provided, however,
by 8:30 a.m. (New York time) on the Business Day immediately following each
Effective Date, the Company shall file

 

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with the SEC in accordance with Rule 424(b) under the 1933 Act the final
prospectus to be used in connection with sales pursuant to the applicable
Registration Statement (whether or not such a prospectus is technically required
by such rule). In the case of amendments and supplements to any Registration
Statement which are required to be filed pursuant to this Agreement (including,
without limitation, pursuant to this Section 3(b)) by reason of the Company
filing a report on Form 10-Q or Form 10-K or any analogous report under the
Securities Exchange Act of 1934, as amended (the “1934 Act”), the Company shall
have incorporated such report by reference into such Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the
same day on which the 1934 Act report is filed which created the requirement for
the Company to amend or supplement such Registration Statement.

(c) The Company shall (A) permit Legal Counsel and legal counsel for each other
Investor to review and comment upon (i) each Registration Statement at least
five (5) Business Days prior to its filing with the SEC and (ii) all amendments
and supplements to each Registration Statement (including, without limitation,
the prospectus contained therein) (except for Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any similar or
successor reports) within a reasonable number of days prior to their filing with
the SEC, and (B) not file any Registration Statement or amendment or supplement
thereto in a form to which Legal Counsel or any legal counsel for any other
Investor reasonably objects. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto or to any prospectus contained therein without the prior
consent of Legal Counsel, which consent shall not be unreasonably withheld. The
Company shall promptly furnish to Legal Counsel and legal counsel for each other
Investor, without charge, (i) copies of any correspondence from the SEC or the
Staff to the Company or its representatives relating to each Registration
Statement, provided that such correspondence shall not contain any material,
non-public information regarding the Company or any of its Subsidiaries (as
defined in the Securities Purchase Agreement), (ii) after the same is prepared
and filed with the SEC, one (1) copy of each Registration Statement and any
amendment(s) and supplement(s) thereto, including, without limitation, financial
statements and schedules, all documents incorporated therein by reference, if
requested by an Investor, and all exhibits and (iii) upon the effectiveness of
each Registration Statement, one (1) copy of the prospectus included in such
Registration Statement and all amendments and supplements thereto. The Company
shall reasonably cooperate with Legal Counsel and legal counsel for each other
Investor in performing the Company’s obligations pursuant to this Section 3.

(d) The Company shall, unless any such document is available on EDGAR, promptly
furnish to each Investor whose Registrable Securities are included in any
Registration Statement, upon request and without charge, (i) after the same is
prepared and filed with the SEC, at least one (1) copy of each Registration
Statement and any amendment(s) and supplement(s) thereto, including, without
limitation, financial statements and schedules, all documents incorporated
therein by reference, if requested by an Investor, all exhibits and each
preliminary prospectus, (ii) upon the effectiveness of each Registration
Statement, ten (10) copies of the prospectus included in such Registration
Statement and all amendments and supplements thereto (or such other number of
copies as such Investor may reasonably request from time to time) and (iii) such
other documents, including, without limitation, copies of any preliminary or
final prospectus, as such Investor may reasonably request from time to time in
order to facilitate the disposition of the Registrable Securities owned by such
Investor.

 

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(e) The Company shall use its reasonable best efforts to (i) register and
qualify, unless an exemption from registration and qualification applies, the
resale by Investors of the Registrable Securities covered by a Registration
Statement under such other securities or “blue sky” laws of all applicable
jurisdictions in the United States, (ii) prepare and file in those
jurisdictions, such amendments (including, without limitation, post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the applicable
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
applicable Registration Period, and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided, however, the Company shall not be required in
connection therewith or as a condition thereto to (x) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(e), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify Legal Counsel, legal counsel for
each other Investor and each Investor who holds Registrable Securities of the
receipt by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or “blue sky” laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.

(f) The Company shall notify Legal Counsel, legal counsel for each other
Investor and each Investor in writing of the happening of any event, as promptly
as practicable after becoming aware of such event, as a result of which the
prospectus included in a Registration Statement, as then in effect, includes an
untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading
(provided that in no event shall such notice contain any material, non-public
information regarding the Company or any of its Subsidiaries), and, subject to
Section 3(r), promptly prepare a supplement or amendment to such Registration
Statement and such prospectus contained therein to correct such untrue statement
or omission and deliver ten (10) copies of such supplement or amendment to Legal
Counsel, legal counsel for each other Investor and each Investor (or such other
number of copies as Legal Counsel, legal counsel for each other Investor or such
Investor may reasonably request). The Company shall also promptly notify Legal
Counsel, legal counsel for each other Investor and each Investor in writing
(i) when a prospectus or any prospectus supplement or post-effective amendment
has been filed, when a Registration Statement or any post-effective amendment
has become effective (notification of such effectiveness shall be delivered to
Legal Counsel, legal counsel for each other Investor and each Investor by
facsimile or e-mail on the same day of such effectiveness and by overnight
mail), and when the Company receives written notice from the SEC that a
Registration Statement or any post-effective amendment will be reviewed by the
SEC, (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information,
(iii) subject to Section 3(r) of this Agreement, of the Company’s reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate; and (iv) of the receipt of any request by the SEC or any other
federal or state governmental authority for any additional information relating
to the Registration Statement or any amendment or supplement thereto or any
related prospectus. The Company shall respond as promptly as practicable to any
comments received from the SEC with respect to each Registration Statement or
any amendment thereto (it being understood and agreed that the Company’s
response to any such comments shall be delivered to the SEC no later than
fifteen (15) Business Days after the receipt thereof).

 

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(g) The Company shall (i) use its reasonable best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of each
Registration Statement or the use of any prospectus contained therein, or the
suspension of the qualification, or the loss of an exemption from qualification,
of any of the Registrable Securities for sale in any jurisdiction and, if such
an order or suspension is issued, to obtain the withdrawal of such order or
suspension at the earliest possible moment and (ii) notify Legal Counsel, legal
counsel for each other Investor and each Investor who holds Registrable
Securities of the issuance of such order and the resolution thereof or its
receipt of actual notice of the initiation or threat of any proceeding for such
purpose.

(h) If any Investor may be required under applicable securities law to be
described in any Registration Statement as an underwriter and such Investor
consents to so being named an underwriter, at the request of any Investor, the
Company shall use reasonable best efforts to furnish to such Investor, on the
date of the effectiveness of such Registration Statement and thereafter from
time to time on such dates as an Investor may reasonably request (i) a letter,
dated such date, from the Company’s independent certified public accountants in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
Investors, and (ii) an opinion, dated as of such date, of counsel representing
the Company for purposes of such Registration Statement, in form, scope and
substance as is customarily given in an underwritten public offering, addressed
to the Investors.

(i) If any Investor may be required under applicable securities law to be
described in any Registration Statement as an underwriter and such Investor
consents to so being named an underwriter, upon the written request of such
Investor, the Company shall use reasonable best efforts to make available for
inspection during regular business hours by (i) such Investor, (ii) legal
counsel for such Investor and (iii) one (1) firm of accountants or other agents
retained by such Investor (collectively, the “Inspectors”), all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the “Records”), as shall be reasonably deemed
necessary by each Inspector, and cause the Company’s officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, each Investor agrees, and each Inspector shall agree in
writing, to hold in strict confidence and not to make any disclosure (except to
such Investor) or use of any Record or other information which the Company’s
board of directors determines in good faith to be confidential, and of which
determination the Investors and Inspectors are so notified, unless (1) the
disclosure of such Records is necessary to avoid or correct a misstatement or
omission in any Registration Statement or is otherwise required under the 1933
Act, (2) the release of such Records is ordered pursuant to a final,
non-appealable subpoena or order from a court or government body of competent
jurisdiction, or (3) the information in such Records has been made generally
available to the public other than by disclosure in violation of this Agreement
or any other Transaction Document (as defined in the Securities Purchase
Agreement). Such Investor agrees that it shall, upon learning that disclosure of
such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to

 

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prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and such Investor, if any) shall be deemed to limit any Investor’s
ability to sell Registrable Securities in a manner which is otherwise consistent
with applicable laws and regulations.

(j) The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
to be disclosed in such Registration Statement pursuant to the 1933 Act,
(iii) the release of such information is ordered pursuant to a subpoena or other
final, non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
Transaction Document. The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt written notice to such Investor and allow such Investor, at such
Investor’s expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.

(k) Without limiting any obligation of the Company under the Securities Purchase
Agreement, the Company shall use its reasonable best efforts either to (i) cause
all of the Registrable Securities covered by each Registration Statement to be
listed on each securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange,
(ii) secure designation and quotation of all of the Registrable Securities
covered by each Registration Statement on an Eligible Market (as defined in the
Securities Purchase Agreement), or (iii) if, despite the Company’s reasonable
best efforts to satisfy the preceding clauses (i) or (ii) the Company is
unsuccessful in satisfying the preceding clauses (i) or (ii), without limiting
the generality of the foregoing, to use its reasonable best efforts to arrange
for at least two market makers to register with the Financial Industry
Regulatory Authority (“FINRA”) as such with respect to such Registrable
Securities. In addition, the Company shall cooperate with each Investor and any
broker or dealer through which any such Investor proposes to sell its
Registrable Securities in effecting a filing with FINRA pursuant to FINRA Rule
5110 as requested by such Investor. The Company shall pay all fees and expenses
in connection with satisfying its obligations under this Section 3(k).

(l) The Company shall cooperate with the Investors who hold Registrable
Securities being offered and, to the extent applicable, facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts
(as the case may be) as the Investors may reasonably request from time to time
and registered in such names as the Investors may request.

(m) If reasonably requested by an Investor, the Company shall as soon as
practicable after receipt of notice from such Investor and subject to
Section 3(r) hereof, (i) incorporate in a prospectus supplement or
post-effective amendment such information as an Investor reasonably requests to
be included therein relating to the sale and distribution of Registrable
Securities,

 

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including, without limitation, information with respect to the number of
Registrable Securities being offered or sold, the purchase price being paid
therefor and any other terms of the offering of the Registrable Securities to be
sold in such offering; (ii) make all required filings of such prospectus
supplement or post-effective amendment after being notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment; and
(iii) supplement or make amendments to any Registration Statement or prospectus
contained therein if reasonably requested by an Investor holding any Registrable
Securities.

(n) The Company shall use its reasonable best efforts to cause the Registrable
Securities covered by a Registration Statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary to
consummate the disposition of such Registrable Securities.

(o) The Company shall make generally available to its security holders as soon
as practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with, and in the
manner provided by, the provisions of Rule 158 under the 1933 Act) covering a
twelve-month period beginning not later than the first day of the Company’s
fiscal quarter next following the applicable Effective Date of each Registration
Statement.

(p) The Company shall otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.

(q) Within one (1) Business Day after a Registration Statement which covers
Registrable Securities is declared effective by the SEC, the Company shall
deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A.

(r) Notwithstanding anything to the contrary herein (but subject to the last
sentence of this Section 3(r)), at any time after the Effective Date of a
particular Registration Statement, the Company may delay the filing of any
amendment or new Registration Statement required by this Agreement if taking
such action is not, in the good faith opinion of the Board of Directors of the
Company, in the best interest of the Company and, in the advice of counsel to
the Company, otherwise required, (a “Grace Period”), provided that the Company
shall promptly notify the Investors in writing of the (i) existence of a
situation giving rise to a Grace Period (provided that in each such notice the
Company shall not disclose the content of any material, non-public information
to any of the Investors) and the date on which such Grace Period will begin and
(ii) date on which such Grace Period ends, provided further that (I) no Grace
Period shall exceed ten (10) consecutive days and during any three hundred sixty
five (365) day period all such Grace Periods shall not exceed an aggregate of
forty-five (45) days, (II) the first day of any Grace Period must be at least
five (5) Trading Days (as defined in the Notes) after the last day of any prior
Grace Period and (III) no Grace Period may exist during the thirty (30) Trading
Day period immediately following the Effective Date of any Registration
Statement (provided that such thirty (30) Trading Day period shall be extended
by the number of Trading Days during such period and any extension thereof
contemplated by this proviso during which such

 

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Registration Statement is not effective or the prospectus contained therein is
not available for use) (each, an “Allowable Grace Period”). For purposes of
determining the length of a Grace Period above, such Grace Period shall begin on
and include the date the Investors receive the notice referred to in clause
(i) above and shall end on and include the later of the date the Investors
receive the notice referred to in clause (ii) above and the date referred to in
such notice. The provisions of Section 3(g) hereof shall not be applicable
during the period of any Allowable Grace Period. Upon expiration of each Grace
Period, the Company shall again be bound by the first sentence of Section 3(f)
with respect to the information giving rise thereto unless such material,
non-public information is no longer applicable. Notwithstanding anything to the
contrary contained in this Section 3(r), the Company shall cause its transfer
agent to deliver unlegended shares of Common Stock to a transferee of an
Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which such
Investor has entered into a contract for sale, and delivered a copy of the
prospectus included as part of the particular Registration Statement to the
extent applicable, prior to such Investor’s receipt of the notice of a Grace
Period and for which the Investor has not yet settled.

(s) The Company shall take all other reasonable actions necessary to expedite
and facilitate disposition by each Investor of its Registrable Securities
pursuant to each Registration Statement.

 

4. Obligations of the Investors.

(a) On each Closing Date, each Investor shall deliver to the Company a
questionnaire in substantially the form attached hereto as Exhibit C (the
“Selling Stockholder Questionnaire”) for purposes of preparing the applicable
Registration Statement required to be filed pursuant to Section 2(a) or 2(b), as
applicable.

(b) Each Investor, by such Investor’s acceptance of the Registrable Securities,
agrees to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of each Registration Statement
hereunder, unless such Investor has notified the Company in writing of such
Investor’s election to exclude all of such Investor’s Registrable Securities
from such Registration Statement.

(c) Each Investor agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(g) or the first
sentence of 3(f), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until such Investor’s receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(g) or the first
sentence of Section 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary in this Section 4(c), the
Company shall cause its transfer agent to deliver unlegended shares of Common
Stock to a transferee of an Investor in accordance with the terms of the
Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which such Investor has entered into a contract for
sale prior to the Investor’s receipt of a notice from the Company of the
happening of any event of the kind described in Section 3(g) or the first
sentence of Section 3(f) and for which such Investor has not yet settled.

 

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(d) Each Investor covenants and agrees that it will comply with the prospectus
delivery requirements of the 1933 Act as applicable to it in connection with
sales of Registrable Securities pursuant to a Registration Statement.

 

5. Expenses of Registration.

All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, FINRA filing fees (if any)
and fees and disbursements of counsel for the Company shall be paid by the
Company. The Company shall also reimburse Legal Counsel for its fees and
disbursements in connection with registration, filing or qualification pursuant
to Sections 2 and 3 of this Agreement which amount shall be limited to $7,500.

 

6. Indemnification.

(a) To the fullest extent permitted by law, the Company will, and hereby does,
indemnify, hold harmless and defend each Investor and each of its directors,
officers, shareholders, members, partners, employees, agents, advisors,
representatives (and any other Persons with a functionally equivalent role of a
Person holding such titles notwithstanding the lack of such title or any other
title) and each Person, if any, who controls such Investor within the meaning of
the 1933 Act or the 1934 Act and each of the directors, officers, shareholders,
members, partners, employees, agents, advisors, representatives (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding the lack of such title or any other title) of such controlling
Persons (each, an “Indemnified Person”), against any losses, obligations,
claims, damages, liabilities, contingencies, judgments, fines, penalties,
charges, costs (including, without limitation, court costs, reasonable
attorneys’ fees and costs of defense and investigation), amounts paid in
settlement or expenses, joint or several, (collectively, “Claims”) incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto (“Indemnified Damages”), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
“blue sky” laws of any jurisdiction in which Registrable Securities are offered,
or the omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the effective date of
such Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the

 

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Registrable Securities pursuant to a Registration Statement (the matters in the
foregoing clauses (i) through (iii) being, collectively, “Violations”). Subject
to Section 6(c), the Company shall reimburse the Indemnified Persons, promptly
as such expenses are incurred and are due and payable, for any legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person for such
Indemnified Person expressly for use in connection with the preparation of such
Registration Statement or any such amendment thereof or supplement thereto and
(ii) shall not be available to a particular Investor to the extent such Claim is
based on a failure of such Investor to deliver or to cause to be delivered the
prospectus made available by the Company (to the extent applicable), including,
without limitation, a corrected prospectus, if such prospectus or corrected
prospectus was timely made available by the Company pursuant to Section 3(d) and
then only if, and to the extent that, following the receipt of the corrected
prospectus no grounds for such Claim would have existed; and (iii) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of any of the Registrable Securities by
any of the Investors pursuant to Section 9.

(b) In connection with any Registration Statement in which an Investor is
participating, such Investor agrees to severally and not jointly indemnify, hold
harmless and defend, to the same extent and in the same manner as is set forth
in Section 6(a), the Company, each of its directors, each of its officers who
signs the Registration Statement and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each, an
“Indemnified Party”), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar
as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case, to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(c) and the below provisos
in this Section 6(b), such Investor will reimburse an Indemnified Party any
legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such Claim; provided, however,
the indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld or delayed, provided further that such Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as does
not exceed the net proceeds to such Investor as a result of the applicable sale
of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
any of the Registrable Securities by any of the Investors pursuant to Section 9.

 

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(c) Promptly after receipt by an Indemnified Person or Indemnified Party (as the
case may be) under this Section 6 of notice of the commencement of any action or
proceeding (including, without limitation, any governmental action or
proceeding) involving a Claim, such Indemnified Person or Indemnified Party (as
the case may be) shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, 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 Indemnified Person or the Indemnified Party (as the
case may be); provided, however, an Indemnified Person or Indemnified Party (as
the case may be) shall have the right to retain its own counsel with the fees
and expenses of such counsel to be paid by the indemnifying party if: (i) the
indemnifying party has agreed in writing to pay such fees and expenses; (ii) the
indemnifying party shall have failed promptly to assume the defense of such
Claim and to employ counsel reasonably satisfactory to such Indemnified Person
or Indemnified Party (as the case may be) in any such Claim; or (iii) the named
parties to any such Claim (including, without limitation, any impleaded parties)
include both such Indemnified Person or Indemnified Party (as the case may be)
and the indemnifying party, and such Indemnified Person or such Indemnified
Party (as the case may be) shall have been advised by counsel that a conflict of
interest is likely to exist if the same counsel were to represent such
Indemnified Person or such Indemnified Party and the indemnifying party (in
which case, if such Indemnified Person or such Indemnified Party (as the case
may be) notifies the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, then the indemnifying
party shall not have the right to assume the defense thereof and such counsel
shall be at the expense of the Indemnifying Party), provided further that in the
case of clause (iii) above the indemnifying party shall not be responsible for
the reasonable fees and expenses of more than one (1) separate legal counsel for
such Indemnified Person or Indemnified Party (as the case may be). The
Indemnified Party or Indemnified Person (as the case may be) shall reasonably
cooperate with the indemnifying party in connection with any negotiation or
defense of any such action or Claim by the indemnifying party and shall furnish
to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person (as the case may be) which relates to
such action or Claim. The indemnifying party shall keep the Indemnified Party or
Indemnified Person (as the case may be) reasonably 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, the
indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the
Indemnified Party or Indemnified Person (as the case may be), consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person (as the case may be) of a
release from all liability in respect to such Claim or litigation, and such
settlement shall not include any admission as to fault on the part of the
Indemnified Party. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified Person (as the case may be) 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 Indemnified Person or Indemnified
Party (as the case may be) under this Section 6, except to the extent that the
indemnifying party is materially and adversely prejudiced in its ability to
defend such action.

 

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(d) No Person involved in the sale of Registrable Securities who is guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) in connection with such sale shall be entitled to indemnification from any
Person involved in such sale of Registrable Securities who is not guilty of
fraudulent misrepresentation.

(e) The indemnification required by this Section 6 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 Damages are incurred.

(f) The indemnity and contribution agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.

 

7. Contribution.

To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under
Section 6 to the fullest extent permitted by law; provided, however: (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section 6
of this Agreement, (ii) no Person involved in the sale of Registrable Securities
which Person is guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) in connection with such sale shall be entitled to
contribution from any Person involved in such sale of Registrable Securities who
was not guilty of fraudulent misrepresentation; and (iii) contribution by any
seller of Registrable Securities shall be limited in amount to the amount of net
proceeds received by such seller from the applicable sale of such Registrable
Securities pursuant to such Registration Statement. Notwithstanding the
provisions of this Section 7, no Investor shall be required to contribute, in
the aggregate, any amount in excess of the amount by which the net proceeds
actually received by such Investor from the applicable sale of the Registrable
Securities subject to the Claim exceeds the amount of any damages that such
Investor has otherwise been required to pay, or would otherwise be required to
pay under Section 6(b), by reason of such untrue or alleged untrue statement or
omission or alleged omission.

 

(8) Reports Under the 1934 Act.

With a view to making available to the Investors the benefits of Rule 144, the
Company agrees to:

(a) make and keep public information available, as those terms are understood
and defined in Rule 144;

(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934 Act so long as the
Company remains subject to

 

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such requirements (it being understood and agreed that nothing herein shall
limit any obligations of the Company under the Securities Purchase Agreement)
and the filing of such reports and other documents is required for the
applicable provisions of Rule 144; and

(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company, if
true, that it has complied with the reporting, submission and posting
requirements of Rule 144 and the 1934 Act, (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so filed
by the Company with the SEC if such reports are not publicly available via
EDGAR, and (iii) such other information as may be reasonably requested to permit
the Investors to sell such securities pursuant to Rule 144 without registration.

 

9. Assignment of Registration Rights.

All or any portion of the rights under this Agreement shall be automatically
assigned by each Investor to any transferee or assignee (as the case may be) of
all or any portion of such Investor’s Registrable Securities, Notes or Warrants
if: (i) such Investor agrees in writing with such transferee or assignee (as the
case may be) to assign all or any portion of such rights, and a copy of such
agreement is furnished to the Company within a reasonable time after such
transfer or assignment (as the case may be); (ii) the Company is, within three
(3) Business Days after such transfer or assignment (as the case may be),
furnished with written notice of (a) the name and address of such transferee or
assignee (as the case may be), and (b) the securities with respect to which such
registration rights are being transferred or assigned (as the case may be);
(iii) immediately following such transfer or assignment (as the case may be) the
further disposition of such securities by such transferee or assignee (as the
case may be) is restricted under the 1933 Act or applicable state securities
laws if so required; (iv) at or before the time the Company receives the written
notice contemplated by clause (ii) of this sentence such transferee or assignee
(as the case may be) agrees in writing with the Company to be bound by all of
the provisions contained herein; (v) such transfer or assignment (as the case
may be) shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement, the Notes and the Warrants (as the case may
be); and (vi) such transfer or assignment (as the case may be) shall have been
conducted in accordance with all applicable federal and state securities laws.

 

10. Amendment of Registration Rights.

Provisions of this Agreement may be amended only with the written consent of the
Company and the Required Holders. Any amendment effected in accordance with this
Section 10 shall be binding upon each Investor and the Company, provided that no
such amendment shall be effective to the extent that it (1) applies to less than
all of the holders of Registrable Securities or (2) imposes any obligation or
liability on any Investor without such Investor’s prior written consent (which
may be granted or withheld in such Investor’s sole discretion). No waiver shall
be effective unless it is in writing and signed by an authorized representative
of the waiving party.

 

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11. Miscellaneous.

(a) Solely for purposes of this Agreement, a Person is deemed to be a holder of
Registrable Securities whenever such Person owns, or is deemed to own, of record
such Registrable Securities. With respect to such Registrable Securities, the
Company shall accept instructions, notices or elections solely from the record
owner of such Registrable Securities.

(b) 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); (iii) by electronic mail (provided confirmation of transmission is
electronically generated and kept on file by the sending party); or (iv) one
(1) Business Day after deposit with a nationally recognized overnight delivery
service with next day delivery specified, in each case, properly addressed to
the party to receive the same. The addresses and facsimile numbers for such
communications shall be:

If to the Company:

American Superconductor Corporation

64 Jackson Road

Devens, MA 01434

Telephone: (978) 842-3539

Facsimile: (978) 842-3530

Attention: General Counsel

With a copy (for informational purposes only) to:

Latham & Watkins LLP

John Hancock Tower, 20th Floor

200 Clarendon Street

Boston, MA 02116

Telephone: (617) 948-6060

Facsimile: (617) 948-6001

Attention: Peter N. Handrinos, Esq.

If to the Transfer Agent:

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, NY 11219

Telephone: (718) 921-8208

Facsimile: (718) 765-8713

Attention: Alexandra M. Albrecht

 

22

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If to Legal Counsel:

Greenberg Traurig, LLP

MetLife Building

200 Park Avenue

New York, NY 10166

Telephone: (212) 801-9200

Facsimile: (212) 805-9222

Attention: Michael A. Adelstein, Esq.

If to an Investor, to its address and facsimile number set forth on the Schedule
of Buyers attached to the Securities Purchase Agreement, with copies to such
Investor’s representatives as set forth on the Schedule of Buyers, or to such
other address and/or facsimile number and/or to the attention of such other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change, provided
that Greenberg Traurig, LLP shall only be provided notices sent to the lead
investor. 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 or electronic mail
transmission containing the time, date, recipient facsimile number or electronic
mail address and an image of the first page of such transmission or (C) provided
by a courier or overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from a nationally recognized
overnight delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.

(c) Failure of any party to exercise any right or remedy under this Agreement or
otherwise, or delay by a party in exercising such right or remedy, shall not
operate as a waiver thereof. The Company and each Investor acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that each party hereto shall
be entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement by any other party hereto and to enforce
specifically the terms and provisions hereof (without the necessity of showing
economic loss and without any bond or other security being required), this being
in addition to any other remedy to which any party may be entitled by law or
equity; provided, however, that each Investor waives any consequential damages
it may suffer from any failure by the Company to comply with the terms of this
Agreement.

(d) 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 regard to conflict of law principals that would
result in the application of any laws other than the laws of the State of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in The City of New York, Borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices

 

23

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to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

(e) This Agreement, the other Transaction Documents, the schedules and exhibits
attached hereto and thereto and the instruments referenced herein and therein
constitute the entire agreement among the parties hereto and thereto solely with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, the other Transaction Documents, the
schedules and exhibits attached hereto and thereto and the instruments
referenced herein and therein supersede all prior agreements and understandings
among the parties hereto solely with respect to the subject matter hereof and
thereof; provided, however, nothing contained in this Agreement or any other
Transaction Document shall (or shall be deemed to) (i) have any effect on any
agreements any Investor has entered into with the Company or any of its
Subsidiaries prior to the date hereof with respect to any prior investment made
by such Investor in the Company, (ii) waive, alter, modify or amend in any
respect any obligations of the Company or any of its Subsidiaries or any rights
of or benefits to any Investor or any other Person in any agreement entered into
prior to the date hereof between or among the Company and/or any of its
Subsidiaries and any Investor and all such agreements shall continue in full
force and effect or (iii) limit any obligations of the Company under any of the
other Transaction Documents.

(f) Subject to compliance with Section 9 (if applicable), this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto. This Agreement is not for the benefit of, nor may
any provision hereof be enforced by, any Person, other than the parties hereto,
their respective permitted successors and assigns and the Persons referred to in
Sections 6 and 7 hereof.

(g) The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof. Unless the context
clearly indicates otherwise, each pronoun herein shall be deemed to include the
masculine, feminine, neuter, singular and plural forms thereof. The terms
“including,” “includes,” “include” and words of like import shall be construed
broadly as if followed by the words “without limitation.” The terms “herein,”
“hereunder,” “hereof” and words of like import refer to this entire Agreement
instead of just the provision in which they are found.

(h) This Agreement may be executed in two or more identical counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other
party. In the event that any signature is delivered by facsimile transmission or
by an e-mail which contains a portable

 

24

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document format (.pdf) file of an executed signature page, such signature page
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
signature page were an original thereof.

(i) 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.

(j) 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. Notwithstanding anything to the
contrary set forth in Section 10, terms used in this Agreement but defined in
the other Transaction Documents shall have the meanings ascribed to such terms
on the Initial Closing Date in such other Transaction Documents unless otherwise
consented to in writing by each Investor.

(k) All consents and other determinations required to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by the Required Holders.

(l) The obligations of each Investor under this Agreement and the other
Transaction Documents are several and not joint with the obligations of any
other Investor, and no Investor shall be responsible in any way for the
performance of the obligations of any other Investor under this Agreement or any
other Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Investor pursuant hereto or thereto, shall
be deemed to constitute the Investors as, and the Company acknowledges that the
Investors do not so constitute, a partnership, an association, a joint venture
or any other kind of group or entity, or create a presumption that the Investors
are in any way acting in concert or as a group or entity with respect to such
obligations or the transactions contemplated by the Transaction Documents or any
matters, and the Company acknowledges that the Investors are not acting in
concert or as a group, and the Company shall not assert any such claim, with
respect to such obligations or the transactions contemplated by this Agreement
or any of the other the Transaction Documents. Each Investor 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 Investor to be joined as
an additional party in any proceeding for such purpose. The use of a single
agreement with respect to the obligations of the Company contained herein was
solely in the control of the Company, not the action or decision of any
Investor, and was done solely for the convenience of the Company and not because
it was required or requested to do so by any Investor. It is expressly
understood and agreed that each provision contained in this Agreement and in
each other Transaction Document is between the Company and an Investor, solely,
and not between the Company and the Investors collectively and not between and
among Investors.

[signature pages follow]

 

25

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

 

COMPANY:

AMERICAN SUPERCONDUCTOR CORPORATION

By:  

 

 

Name:

Title:

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

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

 

BUYER: CAPITAL VENTURES INTERNATIONAL By:  

 

 

Name:

Title:

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

EXHIBIT A

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

 

                                     

                                     

                                     

Attention:                  

 

  Re: American Superconductor Corporation

Ladies and Gentlemen:

[We are][I am] counsel to American Superconductor Corporation, a Delaware
corporation (the “Company”), and have represented the Company in connection with
that certain Securities Purchase Agreement (the “Securities Purchase Agreement”)
entered into by and among the Company and the buyers named therein
(collectively, the “Holders”) pursuant to which the Company issued to the
Holders senior convertible notes (the “Notes”) convertible into the Company’s
shares of common stock, $0.01 par value per share (the “Common Stock”), and
warrants exercisable for shares of Common Stock (the “Warrants”). Pursuant to
the Securities Purchase Agreement, the Company also has entered into a
Registration Rights Agreement with the Holders (the “Registration Rights
Agreement”) pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Notes and exercise of the Warrants, under the Securities Act of 1933, as amended
(the “1933 Act”). In connection with the Company’s obligations under the
Registration Rights Agreement, on             , 20    , the Company filed a
Registration Statement on Form [S-1][S-3] (File No. 333-            ) (the
“Registration Statement”) with the Securities and Exchange Commission (the
“SEC”) relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.

In connection with the foregoing, [we][I] advise you that a member of the SEC’s
staff has advised [us][me] by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and [we][I] have no
knowledge, after telephonic inquiry of a member of the SEC’s staff, that any
stop order suspending its effectiveness has been issued or that any proceedings
for that purpose are pending before, or threatened by, the SEC and the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.

This letter shall serve as our standing opinion to you that the shares of Common
Stock underlying the Notes and Warrants are freely transferable by the Holders
pursuant to the Registration Statement. You need not require further letters
from us to effect any future legend-free issuance or reissuance of such shares
of Common Stock to the Holders as contemplated by the Company’s Irrevocable
Transfer Agent Instructions dated             , 20    .

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

Very truly yours, [GENERAL COUNSEL] By:  

 

 

CC: Capital Ventures International

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

EXHIBIT B

SELLING STOCKHOLDERS

The shares of common stock being offered by the selling stockholders are those
issuable to the selling stockholders upon conversion of the notes and exercise
of the warrants. For additional information regarding the issuance of the notes
and the warrants, see “Private Placement of Notes and Warrants” above. We are
registering the shares of common stock in order to permit the selling
stockholders to offer the shares for resale from time to time. Except for the
ownership of the notes and the warrants issued pursuant to the Securities
Purchase Agreement, the selling stockholders have not had any material
relationship with us within the past three years.

The table below lists the selling stockholders and other information regarding
the beneficial ownership (as determined under Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder) of
the shares of common stock held by each of the selling stockholders. The second
column lists the number of shares of common stock beneficially owned by the
selling stockholders, based on their respective ownership of shares of common
stock, notes and warrants, as of             , 2012, assuming conversion of the
notes and exercise of the warrants held by each such selling stockholder on that
date but taking account of any limitations on conversion and exercise set forth
therein.

The third column lists the shares of common stock being offered by this
prospectus by the selling stockholders and does not take in account any
limitations on (i) conversion of the notes set forth therein or (ii) exercise of
the warrants set forth therein.

In accordance with the terms of a registration rights agreement with the holders
of the notes and the warrants, this prospectus generally covers the resale of
the sum of (i) 120% of the maximum number of shares of common stock issuable
upon conversion of the notes, (ii) the maximum number of other shares of common
stock issuable pursuant to the notes and (iii) the maximum number of shares of
common stock issuable upon exercise of the warrants, in each case, determined as
if the outstanding notes and warrants were converted or exercised (as the case
may be) in full (without regard to any limitations on conversion or exercise
contained therein) as of the trading day immediately preceding the date this
registration statement was initially filed with the SEC. Because the conversion
price of the notes and the exercise price of the warrants may be adjusted, the
number of shares that will actually be issued may be more or less than the
number of shares being offered by this prospectus. The fourth column assumes the
sale of all of the shares offered by the selling stockholders pursuant to this
prospectus.

Under the terms of the notes and the warrants, a selling stockholder may not
convert the notes or exercise the warrants to the extent (but only to the
extent) such selling stockholder or any of its affiliates would beneficially own
a number of shares of our common stock which would exceed 4.99%. The number of
shares in the second column reflects these limitations. The selling stockholders
may sell all, some or none of their shares in this offering. See “Plan of
Distribution.”

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Name of Selling Stockholder

   Number of Shares of
Common Stock Owned
Prior to Offering    Maximum Number of
Shares of Common Stock to
be Sold Pursuant to this
Prospectus    Number of Shares of
Common Stock of Owned
After Offering

Capital Ventures International(1)

        

(1) Heights Capital Management, Inc., the authorized agent of Capital Ventures
International (“CVI”), has discretionary authority to vote and dispose of the
shares held by CVI and may be deemed to be the beneficial owner of these
shares. Martin Kobinger, in his capacity as Investment Manager of Heights
Capital Management, Inc., may also be deemed to have investment discretion and
voting power over the shares held by CVI. Mr. Kobinger disclaims any such
beneficial ownership of the shares. CVI is affiliated with one or more
registered broker-dealers. CVI purchased the shares being registered hereunder
in the ordinary course of business and at the time of purchase, had no
agreements or understandings, directly or indirectly, with any other person to
distribute such shares.

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PLAN OF DISTRIBUTION

We are registering the shares of common stock issuable upon conversion of the
notes and exercise of the warrants to permit the resale of these shares of
common stock by the holders of the notes and warrants from time to time after
the date of this prospectus. We will not receive any of the proceeds from the
sale by the selling stockholders of the shares of common stock. We will bear all
fees and expenses incident to our obligation to register the shares of common
stock.

The selling stockholders may sell all or a portion of the shares of common stock
held by them and offered hereby from time to time directly or through one or
more underwriters, broker-dealers or agents. If the shares of common stock are
sold through underwriters or broker-dealers, the selling stockholders will be
responsible for underwriting discounts or commissions or agent’s commissions.
The shares of common stock may be sold in one or more transactions at fixed
prices, at prevailing market prices at the time of the sale, at varying prices
determined at the time of sale or at negotiated prices. These sales may be
effected in transactions, which may involve crosses or block transactions,
pursuant to one or more of the following methods:

 

  •  

on any national securities exchange or quotation service on which the securities
may be listed or quoted at the time of sale;

 

  •  

in the over-the-counter market;

 

  •  

in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;

 

  •  

through the writing or settlement of options, whether such options are listed on
an options exchange or otherwise;

 

  •  

ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

 

  •  

block trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to facilitate
the transaction;

 

  •  

purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;

 

  •  

an exchange distribution in accordance with the rules of the applicable
exchange;

 

  •  

privately negotiated transactions;

 

  •  

short sales made after the date the Registration Statement is declared effective
by the SEC;

 

  •  

broker-dealers may agree with a selling securityholder to sell a specified
number of such shares at a stipulated price per share;

 

  •  

a combination of any such methods of sale; and

 

  •  

any other method permitted pursuant to applicable law.

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

The selling stockholders may also sell shares of common stock under Rule 144
promulgated under the Securities Act of 1933, as amended, if available, rather
than under this prospectus. In addition, the selling stockholders may transfer
the shares of common stock by other means not described in this prospectus. If
the selling stockholders effect such transactions by selling shares of common
stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of the shares of common stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved). In connection with sales of
the shares of common stock or otherwise, the selling stockholders may enter into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the shares of common stock in the course of hedging in positions they
assume. The selling stockholders may also sell shares of common stock short and
deliver shares of common stock covered by this prospectus to close out short
positions and to return borrowed shares in connection with such short sales. The
selling stockholders may also loan or pledge shares of common stock to
broker-dealers that in turn may sell such shares.

The selling stockholders may pledge or grant a security interest in some or all
of the notes, warrants or shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock from time to time pursuant
to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending, if necessary, the
list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus. The
selling stockholders also may transfer and donate the shares of common stock in
other circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.

To the extent required by the Securities Act and the rules and regulations
thereunder, the selling stockholders and any broker-dealer participating in the
distribution of the shares of common stock may be deemed to be “underwriters”
within the meaning of the Securities Act, and any commission paid, or any
discounts or concessions allowed to, any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. At the time a
particular offering of the shares of common stock is made, a prospectus
supplement, if required, will be distributed, which will set forth the aggregate
amount of shares of common stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling
stockholders and any discounts, commissions or concessions allowed or re-allowed
or paid to broker-dealers.

Under the securities laws of some states, the shares of common stock may be sold
in such states only through registered or licensed brokers or dealers. In
addition, in some states the shares of common stock may not be sold unless such
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.

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

There can be no assurance that any selling stockholder will sell any or all of
the shares of common stock registered pursuant to the registration statement, of
which this prospectus forms a part.

The selling stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, including, without
limitation, to the extent applicable, Regulation M of the Exchange Act, which
may limit the timing of purchases and sales of any of the shares of common stock
by the selling stockholders and any other participating person. To the extent
applicable, Regulation M may also restrict the ability of any person engaged in
the distribution of the shares of common stock to engage in market-making
activities with respect to the shares of common stock. All of the foregoing may
affect the marketability of the shares of common stock and the ability of any
person or entity to engage in market-making activities with respect to the
shares of common stock.

We will pay all expenses of the registration of the shares of common stock
pursuant to the registration rights agreement, estimated to be $         in
total, including, without limitation, Securities and Exchange Commission filing
fees and expenses of compliance with state securities or “blue sky” laws;
provided, however, a selling stockholder will pay all underwriting discounts and
selling commissions, if any. We will indemnify the selling stockholders against
liabilities, including some liabilities under the Securities Act in accordance
with the registration rights agreements or the selling stockholders will be
entitled to contribution. We may be indemnified by the selling stockholders
against civil liabilities, including liabilities under the Securities Act that
may arise from any written information furnished to us by the selling
stockholder specifically for use in this prospectus, in accordance with the
related registration rights agreements or we may be entitled to contribution.

Once sold under the registration statement, of which this prospectus forms a
part, the shares of common stock will be freely tradable in the hands of persons
other than our affiliates.

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EXHIBIT C

SELLING STOCKHOLDER QUESTIONNAIRE

 

To: American Superconductor Corporation (“AMSC”)

c/o John W. Powell, Esq., General Counsel

Reference is made to (1) the Securities Purchase Agreement, dated as of April 2,
2012, by and among AMSC and each of the investors listed in the Schedule of
Buyers thereto (the “Purchase Agreement”), and (2) the Registration Rights
Agreement, dated April [    ], 2012, by and among AMSC and the parties thereto
(the “Registration Rights Agreement”).

“Registrable Securities” has the meaning set forth in the Registration Rights
Agreement. “Beneficial Ownership” has the meaning contemplated under Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
which includes shares issuable upon the exercise of options that will be vested
within 60 days.

Pursuant to the Registration Rights Agreement, the undersigned hereby furnishes
to AMSC the following information for use by AMSC in connection with the
preparation of a Registration Statement contemplated by the Registration Rights
Agreement.

 

  (1) Name and Contact Information:

 

Full legal name of record holder:     Address of record holder:     U.S. Social
Security Number or Taxpayer identification number of record holder, if
applicable:     Identity of beneficial owner, if different than record holder
(Note: A “beneficial owner” means a person who directly or indirectly alone or
with others has power to vote or dispose of the stock covered by this
Questionnaire):     Name of contact person:     Telephone number of contact
person:     Fax number of contact person:     E-mail address of contact person:
   

 

  (2) Beneficial Ownership of Registrable Securities:

 

(a) Number of Registrable Securities owned by Selling Stockholder:     

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(b) Except as set forth below in this Item (2)(b), the Selling Stockholder
requests that all such Registrable Securities be registered:

                                                                     
                                         
                                         
                                                           

 

  (3) Beneficial Ownership of Other Securities of AMSC Owned by the Selling
Stockholder:

 

Except as set forth below in this Item (3), the undersigned is not the
beneficial or registered owner of any securities of AMSC other than the
Registrable Securities listed above in Item (2)(a).

Type and amount of other securities beneficially owned by the Selling
Stockholder:

                                                                     
                                         
                                         
                                                           

                                                                     
                                         
                                         
                                                           

                                                                     
                                         
                                         
                                                           

 

  (4) Relationships with AMSC:

 

Except as set forth below, neither the undersigned nor any of its affiliates,
officers, directors or principal equity holders (5% or more) has held any
position or office or has had any other material relationship with AMSC (or its
predecessors or affiliates) during the past three years.

State any exceptions here:

                                                                     
                                         
                                         
                                                           

                                                                     
                                         
                                         
                                                           

 

  (5) Plan of Distribution:

 

Except as set forth below, the undersigned intends to distribute pursuant to the
“Selling Stockholders” and “Plan of Distribution” sections in substantially the
form attached hereto as Exhibit B to the Registration Rights Agreement:

State any exceptions here:

                                                                     
                                         
                                         
                                                           

                                                                     
                                         
                                         
                                                           

Note: In no event will such method(s) of distribution take the form of an
underwritten offering of the Registrable Securities.

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

  (6) Selling Stockholder Affiliations and Broker-Dealer Status:

 

(a) Is the Selling Stockholder a registered broker-dealer?

                                                                     
                                         
                                         
                                                           

(b) If “yes” to Section (6)(a), did you receive your Registrable Securities as
compensation for investment banking services to the Company?

 

Yes   ¨                 No   ¨

Note: If “no” to Section (6)(b), the Commission’s staff has indicated that you
should be identified as an underwriter in the Prospectus.

(c) Is the Selling Stockholder an affiliate of or a person affiliated with a
registered broker-dealer(s)? (For purposes of this response, an “affiliate” of,
or person “affiliated” with, a specified person, is a person that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, the person specified.)

                                                                     
                                         
                                         
                                                           

(d) If the answer to Item (6)(c) is yes, identify the registered
broker-dealer(s) and describe the nature of the affiliation(s):

                                                                     
                                         
                                         
                                                           

(e) If the answer to Item (6)(c) is yes, did the Selling Stockholder acquire the
Registrable Securities in the ordinary course of business (if not, please
explain)?

                                                                     
                                         
                                         
                                                           

(f) If the answer to Item (6)(c) is yes, did the Selling Stockholder, at the
time of purchase of the Registrable Securities, have any agreements, plans or
understandings, directly or indirectly, with any person to distribute the
Registrable Securities (if yes, please explain)?

                                                                     
                                         
                                         
                                                           

Note: If the Selling Stockholder is an affiliate of a broker-dealer and did not
purchase its Registrable Securities in the ordinary course of business or at the
time of the purchase had any agreements, plans or understandings, directly or
indirectly, with any person to distribute the Registrable Securities, AMSC may
be required to identify the Selling Stockholder as an underwriter in the
Registration Statement, any amendments thereto and the related prospectus and
any prospectus supplements.

 

  (7) Voting or Investment Control over the Registrable Securities:

 

If the Selling Stockholder is not a natural person, please identify the natural
person or persons who have voting or investment control over the Registrable
Securities listed in Item (2) above:

                                                                     
                                         
                                         
                                                           

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

By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items (1) through (7) above and the inclusion
of such information in the Registration Statement, any amendments and/or
supplements thereto, and the Prospectus. The undersigned understands that such
information will be relied upon by AMSC in connection with the preparation or
amendment of the Registration Statement and the Prospectus.

The undersigned has reviewed the answers to the above questions and affirms that
the same are true, complete and accurate, and will be true, accurate and
complete as of the date of the closing of the transactions contemplated by the
Purchase Agreement. THE UNDERSIGNED AGREES TO NOTIFY THE COMPANY PROMPTLY OF ANY
CHANGES IN THE FOREGOING INFORMATION DURING THE APPLICABLE REGISTRATION PERIOD.

 

Dated:             , 2012   

 

  

Signature of Record Holder

(Please sign your name in exactly the same manner as will be on the
certificate(s) for the shares being registered)

Please return the completed and executed Questionnaire as soon as possible to
John Samia, Esq. via email at John.Samia@amsc.com; or facsimile at
(978) 842-3530, and return the original by overnight mail to John Samia, Esq,
Corporate Counsel, American Superconductor Corporation, 64 Jackson Road, Devens,
Massachusetts 01434.