Exhibit 10.2

 

EXHIBIT A

 

FORM OF NOTE

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF
(A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN
APPROPRIATE EXCEPTION UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II)
UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.  ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF
THIS NOTE, INCLUDING SECTION 4(c)(viii) HEREOF.

 

SENIOR SECURED CONVERTIBLE NOTE

 

April 26, 2006

$[                   ]

 

FOR VALUE RECEIVED, MEDICOR LTD., a Delaware corporation (the “Company”), hereby
promises to pay to the order of [                         ] or registered
assigns (the “Holder”) the principal amount of [                           ]
United States Dollars ($[                ]) when due, whether upon maturity,
acceleration, redemption or otherwise, and to pay interest (“Interest”) on the
unpaid principal balance hereof on each Interest Payment Date (as defined in
Section 3(a)) and upon maturity, or earlier upon conversion, acceleration or
redemption pursuant to the terms hereof, at the Applicable Interest Rate (as
defined in Section 3(a)).  Interest on this Senior Secured Convertible Note
(this “Note”) payable on each Interest Payment Date and upon maturity, or
earlier upon conversion, acceleration or redemption pursuant to the terms
hereof, shall accrue from the Issuance Date (as defined in Section 3(a)) and
shall be computed on the basis of a 360-day year and actual days elapsed.

 

1.             SECURITIES PURCHASE AGREEMENT; OTHER NOTES.  THIS NOTE IS ISSUED
PURSUANT TO THE SECURITIES PURCHASE AGREEMENT, DATED AS OF APRIL 26, 2006 (AS
THE SAME MAY BE AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME,
THE “SECURITIES PURCHASE AGREEMENT”).  THIS NOTE AND ALL OTHER NOTES (AS DEFINED
IN SECTION 3(A)) ISSUED BY THE COMPANY PURSUANT TO THE SECURITIES PURCHASE
AGREEMENT AND ALL NOTES ISSUED IN EXCHANGE THEREFOR OR REPLACEMENT THEREOF ARE
COLLECTIVELY REFERRED TO IN THIS NOTE AS THE “NOTES.”

 

2.             PAYMENTS.  ALL PAYMENTS OF PRINCIPAL OF, AND INTEREST ON, THIS
NOTE (TO THE EXTENT SUCH PRINCIPAL OR INTEREST IS NOT CONVERTED INTO SHARES (AS
DEFINED IN SECTION 3(A)), IN ACCORDANCE WITH THE TERMS HEREOF) SHALL BE MADE IN
LAWFUL MONEY OF THE UNITED STATES OF AMERICA BY WIRE TRANSFER OF IMMEDIATELY
AVAILABLE FUNDS TO SUCH ACCOUNT AS THE HOLDER MAY FROM TIME TO TIME DESIGNATE BY
WRITTEN NOTICE IN ACCORDANCE WITH THE PROVISIONS OF THIS NOTE.  THE

 

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Company has no right, but under certain circumstances may have an obligation, to
make payments of principal of this Note in cash prior to the Maturity Date (as
defined in Section 3(a)).  Whenever any amount expressed to be due by the terms
of this Note is due on any day that is not a Business Day (as defined in
Section 3(a)), the same shall instead be due on the next succeeding day that is
a Business Day (unless in the case of interest, such next succeeding Business
Day would be in the following calendar month, in which case such payment will be
made on the immediately preceding Business Day).  Each capitalized term used
herein, and not otherwise defined, shall have the meaning ascribed thereto in
the Securities Purchase Agreement.

 

3.             DEFINITIONS.

 

(A)           CERTAIN DEFINED TERMS.  FOR PURPOSES OF THIS NOTE, THE FOLLOWING
TERMS SHALL HAVE THE FOLLOWING MEANINGS:

 

“€” means Euros.

 

“£” means Pound Sterling.

 

“3-MONTH LIBOR RATE” MEANS THE LONDON INTERBANK OFFERED RATE OF LIBOR WITH
RESPECT TO A THREE-MONTH PERIOD FOR DEPOSITS OF DOLLARS AS REPORTED BY BLOOMBERG
FINANCIAL MARKETS (OR ANY SUCCESSOR THERETO, “BLOOMBERG”) AT APPROXIMATELY
10:00 A.M. (NEW YORK CITY TIME) THROUGH ITS “LIBOR RATES” FUNCTION (ACCESSED BY
TYPING “LR” [GO] ON A BLOOMBERG TERMINAL, AND LOOKING AT THE ROW ENTITLED “3
MONTH” AND UNDER THE COLUMN ENTITLED “DOLLAR LIBOR”) (OR SUCH OTHER PAGE AS MAY
REPLACE THAT PAGE ON THAT SERVICE, OR SUCH OTHER SERVICE AS MAY BE SELECTED
JOINTLY BY THE COMPANY AND THE HOLDERS OF AT LEAST A MAJORITY OF THE AGGREGATE
PRINCIPAL AMOUNT OF THE NOTES THEN OUTSTANDING).  IF SUCH RATE APPEARS ON THE
BLOOMBERG LIBOR RATES PAGE ON ANY DATE OF DETERMINATION OF THE 3-MONTH LIBOR
RATE (A “LIBOR DETERMINATION DATE”), THE 3-MONTH LIBOR RATE FOR SUCH DATE OF
DETERMINATION WILL BE SUCH RATE.  IF ON ANY LIBOR DETERMINATION DATE SUCH RATE
DOES NOT APPEAR ON THE BLOOMBERG LIBOR RATES PAGE, THE COMPANY AND SUCH HOLDERS
OF THE NOTES WILL JOINTLY REQUEST EACH OF FOUR MAJOR REFERENCE BANKS IN THE
LONDON INTERBANK MARKET, AS SELECTED JOINTLY BY THE COMPANY AND THE HOLDERS OF
AT LEAST A MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES THEN
OUTSTANDING, TO PROVIDE THE COMPANY WITH ITS OFFERED QUOTATION FOR UNITED STATES
DOLLAR DEPOSITS FOR THE UPCOMING THREE-MONTH PERIOD, TO PRIME BANKS IN THE
LONDON INTERBANK MARKET AT APPROXIMATELY 4:00 P.M., LONDON TIME ON ANY SUCH
LIBOR DETERMINATION DATE AND IN A PRINCIPAL AMOUNT THAT IS REPRESENTATIVE FOR A
SINGLE TRANSACTION IN DOLLARS IN SUCH MARKET AT SUCH TIME.  IF AT LEAST TWO
REFERENCE BANKS PROVIDE THE COMPANY WITH OFFERED QUOTATIONS, 3-MONTH LIBOR RATE
ON SUCH LIBOR DETERMINATION DATE WILL BE THE ARITHMETIC MEAN OF ALL SUCH
QUOTATIONS.  IF ON SUCH LIBOR DETERMINATION DATE FEWER THAN TWO OF THE REFERENCE
BANKS PROVIDE THE COMPANY WITH OFFERED QUOTATIONS, 3-MONTH LIBOR RATE ON SUCH
LIBOR DETERMINATION DATE WILL BE THE ARITHMETIC MEAN OF THE OFFERED PER ANNUM
RATES THAT THREE MAJOR BANKS IN NEW YORK CITY SELECTED JOINTLY BY THE COMPANY
AND THE HOLDERS OF AT LEAST A MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF THE
NOTES THEN OUTSTANDING QUOTE AT APPROXIMATELY 11:00 A.M. IN NEW YORK CITY ON
SUCH LIBOR DETERMINATION DATE FOR THREE-MONTH DOLLAR LOANS TO LEADING EUROPEAN
BANKS, IN A PRINCIPAL AMOUNT THAT IS REPRESENTATIVE FOR A SINGLE TRANSACTION IN
DOLLARS IN SUCH MARKET AT SUCH TIME.  IF THESE NEW YORK CITY QUOTES ARE NOT
AVAILABLE, THEN THE 3-MONTH LIBOR

 

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Rate determined on such LIBOR Determination Date will continue to be the 3-Month
LIBOR Rate as then currently in effect on such LIBOR Determination Date.

 

“AFFILIATE” HAS THE MEANING ASCRIBED TO SUCH TERM IN RULE 12B-2 OF THE GENERAL
RULES AND REGULATIONS UNDER THE 1934 ACT; PROVIDED, THAT FOR PURPOSES OF THIS
NOTE NO HOLDER HEREOF SHALL BE DEEMED AN AFFILIATE OF THE COMPANY BY VIRTUE OF
HOLDING THIS NOTE.

 

“ALLOCATION PERCENTAGE” MEANS, WITH RESPECT TO EACH HOLDER OF NOTES AS OF THE
DATE OF ANY DETERMINATION, A FRACTION OF WHICH THE NUMERATOR IS THE AGGREGATE
PRINCIPAL AMOUNT OF THE NOTES HELD BY SUCH HOLDER ON SUCH DATE, AND OF WHICH THE
DENOMINATOR IS THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES OUTSTANDING ON SUCH
DATE.

 

“APPLICABLE INTEREST RATE” INITIALLY SHALL MEAN THE PER ANNUM INTEREST RATE
EQUAL TO THE SUM OF (A) THE 3-MONTH LIBOR RATE IN EFFECT ON THE LIBOR
DETERMINATION DATE THAT IS TWO BUSINESS DAYS PRECEDING THE ISSUANCE DATE AND
(B) SIX PERCENT (6.00%); PROVIDED, HOWEVER, THAT ON EACH INTEREST PAYMENT DATE,
SUCH RATE SHALL BE ADJUSTED TO THE PER ANNUM INTEREST RATE EQUAL TO THE SUM OF
(A) THE 3-MONTH LIBOR RATE IN EFFECT ON THE LIBOR DETERMINATION DATE THAT IS TWO
BUSINESS DAYS PRECEDING SUCH INTEREST PAYMENT DATE AND (B) SIX PERCENT (6.00%). 
EACH APPLICABLE INTEREST RATE WILL BE APPLICABLE AS OF AND AFTER THE INTEREST
PAYMENT DATE TO WHICH IT RELATES TO, BUT NOT INCLUDING, THE NEXT SUCCEEDING
INTEREST PAYMENT DATE.

 

“APPROVED STOCK PLAN” MEANS ANY EMPLOYEE BENEFIT PLAN THAT HAS BEEN APPROVED BY
THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THE COMPANY PRIOR TO THE DATE OF THE
SECURITIES PURCHASE AGREEMENT AND LISTED ON SCHEDULE 3(C) THERETO, PURSUANT TO
WHICH THE COMPANY’S SECURITIES MAY BE ISSUED TO ANY EMPLOYEE, OFFICER OR
DIRECTOR FOR SERVICES PROVIDED TO THE COMPANY.

 

“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; PROVIDED THAT IF SUCH DATE IS A LIBOR DETERMINATION DATE, IT
SHALL ALSO BE A DAY ON WHICH BANKS IN LONDON, ENGLAND ARE OPEN FOR DEALINGS IN
U.S. DOLLARS IN THE LONDON INTERBANK MARKET.

 

“CAPITAL LEASE OBLIGATION” MEANS, AS TO ANY PERSON, ANY OBLIGATION THAT IS
REQUIRED TO BE CLASSIFIED AND ACCOUNTED FOR AS A CAPITAL LEASE ON A BALANCE
SHEET OF SUCH PERSON PREPARED IN ACCORDANCE WITH GAAP AND THE AMOUNT OF SUCH
OBLIGATION SHALL BE THE CAPITALIZED AMOUNT THEREOF, DETERMINED IN ACCORDANCE
WITH GAAP.

 

“CAPITAL EXPENDITURES” MEANS FOR ANY PERIOD, WITH RESPECT TO ANY PERSON, THE
AGGREGATE OF ALL EXPENDITURES BY SUCH PERSON AND ITS SUBSIDIARIES FOR THE
ACQUISITION OR LEASING (PURSUANT TO A CAPITAL LEASE) OF FIXED OR CAPITAL ASSETS
OR ADDITIONS TO EQUIPMENT (INCLUDING REPLACEMENTS, CAPITALIZED REPAIRS AND
IMPROVEMENTS DURING SUCH PERIOD) THAT SHOULD BE CAPITALIZED UNDER GAAP ON A
CONSOLIDATED BALANCE SHEET OF SUCH PERSON AND ITS SUBSIDIARIES.

 

“CHANGE OF CONTROL” MEANS (I) ANY SALE, LEASE, EXCHANGE OR OTHER TRANSFER (IN
ONE TRANSACTION OR A SERIES OF RELATED TRANSACTIONS) OF ALL OR SUBSTANTIALLY ALL
OF THE ASSETS OF THE COMPANY (INCLUDING, FOR THE AVOIDANCE OF DOUBT, THE SALE OF
ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE COMPANY’S SUBSIDIARIES IN THE
AGGREGATE) TO ANY PERSON OR GROUP OF RELATED PERSONS (AS

 

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defined in Section 13(d) of the Securities Exchange Act of 1934, as amended (the
“1934 Act”), (ii) the approval by the holders of the Company’s capital stock of
any plan or proposal to effect the liquidation, dissolution or winding up of the
Company, (iii) any Person or group of related Persons (other than Permitted
Holders) shall become the beneficial owner (as defined in Rule 13d-3 under the
1934 Act) of the outstanding Shares representing more than 50% of the aggregate
voting power of all classes of the voting securities of the Company or (iv) the
consolidation, merger or other business combination of the Company with or into
another Person (other than (A) a consolidation, merger or other business
combination in which holders of the Company’s voting power immediately prior to
the transaction continue after the transaction to hold, directly or indirectly,
a majority of the combined voting power of the surviving entity or entities
entitled to vote generally for the election of a majority of the members of the
board of directors (or their equivalent if other than a corporation) of such
entity or entities, or (B) pursuant to a migratory merger effected solely for
the purpose of changing the jurisdiction of incorporation of the Company).

 

“COMMON STOCK” MEANS (A) THE COMPANY’S COMMON STOCK, $0.001 PAR VALUE PER SHARE,
AND (B) ANY CAPITAL STOCK RESULTING FROM A RECLASSIFICATION OF SUCH COMMON
STOCK.

 

“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.

 

“CONVERSION AMOUNT” MEANS EITHER (A) IN THE CASE OF A CONVERSION PURSUANT TO
SECTION 4, THE SUM OF (1) THE PRINCIPAL TO BE CONVERTED, REDEEMED OR OTHERWISE
WITH RESPECT TO WHICH THE DETERMINATION IS BEING MADE AND (2) THE INTEREST
AMOUNT WITH RESPECT TO THE AMOUNT REFERRED TO IN THE IMMEDIATELY PRECEDING
CLAUSE (1), OR (B) IN THE CASE OF AN INTEREST CONVERSION (AS DEFINED IN
SECTION 8), THE INTEREST CONVERSION AMOUNT.

 

“CONVERSION PRICE” MEANS, AS OF ANY CONVERSION DATE OR OTHER DATE OF
DETERMINATION, THE FIXED CONVERSION PRICE; PROVIDED THAT FOR PURPOSES OF AN
INTEREST CONVERSION PURSUANT TO SECTION 8, THE CONVERSION PRICE SHALL MEAN 93%
OF THE WEIGHTED AVERAGE PRICE OF THE COMMON STOCK ON EACH OF THE FIVE
(5) TRADING DAYS ENDING ON THE TRADING DAY IMMEDIATELY PRECEDING THE INTEREST
CONVERSION DATE APPLICABLE TO ANY SUCH INTEREST CONVERSION FOR WHICH SUCH
DETERMINATION IS BEING MADE.

 

“CONVERTIBLE SECURITIES” MEANS ANY STOCK OR SECURITIES (OTHER THAN OPTIONS)
DIRECTLY OR INDIRECTLY CONVERTIBLE INTO OR EXCHANGEABLE OR EXERCISABLE FOR
SHARES.

 

“DEFAULT” MEANS ANY EVENT OR CIRCUMSTANCE THAT IS, OR WITH THE GIVING OF NOTICE
OR LAPSE OF TIME OR BOTH, WOULD BE AN EVENT OF DEFAULT.

 

“DOLLARS” OR “$” MEANS UNITED STATES DOLLARS.

 

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“EUROSILICONE AGREEMENT” MEANS THAT CERTAIN AGREEMENT FOR THE SALE AND PURCHASE
OF THE SHARES OF LABORATORIES EUROSILICONE SA, DATED MAY 17, 2004, BY AND AMONG
THE COMPANY AND THE SELLERS NAMED THEREIN, WHICH AGREEMENT HAS NOT BEEN AMENDED,
SUPPLEMENTED OR OTHERWISE MODIFIED SINCE SUCH DATE.

 

“EXCLUDED TAXES” MEANS, WITH RESPECT TO THE HOLDER, OR ANY OTHER RECIPIENT OF
PAYMENT TO BE MADE BY OR ON ACCOUNT OF ANY OBLIGATIONS OF THE COMPANY OR ANY OF
ITS SUBSIDIARIES UNDER THE NOTES, THE SECURITIES PURCHASE AGREEMENT OR UNDER ANY
OTHER TRANSACTION DOCUMENT, (A) INCOME OR FRANCHISE TAXES IMPOSED ON (OR
MEASURED BY) ITS NET INCOME BY THE UNITED STATES OF AMERICA OR ANY OTHER
JURISDICTION UNDER THE LAWS OF WHICH SUCH RECIPIENT IS ORGANIZED, ITS PRINCIPAL
OFFICES ARE LOCATED, IT IS RESIDENT FOR TAX PURPOSES OR TO WHICH IT HAS A
CONNECTION GIVING RISE TO SUCH TAXES OTHER THAN BY REASON OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT, INCLUDING THE HOLDING OF THE NOTES, AND
ENFORCING ITS RIGHTS THEREUNDER (B) ANY BRANCH PROFITS TAXES IMPOSED BY THE
UNITED STATES OF AMERICA OR ANY SIMILAR TAX IMPOSED BY ANY OTHER JURISDICTION IN
WHICH THE HOLDER OR RECIPIENT IS TREATED AS DOING BUSINESS, (C) ANY TAXES
IMPOSED BY REASON OF A HOLDER OR RECIPIENT FAILING TO PROVIDE FORMS OR
CERTIFICATIONS IT IS LEGALLY ABLE TO PROVIDE THAT WOULD REDUCE OR ELIMINATE SUCH
TAXES AND THAT ARE REASONABLY REQUESTED BY THE COMPANY.

 

“EXEMPTED ISSUANCES” MEANS (A) SHARES ISSUED OR DEEMED TO HAVE BEEN ISSUED BY
THE COMPANY PURSUANT TO AN APPROVED STOCK PLAN; (B) SHARES ISSUED OR DEEMED TO
HAVE BEEN ISSUED UPON THE CONVERSION, EXCHANGE OR EXERCISE OF ANY OPTION OR
CONVERTIBLE SECURITY OUTSTANDING ON THE DATE PRIOR TO THE ISSUANCE DATE AND SET
FORTH IN SCHEDULE 3(C) TO THE SECURITIES PURCHASE AGREEMENT, PROVIDED THAT THE
TERMS OF SUCH OPTION OR CONVERTIBLE SECURITY ARE NOT AMENDED OR OTHERWISE
MODIFIED ON OR AFTER THE DATE OF THE SECURITIES PURCHASE AGREEMENT, AND PROVIDED
THAT THE CONVERSION PRICE, EXCHANGE PRICE, EXERCISE PRICE OR OTHER PURCHASE
PRICE IS NOT REDUCED, ADJUSTED OR OTHERWISE MODIFIED AND THE NUMBER OF SHARES
ISSUED OR ISSUABLE IS NOT INCREASED (WHETHER BY OPERATION OF, OR IN ACCORDANCE
WITH, THE RELEVANT GOVERNING DOCUMENTS OR OTHERWISE) ON OR AFTER THE DATE OF THE
SECURITIES PURCHASE AGREEMENT; AND (C) SHARES ISSUED OR DEEMED TO HAVE BEEN
ISSUED BY THE COMPANY UPON CONVERSION OF THE NOTES OR EXERCISE OF THE WARRANTS.

 

“FIXED CONVERSION PRICE” MEANS, AS OF ANY CONVERSION DATE OR OTHER DATE OF
DETERMINATION, $4.00, SUBJECT TO ADJUSTMENT AS PROVIDED HEREIN.

 

“FORCED CONVERSION” MEANS AN INTEREST CONVERSION OR A COMPANY CONVERSION, AS
APPLICABLE.

 

“FORCED CONVERSION DATE” MEANS AN INTEREST CONVERSION DATE OR A COMPANY
CONVERSION DATE, AS APPLICABLE.

 

“FORCED CONVERSION NOTICE” MEANS AN INTEREST CONVERSION NOTICE OR A COMPANY
CONVERSION NOTICE, AS APPLICABLE.

“FORCED CONVERSION NOTICE DATE” MEANS AN INTEREST CONVERSION NOTICE DATE OR A
COMPANY CONVERSION NOTICE DATE, AS APPLICABLE.

 

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“FUNDAMENTAL CONDITIONS” WHEN USED IN REFERENCE TO A FORCED CONVERSION, MEANS,
AS OF ANY DATE OF DETERMINATION, (I) A REGISTRATION STATEMENT SHALL HAVE BEEN
EFFECTIVE FOR AT LEAST FORTY-FIVE (45) DAYS PRIOR TO SUCH DATE AND SHALL
CONTINUE TO BE EFFECTIVE AND AVAILABLE FOR THE SALE OF NOT LESS THAN 150% OF THE
REGISTRABLE SECURITIES ISSUABLE UPON CONVERSION OF ALL OF THE OUTSTANDING NOTES
AND EXERCISE OF ALL OF THE OUTSTANDING WARRANTS, IN ACCORDANCE WITH THE
REGISTRATION RIGHTS AGREEMENT, AND NO GRACE PERIOD (AS DEFINED IN THE
REGISTRATION RIGHTS AGREEMENT) APPLICABLE TO SUCH REGISTRATION STATEMENT SHALL
BE IN EFFECT NOR SHALL THERE HAVE BEEN ANY GRACE PERIOD WHICH IS NOT AN
ALLOWABLE GRACE PERIOD (AS DEFINED IN THE REGISTRATION RIGHTS AGREEMENT)
APPLICABLE TO SUCH REGISTRATION STATEMENT; (II) WITH RESPECT TO ANY INTEREST
CONVERSION, THE AGGREGATE INTEREST CONVERSION AMOUNT OF ALL THE NOTES SHALL NOT
EXCEED FIFTEEN (15%) OF THE PRODUCT OF (A) THE ARITHMETIC AVERAGE OF THE DAILY
DOLLAR TRADING VOLUME (AS REPORTED BY BLOOMBERG) OF THE COMMON STOCK ON ITS
PRINCIPAL MARKET OVER THE TWENTY (20) CONSECUTIVE TRADING DAYS ENDING ON AND
INCLUDING THE DATE THAT IS IMMEDIATELY PRECEDING THE INTEREST CONVERSION NOTICE
DATE, MULTIPLIED BY (B) THE NUMBER OF EXPECTED TRADING DAYS DURING THE INTEREST
CONVERSION PERIOD TO WHICH THE INTEREST CONVERSION NOTICE RELATES, AS SET FORTH
THEREIN; (III) ON EACH DAY DURING THE PERIOD BEGINNING FORTY-FIVE (45) DAYS
PRIOR TO THE FORCED CONVERSION NOTICE DATE AND ENDING ON AND INCLUDING THE
APPLICABLE FORCED CONVERSION DATE, THE COMMON STOCK SHALL BE LISTED ON THE
AMERICAN STOCK EXCHANGE OR ANOTHER NATIONALLY RECOGNIZED STOCK EXCHANGE OR
QUOTED ON THE NASDAQ STOCK MARKET, INC. (“NASDAQ”) AND THE COMMON STOCK SHALL
NOT HAVE BEEN SUSPENDED FROM TRADING ON ANY SUCH MARKET OR EXCHANGE NOR SHALL
DELISTING OR SUSPENSION BY ANY SUCH MARKET OR EXCHANGE HAVE BEEN THREATENED
EITHER (A) IN WRITING BY SUCH MARKET OR EXCHANGE OR (B) BY FALLING BELOW THE
MINIMUM LISTING MAINTENANCE REQUIREMENTS OF SUCH MARKET OR EXCHANGE; (IV) DURING
THE PERIOD BEGINNING ON AND INCLUDING THE ISSUANCE DATE AND ENDING ON AND
INCLUDING THE FORCED CONVERSION DATE, THERE SHALL NOT HAVE OCCURRED EITHER (X)
THE PUBLIC ANNOUNCEMENT OF A PENDING, PROPOSED OR INTENDED CHANGE OF CONTROL
THAT HAS NOT BEEN ABANDONED, TERMINATED OR CONSUMMATED AND PUBLICLY DISCLOSED AS
SUCH AT LEAST TWENTY (20) TRADING DAYS PRIOR TO THE FORCED CONVERSION DATE OR
(Y) ANY OTHER TRIGGERING EVENT (AS DEFINED IN SECTION 5(C)) OR AN EVENT OF
DEFAULT (AS DEFINED IN SECTION 13(A)); (V) DURING THE PERIOD BEGINNING ON THE
ISSUANCE DATE AND ENDING ON AND INCLUDING THE FORCED CONVERSION DATE, THE
COMPANY SHALL HAVE DELIVERED SHARES UPON CONVERSION OF THE NOTES AND UPON
EXERCISE OF THE WARRANTS ON A TIMELY BASIS AS SET FORTH IN SECTION 4(C)(II) OF
THE NOTES AND SECTION 3(A) OF THE WARRANTS; (VI) ON EACH DAY DURING THE PERIOD
BEGINNING NINETY (90) DAYS PRIOR TO THE FORCED CONVERSION NOTICE DATE AND ENDING
ON AND INCLUDING THE APPLICABLE FORCED CONVERSION DATE, THE COMPANY AND ITS
SUBSIDIARIES OTHERWISE SHALL HAVE BEEN IN MATERIAL COMPLIANCE WITH IN ALL
RESPECTS AND SHALL NOT HAVE MATERIALLY BREACHED OR BEEN IN BREACH OF ANY
PROVISION OR COVENANT OF THE NOTES OR ANY OTHER TRANSACTION DOCUMENTS; AND
(VII) THE COMPANY SHALL HAVE OBTAINED ALL REQUISITE APPROVALS (IF ANY) OF ITS
STOCKHOLDERS FOR THE ISSUANCE OF THE SHARES TO THE HOLDERS OF THE NOTES AND THE
WARRANTS.

 

“GAAP” MEANS UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.

 

“GOVERNMENTAL AUTHORITY” MEANS THE GOVERNMENT OF ANY NATION, STATE OR OTHER
POLITICAL SUBDIVISION THEREOF, ANY ENTITY EXERCISING EXECUTIVE, LEGISLATIVE,
JUDICIAL, REGULATORY OR ADMINISTRATIVE FUNCTIONS OF OR PERTAINING TO GOVERNMENT,
AND ANY CORPORATION OR OTHER ENTITY OWNED OR CONTROLLED, THROUGH STOCK OR
CAPITAL OWNERSHIP OR OTHERWISE, BY ANY OF THE FOREGOING.

 

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“GUARANTEE AND COLLATERAL AGREEMENT” MEANS THAT CERTAIN GUARANTEE AND COLLATERAL
AGREEMENT AMONG THE COMPANY, CERTAIN OF ITS SUBSIDIARIES (THE “GUARANTORS”) AND
THE COLLATERAL AGENT (AS DEFINED IN THE SECURITIES PURCHASE AGREEMENT) PURSUANT
TO WHICH (I) THE COMPANY AND THE GUARANTORS HAVE GRANTED THE HOLDERS OF THE
NOTES A FIRST PRIORITY SECURITY INTEREST, SUBJECT TO PERMITTED LIENS, IN THE
COLLATERAL DESCRIBED THEREIN AND (II) THE GUARANTORS HAVE GUARANTEED FOR THE
BENEFIT OF THE HOLDERS OF THE NOTES, THE OBLIGATIONS OF THE COMPANY UNDER THIS
NOTE AND THE OTHER TRANSACTION DOCUMENTS AS THE SAME MAY BE AMENDED,
SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME.

 

“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 (OTHER THAN UNSECURED ACCOUNT
TRADE PAYABLES THAT ARE (I) ENTERED INTO OR INCURRED IN THE ORDINARY COURSE OF
THE COMPANY’S AND ITS SUBSIDIARIES’ BUSINESS, (II) ON TERMS THAT REQUIRE FULL
PAYMENT WITHIN NINETY (90) DAYS, (III) NOT UNPAID IN EXCESS OF FIFTEEN (15) DAYS
BEYOND INVOICE DUE DATE OR ARE BEING CONTESTED IN GOOD FAITH AND AS TO WHICH
SUCH RESERVE AS IS REQUIRED BY GAAP HAS BEEN MADE AND (IV) NOT EXCEEDING AT ANY
ONE TIME AN AGGREGATE AMONG THE COMPANY AND ITS SUBSIDIARIES OF $500,000),
(C) ALL REIMBURSEMENT OR PAYMENT OBLIGATIONS WITH RESPECT TO LETTERS OF CREDIT,
BANKER’S ACCEPTANCES, SURETY BONDS AND OTHER SIMILAR INSTRUMENTS, (D) ALL
OBLIGATIONS EVIDENCED BY NOTES, BONDS, DEBENTURES, REDEEMABLE CAPITAL STOCK 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 CAPITAL
LEASE OBLIGATIONS, (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 LIEN UPON OR IN
ANY PROPERTY OR ASSETS (INCLUDING ACCOUNTS AND CONTRACT RIGHTS) OWNED BY ANY
PERSON, EVEN THOUGH THE PERSON THAT 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.

 

“INDEMNIFIED TAXES” MEANS TAXES OTHER THAN EXCLUDED TAXES.

 

“INTEREST AMOUNT” MEANS, WITH RESPECT TO ANY PRINCIPAL, ALL ACCRUED AND UNPAID
INTEREST (INCLUDING ANY DEFAULT INTEREST AS DEFINED IN SECTION 8(A)) ON SUCH
PRINCIPAL THROUGH AND INCLUDING SUCH DATE OF DETERMINATION.

 

“INTEREST PAYMENT DATE” MEANS (I) SEPTEMBER 30 AND MARCH 31 OF EACH YEAR (OR IF
SUCH DATE IS NOT A BUSINESS DAY, THE IMMEDIATELY PRECEDING BUSINESS DAY),
BEGINNING WITH SEPTEMBER 30, 2006, (II) THE MATURITY DATE AND (III) EACH OTHER
DATE ON WHICH ANY PRINCIPAL OF THIS NOTE IS PAID IN ACCORDANCE WITH THE TERMS OF
THIS NOTE.

 

“ISSUANCE DATE” MEANS THE ORIGINAL DATE OF ISSUANCE OF THIS NOTE PURSUANT TO THE
SECURITIES PURCHASE AGREEMENT, REGARDLESS OF ANY EXCHANGE OR REPLACEMENT HEREOF.

 

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“LIENS” MEANS, WITH RESPECT TO ANY ASSET, ANY MORTGAGE, LIEN, PLEDGE,
HYPOTHECATION, CHARGE, SECURITY INTEREST, ENCUMBRANCE OR ADVERSE CLAIM OF ANY
KIND AND ANY RESTRICTIVE COVENANT, CONDITION, RESTRICTION OR EXCEPTION OF ANY
KIND THAT HAS THE PRACTICAL EFFECT OF CREATING A MORTGAGE, LIEN, PLEDGE,
HYPOTHECATION, CHARGE, SECURITY INTEREST, ENCUMBRANCE OR ADVERSE CLAIM OF ANY
KIND (INCLUDING ANY OF THE FOREGOING CREATED BY, ARISING UNDER OR EVIDENCED BY
ANY CONDITIONAL SALE OR OTHER TITLE RETENTION AGREEMENT, THE INTEREST OF A
LESSOR WITH RESPECT TO A CAPITAL LEASE OBLIGATION, OR ANY FINANCING LEASE HAVING
SUBSTANTIALLY THE SAME ECONOMIC EFFECT AS ANY OF THE FOREGOING).

 

“MATURITY DATE” MEANS MARCH 31, 2011.

 

“NEW SECURITIES” MEANS ANY AUTHORIZED BUT UNISSUED SECURITIES OF THE COMPANY
OTHER THAN (I) EXEMPTED ISSUANCES; (II) SECURITIES ISSUED PURSUANT TO THE
ACQUISITION OF ANOTHER PERSON BY THE COMPANY OR ITS SUBSIDIARIES BY MERGER,
PURCHASE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF SUCH PERSON OR OTHER
TRANSACTION WHEREBY THE COMPANY SHALL BECOME DIRECTLY OR INDIRECTLY THE OWNER OF
MORE THAN 50% OF THE AGGREGATE VOTING POWER OF ALL CLASSES OF THE VOTING
SECURITIES OF SUCH PERSON; (III) SHARES OF COMMON STOCK OR PREFERRED STOCK
ISSUED PURSUANT TO ANY PRO RATA STOCK SPLIT OR STOCK DIVIDEND; AND (IV) SHARES
OF COMMON STOCK OR PREFERRED STOCK ISSUED PURSUANT TO A QUALIFIED PUBLIC
OFFERING.

 

“OPTIONS” MEANS ANY RIGHTS, WARRANTS OR OPTIONS TO SUBSCRIBE FOR OR PURCHASE
SHARES OR CONVERTIBLE SECURITIES.

 

“OTHER NOTES” MEANS ALL OF THE SENIOR SECURED CONVERTIBLE NOTES, OTHER THAN THIS
NOTE, THAT HAVE BEEN ISSUED BY THE COMPANY PURSUANT TO THE SECURITIES PURCHASE
AGREEMENT AND ALL NOTES ISSUED IN EXCHANGE THEREFOR OR REPLACEMENT THEREOF.

 

“OUTSTANDING” WHEN USED WITH REFERENCE TO THE NOTES, MEANS, AS OF ANY DATE OF
DETERMINATION, ANY NOTE, OR PORTION THEREOF (A) WHICH IS HELD BY ANY PERSON
OTHER THAN THE COMPANY OR ITS AFFILIATES AND (B) FOR WHICH ALL PRINCIPAL AND
OTHER AMOUNTS DUE THEREUNDER HAVE NOT BEEN REPAID IN FULL BY THE COMPANY.

 

“PERMITTED HOLDERS” MEANS THE DONALD K. MCGHAN, JIM J. MCGHAN, NIKKI M. POMEROY
AND 1991 III EQUITY PERFORMANCE II, LP AND THEIR RESPECTIVE AFFILIATES.

 

“PERMITTED LIEN” MEANS (A)  LIENS CREATED BY THE SECURITY DOCUMENTS; (B) LIENS
EXISTING ON THE DATE OF THIS AGREEMENT NOT OTHERWISE DESCRIBED IN ANY OTHER
CLAUSE OF THIS DEFINITION AND SET FORTH ON SCHEDULE 3(BB) TO THE SECURITIES
PURCHASE AGREEMENT; (C) LIENS FOR TAXES, ASSESSMENTS OR OTHER GOVERNMENTAL
CHARGES NOT AT THE TIME DUE AND PAYABLE SO LONG AS THE COMPANY AND ITS
SUBSIDIARIES MAINTAIN ADEQUATE RESERVES IN ACCORDANCE WITH GAAP IN RESPECT OF
SUCH TAXES AND CHARGES; (D) STATUTORY LIENS OF LANDLORDS AND LIENS ARISING IN
THE ORDINARY COURSE OF BUSINESS IN FAVOR OF CARRIERS, WAREHOUSEMEN, MECHANICS,
SUPPLIERS, REPAIRMEN AND MATERIALMEN, OR OTHER SIMILAR LIENS IMPOSED BY LAW,
WHICH REMAIN PAYABLE WITHOUT PENALTY OR WHICH ARE BEING CONTESTED IN GOOD FAITH
BY APPROPRIATE PROCEEDINGS DILIGENTLY PROSECUTED, WHICH PROCEEDINGS HAVE THE
EFFECT OF PREVENTING THE FORFEITURE OR SALE OF THE PROPERTY SUBJECT THERETO, AND
IN EACH CASE FOR WHICH ADEQUATE RESERVES IN ACCORDANCE WITH GAAP ARE BEING
MAINTAINED; (E) LIENS ARISING IN THE ORDINARY COURSE OF BUSINESS IN CONNECTION
WITH WORKER’S COMPENSATION,

 

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unemployment compensation, unemployment insurance and other types of social
security (excluding Liens arising under ERISA); (f) attachments, appeal bonds
(and cash collateral securing such bonds), judgments and other similar Liens,
for sums not exceeding $500,000 in the aggregate for the Company and its
Subsidiaries, arising in connection with court proceedings, provided that the
execution or other enforcement of such Liens is effectively stayed;
(g) easements, rights of way, restrictions, minor defects or irregularities in
title and other similar Liens arising in the ordinary course of business and not
materially detracting from the value of the property subject thereto and not
interfering in any material respect with the ordinary conduct of the business of
the Company or any Subsidiary; (h) Liens arising solely by virtue of any
statutory or common law provision relating to banker’s liens, rights of set-off
or similar rights and remedies and burdening only deposit accounts or other
funds maintained with a creditor depository institution, provided that no such
deposit account is a dedicated cash collateral account or is subject to
restrictions against access by the depositor in excess of those set forth by
regulations promulgated by the Board of Governors of the Federal Reserve System
and no such deposit account is intended by the Company or any Subsidiary to
provide collateral to the depository institution; and (i) Liens, including
capital leases, solely securing tangible personal property material to the
business that has been purchased through the incurrence of Indebtedness in an
amount not to exceed $250,000 at any one time outstanding.

 

“PERSON” MEANS ANY INDIVIDUAL, FIRM, CORPORATION, PARTNERSHIP, LIMITED LIABILITY
COMPANY, TRUST, INCORPORATED OR UNINCORPORATED ASSOCIATION, JOINT VENTURE, JOINT
STOCK COMPANY, GOVERNMENTAL AUTHORITY OR OTHER ENTITY OF ANY KIND, AND SHALL
INCLUDE ANY SUCCESSOR (BY MERGER OR OTHERWISE) OF SUCH ENTITY.

 

“PRINCIPAL” MEANS THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AS OF ANY DATE
OF DETERMINATION.

 

“PRINCIPAL MARKET” MEANS, WITH RESPECT TO THE COMMON STOCK OR ANY OTHER
SECURITY, THE PRINCIPAL SECURITIES EXCHANGE OR TRADING MARKET FOR THE COMMON
STOCK OR SUCH OTHER SECURITY.

 

“PROMPTLY” SHALL MEAN AS SOON AS REASONABLY POSSIBLE, AND IN ANY EVENT WITHIN
TWO (2) BUSINESS DAYS.

 

“QUALIFIED PUBLIC OFFERING” MEANS A BONA FIDE FIRM COMMITMENT UNDERWRITTEN
PUBLIC OFFERING OF THE COMPANY’S EQUITY SECURITIES PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT, AND IN WHICH THE UNDERWRITING IS LEAD
MANAGED BY AN INTERNATIONALLY RECOGNIZED INVESTMENT BANKING FIRM (WHICH HAS BEEN
APPROVED BY THE HOLDERS OF NOTES REPRESENTING AT LEAST A MAJORITY OF THE
AGGREGATE PRINCIPAL AMOUNT OF THE NOTES THEN OUTSTANDING) IN WHICH THE NET PRICE
PER SHARE (AFTER DEDUCTION OF UNDERWRITING DISCOUNTS AND COMMISSIONS) IS EQUAL
TO OR GREATER THAN $8.00 (SUBJECT TO ADJUSTMENTS FOR STOCK SPLITS, STOCK
DIVIDENDS, COMBINATIONS, RECLASSIFICATIONS AND OTHER EVENTS) AND WHICH RESULTS
IN GROSS PROCEEDS OF AT LEAST $75,000,000.

 

“REGISTRABLE SECURITIES” FOR PURPOSES OF THIS NOTE MEANS SHARES ISSUED OR
ISSUABLE UPON CONVERSION OF THE NOTES AND EXERCISE OF THE WARRANTS, AND ANY
SHARES OF CAPITAL STOCK ISSUED OR ISSUABLE WITH RESPECT TO SUCH SHARES AS A
RESULT OF ANY STOCK SPLIT, STOCK DIVIDEND,

 

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recapitalization, exchange or similar event or otherwise, without regard to any
limitations on conversions of the Notes or exercise of the Warrants.

 

“REGISTRATION RIGHTS AGREEMENT” MEANS THAT CERTAIN REGISTRATION RIGHTS
AGREEMENT, DATED AS OF APRIL 26, 2006, AMONG THE COMPANY AND THE INITIAL HOLDERS
OF THE NOTES RELATING TO THE FILING OF REGISTRATION STATEMENTS COVERING, AMONG
OTHER THINGS, THE RESALE OF THE REGISTRABLE SECURITIES, AS SUCH AGREEMENT MAY BE
AMENDED FROM TIME TO TIME AS PROVIDED IN SUCH AGREEMENT.

 

“REGISTRATION STATEMENT” MEANS A REGISTRATION STATEMENT OR REGISTRATION
STATEMENTS FILED UNDER THE 1933 ACT PURSUANT TO THE REGISTRATION RIGHTS
AGREEMENT COVERING THE RESALE OF THE REGISTRABLE SECURITIES.

 

“SEC” MEANS THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION, OR ANY
SUCCESSOR THERETO.

 

“SECURITY DOCUMENTS” MEANS THE GUARANTEE AND COLLATERAL AGREEMENT AND ANY OTHER
AGREEMENTS, DOCUMENTS AND INSTRUMENTS EXECUTED CONCURRENTLY HEREWITH OR AT ANY
TIME HEREAFTER PURSUANT TO WHICH THE COMPANY, ITS SUBSIDIARIES OR ANY OTHER
PERSON EITHER (I) GUARANTEES PAYMENT OR PERFORMANCE OF ALL OR ANY PORTION OF THE
OBLIGATIONS HEREUNDER OR UNDER ANY OTHER INSTRUMENTS DELIVERED IN CONNECTION
WITH THE TRANSACTIONS CONTEMPLATED HEREBY AND BY THE SECURITIES PURCHASE
AGREEMENT AND/OR (II) PROVIDES, AS SECURITY FOR ALL OR ANY PORTION OF SUCH
OBLIGATIONS, A LIEN ON ANY OF ITS ASSETS IN FAVOR OF THE HOLDER, AS ANY OR ALL
OF THE SAME MAY BE AMENDED, SUPPLEMENTED, RESTATED OR OTHERWISE MODIFIED FROM
TIME TO TIME.

 

“SHARES” MEANS SHARES OF COMMON STOCK.

 

“SUBSIDIARY” MEANS ANY ENTITY IN WHICH THE COMPANY, DIRECTLY OR INDIRECTLY, OWNS
TWENTY PERCENT (20%) OR MORE OF THE OUTSTANDING CAPITAL STOCK, EQUITY OR SIMILAR
INTERESTS OR VOTING POWER OF SUCH ENTITY AS OF THE DATE OF THE EXECUTION OF THE
SECURITIES PURCHASE AGREEMENT OR AT ANY TIME THEREAFTER.

 

“TAXES” MEANS ANY FEDERAL, STATE, PROVINCIAL, COUNTY, LOCAL, FOREIGN AND OTHER
TAXES (INCLUDING, WITHOUT LIMITATION, INCOME, PROFITS, WINDFALL PROFITS,
ALTERNATIVE, MINIMUM, ACCUMULATED EARNINGS, PERSONAL HOLDING COMPANY, CAPITAL
STOCK, PREMIUM, ESTIMATED, EXCISE, SALES, USE, OCCUPANCY, GROSS RECEIPTS,
FRANCHISE, AD VALOREM, SEVERANCE, CAPITAL LEVY, PRODUCTION, TRANSFER,
WITHHOLDING, EMPLOYMENT, UNEMPLOYMENT COMPENSATION, PAYROLL AND PROPERTY TAXES,
IMPORT DUTIES AND OTHER GOVERNMENTAL CHARGES AND ASSESSMENTS), WHETHER OR NOT
MEASURED IN WHOLE OR IN PART BY NET INCOME, AND INCLUDING DEFICIENCIES,
INTEREST, ADDITIONS TO TAX OR INTEREST, AND PENALTIES WITH RESPECT THERETO.

 

“TRADING DAY” MEANS ANY DAY ON WHICH THE COMMON STOCK IS TRADED ON ITS PRINCIPAL
MARKET; PROVIDED THAT “TRADING DAY” SHALL NOT INCLUDE ANY DAY ON WHICH THE
PRINCIPAL MARKET IS OPEN FOR TRADING FOR LESS THAN 4.5 HOURS.

 

“WARRANTS” MEANS THE WARRANTS ISSUED TO THE ORIGINAL BUYERS OF THE NOTES
PURSUANT TO THE SECURITIES PURCHASE AGREEMENT AND ALL WARRANTS ISSUED IN
EXCHANGE OR SUBSTITUTION THEREFOR OR REPLACEMENT THEREOF.

 

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“WEIGHTED AVERAGE PRICE” MEANS, FOR ANY SECURITY AS OF ANY DATE, THE DOLLAR
VOLUME-WEIGHTED AVERAGE PRICE FOR SUCH SECURITY ON ITS PRINCIPAL MARKET DURING
THE PERIOD BEGINNING AT 9:30 A.M. NEW YORK CITY TIME (OR SUCH OTHER TIME AS ITS
PRINCIPAL MARKET PUBLICLY ANNOUNCES IS THE OFFICIAL OPEN OF TRADING) AND ENDING
AT 4:00 P.M. NEW YORK CITY TIME (OR SUCH OTHER TIME AS ITS PRINCIPAL MARKET
PUBLICLY ANNOUNCES IS THE OFFICIAL CLOSE OF TRADING) AS REPORTED BY BLOOMBERG
THROUGH ITS “VOLUME AT PRICE” FUNCTIONS, OR IF THE FOREGOING DOES NOT APPLY, THE
DOLLAR VOLUME-WEIGHTED AVERAGE PRICE OF SUCH SECURITY IN THE OVER-THE-COUNTER
MARKET ON THE ELECTRONIC BULLETIN BOARD FOR SUCH SECURITY DURING THE PERIOD
BEGINNING AT 9:30 A.M. NEW YORK CITY TIME (OR SUCH OTHER TIME AS SUCH
OVER-THE-COUNTER MARKET PUBLICLY ANNOUNCES IS THE OFFICIAL OPEN OF TRADING), AND
ENDING AT 4:00 P.M. NEW YORK CITY TIME (OR SUCH OTHER TIME AS SUCH
OVER-THE-COUNTER MARKET PUBLICLY ANNOUNCES IS THE OFFICIAL CLOSE OF TRADING) AS
REPORTED BY BLOOMBERG, OR, IF NO DOLLAR VOLUME-WEIGHTED AVERAGE PRICE IS
REPORTED FOR SUCH SECURITY BY BLOOMBERG FOR SUCH HOURS, THE AVERAGE OF THE
HIGHEST CLOSING BID PRICE AND THE LOWEST CLOSING ASK PRICE OF ANY OF THE MARKET
MAKERS FOR SUCH SECURITY AS REPORTED IN THE “PINK SHEETS” BY THE NATIONAL
QUOTATION BUREAU, INC.  IF THE WEIGHTED AVERAGE PRICE CANNOT BE CALCULATED FOR
SUCH SECURITY ON SUCH DATE ON ANY OF THE FOREGOING BASES, THE WEIGHTED AVERAGE
PRICE OF SUCH SECURITY ON SUCH DATE SHALL BE THE FAIR MARKET VALUE AS MUTUALLY
DETERMINED BY THE COMPANY AND THE HOLDERS OF NOTES REPRESENTING AT LEAST A
MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES THEN OUTSTANDING AS TO
WHICH SUCH DETERMINATION IS BEING MADE.  IF THE COMPANY AND THE HOLDERS OF THE
NOTES REPRESENTING AT LEAST A MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF THE
NOTES THEN OUTSTANDING AS TO WHICH SUCH DETERMINATION IS BEING MADE ARE UNABLE
TO AGREE UPON THE FAIR MARKET VALUE OF THE COMMON STOCK, THEN SUCH DISPUTE SHALL
BE RESOLVED PURSUANT TO SECTION 4(C)(III) BELOW WITH THE TERM “WEIGHTED AVERAGE
PRICE” BEING SUBSTITUTED FOR THE TERM “CONVERSION PRICE.”  ALL SUCH
DETERMINATIONS SHALL BE APPROPRIATELY ADJUSTED FOR ANY STOCK DIVIDEND, STOCK
SPLIT, STOCK COMBINATION OR OTHER SIMILAR TRANSACTION DURING ANY PERIOD DURING
WHICH THE WEIGHTED AVERAGE PRICE IS BEING DETERMINED.

 

4.             CONVERSION OF THIS NOTE.  THIS NOTE SHALL BE CONVERTED INTO
SHARES ON THE TERMS AND CONDITIONS SET FORTH IN THIS SECTION 4.

 

(A)           CONVERSION AT OPTION OF THE HOLDER.  SUBJECT TO THE PROVISIONS OF
SECTION 7, AT ANY TIME OR TIMES ON OR AFTER THE ISSUANCE DATE, THE HOLDER SHALL
BE ENTITLED TO CONVERT ALL OR ANY PART OF THE PRINCIPAL (AND THE INTEREST AMOUNT
RELATING THERETO) INTO FULLY PAID AND NONASSESSABLE SHARES IN ACCORDANCE WITH
THIS SECTION 4, AT THE CONVERSION RATE (AS DEFINED IN SECTION 4(B)).  THE
COMPANY SHALL NOT ISSUE ANY FRACTION OF A SHARE UPON ANY CONVERSION.  IF THE
ISSUANCE WOULD RESULT IN THE ISSUANCE OF A FRACTION OF A SHARE, THEN THE COMPANY
SHALL ROUND SUCH FRACTION OF A SHARE UP OR DOWN TO THE NEAREST WHOLE SHARE (WITH
0.5 ROUNDED UP).  IF ANY PRINCIPAL REMAINS OUTSTANDING ON THE MATURITY DATE,
THEN ALL SUCH PRINCIPAL (AND THE INTEREST AMOUNT RELATING THERETO) SHALL BE
REPAID AS OF SUCH DATE IN ACCORDANCE WITH SECTION 4(C)(VII).

 

(B)           CONVERSION RATE.  THE NUMBER OF SHARES ISSUABLE UPON A CONVERSION
OF ANY PORTION OF THIS NOTE PURSUANT TO SECTION 4 SHALL BE DETERMINED ACCORDING
TO THE FOLLOWING FORMULA (THE “CONVERSION RATE”):

 

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Conversion Amount
Conversion Price

 

(C)           MECHANICS OF CONVERSION.  THE CONVERSION OF THIS NOTE SHALL BE
CONDUCTED IN THE FOLLOWING MANNER:

 

(I)            HOLDER’S DELIVERY REQUIREMENTS.  TO CONVERT A CONVERSION AMOUNT
INTO SHARES ON ANY DATE (THE “CONVERSION DATE”), THE HOLDER SHALL (A) TRANSMIT
BY FACSIMILE (OR OTHERWISE DELIVER), FOR RECEIPT ON OR PRIOR TO 11:59 P.M. NEW
YORK CITY TIME ON SUCH DATE, A COPY OF AN EXECUTED CONVERSION NOTICE IN THE FORM
ATTACHED HERETO AS EXHIBIT I (THE “CONVERSION NOTICE”) TO THE COMPANY
(ATTENTION:  CORPORATE SECRETARY) AND (B) IF REQUIRED BY SECTION 4(C)(VIII),
SURRENDER TO A COMMON CARRIER FOR DELIVERY TO THE COMPANY, NO LATER THAN THREE
(3) BUSINESS DAYS AFTER THE CONVERSION DATE, THE ORIGINAL NOTE BEING CONVERTED
(OR AN INDEMNIFICATION UNDERTAKING REASONABLY ACCEPTABLE TO THE COMPANY WITH
RESPECT TO THIS NOTE IN THE CASE OF ITS LOSS, THEFT OR DESTRUCTION).  SUCH
CONVERSION NOTICE SHALL SPECIFY WHETHER AND IN WHAT AMOUNTS THE CONVERSION
AMOUNT RELATES TO (I) A CONVERSION AT THE ELECTION OF THE HOLDER PURSUANT TO
SECTION 4(A) AT THE FIXED CONVERSION PRICE, (II) AN INTEREST CONVERSION PURSUANT
TO SECTION 8 OR (III) A COMPANY CONVERSION PURSUANT TO SECTION 9, AND ANY SUCH
CONVERSION SHALL BE APPLIED AS SO SPECIFIED.

 

(II)           COMPANY’S RESPONSE.  UPON RECEIPT BY THE COMPANY OF A COPY OF A
CONVERSION NOTICE, THE COMPANY (I) SHALL PROMPTLY SEND, VIA FACSIMILE, A
CONFIRMATION OF RECEIPT OF SUCH CONVERSION NOTICE TO THE HOLDER AND THE
COMPANY’S DESIGNATED TRANSFER AGENT (THE “TRANSFER AGENT”), WHICH CONFIRMATION
SHALL CONSTITUTE AN INSTRUCTION TO THE TRANSFER AGENT TO PROCESS SUCH CONVERSION
NOTICE IN ACCORDANCE WITH THE TERMS HEREIN AND (II) ON OR BEFORE THE SECOND
(2ND) BUSINESS DAY FOLLOWING THE DATE OF RECEIPT BY THE COMPANY OF SUCH
CONVERSION NOTICE (THE “SHARE DELIVERY DATE”) (A) PROVIDED THAT THE TRANSFER
AGENT IS PARTICIPATING IN THE DEPOSITORY TRUST COMPANY (“DTC”) FAST AUTOMATED
SECURITIES TRANSFER PROGRAM AND PROVIDED THAT THE HOLDER IS ELIGIBLE TO RECEIVE
SHARES THROUGH DTC, CREDIT SUCH AGGREGATE NUMBER OF SHARES TO WHICH THE HOLDER
SHALL BE ENTITLED TO THE HOLDER’S OR ITS DESIGNEE’S BALANCE ACCOUNT WITH DTC
THROUGH ITS DEPOSIT WITHDRAWAL AGENT COMMISSION SYSTEM, OR (B) IF THE FOREGOING
SHALL NOT APPLY, ISSUE AND DELIVER TO THE ADDRESS AS SPECIFIED IN THE CONVERSION
NOTICE, A CERTIFICATE, REGISTERED IN THE NAME OF THE HOLDER OR ITS DESIGNEE, FOR
THE NUMBER OF SHARES TO WHICH THE HOLDER SHALL BE ENTITLED.  IF THIS NOTE IS
SUBMITTED FOR CONVERSION, AS MAY BE REQUIRED BY SECTION 4(C)(VIII), AND THE
PRINCIPAL REPRESENTED BY THIS NOTE IS GREATER THAN THE PRINCIPAL 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 (THE “NOTE DELIVERY
DATE”) AND AT ITS OWN EXPENSE, ISSUE AND DELIVER TO THE HOLDER A NEW NOTE
REPRESENTING THE PRINCIPAL NOT CONVERTED AND CANCEL THIS NOTE.

 

(III)          DISPUTE RESOLUTION.  IN THE CASE OF A DISPUTE AS TO THE
DETERMINATION OF THE CONVERSION PRICE OR THE ARITHMETIC CALCULATION OF THE
CONVERSION RATE, THE COMPANY SHALL INSTRUCT THE TRANSFER AGENT TO ISSUE TO THE
HOLDER THE SHARES REPRESENTING THE NUMBER OF SHARES THAT IS NOT DISPUTED AND
SHALL TRANSMIT AN EXPLANATION OF THE DISPUTED DETERMINATIONS OR ARITHMETIC
CALCULATIONS TO THE HOLDER VIA FACSIMILE WITHIN TWO (2) BUSINESS DAYS OF RECEIPT
OF THE HOLDER’S CONVERSION NOTICE OR OTHER DATE OF DETERMINATION.  IF THE HOLDER
AND THE COMPANY ARE UNABLE TO AGREE UPON THE DETERMINATION OF THE CONVERSION
PRICE OR ARITHMETIC CALCULATION OF THE CONVERSION RATE WITHIN ONE (1) BUSINESS
DAY OF SUCH DISPUTED DETERMINATION OR ARITHMETIC CALCULATION BEING TRANSMITTED
TO THE HOLDER, THEN THE COMPANY SHALL PROMPTLY (AND IN ANY EVENT WITHIN TWO
(2) BUSINESS DAYS) SUBMIT VIA FACSIMILE (A) THE DISPUTED

 

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determination of the Conversion Price to an independent, reputable investment
banking firm agreed to by the Company and the holders of the Notes representing
at least a majority of the aggregate principal amounts of the Notes then
Outstanding as to which such determination is being made, or (B) the disputed
arithmetic calculation of the Conversion Rate to the Company’s independent,
outside accountant, as the case may be.  The Company shall direct the investment
bank or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
two (2) Business Days from the time it receives the disputed determinations or
calculations.  Such investment bank’s or accountant’s determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.  The costs and expenses of the investment bank or accountant
engaged pursuant to this Section 4(e)(iii) shall be borne by the Company.

 

(IV)          RECORD HOLDER.  THE PERSON OR PERSONS ENTITLED TO RECEIVE THE
SHARES ISSUABLE UPON A CONVERSION OF THIS NOTE SHALL BE TREATED FOR ALL PURPOSES
AS THE LEGAL AND RECORD HOLDER OR HOLDERS OF SUCH SHARES ON THE CONVERSION DATE.

 

(V)           COMPANY’S FAILURE TO TIMELY CONVERT.

 

(A)          CASH DAMAGES.  IF WITHIN THREE (3) BUSINESS DAYS AFTER THE
COMPANY’S RECEIPT OF THE FACSIMILE COPY OF A CONVERSION NOTICE THE COMPANY SHALL
FAIL TO ISSUE AND DELIVER A CERTIFICATE TO THE HOLDER FOR, OR CREDIT THE
HOLDER’S OR ITS DESIGNEE’S BALANCE ACCOUNT WITH DTC WITH, THE NUMBER OF SHARES
TO WHICH THE HOLDER IS ENTITLED UPON THE HOLDER’S CONVERSION OF ANY CONVERSION
AMOUNT, OR IF THE COMPANY FAILS TO ISSUE AND DELIVER A NEW NOTE REPRESENTING THE
PRINCIPAL TO WHICH SUCH HOLDER IS ENTITLED ON OR BEFORE THE NOTE DELIVERY DATE
PURSUANT TO SECTION 4(C)(II), THEN IN ADDITION TO ALL OTHER AVAILABLE REMEDIES
THAT THE HOLDER MAY PURSUE HEREUNDER AND UNDER THE SECURITIES PURCHASE AGREEMENT
(INCLUDING INDEMNIFICATION PURSUANT TO SECTION 8 THEREOF OR AT LAW OR IN
EQUITY), THE COMPANY SHALL PAY ADDITIONAL DAMAGES TO THE HOLDER FOR EACH DAY
AFTER THE SHARE DELIVERY DATE SUCH CONVERSION IS NOT TIMELY EFFECTED AND/OR EACH
DAY AFTER THE NOTE DELIVERY DATE SUCH NOTE IS NOT DELIVERED IN AN AMOUNT EQUAL
TO 0.5% OF THE SUM OF (A) IN THE EVENT THE COMPANY HAS FAILED TO ISSUE AND
DELIVER OR CREDIT THE SHARES TO THE HOLDER ON OR PRIOR TO THE SHARE DELIVERY
DATE, THE PRODUCT OF (I) THE NUMBER OF SHARES NOT ISSUED TO THE HOLDER OR ITS
DESIGNEE ON OR PRIOR TO THE SHARE DELIVERY DATE AND TO WHICH THE HOLDER IS
ENTITLED AND (II) THE WEIGHTED AVERAGE PRICE OF THE COMMON STOCK ON THE SHARE
DELIVERY DATE (SUCH PRODUCT IS REFERRED TO HEREIN AS THE “SHARE PRODUCT AMOUNT”)
AND (B) IN THE EVENT THE COMPANY HAS FAILED TO DELIVER A NOTE TO THE HOLDER ON
OR PRIOR TO THE NOTE DELIVERY DATE, THE PRODUCT OF (Y) THE NUMBER OF SHARES
ISSUABLE UPON CONVERSION OF THE PRINCIPAL REPRESENTED BY THE NOTE AS OF THE NOTE
DELIVERY DATE AND (Z) THE WEIGHTED AVERAGE PRICE OF THE COMMON STOCK ON THE NOTE
DELIVERY DATE (SUCH PRODUCT IS REFERRED TO HEREIN AS THE “NOTE PRODUCT AMOUNT”);
PROVIDED THAT IN NO EVENT SHALL CASH DAMAGES ACCRUE PURSUANT TO THIS
SECTION 4(C)(V)(A) WITH RESPECT TO THE SHARE PRODUCT AMOUNT OR THE NOTE PRODUCT
AMOUNT DURING THE PERIOD, IF ANY, IN WHICH THE CONVERSION PRICE OR THE
ARITHMETIC CALCULATION OF THE CONVERSION RATE IS SUBJECT TO A BONA FIDE DISPUTE
THAT IS SUBJECT TO AND BEING RESOLVED PURSUANT TO, AND IN COMPLIANCE WITH THE
TIME PERIODS AND OTHER PROVISIONS OF, THE DISPUTE RESOLUTION PROVISIONS OF
SECTION 4(C)(III), PROVIDED THAT THE SHARES AND/OR THE NOTE ARE DELIVERED TO THE
HOLDER WITHIN TWO (2) BUSINESS DAYS OF THE RESOLUTION OF SUCH BONA FIDE
DISPUTE.  ALTERNATIVELY, SUBJECT TO

 

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SECTION 4(C)(III), AT THE ELECTION OF THE HOLDER MADE IN THE HOLDER’S SOLE
DISCRETION, THE COMPANY SHALL PAY TO THE HOLDER, IN LIEU OF THE ADDITIONAL
DAMAGES REFERRED TO IN THE PRECEDING SENTENCE (BUT IN ADDITION TO ALL OTHER
AVAILABLE REMEDIES THAT THE HOLDER MAY PURSUE HEREUNDER AND UNDER THE SECURITIES
PURCHASE AGREEMENT (INCLUDING INDEMNIFICATION PURSUANT TO SECTION 8 THEREOF OR
AT LAW OR IN EQUITY)), 120% OF THE AMOUNT BY WHICH (A) THE HOLDER’S TOTAL
PURCHASE PRICE (INCLUDING BROKERAGE COMMISSIONS, IF ANY) FOR THE SHARES
PURCHASED TO MAKE DELIVERY IN SATISFACTION OF A SALE BY THE HOLDER OF THE SHARES
TO WHICH THE HOLDER IS ENTITLED BUT HAS NOT RECEIVED UPON A CONVERSION EXCEEDS
(B) THE NET PROCEEDS RECEIVED BY THE HOLDER FROM THE SALE OF THE SHARES TO WHICH
THE HOLDER IS ENTITLED BUT HAS NOT RECEIVED UPON SUCH CONVERSION.  IF THE
COMPANY FAILS TO PAY THE ADDITIONAL DAMAGES SET FORTH IN THIS
SECTION 4(C)(V)(A) WITHIN FIVE (5) BUSINESS DAYS OF THE DATE INCURRED, THEN THE
HOLDER ENTITLED TO SUCH PAYMENTS SHALL HAVE THE RIGHT AT ANY TIME, SO LONG AS
THE COMPANY CONTINUES TO FAIL TO MAKE SUCH PAYMENTS, TO REQUIRE THE COMPANY,
UPON WRITTEN NOTICE, TO PROMPTLY ISSUE, IN LIEU OF SUCH CASH DAMAGES, THE NUMBER
OF SHARES EQUAL TO THE QUOTIENT OF (X) THE AGGREGATE AMOUNT OF THE DAMAGES
PAYMENTS DESCRIBED HEREIN DIVIDED BY (Y) THE CONVERSION PRICE IN EFFECT ON SUCH
CONVERSION DATE AS SPECIFIED BY THE HOLDER IN THE CONVERSION NOTICE.

 

(B)           NOTICE OF VOID CONVERSION; ADJUSTMENT TO CONVERSION PRICE.  IF FOR
ANY REASON THE HOLDER HAS NOT RECEIVED ALL OF THE SHARES PRIOR TO THE TENTH
(10TH) BUSINESS DAY AFTER THE SHARE DELIVERY DATE WITH RESPECT TO A CONVERSION
OF THIS NOTE, OTHER THAN DUE TO THE PENDENCY OF A DISPUTE BEING RESOLVED IN
ACCORDANCE WITH SECTION 4(C)(III) (A “CONVERSION FAILURE”), THEN THE HOLDER,
UPON WRITTEN NOTICE TO THE COMPANY, MAY VOID ITS CONVERSION NOTICE WITH RESPECT
TO, AND RETAIN OR HAVE RETURNED, AS THE CASE MAY BE, ANY PORTION OF THIS NOTE
THAT HAS NOT BEEN CONVERTED PURSUANT TO THE HOLDER’S CONVERSION NOTICE; PROVIDED
THAT THE VOIDING OF THE HOLDER’S CONVERSION NOTICE SHALL NOT AFFECT THE
COMPANY’S OBLIGATIONS TO MAKE ANY PAYMENTS THAT HAVE ACCRUED PRIOR TO THE DATE
OF SUCH NOTICE PURSUANT TO SECTION 4(C)(V)(A) OR OTHERWISE.

 

(C)           REDEMPTION.  IN THE EVENT OF A CONVERSION FAILURE, THE HOLDER,
UPON WRITTEN NOTICE TO THE COMPANY, MAY REQUIRE THAT THE COMPANY REDEEM, IN
ACCORDANCE WITH SECTION 5, ALL OF THE PRINCIPAL, INCLUDING THE PRINCIPAL
PREVIOUSLY SUBMITTED FOR CONVERSION AND WITH RESPECT TO WHICH THE COMPANY HAS
NOT DELIVERED SHARES; PROVIDED THAT THE HOLDER SHALL NOT BE ENTITLED TO REQUIRE
REDEMPTION OF ANY PRINCIPAL PURSUANT TO THIS CLAUSE (C) SOLELY AS A RESULT OF A
CONVERSION FAILURE CAUSED BY ANY PRINCIPAL BEING THE SUBJECT OF A BONA FIDE
DISPUTE THAT IS SUBJECT TO AND BEING RESOLVED PURSUANT TO, AND IN COMPLIANCE
WITH THE TIME PERIODS AND OTHER PROVISIONS OF, THE DISPUTE RESOLUTION PROVISIONS
OF SECTION 4(C)(III), PROVIDED THE SHARES ARE DELIVERED TO THE HOLDER PROMPTLY
FOLLOWING THE RESOLUTION OF SUCH BONA FIDE DISPUTE.

 

(VI)          PRO RATA CONVERSION.  IN THE EVENT THE COMPANY RECEIVES A
CONVERSION NOTICE FROM MORE THAN ONE HOLDER OF THE NOTES FOR THE SAME CONVERSION
DATE AND THE COMPANY CAN CONVERT SOME, BUT NOT ALL, OF SUCH NOTES, THEN, SUBJECT
TO SECTION 7, THE COMPANY SHALL CONVERT FROM EACH HOLDER OF THE NOTES ELECTING
TO HAVE NOTES CONVERTED AT SUCH TIME A PRO RATA AMOUNT OF SUCH HOLDER’S NOTE
SUBMITTED FOR CONVERSION BASED ON THE PRINCIPAL AMOUNT OF THE NOTE SUBMITTED FOR
CONVERSION ON SUCH DATE BY SUCH HOLDER RELATIVE TO THE AGGREGATE PRINCIPAL
AMOUNT OF THE NOTES SUBMITTED FOR CONVERSION ON SUCH DATE.

 

14

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(VII)         MECHANICS OF MATURITY DATE REPAYMENT.  IF ANY PRINCIPAL REMAINS
OUTSTANDING ON THE MATURITY DATE, THEN THE HOLDER SHALL SURRENDER THIS NOTE,
DULY ENDORSED FOR CANCELLATION, TO THE COMPANY, AND SUCH PRINCIPAL SHALL BE
REPAID BY THE COMPANY AS OF THE MATURITY DATE BY PAYMENT ON THE MATURITY DATE TO
THE HOLDER OF AN AMOUNT EQUAL TO THE SUM OF (A) 100% OF SUCH PRINCIPAL PLUS
(B) THE INTEREST AMOUNT WITH RESPECT TO SUCH PRINCIPAL.

 

(VIII)        BOOK-ENTRY.  NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH
HEREIN, UPON CONVERSION OR REDEMPTION OF THIS NOTE IN ACCORDANCE WITH THE TERMS
HEREOF, THE HOLDER SHALL NOT BE REQUIRED TO PHYSICALLY SURRENDER THIS NOTE TO
THE COMPANY UNLESS ALL OF THE PRINCIPAL IS BEING CONVERTED OR REDEEMED.  THE
HOLDER AND THE COMPANY SHALL EACH MAINTAIN RECORDS SHOWING THE PRINCIPAL
CONVERTED OR REDEEMED AND THE DATES OF SUCH CONVERSIONS OR REDEMPTIONS OR SHALL
USE SUCH OTHER METHOD, REASONABLY SATISFACTORY TO THE OTHER, SO AS NOT TO
REQUIRE PHYSICAL SURRENDER OF THIS NOTE UPON EACH SUCH CONVERSION OR
REDEMPTION.  IN THE EVENT OF ANY DISPUTE OR DISCREPANCY, SUCH RECORDS OF THE
COMPANY ESTABLISHING THE PRINCIPAL TO WHICH THE HOLDER IS ENTITLED SHALL BE
CONTROLLING AND DETERMINATIVE IN THE ABSENCE OF DEMONSTRABLE ERROR. 
NOTWITHSTANDING THE FOREGOING, IF THIS NOTE IS CONVERTED OR REDEEMED AS
AFORESAID, THE HOLDER MAY NOT TRANSFER THIS NOTE UNLESS THE HOLDER FIRST
PHYSICALLY SURRENDERS THIS NOTE TO THE COMPANY, WHEREUPON THE COMPANY WILL
FORTHWITH ISSUE AND DELIVER UPON THE ORDER OF THE HOLDER A NEW NOTE OF LIKE
TENOR, REGISTERED AS THE HOLDER MAY REQUEST, REPRESENTING IN THE AGGREGATE THE
REMAINING PRINCIPAL REPRESENTED BY THIS NOTE.  THE HOLDER AND ANY ASSIGNEE, BY
ACCEPTANCE OF THIS NOTE, ACKNOWLEDGE AND AGREE THAT, BY REASON OF THE PROVISIONS
OF THIS PARAGRAPH, FOLLOWING CONVERSION OR REDEMPTION OF ANY PORTION OF THIS
NOTE, THE PRINCIPAL OF THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT STATED ON
THE FACE HEREOF.

 

(D)           TAXES.  THE COMPANY SHALL PAY ANY AND ALL TAXES (EXCLUDING INCOME
TAXES, FRANCHISE TAXES OR OTHER TAXES LEVIED ON GROSS EARNINGS, PROFITS OR THE
LIKE OF THE HOLDER) THAT MAY BE PAYABLE WITH RESPECT TO THE ISSUANCE AND
DELIVERY OF SHARES UPON THE CONVERSION OF THIS NOTE.

 

(E)           ADJUSTMENTS TO FIXED CONVERSION PRICE.  THE FIXED CONVERSION
PRICE, AND THE NUMBER AND TYPE OF SECURITIES TO BE RECEIVED UPON CONVERSION OF
THIS NOTE, SHALL BE ADJUSTED FROM TIME TO TIME AS PROVIDED IN THIS SECTION 4(E).

 

(I)            IN THE EVENT THAT THE COMPANY SHALL AT ANY TIME OR FROM TIME TO
TIME, ON OR AFTER THE ISSUANCE DATE AND PRIOR TO THE CONVERSION OF THIS NOTE,
(A) PAY A DIVIDEND OR MAKE A DISTRIBUTION PAYABLE IN SHARES ON ANY CLASS OF
SHARES OF CAPITAL STOCK OF THE COMPANY, (B) SUBDIVIDE ITS OUTSTANDING SHARES
INTO A GREATER NUMBER OF SHARES, (C) COMBINE ITS OUTSTANDING SHARES INTO A
SMALLER NUMBER OF SHARES OR (D) ISSUE ANY SHARES OF CAPITAL STOCK BY
RECLASSIFICATION OF ITS SHARES, THE FIXED CONVERSION PRICE IN EFFECT AT THE
OPENING OF BUSINESS ON THE DAY FOLLOWING THE DATE FIXED FOR THE DETERMINATION OF
STOCKHOLDERS ENTITLED TO RECEIVE SUCH DIVIDEND OR DISTRIBUTION OR AT THE OPENING
OF BUSINESS ON THE DAY FOLLOWING THE DAY ON WHICH SUCH SUBDIVISION, COMBINATION
OR RECLASSIFICATION BECOMES EFFECTIVE, AS THE CASE MAY BE, SHALL BE ADJUSTED SO
THAT THE HOLDER OF ANY NOTES THEREAFTER SURRENDERED FOR CONVERSION SHALL BE
ENTITLED TO RECEIVE THE NUMBER OF SHARES THAT SUCH HOLDER WOULD HAVE OWNED OR
HAVE BEEN ENTITLED TO RECEIVE AFTER THE HAPPENING OF ANY OF THE EVENTS DESCRIBED
ABOVE HAD SUCH NOTES BEEN CONVERTED IMMEDIATELY PRIOR TO THE RECORD DATE IN THE
CASE OF A DIVIDEND OR DISTRIBUTION OR THE EFFECTIVE DATE IN THE CASE OF A
SUBDIVISION, COMBINATION OR RECLASSIFICATION.  AN ADJUSTMENT MADE PURSUANT TO

 

15

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THIS SECTION 4(E)(I) SHALL BECOME EFFECTIVE IMMEDIATELY UPON THE OPENING OF
BUSINESS ON THE DAY NEXT FOLLOWING THE RECORD DATE (SUBJECT TO
SECTION 4(E)(VIII) BELOW) IN THE CASE OF A DIVIDEND OR DISTRIBUTION AND SHALL
BECOME EFFECTIVE IMMEDIATELY UPON THE OPENING OF BUSINESS ON THE DAY NEXT
FOLLOWING THE EFFECTIVE DATE IN THE CASE OF A SUBDIVISION, COMBINATION OR
RECLASSIFICATION.

 

(II)           IN THE EVENT THAT THE COMPANY SHALL AT ANY TIME OR FROM TIME TO
TIME, ON OR AFTER THE ISSUANCE DATE AND PRIOR TO THE CONVERSION OF THIS NOTE,
(A) ISSUE SHARES, CONVERTIBLE SECURITIES, OR OPTIONS ENTITLING THE RECIPIENT
THEREOF TO SUBSCRIBE FOR OR PURCHASE SHARES, AT A PRICE PER SHARE OR (B) AMEND
OR OTHERWISE MODIFY THE TERMS OF ANY CONVERTIBLE SECURITIES OR OPTIONS TO A
PRICE PER SHARE (SUCH ISSUANCE, SUBSCRIPTION OR PURCHASE PRICE OR AMENDED OR
MODIFIED PRICE BEING REFERRED TO AS THE “NEW ISSUE PRICE”), IN EITHER CASE, LESS
THAN THE FIXED CONVERSION PRICE THEN IN EFFECT, THEN THE FIXED CONVERSION PRICE
IN EFFECT AT THE OPENING OF BUSINESS ON THE DAY NEXT FOLLOWING SUCH ISSUANCE
SHALL BE ADJUSTED TO EQUAL THE NEW ISSUE PRICE.  SUCH ADJUSTMENT SHALL BECOME
EFFECTIVE IMMEDIATELY UPON THE OPENING OF BUSINESS ON THE DAY NEXT FOLLOWING
SUCH ISSUANCE.  IN DETERMINING WHETHER ANY SHARES ARE ISSUED OR ISSUABLE, OR
CONVERTIBLE SECURITIES OR OPTIONS ENTITLE THE HOLDERS OF NOTES TO SUBSCRIBE FOR
OR PURCHASE SHARES AT LESS THAN SUCH FIXED CONVERSION PRICE, THERE SHALL BE
TAKEN INTO ACCOUNT ANY CONSIDERATION RECEIVED BY THE COMPANY UPON ISSUANCE OF
ANY SUCH SECURITIES, THE CONVERSION OF ANY SUCH CONVERTIBLE SECURITIES AND UPON
EXERCISE OF SUCH OPTIONS THE VALUE OF SUCH CONSIDERATION, IF OTHER THAN CASH, TO
BE DETERMINED IN GOOD FAITH BY THE BOARD OF DIRECTORS OF THE COMPANY (THE “BOARD
OF DIRECTORS”) IN THE EXERCISE OF THEIR FIDUCIARY DUTY, WITH THE CONCURRENCE OF
THE HOLDERS OF AT LEAST A MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF THE
NOTES THEN OUTSTANDING.  NOTWITHSTANDING THE FOREGOING OR ANY OTHER PROVISION
HEREIN TO THE CONTRARY, NO ADJUSTMENT TO THE FIXED CONVERSION PRICE WILL BE
REQUIRED AS A RESULT OF ANY EXEMPTED ISSUANCE.

 

(III)          IN CASE THE COMPANY SHALL AT ANY TIME OR FROM TIME TO TIME, ON OR
AFTER THE ISSUANCE DATE AND PRIOR TO CONVERSION OF THIS NOTE, DISTRIBUTE TO ALL
HOLDERS OF SHARES (INCLUDING ANY SUCH DISTRIBUTION MADE IN CONNECTION WITH A
MERGER OR CONSOLIDATION IN WHICH THE COMPANY IS THE RESULTING OR SURVIVING
PERSON AND THE COMMON STOCK IS NOT CHANGED OR EXCHANGED) CASH, EVIDENCES OF
INDEBTEDNESS OF THE COMPANY, ANY SUBSIDIARY OR ANOTHER ISSUER, SECURITIES OF THE
COMPANY (INCLUDING CONVERTIBLE SECURITIES), ANY SUBSIDIARY OR ANOTHER ISSUER OR
OTHER ASSETS (EXCLUDING DIVIDENDS PAYABLE IN SHARES FOR WHICH ADJUSTMENT IS MADE
UNDER ANOTHER PARAGRAPH OF THIS SECTION 4(E) AND ANY DISTRIBUTION IN CONNECTION
WITH AN EXEMPTED ISSUANCE) OR OPTIONS TO SUBSCRIBE FOR OR PURCHASE OF ANY OF THE
FOREGOING, THEN, AND IN EACH SUCH CASE, THE FIXED CONVERSION PRICE THEN IN
EFFECT SHALL BE ADJUSTED (AND ANY OTHER APPROPRIATE ACTIONS SHALL BE TAKEN BY
THE COMPANY) BY MULTIPLYING THE FIXED CONVERSION PRICE IN EFFECT IMMEDIATELY
PRIOR TO THE DATE OF SUCH DISTRIBUTION BY A FRACTION (X) THE NUMERATOR OF WHICH
SHALL BE THE WEIGHTED AVERAGE PRICE OF THE COMMON STOCK FOR THE FIVE
(5) CONSECUTIVE TRADING DAYS IMMEDIATELY PRIOR TO THE DATE OF DISTRIBUTION LESS
THE THEN FAIR MARKET VALUE (AS DETERMINED BY THE BOARD OF DIRECTORS IN THE
EXERCISE OF THEIR FIDUCIARY DUTIES WITH THE CONCURRENCE OF THE HOLDERS OF AT
LEAST A MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES THEN
OUTSTANDING) OF THE PORTION OF THE CASH, EVIDENCES OF INDEBTEDNESS, SECURITIES
OR OTHER ASSETS SO DISTRIBUTED OR OF SUCH OPTIONS TO SUBSCRIBE APPLICABLE TO ONE
SHARE AND (Y) THE DENOMINATOR OF WHICH SHALL BE THE WEIGHTED AVERAGE PRICE OF
THE COMMON STOCK FOR THE FIVE (5) CONSECUTIVE TRADING DAYS IMMEDIATELY PRIOR TO
THE DATE OF DISTRIBUTION (BUT SUCH FRACTION SHALL NOT BE GREATER THAN ONE). 
SUCH ADJUSTMENT SHALL BE MADE WHENEVER ANY SUCH DISTRIBUTION IS MADE AND SHALL
BECOME EFFECTIVE RETROACTIVELY TO A

 

16

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date immediately following the close of business on the record date for the
determination of stockholders entitled to receive such distribution.

 

(IV)          IN THE EVENT THAT THE COMPANY SHALL AT ANY TIME OR FROM TIME TO
TIME, ON OR AFTER THE ISSUANCE DATE AND PRIOR TO THE CONVERSION OF THIS NOTE,
MAKE A PAYMENT OF CASH OR OTHER CONSIDERATION TO THE HOLDERS OF SHARES IN
RESPECT OF A TENDER OFFER OR EXCHANGE OFFER, OTHER THAN AN ODD-LOT OFFER, AND
THE VALUE OF THE SUM OF (I) THE AGGREGATE CASH AND OTHER CONSIDERATION PAID FOR
SUCH SHARES, AND (II) ANY OTHER CONSENT OR OTHER FEES PAID TO HOLDERS OF SHARES
IN RESPECT OF SUCH TENDER OFFER OR EXCHANGE OFFER EXPRESSED AS AN AMOUNT PER
SHARE OF COMMON STOCK VALIDLY TENDERED OR EXCHANGED PURSUANT TO SUCH TENDER
OFFER OR EXCHANGE OFFER, EXCEEDS THE WEIGHTED AVERAGE PRICE OF THE COMMON STOCK
ON THE TRADING DAY IMMEDIATELY PRIOR TO THE DATE ANY SUCH TENDER OFFER OR
EXCHANGE OFFER IS FIRST PUBLICLY ANNOUNCED (THE “ANNOUNCEMENT DATE”), THEN THE
FIXED CONVERSION PRICE SHALL BE ADJUSTED IN ACCORDANCE WITH THE FORMULA:

 

R’ = R x     O’ x P   

 F + (P x O)

 

For purposes of the foregoing formula:

 

R = the Fixed Conversion Price in effect at the expiration time of the tender
offer or exchange offer that is the subject of this Section 4(e)(iv) (the
“Expiration Time”);

 

R’ = the Fixed Conversion Price in effect immediately after the Expiration Time;

 

F = the fair market value (as determined by the Board of Directors in the
exercise of their fiduciary duties with the concurrence of the holders of at
least a majority of the aggregate principal amount of the Notes then
Outstanding) of the aggregate value of all cash and any other consideration paid
or payable for Shares validly tendered or exchanged (including any consent or
other fees) and not withdrawn prior to the Expiration Time (the “Purchased
Shares”);

 

O = the number of Shares outstanding immediately after the Expiration Time less
any Purchased Shares;

 

O’ = the number of Shares outstanding immediately after the Expiration Time,
plus any Purchased Shares; and

 

P = the Weighted Average Price of the Common Stock on the Trading Day next
succeeding the Announcement Date.

 

Such decrease, if any, shall become effective immediately upon the opening of
business on the day next following the Expiration Time.  In the event that the
Company is obligated to purchase shares pursuant to any tender offer, but the
Company is prevented by applicable law from effecting any such purchases or all
such purchases are rescinded, the Fixed Conversion Price shall again be adjusted
to the Fixed Conversion Price that would then be in effect if such tender

 

17

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or exchange offer had not been made.  If the application of this
Section 4(e)(iv) to any tender or exchange offer would result in an increase in
the Fixed Conversion Price, no adjustment shall be made for such tender or
exchange offer under this Section 4(e)(iv).

 

(V)           NO ADJUSTMENT IN THE FIXED CONVERSION PRICE SHALL BE REQUIRED
UNLESS SUCH ADJUSTMENT WOULD REQUIRE A CUMULATIVE DECREASE OF AT LEAST $0.01 IN
SUCH PRICE; PROVIDED, HOWEVER, THAT ANY ADJUSTMENTS THAT BY REASON OF THIS
SECTION 4(E) ARE NOT REQUIRED TO BE MADE SHALL BE CARRIED FORWARD AND TAKEN INTO
ACCOUNT IN ANY SUBSEQUENT ADJUSTMENT UNTIL MADE.  ALL CALCULATIONS UNDER THIS
SECTION 4(E)(V) SHALL BE MADE TO THE NEAREST CENT (WITH $.005 BEING ROUNDED
UPWARD) OR TO THE NEAREST ONE-TENTH OF A SHARE (WITH.05 OF A SHARE BEING ROUNDED
UPWARD), AS THE CASE MAY BE.

 

(VI)          WHENEVER THE FIXED CONVERSION PRICE IS ADJUSTED AS HEREIN
PROVIDED, THE COMPANY SHALL PROMPTLY FILE WITH THE TRANSFER AGENT AN OFFICER’S
CERTIFICATE SETTING FORTH THE FIXED CONVERSION PRICE AFTER SUCH ADJUSTMENT AND
SETTING FORTH A BRIEF STATEMENT OF THE FACTS REQUIRING SUCH ADJUSTMENT, WHICH
CERTIFICATE SHALL BE CONCLUSIVE EVIDENCE OF THE CORRECTNESS OF SUCH ADJUSTMENT
ABSENT MANIFEST ERROR.  PROMPTLY AFTER DELIVERY OF SUCH CERTIFICATE, THE COMPANY
SHALL PREPARE A NOTICE OF SUCH ADJUSTMENT OF THE FIXED CONVERSION PRICE SETTING
FORTH THE ADJUSTED FIXED CONVERSION PRICE AND THE EFFECTIVE DATE OF SUCH
ADJUSTMENT AND SHALL MAIL SUCH NOTICE OF SUCH ADJUSTMENT OF THE FIXED CONVERSION
PRICE TO THE HOLDERS OF THE NOTES AT SUCH HOLDER’S LAST ADDRESS AS SHOWN ON THE
STOCK RECORDS OF THE COMPANY.

 

(VII)         IN ANY CASE IN WHICH SECTION 4(E) PROVIDES THAT AN ADJUSTMENT
SHALL BECOME EFFECTIVE ON THE DAY NEXT FOLLOWING THE RECORD DATE FOR AN EVENT,
THE COMPANY MAY WITHOUT PENALTY DEFER UNTIL THE OCCURRENCE OF SUCH EVENT ISSUING
TO THE HOLDERS OF ANY NOTES CONVERTED AFTER SUCH RECORD DATE AND BEFORE THE
OCCURRENCE OF SUCH EVENT THE ADDITIONAL SHARES ISSUABLE UPON SUCH CONVERSION BY
REASON OF THE ADJUSTMENT REQUIRED BY SUCH EVENT OVER AND ABOVE THE SHARES
ISSUABLE UPON SUCH CONVERSION BEFORE GIVING EFFECT TO SUCH ADJUSTMENT.

 

(VIII)        IF ANY ACTION OR TRANSACTION WOULD REQUIRE ADJUSTMENT OF THE FIXED
CONVERSION PRICE PURSUANT TO MORE THAN ONE SUBSECTION OF THIS SECTION 4(E), ONLY
ONE ADJUSTMENT SHALL BE MADE, AND SUCH ADJUSTMENT SHALL BE THE AMOUNT OF
ADJUSTMENT THAT HAS THE HIGHEST ABSOLUTE VALUE.

 

(IX)           IF, AT ANY TIME AND FROM TIME TO TIME ON OR AFTER THE ISSUANCE
DATE AND PRIOR TO THE CONVERSION OF THIS NOTE, ANY EVENT OCCURS OF THE TYPE
CONTEMPLATED BY THE PROVISIONS OF THIS SECTION 4(E) BUT NOT EXPRESSLY PROVIDED
FOR BY SUCH PROVISIONS (INCLUDING THE GRANTING OF STOCK APPRECIATION RIGHTS,
PHANTOM STOCK RIGHTS OR OTHER RIGHTS WITH EQUITY FEATURES), THEN THE COMPANY’S
BOARD OF DIRECTORS WILL MAKE AN APPROPRIATE ADJUSTMENT IN THE FIXED CONVERSION
PRICE SO AS TO PROTECT THE RIGHTS OF THE HOLDER; PROVIDED THAT NO SUCH
ADJUSTMENT WILL INCREASE THE FIXED CONVERSION PRICE AS OTHERWISE DETERMINED
PURSUANT TO THIS SECTION 4(E).

 

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5.             REDEMPTION AT OPTION OF THE HOLDER.

 

(A)           2010 OPTION.  AT ANY TIME ON OR AFTER MARCH 31, 2010, THE HOLDER
SHALL HAVE THE RIGHT, AT THE HOLDER’S OPTION TO REQUIRE THE COMPANY TO REDEEM
ALL OR A PORTION OF THE PRINCIPAL AT A PRICE (THE “OPTIONAL REDEMPTION PRICE”)
EQUAL TO THE SUM OF (I) 100% OF SUCH PRINCIPAL PLUS (II) THE INTEREST AMOUNT
WITH RESPECT TO SUCH PRINCIPAL.

 

(B)           REDEMPTION OPTION UPON TRIGGERING EVENT.  IN ADDITION TO ALL OTHER
RIGHTS OF THE HOLDER CONTAINED HEREIN, AFTER A TRIGGERING EVENT (AS DEFINED IN
SECTION 5(C)), THE HOLDER SHALL HAVE THE RIGHT, AT THE HOLDER’S OPTION, TO
REQUIRE THE COMPANY TO REDEEM ALL OR A PORTION OF THE PRINCIPAL AT A PRICE (THE
“REDEMPTION PRICE”) EQUAL TO THE SUM OF (I) 120% OF SUCH PRINCIPAL PLUS (II) THE
INTEREST AMOUNT WITH RESPECT TO SUCH PRINCIPAL.

 

(C)           TRIGGERING EVENT.  A “TRIGGERING EVENT” SHALL BE DEEMED TO HAVE
OCCURRED AT SUCH TIME AS ANY OF THE FOLLOWING EVENTS:

 

(I)            UPON THE HOLDER’S RECEIPT OF A NOTICE OF CHANGE OF CONTROL (AS
DEFINED BELOW);

 

(II)           THE FAILURE OF ANY REGISTRATION STATEMENT (AS DEFINED IN THE
REGISTRATION RIGHTS AGREEMENT), INCLUDING ANY POST-EFFECTIVE AMENDMENT, REQUIRED
TO BE FILED PURSUANT TO SECTION 3(A) OR SECTION 3(B) OF THE REGISTRATION RIGHTS
AGREEMENT TO BE DECLARED EFFECTIVE BY THE SEC ON OR PRIOR TO THE DATE THAT IS
FORTY-FIVE (45) DAYS AFTER THE APPLICABLE EFFECTIVENESS DEADLINE (AS DEFINED IN
THE REGISTRATION RIGHTS AGREEMENT);

 

(III)          WHILE A REGISTRATION STATEMENT FILED PURSUANT TO SECTION 3(A),
3(B) OR SECTION 3(E) OF THE REGISTRATION RIGHTS AGREEMENT IS REQUIRED TO BE
MAINTAINED EFFECTIVE PURSUANT TO THE TERMS OF THE REGISTRATION RIGHTS AGREEMENT,
THE EFFECTIVENESS OF SUCH REGISTRATION STATEMENT LAPSES FOR ANY REASON
(INCLUDING THE ISSUANCE OF A STOP ORDER) OR IS UNAVAILABLE TO THE HOLDER FOR
SALE OF REGISTRABLE SECURITIES IN ACCORDANCE WITH THE TERMS OF THE REGISTRATION
RIGHTS AGREEMENT, AND SUCH LAPSE OR UNAVAILABILITY CONTINUES FOR A PERIOD OF
FIVE (5) CONSECUTIVE TRADING DAYS OR FOR MORE THAN AN AGGREGATE OF TEN
(10) TRADING DAYS IN ANY 365-DAY PERIOD (OTHER THAN DAYS DURING THE PERIOD FROM
THE FILING OF A POST-EFFECTIVE AMENDMENT AS REQUIRED PURSUANT TO THE
REGISTRATION RIGHTS AGREEMENT UNTIL THE EFFECTIVENESS OF SUCH POST-EFFECTIVE
AMENDMENT OR AN ALLOWABLE GRACE PERIOD (AS DEFINED IN THE REGISTRATION RIGHTS
AGREEMENT));

 

(IV)          THE COMMON STOCK IS NOT LISTED ON THE OTC BULLETIN BOARD OR LISTED
ON A NATIONAL SECURITIES EXCHANGE OR QUOTED ON THE NASDAQ NATIONAL MARKET (OR
SUCCESSOR THERETO) OR THE NASDAQ CAPITAL MARKET, OR IF THE COMMON STOCK HAS BEEN
LISTED ON A NATIONAL SECURITIES EXCHANGE OR QUOTED ON THE NASDAQ NATIONAL MARKET
(OR SUCCESSOR THERETO) OR THE NASDAQ CAPITAL MARKET, THE TRADING OF THE COMMON
STOCK ON SUCH EXCHANGE OR MARKET IS TERMINATED OR SUSPENDED FOR A PERIOD OF FIVE
(5) CONSECUTIVE TRADING DAYS OR FOR MORE THAN AN AGGREGATE OF TEN (10) TRADING
DAYS IN ANY 365-DAY PERIOD;

 

(V)           THE COMPANY’S OR THE TRANSFER AGENT’S NOTICE TO ANY HOLDER OF THE
NOTES, INCLUDING BY WAY OF PUBLIC ANNOUNCEMENT, AT ANY TIME, OF ITS INTENTION
NOT TO COMPLY WITH A REQUEST FOR CONVERSION OF ANY NOTES INTO SHARES THAT IS
TENDERED IN ACCORDANCE

 

19

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with the provisions of the Notes (excluding, however, a notice that relates
solely to a bona fide dispute that is subject to and being resolved pursuant to,
and in compliance with the time periods and other provisions of the dispute
resolution provisions of Section 4(c)(iii), provided neither such dispute nor
such notice is publicly disclosed);

 

(VI)          A CONVERSION FAILURE;

 

(VII)         UPON THE COMPANY’S RECEIPT OF A CONVERSION NOTICE, THE COMPANY NOT
BEING OBLIGATED TO ISSUE SHARES UPON SUCH CONVERSION DUE TO THE PROVISIONS OF
SECTION 7.

 

(VIII)        EXCEPT AS PROVIDED IN CLAUSE (IX) BELOW, THE COMPANY OR ANY OF ITS
SUBSIDIARIES BREACHES ANY REPRESENTATION, WARRANTY, COVENANT OR OTHER TERM OR
CONDITION OF THE SECURITIES PURCHASE AGREEMENT, THE REGISTRATION RIGHTS
AGREEMENT, THE WARRANTS, THIS NOTE, THE SECURITY DOCUMENTS OR ANY OTHER
AGREEMENT, DOCUMENT, CERTIFICATE OR OTHER INSTRUMENT DELIVERED IN CONNECTION
WITH THE TRANSACTIONS CONTEMPLATED THEREBY AND HEREBY, EXCEPT TO THE EXTENT THAT
SUCH BREACH WOULD NOT HAVE A MATERIAL ADVERSE EFFECT (AS DEFINED IN
SECTION 3(A) OF THE SECURITIES PURCHASE AGREEMENT) AND EXCEPT, IN THE CASE OF A
BREACH OF A COVENANT OR OTHER TERM THAT IS CURABLE, ONLY IF SUCH BREACH
CONTINUES FOR A PERIOD OF AT LEAST TWENTY (20) DAYS; OR

 

(IX)           THE COMPANY DOES NOT COMPLY WITH THE PROVISIONS OF SECTION 11
HEREOF, SECTION 4(J) OF THE SECURITIES PURCHASE AGREEMENT OR SECTION 8 OF THE
REGISTRATION RIGHTS AGREEMENT OR ANY OTHER EVENT OF DEFAULT OCCURS AND IS
CONTINUING.

 

(D)           MECHANICS OF REDEMPTION UPON NOTICE OF CHANGE OF CONTROL.  NO
SOONER THAN THIRTY (30) NOR LATER THAN FIFTEEN (15) BUSINESS DAYS PRIOR TO THE
CONSUMMATION OF A CHANGE OF CONTROL, BUT NOT PRIOR TO THE PUBLIC ANNOUNCEMENT OF
SUCH CHANGE OF CONTROL, THE COMPANY SHALL DELIVER WRITTEN NOTICE THEREOF VIA
FACSIMILE AND OVERNIGHT COURIER (A “NOTICE OF CHANGE OF CONTROL”) TO THE
HOLDER.  AT ANY TIME DURING THE PERIOD BEGINNING AFTER RECEIPT OF A NOTICE OF
CHANGE OF CONTROL (OR, IN THE EVENT A NOTICE OF CHANGE OF CONTROL IS NOT
DELIVERED AT LEAST TWENTY (20) BUSINESS DAYS PRIOR TO A CHANGE OF CONTROL, AT
ANY TIME ON OR AFTER THE DATE WHICH IS TWENTY (20) BUSINESS DAYS PRIOR TO A
CHANGE OF CONTROL) AND ENDING ON THE DATE THAT IS TWO (2) BUSINESS DAYS PRIOR TO
THE CONSUMMATION OF SUCH CHANGE OF CONTROL, THE HOLDER MAY REQUIRE THE COMPANY
TO REDEEM ALL OR A PORTION OF THE PRINCIPAL BY DELIVERING WRITTEN NOTICE THEREOF
VIA FACSIMILE AND OVERNIGHT COURIER (A “NOTICE OF REDEMPTION UPON CHANGE OF
CONTROL”) TO THE COMPANY, WHICH NOTICE OF REDEMPTION UPON CHANGE OF CONTROL
SHALL INDICATE (I) THE PRINCIPAL THAT THE HOLDER IS SUBMITTING FOR REDEMPTION
AND (II) THE APPLICABLE REDEMPTION PRICE, AS CALCULATED PURSUANT TO
SECTION 5(B).  THE COMPANY SHALL DELIVER THE REDEMPTION PRICE SIMULTANEOUSLY
WITH THE CONSUMMATION OF THE CHANGE OF CONTROL; PROVIDED THAT, IF REQUIRED BY
SECTION 4(C)(VIII), THIS NOTE SHALL HAVE BEEN SO DELIVERED TO THE COMPANY.  THE
COMPANY SHALL NOT ENTER INTO ANY BINDING AGREEMENT OR OTHER ARRANGEMENT WITH
RESPECT TO A CHANGE OF CONTROL UNLESS THE COMPANY PROVIDES THAT THE PAYMENTS
PROVIDED FOR IN THIS SECTION 5(D) SHALL HAVE PRIORITY TO PAYMENTS TO
STOCKHOLDERS IN CONNECTION WITH SUCH CHANGE OF CONTROL AND THE COMPANY COMPLIES
WITH SUCH PROVISION.

 

(E)           MECHANICS OF OTHER REDEMPTIONS AT OPTION OF HOLDER.  WITHIN ONE
(1) BUSINESS DAY AFTER THE OCCURRENCE OF A TRIGGERING EVENT (OTHER THAN UPON THE
HOLDER’S

 

20

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RECEIPT OF A NOTICE OF CHANGE OF CONTROL), THE COMPANY SHALL DELIVER WRITTEN
NOTICE THEREOF VIA FACSIMILE AND OVERNIGHT COURIER (“NOTICE OF TRIGGERING
EVENT”) TO THE HOLDER AND EACH HOLDER OF THE OTHER NOTES.  AT ANY TIME AFTER
EITHER (X) MARCH 31, 2010 IN THE CASE OF A REDEMPTION PURSUANT TO
SECTION 5(A) OR (Y) THE EARLIER OF THE HOLDER’S RECEIPT OF A NOTICE OF
TRIGGERING EVENT AND THE HOLDER’S BECOMING AWARE OF A TRIGGERING EVENT IN THE
CASE OF A REDEMPTION PURSUANT TO SECTION 5(B), THE HOLDER MAY REQUIRE THE
COMPANY TO REDEEM UP TO ALL OF THE PRINCIPAL BY DELIVERING WRITTEN NOTICE
THEREOF VIA FACSIMILE AND OVERNIGHT COURIER (“NOTICE OF REDEMPTION AT OPTION OF
HOLDER”) TO THE COMPANY, WHICH NOTICE OF REDEMPTION AT OPTION OF HOLDER SHALL
INDICATE (I) THE PRINCIPAL THAT THE HOLDER IS SUBMITTING FOR REDEMPTION,
(II) THE APPLICABLE OPTIONAL REDEMPTION PRICE OR REDEMPTION PRICE, AS THE CASE
MAY BE, AS DETERMINED AND CALCULATED PURSUANT TO SECTIONS 5(A) OR 5(B) ABOVE AND
(III) IN THE CASE OF A REDEMPTION PURSUANT TO SECTION 5(B), THE NATURE OF THE
TRIGGERING EVENT TO THE EXTENT THE HOLDER DID NOT RECEIVE A NOTICE OF TRIGGERING
EVENT; PROVIDED THAT A NOTICE OF REDEMPTION AT OPTION OF HOLDER WITH RESPECT TO
A REDEMPTION PURSUANT TO SECTION 5(B) MAY ONLY BE SENT DURING THE PERIOD
BEGINNING ON AND INCLUDING THE DATE OF THE TRIGGERING EVENT AND ENDING ON AND
INCLUDING THE DATE WHICH IS THE LATER OF (I) TWENTY (20) BUSINESS DAYS AFTER THE
DATE ON WHICH THE HOLDER RECEIVES A NOTICE OF TRIGGERING EVENT FROM THE COMPANY
WITH RESPECT TO SUCH TRIGGERING EVENT AND (II) FIVE (5) BUSINESS DAYS AFTER THE
DATE ON WHICH SUCH TRIGGERING EVENT IS CURED AND THE HOLDER RECEIVES WRITTEN
NOTICE FROM THE COMPANY CONFIRMING SUCH TRIGGERING EVENT HAS BEEN CURED.

 

(F)            PAYMENT OF REDEMPTION PRICE OTHER THAN IN CONNECTION WITH A
CHANGE OF CONTROL.  UPON THE COMPANY’S RECEIPT OF A NOTICE(S) OF REDEMPTION AT
OPTION OF THE HOLDER FROM ANY HOLDER OF THE OTHER NOTES, THE COMPANY SHALL
PROMPTLY NOTIFY THE HOLDER BY FACSIMILE OF THE COMPANY’S RECEIPT OF SUCH
NOTICE(S).  EACH HOLDER THAT HAS SENT SUCH A NOTICE SHALL, IF REQUIRED PURSUANT
TO SECTION 4(C)(VIII), PROMPTLY SUBMIT TO THE COMPANY SUCH HOLDER’S NOTE THAT
SUCH HOLDER HAS ELECTED TO HAVE REDEEMED.  THE COMPANY SHALL DELIVER THE
APPLICABLE OPTIONAL REDEMPTION PRICE OR REDEMPTION PRICE TO THE HOLDER WITHIN
FIVE (5) BUSINESS DAYS AFTER THE COMPANY’S RECEIPT OF A NOTICE OF REDEMPTION AT
OPTION OF HOLDER, PROVIDED THAT THE HOLDER’S NOTE SHALL HAVE BEEN SO DELIVERED
TO THE COMPANY.  IF THE COMPANY IS UNABLE TO REDEEM ALL OF THE NOTES SUBMITTED
FOR REDEMPTION, THE COMPANY SHALL (I) REDEEM A PRO RATA AMOUNT FROM EACH HOLDER
OF THE NOTES BASED ON THE PRINCIPAL AMOUNT OF THE NOTES SUBMITTED FOR REDEMPTION
BY SUCH HOLDER RELATIVE TO THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES SUBMITTED
FOR REDEMPTION BY ALL HOLDERS OF THE NOTES AND (II) IN ADDITION TO ANY REMEDY
THE HOLDER MAY HAVE UNDER THIS NOTE, THE SECURITIES PURCHASE AGREEMENT AND THE
SECURITY DOCUMENTS, PAY TO THE HOLDER INTEREST AT A RATE EQUAL TO THE LESSER OF
2.0% PER MONTH (PRORATED FOR PARTIAL MONTHS) OR THE HIGHEST LAWFUL INTEREST RATE
IN RESPECT OF THE UNPAID OPTIONAL REDEMPTION PRICE OR REDEMPTION PRICE, AS THE
CASE MAY BE, UNTIL PAID IN FULL OR UNTIL DELIVERY OF A VOID OPTIONAL REDEMPTION
NOTICE (AS DEFINED IN SECTION 5(G)).

 

(G)           VOID REDEMPTION.  IN THE EVENT THAT THE COMPANY DOES NOT PAY THE
OPTIONAL REDEMPTION PRICE OR THE REDEMPTION PRICE, AS THE CASE MAY BE, WITHIN
THE TIME PERIOD SET FORTH IN SECTION 5(F), AT ANY TIME THEREAFTER AND UNTIL THE
COMPANY PAYS SUCH UNPAID OPTIONAL REDEMPTION PRICE OR REDEMPTION PRICE IN FULL,
THE HOLDER SHALL HAVE THE OPTION TO, IN LIEU OF REDEMPTION, REQUIRE THE COMPANY
TO PROMPTLY CREDIT TO THE HOLDER THE PRINCIPAL THAT WAS SUBMITTED FOR REDEMPTION
BY THE HOLDER UNDER THIS SECTION 5 AND FOR WHICH THE OPTIONAL REDEMPTION PRICE
OR THE REDEMPTION PRICE (TOGETHER WITH ANY INTEREST THEREON) HAS NOT BEEN PAID
(OR RETURN ANY OR ALL OF THE NOTE OR ANY PORTION THEREOF REPRESENTING SUCH
PRINCIPAL) BY SENDING

 

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written notice thereof to the Company via facsimile (the “Void Optional
Redemption Notice”).  Upon the Company’s receipt of such Void Optional
Redemption Notice, (i) the Notice of Redemption at Option of Holder shall be
null and void with respect to the Principal subject to the Void Optional
Redemption Notice, (ii) the Company shall promptly return or credit to the
Holder any Principal or Note, as applicable, subject to the Void Optional
Redemption Notice and (iii) the Fixed Conversion Price with respect to all the
Principal shall be adjusted to the lesser of (A) the Fixed Conversion Price as
in effect on the date on which the Void Optional Redemption Notice is delivered
to the Company and (B) the lowest Weighted Average Price of the Common Stock
during the period beginning on and including the date on which the Notice of
Redemption at Option of Holder is delivered to the Company and ending on and
including the date on which the Void Redemption Notice is delivered to the
Company.

 

(H)           DISPUTES; MISCELLANEOUS.  IN THE EVENT OF A BONA FIDE DISPUTE AS
TO THE DETERMINATION OF THE ARITHMETIC CALCULATION OF THE OPTIONAL REDEMPTION
PRICE OR REDEMPTION PRICE, SUCH DISPUTE SHALL BE RESOLVED PURSUANT TO
SECTION 4(C)(III) ABOVE, WITH THE TERM “OPTIONAL REDEMPTION PRICE” OR
“REDEMPTION PRICE” BEING SUBSTITUTED FOR THE TERM “CONVERSION RATE.”  THE
HOLDER’S DELIVERY OF A VOID OPTIONAL REDEMPTION NOTICE AND EXERCISE OF ITS
RIGHTS FOLLOWING SUCH NOTICE SHALL NOT AFFECT THE COMPANY’S OBLIGATIONS TO MAKE
ANY PAYMENTS THAT HAVE ACCRUED PRIOR TO THE DATE OF SUCH NOTICE.  IN THE EVENT
OF A REDEMPTION PURSUANT TO THIS SECTION 5 OF LESS THAN ALL OF THE PRINCIPAL,
THE COMPANY SHALL PROMPTLY CAUSE TO BE ISSUED AND DELIVERED TO THE HOLDER A
REPLACEMENT NOTE REPRESENTING THE REMAINING PRINCIPAL THAT HAS NOT BEEN
REDEEMED, IF REQUIRED PURSUANT TO SECTION 4(C)(VIII).

 

6.             OTHER RIGHTS OF THE HOLDER.

 

(A)           REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. 
ANY RECAPITALIZATION, REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER,
SELF TENDER OFFER FOR ALL OR SUBSTANTIALLY ALL SHARES, SALE OF ALL OR
SUBSTANTIALLY ALL OF THE COMPANY’S ASSETS TO ANOTHER PERSON OR OTHER TRANSACTION
THAT IS EFFECTED IN SUCH A WAY THAT HOLDERS OF COMMON STOCK ARE ENTITLED TO
RECEIVE (EITHER DIRECTLY OR UPON SUBSEQUENT LIQUIDATION) STOCK, SECURITIES OR
ASSETS WITH RESPECT TO OR IN EXCHANGE FOR COMMON STOCK IS REFERRED TO HEREIN AS
“ORGANIC CHANGE.”  IN ADDITION TO THE RIGHTS OF THE HOLDER UNDER SECTION 5,
PRIOR TO THE CONSUMMATION OF ANY (I) SALE OF ALL OR SUBSTANTIALLY ALL OF THE
COMPANY’S ASSETS TO AN ACQUIRING PERSON (INCLUDING, FOR THE AVOIDANCE OF DOUBT,
THE SALE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE COMPANY’S SUBSIDIARIES
IN THE AGGREGATE) OR (II) OTHER ORGANIC CHANGE FOLLOWING WHICH THE COMPANY IS
NOT A SURVIVING ENTITY, THE COMPANY WILL SECURE FROM THE PERSON PURCHASING SUCH
ASSETS OR THE SUCCESSOR RESULTING FROM SUCH ORGANIC CHANGE (IN EACH CASE, THE
“ACQUIRING ENTITY”) A WRITTEN AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO
THE HOLDERS REPRESENTING AT LEAST A MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT
OF THE NOTES THEN OUTSTANDING, TO DELIVER TO THE HOLDER IN EXCHANGE FOR THIS
NOTE, A SECURITY OF THE ACQUIRING ENTITY EVIDENCED BY A WRITTEN INSTRUMENT
SUBSTANTIALLY SIMILAR IN FORM AND SUBSTANCE TO THIS NOTE AND SATISFACTORY TO THE
HOLDERS REPRESENTING AT LEAST A MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF
THE NOTES THEN OUTSTANDING.  SUBJECT TO SECTION 4(E), PRIOR TO THE CONSUMMATION
OF ANY OTHER ORGANIC CHANGE, THE COMPANY SHALL MAKE APPROPRIATE PROVISION (IN
FORM AND SUBSTANCE SATISFACTORY TO THE HOLDERS REPRESENTING AT LEAST A MAJORITY
OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES THEN OUTSTANDING) TO ENSURE THAT
THE HOLDER WILL THEREAFTER HAVE THE RIGHT TO ACQUIRE AND RECEIVE IN LIEU OF OR
IN ADDITION TO (AS THE CASE MAY BE) THE SHARES IMMEDIATELY THERETOFORE
ACQUIRABLE AND RECEIVABLE UPON THE CONVERSION OF THIS NOTE

 

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(without regard to any limitations or restrictions on conversion) such shares of
stock, securities or assets that would have been issued or payable in such
Organic Change with respect to or in exchange for the number of Shares that
would have been acquirable and receivable upon the conversion of this Note as of
the date of such Organic Change (without taking into account any limitations or
restrictions on the conversion of this Note).

 

7.             LIMITATIONS ON CONVERSION.

 

(A)           4.99% LIMITATION.  THE COMPANY SHALL NOT EFFECT ANY CONVERSION OF
THIS NOTE AND THE HOLDER SHALL NOT HAVE THE RIGHT TO CONVERT PRINCIPAL OR ANY
INTEREST AMOUNT IN EXCESS OF THAT PORTION OF THE PRINCIPAL AMOUNT OR ANY
INTEREST AMOUNT THAT, UPON GIVING EFFECT TO SUCH CONVERSION, WOULD CAUSE THE
AGGREGATE NUMBER OF SHARES BENEFICIALLY OWNED BY THE HOLDER AND ITS AFFILIATES
TO EXCEED 4.99% (THE “MAXIMUM PERCENTAGE”) OF THE TOTAL OUTSTANDING SHARES
FOLLOWING SUCH CONVERSION OR ISSUANCE OF INTEREST SHARES; PROVIDED, HOWEVER,
THAT FOLLOWING THE COMPANY CONVERSION NOTICE DATE (AS DEFINED IN SECTION 9(B))
THE MAXIMUM PERCENTAGE SHALL BE OF NO FURTHER FORCE AND EFFECT ON THE COMPANY
CONVERSION DATE, SOLELY FOR PURPOSES OF EFFECTING A COMPANY CONVERSION PURSUANT
TO SECTION 9.  FOR PURPOSES OF THE FOREGOING PROVISO, THE AGGREGATE NUMBER OF
SHARES BENEFICIALLY OWNED BY THE HOLDER AND ITS AFFILIATES SHALL INCLUDE THE
SHARES ISSUABLE UPON CONVERSION OF THIS NOTE, WITH RESPECT TO WHICH THE
DETERMINATION OF SUCH PROVISO IS BEING MADE, BUT SHALL EXCLUDE THE SHARES THAT
WOULD BE ISSUABLE UPON (I) CONVERSION OF THE REMAINING, UNCONVERTED PRINCIPAL
AND ANY INTEREST AMOUNT WITH RESPECT THERETO BENEFICIALLY OWNED BY THE HOLDER
AND ITS AFFILIATES AND (II) EXERCISE, CONVERSION OR EXCHANGE OF THE UNEXERCISED,
UNCONVERTED OR UNEXCHANGED PORTION OF ANY OTHER SECURITIES OF THE COMPANY
(INCLUDING THE WARRANTS AND ANY OTHER WARRANTS OR CONVERTIBLE PREFERRED STOCK)
SUBJECT TO A LIMITATION ON CONVERSION, EXERCISE OR EXCHANGE ANALOGOUS TO THE
LIMITATION CONTAINED HEREIN BENEFICIALLY OWNED BY THE HOLDER AND ITS
AFFILIATES.  EXCEPT AS SET FORTH IN THE PRECEDING SENTENCE, FOR PURPOSES OF THIS
SECTION 7, BENEFICIAL OWNERSHIP SHALL BE CALCULATED IN ACCORDANCE WITH
SECTION 13(D) OF THE 1934 ACT.  FOR PURPOSES OF THIS SECTION 7(A), IN
DETERMINING THE NUMBER OF OUTSTANDING SHARES THE HOLDER MAY RELY ON THE NUMBER
OF OUTSTANDING SHARES AS REFLECTED IN (1) THE COMPANY’S MOST RECENT QUARTERLY
REPORT ON FORM 10-QSB OR 10-Q, OR ANNUAL REPORT ON FORM 10-KSB OR 10-K, AS THE
CASE MAY BE, (2) A MORE RECENT PUBLIC ANNOUNCEMENT BY THE COMPANY OR (3) ANY
OTHER NOTICE BY THE COMPANY OR THE TRANSFER AGENT FOR THE COMMON STOCK SETTING
FORTH THE NUMBER OF SHARES OUTSTANDING.  UPON THE WRITTEN REQUEST OF THE HOLDER,
THE COMPANY SHALL PROMPTLY, BUT IN NO EVENT LATER THAN TWO (2) BUSINESS DAYS
FOLLOWING THE RECEIPT OF SUCH REQUEST, CONFIRM IN WRITING TO THE HOLDER THE
NUMBER OF SHARES OUTSTANDING AS OF THE DATE OF SUCH REQUEST.  IN ANY CASE, THE
NUMBER OF OUTSTANDING SHARES SHALL BE DETERMINED AFTER GIVING EFFECT TO THE
CONVERSION, EXERCISE OR EXCHANGE OF SECURITIES OF THE COMPANY, INCLUDING THE
NOTES AND THE WARRANTS BY THE HOLDER AND ITS AFFILIATES SINCE THE DATE AS OF
WHICH SUCH NUMBER OF OUTSTANDING SHARES WAS REPORTED.  FOR PURPOSES OF
DETERMINING THE MAXIMUM NUMBER OF SHARES THAT THE COMPANY MAY ISSUE TO THE
HOLDER PURSUANT TO SECTION 7(A) UPON CONVERSION OF THIS NOTE ON A PARTICULAR
CONVERSION DATE OTHER THAN A COMPANY CONVERSION DATE PURSUANT TO SECTION 9, THE
HOLDER’S DELIVERY OF A CONVERSION NOTICE WITH RESPECT TO SUCH CONVERSION SHALL
CONSTITUTE A REPRESENTATION (ON WHICH THE COMPANY MAY RELY WITHOUT
INVESTIGATION) BY THE HOLDER THAT, UPON THE ISSUANCE OF THE SHARES TO BE ISSUED
TO IT ON SUCH CONVERSION DATE OR FORCED CONVERSION DATE, THE SHARES OF COMMON
STOCK BENEFICIALLY OWNED BY THE HOLDER AND ITS AFFILIATES SHALL NOT EXCEED THE
MAXIMUM PERCENTAGE OF THE TOTAL

 

23

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outstanding Shares immediately after giving effect to such conversion, as
determined in accordance with this Section 7(a).  By written notice to the
Company, the Holder may from time to time increase or decrease the Maximum
Percentage to any other percentage not in excess of 9.99% specified in such
notice; provided, however, that (i) any such increase will not be effective
until the date which is sixty one (61) days after such notice is delivered to
the Company and (ii) any such increase or decrease will apply only to the Holder
and not to any other holder of Notes.

 

(B)           THE COMPANY SHALL NOT BE OBLIGATED TO ISSUE ANY SHARES UPON
CONVERSION OF THIS NOTE IF THE ISSUANCE OF SUCH SHARES WOULD EXCEED THAT NUMBER
OF SHARES WHICH THE COMPANY MAY ISSUE UPON CONVERSION OF THE NOTES AND UPON
EXERCISE OF THE WARRANTS (THE “EXCHANGE CAP”) WITHOUT BREACHING THE COMPANY’S
OBLIGATIONS UNDER THE RULES OR REGULATIONS OF THE PRINCIPAL MARKET, IF AT THE
TIME OF ANY DETERMINATION THE COMMON STOCK IS LISTED ON A NATIONAL SECURITIES
EXCHANGE OR QUOTED ON NASDAQ, EXCEPT THAT SUCH LIMITATION SHALL NOT APPLY IN THE
EVENT THAT THE COMPANY (A) OBTAINS STOCKHOLDER APPROVAL, 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 HOLDERS
REPRESENTING AT LEAST A MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES
THEN OUTSTANDING.  UNTIL SUCH STOCKHOLDER APPROVAL OR WRITTEN OPINION IS
OBTAINED, NO PURCHASER OF ANY OF THE NOTES PURSUANT TO THE SECURITIES PURCHASE
AGREEMENT (EACH, A “PURCHASER”) SHALL BE ISSUED, AT ANY TIME, UPON CONVERSION OF
ANY OF THE NOTES, A NUMBER OF SHARES GREATER THAN THE DIFFERENCE OF (I) THE
PRODUCT OF (A) THE EXCHANGE CAP, MULTIPLIED BY (B) THE ALLOCATION PERCENTAGE OF
SUCH PURCHASER AS OF THE ISSUANCE DATE (THE “CAP ALLOCATION AMOUNT”), MINUS
(II) THE AGGREGATE NUMBER OF (X) CONVERSION SHARES THAT HAVE BEEN ISSUED PRIOR
TO SUCH TIME UPON CONVERSION OF ANY NOTES PRIOR TO THE DATE OF SUCH
DETERMINATION AND (Y) WARRANT SHARES THAT HAVE BEEN ISSUED TO SUCH PURCHASER
PRIOR TO SUCH TIME UPON EXERCISE OF ANY WARRANTS.  IN THE EVENT THAT ANY
PURCHASER SHALL SELL OR OTHERWISE TRANSFER ANY OF SUCH PURCHASER’S NOTES, THE
TRANSFEREE SHALL BE ALLOCATED A PRO RATA PORTION OF SUCH PURCHASER’S CAP
ALLOCATION AMOUNT.  IN THE EVENT THAT ANY HOLDER OF NOTES SHALL CONVERT ALL OF
SUCH HOLDER’S NOTES AND EXERCISE ALL OF SUCH HOLDER’S WARRANTS INTO A NUMBER OF
SHARES IN AN AMOUNT WHICH, IN THE AGGREGATE, IS LESS THAN SUCH HOLDER’S CAP
ALLOCATION AMOUNT, THEN THE DIFFERENCE BETWEEN SUCH HOLDER’S CAP ALLOCATION
AMOUNT AND THE NUMBER OF SHARES ACTUALLY ISSUED TO SUCH HOLDER UPON CONVERSION
OF SUCH HOLDER’S NOTES AND EXERCISE OF SUCH HOLDER’S WARRANTS SHALL BE ALLOCATED
TO THE RESPECTIVE CAP ALLOCATION AMOUNTS OF THE REMAINING HOLDERS OF NOTES AND
WARRANTS, ON A PRO RATA BASIS IN PROPORTION TO THE AGGREGATE NUMBER OF SHARES
ISSUABLE UPON CONVERSION OF THE NOTES (AT THE THEN PREVAILING CONVERSION PRICE)
AND EXERCISE OF THE WARRANTS (AT THE THEN PREVAILING EXERCISE PRICES), IF ANY,
THEN HELD BY EACH SUCH HOLDER, WITHOUT REGARD TO ANY LIMITATIONS ON CONVERSION
OR EXERCISE.

 

8.             INTEREST.

 

(A)           INTEREST SHALL BE PAYABLE ON EACH INTEREST PAYMENT DATE, INCLUDING
THE MATURITY DATE, TO THE RECORD HOLDER OF THIS NOTE ON SUCH INTEREST PAYMENT
DATE, IN CASH OR, PROVIDED THAT EACH OF THE FUNDAMENTAL CONDITIONS ARE
SATISFIED, BY CONVERTING SUCH INTEREST EQUAL TO THE ENTIRE INTEREST AMOUNT (THE
“INTEREST CONVERSION AMOUNT”) TO SHARES (“INTEREST SHARES”) BY GIVING THE RECORD
HOLDER AN INTEREST CONVERSION NOTICE (AS DEFINED BELOW) IN ACCORDANCE WITH, AND
SUBJECT TO THE CONDITIONS AND REQUIREMENTS OF, THIS SECTION 8 (AN “INTEREST
CONVERSION”).  THE COMPANY MAY NOT ELECT AN INTEREST CONVERSION WITH RESPECT TO
INTEREST PAYABLE ON THE MATURITY

 

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Date or on any other Interest Payment Date occurring less than thirty-one (31)
Trading Days prior to the Maturity Date.  If the Company does not elect an
Interest Conversion with respect to such Interest, such Interest shall be paid
in cash.  Any accrued and unpaid Interest which is not paid within five
(5) Business Days of such accrued and unpaid Interest’s Interest Payment Date
shall bear interest at a rate equal to the lesser of 2.0% per month (prorated
for partial months) or the highest lawful rate per annum from such Interest
Payment Date until the same is paid in full (the “Default Interest”).  The
Company shall pay any and all Taxes (excluding income taxes, franchise taxes or
other taxes levied on gross earnings, profits or the like of the Holder) that
may be payable with respect to the issuance and delivery of Interest Shares.

 

(B)           EXERCISE OF INTEREST CONVERSION.  THE COMPANY MAY EXERCISE ITS
RIGHT TO ELECT AN INTEREST CONVERSION BY DELIVERING TO THE HOLDER WRITTEN NOTICE
THEREOF (AN “INTEREST CONVERSION NOTICE”) AT LEAST FIVE (5) BUSINESS DAYS PRIOR
TO THE APPLICABLE INTEREST PAYMENT DATE.  IF THE COMPANY ELECTS AN INTEREST
CONVERSION, THEN IT MUST SIMULTANEOUSLY TAKE THE SAME ACTION WITH RESPECT TO ALL
OF THE OTHER NOTES.  AN INTEREST CONVERSION SHALL BE IRREVOCABLE BY THE
COMPANY.  THE INTEREST CONVERSION NOTICE SHALL INDICATE (I) THE NUMBER OF
CONSECUTIVE TRADING DAYS DURING WHICH THE HOLDER MUST CONVERT ITS INTEREST
CONVERSION AMOUNT (THE “INTEREST CONVERSION PERIOD”), WHICH SHALL BE AT LEAST
TEN (10) TRADING DAYS AND NO MORE THAN TWENTY (20) TRADING DAYS, AS SELECTED BY
THE COMPANY, AND SHALL BE THE SAME AS ANY INTEREST CONVERSION PERIOD SET FORTH
IN ANY INTEREST CONVERSION NOTICE GIVEN PURSUANT TO ANY OTHER NOTES ON THE SAME
DAY, (II) THE DATE OF THE FIRST TRADING DAY OF THE INTEREST CONVERSION PERIOD,
(III) THE DATE OF THE LAST TRADING DAY OF THE INTEREST CONVERSION PERIOD, WHICH
IS THE LAST DATE BY WHICH THE HOLDER MUST CONVERT ITS INTEREST CONVERSION AMOUNT
(THE “FINAL INTEREST CONVERSION DATE”), (IV) THE INTEREST CONVERSION AMOUNT
(SUCH INTEREST CONVERSION AMOUNT WITH RESPECT TO EACH SUCH HOLDER IS REFERRED TO
AS ITS “PRO RATA INTEREST CONVERSION AMOUNT”), (V) EACH HOLDER’S PRO RATA
INTEREST CONVERSION AMOUNT AND (VI) THE ALLOCATION PERCENTAGE OF EACH HOLDER AS
OF THE INTEREST CONVERSION NOTICE DATE.  THE DATE ON WHICH THE HOLDER RECEIVES
AN INTEREST CONVERSION NOTICE IS REFERRED TO AS THE “INTEREST CONVERSION NOTICE
DATE.”

 

(C)           MECHANICS OF INTEREST CONVERSION.  IF THE COMPANY HAS EXERCISED
ITS RIGHT TO AN INTEREST CONVERSION IN ACCORDANCE WITH SECTION 8(A) AND THE
FUNDAMENTAL CONDITIONS ARE SATISFIED (OR WAIVED IN WRITING BY THE HOLDER), ON
THE COMPANY CONVERSION NOTICE DATE AND AT EACH TIME THE HOLDER DELIVERS A
CONVERSION NOTICE WITH RESPECT TO ANY PORTION OF THE PRO RATA INTEREST
CONVERSION AMOUNT (AN “INTEREST CONVERSION DATE”), THEN, SUBJECT TO SECTION 7,
THE HOLDER SHALL CONVERT THE PRO RATA INTEREST CONVERSION AMOUNT, IN WHOLE OR IN
PART AND AT SUCH TIME OR TIMES AS THE HOLDER, IN ITS SOLE DISCRETION DETERMINES,
DURING THE INTEREST CONVERSION PERIOD; PROVIDED, HOWEVER, THAT THE HOLDER SHALL
NOT BE PERMITTED TO CONVERT DURING THE INTEREST CONVERSION PERIOD, ANY PORTION
OF THE INTEREST CONVERSION AMOUNT THAT EXCEEDS THE PRODUCT OF (I) THE HOLDER’S
ALLOCATION PERCENTAGE AS OF THE INTEREST CONVERSION NOTICE DATE AND (II) TWENTY
PERCENT (20%) OF THE SUM OF THE DAILY DOLLAR TRADING VOLUME (AS REPORTED BY
BLOOMBERG) OF THE COMMON STOCK ON ITS PRINCIPAL MARKET ON EACH OF THE TRADING
DAYS DURING THE INTEREST CONVERSION PERIOD (SUCH LIMITATION, THE “VOLUME
CONVERSION RESTRICTION AMOUNT”).  IN THE EVENT ANY PRO RATA INTEREST CONVERSION
AMOUNT HAS NOT BEEN CONVERTED BY THE HOLDER PRIOR TO THE END OF THE INTEREST
CONVERSION PERIOD, THEN, SUBJECT TO THE LIMITATIONS SET FORTH IN SECTIONS 7
AND 8(D), THE REMAINING PRO RATA CONVERSION AMOUNT SHALL BE CONVERTED AS OF THE
INTEREST CONVERSION DATE, AS IF THE HOLDER HAD DELIVERED A CONVERSION NOTICE
PURSUANT TO SECTION 4 WITH RESPECT TO SUCH PRO RATA INTEREST CONVERSION AMOUNT
ON THE INTEREST CONVERSION

 

25

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Date but without the Holder being required to actually deliver such Conversion
Notice, provided that the Fundamental Conditions are satisfied (or waived in
writing by the Holder) on the Interest Conversion Date (and, for the avoidance
of doubt, on each day during the Interest Conversion Period).  In the event that
the Fundamental Conditions are not satisfied on the Interest Conversion Date (or
on any other day during the Interest Conversion Period), then the Interest
Conversion shall be null and void with respect to all or any part designated by
the Holder of the unconverted Pro Rata Interest Conversion Amount and the
Company shall pay such amount in cash within five (5) Business Days in
accordance with Section 8(a).  Notwithstanding anything contained herein to the
contrary, no notice delivered by the Company to any Holder regarding a
Fundamental Condition shall contain any material non-public information.

 

(D)           NOTWITHSTANDING ANYTHING CONTAINED IN THIS SECTION 8 TO THE
CONTRARY, ON THE FINAL INTEREST CONVERSION DATE, (I) THE HOLDER SHALL NOT BE
REQUIRED (BUT SHALL BE PERMITTED SUBJECT TO CLAUSE (II) OF THIS SECTION 8(D)) TO
CONVERT (AND SHALL NOT BE DEEMED, SOLELY AS A RESULT OF SECTION 8(C), TO HAVE
CONVERTED) ANY PORTION OF THE PRO RATA INTEREST CONVERSION AMOUNT ON THE
APPLICABLE FINAL INTEREST CONVERSION DATE IN EXCESS OF THE DIFFERENCE BETWEEN
(A) THE PRODUCT OF (I) THE HOLDER’S ALLOCATION PERCENTAGE AS OF THE INTEREST
CONVERSION NOTICE DATE AND (II) TEN PERCENT (10%) OF THE SUM OF THE DAILY DOLLAR
TRADING VOLUME (AS REPORTED BY BLOOMBERG) OF THE COMMON STOCK ON ITS PRINCIPAL
MARKET ON EACH OF THE TRADING DAYS DURING THE INTEREST CONVERSION PERIOD, MINUS
(B) ANY PRO RATA INTEREST CONVERSION AMOUNT CONVERTED BY THE HOLDER DURING THE
INTEREST CONVERSION PERIOD AND (II) THE HOLDER SHALL NEITHER BE REQUIRED NOR
PERMITTED TO CONVERT (AND SHALL NOT BE DEEMED, SOLELY AS A RESULT OF
SECTION 8(C) TO HAVE CONVERTED) ANY PORTION OF THE PRO RATA INTEREST CONVERSION
AMOUNT ON THE APPLICABLE FINAL INTEREST CONVERSION DATE IN EXCESS OF THE
DIFFERENCE BETWEEN (A) THE APPLICABLE VOLUME CONVERSION RESTRICTION AMOUNT,
MINUS (B) ANY PRO RATA INTEREST CONVERSION AMOUNT CONVERTED BY THE HOLDER DURING
THE INTEREST CONVERSION PERIOD.  FOLLOWING THE FINAL INTEREST CONVERSION DATE,
THE INTEREST CONVERSION SHALL BE NULL AND VOID WITH RESPECT TO THE UNCONVERTED
PRO RATA INTEREST CONVERSION AMOUNT AND THE COMPANY SHALL PAY SUCH AMOUNT IN
CASH WITHIN FIVE (5) BUSINESS DAYS IN ACCORDANCE WITH SECTION 8(A).

 

9.             COMPANY CONVERSION.

 

(A)           GENERAL.  THE COMPANY SHALL HAVE THE RIGHT, IN ACCORDANCE WITH THE
TERMS AND SUBJECT TO THE CONDITIONS OF THIS SECTION 9 AND PROVIDED THAT (I) THE
FUNDAMENTAL CONDITIONS ARE SATISFIED, (II) THE COMPANY SHALL HAVE CONSUMMATED A
QUALIFIED PUBLIC OFFERING AND (III) THE WEIGHTED AVERAGE PRICE OF THE COMMON
STOCK SHALL HAVE BEEN AT LEAST $8.00 (SUBJECT TO ADJUSTMENTS FOR STOCK SPLITS,
STOCK DIVIDENDS COMBINATIONS, RECLASSIFICATIONS AND OTHER EVENTS) ON EACH OF THE
TWENTY (20) CONSECUTIVE TRADING DAYS IMMEDIATELY PRECEDING THE COMPANY
CONVERSION DATE (AS DEFINED BELOW) (CLAUSES (I), (II) AND (III) COLLECTIVELY,
THE “COMPANY CONVERSION CONDITIONS”), TO REQUIRE THAT ALL OF THE PRINCIPAL,
TOGETHER WITH THE INTEREST AMOUNT WITH RESPECT THERETO, DUE TO THE HOLDER UPON
MATURITY OF THIS NOTE BE CONVERTED TO SHARES AT THE APPLICABLE CONVERSION PRICE
(A “COMPANY CONVERSION”).

 

(B)           EXERCISE OF COMPANY CONVERSION.  THE COMPANY MAY EXERCISE ITS
RIGHT TO ELECT A COMPANY CONVERSION BY DELIVERING TO THE HOLDER WRITTEN NOTICE
THEREOF (A “COMPANY CONVERSION NOTICE”).  THE DATE ON WHICH THE HOLDER RECEIVES
THE COMPANY CONVERSION NOTICE IS REFERRED TO AS THE “COMPANY CONVERSION NOTICE
DATE”).  IF THE COMPANY

 

26

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elects a Company Conversion, then it must simultaneously take the same action
with respect to all of the Other Notes and the Subordinated Sirius Note.  The
Company Conversion Notice shall be irrevocable by the Company.  The Company
shall require conversion of a conversion amount from each holder of Notes equal
to the product of (I) the aggregate principal amount of Notes then Outstanding,
together with the Interest Amount thereon, multiplied by (II) such holder’s
Allocation Percentage (such Conversion Amount with respect to each such holder
is referred to as its “Pro Rata Conversion Amount”).  The Company Conversion
Notice shall indicate (I) the date of conversion, which date be shall be at
least twenty (20) Trading Days after the closing date of a Qualified Public
Offering and at least five (5) Trading Days after the Company Conversion Notice
Date (the “Company Conversion Date”), (II) the aggregate principal amount of
Notes then Outstanding, together with the Interest Amount thereon and (III) each
holder’s Pro Rata Conversion Amount.

 

(C)           MECHANICS OF COMPANY CONVERSION.  IF THE COMPANY HAS EXERCISED ITS
RIGHT TO COMPANY CONVERSION IN ACCORDANCE WITH SECTION 9(A) AND THE COMPANY
CONVERSION CONDITIONS ARE SATISFIED (OR WAIVED IN WRITING BY THE HOLDER), THE
HOLDER WILL CONVERT ITS PRO RATA CONVERSION AMOUNT, TOGETHER WITH ANY INTEREST
AMOUNT WITH RESPECT THERETO ACCRUING THROUGH AND INCLUDING THE COMPANY
CONVERSION DATE ON SUCH COMPANY CONVERSION DATE.  IN THE EVENT THAT THE COMPANY
CONVERSION CONDITIONS ARE NOT SATISFIED ON THE COMPANY CONVERSION DATE, THEN THE
COMPANY CONVERSION SHALL BE NULL AND VOID WITH RESPECT TO ALL OR ANY PART
DESIGNATED BY THE HOLDER OF THE UNCONVERTED PRO RATA CONVERSION AMOUNT AND THE
HOLDER SHALL BE ENTITLED TO ALL THE RIGHTS OF A HOLDER OF THIS NOTE WITH RESPECT
TO SUCH AMOUNT OF THE PRO RATA CONVERSION AMOUNT AND, ACCORDINGLY, SHALL BE
SUBJECT TO ALL THE OTHER PROVISIONS OF THIS NOTE, INCLUDING THAT IF SUCH AMOUNT
REMAINS OUTSTANDING ON THE MATURITY DATE, THEN THE COMPANY SHALL REPAY THE
PRINCIPAL REPRESENTED BY SUCH AMOUNT IN ACCORDANCE WITH SECTION 4(C)(VII). 
NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, NO COMPANY CONVERSION
NOTICE SHALL CONTAIN ANY MATERIAL NON-PUBLIC INFORMATION.

 

10.           RIGHT OF FIRST REFUSAL.

 

(A)           THE COMPANY HEREBY GRANTS TO THE HOLDER A RIGHT OF FIRST REFUSAL
TO PURCHASE ANY NEW SECURITIES THAT THE COMPANY MAY, FROM TIME TO TIME, PROPOSE
TO ISSUE AND SELL; PROVIDED, HOWEVER, THAT AT THE TIME OF ANY SUCH OFFER OR SALE
THE HOLDER SHALL QUALIFY AS AN “ACCREDITED INVESTOR” AS THAT TERM IS DEFINED IN
RULE 501(A) OF THE 1933 ACT.  SUCH RIGHT OF FIRST REFUSAL SHALL ALLOW THE HOLDER
TO PURCHASE PRO RATA AMONG SUCH OTHER HOLDERS OF THE NOTES SO ELECTING TO
PURCHASE THE NEW SECURITIES (DETERMINED IMMEDIATELY PRIOR TO SUCH ISSUANCE AND
SALE OF NEW SECURITIES AND BASED UPON EACH HOLDER’S ALLOCATION PERCENTAGE)
PROPOSED TO BE ISSUED.  IN THE EVENT A HOLDER OF THE NOTES DOES NOT PURCHASE ANY
OR ALL OF ITS PRO RATA PORTION OF NEW SECURITIES, EACH OF THE REMAINING HOLDERS
OF THE NOTES SHALL HAVE THE RIGHT TO PURCHASE ITS PRO RATA PORTION (DETERMINED
AT SUCH TIME) OF SUCH UNPURCHASED NEW SECURITIES UNTIL ALL OF THE NEW SECURITIES
ARE PURCHASED, OR UNTIL NO OTHER HOLDER OF THE NOTES DESIRES TO PURCHASE ANY
ADDITIONAL NEW SECURITIES, IN WHICH CASE THE COMPANY MAY SELL SUCH UNPURCHASED
NEW SECURITIES TO PROSPECTIVE PURCHASERS ON THE TERMS DESCRIBED IN THE NEW ISSUE
NOTICE (AS DEFINED BELOW) FOR A PERIOD OF SEVENTY-FIVE (75) DAYS, BUT THEREAFTER
MAY SELL ADDITIONAL NEW SECURITIES ONLY AFTER DELIVERING ANOTHER NEW ISSUE
NOTICE AS DESCRIBED HEREIN.  THE RIGHT OF FIRST REFUSAL GRANTED HEREUNDER SHALL
TERMINATE IF UNEXERCISED WITHIN FIFTEEN (15) BUSINESS DAYS AFTER RECEIPT OF THE

 

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New Issue Notice.  Notwithstanding anything contained herein to the contrary, no
New Issue Notice shall contain any material non-public information.

 

(B)           IN THE EVENT THAT THE COMPANY PROPOSES TO UNDERTAKE AN ISSUANCE OF
NEW SECURITIES, IT SHALL GIVE THE HOLDER WRITTEN NOTICE OF ITS INTENTION (THE
“NEW ISSUE NOTICE”), DESCRIBING THE CLASS AND NUMBER OF SECURITIES IT INTENDS TO
ISSUE AS NEW SECURITIES, THE PURCHASE PRICE THEREFOR (WHICH SHALL BE PAYABLE
SOLELY IN CASH) AND THE TERMS UPON WHICH THE COMPANY PROPOSES TO ISSUE THE
SAME.  EACH HOLDER OF NOTES SHALL HAVE FIFTEEN (15) BUSINESS DAYS FROM THE DATE
OF ITS RECEIPT OF THE NEW ISSUE NOTICE TO ELECT TO PURCHASE ALL OR ANY PORTION
OF SUCH HOLDER’S PRO RATA PORTION OF SUCH NEW SECURITIES (CALCULATED AS
DESCRIBED IN SECTION 9(A)) FOR THE PURCHASE PRICE AND UPON THE TERMS SPECIFIED
IN THE NEW ISSUE NOTICE BY GIVING WRITTEN NOTICE TO THE COMPANY, STATING THEREIN
THE QUANTITY OF NEW SECURITIES TO BE PURCHASED.

 

11.           COVENANTS.

 

(A)           CORPORATE EXISTENCE.  FROM THE ISSUANCE DATE AND FOR SO LONG AS
ANY OF THE NOTES ARE OUTSTANDING, THE COMPANY SHALL, AND SHALL CAUSE EACH OF ITS
SUBSIDIARIES TO (I) CONDUCT ITS OPERATIONS IN THE ORDINARY COURSE OF BUSINESS
CONSISTENT WITH PAST PRACTICE, (II) MAINTAIN ITS CORPORATE EXISTENCE AND
(III) MAINTAIN AND PROTECT ALL MATERIAL INTELLECTUAL PROPERTY USED IN THE
BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES.

 

(B)           RESERVATION OF SHARES.

 

(I)            THE COMPANY SHALL, SO LONG AS ANY OF THE NOTES OR WARRANTS ARE
OUTSTANDING, TAKE ALL ACTION NECESSARY TO RESERVE AND KEEP AVAILABLE OUT OF ITS
AUTHORIZED AND UNISSUED COMMON STOCK, SOLELY FOR THE PURPOSE OF EFFECTING THE
CONVERSION OF THE NOTES AND THE EXERCISE OF THE WARRANTS, SUCH NUMBER OF SHARES
AS SHALL FROM TIME TO TIME BE SUFFICIENT TO EFFECT THE CONVERSION OF ALL OF THE
PRINCIPAL AMOUNT THEN OUTSTANDING UNDER THE NOTES (TOGETHER WITH ACCRUED AND
UNPAID INTEREST THEREON) AND THE EXERCISE OF ALL THEN OUTSTANDING WARRANTS;
PROVIDED THAT THE NUMBER OF SHARES SO RESERVED SHALL AT NO TIME BE LESS THAN
200% OF THE NUMBER OF SHARES FOR WHICH THE NOTES ARE AT ANY TIME CONVERTIBLE AND
150% OF THE NUMBER OF SHARES FOR WHICH THE WARRANTS ARE AT ANY TIME EXERCISABLE
(WITHOUT REGARD TO ANY LIMITATIONS ON CONVERSIONS OR EXERCISES) (THE “REQUIRED
RESERVE AMOUNT”).  THE INITIAL NUMBER OF SHARES RESERVED FOR CONVERSIONS OF THE
NOTES AND EXERCISES OF THE WARRANTS AND EACH INCREASE IN THE NUMBER OF SHARES SO
RESERVED SHALL BE ALLOCATED PRO RATA AMONG THE HOLDERS OF THE NOTES OR HOLDERS
OF THE WARRANTS, AS APPLICABLE, BASED ON THE PRINCIPAL AMOUNT OF THE NOTES HELD
BY EACH HOLDER AT THE TIME OF ISSUANCE OF THE NOTES (OR, IN THE CASE OF THE
WARRANTS, THE NUMBER OF WARRANTS THEN HELD BY EACH HOLDER OF THE WARRANTS) OR
INCREASE IN THE NUMBER OF RESERVED SHARES, AS THE CASE MAY BE.  IN THE EVENT THE
HOLDER (OR ANY HOLDER OF THE WARRANTS) SHALL SELL OR OTHERWISE TRANSFER ANY
PORTION OF THE HOLDER’S NOTES (OR ANY PORTION OF SUCH HOLDER’S WARRANTS), EACH
TRANSFEREE SHALL BE ALLOCATED A PRO RATA PORTION OF THE NUMBER OF SHARES
RESERVED FOR SUCH TRANSFEROR.  ANY SHARES RESERVED AND ALLOCATED TO ANY PERSON
THAT CEASES TO HOLD ANY NOTES OR ANY WARRANTS, AS APPLICABLE, SHALL BE ALLOCATED
TO THE REMAINING HOLDERS OF THE NOTES (OR IN THE CASE OF THE WARRANTS, THE
REMAINING HOLDERS OF THE WARRANTS), PRO RATA BASED ON THE PRINCIPAL AMOUNT OF
THE NOTES (OR IN THE CASE OF THE WARRANTS, THE NUMBER OF WARRANTS) THEN HELD BY
SUCH HOLDERS.

 

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(II)           INSUFFICIENT AUTHORIZED SHARES.  IF AT ANY TIME WHILE ANY OF THE
NOTES REMAIN OUTSTANDING THE COMPANY DOES NOT HAVE A SUFFICIENT NUMBER OF
AUTHORIZED AND UNRESERVED SHARES TO SATISFY ITS OBLIGATION TO RESERVE FOR
ISSUANCE UPON CONVERSION OF THE NOTES OR EXERCISE OF THE WARRANTS AT LEAST A
NUMBER OF SHARES EQUAL TO THE REQUIRED RESERVE AMOUNT, THEN THE COMPANY SHALL
IMMEDIATELY TAKE ALL ACTION NECESSARY TO INCREASE THE COMPANY’S AUTHORIZED
SHARES TO AN AMOUNT SUFFICIENT TO ALLOW THE COMPANY TO RESERVE THE REQUIRED
RESERVE AMOUNT FOR THE NOTES AND THE WARRANTS THEN OUTSTANDING.

 

(C)           LIMITATIONS ON INDEBTEDNESS; LIENS.  FROM THE ISSUANCE DATE AND
FOR SO LONG AS ANY OF THE NOTES ARE OUTSTANDING, SUBJECT IN ALL RESPECTS TO THE
PROVISIONS OF SECTION 11(P) HEREOF, THE COMPANY SHALL NOT, AND SHALL NOT PERMIT
ANY OF ITS SUBSIDIARIES TO, (A) ISSUE, INCUR, ASSUME, MAINTAIN, SUFFER TO EXIST
OR EXTEND THE TERM OF ANY INDEBTEDNESS, EXCEPT FOR (I) INDEBTEDNESS UNDER THE
NOTES, (II) INDEBTEDNESS (A) THE HOLDERS OF WHICH AGREE IN WRITING TO BE
SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENTS TO THE NOTES ON TERMS AND CONDITIONS
ACCEPTABLE TO THE PURCHASERS, INCLUDING EXPRESSLY AGREEING NOT TO TAKE, DEMAND
OR RECEIVE FROM THE COMPANY, ANY PAYMENT OF (WHETHER AS PRINCIPAL, INTEREST OR
ANY OTHER AMOUNT) OR SECURITY FOR THE WHOLE OR ANY PART OF SUCH INDEBTEDNESS,
INCLUDING ANY LETTER OF CREDIT OR SIMILAR CREDIT SUPPORT FACILITY TO SUPPORT THE
PAYMENT THEREOF, (B) WHICH DOES NOT MATURE OR OTHERWISE REQUIRE OR PERMIT
REDEMPTION OR REPAYMENT PRIOR TO OR ON THE FIRST ANNIVERSARY OF THE MATURITY
DATE, AND (C) WHICH IS NOT SECURED BY ANY OF THE ASSETS OF THE COMPANY OR ANY OF
ITS SUBSIDIARIES (“PERMITTED SUBORDINATED INDEBTEDNESS”) IN AN AMOUNT NOT TO
EXCEED $10,000,000 (IT BEING UNDERSTOOD THAT FOR PURPOSES OF THIS
SECTION 11(C)(II), A GUARANTY, WHICH IS EXPRESSLY SUBORDINATE AND JUNIOR IN
RIGHT OF PAYMENTS TO THE NOTES, BY ANY GUARANTOR OF ANY PERMITTED SUBORDINATED
INDEBTEDNESS OF THE COMPANY SHALL NOT BE INCLUDED IN THE CALCULATION OF THE
MAXIMUM AMOUNT OF PERMITTED SUBORDINATED INDEBTEDNESS PERMITTED UNDER THIS
SECTION 11(C)(II)), (III) THE TWO SUBSEQUENT PAYMENTS (AS DEFINED IN THE
EUROSILICONE AGREEMENT) DUE UNDER THE EUROSILICONE AGREEMENT, (IV) THE PRINCIPAL
DUE UNDER THAT CERTAIN LOAN AGREEMENT DATED SEPTEMBER 10, 2004, BY AND BETWEEN
BNP PARIBAS AND ES HOLDINGS SAS, A SUBSIDIARY OF THE COMPANY; PROVIDED SUCH
AGREEMENT IS NOT AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED ON OR AFTER THE
ISSUANCE DATE (THE “BNP FACILITY”), (V) THE SUBORDINATED NOTES OR
(VI) INDEBTEDNESS OF A SUBSIDIARY TO THE COMPANY OR ANY OTHER SUBSIDIARY
PERMITTED BY SECTION 11(E); (B) ISSUE ANY CAPITAL STOCK OF THE COMPANY OR ANY
SUBSIDIARY REDEEMABLE PRIOR TO OR ON THE ONE-YEAR ANNIVERSARY OF THE MATURITY
DATE OF ANY NOTES THEN OUTSTANDING; (C) DIRECTLY OR INDIRECTLY, CREATE, ASSUME
OR SUFFER TO EXIST ANY LIEN ON ANY ASSET NOW OWNED OR HEREAFTER ACQUIRED BY THE
COMPANY OR ANY OF ITS SUBSIDIARIES OTHER THAN A PERMITTED LIEN, OR (D) REDEEM,
RETIRE, DEFEASE OR OTHERWISE REPAY OR PREPAY IN CASH ANY PRINCIPAL OF ANY
INDEBTEDNESS (OTHER THAN INDEBTEDNESS UNDER THE NOTES, PRINCIPAL DUE UNDER THE
BNP FACILITY OR THE TWO SUBSEQUENT PAYMENTS DUE UNDER THE EUROSILICONE
AGREEMENT).  THE PROVISIONS OF THIS SECTION 11(C) ARE IN FURTHERANCE OF
SECTION 11(P) HEREOF, AND IN NO WAY LIMIT THE OTHER RESTRICTIONS ON OR
OBLIGATIONS OF THE COMPANY PURSUANT THERETO OR OTHERWISE.

 

(D)           RESTRICTIONS ON ISSUANCE OF SECURITIES.  FROM THE DATE HEREOF AND
FOR SO LONG AS ANY OF THE NOTES OR WARRANTS ARE OUTSTANDING, THE COMPANY SHALL
NOT IN ANY MANNER ISSUE OR SELL ANY OPTIONS OR CONVERTIBLE SECURITIES THAT ARE
CONVERTIBLE INTO OR EXCHANGEABLE OR EXERCISABLE FOR SHARES OF COMMON STOCK OTHER
THAN EXEMPTED ISSUANCES.

 

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(E)           RESTRICTION ON LOANS; INVESTMENTS; SUBSIDIARY EQUITY.  FROM THE
ISSUANCE DATE AND FOR SO LONG AS ANY OF THE NOTES ARE OUTSTANDING, THE COMPANY
SHALL NOT, AND SHALL NOT PERMIT ANY OF ITS SUBSIDIARIES TO, (I) EXCEPT FOR
PERMITTED INVESTMENTS (AS DEFINED BELOW), MAKE ANY LOANS TO, OR INVESTMENTS IN,
ANY OTHER PERSON, INCLUDING THROUGH LENDING MONEY, DEFERRING THE PURCHASE PRICE
OF PROPERTY OR SERVICES (OTHER THAN TRADE ACCOUNTS RECEIVABLE ON TERMS OF NINETY
(90) DAYS OR LESS), PURCHASING ANY NOTE, BOND, DEBENTURE OR SIMILAR INSTRUMENT,
PROVIDING ANY LETTER OF CREDIT, GUARANTEEING (OR TAKING ANY ACTION THAT HAS THE
EFFECT OF GUARANTEEING) ANY OBLIGATIONS OF ANY OTHER PERSON, OR ACQUIRING ANY
EQUITY SECURITIES OF, OR OTHER OWNERSHIP INTEREST IN, OR MAKING ANY CAPITAL
CONTRIBUTION TO ANY OTHER PERSON (PROVIDED, HOWEVER, THAT THE COMPANY AND ITS
SUBSIDIARIES MAY MAKE INVESTMENTS IN ANY DOMESTIC SUBSIDIARY; AND PROVIDED THAT
THE COMPANY AND ANY DOMESTIC SUBSIDIARY MAY MAKE INVESTMENTS IN ANY FOREIGN
SUBSIDIARY; PROVIDED FURTHER, THAT ANY INVESTMENTS IN A FOREIGN SUBSIDIARY SHALL
BE IN THE FORM OF DEBT SECURITIES THAT ARE UNSUBORDINATED (EXCEPT WITH RESPECT
TO THE NOTES) TO THE MAXIMUM EXTENT POSSIBLE), (II) ISSUE, TRANSFER OR PLEDGE
ANY CAPITAL STOCK OR EQUITY INTEREST IN ANY SUBSIDIARY TO ANY PERSON OTHER THAN
THE COMPANY, ANY DOMESTIC SUBSIDIARY OR ANY WHOLLY-OWNED FOREIGN SUBSIDIARY OR
(III) PERMIT ANY FOREIGN SUBSIDIARY OTHER THAN INTEGRATED INTERNATIONAL
INCORPORATED TO OWN, DIRECTLY OR INDIRECTLY, ANY CAPITAL STOCK OF, OR EQUITY
INTEREST IN, A DOMESTIC SUBSIDIARY.  “PERMITTED INVESTMENTS” MEANS
(A) MARKETABLE DIRECT OBLIGATIONS ISSUED BY, OR UNCONDITIONALLY GUARANTEED BY,
THE UNITED STATES OR ISSUED BY ANY AGENCY THEREOF AND BACKED BY THE FULL FAITH
AND CREDIT OF THE UNITED STATES, IN EACH CASE MATURING WITHIN 180 DAYS FROM THE
DATE OF ACQUISITION; (B) CERTIFICATES OF DEPOSIT, TIME DEPOSITS, EURODOLLAR TIME
DEPOSITS OR OVERNIGHT BANK DEPOSITS HAVING MATURITIES OF SIX MONTHS OR LESS FROM
THE DATE OF ACQUISITION ISSUED BY ANY COMMERCIAL BANK ORGANIZED UNDER THE LAWS
OF THE UNITED STATES OR ANY STATE THEREOF HAVING COMBINED CAPITAL AND SURPLUS OF
NOT LESS THAN $500,000,000; (C) COMMERCIAL PAPER OF AN ISSUER RATED AT LEAST A-1
BY STANDARD & POOR’S RATINGS SERVICES (“S&P”) OR P-1 BY MOODY’S INVESTORS
SERVICE, INC. (“MOODY’S”), OR CARRYING AN EQUIVALENT RATING BY A NATIONALLY
RECOGNIZED RATING AGENCY, IF BOTH OF THE TWO NAMED RATING AGENCIES CEASE
PUBLISHING RATINGS OF COMMERCIAL PAPER ISSUERS GENERALLY, AND MATURING WITHIN
SIX MONTHS FROM THE DATE OF ACQUISITION; (D) REPURCHASE OBLIGATIONS OF ANY
COMMERCIAL BANK SATISFYING THE REQUIREMENTS OF CLAUSE (B) OF THIS DEFINITION,
HAVING A TERM OF NOT MORE THAN 30 DAYS, WITH RESPECT TO SECURITIES ISSUED OR
FULLY GUARANTEED OR INSURED BY THE UNITED STATES; (E) SECURITIES WITH MATURITIES
OF 180 DAYS OR LESS FROM THE DATE OF ACQUISITION ISSUED OR FULLY GUARANTEED BY
ANY STATE, COMMONWEALTH OR TERRITORY OF THE UNITED STATES, BY ANY POLITICAL
SUBDIVISION OR TAXING AUTHORITY OF ANY SUCH STATE, COMMONWEALTH OR TERRITORY OR
BY ANY FOREIGN GOVERNMENT, THE SECURITIES OF WHICH STATE, COMMONWEALTH,
TERRITORY, POLITICAL SUBDIVISION, TAXING AUTHORITY OR FOREIGN GOVERNMENT (AS THE
CASE MAY BE) ARE RATED AT LEAST AA BY S&P OR AA BY MOODY’S; (F) SECURITIES WITH
MATURITIES OF SIX MONTHS OR LESS FROM THE DATE OF ACQUISITION BACKED BY STANDBY
LETTERS OF CREDIT ISSUED BY ANY COMMERCIAL BANK SATISFYING THE REQUIREMENTS OF
CLAUSE (B) OF THIS DEFINITION; OR (G) SHARES OF MONEY MARKET MUTUAL OR SIMILAR
FUNDS WHICH INVEST EXCLUSIVELY IN ASSETS SATISFYING THE REQUIREMENTS OF CLAUSES
(A) THROUGH (F) OF THIS DEFINITION OR MONEY MARKET FUNDS THAT ( I) COMPLY WITH
THE CRITERIA SET FORTH IN SECURITIES AND EXCHANGE COMMISSION RULE 2A-7 UNDER THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED, (II) ARE RATED AAA BY S&P AND AAA BY
MOODY’S AND (III) HAVE PORTFOLIO ASSETS OF AT LEAST $5,000,000,000.

 

(F)            RESTRICTION ON PURCHASES OR PAYMENTS.  FROM THE ISSUANCE DATE AND
FOR SO LONG AS ANY OF THE NOTES ARE OUTSTANDING, THE COMPANY SHALL NOT, AND
SHALL NOT PERMIT ANY OF ITS SUBSIDIARIES TO, (I) DECLARE, SET ASIDE OR PAY ANY
DIVIDENDS ON OR MAKE ANY OTHER

 

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distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock or set any record date with respect to any
of the foregoing; provided, however, that any Subsidiary may declare, set aside
or pay any dividends on or make any other distributions (whether in cash, stock,
equity securities or property) in respect of any of its capital stock that is
held solely by the Company or by a Subsidiary, (ii) purchase, redeem or
otherwise acquire, directly or indirectly, any shares of the Company’s capital
stock or the capital stock of any of its Subsidiaries, except as long as no
Event of Default has occurred and is continuing, repurchases of unvested shares
at cost in connection with the termination of the employment relationship with
any employee pursuant to stock option or purchase agreements in effect on the
Issuance Date and set forth on Schedule 3(c) to the Securities Purchase
Agreement or (iii) grant, issue or sell any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to the
record holders of any class of its capital stock.  From the Issuance Date and
for so long as any of the Notes or Warrants are outstanding, the Company and its
Subsidiaries shall not enter into any agreement which would limit or restrict
the Company’s or any of its Subsidiaries’ ability to perform under, or take any
other voluntary action to avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed by it under, this Note, the
Securities Purchase Agreement, the Registration Rights Agreement, the Warrants
and the Guarantee and Collateral Agreement.

 

(G)           RESTRICTIONS ON CAPITAL EXPENDITURES.  FROM THE ISSUANCE DATE AND
FOR SO LONG AS ANY OF THE NOTES ARE OUTSTANDING, THE COMPANY AND ITS
SUBSIDIARIES SHALL NOT AUTHORIZE OR MAKE ANY CAPITAL EXPENDITURES IN EXCESS OF
$500,000 PER YEAR IN THE AGGREGATE.

 

(H)           DISPOSITION OF ASSETS.  FROM THE ISSUANCE DATE AND FOR SO LONG AS
ANY OF THE NOTES ARE OUTSTANDING, THE COMPANY SHALL NOT, AND SHALL NOT CAUSE OR
PERMIT ANY OF ITS SUBSIDIARIES TO, SELL, TRANSFER, ASSIGN, DISPOSE, CONSIGN,
LEASE OR REMOVE FROM THEIR RESPECTIVE BUSINESS LOCATIONS ANY PROPERTY OR ASSETS
EXCEPT THAT, UNTIL THE HOLDERS OF AT LEAST A MAJORITY OF THE NOTES THEN
OUTSTANDING GIVE THE COMPANY NOTICE TO THE CONTRARY DURING THE EXISTENCE OF ANY
EVENT OF DEFAULT IN THE CASE OF CLAUSES (II) AND (III) BELOW, THE COMPANY OR ANY
SUBSIDIARY MAY (I) SELL INVENTORY IN THE ORDINARY COURSE OF ITS BUSINESS
CONSISTENT WITH PAST PRACTICE (ANY SALE OR EXCHANGE OF INVENTORY IN SATISFACTION
OF INDEBTEDNESS OF THE COMPANY OR ANY SUBSIDIARY SHALL NOT BE DEEMED A SALE OF
INVENTORY IN THE ORDINARY COURSE OF BUSINESS); (II) SELL OR DISPOSE OF OBSOLETE
ASSETS WHICH THE COMPANY OR SUCH SUBSIDIARY HAS DETERMINED, IN GOOD FAITH, NOT
TO BE USEFUL IN THE CONDUCT OF ITS BUSINESS AND WHICH, IN ANY FISCAL YEAR, DO
NOT HAVE AN AGGREGATE FAIR MARKET VALUE IN EXCESS OF $50,000 (WITH RESPECT TO
SUCH SALES OR DISPOSITIONS BY THE COMPANY AND ITS SUBSIDIARIES IN THE
AGGREGATE); AND (III) SELL OR DISPOSE OF ACCOUNTS IN THE COURSE OF COLLECTION IN
THE ORDINARY COURSE OF BUSINESS CONSISTENT WITH PAST PRACTICE.

 

(I)            MERGERS, CONSOLIDATIONS, ACQUISITIONS.  IN ADDITION TO THE OTHER
RIGHTS THE HOLDER HAS HEREUNDER, FROM THE ISSUANCE DATE AND FOR SO LONG AS ANY
OF THE NOTES ARE OUTSTANDING, THE COMPANY SHALL NOT SELL ALL OR SUBSTANTIALLY
ALL OF THE ASSETS OF THE COMPANY (INCLUDING, FOR THE AVOIDANCE OF ANY DOUBT, ALL
OR SUBSTANTIALLY ALL OF THE ASSETS OF THE COMPANY’S SUBSIDIARIES IN THE
AGGREGATE), EXCEPT IN THE EVENT OF AN ORGANIC CHANGE WHERE (X) THE ACQUIRING
ENTITY (A) ASSUMES THE COMPANY’S OBLIGATIONS HEREUNDER AND UNDER THE AGREEMENTS
AND INSTRUMENTS ENTERED INTO IN CONNECTION HEREWITH AND (B) IS A PUBLICLY TRADED
CORPORATION WHOSE

 

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common stock is quoted on or listed for trading on the American Stock Exchange
or another nationally recognized stock exchange or the NASDAQ National Market
(or a successor thereto), and (y) immediately before and immediately after
giving effect to such transaction, no Triggering Event or Event of Default shall
have occurred and be continuing.

 

(J)            AFFILIATE TRANSACTIONS.  FROM ISSUANCE DATE AND FOR SO LONG AS
ANY OF THE NOTES ARE OUTSTANDING, THE COMPANY SHALL NOT, AND SHALL CAUSE EACH OF
ITS SUBSIDIARIES NOT TO, ENTER INTO OR BE A PARTY TO ANY AGREEMENT OR
TRANSACTION WITH ANY AFFILIATE (OTHER THAN A WHOLLY-OWNED SUBSIDIARY), INCLUDING
TRANSFER OF ANY ASSETS TO ANY SUCH AFFILIATE, EXCEPT IN THE ORDINARY COURSE OF
THE COMPANY OR SUCH AFFILIATE’S BUSINESS AND UPON FAIR AND REASONABLE TERMS THAT
ARE NO LESS FAVORABLE TO THE COMPANY OR SUCH AFFILIATE, AS THE CASE MAY BE, THAN
SUCH PERSON WOULD OBTAIN IN A COMPARABLE ARMS’-LENGTH TRANSACTION WITH A PERSON
NOT AN AFFILIATE OF THE COMPANY, AND ON TERMS CONSISTENT WITH THE BUSINESS
RELATIONSHIP OF THE COMPANY OR SUCH SUBSIDIARY AND SUCH AFFILIATE PRIOR TO THE
DATE OF THIS NOTE, IF ANY.

 

(K)           SEC FILINGS.  FROM THE ISSUANCE DATE AND FOR SO LONG AS ANY OF THE
NOTES OR WARRANTS ARE OUTSTANDING, (I) THE COMPANY SHALL TIMELY FILE WITH THE
SEC, WITHIN THE TIME PERIODS SPECIFIED IN THE SEC’S RULES AND REGULATIONS, ALL
QUARTERLY AND ANNUAL FINANCIAL INFORMATION REQUIRED TO BE FILED WITH THE SEC ON
FORMS 10-Q OR 10-QSB AND 10-K OR 10-KSB, ALL CURRENT REPORTS REQUIRED TO BE
FILED WITH THE SEC ON FORM 8-K AND ANY OTHER INFORMATION REQUIRED TO BE FILED
WITH THE SEC; (II) 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 OTHERWISE PERMIT SUCH TERMINATION AND
(III) THE COMPANY SHALL DELIVER (A) COPIES OF ALL SUCH FILINGS WITH THE SEC TO
EACH HOLDER OF NOTES THEN OUTSTANDING WITHIN ONE (1) DAY AFTER THE FILING
THEREOF WITH THE SEC, UNLESS THE FOREGOING ARE FILED WITH THE SEC THROUGH EDGAR
AND ARE IMMEDIATELY AVAILABLE TO THE PUBLIC THROUGH EDGAR AND (B) FACSIMILE
COPIES OF ALL PRESS RELEASES ISSUED BY THE COMPANY OR ANY OF ITS SUBSIDIARIES ON
THE SAME DAY AS THE RELEASE THEREOF, EXCEPT TO THE EXTENT ANY SUCH RELEASE IS
AVAILABLE THROUGH BLOOMBERG FINANCIAL MARKETS (OR ANY SUCCESSOR THERETO)
CONTEMPORANEOUSLY WITH SUCH ISSUANCE.

 

(L)            COMPLIANCE WITH LAWS.  FROM THE ISSUANCE DATE AND FOR SO LONG AS
ANY OF THE NOTES ARE OUTSTANDING, THE COMPANY WILL COMPLY, AND CAUSE EACH
SUBSIDIARY TO COMPLY, IN ALL MATERIAL RESPECTS WITH ALL APPLICABLE LAWS,
ORDINANCES, RULES, REGULATIONS AND REQUIREMENTS OF GOVERNMENTAL AUTHORITIES
(INCLUDING ERISA AND THE RULES AND REGULATIONS THEREUNDER AND ALL ENVIRONMENTAL
LAWS) EXCEPT WHERE THE NECESSITY OF COMPLIANCE THEREWITH IS CONTESTED IN GOOD
FAITH BY APPROPRIATE PROCEEDINGS DILIGENTLY CONDUCTED.

 

(M)          MAINTENANCE OF ASSETS; INSURANCE.  FROM THE ISSUANCE DATE AND FOR
SO LONG AS ANY OF THE NOTES ARE OUTSTANDING, THE COMPANY WILL KEEP, AND WILL
CAUSE EACH SUBSIDIARY TO KEEP, ALL ASSETS USEFUL AND NECESSARY IN ITS BUSINESS
IN GOOD WORKING ORDER AND CONDITION, ORDINARY WEAR AND TEAR EXCEPTED; WILL
MAINTAIN, AND WILL CAUSE EACH SUBSIDIARY TO MAINTAIN (EITHER IN THE NAME OF THE
COMPANY OR IN SUCH SUBSIDIARY’S OWN NAME), WITH FINANCIALLY SOUND AND REPUTABLE
INSURANCE COMPANIES, PRODUCT LIABILITY INSURANCE AND INSURANCE ON ALL THEIR
ASSETS IN AT LEAST SUCH AMOUNTS AND AGAINST AT LEAST SUCH RISKS AS ARE USUALLY
INSURED AGAINST IN THE SAME GENERAL AREA BY COMPANIES OF ESTABLISHED REPUTE
ENGAGED IN THE SAME OR A SIMILAR BUSINESS; AND WILL FURNISH TO THE HOLDERS OF
THE NOTES, UPON REASONABLE WRITTEN REQUEST FROM THE COLLATERAL AGENT, FULL
INFORMATION AS TO THE INSURANCE CARRIED.

 

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(N)           PAYMENT OF TAXES.  FROM THE ISSUANCE DATE AND FOR SO LONG AS ANY
OF THE NOTES ARE OUTSTANDING, THE COMPANY WILL, AND WILL CAUSE EACH OF ITS
SUBSIDIARIES TO, PAY AND DISCHARGE, BEFORE THE SAME SHALL BECOME DELINQUENT, ALL
INCOME AND ALL OTHER MATERIAL TAXES, ASSESSMENTS AND OTHER GOVERNMENTAL CHARGES
OR LEVIES, IMPOSED UPON THEM OR ANY OF THEIR PROPERTIES OR ASSETS OR IN RESPECT
OF THEIR BUSINESSES OR INCOMES EXCEPT FOR THOSE BEING CONTESTED IN GOOD FAITH BY
PROPER PROCEEDINGS DILIGENTLY CONDUCTED AND AGAINST WHICH ADEQUATE RESERVES, IN
ACCORDANCE WITH GAAP, HAVE BEEN ESTABLISHED.

 

(O)           USE OF PROCEEDS.  THE COMPANY WILL ONLY USE THE PROCEEDS FROM THE
SALE OF THE OF THE NOTES AND THE WARRANTS AS FOLLOWS: (X) THE U.S. DOLLAR
EQUIVALENT OF £15,000,000 OF SUCH PROCEEDS TO FUND THE COMPANY’S ACQUISITIONS OF
BIOSIL LIMITED AND NAGOR LIMITED PURSUANT TO THE SHARE PURCHASE AGREEMENT AND
(II) TO PAY EXPENSES AND COMMISSIONS RELATED TO THE SALE OF THE NOTES AND THE
WARRANTS AND (Y) THE BALANCE OF THE NET PROCEEDS FOR GENERAL CORPORATE PURPOSES
INCLUDING WORKING CAPITAL, IN EACH CASE AS MORE SPECIFICALLY DESCRIBED AND IN
THE AMOUNTS INDICATED IN SCHEDULE 4(D) TO THE SECURITIES PURCHASE AGREEMENT. 
SUCH PROCEEDS SHALL BE HELD IN THE COMPANY’S ACCOUNT ESTABLISHED WITH UBS
FINANCIAL SERVICES INC. WITH THE ACCOUNT NUMBER MO-28570-54 UNTIL USED BY THE
COMPANY IN ACCORDANCE WITH THE TERMS OF THIS SECTION 11(O).

 

(P)           OTHER INDEBTEDNESS.  PAYMENTS OF PRINCIPAL AND OTHER PAYMENTS DUE
UNDER THIS NOTE SHALL NOT BE SUBORDINATED TO ANY OBLIGATIONS OF THE COMPANY AND
SHALL RANK SENIOR TO ALL OTHER INDEBTEDNESS OTHER THAN (I) PAYMENTS OF
(A) PRINCIPAL AND INTEREST DUE UNDER THE BNP FACILITY AND (B) THE TWO SUBSEQUENT
PAYMENTS (AS DEFINED IN THE EUROSILICONE AGREEMENT) DUE UNDER THE EUROSILICONE
AGREEMENT; PROVIDED, HOWEVER, THAT THE AGGREGATE AMOUNT OF ALL SUCH PAYMENTS
SHALL NOT EXCEED €16,400,000 AND (II) TRADE ACCOUNTS PAYABLE OF THE COMPANY AND
OTHER INDEBTEDNESS THAT, IN EACH CASE, IS PREFERRED BY OPERATION OF LAW.  THE
COMPANY WILL NOT (X) AMEND, SUPPLEMENT, MODIFY OR WAIVE ANY COMPLIANCE WITH
EITHER THE SUBORDINATED SIRIUS NOTE OR THE SUBORDINATED INTEGRATED NOTE OR (Y)
PERMIT THE ASSIGNMENT OR TRANSFER OF SOME OR ALL OF THE RIGHTS UNDER EITHER THE
SUBORDINATED SIRIUS NOTE OR THE SUBORDINATED INTEGRATED NOTE WITHOUT THE PRIOR
WRITTEN CONSENT (WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD) OF THE
HOLDERS OF THE NOTES REPRESENTING AT LEAST A MAJORITY OF THE PRINCIPAL AMOUNT OF
ALL THE NOTES THEN OUTSTANDING.

 

(Q)           ISLE OF MAN FACILITY.  WITHIN SIXTY (60) DAYS OF THE CLOSING OF
THE COMPANY’S ACQUISITION OF NAGOR LIMITED, (I) THE COMPANY SHALL CAUSE NAGOR
LIMITED TO, AND NAGOR LIMITED SHALL, PLEDGE TO THE COLLATERAL AGENT, AND GRANT
THE COLLATERAL AGENT, IN EACH CASE FOR THE BENEFIT OF THE COLLATERAL AGENT AND
THE HOLDERS OF THE NOTES, A SECURITY INTEREST IN SUBSTANTIALLY ALL OF THE
PROPERTY AND ASSETS OF NAGOR LIMITED (INCLUDING THE FACILITY LOCATED AT GLOBAL
HOUSE, ISLE OF MAN BUSINESS PARK, COOIL ROAD, DOUGLAS IN THE ISLE OF MAN) IN
ORDER TO SECURE THE OBLIGATIONS OF THE COMPANY UNDER THE NOTES, THE SECURITIES
PURCHASE AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS AND (II) NAGOR LIMITED
SHALL EXECUTE AND DELIVER SUCH DOCUMENTS (INCLUDING CUSTOMARY LEGAL OPINIONS,
TITLE DOCUMENTS AND CERTIFICATES), CONTAINING CUSTOMARY TERMS AND PROVISIONS AND
IN FORM AND SUBSTANCE ACCEPTABLE TO THE COLLATERAL AGENT EVIDENCING SUCH PLEDGE
AND GRANT OF A SECURITY INTEREST.

 

(R)            [LOCKUP.  EXCEPT AS OTHERWISE PERMITTED UNDER SECTION 11(P), ON
THE ISSUANCE DATE, AND FOR A PERIOD OF THREE HUNDRED AND SIXTY (360) DAYS
THEREAFTER, THE

 

33

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Company shall use its commercially reasonable efforts to prevent any director or
executive officer of the Company or any Subsidiary or any Affiliate of any such
director or executive officer from (i) effecting a public sale of any Shares or
any security convertible into or exchangeable for the Shares or (ii) offering to
sell, contracting to sell, granting any option to purchase or entering into any
similar transaction with regard to the Shares or any security convertible into
or exchangeable for Shares which has the same economic effect as a sale of such
Shares. The foregoing sentence shall not apply to transactions relating to
Shares or other securities acquired in open market transactions after the
Issuance Date, bona fide gifts or the transfer of any or all Shares or other
securities owned by such persons by will or intestate succession.] (1)

 

12.           VOTING RIGHTS.  THE HOLDERS OF THE NOTES SHALL HAVE NO VOTING
RIGHTS IN RESPECT OF THE SHARES PRIOR TO CONVERSION, EXCEPT AS REQUIRED BY LAW
AND AS EXPRESSLY PROVIDED IN THIS NOTE.

 

13.           DEFAULTS AND REMEDIES.

 

(A)           EVENTS OF DEFAULT.  AN “EVENT OF DEFAULT” IS (I) DEFAULT IN
PAYMENT OF ANY PRINCIPAL OF THIS NOTE, ANY REDEMPTION PRICE OR ANY CHANGE OF
CONTROL REDEMPTION PRICE, WHEN AND AS DUE; (II) DEFAULT IN PAYMENT OF ANY
INTEREST ON THIS NOTE THAT IS NOT INCLUDED IN AN AMOUNT DESCRIBED IN THE
IMMEDIATELY PRECEDING CLAUSE (I) THAT IS NOT CURED WITHIN TWO (2) BUSINESS DAYS
FROM THE DATE SUCH INTEREST WAS DUE; (III) ANY DEFAULT IN THE OBSERVANCE OR
PERFORMANCE OF ANY COVENANT OR AGREEMENT CONTAINED IN CLAUSES (C) THROUGH (J) OF
SECTION 11; (IV) FAILURE BY THE COMPANY TO COMPLY WITH ANY OTHER PROVISION OF
THIS NOTE OR ANY OTHER TRANSACTION DOCUMENT IN ALL MATERIAL RESPECTS WITHIN TEN
(10) DAYS AFTER THE EARLIER OF (X) THE COMPANY’S RECEIPT OF NOTICE TO COMPLY
WITH SUCH PROVISION OR (Y) THE COMPANY BECOMING AWARE OF SUCH DEFAULT; (V) ANY
REPRESENTATION, WARRANTY, CERTIFICATION OR STATEMENT OF FACT MADE OR DEEMED MADE
BY OR ON BEHALF OF THE COMPANY IN THIS NOTE, THE SECURITIES PURCHASE AGREEMENT,
ANY TRANSACTION DOCUMENT OR IN ANY CERTIFICATE OR OTHER DOCUMENT DELIVERED
PURSUANT HERETO OR THERETO, SHALL BE INCORRECT IN ANY MATERIAL RESPECT WHEN MADE
OR DEEMED MADE; (VI) ANY DEFAULT IN PAYMENT OF AT LEAST $500,000, INDIVIDUALLY
OR IN THE AGGREGATE, UNDER OR ACCELERATION PRIOR TO MATURITY, OR ANY EVENT OR
CIRCUMSTANCES ARISING SUCH THAT, ANY PERSON IS ENTITLED, OR COULD, WITH THE
GIVING OF NOTICE AND/OR LAPSE OF TIME AND/OR THE FULFILLMENT OF ANY CONDITION
AND/OR THE MAKING OF ANY DETERMINATION, BECOME ENTITLED, TO REQUIRE REPAYMENT
BEFORE ITS STATED MATURITY OF, OR TO TAKE ANY STEP TO ENFORCE ANY SECURITY FOR,
ANY MORTGAGE, INDENTURE OR INSTRUMENT UNDER WHICH THERE MAY BE ISSUED OR BY
WHICH THERE MAY BE SECURED OR EVIDENCED ANY INDEBTEDNESS OF AT LEAST $500,000 BY
THE COMPANY OR ANY OF ITS SUBSIDIARIES, WHETHER SUCH INDEBTEDNESS NOW EXISTS OR
SHALL BE CREATED HEREAFTER; (VII) ANY OF THE TRANSACTION DOCUMENTS OR ANY
SUBORDINATION PROVISIONS IN ANY SUBORDINATED INDEBTEDNESS SHALL CEASE, FOR ANY
REASON, TO BE IN FULL FORCE AND EFFECT, OR THE COMPANY OR ANY OF ITS
SUBSIDIARIES SHALL SO ASSERT; (VIII) ANY LIEN CREATED BY ANY OF THE TRANSACTION
DOCUMENTS SHALL CEASE TO BE ENFORCEABLE AND OF THE SAME EFFECT AND PRIORITY
PURPORTED TO BE CREATED THEREBY, OR THE COMPANY OR ANY OF ITS SUBSIDIARIES SHALL
SO ASSERT (OTHER THAN IN ACCORDANCE WITH THE TRANSACTION DOCUMENTS); (IX) IF THE
COMPANY OR ANY OF ITS SUBSIDIARIES PURSUANT TO OR WITHIN THE MEANING OF ANY
BANKRUPTCY LAW (AS DEFINED BELOW); (A) 

 

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

(1)   Note to Draft:  This provision will not be included in the Promethean
Note.

 

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commences a voluntary case; (B) consents to the entry of an order for relief
against it in an involuntary case; (C) consents to the appointment of a
Custodian of it or any of its Subsidiaries for all or substantially all of its
property; (D) makes a general assignment for the benefit of its creditors; or
(E) admits in writing that it is generally unable to pay its debts as the same
become due; (x) an involuntary case or other proceeding is commenced directly
against the Company or any of its Subsidiaries seeking liquidation,
reorganization or other relief with respect to it or its Indebtedness under any
Bankruptcy Law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other Bankruptcy
Law proceeding remains undismissed and unstayed for a period of thirty (30)
days, or an order of relief is entered against the Company or any of its
Subsidiaries as debtor under the Bankruptcy Laws as are now or hereafter in
effect; or (xi) one or more judgments, non interlocutory orders or decrees shall
be entered by a U.S. state or federal or a foreign court or administrative
agency of competent jurisdiction against any the Company or any of its
Subsidiaries involving in the aggregate a liability (to the extent not covered
by independent third party insurance as to which the insurers has not denied
coverage) as to any single or related series of transactions, incidents or
conditions, of $500,000 or more, and the same shall remain unsatisfied,
unvacated, unbonded or unstayed pending appeal for a period of thirty (30) days
after the entry thereof.  The term “Bankruptcy Law” means Title 11, U.S. Code,
or any similar federal, state or foreign law for the relief of debtors.  The
term “Custodian” means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.  Within five (5) Business Days after the
occurrence of any Event of Default set forth in clause (vi), (ix), (x) or (xi)
above, the Company shall deliver written notice thereof to the Holder.

 

(B)           REMEDIES.  IF ANY EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING,
THE HOLDERS OF A MAJORITY OF THE PRINCIPAL AMOUNT OF NOTES THEN OUTSTANDING MAY,
UPON WRITTEN NOTICE TO THE COMPANY, EXCEPT IN THE CASE OF EVENTS DESCRIBED IN
SECTIONS 13(A)(IX) OR 13(A)(X), IN WHICH CASE NO NOTICE SHALL BE REQUIRED,
(I) DECLARE ALL OF THE PRINCIPAL THEN OUTSTANDING TOGETHER WITH THE INTEREST
AMOUNT WITH RESPECT TO SUCH PRINCIPAL AND ALL OTHER AMOUNTS, INCLUDING THE
AMOUNTS DUE UNDER SECTIONS 4(C)(V)(A) AND 5(B), OWING OR PAYABLE HEREUNDER AND
UNDER THE OTHER NOTES (THE “ACCELERATION AMOUNT”) IMMEDIATELY DUE AND PAYABLE,
IN CASH, ALL WITHOUT PRESENTMENT, DEMAND, PROTEST OR FURTHER ACT OR NOTICE OF
ANY KIND, ALL OF WHICH ARE EXPRESSLY WAIVED BY THE COMPANY AND (II) EXERCISE ANY
AND ALL RIGHTS AND REMEDIES AVAILABLE TO THE HOLDER OF THIS NOTE UNDER THIS
NOTE, THE SECURITIES PURCHASE AGREEMENT, AT LAW OR IN EQUITY.  IN ADDITION TO
ANY REMEDY THE HOLDER MAY HAVE UNDER THIS NOTE AND THE SECURITIES PURCHASE
AGREEMENT, SUCH ACCELERATION AMOUNT SHALL BEAR INTEREST AT A RATE EQUAL TO THE
LESSER OF 2.0% PER MONTH (PRORATED FOR PARTIAL MONTHS) OR THE HIGHEST LAWFUL
INTEREST RATE UNTIL PAID IN FULL.  NOTHING IN THIS SECTION 12 SHALL LIMIT ANY
OTHER RIGHTS THE HOLDER MAY HAVE UNDER THIS NOTE, THE SECURITY DOCUMENTS OR THE
SECURITIES PURCHASE AGREEMENT, INCLUDING SECTIONS 3 AND 4 OF THIS NOTE.

 

(C)           VOID ACCELERATION.  IN THE EVENT THAT THE COMPANY DOES NOT PAY THE
ACCELERATION AMOUNT WITHIN FIVE (5) BUSINESS DAYS OF THIS NOTE BECOMING DUE
UNDER SECTION 13(B), AT ANY TIME THEREAFTER AND UNTIL THE COMPANY PAYS SUCH
UNPAID ACCELERATION AMOUNT IN FULL, THE HOLDER SHALL HAVE THE OPTION TO, IN LIEU
OF REDEMPTION, REQUIRE THE COMPANY TO PROMPTLY RETURN THIS NOTE (TO THE EXTENT
THIS NOTE HAS BEEN PREVIOUSLY DELIVERED TO THE COMPANY), IN WHOLE OR ANY PORTION
THEREOF, TO THE HOLDER, BY SENDING WRITTEN NOTICE THEREOF TO THE COMPANY VIA
FACSIMILE (THE “VOID ACCELERATION NOTICE”).  UPON THE COMPANY’S RECEIPT OF

 

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such Void Acceleration Notice, (i) the acceleration pursuant to
Section 13(b) shall be null and void with respect to the portion of this Note
subject to such Void Acceleration Notice, (ii) the Company shall promptly return
the portion of this Note (to the extent this Note has been previously delivered
to the Company) subject to such Void Acceleration Notice and (iii) the Fixed
Conversion Price with respect to all of the Principal shall be adjusted to the
lesser of (A) the Fixed Conversion Price as in effect on the date on which the
Void Acceleration Notice is delivered to the Company and (B) the lowest Weighted
Average Price of the Common Stock during the period beginning on and including
the date on which this Note became due under Section 13(b) and ending on and
including the date on which the Void Acceleration Notice is delivered to the
Company.

 

14.           NOTICE OF CERTAIN EVENTS.  THE COMPANY WILL GIVE WRITTEN NOTICE TO
THE HOLDER AT LEAST TEN (10) BUSINESS DAYS PRIOR TO THE DATE ON WHICH THE
COMPANY CLOSES ITS BOOKS OR TAKES A RECORD (I) WITH RESPECT TO ANY DIVIDEND OR
DISTRIBUTION UPON THE COMMON STOCK, (II) WITH RESPECT TO ANY PRO RATA
SUBSCRIPTION OFFER TO HOLDERS OF COMMON STOCK OR (III) FOR DETERMINING RIGHTS TO
VOTE WITH RESPECT TO ANY ORGANIC CHANGE, DISSOLUTION OR LIQUIDATION, PROVIDED
THAT SUCH INFORMATION SHALL BE MADE KNOWN TO THE PUBLIC PRIOR TO OR IN
CONJUNCTION WITH SUCH NOTICE BEING PROVIDED TO THE HOLDER.  THE COMPANY WILL
ALSO GIVE WRITTEN NOTICE TO THE HOLDER AT LEAST TEN (10) BUSINESS DAYS PRIOR TO
THE DATE ON WHICH ANY ORGANIC CHANGE, DISSOLUTION OR LIQUIDATION WILL TAKE
PLACE, PROVIDED THAT SUCH INFORMATION SHALL BE MADE KNOWN TO THE PUBLIC PRIOR TO
OR IN CONJUNCTION WITH SUCH NOTICE BEING PROVIDED TO THE HOLDER.

 

15.           VOTE TO CHANGE THE TERMS OF THE NOTES.  THE WRITTEN CONSENT OF THE
COMPANY AND THE HOLDERS REPRESENTING AT LEAST A MAJORITY OF THE PRINCIPAL AMOUNT
THEN OUTSTANDING UNDER ALL OF THE NOTES SHALL BE REQUIRED FOR ANY CHANGE IN THE
NOTES (INCLUDING THIS NOTE) AND UPON RECEIPT OF SUCH CONSENT, EACH NOTE SHALL BE
DEEMED AMENDED THEREBY.

 

16.           LOST OR STOLEN NOTES.  UPON RECEIPT BY THE COMPANY OF EVIDENCE
REASONABLY SATISFACTORY TO THE COMPANY OF THE LOSS, THEFT, DESTRUCTION OR
MUTILATION OF THIS NOTE AND, IN THE CASE OF LOSS, THEFT OR DESTRUCTION, OF AN
INDEMNIFICATION UNDERTAKING BY THE HOLDER TO THE COMPANY IN CUSTOMARY FORM AND
REASONABLY SATISFACTORY TO THE COMPANY AND, IN THE CASE OF MUTILATION, UPON
SURRENDER AND CANCELLATION OF THIS NOTE, THE COMPANY SHALL EXECUTE AND DELIVER A
NEW NOTE OF LIKE TENOR AND DATE; PROVIDED, HOWEVER, THE COMPANY SHALL NOT BE
OBLIGATED TO RE-ISSUE A NOTE IF THE HOLDER CONTEMPORANEOUSLY REQUESTS THE
COMPANY TO CONVERT THIS NOTE IN ITS ENTIRETY INTO SHARES AS PERMITTED HEREUNDER.

 

17.           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, AT LAW OR IN EQUITY
(INCLUDING A DECREE OF SPECIFIC PERFORMANCE AND/OR OTHER INJUNCTIVE RELIEF), NO
REMEDY CONTAINED HEREIN SHALL BE DEEMED A WAIVER OF COMPLIANCE WITH THE
PROVISIONS GIVING RISE TO SUCH REMEDY 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.  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 THEREOF AND SHALL NOT,

 

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except as expressly provided herein, be subject to any other obligation of the
Company (or the performance thereof).  The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Holder and
that the remedy at law for any such breach may be inadequate.  The Company
therefore agrees that, in the event of any such breach or threatened breach, the
Holder shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.

 

18.           SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION.  NO SPECIFIC
PROVISION CONTAINED IN THIS NOTE SHALL LIMIT OR MODIFY ANY MORE GENERAL
PROVISION CONTAINED HEREIN.  THIS NOTE SHALL BE DEEMED TO BE JOINTLY DRAFTED BY
THE COMPANY AND ALL BUYERS OF NOTES PURSUANT TO THE SECURITIES PURCHASE
AGREEMENT AND SHALL NOT BE CONSTRUED AGAINST ANY PERSON AS THE DRAFTER HEREOF.

 

19.           FAILURE OR INDULGENCE NOT WAIVER.  NO FAILURE OR DELAY ON THE PART
OF THE HOLDER IN THE EXERCISE OF ANY POWER, RIGHT OR PRIVILEGE HEREUNDER SHALL
OPERATE AS A WAIVER THEREOF, NOR SHALL ANY SINGLE OR PARTIAL EXERCISE OF ANY
SUCH POWER, RIGHT OR PRIVILEGE PRECLUDE OTHER OR FURTHER EXERCISE THEREOF OR OF
ANY OTHER RIGHT, POWER OR PRIVILEGE.

 

20.           NOTICE.  ANY NOTICES, CONSENTS, WAIVERS OR OTHER COMMUNICATIONS
REQUIRED OR PERMITTED TO BE GIVEN UNDER THE TERMS OF THIS NOTE MUST BE IN
WRITING AND WILL BE DEEMED TO HAVE BEEN DELIVERED:  (I) UPON RECEIPT, WHEN
DELIVERED PERSONALLY; (II) UPON RECEIPT, WHEN SENT BY FACSIMILE (PROVIDED
CONFIRMATION OF TRANSMISSION IS MECHANICALLY OR ELECTRONICALLY GENERATED AND
KEPT ON FILE BY THE SENDING PARTY); OR (III) ONE (1) BUSINESS DAY AFTER DEPOSIT
WITH A NATIONALLY RECOGNIZED OVERNIGHT DELIVERY SERVICE, IN EACH CASE PROPERLY
ADDRESSED TO THE PARTY TO RECEIVE THE SAME.  THE ADDRESSES AND FACSIMILE NUMBERS
FOR SUCH COMMUNICATIONS SHALL BE:

 

If to the Company:

 

MediCor Ltd.

4560 South Decatur Blvd., Suite 300

Las Vegas, Nevada 89103-5253

Facsimile: (702) 932-4561

Attention: General Counsel/Secretary

 

With copy to:

 

Clifford Chance US LLP

31 West 52nd Street

New York, New York 10019

Facsimile: (212) 878-8000

Attention: Alejandro E. Camacho

 

If to a Holder, to it at the address and facsimile number set forth on the
Schedule of Purchasers attached to the Securities Purchase Agreement, with
copies to such Holder’s representatives as set forth on such schedule, or, in
the case of a Holder or any other party named above, at such other address
and/or facsimile number and/or to the attention of such other Person as the

 

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recipient party has specified by written notice given to each other party in
accordance with this Section 20 five (5) days prior to the effectiveness of such
change.  Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or deposit with a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

 

21.           TRANSFER OF THIS NOTE.  THE HOLDER MAY ASSIGN OR TRANSFER SOME OR
ALL OF ITS RIGHTS HEREUNDER, SUBJECT TO COMPLIANCE WITH THE 1933 ACT AND THE
PROVISIONS OF SECTION 2 OF THE SECURITIES PURCHASE AGREEMENT WITHOUT THE CONSENT
OF THE COMPANY.

 

22.           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 (B) AN ATTORNEY IS
RETAINED TO REPRESENT THE HOLDER IN 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, INCLUDING REASONABLE
ATTORNEYS’ FEES AND DISBURSEMENTS.

 

23.           CANCELLATION.  AFTER ALL PRINCIPAL AND OTHER AMOUNTS AT ANY TIME
OWED UNDER THIS NOTE HAVE BEEN PAID IN FULL OR CONVERTED INTO SHARES IN
ACCORDANCE WITH THE TERMS HEREOF, THIS NOTE SHALL AUTOMATICALLY BE DEEMED
CANCELED, SHALL BE SURRENDERED TO THE COMPANY FOR CANCELLATION AND SHALL NOT BE
REISSUED.

 

24.           NOTE EXCHANGEABLE FOR DIFFERENT DENOMINATIONS.  SUBJECT TO
SECTION 4(C)(VIII), IN THE EVENT OF A CONVERSION OR REDEMPTION PURSUANT TO THIS
NOTE OF LESS THAN ALL OF THE PRINCIPAL, THE COMPANY SHALL PROMPTLY CAUSE TO BE
ISSUED AND DELIVERED TO THE HOLDER, UPON TENDER BY THE HOLDER OF THIS NOTE, A
NEW NOTE OF LIKE TENOR REPRESENTING THE REMAINING PRINCIPAL THAT HAS NOT BEEN SO
CONVERTED OR REDEEMED.  THIS NOTE IS EXCHANGEABLE, UPON THE SURRENDER HEREOF BY
THE HOLDER AT THE PRINCIPAL OFFICE OF THE COMPANY, FOR A NEW NOTE OR NOTES
CONTAINING THE SAME TERMS AND CONDITIONS AND REPRESENTING IN THE AGGREGATE THE
PRINCIPAL, AND EACH SUCH NEW NOTE WILL REPRESENT SUCH PORTION OF SUCH PRINCIPAL
AS IS DESIGNATED BY THE HOLDER AT THE TIME OF SUCH SURRENDER.  THE DATE THE
COMPANY ISSUED THIS NOTE SHALL BE THE ISSUANCE DATE HEREOF REGARDLESS OF THE
NUMBER OF TIMES A NEW NOTE SHALL BE ISSUED.

 

25.           TAXES.

 

(A)           PAYMENTS FREE OF TAXES.  ANY AND ALL PAYMENTS BY OR ON ACCOUNT OF
ANY OBLIGATION OF THE COMPANY OR ANY OF ITS SUBSIDIARIES UNDER THE NOTES, THE
SECURITIES PURCHASE AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT SHALL BE MADE
WITHOUT ANY SET-OFF, COUNTERCLAIM OR DEDUCTION AND FREE AND CLEAR OF AND WITHOUT
DEDUCTION FOR ANY INDEMNIFIED TAXES; PROVIDED THAT IF THE COMPANY OR ANY OF ITS
SUBSIDIARIES SHALL BE REQUIRED TO DEDUCT ANY INDEMNIFIED TAXES FROM SUCH
PAYMENTS, THEN (I) THE SUM PAYABLE SHALL BE INCREASED AS NECESSARY SO THAT AFTER
MAKING ALL REQUIRED DEDUCTIONS (INCLUDING DEDUCTIONS APPLICABLE TO ADDITIONAL
SUMS PAYABLE UNDER THIS SECTION 25(A)), THE HOLDER RECEIVES AN AMOUNT EQUAL TO
THE SUM IT WOULD HAVE

 

38

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received had no such deductions been made, (ii) the Company or such Subsidiary,
as applicable, shall make such deductions and (iii) the Company or such
Subsidiary shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law; provided, further, that if the
Company or any of its Subsidiaries is required to make an additional payment to
the Holder under this Section 25(a), and if the Holder is entitled to a cash
refund or credit against cash Taxes payable which is both identifiable and
quantifiable by the Holder as being attributable to the imposition of such
Indemnified Taxes (a “Tax Refund”), and such Tax Refund may be obtained without
increased liability or obligation to the Holder (including any obligation of the
Holder to file Tax returns in jurisdictions where it would not otherwise be
obligated to file Tax returns), then, upon the written request of the Company,
the Holder shall apply for such Tax Refund and, to the extent such Tax Refund is
received by the Holder, shall reimburse the Company or such Subsidiary for such
amount as the Holder shall determine to be the proportion of the Tax Refund
attributable to such additional payment as will leave the Holder after the
reimbursement in the same position as it would have been if the additional
payment had not been required; provided that, if any Tax Refund reimbursed by
the Holder to the Company or such Subsidiary is subsequently disallowed, the
Company shall repay the Holder such amount (together with interest and any
applicable penalty payable to the Holder to the relevant taxing authority)
promptly after the Holder notifies the Company of such disallowance.  The
Company agrees to reimburse the Holder for the Holder’s reasonable out-of-pocket
expenses, if any, incurred in complying with any request hereunder and agrees
that all costs incurred by the Holder in respect of this Section 25(a) may be
deducted from the amount of any reimbursement to the Company or any of its
Subsidiaries in respect of any Tax Refund pursuant to this Section 25(a). 
Nothing in this Section 25(a) shall require the Holder to disclose to the
Company any of its Tax returns or any other Tax-related information that it
deems to be confidential.

 

(B)           INDEMNIFICATION BY THE COMPANY.  THE COMPANY SHALL INDEMNIFY THE
HOLDER, WITHIN THIRTY (30) DAYS AFTER WRITTEN DEMAND THEREFOR, FOR THE FULL
AMOUNT OF ANY INDEMNIFIED TAXES PAID BY THE HOLDER, ON OR WITH RESPECT TO ANY
PAYMENT BY OR ON ACCOUNT OF ANY OBLIGATION OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES UNDER THE NOTES, THE SECURITIES PURCHASE AGREEMENT AND THE OTHER
TRANSACTION DOCUMENTS (INCLUDING INDEMNIFIED TAXES IMPOSED OR ASSERTED ON OR
ATTRIBUTABLE TO AMOUNTS PAYABLE UNDER THIS SECTION 25) ARISING THEREFROM OR WITH
RESPECT THERETO, WHETHER OR NOT SUCH INDEMNIFIED TAXES WERE CORRECTLY OR LEGALLY
IMPOSED OR ASSERTED BY THE RELEVANT GOVERNMENTAL AUTHORITY.  A CERTIFICATE OF
THE HOLDER AS TO THE AMOUNT OF SUCH PAYMENT OR LIABILITY UNDER THIS SECTION 25
SHALL BE DELIVERED TO THE COMPANY AND SHALL BE CONCLUSIVE ABSENT DEMONSTRABLE
ERROR.

 

26.           WAIVER OF NOTICE.  TO THE EXTENT PERMITTED BY LAW, THE COMPANY
HEREBY WAIVES DEMAND, NOTICE, PROTEST AND ALL OTHER DEMANDS AND NOTICES IN
CONNECTION WITH THE DELIVERY, ACCEPTANCE, PERFORMANCE, DEFAULT OR ENFORCEMENT OF
THIS NOTE, THE SECURITY DOCUMENTS AND THE SECURITIES PURCHASE AGREEMENT AND THE
OTHER TRANSACTION DOCUMENTS.

 

27.           GOVERNING LAW; JURISDICTION.  THIS NOTE SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS NOTE SHALL BE GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW.  EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY

 

39

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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 Note 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.

 

28.           WAIVER OF JURY TRIAL.  THE COMPANY, ON BEHALF OF ITSELF AND ITS
SUBSIDIARIES, AND THE HOLDER OF THIS NOTE HEREBY IRREVOCABLY WAIVE ANY RIGHTS
THEY MAY HAVE TO, AND AGREE NOT TO REQUEST, A TRIAL BY JURY IN RESPECT OF ANY
ACTION BASED UPON, OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED
HEREBY.

 

29.           EFFECT OF REDEMPTION OR CONVERSION; NO PREPAYMENT.  UPON PAYMENT
OF THE REDEMPTION PRICE OR THE CHANGE OF CONTROL REDEMPTION PRICE, EACH IN
ACCORDANCE WITH THE TERMS HEREOF WITH RESPECT TO ANY PORTION OF THE PRINCIPAL OF
THIS NOTE, OR DELIVERY OF SHARES UPON CONVERSION OF ANY PORTION OF THE PRINCIPAL
IN ACCORDANCE WITH THE TERMS HEREOF, SUCH PORTION OF THE PRINCIPAL OF THIS NOTE
SHALL BE DEEMED PAID IN FULL AND SHALL NO LONGER BE DEEMED OUTSTANDING FOR ANY
PURPOSE.  EXCEPT AS SPECIFICALLY SET FORTH IN THIS NOTE, INCLUDING SECTION 4,
THE COMPANY DOES NOT HAVE ANY RIGHT, OPTION, OR OBLIGATION, TO PAY ANY PORTION
OF THE PRINCIPAL AT ANY TIME PRIOR TO THE MATURITY DATE.

 

30.           PURCHASE OF NOTES BY THE COMPANY.  THE COMPANY SHALL NOT, AND
SHALL NOT PERMIT ANY SUBSIDIARY OR AFFILIATE TO,  VOLUNTARILY PURCHASE OR
ACQUIRE ANY PORTION OF ANY NOTE, UNLESS CONCURRENTLY WITH SUCH ACTION, THE
COMPANY, SUCH SUBSIDIARY OR AFFILIATE MAKES AN OFFER TO ALL HOLDERS TO ACQUIRE
THE SAME PORTION OF THEIR NOTES ON THE SAME TERMS.  SO LONG AS THERE IS AT LEAST
$25,000,000 IN PRINCIPAL, THIS SECTION 30 MAY NOT BE AMENDED EXCEPT WITH THE
WRITTEN CONSENT OF THE HOLDERS OF TWO-THIRDS (2/3) OF THE AGGREGATE PRINCIPAL
AMOUNT OF ALL THE NOTES THEN OUTSTANDING.

 

31.           OTHER PAYMENTS TO HOLDERS OF NOTES.  THE COMPANY WILL NOT DIRECTLY
OR INDIRECTLY PAY OR CAUSE TO BE PAID ANY REMUNERATION, WHETHER BY WAY OF
SUPPLEMENTAL OR ADDITIONAL INTEREST, FEE OR OTHERWISE, OR GRANT ANY SECURITY, TO
ANY HOLDER OF NOTES OR THE SUBORDINATED SIRIUS NOTE AS CONSIDERATION FOR OR AS
AN INDUCEMENT TO THE ENTERING INTO BY ANY HOLDER OF NOTES OR THE SUBORDINATED
SIRIUS NOTE OR ANY WAIVER OR AMENDMENT OF ANY OF THE TERMS AND PROVISIONS HEREOF
OR THEREOF UNLESS SUCH REMUNERATION IS CONCURRENTLY PAID, OR SECURITY IS
CONCURRENTLY GRANTED, ON THE SAME TERMS, RATABLY TO EACH HOLDER OF NOTES THEN
OUTSTANDING THAT CONSENTED TO SUCH WAIVER OR AMENDMENT.

 

32.           PAYMENT SET ASIDE.  TO THE EXTENT THAT THE COMPANY MAKES A PAYMENT
OR PAYMENTS TO THE HOLDER HEREUNDER OR THE HOLDER ENFORCES OR EXERCISES ITS
RIGHTS HEREUNDER, AND

 

40

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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, by a trustee, receiver or
any other person under any law (including any bankruptcy law, U.S. 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.

 

33.           INTERPRETATIVE MATTERS.  UNLESS THE CONTEXT OTHERWISE REQUIRES,
(A) ALL REFERENCES TO SECTIONS, SCHEDULES OR EXHIBITS ARE TO SECTIONS, SCHEDULES
OR EXHIBITS CONTAINED IN OR ATTACHED TO THIS NOTE, (B) EACH ACCOUNTING TERM NOT
OTHERWISE DEFINED IN THIS NOTE HAS THE MEANING ASSIGNED TO IT IN ACCORDANCE WITH
GAAP, (C) WORDS IN THE SINGULAR OR PLURAL INCLUDE THE SINGULAR AND PLURAL AND
PRONOUNS STATED IN EITHER THE MASCULINE, THE FEMININE OR NEUTER GENDER SHALL
INCLUDE THE MASCULINE, FEMININE AND NEUTER AND (D) THE USE OF THE WORD
“INCLUDING” IN THIS NOTE SHALL BE BY WAY OF EXAMPLE RATHER THAN LIMITATION.  IF
A STOCK SPLIT, STOCK DIVIDEND, STOCK COMBINATION OR OTHER SIMILAR EVENT OCCURS
DURING ANY PERIOD OVER WHICH AN AVERAGE PRICE IS BEING DETERMINED, THEN AN
APPROPRIATE ADJUSTMENT WILL BE MADE TO SUCH AVERAGE TO REFLECT SUCH EVENT.

 

* * * * * *

 

41

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IN WITNESS WHEREOF, the Company has caused this Note to be executed on its
behalf by the undersigned as of the      day of April 2006.

 

 

 

MEDICOR LTD.

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

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EXHIBIT I

 

MEDICOR LTD.
CONVERSION NOTICE

 

Reference is made to the Convertible Note (the “Note”) of MEDICOR LTD., a
Delaware corporation (the “Company”), in the original principal amount of
$          .  In accordance with and pursuant to the Note, the undersigned
hereby elects to convert the Conversion Amount (as defined in the Note) of the
Note indicated below into shares of Common Stock, par value $0.001 per share
(the “Common Stock”), of the Company, as of the date specified below. 
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Note.

 

Date of Conversion:

 

Aggregate Conversion Amount to be converted at the Fixed Conversion Price (as
defined in the Note):      

 

Principal, applicable thereto, to be converted:

 

Aggregate Conversion Amount to be converted pursuant to a Company Conversion (as
defined in the Note):

 

Principal, applicable thereto, to be converted:

 

Aggregate Interest Conversion Amount to be converted pursuant to a Company
Conversion:

 

Please confirm the following information:

 

Conversion Price:

 

Number of shares of Common Stock to be issued:

 

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

 

Issue to:

 

 

 

 

 

Address:

 

 

 

 

 

Facsimile Number:

 

 

 

 

 

Authorization:

 

 

 

 

 

By:

 

 

 

 

 

Title:

 

 

 

 

 

Dated:

 

 

 

i

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DTC Participant Number and Name (if electronic book entry transfer):

 

Account Number (if electronic book entry transfer):

 

ii

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ACKNOWLEDGMENT

 

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

 

 

 

MEDICOR LTD.

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

iii

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