Exhibit 10.3
 
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION.  BY
ACQUIRING THIS NOTE, THE HOLDER REPRESENTS THAT THE HOLDER WILL NOT SELL OR
OTHERWISE DISPOSE OF THIS NOTE WITHOUT REGISTRATION OR COMPLIANCE WITH AN
EXEMPTION FROM REGISTRATION UNDER THE AFORESAID ACTS AND THE RULES AND
REGULATIONS THEREUNDER.
 

 
BROADCAST INTERNATIONAL, INC.
 
BI ACQUISITIONS, INC.
 
INTERACT DEVICES, INC.
 

 
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
 

$750,000 August 8, 2013         

 
 
FOR VALUE RECEIVED, Broadcast International, Inc., a Utah corporation (the
“Company”), BI Acquisitions, Inc., a Utah corporation (“BIA”), and Interact
Devices, Inc., a California corporation (“IDI” and, with the Company and BIA,
each a “Maker” and collectively the “Makers”), jointly and severally hereby
promise to pay to the order of DONALD HARRIS or his successors or assigns (the
“Holder”), in lawful money of the United States of America, the principal sum of
SEVEN HUNDRED FIFTY THOUSAND Dollars ($750,000), together with interest on the
outstanding principal amount under this Senior Secured Promissory Note (“Note”)
outstanding from time to time.
 
1.           Purpose.  This Note is made and delivered by the Maker to the
Holder pursuant to the terms of that certain Amended Note and Warrant Purchase
and Security Agreement, dated as of January 14, 2013 (the “Original Issue
Date”), by and among the Makers, the Collateral Agent, the Holder, and the other
Purchasers of the Maker’s Notes (the “Purchase Agreement”).  This Note is one of
a series of substantially identical Notes issued by the Makers under the
Purchase Agreement.  All capitalized terms used and not defined herein shall
have the meanings ascribed to them in the Purchase Agreement.
 
2.           Interest.  Interest on this Note shall accrue from the date hereof
until payment in full of all amounts payable hereunder, at an annual rate equal
to one percent (1.0%) per month, compounded annually (the “Interest Rate”), and
payable on the Maturity Date (as defined below).  Interest shall be calculated
on the basis of a 365-day year, based on the actual number of days
elapsed.  From and after the occurrence of any Event of Default (as defined
below) and during the pendency thereof, the Interest Rate shall be an annual
rate equal to the lesser of one and three-quarters percent (1.75%) per month,
compounded annually, or the highest rate permitted by applicable law.  Interest
on this Note shall be paid in cash.
 
 
 

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3.           Maturity Date.  The principal amount of this Note, together with
all accrued and unpaid interest thereon, shall be due and payable in full on
October 31, 2013 (the “Maturity Date”).
 
4.           Prepayment.  The prepayment of principal on this Note shall be
governed by and subject to Section 1.8 of the Purchase Agreement (including,
without limitation, any provision regarding the payment of the Prepayment
Premium), the provisions of which are incorporated herein by reference thereto
as if fully set forth herein.
 
5.           Defaults; Remedies.
 
5.1           Events of Default.  The occurrence of any one or more of the
following events shall constitute an event of default hereunder (each, an “Event
of Default”):
 
5.1.1           The Makers fail to make any payment of principal, interest, or
both when due under this Note;
 
5.1.2           Any Maker fails to observe and perform any other covenant or
agreement on such Maker’s part to be observed or performed under this Note,
which failure continues for a period of thirty (30) days after notice of such
failure has been delivered to the Makers;
 
5.1.3            Any Maker fails to observe and perform any of its covenants or
agreements on its part to be observed or performed under the Purchase Agreement
or any other Transaction Document and such failure shall continue for more than
thirty (30) days after notice of such failure has been delivered to the Makers;
 
5.1.4           Any representation or warranty made by any Maker in the Purchase
Agreement or any other Transaction Document is untrue in any material respect as
of the date of such representation or warranty;
 
5.1.5           Any Maker defaults beyond any period of grace provided with
respect thereto in the payment of principal of or interest on any obligation
(other than the Notes) in respect of borrowed money;
 
5.1.6           Any Maker admits in writing its inability to pay its debts
generally as they become due, files a petition in bankruptcy or a petition to
take advantage of any insolvency act, makes an assignment for the benefit of its
creditors, consents to the appointment of a receiver of itself or of the whole
or any substantial part of its property, on a petition in bankruptcy filed
against it be adjudicated a bankrupt, or files a petition or answer seeking
reorganization or arrangement under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or any State thereof;
 
5.1.7           A court of competent jurisdiction enters an order, judgment, or
decree appointing, without the consent of any Maker, a receiver of such Maker or
of the whole or any substantial part of its property, or approving a petition
filed against such Maker seeking reorganization or arrangement of such Maker
under the federal bankruptcy laws or any other applicable law or statute of the
United States of America or any State thereof, and such order, judgment, or
decree shall not be vacated or set aside or stayed within sixty (60) days from
the date of entry thereof;
 
 
 

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5.1.8           Any court of competent jurisdiction assumes custody or control
of any Maker or of the whole or any substantial part of its property under the
provisions of any other law for the relief or aid of debtors, and such custody
or control is not be terminated or stayed within sixty (60) days from the date
of assumption of such custody or control; or
 
5.1.9           Final judgment for the payment of money in excess of $500,000 is
rendered by a court of record against any Maker and such Maker does not
discharge the same or provide for its discharge in accordance with its terms, or
procure a stay of execution thereon, within sixty (60) days from the date of
entry thereof and within said period of sixty (60) days, or within such longer
period during which execution of such judgment shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such appeal.
 
5.2           Notice by the Makers.  The Makers shall notify the Holder in
writing as soon as reasonably practicable but in no event more five (5) days
after the occurrence of any Event of Default of which any Maker acquires
knowledge.
 
5.3           Remedies.  Upon the occurrence of any Event of Default, the entire
unpaid principal balance hereunder plus all interest accrued thereon and all
other sums due and payable to the Holder under this Note shall, at the option of
the Holder, become due and payable immediately without presentment, demand,
notice of nonpayment, protest, notice of protest, or other notice of dishonor,
all of which are hereby expressly waived by each Maker.  To the extent permitted
by law, each Maker waives the right to and stay of execution and the benefit of
all exemption laws now or hereafter in effect.  In addition to the foregoing,
upon the occurrence of any Event of Default, the Holder may forthwith exercise
singly, concurrently, successively, or otherwise any and all rights and remedies
available to the Holder by law, equity, or otherwise.
 
5.4           Remedies Cumulative, etc.
 
5.4.1           No right or remedy conferred upon or reserved to the Holder
under this Note, or now or hereafter existing at law or in equity or by statute
or other legislative enactment, is intended to be exclusive of any other right
or remedy, and each and every such right or remedy shall be cumulative and
concurrent, and shall be in addition to every other such right or remedy, and
may be pursued singly, concurrently, successively, or otherwise, at the sole
discretion of the Holder, and shall not be exhausted by any one exercise thereof
but may be exercised as often as occasion therefor shall occur.  No act of the
Holder shall be deemed or construed as an election to proceed under any one such
right or remedy to the exclusion of any other such right or remedy; furthermore,
each such right or remedy of the Holder shall be separate, distinct, and
cumulative and none shall be given effect to the exclusion of any other.
 
5.4.2           Each Maker waives personal service of process and agrees that a
summons and complaint commencing an action or proceeding in any such court shall
be properly served if served by registered or certified mail in accordance with
the notice provisions set forth herein and each Maker expressly waives any and
all defenses to an exercise of personal jurisdiction by any such court.
 
 
 

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5.5           Costs and Expenses.  The Makers will pay upon demand all
reasonable costs and expenses of the Holder, including attorneys’ fees, incurred
by the Holder in enforcing its rights and remedies hereunder.  Any amount
thereof not paid promptly following demand therefor shall be added to the
principal sum hereunder and shall bear interest at the Interest Rate from the
date of such demand until paid in full.  If the Holder brings suit (or files any
claim in any bankruptcy, reorganization, insolvency, or other proceeding) to
enforce any of its rights hereunder and shall be entitled to judgment (or other
recovery) in such action (or other proceeding), then the Holder may recover, in
addition to all other amounts payable hereunder, its reasonable expenses in
connection therewith, including attorneys’ fees, and the amount of such expenses
shall be included in such judgment (or other form of award).
 
6.           Exchange or Replacement of Note.
 
6.1           Exchange.  The Holder, at its option, may in person or by duly
authorized attorney surrender the Note for exchange at the offices of the
Makers, and at the expense of the Makers receive in exchange therefor a new Note
in the same aggregate principal amount as the aggregate unpaid principal amount
of the Note so surrendered and bearing interest at the same annual rate as the
Note so surrendered, each such new Note to be dated as of the Original Issue
Date and to be in such principal amount and payable to such person or persons,
or order, as such holder may designate in writing.
 
6.2           Replacement.  Upon receipt by the Makers of evidence satisfactory
to them of the loss, theft, destruction, or mutilation of this Note and (in case
of loss, theft, or destruction) of indemnity satisfactory to it, and upon
surrender and cancellation of this Note, if mutilated, the Maker will make and
deliver a new Note of like tenor in lieu of this Note.
 
7.           Conversion of Note.  At any time or times after the Issuance Date,
this Note shall be convertible into shares of the Company’s common stock, par
value $0.05 per share (the “Common Stock”), on the terms and conditions set
forth in this Section 7.
 
7.1           Conversion Right.  Subject to the provisions of Section 7.4, at
any time or times on or after the Issuance Date, the Holder shall be entitled to
convert any portion of the outstanding and unpaid Conversion Amount (as defined
below) into fully paid and non-assessable shares of Common Stock in accordance
with Section7.3, at the Conversion Rate (as defined below).  The Company shall
not issue any fraction of a share of Common Stock upon any conversion.  If the
issuance would result in the issuance of a fraction of a share of Common Stock,
the Company shall round such fraction of a share of Common Stock up to the
nearest whole share.  The Company shall pay any and all transfer, stamp and
similar taxes that may be payable with respect to the issuance and delivery of
Common Stock upon conversion of any Conversion Amount.
 
7.2           Conversion Rate.  The number of shares of Common Stock issuable
upon conversion of any Conversion Amount pursuant to Section 7.1 shall be
determined by dividing (x) such Conversion Amount by (y) the Conversion Price
(the “Conversion Rate”).
 
 
 

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7.2.1           “Conversion Amount” means the sum of (A) the portion of the
Principal to be converted, amortized, redeemed or otherwise with respect to
which this determination is being made, (B) accrued and unpaid Interest with
respect to such Principal and (C) accrued and unpaid Late Charges with respect
to such Principal and Interest.
 
7.2.2            “Conversion Price” means, as of any Conversion Date (as defined
below) or other date of determination, $0.25 per share, subject to adjustment as
provided herein.
 
7.3           Mechanics of Conversion.
 
7.3.1           Optional Conversion.  To convert any Conversion Amount into
shares of Common Stock on any date (a “Conversion Date”), the Holder shall (A)
transmit by facsimile (or otherwise deliver), for receipt on or prior to 6:00
p.m., New York time, on such date, a copy of an executed notice of conversion in
the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company
and (B) if required by Section 7.3.3), surrender this Note to a common carrier
for delivery to the Company as soon as practicable on or following such date (or
an indemnification undertaking with respect to this Note in the case of its
loss, theft or destruction).  On or before the first (1st) Business Day
following the date of receipt of a Conversion Notice, the Company shall transmit
by facsimile a confirmation of receipt of such Conversion Notice to the Holder
and the Company’s transfer agent (the “Transfer Agent”).  On or before the third
(3rd) Trading Day following the date of receipt of a Conversion Notice (the
“Share Delivery Date”), the Company shall (1)(x) provided that the Transfer
Agent is participating in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, credit such aggregate number of shares of Common
Stock to which the Holder shall be entitled to the Holder’s or its designee’s
balance account with DTC through its Deposit / Withdrawal At Custodian system or
(y) if the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and deliver to the address as specified in
the Conversion Notice, a certificate, registered in the name of the Holder or
its designee, for the number of shares of Common Stock to which the Holder shall
be entitled and (2) pay to the Holder in cash, by wire transfer of immediately
available funds, an amount equal to the Make-Whole Amount.  If this Note is
physically surrendered for conversion as required by Section 7.3.3 and the
outstanding Principal of this Note is greater than the Principal portion of the
Conversion Amount being converted, then the Company shall as soon as practicable
and in no event later than three (3) Business Days after receipt of this Note
and at its own expense, issue and deliver to the Holder a new Note (in
accordance with Section 6.1) representing the outstanding Principal not
converted.  The Person or Persons entitled to receive the shares of Common Stock
issuable upon a conversion of this Note shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on the Conversion Date,
irrespective of the date such Conversion Shares are credited to the Holder’s
account with DTC or the date of delivery of the certificates evidencing such
Conversion Shares, as the case may be.
 
 
 

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7.3.2           Company’s Failure to Timely Convert.  If the Company shall fail
to issue a certificate to the Holder or credit the Holder’s balance account with
DTC, as applicable, for the number of shares of Common Stock to which the Holder
is entitled upon conversion of any Conversion Amount on or prior to the Share
Delivery Date (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 such Conversion Notice; provided that the voiding of a
Conversion Notice shall not affect the Company’s obligations to make any
payments which have accrued prior to the date of such notice pursuant to this
Section 7.3.2 or otherwise.  In addition to the foregoing, if the Company shall
fail on or prior to the Share Delivery Date to issue and deliver a certificate
to the Holder or credit the Holder’s balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon such Holder’s
conversion of any Conversion Amount or on any date of the Company’s obligation
to deliver shares of Common Stock as contemplated pursuant to clause (y) below,
and if on or after such Trading Day the Holder purchases in a bona fide arm’s
length transaction for fair market value (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of
Common Stock issuable upon such conversion that the Holder anticipated receiving
from the Company (a “Buy-In”), then the Company shall, within three (3) Trading
Days after the Holder’s request and in the Holder’s discretion, either (x) pay
cash to the Holder in an amount equal to the Holder’s total purchase price
(including brokerage commissions and other out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (the “Buy-In Price”), at which point the
Company’s obligation to issue and deliver such certificate or credit the
Holder’s balance account with DTC for the shares of Common Stock to which the
Holder is entitled upon the Holder’s conversion of the applicable Conversion
Amount shall terminate, or (y) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Common Stock and pay cash
to the Holder in an amount equal to the excess (if any) of the Buy-In Price over
the product of (A) such number of shares of Common Stock, times (B) the Closing
Bid Price on the Conversion Date.
 
7.3.3           Registration; Book-Entry. The Company shall maintain a register
(the “Register”) for the recordation of the names and addresses of the holders
of each Note and the principal amount of the Notes held by such holders (the
“Registered Notes”).  The entries in the Register shall be conclusive and
binding for all purposes absent manifest error.  The Company and the holders of
the Notes shall treat each Person whose name is recorded in the Register as the
owner of a Note for all purposes, including, without limitation, the right to
receive payments of Principal and Interest, if any, hereunder, notwithstanding
notice to the contrary.  A Registered Note may be assigned or sold in whole or
in part only by registration of such assignment or sale on the Register.  Upon
its receipt of a request to assign or sell all or part of any Registered Note by
a Holder, the Company shall record the information contained therein in the
Register and issue one or more new Registered Notes in the same aggregate
principal amount as the principal amount of the surrendered Registered Note to
the designated assignee or transferee pursuant to Section 6.  Notwithstanding
anything to the contrary in this Section 7.3.3, a Holder may assign any Note or
any portion thereof to an Affiliate of such Holder or a Related Fund of such
Holder without delivering a request to assign or sell such Note to the Company
and the recordation of such assignment or sale in the Register (a “Related Party
Assignment”); provided, that (x):  the Company may continue to deal solely with
such assigning or selling Holder unless and until such Holder has delivered a
request to assign or sell such Note or portion thereof to the Company for
recordation in the Register; (y) the failure of such assigning or selling Holder
to deliver a request to assign or sell such Note or portion thereof to the
Company shall not affect the legality, validity, or binding effect of such
assignment or sale; and (z) such assigning or selling Holder shall, acting
solely for this purpose as a non-fiduciary agent of the Company, maintain a
register (the “Related Party Register”) comparable to the Register on behalf of
the Company, and any such assignment or sale shall be effective upon recordation
of such assignment or sale in the Related Party Register.  Notwithstanding
anything to the contrary set forth herein, upon conversion of any portion of
this Note in accordance with the terms hereof, the Holder shall not be required
to physically surrender this Note to the Company unless (A) the full Conversion
Amount represented by this Note is being converted or (B) the Holder has
provided the Company with prior written notice (which notice may be included in
a Conversion Notice) requesting reissuance of this Note upon physical surrender
of this Note.  The Holder and the Company shall maintain records showing the
principal, interest, and late charges, if any, converted and the dates of such
conversions or shall use such other method, reasonably satisfactory to the
Holder and the Company, so as not to require physical surrender of this Note
upon conversion.
 
 
 

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7.3.4           Pro Rata Conversion; Disputes.  In the event that the Company
receives a Conversion Notice from more than one holder of Notes for the same
Conversion Date and the Company can convert some, but not all, of such portions
of the Notes submitted for conversion, the Company, subject to Section 7.4,
shall convert from each holder of Notes electing to have Notes converted on such
date a pro rata amount of such holder’s portion of its Notes submitted for
conversion based on the principal amount of Notes submitted for conversion on
such date by such holder relative to the aggregate principal amount of all Notes
submitted for conversion on such date.
 
7.4           Limitations on Conversions.  The Company shall not effect any
conversion of this Note, and the Holder of this Note shall not have the right to
convert any portion of this Note pursuant to the terms and conditions of this
Note, to the extent that after giving effect to such conversion, the Holder
(together with the Holder’s Affiliates) would beneficially own in excess of
4.99% (the “Maximum Percentage”) of the number of shares of Common Stock
outstanding immediately after giving effect to such conversion.  For purposes of
the foregoing sentence, the number of shares of Common Stock beneficially owned
by the Holder and its Affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Note with respect to which the
determination of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted portion of this Note beneficially owned by the Holder or
any of its Affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without
limitation, any Other Notes or warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein beneficially owned by
the Holder or any of its Affiliates.  Except as set forth in the preceding
sentence, for purposes of this Section 7.4, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”).  For purposes of this Section 7.4, in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (x) the
Company’s most recent Form 10-K, Form 10-Q or Form 8-K, as the case may be, (y)
a more recent public announcement by the Company or (z) any other notice by the
Company or the Transfer Agent setting forth the number of shares of Common Stock
outstanding.  For any reason at any time, upon the written or oral request of
the Holder, the Company shall within one (1) Business Day confirm orally and in
writing to the Holder the number of shares of Common Stock then outstanding.  In
any case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the Company,
including this Note, by the Holder or its Affiliates since the date as of which
such number of outstanding shares of Common Stock was reported.  By written
notice to the Company, the Holder may increase or decrease the Maximum
Percentage to any other percentage not in excess of 9.99% specified in such
notice; provided, that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any other
holder of Notes.  The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section7.4 to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended beneficial ownership limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation.
 
 
 

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8.           Rights Upon Fundamental Transaction and Change of Control.
 
8.1           Assumption.  None of the Makers shall enter into or be party to a
Fundamental Transaction unless (i)  the Successor Entity assumes in writing all
of the obligations of the Makers under this Note and the other Transaction
Documents in accordance with the provisions of this Section 8.1 pursuant to
written agreements in form and substance reasonably satisfactory to the Required
Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements, if so requested by the Holder, to deliver to
each Holder of Notes in exchange for such Notes a security of the Successor
Entity evidenced by a written instrument substantially similar in form and
substance to the Notes, including, without limitation, having a principal amount
and interest rate equal to the principal amounts and the interest rates of the
Notes then outstanding held by such holder, having similar conversion rights and
having similar ranking to the Notes, and satisfactory to the Required Holders
and (ii) the Successor Entity (including its Parent Entity) is a publicly traded
corporation whose common stock is quoted on or listed for trading on an Eligible
Market.  Any security issuable or potentially issuable to the Holder pursuant to
the terms of this Note on the consummation of a Fundamental Transaction shall be
registered and freely tradable by the Holder without any restriction or
limitation or the requirement to be subject to any holding period pursuant to
any applicable securities laws.  Upon the occurrence or consummation of any
Fundamental Transaction, and it shall be a required condition to the occurrence
or consummation of any Fundamental Transaction that, the Makers and the
Successor Entity or Successor Entities, jointly and severally, shall succeed to,
and the Makers shall cause any Successor Entity or Successor Entities to jointly
and severally succeed to, and be added to the term “Makers” hereunder (so that
from and after the date of such Fundamental Transaction, the provisions of this
Note referring to the “Makers” shall refer instead to each of the Makers and the
Successor Entity or Successor Entities, jointly and severally), and may exercise
every right and power of the Makers prior thereto and shall assume all of the
obligations of the Makers prior thereto under this Note with the same effect as
if the Makers and such Successor Entity or Successor Entities, jointly and
severally, had been named as the Makers herein, and, solely at the request of
the Holder, if the Successor Entity and/or Successor Entities is a publicly
traded corporation whose common stock is quoted on or listed for trading on an
Eligible Market, shall deliver to the Holder in exchange for this Note a
security of the Successor Entity and/or Successor Entities evidenced by a
written instrument substantially similar in form and substance to this Note and
convertible for a corresponding number of shares of capital stock of the
Successor Entity and/or Successor Entities (the “Successor Capital Stock”)
equivalent to the shares of Common Stock acquirable and receivable upon
conversion of this Note (without regard to any limitations on the conversion of
this Note) prior to such Fundamental Transaction (such corresponding number of
shares of capital stock shall be equal to the quotient of (A) the aggregate
dollar value of all consideration (including cash consideration and any
consideration other than cash (“Non-Cash Consideration”), in such Fundamental
Transaction, as such values are set forth in any definitive agreement for the
Fundamental Transaction that has been executed at the time of the first public
announcement of the Fundamental Transaction, with the term “Non-Cash
Consideration” being substituted for the term “Conversion Price”) that the
Holder would have been entitled to receive upon the happening of such
Fundamental Transaction or the record, eligibility or other determination date
for the event resulting in such Fundamental Transaction, had this Note been
converted immediately prior to such Fundamental Transaction or the record,
eligibility or other determination date for the event resulting in such
Fundamental Transaction (without regard to any limitations on the conversion of
this Note) divided by (B) the per share Closing Sale Price of such corresponding
capital stock on the Trading Day immediately prior to the consummation or
occurrence of the Fundamental Transaction), and satisfactory to the Holder, and
with an identical conversion price to the Conversion Price hereunder (such
adjustments to the number of shares of capital stock and such conversion price
being for the purpose of protecting after the consummation or occurrence of such
Fundamental Transaction the economic value of this Note that was in effect
immediately prior to the consummation or occurrence of such Fundamental
Transaction, as elected by the Holder solely at its option).  Upon occurrence or
consummation of the Fundamental Transaction, and it shall be a required
condition to the occurrence or consummation of such Fundamental Transaction
that, the Company and the Successor Entity or Successor Entities shall deliver
to the Holder confirmation that there shall be issued upon conversion of this
Note at any time after the occurrence or consummation of the Fundamental
Transaction, as elected by the Holder solely at its option, shares of Common
Stock, Successor Capital Stock or, in lieu of the shares of Common Stock or
Successor Capital Stock (or other securities, cash, assets or other property
purchasable upon the conversion of this Note prior to such Fundamental
Transaction), such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or subscription
rights), which for purposes of clarification may continue to be shares of Common
Stock, if any, that the Holder would have been entitled to receive upon the
happening of such Fundamental Transaction or the record, eligibility or other
determination date for the event resulting in such Fundamental Transaction, had
this Note been converted immediately prior to such Fundamental Transaction or
the record, eligibility or other determination date for the event resulting in
such Fundamental Transaction (without regard to any limitations on the
conversion of this Note), as adjusted in accordance with the provisions of this
Note.  The provisions of this Section 8.1 shall apply similarly and equally to
successive Fundamental Transactions.
 
 
 

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8.2           Redemption Right.  No sooner than fifteen (15) days nor later than
ten (10) days prior to the consummation of a Change of Control, but not prior to
the public announcement of such Change of Control, the Company shall deliver
written notice thereof via facsimile and overnight courier to the Holder (a
“Change of Control Notice”).  At any time during the period beginning on the
earlier to occur of (x) any oral or written agreement by the Company or any of
its Subsidiaries, upon consummation of which the transaction contemplated
thereby would reasonably be expected to result in a Change of Control, (y) the
Holder becomes aware of a Change of Control and (z) the Holder’s receipt of a
Change of Control Notice and ending twenty (20) Trading Days after the date of
the consummation of such Change of Control, the Holder may require the Company
to redeem (a “Change of Control Redemption”) all or any portion of this Note by
delivering written notice thereof (“Change of Control Redemption Notice”, and
the date thereof, the “Change of Control Redemption Notice Date”) to the
Company, which Change of Control Redemption Notice shall indicate the Conversion
Amount the Holder is electing to require the Company to redeem.  The portion of
this Note subject to redemption pursuant to this Section 5(b) shall be redeemed
by the Company in cash by wire transfer of immediately available funds at a
price equal to the greater of (x) 125% of the sum of (i) the Conversion Amount
being redeemed and the Make-Whole Amount and (y) the sum of (i) the product of
(A) the Conversion Amount being redeemed and (B) the quotient determined by
dividing (I) the greatest Closing Sale Price of the shares of Common Stock
during the period beginning on the date immediately preceding the earlier to
occur of (x) the consummation of the Change of Control and (y) the public
announcement of such Change of Control and ending on the date the Holder
delivers the Change of Control Redemption Notice, by (II) the lowest Conversion
Price in effect during such period and (ii) the Make-Whole Amount (the “Change
of Control Redemption Price”).  Redemptions required by this Section 8 shall be
made in accordance with the provisions of Section 11 and shall have priority to
payments to stockholders in connection with a Change of Control.  To the extent
redemptions required by this Section 8.2 are deemed or determined by a court of
competent jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments.  Notwithstanding
anything to the contrary in this Section 5, but subject to Section 7.4, until
the Change of Control Redemption Price (together with any interest thereon) is
paid in full, the Conversion Amount submitted for redemption under this Section
8.2) (together with any interest thereon) may be converted, in whole or in part,
by the Holder into Common Stock pursuant to Section 7.  The parties hereto agree
that in the event of the Company’s redemption of any portion of the Note under
this Section 8.2, the Holder’s damages would be uncertain and difficult to
estimate because of the parties’ inability to predict future interest rates and
the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder.  Accordingly, any Change of Control redemption
premium due under this Section 8.2 is intended by the parties to be, and shall
be deemed, a reasonable estimate of the Holder’s actual loss of its investment
opportunity and not as a penalty.
 
 
 

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8.3           Mechanics of Redemption.  If the Holder has submitted a Change of
Control Redemption Notice in accordance with Section 8.2, the Company shall
deliver the applicable Change of Control Redemption Price to the Holder (i)
concurrently with the consummation of such Change of Control if such notice is
received prior to the consummation of such Change of Control and (ii) within
five (5) Business Days after the Company's receipt of such notice otherwise
(such date, the “Change of Control Redemption Date”).  The Company shall pay the
applicable Redemption Price to the Holder in cash by wire transfer of
immediately available funds on the applicable due date.  In the event of a
redemption of less than all of the Conversion Amount of this Note, the Company
shall promptly cause to be issued and delivered to the Holder a new Note (in
accordance with Section 6.1 representing the outstanding Principal which has not
been redeemed and any accrued Interest on such Principal which shall be
calculated as if no Redemption Notice has been delivered.  In the event that the
Company does not pay the applicable Redemption Price to the Holder within the
time period required, at any time thereafter and until the Company pays such
unpaid Redemption Price in full, the Holder shall have the option, in lieu of
redemption, to require the Company to promptly return to the Holder all or any
portion of this Note representing the Conversion Amount that was submitted for
redemption and for which the applicable Redemption Price (together with any Late
Charges thereon) has not been paid.  Upon the Company's receipt of such notice,
(x) the applicable Redemption Notice shall be null and void with respect to such
Conversion Amount, (y) the Company shall immediately return this Note, or issue
a new Note (in accordance with Section 6.1 to the Holder representing such
Conversion Amount to be redeemed and (z) the Conversion Price of this Note or
such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the applicable Redemption Notice is voided and (B)
the lowest Closing Bid Price of the Common Stock during the period beginning on
and including the date on which the applicable Redemption Notice is delivered to
the Company and ending on and including the date on which the applicable
Redemption Notice is voided.  The Holder's delivery of a notice voiding a
Redemption Notice and exercise of its rights following such notice shall not
affect the Company's obligations to make any payments of Late Charges which have
accrued prior to the date of such notice with respect to the Conversion Amount
subject to such notice.
 
8.4           Redemption by Other Holders.  Upon the Company's receipt of notice
from any of the holders of the Other Notes for redemption or repayment as a
result of an event or occurrence substantially similar to the events or
occurrences described in Section 8.2 (each, an “Other Redemption Notice”), the
Company shall immediately, but no later than one (1) Business Day of its receipt
thereof, forward to the Holder by facsimile a copy of such notice.  If the
Company receives a Redemption Notice and one or more Other Redemption Notices,
during the seven (7) Business Day period beginning on and including the date
which is three (3) Business Days prior to the Company's receipt of the Holder’s
Redemption Notice and ending on and including the date which is three (3)
Business Days after the Company's receipt of the Holder’s Redemption Notice and
the Company is unable to redeem all principal, interest and other amounts
designated in such Redemption Notice and such Other Redemption Notices received
during such seven (7) Business Day period, then the Company shall redeem a pro
rata amount from each holder of the Notes (including the Holder) based on the
principal amount of the Notes submitted for redemption pursuant to such
Redemption Notice and such Other Redemption Notices received by the Company
during such seven Business Day period.
 
9.           Distribution of Assets; Rights Upon Issuance of Purchase Rights and
Other Corporate Events.
 
 
 

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9.1           Distribution of Assets.  If the Company shall declare or make any
dividend or other distributions of its assets (or rights to acquire its assets)
to any or all holders of shares of Common Stock, by way of return of capital or
otherwise (including without limitation, any distribution of cash, stock or
other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (the “Distributions”), then the Holder will be entitled to
such Distributions as if the Holder had held the number of shares of Common
Stock acquirable upon complete conversion of this Note (without taking into
account any limitations or restrictions on the convertibility of this Note)
immediately prior to the date on which a record is taken for such Distribution
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for such Distributions (provided, however,
that to the extent that the Holder’s right to participate in any such
Distribution would result in the Holder exceeding the Maximum Percentage, then
the Holder shall not be entitled to participate in such Distribution to such
extent (or beneficial ownership of such shares of Common Stock as a result of
such Distribution to such extent) and the portion of such Distribution shall be
held in abeyance for the Holder until such time or times as its right thereto
would not result in the Holder exceeding the Maximum Percentage, at which time
or times the Holder shall be granted such rights (and any rights under this
Section 9.1 on such initial rights or on any subsequent such rights to be held
similarly in abeyance) to the same extent as if there had been no such
limitation).
 
9.2           Purchase Rights.  If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete conversion of this
Note (without taking into account any limitations or restrictions on the
convertibility of this Note) immediately prior to the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of shares of Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights
(provided, however, that to the extent that the Holder’s right to participate in
any such Purchase Right would result in the Holder exceeding the Maximum
Percentage, then the Holder shall not be entitled to participate in such
Purchase Right to such extent (or beneficial ownership of such shares of Common
Stock as a result of such Purchase Right to such extent) and such Purchase Right
to such extent shall be held in abeyance for the Holder until such time or times
as its right thereto would not result in the Holder exceeding the Maximum
Percentage, at which time or times the Holder shall be granted such right (and
any Purchase Right granted, issued or sold on such initial Purchase Right or on
any subsequent Purchase Right to be held similarly in abeyance) to the same
extent as if there had been no such limitation).
 
 
 

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9.3           Other Corporate Events.  In addition to and not in substitution
for any other rights hereunder, prior to the occurrence or consummation of any
Fundamental Transaction pursuant to which holders of shares of Common Stock are
entitled to receive securities, cash, assets or other property with respect to
or in exchange for shares of Common Stock (a “Corporate Event”), the Company
shall make appropriate provision to insure that, and any applicable Successor
Entity or Successor Entities shall ensure that, and it shall be a required
condition to the occurrence or consummation of such Corporate Event that, the
Holder will thereafter have the right to receive upon conversion of this Note at
any time after the occurrence or consummation of the Corporate Event, shares of
Common Stock or Successor Capital Stock or, if so elected by the Holder, in lieu
of the shares of Common Stock (or other securities, cash, assets or other
property) purchasable upon the conversion of this Note prior to such Corporate
Event (but not in lieu of such items still issuable under Sections 9.1 and 9.2),
which shall continue to be receivable on the Common Stock or on the such shares
of stock, securities, cash, assets or any other property otherwise receivable
with respect to or in exchange for shares of Common Stock), such shares of
stock, securities, cash, assets or any other property whatsoever (including
warrants or other purchase or subscription rights and any shares of Common
Stock) which the Holder would have been entitled to receive upon the occurrence
or consummation of such Corporate Event or the record, eligibility or other
determination date for the event resulting in such Corporate Event, had this
Note been converted immediately prior to such Corporate Event or the record,
eligibility or other determination date for the event resulting in such
Corporate Event (without regard to any limitations on conversion of this
Note).  Provision made pursuant to the preceding sentence shall be in a form and
substance reasonably satisfactory to the Required Holders.  The provisions of
this Section 9 shall apply similarly and equally to successive Corporate Events.
 
10.           Rights Upon Issuance of Other Securities.
 
10.1           Adjustment of Conversion Price upon Issuance of Common Stock.  If
and whenever on or after the Subscription Date, the Company issues or sells, or
in accordance with this Section 10.1 is deemed to have issued or sold, any
shares of Common Stock (including the issuance or sale of shares of Common Stock
owned or held by or for the account of the Company, but excluding shares of
Common Stock deemed to have been issued or sold by the Company in connection
with any Excluded Securities) for a consideration per share (the “New Issuance
Price”) less than a price (the “Applicable Price”) equal to the Conversion Price
in effect immediately prior to such issue or sale or deemed issuance or sale
(the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance the Conversion Price then in effect shall be reduced to an amount equal
to the New Issuance Price.  For purposes of determining the adjusted Conversion
Price under this Section 10.1, the following shall be applicable:
 
10.1.1           Issuance of Options.  If the Company in any manner grants or
sells any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange or exercise of any Convertible Securities issuable upon exercise of any
such Option is less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such price per
share.  For purposes of this Section 10.1.1, the “lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such
Options or upon conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of such Option” shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon granting or sale of the Option,
upon exercise of the Option and upon conversion or exchange or exercise of any
Convertible Security issuable upon exercise of such Option less any
consideration paid or payable by the Company with respect to such one share of
Common Stock upon the granting or sale of such Option, upon exercise of such
Option and upon conversion exercise or exchange of any Convertible Security
issuable upon exercise of such Option.  No further adjustment of the Conversion
Price shall be made upon the actual issuance of such shares of Common Stock or
of such Convertible Securities upon the exercise of such Options or upon the
actual issuance of such shares of Common Stock upon conversion or exchange or
exercise of such Convertible Securities.
 
 
 

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10.1.2           Issuance of Convertible Securities.  If the Company in any
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon the conversion or exchange
or exercise thereof is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities for
such price per share.  For the purposes of this Section 10.1.2), the “lowest
price per share for which one share of Common Stock is issuable upon the
conversion or exchange or exercise thereof” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion or exchange or exercise of such
Convertible Security less any consideration paid or payable by the Company with
respect to such one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion or exchange or exercise of such
Convertible Security.  No further adjustment of the Conversion Price shall be
made upon the actual issuance of such shares of Common Stock upon conversion or
exchange or exercise of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Conversion Price has been or is to be made pursuant to
other provisions of this Section 10.1, no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.
 
10.1.3           Change in Option Price or Rate of Conversion.  If the purchase
price provided for in any Options, the additional consideration, if any, payable
upon the issue, conversion, exchange or exercise of any Convertible Securities,
or the rate at which any Convertible Securities are convertible into or
exchangeable or exercisable for shares of Common Stock increases or decreases at
any time, the Conversion Price in effect at the time of such increase or
decrease shall be adjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities provided for such
increased or decreased purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold.  For purposes of this Section 10.1.3, if the terms of any Option or
Convertible Security that was outstanding as of the Subscription Date are
increased or decreased in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the shares of Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease.  No
adjustment pursuant to this Section 10.1 shall be made if such adjustment would
result in an increase of the Conversion Price then in effect.
 
 
 

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10.1.4           Calculation of Consideration Received.  In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction, (x) the Options will be deemed
to have been issued for the Option Value and (y) the other securities issued or
sold in such integrated transaction shall be deemed to have been issued or sold
for the difference of (I) the aggregate consideration received by the Company
less any consideration paid or payable by the Company pursuant to the terms of
such other securities of the Company, less (II) the Option Value.  If any shares
of Common Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration other than cash received
therefor will be deemed to be the net amount received by the Company
therefor.  If any shares of Common Stock, Options or Convertible Securities are
issued or sold for a consideration other than cash, the amount of such
consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the Closing
Sale Price of such securities on the date of receipt.  If any shares of Common
Stock, Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be.  The fair value of any consideration other than
cash or securities will be determined jointly by the Company and the Required
Holders.  If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the “Valuation Event”),
the fair value of such consideration will be determined within five (5) Business
Days after the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the Required
Holders.  The determination of such appraiser shall be final and binding upon
all parties absent manifest error and the fees and expenses of such appraiser
shall be borne by the Company.
 
10.1.5           Record Date.  If the Company takes a record of the holders of
shares of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in shares of Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase shares of Common
Stock, Options or Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
 
10.2           Adjustment of Conversion Price upon Subdivision or Combination of
Common Stock.  If the Company at any time on or after the Subscription Date
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced.  If the Company at any time on or
after the Subscription Date combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior to
such combination will be proportionately increased.
 
 
 

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10.3           Other Events.  If any event occurs of the type contemplated by
the provisions of this Section 10 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company’s Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided, that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 7.
 
10.4           Voluntary Adjustment by Company. The Company may at any time
during the term of this Note reduce the then current Conversion Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
 
11.           Miscellaneous.
 
11.1           Amendments, Waivers, and Consents.
 
11.1.1           Amendment and Waiver by the Requisite Holders.  The Notes,
including this Note, may be amended, modified, or supplemented, and waiver or
consents to departures from the provisions of the Notes may be given, if the
Makers and Majority Purchasers consent to the amendment; provided, however, that
no term of this Note may be amended or waived in such a way as to adversely
affect the Holder disproportionately to the holder or holders of any other Notes
without the written consent of the Holder.  Such consent may be effected by any
available legal means, including without limitation at a meeting, by written
consent, or otherwise.  Any such amendment or waiver shall apply to and be
binding upon the Holder of this Note, upon each future holder of this Note, and
upon the Makers, whether or not this Note shall have been marked to indicate
such amendment or waiver.  No such amendment or waiver shall extend to or affect
any obligation not expressly amended or waived or impair any right consequent
thereon.
 
11.1.2           Amendment and Waiver by the Holder.  Notwithstanding anything
to the contrary set forth herein, the provisions of this Note may be amended,
modified, or supplemented, and waiver or consents to departures from the
provisions hereof may be given, upon the written agreement of the Makers and the
Holder.  Neither the failure nor any delay in exercising any right, power, or
privilege under this Note will operate as a waiver of such right, power, or
privilege and no single or partial exercise of any such right, power, or
privilege by the Holder will preclude any other or further exercise of such
right, power, or privilege or the exercise of any other right, power, or
privilege.  To the maximum extent permitted by applicable law, (i) no waiver
that may be given by the Holder will be applicable except in the specific
instance for which it is given, and (ii) no notice to or demand on the Makers
will be deemed to be a waiver or any obligation of the Makers or of the right of
the Holder to take further action without notice or demand as provided in this
Note.
 
11.2           Severability.  In the event that for any reason one or more of
the provisions of this Note or their application to any person or circumstance
shall be held to be invalid, illegal, or unenforceable in any respect or to any
extent, such provision shall nevertheless remain valid, legal, and enforceable
in all such other respects and to such extent as may be permissible.  In
addition, any such invalidity, illegality, or unenforceability shall not affect
any other provisions of this Note, but this Note shall be construed as if such
invalid, illegal, or unenforceable provision had never been contained herein.
 
 
 

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11.3           Assignment; Binding Effect.  The Makers may not assign this Note
without the prior written consent of the Holder.  Any attempted assignment in
violation of this Section 11.3 shall be null and void.  Subject to the
foregoing, this Note inures to the benefit of the Holder, its successors and
assigns, and binds the Makers, and their respective successors and permitted
assigns, and the words “Holder” and “Maker” whenever occurring herein shall be
deemed and construed to include such respective successors and assigns.
 
11.4           Notice Generally.  All notices required to be given to any of the
parties hereunder shall be given as set forth in the Purchase Agreement.
 
11.5           Governing Law.  This Note will be governed by the laws of the
Commonwealth of Pennsylvania without regard to its conflicts of laws principles.
 
11.6           Section Headings, Construction.  The headings of Sections in this
Note are provided for convenience only and will not affect its construction or
interpretation.  All references to “Section” or “Sections” refer to the
corresponding Section or Sections of this Note unless otherwise specified.  All
words used in this Note will be construed to be of such gender or number as the
circumstances require.  Unless otherwise expressly provided, the words “hereof”
and “hereunder” and similar references refer to this Note in its entirety and
not to any specific section or subsection hereof.
 
11.7           Certain Definitions.  For purposes of this Note, the following
terms shall have the following meanings:
 
“Affiliate” means, with respect to any Person, any other Person that directly or
indirectly controls, is controlled by, or is under common control with, such
Person, it being understood for purposes of this definition that “control” of a
Person means the power directly or indirectly either to vote 10% or more of the
stock having ordinary voting power for the election of directors of such Person
or direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
 
“Approved Stock Plan” means any employee benefit plan which has been approved by
the Board of Directors of the Company, pursuant to which the Company's
securities may be issued to any employee, officer or director for services
provided to the Company.
 
    “Bloomberg” means Bloomberg Financial Markets.
 
“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.
 
“Change of Control” means any Fundamental Transaction other than (i) any
reorganization, recapitalization or reclassification of the Common Stock in
which holders of the Company's voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, are, in all material respect, the
holders of the voting power of the surviving entity (or entities with the
authority or voting power to elect the members of the board of directors (or
their equivalent if other than a corporation) of such entity or entities) after
such reorganization, recapitalization or reclassification or (ii) pursuant to a
migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.
 
 
 

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“Closing Bid Price” and “Closing Sale Price” means, for any security as of any
date, the last closing bid price and last closing trade price, respectively, for
such security on the Principal Market, as reported by Bloomberg, or, if the
Principal Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price, as the case may be,
then the last bid price or last trade price, respectively, of such security
prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the OTC Link or “pink sheets” by OTC Markets
Group Inc. (formerly Pink OTC Markets Inc.).  If the Closing Bid Price or the
Closing Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as
the case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder.  All such determinations to
be appropriately adjusted for any stock dividend, stock split, stock
combination, reclassification or similar transaction during the applicable
calculation period.
 
“Conversion Shares” means shares of Common Stock issuable by the Company
pursuant to the terms of any of the Notes.
 
“Convertible Securities” means any stock or securities (other than Options)
directly or indirectly convertible into or exercisable or exchangeable for
shares of Common Stock.
 
“Eligible Market” means the Principal Market, The New York Stock Exchange, The
NASDAQ Capital Market, The NASDAQ Global Market, The NASDAQ Global Select
Market, or the NYSE MKT.
 
“Excluded Securities” means any shares of Common Stock issued or issuable: (i)
in connection with any Approved Stock Plan; (ii) upon conversion of the Notes or
exercise of the Warrants; (iii) upon conversion or exercise of any Options or
Convertible Securities which are outstanding immediately preceding the execution
of the Purchase Agreement, provided that the terms of such Options or
Convertible Securities are not amended, modified or changed in any manner more
favorable to the holder thereof on or after such time; and (iv) securities
issued pursuant to acquisitions or strategic transactions approved by a majority
of the disinterested directors of the Company, provided that any such issuance
shall only be to a Person (or to the equity holders of a Person) which is,
itself or through its subsidiaries, an operating company or an owner of an asset
in a business synergistic with the business of the Company and shall provide to
the Company additional benefits in addition to the investment of funds, but
shall not include a transaction in which the Company is issuing securities for
the purpose of raising capital or to an entity whose primary business is
investing in securities.
 
 
 

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

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“Group” means a “group” as that term is used in Section 13(d) of the Exchange
Act and as defined in Rule 13d-5 thereunder.
 
“Make-Whole Amount” means, as to any Conversion Amount on any Conversion Date or
as to any Change of Control Redemption Price on any Change of Control Redemption
Date, the amount equal to any Interest that, but for (i) the Holder's exercise
of its conversion right pursuant to Section 7.3 or (ii) the Holder's exercise of
its redemption right pursuant to Section 8.2, would have accrued with respect to
the Conversion Amount being converted or redeemed under this Note at the
Interest Rate (assuming the Interest Rate then in effect as of the applicable
Conversion Date or Change of Control Redemption Date, as the case may be, is the
Interest Rate through the Maturity Date) for the period from the applicable
Conversion Date or Change of Control Redemption Date, as the case may be,
through the Maturity Date.
 
“Options” means any rights, warrants or options to subscribe for or purchase (i)
shares of Common Stock or (ii) Convertible Securities.
 
“Option Value” means the value of an Option based on the Black and Scholes
Option Pricing model obtained from the “OV” function on Bloomberg determined as
of (A) the Trading Day prior to the public announcement of the applicable Option
if the issuance of such Option is publicly announced or (B) the Trading Day
immediately following the issuance of the applicable Option if the issuance of
such Option is not publicly announced, for pricing purposes and reflecting (i) a
risk-free interest rate corresponding to the U.S. Treasury rate for a period
equal to the remaining term of the applicable Option as of the applicable date
of determination, (ii) an expected volatility equal to the greater of 100% and
the 100 day volatility obtained from the HVT function on Bloomberg as of the day
immediately following the public announcement of (A) the Trading Day immediately
following the public announcement of the applicable Option if the issuance of
such Option is publicly announced or (B) the Trading Day immediately following
the issuance of the applicable Option if the issuance of such Option is not
publicly announced, (iii) the underlying price per share used in such
calculation shall be the highest Weighted Average Price during the period
beginning on the day prior to the execution of definitive documentation relating
to the issuance of the applicable Option and the public announcement of such
issuance, (iv) a zero cost of borrow and (v) a 360 day annualization factor.
 
“Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person, including any Parent Entity whose common stock
or equivalent equity security is quoted or listed on an Eligible Market (or, if
so elected by the Required Holders, any other market, exchange or quotation
system), or, if there is more than one such Person or Parent Entity, the Person
or Parent Entity designated by the Required Holders or in the absence of such
designation, the Person or Parent Entity with the largest public market
capitalization as of the date of consummation of the Fundamental Transaction.
 
 
 

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“Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or
being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP, (ii) any statutory Lien
arising in the ordinary course of business by operation of law with respect to a
liability that is not yet due or delinquent, (iii) any Lien created by operation
of law, such as materialmen's liens, mechanics' liens and other similar liens,
arising in the ordinary course of business with respect to a liability that is
not yet due or delinquent or that are being contested in good faith by
appropriate proceedings, (iv) Liens (A) upon or in any equipment acquired or
held by the Company or any of its Subsidiaries to secure the purchase price of
such equipment or indebtedness incurred solely for the purpose of financing the
acquisition or lease of such equipment, or (B) existing on such equipment at the
time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment, (v) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in clause
(iv) above, provided that any extension, renewal or replacement Lien shall be
limited to the property encumbered by the existing Lien and the principal amount
of the Indebtedness being extended, renewed or refinanced does not increase,
(vi) leases or subleases and licenses and sublicenses granted to others in the
ordinary course of the Company's business, not interfering in any material
respect with the business of the Company and its Subsidiaries taken as a whole,
(vii) Liens in favor of customs and revenue authorities arising as a matter of
law to secure payments of custom duties in connection with the importation of
goods, and (viii) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 4(a)(ix).
 
“Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.
 
    “Principal Market” means the OTC Bulletin Board.
 
“Related Fund” means, with respect to any Person, a fund or account managed by
such Person or an Affiliate of such Person.
 
“Required Holders” means the holders of Notes representing at least sixty six
and two-thirds percent (66 2/3%) of the aggregate principal amount of the Notes
then outstanding.
 
    “SEC” means the United States Securities and Exchange Commission.
 
“Subject Entity” means any Person, Persons or Group or any Affiliate or
associate of any such Person, Persons or Group.
 
“Successor Entity” means one or more Person or Persons (or, if so elected by the
Holder, the Company or Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or one or more Person or Persons (or, if so elected by
the Holder, the Company or the Parent Entity) with which such Fundamental
Transaction shall have been entered into.
 
 
 

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“Trading Day” means any day on which the Common Stock is traded on the Principal
Market, or, if the Principal Market is not the principal trading market for the
Common Stock, then on the principal securities exchange or securities market on
which the Common Stock is then traded; provided that “Trading Day” shall not
include any day on which the Common Stock is scheduled to trade on such exchange
or market for less than 4.5 hours or any day that the Common Stock is suspended
from trading during the final hour of trading on such exchange or market (or if
such exchange or market does not designate in advance the closing time of
trading on such exchange or market, then during the hour ending at 4:00:00 p.m.,
New York Time).
 
“Warrants” has the meaning ascribed to such term in the Purchase Agreement, and
shall include all warrants issued in exchange therefor or replacement thereof.
 
“Warrant Shares” means shares of Common Stock issuable by the Company upon the
conversion of any of the Warrants.
 

 
[EXECUTION PAGE FOLLOWS]
 
 
 
 
 
 
 
 

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IN WITNESS WHEREOF, the Makers have executed and delivered this Note as of the
date first stated above.
 

 
BROADCAST INTERNATIONAL, INC.,
a Utah corporation
 
         
By:
/s/James E. Solomon
     
James E. Solomon
     
Chief Financial Officer
                           
BI ACQUISITIONS, INC.,
a Utah corporation
 
 
   
By:
/s/James E. Solomon
     
James E. Solomon
     
Chief Financial Officer
                           
INTERACT DEVICES, INC.,
a California corporation
 
 
   
By:
/s/James E. Solomon
     
James E. Solomon
     
Chief Financial Officer
 

 
 

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