EX-4.1






Exhibit 4.1




NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE, NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE CONVERTIBLE, HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), 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 SUCH SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER THE SECURITIES ACT.



THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT
(“OID”) WITHIN THE MEANING OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND CONSTITUTE
CONTINGENT PAYMENT DEBT INSTRUMENTS SUBJECT TO THE RULES SET FORTH IN TREASURY REGULATION SECTION
1.1275-4(b). THE HOLDER HEREOF MAY CONTACT THE CHIEF FINANCIAL OFFICER OF THE COMPANY AT THE
ADDRESS OF THE COMPANY SET FORTH HEREIN WHO WILL, BEGINNING NO LATER THAN 10 DAYS AFTER THE ISSUE
DATE, PROMPTLY MAKE AVAILABLE TO HOLDERS UPON REQUEST THE FOLLOWING INFORMATION WITH RESPECT TO THE
SECURITIES: ISSUE PRICE, AMOUNT OF OID, ISSUE DATE, YIELD TO MATURITY, COMPARABLE YIELD AND
PROJECTED PAYMENT SCHEDULE.



IN ADDITION TO THE FOREGOING RESTRICTIONS, ANY AND ALL SALES, TRANSFERS, ASSIGNMENTS OR OTHER
DISPOSITIONS OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE (INCLUDING THE SECURITIES INTO
WHICH THESE SECURITIES ARE CONVERTIBLE) ARE SUBJECT TO THE RESTRICTIONS SET FORTH IN SECTION 8 OF
THIS CERTIFICATE. ANY PURPORTED SALE, TRANSFER, ASSIGNMENT OR OTHER DISPOSITION OF SUCH SECURITIES
THAT FAILS TO COMPLY WITH SUCH RESTRICTIONS SHALL BE NULL AND VOID.




 









 








Vector Group Ltd.




6.75% Variable Interest Senior Convertible Note due 2014




CUSIP NO. 92240M AQ1




			
	 	 	 
	 
	 	No. 001
 


	Issue Date: May 11, 2009
	 	Principal: U.S. $50,000,000






     FOR VALUE RECEIVED, VECTOR GROUP LTD., a corporation duly organized and validly existing under
the laws of the State of Delaware (the “Company”), HEREBY PROMISES TO PAY to FROST NEVADA
INVESTMENTS TRUST, or registered assigns, (i) the principal sum of fifty million United States
Dollars ($50,000,000) (such principal sum, as it may be reduced from time to time, in whole or in
part, pursuant to a repurchase or conversion of this Security, or otherwise in accordance with the
definition of “Outstanding” below, being “Principal Amount [Then] Outstanding” of this Security) on
November 15, 2014 (the “Stated Maturity”), and (ii) interest on the Principal Amount Outstanding
from time to time, payable quarterly in arrears on each Interest Payment Date (such term and
certain other capitalized terms being used herein as defined in Section 11 hereof), in each case at
the rate of 3.75% per annum plus additional amounts, if any (as provided in Section 2(b) hereof),
but, in any event, at a minimum rate of 6.75% per annum, all as further provided in Section 2
hereof.



     This Variable Interest Senior Convertible Note (including all Securities issued in exchange,
transfer or replacement hereof or any other Security) is one of an issue of Securities issued
pursuant to the Purchase Agreement, to which reference is made for any additional rights and
obligations of the Holder hereof and the Company.



     Reference is also made to the remaining provisions of this Security, including, without
limitation, provisions giving the Holder the right to convert this Security into Common Stock of
the Company and the right to require the Company to repurchase this Security upon certain events,
in each case, on the terms and subject to the limitations hereof.



     Section 1. PAYMENTS.



          (a) The Company shall duly and punctually make, on the Payment Date when due (determined in
accordance with the terms hereof), each payment on or in respect of this Security (including,
without limitation, payments of all or, as applicable, a portion of the Principal Amount
Outstanding, interest thereon and any Fundamental Change Repurchase Price) to the Holder of this
Security (determined as of the Record Date for such Payment Date in accordance with the definition
of “Holder”) and otherwise in accordance with the terms of this Security.



 









 





          (b) Except as otherwise specified in this Security, the Company shall make available each
payment hereunder on the Payment Date when due by wire transfer in
immediately available funds to the Holder; provided that if, within ten days prior to the
Applicable Payment Date, the Company does not receive from a Holder written notice setting forth
wire instructions for such payment, such payment shall be in cash, at the office or agency of the
Company in the City of Miami, Florida, or in the City of New York maintained for such purpose or at
any other office or agency maintained by the Company for such purpose. All payments hereunder
shall be made in U.S. dollars.



          (c) Any payments due or made pursuant to this Security shall be considered paid when due on
the applicable Payment Date, if by 12:00 noon (New York City time) on such Payment Date, the
Company has made available sufficient funds at its office or agency, has mailed the check or has
initiated the wire transfer for such payment, as required pursuant to Section 1(b).



          (d) If any Interest Payment Date or other Payment Date, Stated Maturity, or Fundamental Change
Settlement Date of any Security shall not be a Business Day, then, anything in this Security or
other Securities to the contrary notwithstanding, the payments otherwise required to be made on
such date may be made on the next succeeding Business Day, with the same force and effect as if
made on such date; provided, that no interest shall accrue with respect to such payment for the
period from and after such Interest Payment Date, other Payment Date, Stated Maturity or
Fundamental Change Settlement Date.



     Section 2. INTEREST.



          (a) Except in the circumstances and to the extent otherwise set forth in Section 6(c),
interest on this Security shall accrue at the rates and in the amounts set forth in Section 2(b),
and shall be payable quarterly in arrears, on each Interest Payment Date, to the Holder hereof (as
determined in accordance with Section 1(a)). Thirty days prior to each Interest Payment Date, the
Company shall notify the Holders of Securities of the interest payment due on such Interest Payment
Date. Such notice shall also set forth the Company’s calculation of such payment, which shall be
based in accordance with Sections 2(b) and 2(c).



          (b) Interest on this Security shall accrue at a rate of 3.75% per annum (except at such other
rate, in such circumstances, and for such period as otherwise set forth in Section 6(c)). On each
Interest Payment Date, an additional sum shall be payable as interest on this Security equal to the
Additional Interest Amount (as defined in the last sentence of this Section 2(b)). Notwithstanding
the foregoing, interest on this Security shall accrue at the rate of 6.75% per annum if such rate
would produce a greater amount of interest payable on any Interest Payment Date which includes any
portion of such period than would result under the first two sentences (and the last sentence) of
this Section 2(b). As used herein, the “Additional Interest Amount” for any Interest Payment Date
shall equal the product of (1) the number of shares of Common Stock into which this Security was
convertible on the Record Date for such Interest Payment Date, and (2) the cash dividends or cash
distributions (whether periodic, special, extraordinary, nonrecurring, or other) paid by the
Company per share of Common Stock during the three-month period ending on such Record Date (all
such determinations to be appropriately adjusted for any stock dividend, stock split, stock
combination or other transaction during the applicable calculation period).



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          (c) Interest on this Security shall be computed on the basis of a 360-day year comprising
twelve 30-day months, and shall accrue from the most recent Interest Payment Date to which interest
hereon has been paid (or if no interest hereon has been paid, from the Original Issue Date), until
the Principal Amount Outstanding of this Security is paid in full (together with unpaid interest
theretofore accrued thereon).



     Section 3. CONVERSION.



          (a) Conversion Privilege. (i) Subject to the further provisions of this Section 3,
at any time or times after the Issue Date, a Holder of a Security may convert the Principal Amount
Outstanding of such Security (or any portion thereof equal to $1,000 or any integral multiple of
$1,000 in excess thereof) into shares of Common Stock at any time prior to the close of business on
the Business Day prior to the Stated Maturity.



               (ii) Conversion Period. Notwithstanding the foregoing, if such Security is presented
for repurchase pursuant to Section 4, such conversion right shall terminate at the close of
business on the last day of the Fundamental Change Conversion/Repurchase Period for such Security
(unless the Company shall default on payment when due of the Fundamental Change Repurchase Price,
in which case the conversion right shall extend to the close of business on the date such default
is cured and such Security is repurchased).



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



               (iv) Securities Converted in Whole or in Part. Provisions of this Security that apply
to conversion of all of a Security also apply to conversion of a portion of a Security.



               (v) Rights of Holders. Unless otherwise provided herein, a Holder of Securities is
not entitled to any rights of a holder of Common Stock until such Holder has converted its
Securities to Common Stock, and only to the extent such Securities are deemed to have been
converted into Common Stock pursuant to this Section 3.



          (b) Conversion Procedure.



               (i) To convert a Security (or any portion thereof) into shares of Common Stock on any date (a
“Conversion Date”), a Holder must (A) complete and manually sign the conversion notice on the back
of this Security (or a facsimile of the conversion notice) specifying the Principal Amount
Outstanding of such Security such Holder seeks to convert and deliver such notice in the form
attached hereto as Exhibit A (the “Notice of Conversion”) to the Company, (B) surrender the
Security to the Company, (C) furnish appropriate endorsements and transfer documents if required by
the Company, and (D) pay any transfer or similar tax in accordance with Section 3(d), if required.



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               (ii) The Company will, as soon as practicable after a Conversion Date, but in no event later
than three Trading Days following the delivery of a
Notice of Conversion (the “Share Delivery Date”) issue, or cause to be issued, to such Holder,
or such Holder’s nominee or nominees, certificates for the number of full shares of Common Stock,
if any, to which such Holder shall be entitled. The Person or Persons entitled to receive such
Common Stock upon such conversion shall be treated for all purposes as the record holder or holders
of such Common Stock, as of the close of business on the applicable Conversion Date;
provided, however, that no surrender of a Security on any date when the stock
transfer books of the Company shall be closed shall be effective to constitute the Person or
Persons entitled to receive the shares of Common Stock upon such conversion as the record holder or
holders of such shares of Common Stock on such date, but such surrender shall be effective to
constitute the Person or Persons entitled to receive such shares of Common Stock as the record
holder or holders thereof for all purposes at the close of business on the next succeeding day on
which such stock transfer books are open; provided further, that such conversion
shall be at the Conversion Price in effect on the Conversion Date as if the stock transfer books of
the Company had not been closed. Upon conversion in full of a Security, such Person shall no
longer be a Holder of such Security. Except as otherwise provided in Section 3(f), no payment or
adjustment will be made for dividends or distributions on shares of Common Stock issued upon
conversion of a Security.



          Holders converting any Securities or portions thereof shall be entitled to receive any accrued
and unpaid interest on the Principal Amount Outstanding being converted as of a Conversion Date,
subject to the remainder of this paragraph. If the Conversion Date occurs between the close of
business on the Record Date and the opening of business on the immediately following Interest
Payment Date, the Company shall pay to the applicable Holder in cash, on such Interest Payment
Date, an amount equal to the accrued and unpaid interest through the Conversion Date on the
Principal Amount Outstanding of Securities such Holder is converting; provided,
however, if the Company pays such Holder on such Interest Payment Date an amount equal to
the interest otherwise payable to such Holder as if such Holder had not converted any Security or
portion thereof prior to such Interest Payment Date, such Holder shall promptly pay to the Company
an amount equal to the difference between (1) such interest payment received and (2) the amount of
accrued and unpaid interest through the Conversion Date for the Principal Amount Outstanding
converted by such Holder. If the Conversion Date occurs prior to the close of business on the
Record Date, the Company shall pay to the applicable Holder in cash, within three Business Days of
such Conversion Date, an amount equal to the accrued and unpaid interest through the Conversion
Date on the Principal Amount Outstanding of Securities such Holder is converting.



               (iii) Company’s Failure to Timely Convert. If within three Trading Days after the
delivery by such Holder of a Notice of Conversion the Company shall, or if following the Company’s
request to deliver Common Stock the Company shall, fail to issue and deliver or cause to be
delivered to such Holder, or such Holder’s nominee or nominees, such number of shares of Common
Stock to which such Holder is entitled upon such Holder’s conversion of any Securities, and if on
or after such Trading Day such Holder purchases (in an open market transaction or otherwise) shares
of Common Stock to deliver in satisfaction of a sale by such Holder of shares of Common Stock
issuable upon such conversion that such Holder anticipated receiving from the Company (a “Buy-In”),
then the Company shall, within three Business Days after such Holder’s request and in such Holder’s
discretion, either (A) pay cash to such Holder in an amount equal to such Holder’s total purchase
price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at
which point the Company’s obligation to deliver such certificate (and to issue such Common Stock)
shall terminate, or (B) promptly honor its obligation to deliver to such Holder a certificate or
certificates representing such Common Stock and pay cash to such Holder in an amount equal to the
excess (if any) of the Buy-In Price over the product of (1) such number of shares of Common Stock,
times (2) the Closing Price of the Common Stock on the Conversion Date.



4









 





                (iv) If a Holder converts more than one Security at the same time, the number of shares of
Common Stock issuable upon the conversion shall be based on the aggregate Principal Amount
Outstanding of Securities converted.



                (v) The conversion by a Holder following its receipt of the Fundamental Change Company Notice
during the Fundamental Change Conversion/Repurchase Period shall be a “Fundamental Change
Conversion.”



                (vi) Upon surrender of a Security that is converted in part, the Company shall execute and
deliver to the applicable Holder, as soon as practicable but in no event later than ten Business
Days after receipt of such Security, a new Security equal in Principal Amount Outstanding to the
unconverted portion of the Security surrendered.



                (vii) If the last day on which a Security may be converted is not a Business Day in a place
where the Company is located, the Securities may be surrendered to the Company on the next
succeeding Business Day.



                (viii) Holders that have already delivered a Fundamental Change Repurchase Notice with respect
to a Security may not surrender such Security for conversion until the Fundamental Change
Repurchase Notice has been withdrawn in accordance with the procedures set forth in Section 4(b).



          (c) No Fractional Shares. 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 to the
nearest whole share.



          (d) Taxes on Conversion. If a Holder converts a Security, the Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issuance of shares of Common Stock
upon such conversion. However, a Holder shall pay any such tax which is due because such Holder
requests the shares of Common Stock to be issued in a name other than such Holder’s name. The
Company may refuse to deliver the certificate representing the shares of Common Stock being issued
in a name other than a Holder’s name until the Company receives a sum sufficient to pay any tax
which will be due because the shares of Common Stock are to be issued in a name other than such
Holder’s name. Nothing herein shall preclude any tax withholding required by law or regulation.



5









 





          (e) Company to Provide Stock. (i) The Company shall, prior to issuance of any
Securities hereunder, and from time to time as may be necessary, reserve, out of its authorized but
unissued Common Stock, a sufficient number of shares of Common Stock to
permit the conversion of all Securities then Outstanding into shares of Common Stock
(including after taking into account any adjustments to the Conversion Price pursuant to Section
3(f).



               (ii) All shares of Common Stock delivered upon conversion of the Securities shall be newly
issued shares, shall be duly authorized, validly issued, fully paid and non-assessable, and shall
be free from preemptive rights and free of any lien or adverse claim.



               (iii) The Company will endeavor promptly to comply with all federal and state securities laws
regulating the offer and delivery of shares of Common Stock upon conversion of Securities, if any,
and will list or cause to have quoted such shares of Common Stock on the NYSE, the NYSE Amex, the
NASDAQ Global Market, the NASDAQ Capital Market or other over-the-counter market or such other
exchange or market on which the Common Stock is then listed or quoted. Any Common Stock issued
upon conversion of a Security hereunder which at the time of conversion was a Transfer Restricted
Security shall remain a Transfer Restricted Security.



          (f) Adjustment of Conversion Price. The Conversion Price shall be adjusted from time
to time by the Company as follows:



               (i) In case the Company shall (A) pay a dividend on its Common Stock in shares of Common
Stock, (B) make a distribution on its Common Stock in shares of Common Stock, (C) subdivide its
outstanding Common Stock into a greater number of shares, or (D) combine its outstanding Common
Stock into a smaller number of shares, the Conversion Price in effect immediately prior thereto
shall be adjusted so that the Holder of any Security thereafter surrendered for conversion shall be
entitled to receive that number of shares of Common Stock which it would have owned had such
Security been converted immediately prior to the happening of such event. An adjustment made
pursuant to this Section 3(f)(i) shall become effective on the opening of business after the
“record date” (as defined in Section 3(f)(vi)), in the case of a dividend or distribution, and
shall become effective on the opening of business after the effective date, in the case of
subdivision or combination.



               (ii) In case the Company shall issue rights, options or warrants (other than pursuant to a
stockholder rights plan) to all or substantially all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into or exercisable or
exchangeable for Common Stock) at a price per share (or having a conversion, exercise or exchange
price per share) less than the Current Market Price per share of Common Stock on the record date
with respect to such issuance, (or if no such record date is fixed, the Business Day immediately
prior to the date of announcement of such issuance) (treating the conversion, exercise or exchange
price per share of such securities convertible into or exercisable or exchangeable for Common Stock
as equal to the quotient of (A) the sum of (x) the price for a unit of such security convertible
into or exercisable or exchangeable for Common Stock and (y) any additional consideration initially
payable upon the conversion of such security into or exercise or exchange of such security for
Common Stock to (B) the number of shares of Common Stock initially underlying such security), the
Conversion Price in effect shall be adjusted so that the Conversion Price shall equal the price
determined by multiplying the
Conversion Price in effect at the opening of business on the date after such record date (or
if no such record date is fixed, the applicable Business Day) by a fraction of which;



6









 





                    (A) the numerator shall be the number of shares of Common Stock outstanding on the close of
business on the record date (or, if no such record date is fixed, the date of announcement of such
issuance), plus the number of shares which the aggregate subscription or purchase price for the
total number of shares of Common Stock underlying the rights options, or warrants so issued (or the
aggregate conversion, exercise or exchange price of such securities so offered) would purchase at
such Current Market Price of the Common Stock; and



                    (B) the denominator shall be the number of shares of Common Stock outstanding at the close of
business on the record date with respect to such issuance (or, if no such record date is fixed, the
date immediately prior to the date of announcement of such issuance), plus the total number of
additional shares of Common Stock underlying the rights, options or warrants so issued.



                    Such adjustment shall be made successively whenever any such rights, options or warrants are
issued, and shall become effective on the day following the date of announcement of such issuance.



               (iii) (1) In case the Company shall distribute to all or substantially all holders of its
Common Stock any shares of Capital Stock of the Company (other than Common Stock), evidences of
indebtedness or other non-cash assets (including securities of any person other than the Company
but excluding (x) the portion of any dividends or distributions paid in cash, (y) dividends or
distributions referred to in Section 3(f)(i) or (z) distributions made in connection with the
liquidation, dissolution or winding up of the Company), or shall distribute to all or substantially
all holders of its Common Stock rights, options or warrants to subscribe for or purchase any of its
securities (excluding those rights, options and warrants referred to in Section 3(f)(ii) and also
excluding the distribution of rights to all holders of Common Stock pursuant to a Rights Plan or
the detachment of such rights to the extent set forth in Section 3(f)(iii)(2)), then, in each such
case, the Conversion Price shall be adjusted to equal the price determined by multiplying the
Conversion Price in effect at the opening of business on the date after the record date for such
distribution (or if no such record date is fixed, the applicable Business Day) by a fraction of
which:



                    (A) the numerator shall be the Current Market Price per share of the Common Stock on such
record date, less the fair market value on such record date (as determined by the Board of
Directors, whose determination shall be conclusive evidence of such fair market value and which
shall be evidenced by an Officers’ Certificate delivered to the Holder) of the portion of the
distributed assets (other than cash) so distributed applicable to one share of Common Stock
(determined on the basis of the number of shares of Common Stock outstanding on the record date);
and



                    (B) the denominator shall be such Current Market Price on such record date.



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               Such adjustment shall be made successively whenever any such distribution is made and shall
become effective immediately after the record date for the determination of shareholders entitled
to receive such distribution.



               (2) In the event that the Company has in effect a preferred shares rights plan (“Rights
Plan”), then, upon conversion of the Securities into Common Stock, to the extent that the Rights
Plan is still in effect upon such conversion, the Holders will receive, in addition to the Common
Stock, the rights described therein (whether or not the rights have separated from the Common Stock
at the time of conversion), subject to the limitations set forth in the Rights Plan. If the Rights
Plan provides that upon separation of rights under such plan from the Common Stock that the Holders
would not be entitled to receive any such rights in respect of the Common Stock issuable upon
conversion of the Securities, the Conversion Price will be adjusted as provided in this Section
3(f)(iii) (with such separation deemed to be the distribution of such rights), subject to
readjustment in the event of the expiration, termination or redemption of the rights. Any
distribution of rights or warrants pursuant to a Rights Plan that would allow a Holder to receive
upon conversion, in addition to the Common Stock, the rights described therein (whether or not the
rights have separated from the Common Stock at the time of conversion), shall not constitute a
distribution of rights, options or warrants pursuant to this Section 3.



               (3) Rights, options or warrants distributed by the Company to all holders of Common Stock
entitling the holders thereof to subscribe for or purchase shares of the Company’s Capital Stock
(either initially or under certain circumstances), which rights, options or warrants, until the
occurrence of a specified event or events (“Trigger Event”): (A) are deemed to be transferred with
such shares of Common Stock; (B) are not exercisable; and (C) are also issued in respect of future
issuances of Common Stock, shall be deemed not to have been distributed for purposes of this
Section 3(f) (and no adjustment to the Conversion Price under this Section 3(f) will be required)
until the occurrence of the earliest Trigger Event, whereupon such rights, options and warrants
shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the
Conversion Price shall be made under this Section 3(f)(iii). If any such right or warrant,
including any such existing rights, options or warrants distributed prior to the Original Issue
Date, are subject to events, upon the occurrence of which such rights, options or warrants become
exercisable to purchase different securities, evidences of indebtedness or other assets, then the
date of the occurrence of any and each such event shall be deemed to be the date of distribution
and record date with respect to new rights, options or warrants with such rights (and a termination
or expiration of the existing rights, options or warrants without exercise by any of the holders
thereof). In addition, in the event of any distribution (or deemed distribution) of rights,
options or warrants, or any Trigger Event or other event (of the type described in the preceding
sentence) with respect thereto that was counted for purposes of calculating a distribution amount
for which an adjustment to the Conversion Price under this Section 3(f) was made, in the case of
any such rights, options or warrants which shall all have been redeemed or repurchased without
exercise by any holders thereof, the Conversion Price shall be readjusted upon such final
redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be,
as though it were a cash distribution, equal to the per share redemption or repurchase price
received by a holder or holders of Common Stock with respect to such rights, options or warrants
(assuming such holder
had retained such rights, options or warrants), made to all holders of Common Stock as of the
date of such redemption or repurchase.



8









 





               (iv) In case the Company or any of its Subsidiaries shall purchase any shares of the Company’s
Common Stock by means of a tender offer, then, effective immediately prior to the opening of
business on the day after the last date (the “Expiration Date”) tenders could have been made
pursuant to such tender offer (as it may be amended) (the last time at which such tenders could
have been made on the Expiration Date is hereinafter sometimes called the “Expiration Time”), the
Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying
the Conversion Price in effect immediately prior to the close of business on the Expiration Date by
a fraction of which:



                    (A) the numerator shall be the product of the number of shares of Common Stock outstanding
(including Purchased Shares, but excluding any shares held in the treasury of the Company)
immediately prior to the Expiration Time multiplied by the Current Market Price per share of the
Common Stock (as determined in accordance with Section 3(f)(v)); and



                    (B) the denominator shall be the sum of (1) the aggregate consideration (determined as set
forth below) payable to stockholders of the Company based on the acceptance (up to any maximum
specified in the terms of the tender offer) of all shares validly tendered and not withdrawn as of
the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as
the “Purchased Shares”) and (2) the product of the number of shares of Common Stock outstanding
(less any Purchased Shares and excluding any shares held in the treasury of the Company)
immediately prior to the Expiration Time and the Current Market Price per share of Common Stock (as
determined in accordance with Section 3(f)(v)).



          For purposes of this Section 3(f)(iv), the aggregate consideration in any such tender offer
shall equal the sum of the aggregate amount of cash consideration and the aggregate fair market
value (as determined by the Board of Directors, whose determination shall be conclusive evidence
thereof and which shall be evidenced by an Officers’ Certificate delivered to Holders) of any other
consideration payable in such tender offer. In the event that the Company is obligated to purchase
shares pursuant to any such tender offer, but the Company is permanently prevented by applicable
law from effecting any or all such purchases or any or all such purchases are rescinded, the
Conversion Price shall again be adjusted to be the Conversion Price which would have been in effect
based upon the number of shares actually purchased. If the application of this Section 3(f)(iv) to
any tender offer would result in an increase in the Conversion Price, no adjustment shall be made
for such tender offer under this Section 3(f)(iv). For purposes of this Section 3(f)(iv), the term
“tender offer” shall mean and include both tender offers and exchange offers, and all references to
“purchases” of shares in tender offers (and all similar references) shall mean and include both the
purchase of shares in tender offers and the acquisition of shares pursuant to exchange offers.



9









 





               (v) For the purpose of any computation under Sections 3(f)(ii) and 3(f)(iii), the current
market price (the “Current Market Price”) per share of Common Stock on any date shall be deemed to
be the average of the daily Closing Prices for the ten consecutive
Trading Days commencing 11 Trading Days before the record date with respect to distributions,
issuances or other events requiring such computation under Section 3(f). For purposes of any
computation under Section 3(f)(iv), the Current Market Price per share of Common Stock shall be
deemed to be the arithmetic average of the daily Closing Prices for the ten consecutive Trading
Days commencing on the Trading Day next succeeding the Expiration Date.



               (vi) For the purpose of this Section 3(f), “record date” shall mean, with respect to any
dividend, distribution or other transaction or event in which the holders of Common Stock have the
right to receive any cash, securities or other property or in which the Common Stock (or other
applicable security) is exchanged for or converted into any combination of cash, securities or
other property, the date fixed for determination of stockholders entitled to receive such cash,
securities or other property (whether such date is fixed by the Board of Directors or by statute,
contract or otherwise).



               (vii) In any case in which this Section 3(f) shall require that an adjustment be made to the
Conversion Price, in lieu of the foregoing adjustment, the Company may, at its option, distribute,
concurrently with the distribution to the holders of the outstanding Common Stock, shares of Common
Stock, rights, options, warrants, any shares of Capital Stock of the Company (other than Common
Stock), evidences of indebtedness or other non-cash assets (or the fair market value, as reasonably
determined by the Board of Directors of the Company, of the foregoing in cash) that such Holder of
Securities would have been entitled to receive, as applicable, had such Security been converted
immediately prior to the happening of the record date relating to the event that would have caused
such adjustment.



               (viii) In any case in which this Section 3(f) shall require that an adjustment be made
following a record date, an announcement date or Expiration Date, as the case may be, established
for purposes of this Section 3(f), the Company may elect to defer (but only until five Business
Days following the filing by the Company with the Holders of the certificate described in Section
3(h)) issuing to the Holder of any Security converted after such record date, announcement date or
Expiration Date the shares of Common Stock and other Capital Stock of the Company issuable upon
such conversion over and above the shares of Common Stock and other capital stock of the Company
issuable upon such conversion only on the basis of the Conversion Rate prior to adjustment; and, in
lieu of the shares the issuance of which is so deferred, the Company shall issue or cause its
transfer agents to issue due bills or other appropriate evidence prepared by the Company of the
right to receive such shares.



          (g) No Adjustment. (i) No adjustment need be made for issuances of Common Stock
pursuant to a Company plan for reinvestment of dividends or interest or for a change in the par
value or a change to no par of the Common Stock.



               (ii) To the extent that the Securities become convertible into the right to receive cash, no
adjustment need be made thereafter as to the cash. Interest will not accrue on the cash due.



               (iii) No adjustment in the Conversion Price shall be made pursuant to Section 3(f) if the
Holders (in their capacity as Holders) participate in the transaction that would otherwise give
rise to an adjustment pursuant to Section 3(f).



10









 





               (iv) No adjustment in the Conversion Price shall be made for issuances of cash dividends or
cash distributions, whether periodic, special, extraordinary, non-recurring or other, which the
Holder is entitled to receive and does receive as interest pursuant to Section 2.



               (v) Other than as described above in Section 3(f), no adjustment to the Conversion Price shall
be required for any issuance of Common Stock or convertible or exchangeable securities or rights to
purchase Common Stock or convertible or exchangeable securities.



          (h) Notice of Conversion Price Adjustment. Whenever the Conversion Price is adjusted,
the Company shall promptly mail to Holders of Securities a notice of the adjustment and an
Officers’ Certificate briefly stating the facts requiring the adjustment and the manner of
computing it. Unless and until the Holders shall receive an Officers’ Certificate setting forth an
adjustment of the Conversion Price, the Holders may assume without inquiry that the Conversion
Price has not been adjusted and that the last Conversion Price of which it has knowledge remains in
effect.



          (i) Notice of Certain Transactions. In the event that:



               (i) the Company takes any action which would require an adjustment in the Conversion Price
(other than the issuance of dividends in the form of Common Stock);



               (ii) the Company consolidates or merges with, or transfers all or substantially all of its
property and assets to, another corporation and stockholders of the Company must approve the
transaction; or



               (iii) there is a dissolution or liquidation of the Company,



          THEN the Company shall mail to Holders a notice stating the proposed record or effective date,
as the case may be. The Company shall mail the notice at least 20 days before such date. Failure
to mail such notice or any defect therein shall not affect the validity of any transaction referred
to in clause (i), (ii) or (iii) of this Section 3(i).



          (j) Effect of Reclassification on Conversion Privilege. If there is any
reclassification or change of shares of Common Stock issuable upon conversion of the Securities
(other than a change in par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination, or any other change for which an adjustment
is provided in Section 3(f)); then the Company or its successor, as the case may be, shall, as a
condition precedent to such reclassification, execute and deliver to the Holders an amended
Security providing that the Holder of each Security then Outstanding shall have the right to
convert such Security into the kind and amount of shares of stock and other securities and property
(including cash) receivable upon such reclassification by a holder of the number of shares of
Common Stock issuable upon conversion of such Security immediately prior to such reclassification.
Such amended Security shall provide for adjustments of the Conversion Price which shall be as
nearly equivalent as may be practicable to the adjustments of the Conversion
Price provided for in this Section 3. The provisions of this Section 3(j) shall similarly
apply to successive reclassifications.



11









 





     Section 4. REPURCHASE UPON A FUNDAMENTAL CHANGE.



          (a) Repurchase of Securities at the Option of the Holder Upon Fundamental Change.



               (i) General. If, prior to the Stated Maturity, there shall have occurred a
Fundamental Change, each Holder shall have the option to require all or a portion (which portion
must be in a Principal Amount Outstanding of $1,000 or integral multiples thereof) of its
Securities to be repurchased (the “Fundamental Change Repurchase”) by the Company at the
Fundamental Change Repurchase Price on the Fundamental Change Settlement Date in accordance with
the following procedures. The “Fundamental Change Repurchase Price” means the Principal Amount
Outstanding of the Securities to be repurchased, together with accrued and unpaid interest to, but
excluding, the Fundamental Change Settlement Date.



               (ii) Company Notice of Fundamental Change. Within five Business Days after the
Company (x) knows or reasonably should know, actually or constructively, either of the occurrence
of a Fundamental Change or that, but for the passage of time a Fundamental Change will occur, or
(y) enters into an agreement pursuant to which the Company reasonably believes that a Fundamental
Change will occur, the Company shall deliver a written notice of Fundamental Change, in the form
attached hereto as Exhibit B (the “Fundamental Change Company Notice”) by first-class mail
or by overnight courier to each Holder (and to beneficial owners as required by applicable law).
The notice shall include a form of Fundamental Change Repurchase Notice to be completed by the
Holder and shall state, to the extent such information is known by the Company as of the date of
such Fundamental Change Repurchase Notice:



                    (A) the events causing a Fundamental Change and the date of such Fundamental Change;



                    (B) the last date of the Fundamental Change Conversion/Repurchase Period by which a Holder
must deliver a Fundamental Change Repurchase Notice to elect the repurchase option pursuant to this
Section 4(a) or deliver a Notice of Conversion requesting conversion upon a Fundamental Change in
accordance with Section 3(b);



                    (C) the Fundamental Change Settlement Date;



                    (D) the Fundamental Change Repurchase Price;



                    (E) the Conversion Price applicable on the date of the Fundamental Change Company Notice;



                    (F) that Securities may be converted in connection with a Fundamental Change and any
Securities as to which a Fundamental Change Repurchase Notice
has been given may be converted pursuant to Section 3 hereof only if the Fundamental Change
Repurchase Notice has been withdrawn in accordance with the terms of this Security;



12









 





                    (G) that Securities must be surrendered to the Paying Agent for cancellation to collect
payment;



                    (H) that the Fundamental Change Repurchase Price for any Security as to which a Fundamental
Change Repurchase Notice has been duly given and not withdrawn will be paid promptly following the
later of the Fundamental Change Settlement Date and the time of surrender of such Security as
described in clause (G) above;



                    (I) the procedures the Holder must follow to exercise rights under this Section 4(a);



                    (J) the procedures for withdrawing a Fundamental Change Repurchase Notice;



                    (K) that, unless the Company defaults in making payment of the Fundamental Change Repurchase
Price, if requested, Securities covered by any Fundamental Change Repurchase Notice will cease to
be outstanding and interest will cease to accrue on and after the Fundamental Change Settlement
Date; and



                    (L) the CUSIP number of the Securities.



               The Company shall promptly, but in no event later than five Business Days after receiving such
information, supplement such Fundamental Change Repurchase Notice with any information required by
this Section 4(a)(ii) to be included in such Fundamental Change Repurchase Notice but which
information was not known by the Company as of the original date of such notice.



               (iii) Fundamental Change Repurchase Notice. In order to exercise its rights under
Section 4(a) hereof, a Holder must deliver to the Paying Agent:



                    (A) a written notice of repurchase substantially in the form of Exhibit B hereto (a
“Fundamental Change Repurchase Notice”), at any time during the Fundamental Change
Conversion/Repurchase Period, and include thereon:



                         (1) the certificate number of the Security which the Holder will deliver to be repurchased;



                         (2) the portion of the Principal Amount Outstanding of the Security which the Holder will
deliver to be repurchased, which portion must be in a Principal Amount Outstanding of $1,000 or
integral multiples thereof; and



                         (3) that such Security shall be purchased as of the Fundamental Change Settlement Date
pursuant to the terms and conditions specified in the Securities and in this Security; and



13









 





                    (B) the Security for cancellation prior to, on or after the Fundamental Change Settlement Date
(together with all necessary endorsements) at the offices of the Paying Agent, such delivery being
a condition to receipt by the Holder of the Fundamental Change Repurchase Price therefor;
provided that such Fundamental Change Repurchase Price shall be so paid pursuant to this
Section 4(a) only if the Security so delivered to the Paying Agent shall conform in all respects to
the description thereof in the related Fundamental Change Repurchase Notice.



          Provisions of this Security that apply to the repurchase of all of a Security also apply to
the repurchase of such portion of such Security.



               (iv) Payment of Fundamental Change Repurchase Price. The Securities to be repurchased
pursuant to this Section 4(a) shall be paid for by the payment to the Holder of the Fundamental
Change Repurchase Price either in cash or by wire transfer of immediately available funds, at the
option of the Holder; provided that if, within ten days prior to the applicable Fundamental Change
Settlement Date, the Paying Agent does not receive from a Holder written notice to the Paying Agent
by a Holder requesting wire transfer of such payment and setting forth wire instructions therefor,
such payment shall be in cash.



               (v) Procedure Upon Repurchase. The Company shall deposit cash at the time and in the
manner as provided in Section 4(d), sufficient to pay the aggregate Fundamental Change Repurchase
Price of all Securities to be repurchased pursuant to this Section 4(a).



          (b) Effect of Fundamental Change Repurchase Notice. Upon receipt by the Paying Agent
of the Fundamental Change Repurchase Notice specified in Section 4(a)(iii), the Holder of the
Security in respect of which such Fundamental Change Repurchase Notice was given shall (unless such
Fundamental Change Repurchase Notice is withdrawn as specified in the following two paragraphs)
thereafter be entitled to receive solely the Fundamental Change Repurchase Price with respect to
such Security. Such Fundamental Change Repurchase Price shall be paid to such Holder, subject to
receipt of funds by the Paying Agent, promptly following the later of (x) the Fundamental Change
Settlement Date with respect to such Security (provided the conditions in Section 4(a)(iii) have
been satisfied) and (y) the time of delivery of such Security to the Paying Agent by the Holder
thereof in the manner required by Section 4(a)(iii). Securities in respect of which a Fundamental
Change Repurchase Notice has been given by the Holder thereof may not be converted pursuant to
Section 3 on or after the date of the delivery of such Fundamental Change Repurchase Notice unless
such Fundamental Change Repurchase Notice has first been validly withdrawn as specified in the
following two paragraphs.



          A Fundamental Change Repurchase Notice may be withdrawn only by means of a written notice of
withdrawal delivered to the office of the Paying Agent in accordance with the procedures set forth
in the Fundamental Change Company Notice at any time prior to the close of business on the Business
Day prior to the Fundamental Change Settlement Date specifying:



               (i) the Principal Amount Outstanding of the Security with respect to which such notice of
withdrawal is being submitted;



14









 





               (ii) the certificate number (if such Security is held in other than global form) of the
Security in respect of which such notice of withdrawal is being submitted; and



               (iii) the Principal Amount Outstanding, if any, of such Security which remains subject to the
original Fundamental Change Repurchase Notice and which has been or will be delivered for
repurchase by the Company.



          There shall be no repurchase of any Securities pursuant to Section 4(a) if there has occurred
(prior to, on or after, as the case may be, the giving, by the Holders of such Securities, of the
required Fundamental Change Repurchase Notice) and is continuing an Event of Default (other than a
default in the payment of the Fundamental Change Repurchase Price with respect to such Securities);
provided, however, that (1) the Holders of at least 75% in aggregate Principal Amount Then
Outstanding of Securities may, by notice in writing to the Company, waive the prohibition on
repurchase of Securities contemplated by this paragraph, and (2) upon delivery of such notice to
the Company, such prohibition on repurchase shall be automatically waived, without any further
notice, consent or other action to or by any Person. The Paying Agent will promptly return to the
respective Holders thereof any Securities (x) with respect to which a Fundamental Change Repurchase
Notice has been withdrawn in compliance with this Security, or (y) which are held by it during the
continuance of an Event of Default (other than a default in the payment of the Fundamental Change
Repurchase Price with respect to such Securities) in which case, upon such return, the Fundamental
Change Repurchase Notice with respect thereto shall be deemed to have been withdrawn.



          (c) Securities Repurchased in Whole or in Part. Any Security which is to be
repurchased, whether in whole or in part, shall be surrendered at the office of the Paying Agent
(with, if the Company so requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company duly executed by, the Holder thereof or such Holder’s attorney duly
authorized in writing) and the Company shall execute and deliver to the Holder of such Security,
without service charge, a new Security or Securities, of any authorized denomination as requested
by such Holder in aggregate Principal Amount Outstanding equal to, and in exchange for, the portion
of the Principal Amount Outstanding of the Security so surrendered which is not repurchased.



          (d) Deposit of Fundamental Change Repurchase Price. Prior to 12:00 p.m., New York
City time, on the Business Day preceding the Fundamental Change Settlement Date, the Company shall
deposit with the Paying Agent (or, if the Company or a Significant Subsidiary or an Affiliate of
either of them is acting as the Paying Agent, shall segregate and hold in trust as provided herein)
an amount of money (in immediately available funds if deposited on such Business Day), sufficient
to pay the Fundamental Change Repurchase Price of all the Securities or portions thereof which are
to be repurchased or as of the Fundamental Change Settlement Date. The Company shall promptly
notify the Holders of the Securities which are to be repurchased in writing of the amount of any
deposits of cash made pursuant to this Section 4(d).



15









 





          (e) Repayment to the Company. The Paying Agent shall return to the Company any cash
that remains unclaimed, together with interest or dividends, if any, thereon,
held by them for the payment of the Fundamental Change Repurchase Price; provided that to the
extent that the aggregate amount of cash deposited by the Company pursuant to Section 4(d) exceeds
the aggregate Fundamental Change Repurchase Price of the Securities or portions thereof which the
Company is obligated to repurchase as of the Fundamental Change Settlement Date, then as soon as
practicable following the Fundamental Change Settlement Date, the Paying Agent shall return any
such excess to the Company.



     4.A. REDEMPTION.



          4.A.1. At Maturity. The Company shall redeem this Security (or any portion thereof
then Outstanding) on the Maturity Date.



          4.A.2. Optional Redemption Prior to Maturity. The Company shall not have the option
to redeem this Security at any time prior to the Maturity Date.



          4.A.3. Mandatory Redemption Prior to Maturity. Notwithstanding anything to the
contrary contained herein, to the extent as of the end of any accrual period (as defined in Section
1272(a)(5) of the Code) ending after May 11, 2014, the aggregate amount of accrued and unpaid
original issue discount (as defined in Section 1273(a)(1) of the Code) on the Securities would, but
for this paragraph, exceed an amount equal to the product of the issue price of the Securities
multiplied by the yield to maturity (as defined in Treasury Regulation section 1.1272-1(b)(1)(i))
of the Securities (such excess hereinafter referred to as the “Mandatory Redemption Amount”), the
Company will redeem, on each Interest Payment Date after May 11, 2014, Securities having a
principal amount equal to the Mandatory Redemption Amount as of such date. This provision is
intended to prevent the Securities from being classified as “applicable high yield discount
obligations”, as defined in Section 163(i) of the Code, and shall be interpreted consistently
therewith.



     Section 5. COVENANTS.



          (a) Registration Statement. The Company will file with the SEC a registration
statement on Form S3 (the “Registration Statement”) under the Securities Act registering the
Common Stock issuable upon conversion of a Security within 60 days following the delivery of a
written request therefor from the Majority Holders, and will use its commercially reasonable
efforts to cause the Registration Statement to be declared effective as soon as practicable
thereafter. The Company will maintain the effectiveness of the Registration Statement until the
Common Stock issuable upon conversion of a Security has been resold pursuant to the Registration
Statement or is eligible for resale, without restriction, pursuant to Rule 144 under the Securities
Act (“Rule 144”). The Company shall inform the Holder in writing of the effective date of any
Registration Statement registering the Common Stock issuable upon conversion of a Security under
the Securities Act. The Holder shall not be liable for any action taken or omitted to be taken by
it in good faith in accordance with the aforementioned Registration Statement.



          The Holders will cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of the Registration Statement. The Holders
participating in the offering will furnish to the Company such information regarding



16









 






such Holders, the Common Stock issued upon conversion of a Security held by them, and the
intended method of disposition thereof as shall be reasonably required to cause the effectiveness
of the Registration Statement and will execute and deliver such documents in connection with the
Registration Statement as the Company may reasonably request.



          The Holders will, upon receipt of notice from the Company of any event requiring suspension of
the use of the prospectus included as part of the Registration Statement, immediately discontinue
disposition of the Common Stock issued upon conversion of a Security pursuant to the Registration
Statement until the Holders’ receipt of the copies of the supplemented or amended prospectus or
receipt of notice that no supplement or amendment is required.



          By accepting this Security, each Holder covenants and agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it or comply with the
provisions of an exemption from such prospectus delivery requirements in connection with resales of
the Common Stock issued upon conversion of a Security pursuant to the Registration Statement.



          All reasonable expenses, other than underwriting discounts and commissions (which shall be the
obligation of the Holders incurring such discounts or commissions), incurred in connection with
registrations, filings or qualification pursuant to this Section 5(a), including, without
limitation, all registration, listing and qualification fees, printers and accounting fees, and
fees and disbursements of counsel for the Company, shall be paid by the Company.



               (b) Reports and Delivery of Certain Information. (i) The Company shall furnish to
Holders of Securities such annual and quarterly reports, information, documents and other reports,
copies of its annual report and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may by rules and regulations prescribe) which
the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange
Act, within two Business Days after the applicable filing date as set forth in the Exchange Act,
whether or not Company makes the filing with the Commission. Delivery of such reports, information
and documents to the Holders is for informational purposes only and the Holders’ receipt of such
shall not constitute constructive notice of any information contained therein or determinable from
information contained therein, including the Company’s compliance with any of its covenants
hereunder (as to which the Holders is entitled to rely conclusively on Officers’ Certificates). At
any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, the Company
shall furnish to the Holders (A) quarterly financial statements within 45 days after the end of
each fiscal quarter that are substantially equivalent to those the Company would be required to
file with the Commission in a Quarterly Report on Form 10-Q, (B) annual audited financial
statements within 90 days after the end of each fiscal year that are substantially equivalent to
those the Company would be required to file with the Commission in an Annual Report on Form 10-K,
including a report thereon by the Company’s certified independent accountants, and (C) accompanying
each of the financial statements required by (A) and (B) above, information substantially
equivalent to that required by Regulation S-K Item 303, “Management Discussion and Analysis of
Financial Condition and Results of Operations;” provided, that in each case the delivery of
materials to the Holders by electronic means shall be deemed “furnished” to the Holders for
purposes of this



17









 




Section 5(b); provided, further, that the Company shall be deemed to have satisfied its
obligations under each of (A), (B) and (C) above if it files such information with the Commission
(if the Commission will accept such filing) or otherwise makes such financial statements and other
information available on or through its website.


                    (ii) At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act,
upon the request of a Holder or any beneficial owner of Securities or holder or beneficial owner of
shares of Common Stock issued upon conversion thereof, the Company will promptly furnish or cause
to be furnished Rule 144A Information (as defined below) and any reports required to be filed by
them under the Exchange Act or the Securities Act to such Holder or such beneficial owner of
Securities or holder or beneficial owner of shares of Common Stock, or to a prospective purchaser
of any such security designated by any such Holder, holder or beneficial owner, as the case may be,
to the extent required to permit compliance by such Holder or holder with Rule 144A under the
Securities Act in connection with the resale of any such Securities or any shares of Common Stock
issued upon conversion thereof. “Rule 144A Information” shall be such information as is specified
pursuant to Rule 144A(d)(4) under the Securities Act (“Rule 144A”).



                    (iii) The Company shall provide to the Holders on a timely basis such information as the
Holders may require in order to prepare and file any form that the Company must submit to the
Internal Revenue Service and the Holders.



               (c) Statement by Officers as to Default. The Company will deliver to the Holders,
within 120 days after the end of each fiscal year of the Company ending after the Original Issue
Date, an Officers’ Certificate, stating whether or not, to the knowledge of the signers thereof,
the Company is in Default in the performance and observance of any of the terms, provisions and
conditions of the Securities (without regard to any period of grace or requirement of notice
provided hereunder) and, if the Company is in Default, specifying all such Defaults and the nature
and status thereof of which such Officers may have knowledge.



          The Company shall deliver to the Holders promptly, and in any event within 30 days after the
Company becomes aware of the occurrence of any Event of Default or Default, an Officers’
Certificate setting forth the details of such Event of Default or Default and the action which the
Company is taking or proposes to take with respect thereto.



               (d) Further Instruments and Acts. Upon request of the Holders, the Company will
execute and deliver such further instruments and do such further acts as may be reasonably
necessary or proper to carry out more effectively the purposes of this Security.



               (e) Maintenance of Office or Agency. The Company shall maintain an office or agency
where Securities may be presented or surrendered for payment, where Securities may be surrendered
for registration of transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities may be served, which shall initially be the Company’s principal office.
The Company shall give prompt written notice to the Holders of any change in the location of such
office or agency.



18









 





          The Company may also from time to time designate one or more other offices or agencies where
the Securities may be presented or surrendered for any or all such purposes and may from time to
time rescind such designations. The Company shall give prompt written notice to the Holders of any
such designation or rescission and of any change in the location of any such other office or
agency.



               (f) Money for Security Payments to be Held in Trust. If the Company shall at any time
act as its own Paying Agent, it shall, on or before each Payment Date in respect of any of the
Securities, segregate and hold in trust, for the benefit of the Persons entitled thereto, a sum
sufficient to make the payment so due on such Payment Date until such sums shall be paid to such
Persons or otherwise disposed of as herein provided.



               (g) Existence. Except as otherwise permitted by Section 5(h), the Company shall do or
cause to be done all things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; provided, however, that the Company
shall not be required to preserve any such right or franchise if the Board of Directors of the
Company shall determine that the preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not disadvantageous in any material respect to
the Holders.



               (h) Consolidation, Merger, Conveyance, Transfer Or Lease.



                    (i) Company May Consolidate, Etc., Only on Certain Terms. The Company shall not
consolidate with or merge into any other Person, shall not convey, transfer or lease its properties
and assets substantially as an entirety to any Person, and shall not permit any Person to
consolidate with or merge into the Company or to convey, transfer or lease its properties and
assets substantially as an entirety to the Company, unless:



               (A) either (i) the Company shall be the continuing Person or (ii) the Person (if other than
the Company) formed by such consolidation or into which the Company is merged or the Person which
acquires by conveyance or transfer, or which leases, the properties and assets of the Company
substantially as an entirety (the “Surviving Entity”), (1) shall be either (x) organized and
validly existing under the laws of the United States of America, any State thereof or the District
of Columbia, or (y) organized under the laws of a jurisdiction outside the United States and has,
or immediately after the transaction or event will have, common stock traded on a national
securities exchange in the United States or quoted on the NYSE, the NYSE Amex, the NASDAQ Global
Market, or the NASDAQ Capital Market and a worldwide total market capitalization of its equity
securities before giving effect to the consolidation or merger of at least $250 million, and (2)
the Surviving Entity shall expressly assume, by an amendment hereto, executed and delivered to the
Holders, all of the obligations of the Company under this Security;



               (B) immediately after giving effect to such transaction, no Event of Default or Default shall
have occurred and be continuing; and



19









 





               (C) the Company or the Surviving Entity shall have delivered to the Holders an Officers’
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and, if an amendment to the Securities is required in
connection with such transaction, such amendment, comply with this Section 5(h) and Section 7, and,
if applicable, such amendment to the Security shall provide (i) that the Holder of each Security
then Outstanding shall have the right to convert such Security into the kind and amount of shares
of stock and other securities and property (including cash) receivable upon such consolidation,
merger, sale or conveyance by a holder of the shares of Common Stock deliverable upon conversion of
such Security immediately prior to such consolidation merger, sale or conveyance and (ii) for
adjustments of the Conversion Price which shall be nearly as equivalent as may be practicable to
the adjustments of the Conversion Price provided for in Section 3.



                    (ii) Successor Substituted. Upon any consolidation of the Company with, or merger of
the Company into, any other Person or any conveyance, transfer or lease of the properties and
assets of the Company substantially as an entirety in accordance with this Section 5(h), the
successor Person formed by such consolidation or into which the Company is merged or to which such
conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Security with the same effect as if such successor
Person had been named as the Company herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of all obligations and covenants under this Security and the
Securities.



     Section 6. REMEDIES.



          (a) Events of Default. As used herein, “Event of Default” means any one of the
following events (whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or shall be effected by operation of law or pursuant to any judgment, decree or
order of any court or any order, rule or regulation of any administrative or governmental body):



               (i) the Company’s (A) failure to deliver the required number of shares of Common Stock within
10 Business Days after the applicable Conversion Date or (B) notice, written or oral, to any
Holder, including by way of public announcement or through any of its agents, at any time, of its
intention not to comply with a request for conversion of any Securities into shares of Common Stock
that is tendered in accordance with the provisions of the Securities; or



               (ii) at any time following the 30th consecutive Business Day that a Holder’s (A) pro rata
share of the number of shares of the Common Stock reserved for the purpose of issuance upon
conversion of all Securities is less than the (B) number of shares of Common Stock that such Holder
would be entitled to receive upon a conversion of the full Principal Amount Outstanding of such
Holder’s Securities; or



               (iii) a default in the payment of interest on any Securities when due and payable and which
default has continued for a period of five days; or



20









 





               (iv) a default in the payment of the Principal Amount Outstanding or the Fundamental Change
Repurchase Price on any Security when it becomes due and payable; or



               (v) a default in the performance of any covenant, agreement or condition of the Company in
this Note or the Securities or the Purchase Agreement (other than a default specified in clauses
(i) through (iv) above), and such default continues for a period of 60 days after there has been
given, by registered or certified mail, to the Company by the Holders of at least 25% in aggregate
Principal Amount Outstanding of the Securities then Outstanding a written notice (a “Notice of
Default”) specifying such default and requiring it to be remedied and stating that such notice is a
“Notice of Default” hereunder; or



               (vi) a default by the Company or any Significant Subsidiary in the payment of the principal or
interest on any loan agreement or other instrument under which there may be outstanding, or by
which there may be evidenced, any debt for money borrowed in excess of $10.0 million in the
aggregate of the Company and any Significant Subsidiary (other than indebtedness for borrowed money
secured only by the real property to which the indebtedness relates and which is non-recourse to
the Company or to such Significant Subsidiary), whether such debt now exists or shall hereafter be
created, resulting in such debt becoming or being declared due and payable prior to its stated
maturity, and such acceleration shall not have been rescinded or annulled within 30 days after
written notice specifying such default and requiring it to be remedied and stating that such notice
is a “Notice of Default” hereunder has been received by the Company and such Significant Subsidiary
by the Holders of at least 25% in aggregate Principal Amount Then Outstanding of Securities;
provided that if any time before a judgment or decree has been obtained by the Holder or Holders as
hereinafter provided, such default is remedied or cured by the Company or such Significant
Subsidiary within the applicable cure period, or is waived by the holders of such indebtedness,
default under this clause (vi) shall be deemed to have been remedied, cured or waived, as the case
may be; or



               (vii) one or more final unsatisfied judgments not covered by insurance aggregating in excess
of $10 million, at any one time, are rendered against the Company or any Significant Subsidiary and
not stayed, bonded or discharged within 60 days; or



               (viii) a failure by the Company to give the Fundamental Change Company Notice when required by
Section 4(a) hereof; or



               (ix) the entry by a court of competent jurisdiction of (A) a decree or order for relief in
respect of the Company or any Significant Subsidiary of a voluntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other similar law or (B) a
decree or order adjudging the Company or any Significant Subsidiary as bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any Significant Subsidiary under any applicable
federal or state law or (C) appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Significant Subsidiary or of any
substantial part of its property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such other decree or order unstayed and
in effect for a period of 60 consecutive days; or



21









 





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



          (b) Acceleration of Maturity; Rescission and Annulment. (i) If an Event of Default
(other than those specified in clauses (ix) and (x) of Section 6(a)) shall have occurred and is
continuing, then, and in every such case, the Holders of not less than 25% in aggregate Principal
Amount Then Outstanding of Securities, may, by notice in writing to the Company, declare the
Principal Amount Outstanding, together with accrued and unpaid interest on all Securities then
Outstanding to be immediately due and payable immediately, and upon any such declaration such
Principal Amount Outstanding and such accrued and unpaid interest shall become immediately due and
payable. If an Event of Default specified in clause (ix) or (x) of Section 6(a) shall have occurred
and be continuing, then, and in every such case, the Principal Amount Then Outstanding, together
with accrued and unpaid interest on all Securities then Outstanding shall automatically become due
and payable without any declaration or other act on the part of any Holder.



          Upon demand of any Holder, upon the occurrence and during the continuance of an Event of
Default, the Company shall pay to the Holders, the amounts specified in Section 6(b)(ii)(A).



               (ii) At any time after the maturity of this Security has been accelerated in accordance with
the first or second sentence of Section 6(b)(i) and before a judgment or decree for payment of the
money due has been obtained by the Holder or Holders as hereinafter in this Section 6 provided, the
Majority Holders, by written notice to the Company, may rescind and annul such declaration and its
consequences if such rescission and annulment will not conflict with any judgment or decree of a
court of competent jurisdiction and if:



                    (A) the Company has paid or deposited with the Holder a sum sufficient to pay



                         (1) all overdue interest on the Securities,



                         (2) (x) the Principal Amount Then Outstanding plus accrued and unpaid interest, or (y) the
Fundamental Change Repurchase Price, as



22









 






applicable, on any Securities which have become due otherwise than by such declaration of
acceleration, and



                         (3) all sums paid or advanced by any Holder hereunder and the reasonable compensation,
expenses, disbursements and advances of Holder, its agents and counsel incurred in connection with
enforcement of its rights under this Security; and



                    (B) all Events of Default, other than the nonpayment of the Principal Amount Then Outstanding
plus accrued and unpaid interest on Securities which have become due solely by such declaration of
acceleration, have been cured or waived.



          No such rescission shall affect any subsequent default or impair any right consequent thereon.
Nothing in this Section 6(b)(ii) shall prejudice the Company’s ability, by other means, to cure an
Event of Default (or to cause such Event of Default to be no longer continuing).



               (c) Upon the occurrence, and during the continuance, of any Event of Default hereunder, the
Principal Amount Then Outstanding and, to the extent permitted by law, accrued and unpaid interest
on the Securities, shall bear interest, payable on demand, at a per annum rate which is equal to
the lesser of 18.0% or the maximum rate of interest allowed by applicable law. Such interest shall
be in substitution for the interest otherwise payable pursuant to Section 2.



               (d) Unconditional Right of Holders to Receive Payment. Notwithstanding any other
provision of this Security, the right of any Holder to receive payment of the Principal Amount
Outstanding, the Fundamental Change Repurchase Price, and interest when due, in respect of the
Securities held by such Holder, on or after the respective due dates expressed in the Securities or
on the Fundamental Change Settlement Date, as applicable, and to convert the Securities in
accordance with Section 3, or to bring suit for the enforcement of any such payment on or after
such respective dates or the right to convert, shall not be impaired or affected adversely without
the consent of such Holder.



               (e) Rights and Remedies Cumulative. No right or remedy herein conferred upon or
reserved to the Holders is intended to be exclusive of any other right or remedy, and every right
and remedy shall, to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.



               (f) Delay or Omission Not Waiver. No delay or omission of any Holder to exercise any
right or remedy accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein. Every right and
remedy given by this Section 6 or by law or to the Holders may be exercised from time to time, and
as often as may be deemed expedient, by the Holders.



23









 





     Section 7. AMENDMENTS.



          With the written consent of the Majority Holders, the Company, when authorized by a Board
Resolution, and the Holders may amend, supplement or modify the Securities for the purpose of
adding any provisions to or changing in any manner or eliminating any of the provisions of this
Security or of waiving or modifying in any manner the rights of the Holders under this Security;
provided, however, that no such amendment shall, without the consent of the Holder
of each Security then Outstanding affected thereby:



               (i) reduce the rate of or extend the time for payment of interest, if any, on such Security;
or



               (ii) reduce the Principal Amount Then Outstanding, or extend the Stated Maturity, of such
Security; or



               (iii) make any change that impairs or adversely affects the conversion rights of such
Security; or



               (iv) reduce the Fundamental Change Repurchase Price of any Security, or amend or modify, in
any manner adverse to the Holders, the Company’s obligation to make such payments, whether through
an amendment or waiver of provisions in the covenants, definitions or otherwise; or



               (v) modify the provisions with respect to the right of Holders to cause the Company to
repurchase Securities upon a Fundamental Change in a manner adverse to Holders; or



               (vi) make any interest or principal on a Security payable in money other than that stated in
the Security or other than in accordance with the provisions of this Security; or



               (vii) impair the right of any Holder to receive payment of the Principal Amount Outstanding
of, or interest on, such Holder’s Securities on or after the due dates therefor or to institute
suit for the enforcement of any payment on or with respect to such Holder’s Securities; or



               (viii) reduce the quorum or voting requirements under this Security; or



               (ix) change the ranking of the Securities in a manner adverse to the Holders; or



               (x) make any change in the amendment provisions which require each Holder’s consent or in the
waiver provisions; or



               (xi) reduce the percentage in Principal Amount Outstanding of the Securities, the consent of
whose Holders is required for any amendment or supplement to,



24









 





modification of, or any waiver of compliance with, certain provisions of the Securities or
certain defaults hereunder and their consequences) provided for in this Security; or



               (xii) amend, modify or waive any of the provisions of this Section 7; or



               (xiii) amend, modify or waive the provisions of the Securities in a manner adverse to the
Holders in any material respect.



     Section 8. TRANSFER.



          (a) Registration; Registration of Transfer and Exchange; Restrictions on Transfer.



               (i) The Company shall cause to be kept a Security Register to provide for the registration of
Securities and of transfers of Securities.



     Upon surrender for registration of transfer of any Security duly endorsed, or accompanied by a
written instrument of transfer reasonably satisfactory to the Company and duly executed by the
Holder thereof or such Holder’s attorney duly authorized in writing, the Company shall execute, in
the name of the designated transferee or transferees, one or more new Securities of any authorized
denominations and of a like aggregate Principal Amount Outstanding and tenor, each such Security
bearing such restrictive legends.



     At the option of the Holder and subject to the other provisions of this Section 8(a),
Securities may be exchanged for other Securities of any authorized denominations and of a like
aggregate Principal Amount Outstanding and tenor, upon surrender of the Securities to be exchanged
at the Security Register. Whenever any Securities are so surrendered for exchange, the Company
shall execute and deliver, the Securities which the Holder making the exchange is entitled to
receive.



     All Securities issued upon any registration of transfer or exchange of Securities shall be the
valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under
this Security, as the Securities surrendered upon such registration of transfer or exchange.



     Except as provided in the following sentence, all Securities originally issued hereunder and
all Securities issued upon registration of transfer or exchange or replacement thereof shall be
Restricted Securities and shall bear the restrictive legend contemplated by the Purchase Agreement,
unless the Holder shall have delivered to the Company an Opinion of Counsel stating that the
Security is not a Restricted Security and may be issued without such legend thereon. Upon the
written request of such Holder, in substitution for the Opinion of Counsel for such Holder, the
Company may (but shall not be obligated to) request from counsel to the Company an Opinion of
Counsel as to the matters referred to in the preceding sentence; provided, however, that nothing
herein shall obligate the counsel for the Company to render such Opinion of Counsel or to reach the
conclusions set forth in the preceding sentence allowing the restrictions upon the
transferability of such Restricted Security to cease and terminate. Securities which are
issued upon registration of transfer of, or in exchange for, Securities which are not Restricted
Securities shall not be Restricted Securities and shall not bear such legend.



25









 





     No service charge shall be made for any registration of transfer or exchange of Securities,
but the Company may require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges not involving any Transfer.



     The Company shall not be required to exchange or register a transfer of any Security (i) that
has been surrendered for conversion or (ii) as to which a Fundamental Change Repurchase Notice has
been delivered and not withdrawn, except, where such Fundamental Change Repurchase Notice provides
that such Security is to be purchased only in part, the Company shall be required to exchange or
register a transfer of the portion thereof not to be purchased.



               (ii) Beneficial ownership of every Restricted Security shall be subject to the restrictions on
Transfer provided in the restrictive legends required to be set forth on the face of each
Restricted Security, unless such restrictions on Transfer shall be terminated in accordance with
this Section 8(a)(ii) or Section 8(b). The Holder of each Restricted Security, by such Holder’s
acceptance thereof, agrees to be bound by such restrictions on Transfer.



     The restrictions imposed by this Section 8(a) and by Section 8(b) upon the transferability of
any particular Restricted Security shall cease and terminate upon delivery by the Holder to the
Company of an Opinion of Counsel stating that such Restricted Security has been sold pursuant to an
effective Registration Statement under the Securities Act, Transferred in compliance with Rule 144,
or that such Restricted Security may be Transferred in full in compliance with Rule 144. Upon the
written request of such Holder, in substitution for the Opinion of Counsel for such Holder, the
Company may (but shall not be obligated to) request from counsel to the Company an Opinion of
Counsel as to the matters referred to in the preceding sentence; provided, however, that nothing
herein shall obligate the counsel for the Company to render such Opinion of Counsel or to reach the
conclusions set forth in the preceding sentence allowing the restrictions upon the transferability
of such Restricted Security to cease and terminate. Any Restricted Security as to which the Holder
has delivered to the Company such Opinion of Counsel may, upon surrender of such Restricted
Security for exchange to the Security Registrar in accordance with the provisions of this Section
8(a), be exchanged for a new Security, of like tenor and aggregate Principal Amount Then
Outstanding, which shall not bear restrictive legends.



     As used in the preceding two paragraphs, the term “Transfer” encompasses any sale, pledge,
transfer or other disposition of any Restricted Security.



26









 





          (b) Transfers to QIBs. The following provisions shall apply to the registration of
any proposed transfer of a certificated Security constituting a Restricted Security to a QIB. The
Company shall register the transfer if such transfer is being made by a proposed transferor who has
checked the box provided on the form of Security stating
in writing that the transfer has been made, in compliance with the provisions of Rule 144A, to
a transferee who has signed the certification provided on the form of Security stating, or who has
otherwise advised the Company in writing, that: (A) such transferee is purchasing the Security for
its own account or an account with respect to which it exercises sole investment discretion; (B)
such transferee and any such account is a QIB within the meaning of Rule 144A; (C) such transferee
is aware that such transfer to it is being made in reliance on Rule 144A; (D) such transferee
acknowledges that it has received such information regarding the Company as it has requested
pursuant to Rule 144A or that it has determined not to request such information; and (E) such
transferee is aware that the transferor is relying upon its foregoing representations and
warranties in order to claim the exemption from registration provided by Rule 144A.



          (c) Transfers to Institutional “Accredited Investors”. The following provisions shall
apply to the registration of any proposed transfer of a certificated Security constituting a
Restricted Security to an institutional “accredited investor”. The Company shall register the
transfer of such Restricted Security if the following conditions have been satisfied: (i) such
transfer is being made by a proposed transferor who has checked the box provided on the form of
Security stating in writing that the sale has been made, in compliance with the provisions of the
Securities Act, to a transferee who has signed the certification provided on the form of Security
stating, or who has otherwise advised the Company in writing, that: (A) such transferee is
purchasing the Security for its own account or an account with respect to which it exercises sole
investment discretion; (B) such transferee and any such account is an “accredited investor,” as
described in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act; (C) such
transferee is aware that such Restricted Security has not been registered under the Securities Act,
that such transfer to it is being made in reliance on exemptions from registration under the
Securities Act and, therefore, that such Restricted Security cannot be transferred unless it is
registered under the Securities Act or unless an exemption from registration is available; (D) such
transferee acknowledges that it has received such information regarding the Company as it has
requested or that it has determined not to request such information; and (E) such transferee is
aware that the transferor is relying upon its foregoing representations and warranties in order to
claim the exemptions from registration under the Securities Act; and (ii) the transferor shall have
delivered to the Company an Opinion of Counsel, in a generally acceptable form, to the effect that
such Restricted Security may be transferred pursuant to an exemption from such registration.



          (d) PRIVATE PLACEMENT LEGEND. UPON THE REGISTRATION OF TRANSFER, EXCHANGE OR
REPLACEMENT OF SECURITIES NOT BEARING THE LEGENDS REQUIRED BY THE PURCHASE AGREEMENT, THE COMPANY
SHALL DELIVER SECURITIES THAT DO NOT BEAR SUCH LEGENDS. UPON THE REGISTRATION OF TRANSFER,
EXCHANGE OR REPLACEMENT OF SECURITIES BEARING THE LEGENDS REQUIRED BY THE PURCHASE AGREEMENT, THE
COMPANY SHALL DELIVER ONLY SECURITIES THAT BEAR SUCH LEGENDS UNLESS THERE IS DELIVERED TO THE
COMPANY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND THE HOLDER TO THE EFFECT
THAT NEITHER SUCH
LEGEND NOR THE RELATED RESTRICTIONS ON TRANSFER ARE REQUIRED IN ORDER TO MAINTAIN COMPLIANCE
WITH THE PROVISIONS OF THE SECURITIES ACT; PROVIDED, THAT UPON THE WRITTEN REQUEST OF ANY HOLDER,
THE COMPANY SHALL REQUEST SUCH OPINION OF COUNSEL FROM COUNSEL TO THE COMPANY ON BEHALF OF SUCH
HOLDER.



27









 





               (e) General. By its acceptance of any Security bearing the legends required by the
Purchase Agreement, each Holder of such Security acknowledges the restrictions on transfer of such
Security set forth in this Security and in such legends and agrees that it will transfer such
Security only as provided in this Security.



               (f) CUSIP
Numbers. In issuing the Securities, the Company may use “CUSIP” numbers (if
then generally in use), and, if so, the Company shall use “CUSIP” numbers in notices delivered, and
as a convenience, to Holders; provided that any such notice may state that no representation is
made as to the correctness of such numbers as printed on the Securities and that reliance may be
placed only on the other identification numbers printed on the Securities. The Company will
promptly notify the Holder of any change in the “CUSIP” numbers.



     Section 9. CONSTRUCTION; HEADINGS.



     The Section headings herein are for convenience only and shall not affect the construction
hereof, and all Section references are to Sections of this Security unless otherwise expressly
stated.



     Section 10. NOTICES.



          (a) Notices, Etc. to Company. Any request, demand, authorization, direction, notice,
consent, or waiver of Holders or other document provided or permitted by this Security to be made
upon, given or furnished to, or filed with the Company by any Holder shall be sufficient for every
purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid or via overnight courier, to the address of the Company at Vector Group
Ltd., 100 S.E. Second Street, 32nd Floor, Miami, Florida 33131, or at any other address
previously furnished in writing to the Holders by the Company, Attention: Secretary.



          (b) Notice to Holders; Waiver. Where this Security provides for notice to Holders of
any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at such
Holder’s address as it appears in the Security Register, not later than the latest date (if any),
and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Security provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice, either before or
after the event, and such waiver shall be the equivalent of such notice.



28









 





Waivers of notice by Holders shall be filed with the Company, but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such waiver.



     In case by reason of the suspension of regular mail service or by reason of any other cause it
shall be impracticable to give such notice by mail, then such notification as shall be made with
the approval of the Company shall constitute a sufficient notification for every purpose hereunder.



     Whenever under this Security the Company is required to provide any notice by mail, in all
cases the Company may alternatively provide notice by overnight courier or by telefacsimile, with
confirmation of transmission.



     Section 11. CERTAIN DEFINITIONS.



          For all purposes of this Security (except as otherwise expressly provided or unless the
context otherwise requires):



               (a) the terms defined in this Section have the meanings assigned to them in this Section 11
and include the plural as well as the singular;



               (b) all accounting terms not otherwise defined herein have the meanings assigned to them in
accordance with GAAP; and



               (c) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to
this Security as a whole and not to any particular Section or other subdivision.



               (d) “5.0% Notes” means the Company’s 5.0% Variable Interest Senior Convertible Notes Due 2011.



               (e) “Additional Interest Amount” has the meaning specified in Section 2(b).



               (f) “Affiliate” of any specified Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with such specified Person.
For the purposes of this definition, “control” when used with respect to any specified Person
means the power to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise; and the terms
“controlling” and “controlled” have meanings correlative to the foregoing.



               (g) “Applicable Directors” shall mean those individuals who are members of the Board of
Directors of the Company on the Original Issue Date and any new director whose election to the
Board of Directors of the Company or nomination for election to the Board of Directors of the
Company was approved (prior to any vote thereon by the stockholders of the Company) by a vote of at
least two-thirds (2/3) of the directors of the Company then still in office who either were
directors of the Company on the Original Issue
Date or whose election or nomination for election since the Original Issue Date was previously
approved as provided in this sentence.



29









 





               (h) “Bloomberg” means Bloomberg Financial Markets (or any successor thereto).



               (i) “Board of Directors” means, with respect to any Person, either the board of directors of
such Person or any committee of that board duly authorized to take the subject action.



               (j) “Board Resolution” means, with respect to any Person, a copy of a resolution certified by
the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such certification.



               (k) “Business Day” means any day other than a Saturday, a Sunday or a day on which banking
institutions in The City of New York or the city in which the Company is located are authorized or
obligated by law, or executive order or governmental decree to be closed.



               (l) “Buy-In” has the meaning specified in Section 3(b)(iii).



               (m) “Buy-In Price” has the meaning specified in Section 3(b)(iii).



               (n) “Capital Stock” means any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, including, without limitation, with respect to
partnerships, partnership interests (whether general or limited) and any other interest or
participation that confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership.



               (o) “Change of Control Event” means the occurrence, after the Original Issue Date, of one or
more of the following events:



                    (1) any sale, transfer, lease, conveyance or other disposition (in one transaction or a
series of related transactions) of all or substantially all of the Company’s property or assets to
any Person or group of Persons (other than to any of the Company’s wholly owned Subsidiaries) as
defined in Sections 13(d) and 14(d) of the Exchange Act, including any group acting for the purpose
of acquiring, holding, voting or disposing of securities within the meaning of Rule 13d-5(b)(1)
under the Exchange Act, other than any sale, transfer, lease, conveyance or other disposition in
which (x) Persons who, directly or indirectly, are beneficial owners (as defined in Rule 13d-3
under the Exchange Act) of the Company’s Voting Stock immediately prior to such transaction,
beneficially own, directly or indirectly, immediately after such transaction at least a majority of
the total voting power of the outstanding Voting Stock of the corporation or entity purchasing such
properties or assets in such sale, lease, conveyance or other disposition and (y) Persons who,
directly or indirectly, are beneficial owners of the Company’s Voting Stock immediately prior to
such transaction, beneficially own, directly or indirectly, immediately after such transaction
shares of common stock of the corporation or entity purchasing such properties or assets in such
sale, lease, conveyance or other disposition in
a proportion that does not, on the whole, materially differ from such ownership immediately
prior to the transaction;



30









 





                    (2) the approval by the holders of the Company’s Capital Stock of any plan or proposal for
liquidation or dissolution;



                    (3) if any “person” or “group” (as these terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding Voting Stock of the Company;



                    (4) the Company consolidates with, or merges with or into, another Person or any Person
consolidates with, or merges with or into, the Company, other than any consolidation or merger in
which (x) Persons who, directly or indirectly, are beneficial owners (as defined in Rule 13d-3
under the Exchange Act) of the Company’s Voting Stock immediately prior to such transaction,
beneficially own, directly or indirectly, immediately after such transaction at least a majority of
the total voting power of the outstanding Voting Stock of the continuing or surviving corporation
or entity and (y) Persons who, directly or indirectly, are beneficial owners of the Company’s
Voting Stock immediately prior to such transaction, beneficially own, directly or indirectly,
immediately after such transaction shares of common stock of the continuing or surviving
corporation or entity in a proportion that does not, on the whole, materially differ from such
ownership immediately prior to the transaction; or



                    (5) the failure of Applicable Directors to constitute a majority of the Board of Directors of
the Company at any time during which a Security is Outstanding.



     Notwithstanding the foregoing, a merger or consolidation shall not be deemed to constitute a
“Change of Control Event” if (i) at least 90% of the consideration (excluding cash payments for
fractional shares or pursuant to statutory appraisal rights) in such merger or consolidation
consists of shares of Capital Stock that are, or immediately after the transaction or event will
be, traded on a national securities exchange in the United States or quoted on the NASDAQ Global
Market or the NASDAQ Capital Market (or which shall be so traded or quoted when issued or exchanged
in connection with such merger or consolidation) (these securities being referred to as “publicly
traded securities”), (ii) as a result of such merger or consolidation the Securities become
convertible into such publicly traded securities, excluding cash payments for fractional shares,
and (iii) such merger or consolidation meets the requirements of Section 5(h)(i)(A).



          (p) “Closing Price” means, for any security as of any date: (i) the last closing trade price
for such security on the principal United States securities exchange or trading market (which, with
respect to the Common Stock on the Original Issue Date, is the NYSE) on such date as reported by
Bloomberg, (ii) if such securities exchange or trading market begins to operate on an extended
hours basis and does not designate the closing trade price, then the last trade price for such
security prior to 4:00:00 p.m. New York City time, as reported by Bloomberg, (iii) if the foregoing
do not apply, the last trade price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg,
or (iv) if no last trade price is reported for such security by Bloomberg, the average of the
highest bid prices and the lowest ask prices of any market makers for such security in the “pink
sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Price
cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing
Price of such security on such date shall be the fair market value as mutually determined by the
Company and the Majority Holders.



31









 





          (q) “Code” means the Internal Revenue Code of 1986, as amended from time to time.



          (r) “Commission” means the United States Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act.



          (s) “Common Stock” means the shares of Common Stock, par value $0.10 per share, of the Company
as it exists on the Original Issue Date or any other shares of Capital Stock of the Company into
which the Common Stock shall be reclassified or changed or, in the event of a merger, consolidation
or other similar transaction involving the Company that is otherwise permitted hereunder in which
the Company is not the surviving corporation, the common stock, common equity interests, ordinary
shares or depositary shares or other certificates representing common equity interests of such
surviving corporation or its direct or indirect parent corporation.



          (t) “Company” means the Person named as the “Company” in the first paragraph of this
instrument until a successor Person shall have become such pursuant to the applicable provisions of
this Security, and thereafter “Company” shall mean such successor Person.



          (u) “Conversion Date” has the meaning specified in Section 3(b)(i).



          (v) “Conversion Price” means, as of any Conversion Date (as defined below) or other date of
determination, $15.04, subject to adjustment as provided herein.



          (w) “Conversion Rate” has the meaning specified in Section 3(a)(iii).



          (x) “corporation” means a corporation, association, company, joint-stock company or business
trust.



          (y) “Current Market Price” has the meaning specified in Section 3(f)(v).



          (z) “Default” means any event that is, or with the passage of time or the giving of notice or
both would become, an Event of Default.



          (aa) “Effective Date” means the date on which a Fundamental Change becomes effective.



          (bb) “Event of Default” has the meaning specified in Section 6(a).



32









 





          (cc) “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission promulgated thereunder.



          (dd) “Expiration Date” has the meaning specified in Section 3(f)(iv).



          (ee) “Expiration Time” has the meaning specified in Section 3(f)(iv).



          (ff) “Fundamental Change” means any transaction or event resulting in either a Change of
Control Event or a Termination of Trading.



          (gg) “Fundamental Change Company Notice” has the meaning specified in Section 4(a)(ii).



          (hh) “Fundamental Change Conversion” has the meaning specified in Section 3(b)(v).



          (ii) “Fundamental Change Conversion/Repurchase Period” means the period beginning upon receipt
of the Fundamental Change Company Notice and ending 15 Trading Days after the Effective Date.



          (jj) “Fundamental Change Repurchase” has the meaning specified in Section 4(a)(i).



          (kk) “Fundamental Change Repurchase Notice” has the meaning specified in Section 4(a)(iii).



          (ll) “Fundamental Change Repurchase Price” has the meaning specified in Section 4(a)(i).



          (mm) “Fundamental Change Settlement Date” means the Effective Date for a Fundamental Change.
With respect to any Fundamental Change Conversion or Fundamental Change Repurchase for which a
Notice of Conversion or Fundamental Change Repurchase Notice, as applicable, has been delivered by
a Holder to the Company after the Effective Date (and during the Fundamental Change
Conversion/Repurchase Period), the Fundamental Change Settlement Date shall mean the date that is
three Business Days following the end of the Fundamental Change Conversion/Repurchase Period.



          (nn) “GAAP” means generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as have been approved by a significant segment of the
accounting profession.



          (oo) “Holder” means a Person in whose name a Security is registered in the Security Register.
The Holder of any Security as of any Payment Date shall be the Person in which such Security (or
one or more predecessor Securities) is registered at the close of business on the Record Date next
preceding such Payment Date. As used herein (unless the context otherwise requires), the “Holder”
(whether or not followed by the phrase “of this
Security” refers to the Holder of this Security; and “any Holder” or “the Holders” (whether or
not followed by a reference to Securities) refers to one or more Holders of this or any other
Security.



33









 





          (pp) “Interest Payment Date” means (i) each February 15, May 15, August 15, and November 15,
commencing on August 15, 2009 and ending on the Maturity Date, and (ii) the Maturity Date.



          (qq) “Issue Date” means the date the Securities are originally issued as set forth on the face
of the Security under this Security.



          (rr) “Majority Holders” means, at any time, the Holders of a majority in aggregate Principal
Amount Then Outstanding of the Securities.



          (ss) “Maturity Date,” when used with respect to any Security, means the date on which the
principal or the Fundamental Change Repurchase Price of such Security becomes due and payable as
therein or herein provided, whether at the Stated Maturity or a Fundamental Change Repurchase Date,
or by declaration of acceleration or otherwise.



          (tt) “Notice of Conversion” has the meaning specified in Section 3(b)(i).



          (uu) “Notice of Default” has the meaning specified in Section 6(a)(v).



          (vv) “NYSE” means the New York Stock Exchange LLC.



          (ww) “Officers’ Certificate” of the Company means a certificate signed by the Chairman of the
Board, the President or any Vice President, and by the Chief Financial Officer, the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company. One of the officers
signing an Officers’ Certificate given pursuant to Section 5(c) shall be the principal executive,
financial or accounting officer of the Company.



          (xx) “Opinion of Counsel” for the Company or the Holder means a written opinion of the
Company’s or the Holder’s counsel, respectively (who may be their respective external or in-house
counsel), who shall be, in each case, reasonably acceptable to the opinion recipient.



          (yy) “Original Issue Date” means May 11, 2009.



          (zz) “Outstanding” when used with respect to Securities, means, as of any date and time of
determination, all Securities theretofore executed and delivered pursuant to the provisions of this
Security or the Purchase Agreement, except for: (i) Securities (or portions thereof) theretofore
cancelled by the Company or delivered to the Company for cancellation; (ii) Securities (or portions
thereof) that have been paid or in exchange for or in lieu of which other Securities have been
executed and delivered pursuant to this Security; and (iii) Securities (or portions thereof)
theretofore converted pursuant to Section 3. In determining whether the Holders of the requisite
Principal Amount Then Outstanding of Securities have given or made any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities
owned by the Company or any other obligor upon the Securities or any Affiliate of the Company
or of such other obligor shall be deemed not to be Outstanding and shall be disregarded in the
calculation of Principal Amount Then Outstanding (or any percentage or portion thereof).



34









 





          (aaa) “Paying Agent” means any Person (including the Company) authorized by the Company to pay
to the Holders the Principal Amount Outstanding of, and interest on, the Securities, including the
Fundamental Change Repurchase Price on behalf of the Company. The Company shall initially be the
Paying Agent and the Company shall provide written notice to the Holders of any change in the
Paying Agent hereafter.



          (bbb) “Payment Date” means any date on which any payment is required to be made to the Holder
of this Security pursuant to the terms hereof (including, without limitation, the Maturity Date and
any Interest Payment Date).



          (ccc) “Person” means any individual, corporation, partnership, limited liability company,
joint venture, trust, unincorporated organization or government or any agency or political
subdivision thereof.



          (ddd) “Principal Amount [Then] Outstanding” of any Security, at any time or from time to time
(as the context may require), has the meaning specified in the first paragraph of this Security.



          (eee) “Purchase Agreement” means the Purchase Agreement, dated as of May 11, 2009, between the
Company and the Purchaser in connection, among other things, with the sale of the Securities by the
Company to the Purchaser.



          (fff) “Purchased Shares” has the meaning specified in Section 3(f)(iv).



          (ggg) “Purchaser” means Frost Nevada Investments Trust.



          (hhh) “Qualified Institutional Buyer” or “QIB” shall have the meaning specified in Rule 144A.



          (iii) “Record Date” for the interest, principal or other amounts payable on any Interest
Payment Date or any other Payment Date, means each February 1, May 1, August 1 and November 1
(whether or not a Business Day) next preceding such Interest Payment Date or other Payment Date.



          (jjj) “record date”, for purposes of Section 3(f), has the meaning specified in Section
3(f)(vi).



          (kkk) “Registration Statement” has the meaning specified in Section 5(a).



          (lll) “Restricted Security” or “Restricted Securities” means Security or Securities whose
transfer is restricted in accordance with the legends set forth on the face of the Securities.



35









 





          (mmm) “Rights Plan” has the meaning specified in Section 3(f)(iii).



          (nnn) “Rule 144” has the meaning specified in Section 5(a).
(ooo) “Rule 144A” has the meaning specified in Section 5(b)(ii).



          (ppp) “Rule 144A Information” has the meaning specified in Section 5(b)(ii).



          (qqq) “Securities Act” means the U.S. Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.



          (rrr) this “Security” means this Variable Interest Senior Convertible Note (including all
Variable Interest Senior Convertible Notes issued in exchange, transfer or replacement hereof or
any other such Security). Unless the context otherwise requires “[a] [any] Security” or
“Securities” means all Variable Interest Senior Convertible Notes (including all Variable Interest
Convertible Notes issued in exchange, transfer or replacement of any thereof or any other such
Securities) issued pursuant to the Purchase Agreement.



          (sss) “Security Register” means a register in which the Company shall register the Securities
and transfers thereof.



          (ttt) “Security Registrar” means the Person or Persons designated by the Company to administer
the Security Register.



          (uuu) “Share Delivery Date” has the meaning specified in Section 3(b)(ii).



          (vvv) “Significant Subsidiary” shall have the meaning ascribed to such term in Regulation S-X
under the Exchange Act.



          (www) “Stated Maturity” of any Security has the meaning specified in the first paragraph of
this Security.



          (xxx) “Subsidiary” means, with respect to any Person, (a) any corporation, association or
other business entity of which more than 50% of the total voting power of shares of Capital Stock
or other equity interest entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other subsidiaries of that Person (or
a combination thereof) and (b) any partnership (i) the sole general partner or managing general
partner of which is such Person or a subsidiary of such Person or (ii) the only general partners of
which are such Person or of one or more subsidiaries of such Person (or any combination thereof).



          (yyy) “Surviving Entity” has the meaning specified in Section 5(h).



          (zzz) “Termination of Trading” means that the Common Stock or other securities into which the
Securities are convertible are neither listed for trading on a U.S.
national securities exchange nor approved for trading on an established automated
over-the-counter trading market in the United States. For the avoidance of doubt, neither the
Over-the-Counter Bulletin Board nor the Pink Sheets LLC will be considered an established automated
over-the-counter trading market for the purposes of determining whether a Termination of Trading
has occurred.



36









 





          (aaaa) “Trading Day” means (a) if the applicable security is listed or admitted for trading on
the NYSE or another national securities exchange, a day on which the NYSE or such other national
securities exchange is open for business, (b) if the applicable security is quoted on the NASDAQ
Global Market or the NASDAQ Capital Market, a day during which trades may be made thereon or (c) if
the applicable security is not so listed, admitted for trading or quoted, any Business Day.



          (bbbb) “Transfer” has the meaning specified in Section 8(a).



          (cccc) “Transfer Restricted Security” means a Security required to bear the restricted legend
set forth in the form of Security set forth as Exhibit A attached hereto.



          (dddd) “Trigger Event” has the meaning specified in Section 3(f)(iii).



          (eeee) “United States” means the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas subject to its jurisdiction
(its “possessions” including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake
Island and the Northern Mariana Islands).



          (ffff) “Vice President” when used with respect to the Company or the Holder, means any vice
president, whether or not designated by a number or a word or words added before or after the title
“vice president.”



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



     Section 12. TAX TREATMENT.



          (a) Tax Treatment. The parties hereto hereby agree, and each Holder and any
beneficial holder of a Security by its purchase of a Security hereby agrees (in the absence of
administrative pronouncement or judicial ruling to the contrary):



               (i) to treat the Securities (including those Securities issued in exchange for the 5.0% Notes)
as indebtedness of the Company for all United States federal income tax purposes;



               (ii) to treat the Securities as debt instruments that are subject to Treasury Regulation
section 1.1275-4(b);



37









 





               (iii) to treat the amount of Securities being sold for cash pursuant to the Purchase Agreement
as a “substantial amount” for purposes of Treasury Regulation section 1.1273-2(a)(1) such that the
“issue price” of each Security (including those issued in exchange for the 5.0% Notes) shall be
determined by reference to the amount of cash paid by the Purchaser for a Security; and



               (iv) to treat the delivery of Common Stock or cash (including cash delivered in lieu of a
fractional share) to a Holder of a Security upon conversion of such Security, or upon a purchase of
such Security by the Company at the option of the Holder of a Security where the Company makes a
payment in cash (including cash paid in lieu of a fractional share) as a contingent payment (in an
amount equal to the sum of the fair market value of such Common Stock and any cash received) under
Treasury Regulation section 1.1275-4(b).



          (b) Comparable Yield And Projected Payment Schedule. Solely for purposes of applying
Treasury Regulation section 1.1275-4 to the Securities:



               (i) for United States federal income tax purposes, the Company shall accrue interest with
respect to outstanding Securities as original issue discount according to the “noncontingent bond
method,” as set forth in Treasury Regulation section 1.1275-4(b) using a comparable yield of 15.3%,
compounded quarter-annually, and the projected payment schedule referred to below;



               (ii) the Company shall file with the Holders promptly at the end of each calendar year (A) a
written notice specifying the amount of original issue discount for United States federal income
tax purposes accrued on outstanding Securities as of the end of such year and (B) such other
specific information relating to such original issue discount that the Company determines to be
relevant under the Code, including the amount of any adjustment made under the noncontingent bond
method to account for the amount of any difference between the amount of an actual payment and the
amount of a projected payment; and



               (iii) the Company acknowledges and agrees, and each Holder and any beneficial holder of a
Security, by its purchase of a Security shall be deemed to acknowledge and agree, that (A) the
comparable yield and the projected payment schedule are not determined for any purpose other than
for the purpose of applying Treasury Regulation section 1.1275-4(b)(4) to the Security, (B) the
comparable yield and the projected payment schedule do not constitute a projection or
representation regarding the actual amounts payable on the Securities, and (C) the Company’s
application of Treasury Regulation section 1.1275-4(b) shall be binding on each Holder and any
beneficial holder of a Security, including the Company’s determination of the comparable yield and
the projected payment schedule. A Holder of Securities may obtain the amount of original issue
discount, issue date, yield to maturity, comparable yield and projected payment schedule by
submitting a written request for it to the Company. The Company, upon the request of the Holder,
shall provide to the Holder the amount of original issue discount, issue date, yield to maturity,
comparable yield and projected payment schedule.



38









 





     Section 13. GOVERNING LAW; SUBMISSION TO JURISDICTION, WAIVER OF JURY TRIAL.



          (a) Governing Law. This Security shall be governed by and construed in accordance
with, the law of the State of Florida without regard to any choice of law or conflict of law
provision or rule that would cause the application of the laws of any jurisdiction other than the
state of Florida.



          (b) SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. Each of the Company and the
Holders hereby expressly and irrevocably (i) submits to the non-exclusive jurisdiction of the
federal (to the extent permitted by applicable law), and state courts sitting in Miami-Dade County,
Florida in any suit or proceeding arising out of or relating to this security or the transactions
contemplated hereby; and (ii) WAIVES (A) ITS RIGHT TO A TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS SECURITY, THE TRANSACTIONS CONTEMPLATED HEREBY, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COMPANY OR THE
HOLDERS AND FOR ANY COUNTERCLAIM RELATED TO ANY OF THE FOREGOING and (B) any obligation which it
may have or hereafter may have to the laying of venue of any such litigation brought in any such
court referred to above and any claim that any such litigation has been brought in an inconvenient
forum.



     Section 14. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Security by
the Company shall bind its successors and assigns, whether so expressed or not.



     Section 15. SEVERABILITY. In case any provision of this Security or the other
Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.



[Signature Page Follows]




39









 





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



	 	 	 	 	 
	 	Vector Group Ltd.

 	 
	 	By:  	/s/ Howard M. Lorber
 	 
	 	 	Name:  	Howard M. Lorber 	 
	 	 	Title:  	President and Chief Executive Officer 	 
	 




 









 








ASSIGNMENT FORM




If you want to assign this Security, fill in the form below and have your signature guaranteed:




I or we assign and transfer this Security to:




 




 




 




 




(Print or type name, address and zip code and social security or tax ID number of assignee)




and irrevocably appoint




agent to transfer this Security on the books of the Company. The agent may substitute another to
act for him.



	 	 	 	 	 
	 	 	 
	Date: 	Signed:
 	 
	 	 	 
	 	 	 
	 



(Sign exactly as your name appears on the other side of this Security)





			
	Signature Guarantee:	 	
 






Note: Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements
of the Security Registrar, which requirements include membership or participation in the Security
Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be
determined by the Security Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.



 









 









     In connection with any transfer of this Security occurring prior to the date which is the
earlier of (i) the date of the declaration by the Commission of the effectiveness of a registration
statement under the Securities Act, as amended (the “Securities Act”), covering resales of this
Security (which effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the first anniversary of the Issue Date set forth on the face of this Security,
the undersigned confirms that this Security is being transferred:



Check One




(1)                 to the Company or a Subsidiary thereof; or




(2)                 to a “Qualified Institutional Buyer” pursuant to and in compliance with Rule 144A under
the Securities Act; or




(3)                 to an institutional accredited investor, as described in Rule 501(a)(1), (2), (3) or (7)
of Regulation D under the Securities Act; or




(4)                 pursuant to an offshore transaction in accordance with Rule 904 of Regulation S under
the Securities Act; or




(5)                 pursuant to another available exemption from the registration requirement of the
Securities Act.




Unless one of the above boxes is checked, the Company will refuse to register any of the Securities
evidenced by this certificate in the name of any Person other than the registered Holder thereof,
provided that the Company may require, prior to registering any such transfer of the
Securities, in its sole discretion, such legal opinions, certifications and other information as
the Company may reasonably request to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration requirements of the Securities
Act.



If none of the foregoing boxes is checked, the Company shall not be obligated to register this
Security in the name of any Person other than the Holder hereof unless and until the conditions to
any such transfer of registration set forth herein and in Section 8(c) of the Security shall have
been satisfied.



	 	 	 	 	 
	 	 	 
	Date: 	Signed:
 	 
	 	 	 
	 	 	 
	 



(Sign exactly as your name appears on the other side of this Security)





			
	Signature Guarantee:	 	
 






Note: Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements
of the Security Registrar, which requirements include membership or participation
in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee
program” as may be determined by the Security Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.




 









 









EXHIBIT A




NOTICE OF CONVERSION





     If you want to convert this Security into Common Stock of the Company, check the box:



     To convert only part of this Security, state the Principal Amount Outstanding to be converted
(which must be $1,000 or an integral multiple of $1,000):



     $                                        



     If you want the stock certificate made out in another person’s name, fill in the form below:



(Insert other person’s social security or tax ID no.)




(Print or type other person’s name, address and zip code)




Account Number:                                         
                        

(if electronic book entry transfer)




Transaction Code Number:                                         

(if electronic book entry transfer)




	 	 	 	 	 
	 	 	 
	Date: 	Signed:
            
                                    
 	 
	 	 	 
	 	 	 
	 




(Sign exactly as your name appears on the other side of this Security)




			
	Signature Guarantee:	 	
 






Note: Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements
of the Security Registrar, which requirements include membership or participation in the Security
Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be
determined by the Security Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.



     A-1     




 









 








EXHIBIT B




FORM OF FUNDAMENTAL CHANGE REPURCHASE NOTICE




, 20




 






 






 






 






Attention:




          Re: Vector Group Ltd. (the “Company”)



6.75% Variable Interest Senior Convertible Notes Due 2014




This is a Fundamental Change Repurchase Notice as defined in Section 4(a) of the Security. Terms
used but not defined herein shall have the meanings ascribed to them in the Security.



Certificate No(s). of Securities:




I intend to deliver the following aggregate Principal Amount Outstanding of Securities for purchase
by the Company pursuant to Section 4(a) of the Security (in multiples of $1,000):



$




I hereby agree that the Securities will be purchased as of the Fundamental Change Settlement Date
pursuant to the terms and conditions thereof.




			
	Signed:	 	
 






     B-1