Exhibit 10.3


 


[FORM OF SENIOR SECURED CONVERTIBLE NOTE]


 


NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933
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 THE SECURITIES UNDER THE 1933 ACT, OR (B) AN OPINION OF
COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT (II) UNLESS SOLD OR TRANSFERS TO A “QUALIFIED INSTITUTIONAL
BUYER” WITHIN THE MEANING OF RULE 144A UNDER THE 1933 ACT OR TO AN “ACCREDITED
INVESTOR” AS THAT TERM IS DEFINED IN RULE 501(A) OF REGULATION D
OR (III) UNLESS SOLD PURSUANT TO RULE
144 OR RULE 144A UNDER SAID ACT. 
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT
SECURED BY THE SECURITIES.  ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF.  THE HOLDER OF THIS NOTE AGREES TO THE TERMS
AND PROVISIONS SET FORTH IN SECTION 4(q) OF THE SECURITIES PURCHASE
AGREEMENT REGARDING THE COLLATERAL AGENT (AS DEFINED IN THE SECURITIES PURCHASE
AGREEMENT).  THE PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE
HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.


 


ANSWERS CORPORATION


 


SENIOR SECURED CONVERTIBLE NOTE


 


	
  Issuance Date: [•]

  	
  Original Principal Amount: U.S. $[•]

  



 


FOR
VALUE RECEIVED,  ANSWERS CORPORATION,
a Delaware corporation (the “Company”),
hereby promises to pay to INTERLACHEN CONVERTIBLE
INVESTMENTS LIMITED or registered assigns (the “Holder”) the amount set out above as the
Original Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, the “Principal”)
when due, whether upon the Maturity Date (as defined below), acceleration,
redemption or otherwise (in each case in accordance with the terms hereof) and
to pay interest (“Interest”) on
any outstanding Principal at a rate per annum equal to the Interest Rate (as
defined below) from the date set out above as the Issuance Date (the “Issuance  Date”)
until the same becomes due and payable, whether upon an Interest Date (as
defined below), the Maturity Date, acceleration, conversion, redemption or
otherwise (in each case in accordance with the terms hereof).  This Senior Secured Convertible Note
(including all Senior


 

















 


Secured
Convertible Notes issued in exchange, transfer or replacement hereof, this “Note”) is one of an issue of Senior Secured
Convertible Notes issued pursuant to the Securities Purchase Agreement on the
Closing Date (collectively, the “Notes”
and such other Senior Secured Convertible Notes, the “Other  Notes”).  Certain capitalized terms used herein are
defined in Section 30.


 


(1)           MATURITY.  On
the Maturity Date, the Company shall pay to the Holder an amount in cash
representing all outstanding Principal, accrued and unpaid Interest and accrued
and unpaid Late Charges, if any, on such Principal and Interest.  The “Maturity
Date” shall be December 31,
2010, as may be extended at the option of the Holder (i) in the event
that, and for so long as, an Event of Default (as defined in Section 4(a))
shall have occurred and be continuing on the Maturity Date (as may be extended
pursuant to this Section 1) or any event shall have occurred and be
continuing on the Maturity Date (as may be extended pursuant to this Section 1)
that with the passage of time and the failure to cure would result in an Event
of Default, and (ii) through the date that is ten (10) Business Days
after the consummation of a Change of Control in the event that a Change of
Control is publicly announced or a Change of Control Notice (as defined in Section 5(b))
is delivered prior to the Maturity Date.


 


(2)           INTEREST;
INTEREST RATE.  (a) Interest on
this Note shall commence accruing on the Issuance Date and shall be computed on
the basis of actual number of days elapsed over a 360-day year and shall be
payable in arrears for each Calendar Quarter on January 15, April 15,
July 15 and October 15 of each year (each, an “Interest  Date”)
with the first Interest Date being April 15, 2008.  Interest shall be payable on each Interest
Date, to the record holder of this Note on the applicable Interest Date in
cash.


 


(b)           Prior
to the payment of Interest on an Interest Date, Interest on this Note shall
accrue at the Interest Rate and be payable by way of inclusion of the Interest
in the Conversion Amount  on each
Conversion Date in accordance with Section 3(b)(i).  From and after the occurrence and during the
continuance of an Event of Default, the Interest Rate then in effect shall be
increased by seven percent (7.0%) but in no event shall the Interest Rate
exceed twenty-four percent (24%).  In the
event that such Event of Default is subsequently cured, the adjustment referred
to in the preceding sentence shall cease to be effective as of the date of such
cure; provided that the Interest as calculated and unpaid at such increased
rate during the continuance of such Event of Default shall continue to apply to
the extent relating to the days after the occurrence of such Event of Default
through and including the date of cure of such Event of Default.


 


(3)           CONVERSION
OF NOTES.  This Note shall be
convertible into shares of the Company’s common stock, par value $0.001 per
share (the “Common Stock”), on the terms and
conditions set forth in this Section 3.


 


(a)                                  Conversion
Right.  Subject to the provisions of Section 3(d),
at any time or times on or after the Issuance Date, the Holder shall be entitled
to convert any portion of the outstanding and unpaid Conversion Amount (as
defined below) into fully paid and nonassessable shares of Common Stock in
accordance with Section 3(c), at the Conversion Rate (as defined
below).  The Company shall not issue any
fraction of a share of Common Stock upon any conversion.  If the issuance would result in the issuance
of a fraction of a share of Common


 


2

















 


Stock, the Company shall round such fraction
of a share of Common Stock up to the nearest whole share.  The Company shall pay any and all transfer,
stamp and similar taxes that may be payable with respect to the issuance and
delivery of Common Stock upon conversion of any Conversion Amount.


 


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


 


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


 


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


 


(c)           Mechanics
of Conversion.


 


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


 






(1)                                  If
this is a Follow-on Note (as defined in the Securities Purchase
Agreement):   Insert number equal to the
lesser of (i) $9.00 and (ii) 110% of the issue price per share of
Common Stock in the Follow-on Offering (as defined in the Securities Purchase Agreement).


 


If this is a
Termination Note (as defined in the Securities Purchase Agreement): Insert
number equal to the lesser of (i) $9.00 and (ii) 110% of the
arithmetic average of the Weighted Average Price of the Common Stock for the
ten (10) Trading Days commencing on the Trading Day immediately following
the announcement of the Lexico Termination (as defined in the Securities
Purchase Agreement).


 


3

















 


the DTC Fast
Automated Securities Transfer Program, issue and deliver to the address as
specified in the Conversion Notice, a certificate, registered in the name of
the Holder or its designee, for the number of shares of Common Stock to which
the Holder shall be entitled.  If this
Note is physically surrendered for conversion as required by Section 3(c)(iii) and
the outstanding Principal of this Note is greater than the Principal portion of
the Conversion Amount being converted, then the Company shall as soon as
practicable and in no event later than three (3) Trading Days after
receipt of this Note and at its own expense, issue and deliver to the holder a
new Note (in accordance with Section 18(d)) representing the outstanding
Principal not converted.  The Person or
Persons entitled to receive the shares of Common Stock issuable upon a
conversion of this Note shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date.


 


(ii)                                  Company’s
Failure to Timely Convert.  If the Company shall fail to issue a certificate
to the Holder or credit the Holder’s balance account with DTC, as applicable,
for the number of shares of Common Stock to which the Holder is entitled upon
conversion of any Conversion Amount on or prior to the date which is three (3) Trading
Days after the Conversion Date (a “Conversion
Failure”), then (A) the
Company shall pay damages to the Holder for each Trading Day of such Conversion
Failure in an amount equal to one and one-half percent (1.5%) of the product of
(1) the sum of the number of shares of Common Stock not issued to the
Holder on or prior to the Share Delivery Date and to which the Holder is
entitled, and (2) the Closing Sale Price of the Common Stock on the Share
Delivery Date and (B) the Holder, upon written notice to the Company, may
void its Conversion Notice with respect to, and retain or have returned, as the
case may be, any portion of this Note that has not been converted pursuant to
such Conversion Notice; provided that the voiding of a Conversion Notice
shall not affect the Company’s obligations to make any payments which have
accrued prior to the date of such notice pursuant to this Section 3(c)(ii) or
otherwise.  In addition to the foregoing,
if within three (3) Trading Days after the Company’s receipt of the
facsimile copy of a Conversion Notice the Company shall fail to issue and
deliver a certificate to the Holder or credit the Holder’s balance account with
DTC for the number of shares of Common Stock to which the Holder is entitled
upon such holder’s conversion of any Conversion Amount or on any date of the
Company’s obligation to deliver shares of Common Stock as contemplated pursuant
to clause (y) below, and if on or after such Trading Day the Holder
purchases (in an open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale by the Holder of Common Stock issuable upon such
conversion that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three (3) Trading
Days after the Holder’s request and in the Holder’s discretion, either (x) pay
cash to the Holder in an amount equal to the Holder’s total purchase price
(including brokerage commissions and other out of pocket expenses, if any) for
the shares of Common Stock so purchased (the “Buy-In Price”), at which point
the Company’s obligation to deliver such certificate (and to issue such Common
Stock) shall terminate, or (y) promptly honor its obligation to deliver to
the Holder a certificate or certificates representing such Common Stock and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (I) such number of shares of Common Stock, times
(II) the Closing Bid Price on the Conversion Date.


 


4

















 


(iii)          Registration;
Book-Entry.  The Company shall
maintain a register (the “Register”)
for the recordation of the names and addresses of the holders of each Note and
the principal amount of the Notes held by such holders (the “Registered Notes”).  The entries in the Register shall be
conclusive and binding for all purposes absent manifest error.  The Company and the holders of the Notes
shall treat each Person whose name is recorded in the Register as the owner of
a Note for all purposes, including, without limitation, the right to receive
payments of Principal and Interest hereunder, notwithstanding notice to the
contrary.  A Registered Note may be
assigned or sold in whole or in part only by registration of such assignment or
sale on the Register.  Upon its receipt
of a request to assign or sell all or part of any Registered Note by a Holder,
the Company shall record the information contained therein in the Register and
issue one or more new Registered Notes in the same aggregate principal amount
as the principal amount of the surrendered Registered Note to the designated
assignee or transferee pursuant to Section 18.  Notwithstanding anything to the contrary set
forth herein, upon conversion of any portion of this Note in accordance with
the terms hereof, the Holder shall not be required to physically surrender this
Note to the Company unless (A) the full Principal amount represented by
this Note is being converted or (B) the Holder has provided the Company
with prior written notice (which notice may be included in a Conversion Notice)
requesting reissuance of this Note upon physical surrender of this Note.  The Holder and the Company shall maintain
records showing the Principal, Interest and Late Charges, if any, converted and
the dates of such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require physical
surrender of this Note upon conversion.


 


(iv)          Pro Rata Conversion;
Disputes.  In the event that the
Company receives a Conversion Notice from more than one holder of Notes for the
same Conversion Date and the Company can convert some, but not all, of such
portions of the Notes submitted for conversion, the Company, subject to Section 3(d),
shall convert from each holder of Notes electing to have Notes converted on
such date a pro rata amount of such holder’s portion of its Notes submitted for
conversion based on the principal amount of Notes submitted for conversion on
such date by such holder relative to the aggregate principal amount of all
Notes submitted for conversion on such date. 
In the event of a dispute as to the number of shares of Common Stock
issuable to the Holder in connection with a conversion of this Note, the
Company shall issue to the Holder the number of shares of Common Stock not in
dispute and resolve such dispute in accordance with Section 24.


 


(v)           Mandatory
Conversion.


 


(A)                              General.  If at any time from and after the first
anniversary of the Closing Date (the “Mandatory
Conversion Eligibility Date”), (1) the arithmetic average of
the Weighted Average Price of the Common Stock for a period of at least
thirty (30) consecutive Trading Days following the Mandatory Conversion Eligibility Date (the “Mandatory Conversion Measuring Period”)
equals or exceeds 175% of the Conversion Price on the Issuance Date (subject to
appropriate adjustments for any stock dividend, stock split, stock
combination, reclassification or similar transaction after the Subscription Date)


 


5

















 


(the “Pricing Condition”), (2) the arithmetic
average of the dollar trading volume (as reported on Bloomberg) of the Common
Stock on the Principal Market is at least $1,000,000 per Trading Day (the “Volume Condition”) during such Mandatory Conversion
Measuring Period, and (3) there is not then an Equity Conditions Failure,
the Company shall have the right to require the Holder to convert all or
any portion of the Conversion Amount then remaining under this Note, in each
case  as designated in the
Mandatory Conversion Notice (as defined below) into fully paid, validly issued
and nonassessable shares of Common Stock in accordance with Section 3(c) hereof
at the Conversion Rate as of the Mandatory Conversion Date (as defined below)
(a “Mandatory Conversion”); provided, that
the Company shall not exercise its right of Mandatory Conversion hereunder more
than one (1) time in any consecutive six (6) month period; and
provided further, that the aggregate Conversion Amount subject to the Mandatory
Conversion for all Notes pursuant to any one Mandatory Conversion Notice shall
be at least $5,000,000.  The Company may
exercise its right to require conversion under this Section 3(c)(v) by
delivering within not more than two (2) Trading Days following the end of
such Mandatory Conversion Measuring Period a written notice thereof by
facsimile and overnight courier to all, but not less than all, of the holders
of Notes and the Transfer Agent (the “Mandatory Conversion
Notice” and the date all of the holders received such notice by
facsimile is referred to as the “Mandatory Conversion
Notice Date”).  The Mandatory
Conversion Notice shall be irrevocable. 
The Mandatory Conversion Notice shall (x) state (I) the
Trading Day selected for the Mandatory Conversion, which Trading Day shall be
no sooner than twenty (20) Trading Days nor later than sixty (60) Trading Days
following the Mandatory Conversion Notice Date (the “Mandatory Conversion Date”), (II) the aggregate
Conversion Amount of the Notes subject to Mandatory Conversion from the Holder
and all of the holders of the Notes pursuant to this Section 3(c)(v) (and
analogous provisions under the Other Notes), (III) the number of shares of
Common Stock to be issued to the Holder on the Mandatory Conversion Date,  and  (y) certify
that there has been no Equity Conditions Failure and (z) certify that each
of (I) the Pricing Condition and (II) the Volume Condition has been
met on each day of the Mandatory Conversion Measuring Period.  If the Equity Conditions, Volume Condition
and Pricing Condition were satisfied as of the Mandatory Conversion Notice Date
but if any Equity Condition, Volume Condition or Pricing Condition is no longer
satisfied at any time on each date prior to and including the Mandatory
Conversion Date, the Mandatory Conversion Notice shall be null and void.


 


(B)                                Pro Rata Conversion
Requirement.  If the Company elects
to cause a conversion of any Conversion Amount of this Note pursuant to Section 3(c)(v)(A),
then it must simultaneously take the same action in the same proportion with
respect to the Other Notes.  If the
Company elects a Mandatory Conversion of this Note pursuant to Section 3(c)(v)(A) (or
similar provisions under the Other Notes) with respect to less than all of the
Conversion Amounts of the Notes then outstanding, then the Company shall require
conversion of a Conversion Amount from each of the holders of the Notes equal
to the product of (1) the aggregate Conversion Amount of Notes which the
Company has elected to


 


6

















 


cause to be converted pursuant to Section 3(c)(v)(A), multiplied
by (2) the fraction, the numerator of which is the sum of the aggregate
Original Principal Amount of the Notes purchased by such holder of outstanding
Notes and the denominator of which is the sum of the aggregate Original
Principal Amount of the Notes purchased by all holders holding outstanding
Notes (such fraction with respect to each holder is referred to as its “Conversion  Allocation Percentage,” and such amount with respect to each
holder is referred to as its “Pro Rata
Conversion Amount”); provided, however, that in the event that any
holder’s Pro Rata Conversion Amount exceeds the outstanding Principal amount of
such holder’s Note, then such excess Pro Rata Conversion Amount shall be
allocated amongst the remaining holders of Notes in accordance with the
foregoing formula.  In the event that the
initial holder of any Notes shall sell or otherwise transfer any of such holder’s
Notes, the transferee shall be allocated a pro rata portion of such holder’s
Conversion Allocation Percentage and the Pro Rata Conversion Amount.


 


(d)           Limitations
on Conversions.


 


(i)                                     Beneficial
Ownership.  The Company shall not
effect any conversion of this Note, and the Holder of this Note shall not have
the right to convert any portion of this Note pursuant to Section 3(a), to
the extent that after giving effect to such conversion, the Holder (together
with the Holder’s affiliates) would beneficially own in excess of 9.99% (the “Maximum Percentage”) of the number of
shares of Common Stock outstanding immediately after giving effect to such
conversion.  For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by
the Holder and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Note with respect to which the
determination of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted portion of this Note beneficially owned by the Holder
or any of its affiliates and (B) exercise or conversion of the unexercised
or nonconverted portion of any other securities of the Company (including,
without limitation, any Other Notes) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by the
Holder or any of its affiliates.  Except
as set forth in the preceding sentence, for purposes of this Section 3(d)(i),
beneficial ownership shall be calculated in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  For purposes of this Section 3(d)(i), in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (1) the
Company’s most recent Form 10-K, Form 10-Q, Form 8-K or other
public filing with the SEC, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock
outstanding.  For any reason at any time,
upon the written or oral request of the Holder, the Company shall within one (1) Business
Day confirm orally and in writing to the Holder the number of shares of Common
Stock then outstanding.  In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
this Note, by the Holder or its affiliates since the date as of which such
number


 


7

















 


of outstanding
shares of Common Stock was reported.  By
written notice to the Company, the Holder may increase or decrease the Maximum
Percentage to any other percentage not in excess of 9.99% specified in such
notice; provided that (x) any such increase will not be effective until
the sixty-first (61st) day after such notice is delivered to the
Company, and (y) any such increase or decrease will apply only to the
Holder and not to any other holder of Notes.


 


(ii)                                  Market
Regulation.  The Company shall not be
obligated to issue any shares of Common Stock upon conversion of this Note if
the issuance of such shares of Common Stock would exceed the aggregate number
of shares of Common Stock which the Company may issue upon conversion of the
Notes without breaching the Company’s obligations under the rules or
regulations of the Principal Market (the “Exchange
Cap”), except that such limitation shall not apply in the event that
the Company (A) obtains the approval of its stockholders as required by
the applicable rules of such Principal Market for issuances of Common
Stock in excess of such amount or (B) obtains a written opinion from
outside counsel to the Company that such approval is not required, which
opinion shall be reasonably satisfactory to the Required Holders.  Until such approval or written opinion is
obtained, no purchaser of the Notes pursuant to the Securities Purchase
Agreement (the “Purchasers”) shall
be issued in the aggregate, upon conversion of Notes, shares of Common Stock in
an amount greater than the product of the Exchange Cap multiplied by a
fraction, the numerator of which is the principal amount of Notes issued to a
Purchaser pursuant to the Securities Purchase Agreement on the Closing Date and
the denominator of which is the aggregate principal amount of all Notes issued
to the Purchasers pursuant to the Securities Purchase Agreement on the Closing
Date (with respect to each Purchaser, the “Exchange
Cap Allocation”).  In the
event that any Purchaser shall sell or otherwise transfer any of such Purchaser’s
Notes, the transferee shall be allocated a pro rata portion of such Purchaser’s
Exchange Cap Allocation, and the restrictions of the prior sentence shall apply
to such transferee with respect to the portion of the Exchange Cap Allocation
allocated to such transferee.  In the
event that any holder of Notes shall convert all of such holder’s Notes into a
number of shares of Common Stock which, in the aggregate, is less than such
holder’s Exchange Cap Allocation, then the difference between such holder’s
Exchange Cap Allocation and the number of shares of Common Stock actually
issued to such holder shall be allocated to the respective Exchange Cap
Allocations of the remaining holders of Notes on a pro rata basis in proportion
to the aggregate principal amount of the Notes then held by each such holder.


 


(iii)                               Authorized
Shares.  Unless Stockholder Approval
(as defined in the Securities Purchase Agreement) has been obtained, the
Company shall not be obligated to issue any shares of Common Stock upon
conversion of this Note if the issuance of such shares of Common Stock would
exceed the authorized number of shares of Common Stock available for such
issuance; provided, that the Company notifies the Holder in writing of the
Confirmed Authorized Capital (as defined in the Securities Purchase Agreement)
delivered pursuant to the Securities Purchase Agreement on the Closing Date.


 


8

















 


(4)           RIGHTS
UPON EVENT OF DEFAULT.


 


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


 


(i)                                     the
Company’s (A) failure to cure a Conversion Failure by delivery of the
required number of shares of Common Stock within fifteen (15) Trading Days
after the applicable Conversion Date or (B) notice, written or oral, to
any holder of the Notes, including by way of public announcement or through any
of its agents, at any time, of its intention not to comply with a request for
conversion of any Notes into shares of Common Stock that is tendered in
accordance with the provisions of the Notes, other than pursuant to Section 3(d);


 


(ii)                                  the
Company’s failure to pay to the Holder any amount of Principal, Interest, Late
Charges or other amounts when and as due under this Note (including, without
limitation, the Company’s failure to pay any redemption amounts hereunder) or
any other Transaction Document (as defined in the Securities Purchase
Agreement) or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated hereby and thereby
to which the Holder is a party, except, in the case of a failure to pay
Interest and/or Late Charges when and as due, in which case only if such
failure continues for a period of at least five (5) Business Days;


 


(iii)                               any
default under, redemption of or acceleration prior to maturity of any
Indebtedness of the Company or any of its Subsidiaries (as defined in Section 3(a) of
the Securities Purchase Agreement) other than with respect to any Other Notes;


 


(iv)                              the
Company or any of its Subsidiaries, pursuant to or within the meaning of Title
11, U.S. Code, or any similar Federal, foreign or state law for the relief of
debtors (collectively, “Bankruptcy Law”), (A) commences a voluntary case, (B) consents to
the entry of an order for relief against it in an involuntary case, (C) consents
to the appointment of a receiver, trustee, assignee, liquidator or similar
official (a “Custodian”), (D) makes a general assignment for the benefit of its
creditors or (E) admits in writing that it is generally unable to pay its
debts as they become due;


 


(v)                                 a
court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that (A) is for relief against the Company or any of its Subsidiaries
in an involuntary case, (B) appoints a Custodian of the Company or any of
its Subsidiaries or (C) orders the liquidation of the Company or any of
its Subsidiaries;


 


(vi)                              a
final judgment or judgments for the payment of money aggregating in excess of
$250,000 are rendered against the Company or any of its Subsidiaries and which
judgments are not, within sixty (60) days after the entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within sixty (60)
days after the expiration of such stay; provided, however, that any judgment
which is covered by insurance or an indemnity from a credit worthy party shall
not be included in


 


9

















 


calculating
the $250,000  amount set forth
above so long as the Company provides the Holder a written statement from such
insurer or indemnity provider (which written statement shall be reasonably
satisfactory to the Holder) to the effect that such judgment is covered by
insurance or an indemnity and the Company will receive the proceeds of such
insurance or indemnity within thirty (30) days of the issuance of such
judgment;


 


(vii)                           other
than as specifically set forth in another clause of this Section 4(a), the
Company breaches any representation, warranty, covenant or other term or
condition of any Transaction Document, except, in the case of a breach of a
covenant or other term or condition of any Transaction Document which is
curable, only if such breach continues for a period of at least ten (10) consecutive
Business Days;


 


(viii)                        any
breach or failure in any respect to comply with either of Sections 8 or 14 of
this Note;


 


(ix)                                the
Company or any Subsidiary shall fail to perform or comply with any covenant or
agreement contained in any Security Agreement to which it is a party or any
Pledge Agreement to which it is a party;


 


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


 


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


 


(xii)                             any
material damage to, or loss, theft or destruction of, any Collateral, whether
or not insured, or any strike, lockout, labor dispute, embargo, condemnation,
act of God or public enemy, or other casualty which causes, for more than
fifteen (15) consecutive days, the cessation or substantial curtailment of
revenue producing activities at any facility of the Company or any Subsidiary,
if any such event or circumstance could reasonably be expected to have a
Material Adverse Effect (as defined in the Securities Purchase Agreement); or


 


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


 


10

















 


(b)                                 Redemption
Right.  Upon the occurrence of an
Event of Default with respect to this Note or any Other Note, the Company shall
within one (1) Business Day deliver written notice thereof via facsimile
and overnight courier (an “Event of Default Notice”) to the Holder.  At any
time after the earlier of the Holder’s receipt of an Event of Default Notice
and the Holder becoming aware of an Event of Default, the Holder may require
the Company to redeem all or any portion of this Note by delivering written
notice thereof (the “Event of Default Redemption Notice”) to the Company, which Event of Default Redemption Notice shall
indicate the Conversion Amount of this Note the Holder is electing to require
the Company to redeem.  Each portion of
this Note subject to redemption by the Company pursuant to this Section 4(b) shall
be redeemed by the Company at a price equal to the greater of (i) the
Conversion Amount to be redeemed and (ii) the product of (A) the
Conversion Rate with respect to such Conversion Amount in effect at such time
as the Holder delivers an Event of Default Redemption Notice and (B) the
greater of (1) the Closing Sale Price of the Common Stock on the date
immediately preceding such Event of Default, (2) the Closing Sale Price of
the Common Stock on the date immediately after such Event of Default and (3) the
Closing Sale Price of the Common Stock on the date the Holder delivers the
Event of Default Redemption Notice (the “Event of Default Redemption Price”).  Redemptions required by this Section 4(b) shall
be made in accordance with the provisions of Section 12.  To the extent redemptions required by this Section 4(b) are
deemed or determined by a court of competent jurisdiction to be prepayments of
the Note by the Company, such redemptions shall be deemed to be voluntary
prepayments.  The parties hereto agree
that in the event of the Company’s redemption of any portion of the Note under
this Section 4(b), the Holder’s damages would be uncertain and difficult
to estimate because of the parties’ inability to predict future interest rates
and the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder.  Accordingly,
any premium due under this Section 4(b) is intended by the parties to
be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of
its investment opportunity and not as a penalty.


 


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


 


(a)                                  Assumption.  The
Company shall not enter into or be party to a Fundamental Transaction unless
the Successor Entity assumes in writing all of the obligations of the Company
under this Note and the other Transaction Documents in accordance with the
provisions of this Section 5(a) pursuant to written agreements in
form and substance reasonably satisfactory to the Required Holders and approved
by the Required Holders prior to such Fundamental Transaction, including
agreements to deliver to each holder of Notes in exchange for such Notes a
security of the Successor
Entity evidenced by a written instrument substantially similar in form
and substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest rates
of the Notes then outstanding held by such holder, having similar conversion
rights and having similar ranking to the Notes, and satisfactory to the
Required Holders.  Upon the occurrence of any
Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Note referring to the “Company” shall refer
instead to the Successor Entity), and may exercise every right and power of the
Company and shall assume all of the obligations of the Company under this Note
with the same effect as if such Successor Entity had been named as the Company
herein.  Upon


 


11

















 


consummation of the Fundamental Transaction,
the Successor Entity shall deliver to the Holder confirmation that there shall
be issued upon conversion or redemption of this Note at any time after the consummation of the Fundamental Transaction, in lieu
of the shares of the Company’s Common Stock (or other securities, cash,
assets or other property) issuable upon the
conversion or redemption of the Notes prior to such Fundamental Transaction, such shares of the publicly traded common stock (or
their equivalent) of the Successor Entity (including its Parent Entity), as
adjusted in accordance with the provisions of this Note.  The provisions of this Section shall
apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion or redemption of
this Note.


 


(b)                                 Redemption
Right.  No sooner than fifteen (15)
days nor later than ten (10) days prior to the consummation of a Change of
Control (the date of consummation, the “Change of Control
Effective Date”), but not prior to the public announcement of such
Change of Control, the Company shall deliver written notice thereof via
facsimile and overnight courier to the Holder (a “Change of Control Notice”). 
At any time and from time to time during the period beginning after the
Holder’s receipt of a Change of Control Notice and ending twenty (20) Trading
Days after the Change of Control Effective Date, the Holder may require the
Company to redeem all or any portion of this Note by delivering written notice
thereof (“Change of
Control Redemption Notice”)
to the Company, which Change of Control Redemption Notice shall indicate the
Conversion Amount the Holder is electing to require the Company to redeem.  The portion of this Note subject to
redemption pursuant to this Section 5(b) shall be redeemed by the
Company in cash at a price (the “Change of
Control Redemption Price”) equal to the greater of (i) 110% of the
Conversion Amount and (ii) the Conversion Amount being redeemed multiplied
by the applicable Make-Whole Percentage (as determined pursuant to Section 5(d) below).  Notwithstanding anything to the contrary in
this Section 5, but subject to Section 3(d), until the Holder receives
the Change of Control Redemption Price, the Change of Control Redemption Price
may be converted, in whole or in part, as indicated by the Holder on a Change
of Control Redemption Notice (the “Converted Portion”)
pursuant to Section 3(c) hereof; provided, that, (A) if the
Conversion Date is prior to the Change of Control Effective Date or if the
Company is the Successor Entity after the Change of Control Effective Date, the
Converted Portion shall be converted into a number of shares of Common Stock determined
by dividing the Converted Portion by the arithmetic
average of the Weighted Average Price of the Common Stock for the ten (10) Trading
Days immediately preceding the Conversion Date, and (B) if the
Conversion Date is on or after the Change of Control Effective Date and if the Company is not the Successor Entity, (x) if
the shares of the common stock (or their equivalent) of the Successor Entity
(including its Parent Entity) is publicly traded, then the Converted Portion
shall be converted into a number of shares of the publicly traded common stock
(or their equivalent) of the Successor Entity (including its Parent Entity) by
dividing the Converted Portion by the arithmetic average of the Weighted
Average Price of the Common Stock for the ten (10) Trading Days
immediately following the later of (I) the Change of Control Effective
Date and (II) the Conversion Date, or (y) if the shares of the common
stock (or their equivalent) of the Successor Entity (including its Parent
Entity) is not publicly traded, then the Converted Portion shall be converted
into securities or other assets that is equivalent in fair market value, as
reasonably determined by the Company and the Required Holders, to the Converted
Portion.  Any conversions required
by this Section 5(b) shall reduce the Change of Control Redemption
Price and shall be made in accordance with the provisions of Section 3(c).


 


12

















 


(c)           Redemptions
required by this Section 5 shall be made in accordance with the provisions
of Section 12 and shall have priority to payments to stockholders in
connection with a Change of Control.  To
the extent redemptions required by this Section 5(b) are deemed or
determined by a court of competent jurisdiction to be prepayments of the Note
by the Company, such redemptions shall be deemed to be voluntary
prepayments.  Notwithstanding anything to
the contrary in this Section 5, but subject to Section 3(d), until
the Change of Control Redemption Price (together with any interest thereon) is
paid in full, the Conversion Amount submitted for redemption under this Section 5(c) (together
with any interest thereon) may be converted, in whole or in part, by the Holder
into Common Stock pursuant to Section 3. 
The parties hereto agree that in the event of the Company’s redemption
of any portion of the Note under this Section 5(b), the Holder’s damages
would be uncertain and difficult to estimate because of the parties’ inability
to predict future interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for the Holder.  Accordingly, any premium due under this Section 5(b) is
intended by the parties to be, and shall be deemed, a reasonable estimate of
the Holder’s actual loss of its investment opportunity and not as a penalty.


 


(d)           Make-Whole
Percentage.


 


(i)                                     The
Make-Whole Percentage shall be determined using the table set forth below and
will be based on the arithmetic average of the Weighted Average Price of the
Common Stock during the ten (10) Trading Days immediately preceding the
Change of Control Effective Date or Holder Mandatory Redemption Date, as
applicable (the “Reference Stock Price”).  The Reference Stock Price is expressed below
as a percentage of the Conversion Price, and the Make-Whole Percentage is
expressed below as a percentage of the Conversion Amount of the Note being
redeemed.


 


	
  Reference Stock

  	
   

  	
  Change of Control Effective Date/ Holder Mandatory Redemption Date

  	
   

  
	
  Price

  	
   

  	
  12/31/2007

  	
   

  	
  6/30/2008

  	
   

  	
  12/31/2008

  	
   

  	
  6/30/2009

  	
   

  	
  12/31/2009

  	
   

  	
  6/30/2010

  	
   

  	
  12/30/2010

  	
   

  
	
  10.0%

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  
	
  20.0%

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  
	
  30.0%

  	
   

  	
  100.350

  	
   

  	
  100.115

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  
	
  40.0%

  	
   

  	
  102.080

  	
   

  	
  101.440

  	
   

  	
  100.830

  	
   

  	
  100.136

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  
	
  50.0%

  	
   

  	
  104.929

  	
   

  	
  103.769

  	
   

  	
  102.630

  	
   

  	
  101.284

  	
   

  	
  100.277

  	
   

  	
  100.000

  	
   

  	
  100.000

  	
   

  
	
  60.0%

  	
   

  	
  108.683

  	
   

  	
  107.046

  	
   

  	
  105.349

  	
   

  	
  103.384

  	
   

  	
  101.496

  	
   

  	
  100.004

  	
   

  	
  100.000

  	
   

  
	
  70.0%

  	
   

  	
  113.340

  	
   

  	
  111.300

  	
   

  	
  109.254

  	
   

  	
  106.623

  	
   

  	
  103.808

  	
   

  	
  100.991

  	
   

  	
  100.000

  	
   

  
	
  80.0%

  	
   

  	
  118.523

  	
   

  	
  116.369

  	
   

  	
  113.795

  	
   

  	
  110.849

  	
   

  	
  107.265

  	
   

  	
  103.115

  	
   

  	
  100.000

  	
   

  
	
  90.0%

  	
   

  	
  124.295

  	
   

  	
  121.859

  	
   

  	
  119.297

  	
   

  	
  116.034

  	
   

  	
  111.947

  	
   

  	
  106.722

  	
   

  	
  100.000

  	
   

  
	
  100.0%

  	
   

  	
  130.538

  	
   

  	
  127.826

  	
   

  	
  125.199

  	
   

  	
  121.857

  	
   

  	
  117.697

  	
   

  	
  111.860

  	
   

  	
  100.175

  	
   

  
	
  110.0%

  	
   

  	
  137.002

  	
   

  	
  133.940

  	
   

  	
  131.536

  	
   

  	
  128.280

  	
   

  	
  124.204

  	
   

  	
  118.310

  	
   

  	
  110.000

  	
   

  
	
  120.0%

  	
   

  	
  144.101

  	
   

  	
  140.626

  	
   

  	
  138.125

  	
   

  	
  135.133

  	
   

  	
  131.352

  	
   

  	
  125.827

  	
   

  	
  120.000

  	
   

  
	
  130.0%

  	
   

  	
  151.439

  	
   

  	
  147.396

  	
   

  	
  144.759

  	
   

  	
  142.268

  	
   

  	
  138.951

  	
   

  	
  134.109

  	
   

  	
  130.000

  	
   

  
	
  140.0%

  	
   

  	
  158.889

  	
   

  	
  154.600

  	
   

  	
  151.642

  	
   

  	
  149.469

  	
   

  	
  146.824

  	
   

  	
  142.869

  	
   

  	
  140.000

  	
   

  
	
  150.0%

  	
   

  	
  166.815

  	
   

  	
  162.168

  	
   

  	
  158.370

  	
   

  	
  156.880

  	
   

  	
  154.772

  	
   

  	
  151.908

  	
   

  	
  150.000

  	
   

  
	
  160.0%

  	
   

  	
  175.018

  	
   

  	
  169.877

  	
   

  	
  165.049

  	
   

  	
  164.299

  	
   

  	
  162.983

  	
   

  	
  161.088

  	
   

  	
  160.000

  	
   

  
	
  170.0%

  	
   

  	
  183.433

  	
   

  	
  178.022

  	
   

  	
  172.414

  	
   

  	
  171.731

  	
   

  	
  171.184

  	
   

  	
  170.421

  	
   

  	
  170.000

  	
   

  
	
  175.0%

  	
   

  	
  187.802

  	
   

  	
  182.242

  	
   

  	
  176.180

  	
   

  	
  175.842

  	
   

  	
  175.575

  	
   

  	
  175.198

  	
   

  	
  175.000

  	
   

  
	
  180.0%

  	
   

  	
  192.040

  	
   

  	
  186.523

  	
   

  	
  180.000

  	
   

  	
  180.000

  	
   

  	
  180.000

  	
   

  	
  180.000

  	
   

  	
  180.000

  	
   

  
	
  190.0%

  	
   

  	
  200.830

  	
   

  	
  195.305

  	
   

  	
  190.000

  	
   

  	
  190.000

  	
   

  	
  190.000

  	
   

  	
  190.000

  	
   

  	
  190.000

  	
   

  
	
  200.0%

  	
   

  	
  209.810

  	
   

  	
  204.335

  	
   

  	
  200.000

  	
   

  	
  200.000

  	
   

  	
  200.000

  	
   

  	
  200.000

  	
   

  	
  200.000

  	
   

  
	
  210.0%

  	
   

  	
  219.076

  	
   

  	
  213.678

  	
   

  	
  210.000

  	
   

  	
  210.000

  	
   

  	
  210.000

  	
   

  	
  210.000

  	
   

  	
  210.000

  	
   

  
	
  220.0%

  	
   

  	
  228.274

  	
   

  	
  223.085

  	
   

  	
  220.000

  	
   

  	
  220.000

  	
   

  	
  220.000

  	
   

  	
  220.000

  	
   

  	
  220.000

  	
   

  
	
  230.0%

  	
   

  	
  237.661

  	
   

  	
  232.618

  	
   

  	
  230.000

  	
   

  	
  230.000

  	
   

  	
  230.000

  	
   

  	
  230.000

  	
   

  	
  230.000

  	
   

  



 


13

















 


(ii)                                  If
the Reference Stock Price is between two stock prices on the above table or the
Change of Control Effective Date or Mandatory Redemption Date is between two
effective dates on the table, the Make-Whole Percentage will be determine by a
straight-line interpolation between the Make-Whole Percentage set forth for
such two stock prices and/or Change of Control Effective Dates or Holder
Mandatory Redemption Dates, as applicable.


 


(iii)                               If the Reference Stock Price is more than
230% of the Conversion Price, then the Make-Whole Percentage shall be the
greater of (A) the percentage obtained by dividing the Reference Stock
Price by the Conversion Price, and (B) the Make-Whole Percentage listed
opposite the 230% Reference Stock Price.


 


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


 


(a)                                  Purchase
Rights.  If at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the “Purchase Rights”), then the Holder will be entitled
to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete conversion of this
Note (without taking into account any limitations or restrictions on the
convertibility of this Note) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights,


 


14

















 


or, if no such record is taken, the date as
of which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.


 


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


 


(7)           RIGHTS
UPON ISSUANCE OF OTHER SECURITIES.


 


(a)           Adjustment
of Conversion Price upon Issuance of Common Stock.  If and whenever on or after the Subscription
Date, the Company issues or sells, or in accordance with this Section 7(a) is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
or sold by the Company in connection with any Excluded Security) for a
consideration per share less than a price (the “Applicable
Price”) equal to the Conversion Price in effect immediately prior to
such issue or sale (the foregoing a “Dilutive Issuance”),
then immediately after such Dilutive Issuance the Conversion Price then in
effect shall be reduced to an amount equal to the product of (x) the Applicable
Price and (y) the quotient determined by dividing (A) the sum of (I) the
product derived by multiplying the Conversion Price in effect immediately prior
to such Dilutive Issuance and the number of shares of Common Stock Deemed
Outstanding immediately prior to such Dilutive Issuance plus (II) the
consideration, if any, received by the Company upon such Dilutive Issuance, by (B) the
product derived by multiplying (I) the Applicable Price by (II) the
number of shares of Common Stock Deemed Outstanding immediately after such
Dilutive Issuance.  For purposes of
determining the adjusted Conversion Price under this Section 7(a), the
following shall be applicable:


 


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


 


15

















 


the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time
of the granting or sale of such Option for such price per share.  For purposes of this Section 7(a)(i),
the “lowest price per share for which one share of Common Stock is issuable
upon the exercise of any such Option or upon conversion or exchange or exercise
of any Convertible Securities issuable upon exercise of such Option” shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common Stock upon
granting or sale of the Option, upon exercise of the Option and upon conversion
or exchange or exercise of any Convertible Security issuable upon exercise of
such Option.  No further adjustment of
the Conversion Price shall be made upon the actual issuance of such share of
Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange or exercise of such Convertible Securities.


 


(ii)                                  Issuance of
Convertible Securities.  If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon such
conversion or exchange or exercise thereof is less than the Applicable Price,
then such share of Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share.  For the purposes of this Section 7(a)(ii),
the “lowest price per share for which one share of Common Stock is issuable
upon such conversion or exchange or exercise” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion or exchange or exercise of such
Convertible Security.  No further
adjustment of the Conversion Price shall be made upon the actual issuance of
such share of Common Stock upon conversion or exchange or exercise of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Conversion Price had been or are to be made pursuant to other provisions of
this Section 7(a), no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.


 


(iii)                               Change in Option
Price or Rate of Conversion.  If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exchange or exercise of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable or exercisable for Common Stock changes at any
time, the Conversion Price in effect at the time of such change shall be
adjusted to the Conversion Price which would have been in effect at such time
had such Options or Convertible Securities provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold. 
For purposes of this Section 7(a)(iii), if the terms of any Option
or Convertible Security that was outstanding as of the Subscription Date are
changed in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of


 


16

















 


such change.  No adjustment shall
be made if such adjustment would result in an increase of the Conversion Price
then in effect.


 


(iv)                              Calculation of
Consideration Received.  In case any
Option is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto, (x) the
Options will be deemed to have been issued for a value determined by use of the
Black Scholes Option Pricing Model (the “Option Value”)
and (y) the other securities issued or sold in such integrated transaction
shall be deemed to have been issued for the difference of (I) the
aggregate consideration received by the Company, less (II) the Option
Value.  If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
amount received by the Company therefor. 
If any Common Stock, Options or Convertible Securities are issued or
sold for a consideration other than cash, the amount of the consideration other
than cash received by the Company will be the fair value of such consideration,
except where such consideration consists of securities, in which case the
amount of consideration received by the Company will be the Closing Sale Price
of such securities on the date of receipt. 
If any Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. 
The fair value of any consideration other than cash or securities will
be determined jointly by the Company and the Required Holders.  If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation
(the “Valuation Event”), the fair
value of such consideration will be determined within five (5) Business
Days after the tenth (10th) day following the Valuation Event by an
independent, reputable appraiser jointly selected by the Company and the
Required Holders.  The determination of
such appraiser shall be deemed binding upon all parties absent manifest error
and the fees and expenses of such appraiser shall be borne by the Company.


 


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


 


(b)           Adjustment
of Conversion Price upon Subdivision or Combination of Common Stock.  If the Company at any time on or after the
Subscription Date subdivides (by any stock dividend, stock split,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced.  If the Company at


 


17

















 


any time on or after the Subscription Date
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased.


 


(c)           Other
Events.  If any event occurs of the
type contemplated by the provisions of this Section 7 but not expressly
provided for by such provisions (including, without limitation, the granting of
stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company’s Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the Holder
under this Note; provided that no such adjustment will increase the Conversion
Price as otherwise determined pursuant to this Section 7.


 


(d)           Voluntary
Decrease.  The Company may at any time during the term of this Note
reduce the then current Conversion Price to any amount and for any period of
time deemed appropriate by the Board of Directors.


 


(e)           Excluded
Securities.  The issuance of any
Excluded Securities shall not result in an adjustment to the Conversion Price.


 


(8)           HOLDER’S
RIGHT OF MANDATORY REDEMPTION.


 


(a)           General.


 


(i)                                     If
the Stockholder Approval has not been obtained prior to the twenty-five (25)
month anniversary of the Closing Date (the “Failure
Date”), then at any time and from time to time on or after and from and after the
Failure Date, the Holder shall have the right (the “Holder Redemption Right”), in its sole discretion, to require
that the Company redeem all or any portion of the Note by delivering written
notice thereof to the Company (a “Holder
Mandatory Redemption Notice”).


 


(ii)                                  [If any Lexico Indebtedness (as hereafter
defined) is outstanding, then at
any time and from time to time on or after and from and after the earlier of (x) thirty
(30) days prior to the stated maturity of the Lexico Indebtedness (“Lexico Maturity Date”) and (y) receipt
of the Company Lexico Notice (as defined below), until the later of (x) the
Lexico Maturity Date and (y) thirty (30) days following receipt of the
Lexico Notice, the Holder shall have the right (the “Lexico Redemption Right”), in its sole discretion, to require
that the Company redeem all or any portion of the Note by delivering written
notice thereof to the Company (a “Holder
Lexico Redemption Notice,” and together with the Holder Mandatory
Redemption Notice, a “Holder Redemption
Notice”).  If the Holder
elects to exercise its Lexico Redemption Right hereunder, the Company shall not
pay any amounts due under the Lexico Indebtedness unless and until the Lexico
Redemption Price (as defined below) has been paid to the Holder.](2)


 






(2)                                  If this is a
Termination Note, this provision shall be deleted.


 


18

















 


(iii)                               The
Company shall deliver written notice to the Holder (A) (the “Company Notice”) no later than two (2) Business
Days following the earlier of (x) the Failure Date and (y) receipt of
the Stockholder Approval, stating either (I) that the Holder’s right of
optional redemption under this Section 8(a) is effective because the
Stockholder Approval was not obtained and the Holder Mandatory Redemption Price
(as defined below) or (II) if the Stockholder Approval was obtained, the
date of such Stockholder Approval and that the Holder’s right of optional
redemption under this Section 8(a) is therefore not effective, [and (B) (the “Company Lexico Notice”) no earlier than
forty-five (45) days and no later than thirty (30) days prior to the Lexico
Maturity Date, stating (x) that the Holder’s right of optional redemption
under this Section 8(a) is effective and the period during which such
redemption may be exercised, (y) the Lexico Maturity Date and (z) the
Lexico Redemption Price](3).


 


(b)           In
order to exercise the Holder Redemption Right [or
the Lexico Redemption Right](4), the
Holder Redemption Notice shall indicate the Conversion Amount the Holder is
electing to have redeemed (the “Mandatory
Redemption Amount”) on the date set forth on the Holder Redemption Notice
(the “Holder Mandatory Redemption Date”),
which date shall be (i) if a Holder Mandatory Redemption Notice, no
earlier than five (5) Business Days after the date the Holder has
delivered the Holder Redemption Notice to the Company [and
(ii) if a Lexico Redemption Notice, no later than the Lexico Maturity Date](5).  The portion of
this Note subject to redemption (x) pursuant to Holder Redemption Right
shall be redeemed by the Company in cash at a price (the “Holder Mandatory Redemption Price”) equal
to the greater of (I) 110% of the Conversion Amount being redeemed and (II) the
Conversion Amount being redeemed multiplied by the applicable Make-Whole
Percentage, [and (y) pursuant to the
Lexico Redemption Right shall be redeemed by the Company in cash at a price
(the “Lexico Redemption Price” and together
with the Holder Mandatory Redemption Price, a “Mandatory
Redemption Price”) equal to the Conversion Amount being redeemed](6).  Notwithstanding
anything to the contrary in this Section 8, but subject to Section 3(d),
until the Holder receives the Mandatory Redemption Price, the Mandatory
Redemption Amount may be converted, in whole or in part, as indicated by the
Holder on a Holder Redemption Notice (the “Converted Amount”)
into a number of shares of Common Stock determined by dividing the Converted
Amount by the lesser of (i) the Conversion Price and (ii) the
arithmetic average of the ten (10) Trading Days immediately preceding the
Conversion Date, and any such conversion shall reduce the Mandatory Redemption
Amount.


 


(c)           Mechanics
of Holder Mandatory Redemption.  If
the Holder elects a Holder Mandatory Redemption [or
Lexico Mandatory Redemption](7) in
accordance with Section 8(a), then the Mandatory Redemption Amount which
is to be paid to the Holder on the applicable Holder Mandatory Redemption Date
shall be redeemed by the Company, and the Company shall pay to the Holder on
such Holder Mandatory Redemption Date by wire transfer


 






(3)                                  If this is a
Termination Note, this provision shall be deleted.


 


(4)                                  If this is a
Termination Note, this provision shall be deleted.


 


(5)                                  If this is a
Termination Note, this provision shall be deleted.


 


(6)                                  If this is a
Termination Note, this provision shall be deleted.


 


(7)                                  If
this is a Termination Note, this provision shall be deleted.


 


19

















 


of immediately available funds, the applicable
Mandatory Redemption Price.  If the
Company fails to redeem the Mandatory Redemption Amount on the Holder Mandatory
Redemption Date by payment of the applicable Mandatory Redemption Price on such
date, then in addition to any other rights hereunder, at the sole option of the
Holder designated in writing to the Company (any such designation shall be
deemed a “Conversion Notice”
pursuant to Section 3(c) for purposes of this Note), the Holder may
require the Company to convert all or any part of the Mandatory Redemption
Amount at 75% of the Conversion Price. 
Conversions required by this Section 8(c) shall be made in
accordance with the provisions of Section 3(c).


 


(9)           COMPANY’S
RIGHT OF OPTIONAL REDEMPTION. (a) General.  At any time prior to the 30th day following
the Closing Date (the “Company Optional
Redemption Deadline”), the Company shall have the right to redeem
all or any portion of the Conversion Amount under this Note (the “Optional Redemption Amount”) as designated
in the Optional Redemption Notice on the Optional Redemption Date (each as
defined below) (an “Optional Redemption”).  The portion of this Note subject to
redemption pursuant to this Section 9(a) shall be redeemed by the
Company in cash at a price (the “Optional
Redemption Price”) equal to 105% of the Conversion Amount being
redeemed.  The Company may exercise its
right to require redemption under this Section 9 by delivering a written
notice thereof by facsimile and overnight courier to all, but not less than
all, of the holders of Notes (the “Optional
Redemption Notice” and the date all of the holders received such
notice is referred to as the “Optional
Redemption Notice Date”). Each Optional Redemption Notice shall be
irrevocable.  The Optional Redemption
Notice shall state (1) the date on which the Optional Redemption shall
occur (the “Optional Redemption Date”)
which date shall not be less than five (5) Business Days following the
Optional Redemption Notice Date and not more than five (5) Business Days
following the Company Optional Redemption Deadline and (2) the aggregate
Conversion Amount of the Notes which the Company has elected to be subject to
Optional Redemption from the Holder and all of the other holders of the Notes
pursuant to this Section 9(a) (and analogous provisions under the
Other Notes) on the Optional Redemption Date. 
The Company may not effect more than one (1) Optional
Redemption.  Notwithstanding anything to
the contrary in this Section 9, until the Optional Redemption Price is
paid, in full, the Optional Redemption Amount may be converted, in whole or in
part, by the Holders into shares of Common Stock pursuant to Section 3.  All Conversion Amounts converted by the
Holder after the Optional Redemption Notice Date shall reduce the Optional
Redemption Amount of this Note required to be redeemed on the Optional
Redemption Date.  Redemptions made
pursuant to this Section 9 shall be made in accordance with Section 12.


 


(b)                                 Pro
Rata Redemption Requirement.  If the
Company elects to cause an Optional Redemption pursuant to Section 9(a),
then it must simultaneously take the same action in the same proportion with
respect to the Other Notes.  If the
Company elects to cause an Optional Redemption pursuant to Section 9(a) (or
similar provisions under the Other Notes) with respect to less than all of the
Conversion Amounts of the Notes then outstanding, then the Company shall
require redemption of a Conversion Amount from each of the holders of the Notes
equal to the product of (i) the aggregate Conversion Amount of Notes which
the Company has elected to cause to be redeemed pursuant to Section 9(a),
multiplied by (ii) the fraction, the numerator of which is the sum of the aggregate
Original Principal Amount of the Notes purchased by such holder of outstanding
Notes and the denominator of which is the sum of the aggregate Original
Principal Amount of the Notes purchased by all holders holding


 


20

















 


outstanding Notes (such fraction with respect
to each holder is referred to as its “Redemption
Allocation Percentage”, and such amount with respect to each holder
is referred to as its “Pro Rata Redemption
Amount”); provided, however that in the event that any holder’s Pro
Rata Redemption Amount exceeds the outstanding Principal amount of such holder’s
Note, then such excess Pro Rata Redemption Amount shall be allocated amongst
the remaining holders of Notes in accordance with the foregoing formula.  In the event that the initial holder of any
Notes shall sell or otherwise transfer any of such holder’s Notes, the
transferee shall be allocated a pro rata portion of such holder’s Redemption
Allocation Percentage and Pro Rata Redemption Amount.


 


(10)         NONCIRCUMVENTION.  The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of this Note, and will at all times in good faith carry out all of
the provisions of this Note and take all action as may be required to protect
the rights of the Holder of this Note.


 


(11)         RESERVATION
OF AUTHORIZED SHARES.


 


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


 


(b)                                 Insufficient
Authorized Shares.  If at any time
while any of the Notes remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common Stock to
satisfy its obligation to reserve for issuance upon conversion of the Notes at
least a number of shares of Common Stock equal to the Required


 


21

















 


Reserve Amount (an “Authorized Share Failure”), then the Company shall take all
action necessary to increase the Company’s authorized shares of Common Stock to
an amount sufficient to allow the Company to reserve the Required Reserve
Amount for the Notes then outstanding. 
Without limiting the generality of the foregoing sentence, as soon as
practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than sixty (60) days after the later of (i) the
Stockholder Approval deadline and (ii) the occurrence of such Authorized
Share Failure, the Company shall hold a meeting of its stockholders for the
approval of an increase in the number of authorized shares of Common
Stock.  In connection with such meeting,
the Company shall provide each stockholder with a proxy statement and shall use
its best efforts to solicit its stockholders’ approval of such increase in
authorized shares of Common Stock and to cause its board of directors to
recommend to the stockholders that they approve such proposal.


 


(12)         REDEMPTIONS.


 


(a)                                  Mechanics.  The Company shall deliver the applicable
Event of Default Redemption Price to the Holder within five (5) Business
Days after the Company’s receipt of the Holder’s Event of Default Redemption
Notice.  If the Holder has submitted a
Change of Control Redemption Notice in accordance with Section 5(b), the
Company shall deliver the applicable Change of Control Redemption Price to the
Holder (i) concurrently with the consummation of such Change of Control if
such notice is received prior to the consummation of such Change of Control and
(ii) within five (5) Business Days after the Company’s receipt of
such notice otherwise.  The Company shall deliver the applicable Mandatory
Redemption Price on the Holder Mandatory Redemption Date.  The Company shall deliver the
applicable Optional Redemption Price on the applicable Optional Redemption
Date.  In the event of a redemption of
less than all of the Conversion Amount of this Note, the Company shall promptly
cause to be issued and delivered to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal which has not been redeemed.  In the event that the Company does not pay
the applicable Redemption Price to the Holder within the time period required,
at any time thereafter and until the Company pays such unpaid Redemption Price
in full, the Holder shall have the option, in lieu of redemption, to require
the Company to promptly return to the Holder all or any portion of this Note
representing the Conversion Amount that was submitted for redemption and for
which the applicable Redemption Price (together with any Late Charges thereon)
has not been paid.  Upon the Company’s
receipt of such notice, (x) the applicable Redemption Notice shall be null
and void with respect to such Conversion Amount, (y) the Company shall
immediately return this Note, or issue a new Note (in accordance with Section 18(d))
to the Holder representing such Conversion Amount to be redeemed and (z) the
Conversion Price of this Note or such new Notes shall be adjusted to the lesser
of (A) the Conversion Price as in effect on the date on which the
applicable Redemption Notice is voided and (B) the lowest Closing Bid
Price of the Common Stock during the period beginning on and including the date
on which the applicable Redemption Notice is delivered to the Company and
ending on and including the date on which the applicable Redemption Notice is
voided.  The Holder’s delivery of a
notice voiding a Redemption Notice and exercise of its rights following such
notice shall not affect the Company’s obligations to make any payments of Late
Charges which have accrued prior to the date of such notice with respect to the
Conversion Amount subject to such notice.


 


22
















 


(b)           Redemption by Other Holders.  Upon the Company’s receipt of notice from any
of the holders of the Other Notes for redemption or repayment as a result of an
event or occurrence substantially similar to the events or occurrences
described in Section 4(b), Section 5(b) or Section 8 (each,
an “Other
Redemption Notice”),
the Company shall immediately, but no later than one (1) Business Day of
its receipt thereof, forward to the Holder by facsimile a copy of such
notice.  If the Company receives a
Redemption Notice and one or more Other Redemption Notices, during the seven (7) Business
Day period beginning on and including the date which is three (3) Business
Days prior to the Company’s receipt of the Holder’s Redemption Notice and
ending on and including the date which is three (3) Business Days after
the Company’s receipt of the Holder’s Redemption Notice and the Company is
unable to redeem all principal, interest and other amounts designated in such
Redemption Notice and such Other Redemption Notices received during such seven (7) Business
Day period, then the Company shall redeem a pro rata amount from each holder of
the Notes (including the Holder) based on the principal amount of the Notes
submitted for redemption pursuant to such Redemption Notice and such Other
Redemption Notices received by the Company during such seven Business Day
period.


 


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


 


(14)         COVENANTS.


 


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


 


(b)           Incurrence of Indebtedness.  The Company shall not, and the Company shall not permit any of
its Subsidiaries to, directly or indirectly, incur or guarantee, assume or
suffer to exist any Indebtedness, other than Permitted Indebtedness.


 


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


 


(d)           Restricted Payments.  The Company shall not, and the Company
shall not permit any of its Subsidiaries to, directly or indirectly, redeem,
defease, repurchase, repay or make any payments in respect of, by the payment
of cash or cash equivalents (in whole or in part, whether by way of open market
purchases, tender offers, private transactions or otherwise), all or any
portion of any Indebtedness, other than (i) scheduled payments of interest
on Permitted Indebtedness, [(ii) the
repayment of any principal and interest of the Lexico Indebtedness on or after
the Lexico Maturity Date, provided, that the Company has complied with the
terms of Section 8(a)(ii) hereof, or (iii) notwithstanding the provisions
set forth in clause (ii) hereof, the repayment of any principal and
interest of the Lexico Indebtedness with any 


 


23

















 


Greenshoe Proceeds or the placement of any Greenshoe Proceeds into an
escrow account (and the release from such escrow) for the benefit of the seller
parties to the Lexico Agreement, provided, that any Greenshoe Proceeds so
placed into escrow (and thereafter released) reduce the Lexico Indebtedness on
a dollar for dollar basis](8).


 


(e)           Restriction on Redemption and Cash Dividends.  Until all of the Notes have been converted,
redeemed or otherwise satisfied in accordance with their terms, the Company
shall not, directly or indirectly, redeem, repurchase or declare or pay any
cash dividend or distribution on its capital stock without the prior express
written consent of the Required Holders.


 


(f)            Transactions with Affiliates.  The Company shall not, nor shall it permit
any of its Subsidiaries to, enter into, renew, extend or be a party to, any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease, transfer or exchange of property or assets of any
kind or the rendering of services of any kind) with any Affiliate, except in
the ordinary course of business in a manner and to an extent consistent with
past practice and necessary or desirable for the prudent operation of its
business, for fair consideration and on terms no less favorable to it or its
Subsidiaries than would be obtainable in a comparable arm’s length transaction
with a Person that is not an Affiliate thereof.


 


(g)           Change in Nature of Business.  The Company shall not make, or permit any of
its Subsidiaries to make, any change in the nature of its business as described
in the Company’s most recent annual report filed on Form 10-K with the
SEC.  The Company shall not modify its
corporate structure or purpose.


 


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


 


(i)            Maintenance of Properties, Etc.  The Company shall maintain and preserve, and
cause each of its Subsidiaries to maintain and preserve, all of its properties
which are necessary or useful in the proper conduct of its business in good
working order and condition, ordinary wear and tear excepted, and comply, and
cause each of its Subsidiaries to comply, at all times with the provisions of
all leases to which it is a party as lessee or under which it occupies
property, so as to prevent any loss or forfeiture thereof or thereunder.


 


(15)         PARTICIPATION.  The Holder, as the holder of this Note, shall
be entitled to receive such dividends paid and distributions made to the
holders of Common Stock to the same extent as if the Holder had converted this
Note into Common Stock (without regard to any limitations on conversion herein
or elsewhere) and had held such shares of Common Stock on the record date for
such dividends and distributions. 
Payments under the preceding sentence shall be made concurrently with
the dividend or distribution to the holders of Common Stock.


 






(8)           If this is a
Termination Note, this provision shall be deleted.


 


24

















 


(16)         VOTE
TO ISSUE, OR CHANGE THE TERMS OF, NOTES. 
The affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting of the Required Holders shall be required for
any change or amendment to this Note or the Other Notes.  No consideration shall be offered or paid to
any holder of Notes to amend or consent to a waiver or modification of the
Notes unless the same consideration also is offered to all of the holders of
Notes.


 


(17)         TRANSFER.  This Note and any shares of Common Stock
issued upon conversion of this Note may be offered, sold, assigned or
transferred by the Holder without the consent of the Company, subject only to
the provisions of Section 2(f) of the Securities Purchase Agreement.


 


(18)         REISSUANCE OF THIS NOTE.


 


(a)           Transfer.  If
this Note is to be transferred, the Holder shall surrender this Note to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of the Holder a new Note (in accordance with Section 18(d)), registered as
the Holder may request, representing the outstanding Principal being
transferred by the Holder and, if less then the entire outstanding Principal is
being transferred, a new Note (in accordance with Section 18(d)) to the
Holder representing the outstanding Principal not being transferred.  The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, (i) by reason of the provisions of Section 3(c)(iii) following
conversion or redemption of any portion of this Note, the outstanding Principal
represented by this Note may be less than the Principal stated on the face of
this Note and (ii) it will be bound by the appointment of the Collateral
Agent (as defined in the Securities Purchase Agreement) and collateral agency
provisions regarding such appointment as set forth in Section 4(q) of
the Securities Purchase Agreement.


 


(b)           Lost, Stolen or Mutilated Note.  Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal.


 


(c)           Note Exchangeable for Different Denominations.  This Note is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a new Note or
Notes (in accordance with Section 18(d) and in principal amounts of
at least $100,000) representing in the aggregate the outstanding Principal of
this Note, and each such new Note will represent such portion of such
outstanding Principal as is designated by the Holder at the time of such
surrender.


 


(d)           Issuance of New Notes.  Whenever the Company is required to issue a
new Note pursuant to the terms of this Note, such new Note (i) shall be of
like tenor with this Note, (ii) shall represent, as indicated on the face
of such new Note, the Principal remaining outstanding (or in the case of a new
Note being issued pursuant to Section 18(a) or Section 18(c),
the Principal designated by the Holder which, when added to the principal
represented by the other new Notes issued in connection with such issuance,
does not exceed the Principal 


 


25

















 


remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on
the face of such new Note, which is the same as the Issuance Date of this Note,
(iv) shall have the same rights and conditions as this Note, and (v) shall
represent accrued and unpaid Interest and Late Charges, if any, on the Principal
and Interest of this Note, from the Issuance Date.


 


(19)         REMEDIES,
CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Note shall be
cumulative and in addition to all other remedies available under this Note and
any of the other Transaction Documents at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit the Holder’s right to pursue actual and consequential damages for
any failure by the Company to comply with the terms of this Note.  Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof)
shall be the amounts to be received by the Holder and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof).  The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate.  The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.


 


(20)         SECURITY.  This Note and the Other Notes are secured to
the extent and in the manner set forth in the Security Documents.


 


(21)         PAYMENT OF
COLLECTION, ENFORCEMENT AND OTHER COSTS. 
If (a) this Note is placed in the hands of an attorney for
collection or enforcement or is collected or enforced through any legal
proceeding or the Holder otherwise takes action to collect amounts due under
this Note or to enforce the provisions of this Note or (b) there occurs
any bankruptcy, reorganization, receivership of the Company or other
proceedings affecting Company creditors’ rights and involving a claim under
this Note, then the Company shall pay the costs incurred by the Holder for such
collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, but not limited
to, attorneys’ fees and disbursements.


 


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


 


(23)         FAILURE OR
INDULGENCE NOT WAIVER.  No failure or
delay on the part of the Holder in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege.


 


(24)         DISPUTE RESOLUTION.  In the case of a dispute as to the
determination of the Closing Bid Price, the Closing Sale Price or the Weighted
Average Price or the arithmetic 


 


26

















 


calculation of the Conversion Rate, the
Conversion Price or any Redemption Price, the Company shall submit the disputed
determinations or arithmetic calculations via facsimile within one (1) Business
Day of receipt, or deemed receipt, of the Conversion Notice or Redemption
Notice or other event giving rise to such dispute, as the case may be, to the
Holder.  If the Holder and the Company
are unable to agree upon such determination or calculation within one (1) Business
Day of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within one (1) Business Day submit via
facsimile (a) the disputed determination of the Closing Bid Price, the
Closing Sale Price or the Weighted Average Price to an independent, reputable
investment bank selected by the Company and approved by the Holder or (b) the
disputed arithmetic calculation of the Conversion Rate, Conversion Price or any
Redemption Price to the Company’s independent, outside accountant.  The Company, at the Company’s expense, shall
cause the investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than five (5) Business Days from the time it receives the
disputed determinations or calculations. 
Such investment bank’s or accountant’s determination or calculation, as
the case may be, shall be binding upon all parties absent demonstrable error.


 


(25)         NOTICES; PAYMENTS.


 


(a)           Notices. 
Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with Section 9(f) of
the Securities Purchase Agreement.  The
Company shall provide the Holder with prompt written notice of all actions
taken pursuant to this Note, including in reasonable detail a description of
such action and the reason therefore. 
Without limiting the generality of the foregoing, the Company will give
written notice to the Holder (i) immediately upon any adjustment of the
Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least twenty (20) days prior to
the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the Common Stock, (B) with
respect to any pro rata subscription offer to holders of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall
be made known to the public prior to or in conjunction with such notice being
provided to the Holder.


 


(b)           Payments. 
Whenever any payment of cash is to be made by the Company to any Person
pursuant to this Note, such payment shall be made in lawful money of the United
States of America by a check drawn on the account of the Company and sent via
overnight courier service to such Person at such address as previously provided
to the Company in writing (which address, in the case of each of the
Purchasers, shall initially be as set forth on the Schedule of Buyers attached
to the Securities Purchase Agreement); provided that the Holder may elect to
receive a payment of cash via wire transfer of immediately available funds by
providing the Company with prior written notice setting out such request and
the Holder’s wire transfer instructions. 
Whenever any amount expressed to be due by the terms of this Note is due
on any day which is not a Business Day, the same shall instead be due on the
next succeeding day which is a Business Day and, in the case of any Interest
Date which is not the date on which this Note is paid in full, the extension of
the due date thereof shall not be taken into account for purposes of
determining the amount of Interest due on such date.  Any amount of Principal or other amounts due
under the Transaction Documents which is not paid when due shall result in a 


 


27

















 


late charge being incurred and payable by the Company in an amount
equal to interest on such amount at the rate of eighteen percent (18%) per
annum from the date such amount was due until the same is paid in full (“Late Charge”).


 


(26)         CANCELLATION.  After all Principal, accrued Interest and
other amounts at any time owed on this Note have been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.


 


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


 


(28)         GOVERNING LAW; JURISDICTION; JURY.  This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any
other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. 
The Company hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in The City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an inconvenient
forum or that the venue of such suit, action or proceeding is improper.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by law.  The Company hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address as provided in Section 25 hereof and agrees that such service
shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed or operate to preclude the Holder from bringing suit or taking other
legal action against the Company in any other jurisdiction to collect on the
Company’s obligations to the Holder, to realize on any collateral or any other
security for such obligations, or to enforce a judgment or other court ruling
in favor of the Holder.  THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE,
AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION
CONTEMPLATED HEREBY.


 


(29)         SEVERABILITY. If any provision
of this Note is prohibited by law or otherwise determined to be invalid or
unenforceable by a court of competent jurisdiction, the provision that would
otherwise be prohibited, invalid or unenforceable shall be deemed amended to
apply to the broadest extent that it would be valid and enforceable, and the
invalidity or unenforceability of such provision shall not affect the validity
of the remaining provisions of this Note so long as this Note as so modified
continues to express, without material change, the original intentions of the
parties as to the subject matter hereof and the prohibited nature, invalidity
or unenforceability of the provision(s) in question does not substantially
impair the 


 


28

















 


respective expectations or reciprocal
obligations of the parties or the practical realization of the benefits that
would otherwise be conferred upon the parties. 
The parties will endeavor in good faith negotiations to replace the
prohibited, invalid or unenforceable provision(s) with a valid
provision(s), the effect of which comes as close as possible to that of the
prohibited, invalid or unenforceable provision(s).


 


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


 


(a)           “Approved Stock Plan”
means any employee benefit plan which has been approved by the Board of
Directors of the Company, pursuant to which the Company’s securities may be
issued to any employee, consultant, officer or director for services provided
to the Company.


 


(b)           “Bloomberg”
means Bloomberg Financial Markets.


 


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


 


(d)           “Calendar Quarter”
means each of: the period beginning on and including January 1 and ending
on and including March 31; the period beginning on and including April 1
and ending on and including June 30; the period beginning on and including
July 1 and ending on and including September 30; and the period
beginning on and including October 1 and ending on and including December 31.


 


(e)           “Change of Control”
means any Fundamental Transaction other than (i) any
reorganization, recapitalization or reclassification of the Common Stock in
which holders of the Company’s voting power immediately prior to such reorganization,
recapitalization or reclassification continue after such reorganization,
recapitalization or reclassification to hold publicly traded securities and,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or
their equivalent if other than a corporation) of such entity or entities, or (ii) pursuant
to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company.


 


(f)            “Closing Bid Price”
and “Closing Sale
Price” means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange
or trading market for such security, the last closing bid price or last trade
price, respectively, of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as 


 


29

















 


reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the
bid prices, or the ask prices, respectively, of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). 
If the Closing Bid Price or the Closing Sale Price cannot be calculated
for a security on a particular date on any of the foregoing bases, the Closing
Bid Price or the Closing Sale Price, as the case may be, of such security on
such date shall be the fair market value as mutually determined by the Company
and the Holder.  If the Company and the
Holder are unable to agree upon the fair market value of such security, then
such dispute shall be resolved pursuant to Section 24.  All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination,
reclassification or similar transaction during the applicable calculation
period.


 


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


 


(h)           “Common Stock Deemed
Outstanding” means, at any given time, the number of shares of
Common Stock outstanding at such time, plus the number of shares of Common
Stock deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii) hereof
regardless of whether the Options or Convertible Securities are actually
exercisable at such time, but excluding any Common Stock owned or held by or
for the account of the Company or issuable upon conversion of the Notes.


 


(i)            “Contingent Obligation”
means, as to any Person, any direct or indirect liability, contingent or
otherwise, of that Person with respect to any Indebtedness, lease, dividend or
other obligation of another Person if the primary purpose or intent of the
Person incurring such liability, or the primary effect thereof, is to provide
assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such liability will be protected (in whole or in part)
against loss with respect thereto.


 


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


 


(k)           “Eligible Market” means the Principal
Market, The New York Stock Exchange, Inc., the American Stock Exchange, The
NASDAQ Global Select Market, or The NASDAQ Capital Market.


 


(l)            “Equity Conditions” means
that each of the following conditions is satisfied:  (i) on each day during the period
beginning six (6) month prior to the applicable date of determination and
ending on and including the applicable date of determination (the “Equity Conditions Measuring Period”),
either (x) the Registration Statement filed pursuant to the Registration
Rights Agreement shall be effective and available for the resale of all
remaining Registrable Securities in accordance with the terms of the
Registration Rights Agreement and there shall not have been any Grace Periods
(as defined in the Registration Rights Agreement) or (y) all shares of
Common Stock issuable upon conversion of the Notes shall be eligible for sale 


 


30

















 


without restriction and without the need for registration under any
applicable federal or state securities laws; (ii) on each day during the
Equity Conditions Measuring Period, the Common Stock is designated for
quotation on the Principal Market or any other Eligible Market and shall not
have been suspended from trading on such exchange or market (other than
suspensions of not more than two (2) days and occurring prior to the
applicable date of determination due to business announcements by the Company)
nor shall delisting or suspension by such exchange or market been threatened or
pending either (A) in writing by such exchange or market or (B) by
falling below the then effective minimum listing maintenance requirements of
such exchange or market; (iii) during the Equity Conditions Measuring
Period, the Company shall have delivered shares of Common Stock upon conversion
of the Notes to the holders on a timely basis as set forth in Section 3(c)(ii) hereof
(and analogous provisions under the Other Notes); (iv) any applicable
shares of Common Stock to be issued in connection with the event requiring
determination may be issued in full without violating Section 3(d) hereof
and the rules or regulations of the Principal Market or any applicable
Eligible Market; (v) the Company shall not have failed to timely make any
payments within five (5) Business Days of when such payment is due
pursuant to any Transaction Document; (vi) during the Equity Conditions
Measuring Period, there shall not have occurred either (A) the public
announcement of a pending, proposed or intended Fundamental Transaction which
has not been abandoned, terminated or consummated, or (B) an Event of
Default or (C) an event that with the passage of time or giving of notice
would constitute an Event of Default; (vii) the Company shall have no
knowledge of any fact that would cause (x) the Registration Statements
required pursuant to the Registration Rights Agreement not to be effective and
available for the resale of all remaining Registrable Securities in accordance
with the terms of the Registration Rights Agreement or (y) any shares of
Common Stock issuable upon conversion of the Notes not to be eligible for sale
without restriction pursuant to Rule 144(k) and any applicable state
securities laws, (viii) the Company otherwise shall have been in
compliance with and shall not have breached any provision, covenant,
representation or warranty of any Transaction Document; and (ix) the
Company shall have obtained the Stockholder Approval on or before the
applicable Stockholder Approval Deadline.


 


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


 


(n)           “Excluded Securities”
means any Common Stock issued or issuable: (i) in connection with any
Approved Stock Plan; (ii) upon conversion of the Notes; (iii) pursuant
to the Follow-on Offering (as defined in the Securities Purchase Agreement) or
any greenshoe thereon pursuant to customary terms and conditions, with an issue
price per share of Common Stock that is no less than the issue price per share
of Common Stock in the Follow-on Offering, and which closes within 30 days of
the Follow-on Offering (the “Greenshoe”);
and (iv) upon exercise of any Options which are outstanding on the day
immediately preceding the Subscription Date, provided that the terms of such
Options are not amended, modified or changed on or after the Subscription Date;
and provided further that the expiration or release of the holder of such
Options from any lock-up agreements shall not be deemed to be an amendment,
modification or change thereof.


 


31

















 


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


 


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


 


(q)           “Greenshoe Proceeds”
means the net proceeds to the Company from the Greenshoe.


 


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


 


(s)           “Indebtedness”
of any Person means, without duplication (i) all indebtedness for borrowed
money, (ii) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services, including (without limitation) “capital
leases” in accordance with GAAP (other than trade payables entered into in the
ordinary course of business), (iii) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and other similar
instruments, (iv) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses, (v) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in
the event of default are limited to repossession or sale of such property), (vi) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is
classified as a capital lease, (vii) all indebtedness referred to in
clauses (i) through (vi) above secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any mortgage, lien, pledge, charge, security interest or other encumbrance
upon or in any property or assets (including accounts and contract 


 


32

















 


rights) owned by any Person, even though the Person which owns such
assets or property has not assumed or become liable for the payment of such
indebtedness, and (viii) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (i) through
(vii) above.


 


(t)            “Interest  Rate”
means for any period, a rate per annum equal to (i) initially, eight
percent (8.0%), (ii) if Stockholder Approval has not been obtained by the
Stockholder Approval Deadline, twelve percent (12.0%), which shall be increased
by an additional two percent (2.0%) on each two (2) month anniversary of
the Stockholder Approval Deadline until Stockholder Approval has been obtained
by the Company, provided, that in no event will the interest rate determined
under this clause (ii) be greater than twenty-four percent (24.0%) and (iii) if
the Interest Rate Conditions are satisfied, seven percent (7.0%), each of the
foregoing clauses subject to further adjustment as set forth in Section 2.


 


(u)           “Interest Rate Conditions” means that (i) Stockholder
Approval has been obtained and (ii) all of the Registrable Securities (as
defined in the Registration Rights Agreement) are registered for resale in
accordance with the terms of the Registration Rights Agreement (and such
registration has not been suspended or terminated).


 


(v)           “Lead Investor” means Interlachen Convertible Investments
Limited or such other Person as it may designate.


 


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


 


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


 


(y)           “Permitted Indebtedness”
means (i) the Indebtedness evidenced by this Note and the Other Notes, (ii) Permitted
Senior Indebtedness, (iii) unsecured Indebtedness incurred by the Company
that is made expressly subordinate in right of payment to the Indebtedness
evidenced by this Note, as reflected in a written agreement acceptable to the
Required Holders in their sole discretion and approved by such Required Holders
in writing, and which Indebtedness does not provide at any time for (1) the
payment, prepayment, repayment, repurchase or defeasance, directly or
indirectly, of any principal or premium, if any, thereon until ninety-one (91)
days after the Maturity Date or later and (2) total interest and fees at a
rate in excess of seven percent (7.0%) per annum, (iv) unsecured
Indebtedness to trade creditors incurred in the ordinary course of business,
consistent with past practice and not outstanding for more than 120 days after
the date such payable was created, (v) Indebtedness in which the proceeds
thereof are used to redeem the Notes in full pursuant to the terms hereof, (vi) Indebtedness
which bears interest (payable at maturity) no greater than seven percent (7.0%)
per annum incurred by the Company which Indebtedness does not provide at any
time for the payment, prepayment, repayment, repurchase or defeasance, directly
or indirectly, of any principal or premium, if any, thereon until two (2) years
after the Closing Date or later and made 


 


33

















 


in favor of the sellers pursuant to the Lexico Agreement (as defined in
the Securities Purchase Agreement) (such Indebtedness, the “Lexico Indebtedness”) not to exceed $10,000,000 plus
interest in the aggregate that is made expressly subordinate in right of
payment to the Indebtedness evidenced by this Note, as reflected in the
Subordination Agreement (as defined in the Securities Purchase Agreement),](9) and (vi) extensions, refinancings and
renewals of any items of Permitted Indebtedness, provided that the principal
amount is not increased, the maturity date is not any earlier than the original
maturity date and the terms are not modified to impose more burdensome terms
upon the Company or its Subsidiary, as the case may be.


 


(z)            “Permitted Liens” means (i) any
Lien for taxes not yet due or delinquent or being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP, (ii) any statutory Lien arising in the ordinary
course of business by operation of law with respect to a liability that is not
yet due or delinquent, (iii) any Lien created by operation of law, such as
materialmen’s liens, mechanics’ liens and other similar liens, arising in the
ordinary course of business with respect to a liability that is not yet due or
delinquent or that are being contested in good faith by appropriate
proceedings, (iv) Liens (A) upon
or in any equipment acquired or held by the Company or any of its Subsidiaries
to secure the purchase price of such equipment or indebtedness incurred solely
for the purpose of financing the acquisition or lease of such equipment, or (B) existing
on such equipment at the time of its acquisition, provided that the Lien is
confined solely to the property so acquired and improvements thereon, and the
proceeds of such equipment, (v) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of the
type described in clauses (i) and (iv) above, provided that any
extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the Indebtedness
being extended, renewed or refinanced does not increase, (vi) leases or
subleases and licenses and sublicenses granted to others in the ordinary course
of the Company’s business, not interfering in any material respect with the
business of the Company and its Subsidiaries taken as a whole, (vii) Liens
in favor of customs and revenue authorities arising as a matter of law to
secure payments of custom duties in connection with the importation of goods, (viii) Liens
arising from judgments, decrees or attachments in circumstances not constituting
an Event of Default under Section 4(a)(ix), (ix) [Liens
securing the Lexico Indebtedness (such Liens, the “Lexico Liens”);
provided however, that the Company has
provided the Holder with a first priority Lien on the same assets securing the
Lexico Liens and the Lexico Liens are made expressly subordinate to the Liens
granted to the Holder, as reflected in a written agreement acceptable to the
Required Holders in their sole discretion and approved by such Required Holders
in writing,](10) , (x) Liens securing
Permitted Senior Indebtedness, (xi) the Liens in favor of UBank Ltd. on money
deposited in a bank account disclosed to the Holder held in the name of GuruNet
Israel Ltd., provided that such Liens are not on assets with a value exceeding
$350,000 in the aggregate.


 


(aa)         “Permitted Senior
Indebtedness” means the principal of (and premium, if any), interest
on, and all fees and other amounts (including, without limitation, any
reasonable out-of-pocket costs, enforcement expenses (including reasonable out-of-pocket
legal 


 






(9)           If this is a Termination Note, this provision shall be
deleted.


 


(10)         If this is a Termination Note, this provision shall be
deleted.


 


 


34

















 


fees and disbursements), collateral protection expenses and other
reimbursement or indemnity obligations relating thereto) payable by Company
and/or its Subsidiaries under or in connection with any inventory and
receivables credit facility based on a customary borrowing base entered into by
the Company and/or its Subsidiaries with one or more financial institutions
(and on terms and conditions) to fund the working capital needs of the Company
and its Subsidiaries, in form and substance satisfactory to the Required
Holders; provided, however, that the aggregate outstanding amount
of such Indebtedness permitted hereunder (taking into account the maximum
amounts which may be advanced under the loan documents evidencing such
Permitted Senior Indebtedness) does not at any time exceed (i) five
million dollars ($5,000,000) prior to December 31, 2009 and (ii) ten
million dollars ($10,000,000) thereafter.


 


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


 


(cc)         “Principal Market”
means The NASDAQ Global Market.


 


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


 


(ee)         “Redemption Prices”
means, collectively, the Event of Default Redemption Price, Change of Control
Redemption Price, and the Holder Mandatory Redemption Price, [the Lexico Mandatory Redemption Price,](11)
and the Optional Redemption Price, each of the foregoing, individually, a
Redemption Price.


 


(ff)           “Registration Rights Agreement” means that certain registration rights agreement dated as of the
Subscription Date by and among the Company and the initial holders of the Notes
relating to, among other things, the registration of the resale of the Common
Stock issuable upon conversion of the Notes.


 


(gg)         “Required Holders”
means (i) the Lead Investor and (ii) other holders of Notes
representing in the aggregate with the Lead Investor’s Notes at least a
majority  of the aggregate principal amount of
the Notes then outstanding.


 


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


 


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


 


(jj)           “Subscription Date”
means January [•] 2008.


 






(11)         If this is a Termination Note, this provision shall be
deleted.


 


35

















 


(kk)         “Subsidiary”
means any entity in which the Company, directly or indirectly, owns any of the
capital stock or holds an equity or similar interest.


 


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


 


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


 


(nn)         “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).


 


(oo)         “Weighted Average Price” means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market during
the period beginning at 9:30:01 a.m., New York Time (or such other time as
the Principal Market publicly announces is the official open of trading), and
ending at 4:00:00 p.m., New York Time (or such other time as the Principal
Market publicly announces is the official close of trading) as reported by
Bloomberg through its “Volume at Price” functions, or, if the foregoing does
not apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York Time (or such other
time as such market publicly announces is the official open of trading), and
ending at 4:00:00 p.m., New York Time (or such other time as such market
publicly announces is the official close of trading) as reported by Bloomberg,
or, if no dollar volume-weighted average price is reported for such security by
Bloomberg for such hours, the average of the highest closing bid price and the
lowest closing ask price of any of the market makers for such security as
reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.).  If the
Weighted Average Price cannot be calculated for a security on a particular date
on any of the foregoing bases, the Weighted Average Price of such security on
such date shall be the fair market value as mutually determined by the Company
and the Holder.  If the Company and the
Holder are unable to agree upon the fair market value of such security, then
such dispute shall be resolved pursuant to Section 24.  All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination,
reclassification or similar transaction during the applicable calculation
period.


 


36

















 


(31)       DISCLOSURE. Upon receipt or
delivery by the Company of any notice in accordance with the terms of this
Note, unless the Company has in good faith determined that the matters relating
to such notice do not constitute material, nonpublic information relating to
the Company or its Subsidiaries, the Company shall within one (1) Business
Day after any such receipt or delivery publicly disclose such material,
nonpublic information on a Current Report on Form 8-K or otherwise.  In the event that the Company believes that a
notice contains material, nonpublic information relating to the Company or its
Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the
Holder shall be allowed to presume that all matters relating to such notice do
not constitute material, nonpublic information relating to the Company or its
Subsidiaries.


 


[Signature Page Follows]


 


37

















 


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


 


	
   

  	
  ANSWERS CORPORATION

  
	
   

  
	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


 


[Signature Page to Senior Secured Convertible
Note]


 

















 


 


 


EXHIBIT I



ANSWERS CORPORATION


CONVERSION NOTICE


 


Reference is made to the Senior
Secured Convertible Note (the “Note”) issued
to the undersigned by Answers Corporation (the “Company”).  In accordance with and
pursuant to the Note, the undersigned hereby elects to convert the Conversion
Amount (as defined in the Note) of the Note indicated below into shares of
Common Stock par value $0.001 per share (the “Common Stock”) of the Company, as of the date
specified below.


 


Date of Conversion:


 


Aggregate Conversion Amount to be converted:


 


Please confirm the following information:


 


Conversion Price:


 


Number of shares of Common Stock to be
issued:


 


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


 


Issue to:


 


 


Facsimile Number:


 


Authorization:


 


	
   

  	
  By:

  	
   

  
	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  
						



 


Account Number:                      


  (if electronic book entry transfer)                                             


 


Transaction Code Number:


  (if electronic book entry transfer)                                             


 

















 


ACKNOWLEDGMENT


 


The Company hereby acknowledges
this Conversion Notice and hereby directs American Stock Transfer &
Trust Company to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated [·] from the Company and
acknowledged and agreed to by American Stock Transfer & Trust Company.


 


	
   

  	
  ANSWERS CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title: