Blueprint





  Exhibit 10.3











 



[FORM OF SENIOR CONVERTIBLE NOTE]

 



NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL SELECTED BY THE HOLDER, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT,
OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF
THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING
SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE
UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON
THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
NOTE.

 



GT Biopharma, Inc.

 



SENIOR CONVERTIBLE NOTE

 


	

Issuance
Date: January [  ], 2018

	

Original
Principal Amount: U.S.
$[          ]







 


FOR VALUE RECEIVED, GT Biopharma, Inc.,
a Delaware corporation (the "Company"), hereby promises to pay to
[BUYER] or registered assigns (the "Holder") in cash and/or in shares of
Common Stock (as defined below) the amount set out above as the
Original Principal Amount (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise and/or as increased
pursuant to the terms hereof, 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 default interest ("Interest") on any outstanding Principal
at the applicable Default Rate until the same becomes due and
payable, whether upon the Maturity Date, acceleration, conversion,
redemption or otherwise (in each case in accordance with the terms
hereof). This Senior Convertible Note (including all Senior
Convertible Notes issued in exchange, transfer or replacement
hereof, this "Note") is one
of an issue of Senior Convertible Notes issued pursuant to the
Securities Purchase Agreement on the Closing Date (collectively,
the "Notes" and such other
Senior Convertible Notes, the "Other Notes"). Certain capitalized terms used
herein are defined in Section 31.

 



 







 





 

(1) PAYMENTS OF PRINCIPAL;
PREPAYMENT. The Company acknowledges and agrees that this
Note was issued at an original issue discount. 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 (as
defined in Section 24(b)) on such Principal and Interest.
The "Maturity Date" shall be July [  ],
20181, 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. Other than as specifically
permitted by this Note, the Company may not prepay any portion of
the outstanding Principal, accrued and unpaid Interest or accrued
and unpaid Late Charges on Principal and Interest, if
any.

 

(2) DEFAULT INTEREST. This Note
shall not bear any ordinary interest. Interest on this Note shall
commence accruing immediately upon the occurrence of, and shall
continue accruing during the continuance of, an Event of Default,
at the Default Rate and shall be computed on the basis of a 360-day
year of twelve 30-day months and shall be payable, if applicable,
on the Maturity Date to the record holder of this Note on the
Maturity Date in cash by wire transfer of immediately available
funds pursuant to wire instructions provided by the Holder in
writing to the Company. Prior to the payment of Interest on the
Maturity Date, Interest on this Note shall accrue at the Default
Rate and be payable by way of
inclusion of the Interest in the Conversion Amount (as defined in
Section 3(b)(i)) on each (i) Conversion Date (as defined in
Section 3(c)(i)) in accordance with Section 3(c)(i) and/or (ii)
Redemption Date. In the event that such Event of Default is
subsequently cured, the Interest shall cease to accrue as of the
date of such cure; provided, that the Interest as
calculated and unpaid as of the cure of such Event of Default shall
continue to be due and payable as set forth above; provided, further, that for the purpose
of this Section 2, such Event of Default shall not be deemed cured
unless and until any accrued and unpaid Interest shall be paid to
the Holder.

 

(3) CONVERSION OF NOTES. At any
time or times after the date set out above as the Issuance Date
(the "Issuance Date"), this
Note shall be convertible into shares of 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 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 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.

 

 







1 Insert date that is
the six (6) months immediately following the Issuance Date, or if
such date falls on a Holiday, the next day that is not a
Holiday.

 



 

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(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, if any, with respect to such Principal and (C)
accrued and unpaid Late Charges, if any, with respect to such
Principal and Interest.

 

(ii) "Conversion
Price" means, as of any Conversion Date or other date of
determination, $4.58 per share, 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 electronic mail (or
otherwise deliver), for delivery 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 (a "Conversion Notice") to the Company and
(B) if required by Section 3(c)(iii), but without delaying the
Company's requirement to deliver shares of Common Stock on the
applicable Share Delivery Date (as defined below), 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). The Holder may also indicate in a Conversion
Notice the number of shares of Common Stock it seeks to receive
upon conversion of any portion of this Note and the reduction of
the Conversion Amount pursuant to such conversion shall be
determined at the end of such Conversion Date by multiplying such
number of shares of Common Stock by the applicable Conversion
Price. No ink-original Conversion Notice shall be required, nor
shall any medallion guarantee (or other type of guarantee or
notarization) of any Conversion Notice be required. On or before
the first (1st) Business Day following the date of delivery of a
Conversion Notice, the Company shall transmit by facsimile or
electronic mail a confirmation of receipt of such Conversion Notice
to the Holder and the Company's transfer agent (the "Transfer Agent"). On or before the
earlier of (i) the second (2nd) Trading Day and (ii) the number of
Trading Days comprising the Standard Settlement Period, in each
case, following the date of delivery of a Conversion Notice (a
"Share Delivery Date"), the Company shall (x) provided
that the Transfer Agent is participating in the Depository Trust
Company ("DTC") Fast
Automated Securities Transfer Program, credit such aggregate number
of shares of Common Stock to which the Holder shall be entitled to
the Holder's or its designee's balance account with DTC through its
Deposit Withdrawal At Custodian system or (y) if the Transfer Agent
is not participating in the DTC Fast Automated Securities Transfer
Program, issue and deliver to the address as specified in the
Conversion Notice, a certificate, registered in the name of the
Holder or its designee, for the number of shares of Common Stock to
which the Holder shall be entitled. 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)
Business Days after delivery 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, irrespective of the
date such shares of Common Stock are credited to the Holder's
account with DTC or the date of delivery of the certificates
evidencing such shares of Common Stock, as the case may
be.

 



 

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(ii) Company's
Failure to Timely Convert. If the Company shall fail on or
prior to the applicable Share Delivery Date to issue and deliver a
certificate to the Holder, if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer
Program, or credit the Holder's balance account with DTC, if the
Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, for the number of shares of Common
Stock to which the Holder is entitled upon the Holder's conversion
of any Conversion Amount (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 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) any
trading price of the Common Stock selected by the Holder in writing
as in effect at any time during the period beginning on the
applicable Conversion Date and ending on the applicable 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 the Company shall fail on or prior
to the applicable Share Delivery Date to issue and deliver a
certificate to the Holder, if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer
Program, or credit the Holder's balance account with DTC, if the
Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, for the number of shares of Common
Stock to which the Holder is entitled upon the 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 issue and deliver such certificate or
credit the Holder's balance account with DTC for the shares of
Common Stock to which the Holder is entitled upon the Holder's
conversion of the applicable Conversion Amount shall terminate, or
(y) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such shares of Common
Stock or credit the Holder's balance account with DTC for such
shares of Common Stock and pay cash to the Holder in an amount
equal to the excess (if any) of the Buy-In Price over the product
of (A) such number of shares of Common Stock, times (B)
any trading price of the Common Stock
selected by the Holder in writing as in effect at any time during
the period beginning on the applicable Conversion Date and ending
on the applicable Share Delivery Date. Nothing herein shall
limit the Holder's right to pursue any other remedies available to
it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver shares of Common
Stock upon conversion of this Note as required pursuant to the
terms hereof.

 



 

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(iii) Registration;
Book-Entry. The Company shall maintain a register (the
"Register") for the
recordation of the names and addresses of the holders of each Note
and the Principal amount of the Notes (and stated interest thereon)
held by such holders (the "Registered Notes"). The entries in the
Register shall be conclusive and binding for all purposes absent
manifest error. The Company and the holders of the Notes shall
treat each Person whose name is recorded in the Register as the
owner of a Note for all purposes, including, without limitation,
the right to receive payments of Principal and Interest, if any,
hereunder, notwithstanding notice to the contrary. A Registered
Note may be assigned or sold in whole or in part only by
registration of such assignment or sale on the Register. Upon its
receipt of a request to assign or sell all or part of any
Registered Note by the 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 17.
Notwithstanding anything to the contrary in this Section 3(c)(iii),
the Holder may assign any Note or any portion thereof to an
Affiliate of the Holder or a Related Fund of the Holder without
delivering a request to assign or sell such Note to the Company and
the recordation of such assignment or sale in the Register (a
"Related Party Assignment");
provided, that (x)
the Company may continue to deal solely with such assigning or
selling Holder unless and until the Holder has delivered a request
to assign or sell such Note or portion thereof to the Company for
recordation in the Register; (y) the failure of such assigning or
selling Holder to deliver a request to assign or sell such Note or
portion thereof to the Company shall not affect the legality,
validity, or binding effect of such assignment or sale and (z) such
assigning or selling Holder shall, acting solely for this purpose
as a non-fiduciary agent of the Company, maintain a register (the
"Related Party Register")
comparable to the Register on behalf of the Company, and any such
assignment or sale shall be effective upon recordation of such
assignment or sale in the Related Party Register. Notwithstanding
anything to the contrary set forth herein, upon conversion of any
portion of this Note in accordance with the terms hereof, the
Holder shall not be required to physically surrender this Note to
the Company unless (A) the full Conversion Amount represented by
this Note is being converted or (B) the Holder has provided the
Company with prior written notice (which notice may be included in
a Conversion Notice) requesting reissuance of this Note upon
physical surrender of this Note. The Holder and the Company shall
maintain records showing the Principal, Interest and Late Charges,
if any, converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the Holder and the
Company, so as not to require physical surrender of this Note upon
conversion.

 



 

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(iv) Pro
Rata Conversion; Disputes. In the event that the Company
receives a Conversion Notice from this Note and one or more holder
of Other Notes for the same Conversion Date and the Company can
convert some, but not all, of such portions of this Note and the
Other Notes submitted for conversion, the Company, subject to
Section 3(d), shall convert from the Holder and each holder of
Other Notes electing to have this Note or the Other Notes converted
on such date a pro rata amount of such holder's portion of the Note
and its Other Notes submitted for conversion based on the Principal
amount of this Note and the Other Notes submitted for conversion on
such date by such holder relative to the aggregate Principal amount
of this Note and all Other 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 23.

 

(d) Beneficial Ownership.
Notwithstanding anything to the
contrary contained herein, the Company shall not issue any
shares of Common Stock pursuant to the terms of this Note, and the
Holder shall not have the right to any shares otherwise issuable
pursuant to the terms of this Note and any such issuance shall be
null and void and treated as if never
made, to the extent that after giving effect to such
issuance, the Holder together with the other Attribution Parties
collectively would beneficially own in excess of 4.99% (the
"Maximum Percentage") of the
shares of Common Stock outstanding immediately after giving effect
to such issuance. For purposes of the foregoing sentence, the
aggregate number of shares of Common Stock beneficially owned by
the Holder and the other Attribution Parties shall include the
number of shares of Common Stock held by the Holder and all other
Attribution Parties plus 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
shares of Common Stock which would be issuable upon (i) conversion
of the remaining, nonconverted portion of this Note beneficially
owned by the Holder or any of the other Attribution Parties and
(ii) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without
limitation, any convertible notes or convertible preferred stock or
warrants, including the Other Notes and Warrants) beneficially
owned by the Holder or any other Attribution Party subject to a
limitation on conversion or exercise analogous to the limitation
contained in this Section 3(d). For purposes of this Section 3(d),
beneficial ownership shall be calculated in accordance with Section
13(d) of the Exchange Act. For purposes of determining the number
of outstanding shares of Common Stock the Holder may acquire upon
the conversion of the Note without exceeding the Maximum
Percentage, the Holder may rely on the number of outstanding shares
of Common Stock as reflected in (i) the Company's most recent
Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current
Report on Form 8-K or other public filing with the SEC, as the case
may be, (ii) a more recent public announcement by the Company or
(iii) any other written notice by the Company or the Transfer Agent
setting forth the number of shares of Common Stock outstanding (the
"Reported Outstanding Share
Number"). If the Company receives a Conversion Notice from
the Holder at a time when the actual number of outstanding shares
of Common Stock is less than the Reported Outstanding Share Number,
the Company shall notify the Holder in writing of the number of
shares of Common Stock then outstanding and, to the extent that
such Conversion Notice would otherwise cause the Holder's
beneficial ownership, as determined pursuant to this Section 3(d),
to exceed the Maximum Percentage, the Holder must notify the
Company of a reduced number of shares of Common Stock to be
purchased pursuant to such Conversion Notice. For any reason at any
time, upon the written or oral request of the Holder, the Company
shall within one (1) Trading Day confirm orally and in writing or
by electronic mail 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 and any other Attribution Party since the
date as of which the Reported Outstanding Share Number was
reported. In the event that the issuance of shares of Common Stock
to the Holder upon conversion of this Note results in the Holder
and the other Attribution Parties being deemed to beneficially own,
in the aggregate, more than the Maximum Percentage of the number of
outstanding shares of Common Stock (as determined under Section
13(d) of the Exchange Act), the number of shares so issued by which
the Holder's and the other Attribution Parties' aggregate
beneficial ownership exceeds the Maximum Percentage (the
"Excess Shares") shall be
deemed null and void and shall be cancelled ab initio, and the
Holder shall not have the power to vote or to transfer the Excess
Shares. Upon delivery of a written notice to the Company, the
Holder may from time to time increase or decrease the Maximum
Percentage to any other percentage not in excess of 9.99% as
specified in such notice; provided that (i) any such increase in
the Maximum Percentage will not be effective until the sixty-first
(61st) day
after such notice is delivered to the Company and (ii) any such
increase or decrease will apply only to the Holder and the other
Attribution Parties and not to any other holder of Notes that is
not an Attribution Party of the Holder. For purposes of clarity,
the shares of Common Stock issuable pursuant to the terms of this
Note in excess of the Maximum Percentage shall not be deemed to be
beneficially owned by the Holder for any purpose including for
purposes of Section 13(d) or Rule 16a-1(a)(1) of the Exchange Act.
The provisions of this paragraph shall be construed and implemented
in a manner otherwise than in strict conformity with the terms of
this Section 3(d) to the extent necessary to correct this paragraph
(or any portion of this paragraph) which may be defective or
inconsistent with the intended beneficial ownership limitation
contained in this Section 3(d) or to make changes or supplements
necessary or desirable to properly give effect to such limitation.
The limitation contained in this paragraph may not be waived and
shall apply to a successor holder of this Note.

 



 

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(4) RIGHTS UPON EVENT OF
DEFAULT.

 

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

 

(i) the failure of the
applicable Registration Statement required to be filed pursuant to
the Registration Rights Agreement to be filed within fifteen (15)
days after the applicable time period specified in the Registration
Rights Agreement or to be declared effective by the SEC on or prior
to the date that is thirty (30) days after the applicable
Effectiveness Deadline (as defined in the Registration Rights
Agreement), or, while the applicable Registration Statement is
required to be maintained effective pursuant to the terms of the
Registration Rights Agreement, the effectiveness of the applicable
Registration Statement lapses for any reason (including, without
limitation, the issuance of a stop order) or is unavailable to any
holder of the Notes for sale of all of such holder's Registrable
Securities in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period
of fifteen (15) consecutive Trading Days or for more than an
aggregate of thirty (30) Trading Days in any 365-day period (other
than days during an Allowable Grace Period (as defined in the Registration Rights
Agreement);

 



 

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(ii) (A)
the suspension of the Common Stock from trading on an Eligible
Market for a period of two (2) consecutive Trading Days or for more
than an aggregate of fifteen (15) Trading Days in any 365-day
period or (B) the failure of the Common Stock to be listed on an
Eligible Market;

 

(iii) the
Company's (A) failure to cure a Conversion Failure by delivery of
the required number of shares of Common Stock within five (5)
Business Days after the applicable Conversion Date or (B) notice,
written or oral, to the Holder or any holder of the Other 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 this Note or any Other Notes into shares of
Common Stock that is tendered in accordance with the provisions of
this Note or the Other Notes, other than pursuant to Section 3(d)
(and analogous provisions under the Other Notes);

 

(iv) at
any time following the fifth (5th) consecutive
Business Day that the Holder's Authorized Share Allocation (as
defined in Section 10(a)) is less than the sum of (A) 200% of the
number of shares of Common Stock that the Holder would be entitled
to receive upon a conversion of the full Conversion Amount of this
Note (without regard to any limitations on conversion set forth in
Section 3(d) or otherwise) and (B) the number of shares of Common
Stock that the Holder would be entitled to receive upon exercise in
full of the Holder's Warrants (without regard to any limitations on
exercise set forth in the Warrants);

 

(v) 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 or
the Other Notes (including, without limitation, the Company's
failure to pay any redemption amounts hereunder) or any other
Transaction Document, 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 an aggregate of
five (5) Business Days;

 

(vi) any
default under, redemption of or acceleration prior to maturity of
any Indebtedness of the Company or any of its Subsidiaries other
than with respect to this Note or any Other Notes;

 

(vii) 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;

 

(viii) 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;

 



 

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(ix) 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 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;

 

(x) other than as
specifically set forth in another clause of this Section 4(a), the
Company or any of its Subsidiaries 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 an aggregate
of five (5) Business Days;

 

(xi) any
breach or failure in any respect to comply with Sections 13, 14 or
15 of this Note;

 

(xii) any
material damage to, or loss, theft or destruction of, a material
amount of property of the Company, 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);

 

(xiii) a
false or inaccurate certification (including a false or inaccurate
deemed certification) by the Company that the Equity Conditions are
satisfied or that there has been no Equity Conditions Failure or as
to whether any Event of Default has occurred;
or

 

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

 



 

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(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 or electronic mail 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 (an "Event of Default Redemption") all or any
portion of this Note by delivering written notice thereof (the
"Event of Default Redemption
Notice") to the Company, which Event of Default Redemption
Notice shall indicate the portion of this Note the Holder is
electing to 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 in cash by wire transfer of
immediately available funds at a price equal to the Conversion
Amount being redeemed (the "Event
of Default Redemption
Price"). Redemptions required by this Section 4(b) shall be
made in accordance with the provisions of Section 11. To the extent
redemptions required by this Section 4(b) are deemed or determined
by a court of competent jurisdiction to be prepayments of the Note
by the Company, such redemptions shall be deemed to be voluntary
prepayments. Notwithstanding anything to the contrary in this
Section 4, but subject to Section 3(d), until the Event of Default
Redemption Price (together with any interest thereon) is paid in
full, the Conversion Amount submitted for redemption under this
Section 4(b) (together with any interest thereon) may be converted,
in whole or in part, by the Holder into Common Stock pursuant to
Section 3.

 

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

 

(a) Assumption. The Company shall
not enter into or be party to a Fundamental Transaction while any
Notes remain outstanding 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 satisfactory to the Required Holders and approved by the
Required Holders prior to such Fundamental Transaction, including
agreements, if so requested by the Holder, to deliver to each
holder of Notes in exchange for such Notes a security of the
Successor Entity evidenced by a written instrument substantially
similar in form and substance to the Notes, including, without
limitation, having a principal amount and interest rate equal to
the Principal amounts and the Default Rate 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. Any security issuable or potentially issuable to
the Holder pursuant to the terms of this Note on the consummation
of a Fundamental Transaction shall be registered and freely
tradable by the Holder without any restriction or limitation or the
requirement to be subject to any holding period pursuant to any
applicable securities laws. No later
than (i) five (5) days prior to the occurrence or consummation of
any Fundamental Transaction or (ii) if later, the first Trading Day
following the date the Company first becomes aware of the
occurrence or potential occurrence of a Fundamental Transaction,
the Company shall deliver written notice thereof via facsimile or
electronic mail and overnight courier to the Holder. Upon
the occurrence or consummation of any Fundamental Transaction, and
it shall be a required condition to the occurrence or consummation
of any Fundamental Transaction that, the Company and the Successor
Entity or Successor Entities, jointly and severally, shall succeed
to, and the Company shall cause any Successor Entity or Successor
Entities to jointly and severally succeed to, and be added to the
term "Company" under this Note (so that from and after the date of
such Fundamental Transaction, each and every provision of this Note
referring to the "Company"

 



 

-10-







 





 

shall refer instead
to each of the Company and the Successor Entity or Successor
Entities, jointly and severally), and the Company and the Successor
Entity or Successor Entities, jointly and severally, may exercise
every right and power of the Company prior thereto and shall assume
all of the obligations of the Company prior thereto under this Note
with the same effect as if the Company and such Successor Entity or
Successor Entities, jointly and severally, had been named as the
Company in this Note, and, solely at the request of the Holder, if
the Successor Entity and/or Successor Entities is a publicly traded
corporation whose common capital stock is quoted on or listed for
trading on an Eligible Market, the Company shall, or shall cause
the Successor Entity, to deliver (in addition to and without
limiting any right under this Note) to the Holder in exchange for
this Note a security of the Successor Entity and/or Successor
Entities evidenced by a written instrument substantially similar in
form and substance to this Note and convertible for a corresponding
number of shares of capital stock of the Successor Entity and/or
Successor Entities (the "Successor
Capital Stock") equivalent (as set forth below) to the
shares of Common Stock acquirable and receivable upon conversion of
this Note (without regard to any limitations on the conversion of
this Note) prior to such Fundamental Transaction (such
corresponding number of shares of Successor Capital Stock to be
delivered to the Holder shall equal the greater of (I) the quotient
of (A) the aggregate dollar value of all consideration (including
cash consideration and any consideration other than cash
("Non-Cash Consideration"),
in such Fundamental Transaction, as such values are set forth in
any definitive agreement for the Fundamental Transaction that has
been executed at the time of the first public announcement of the
Fundamental Transaction or, if no such value is determinable from
such definitive agreement, as determined in accordance with Section
23 with the term "Non-Cash Consideration" being substituted for the
term "Conversion Price") that the Holder would have been entitled
to receive upon the happening of such Fundamental Transaction or
the record, eligibility or other determination date for the event
resulting in such Fundamental Transaction, had this Note been
converted immediately prior to such Fundamental Transaction or the
record, eligibility or other determination date for the event
resulting in such Fundamental Transaction (without regard to any
limitations on the conversion of this Note) (the "Aggregate Consideration") divided by (B)
the per share Closing Sale Price of such Successor Capital Stock on
the Trading Day immediately prior to the consummation or occurrence
of the Fundamental Transaction and (II) the product of (A) the
quotient obtained by diving (x) the Aggregate Consideration, by (y)
the Closing Sale Price of the Common Stock on the Trading Day
immediately prior to the consummation or occurrence of the
Fundamental Transaction and (B) the highest exchange ratio pursuant
to which any stockholder of the Company may exchange Common Stock
for Successor Capital Stock) (provided, however, to the extent that the
Holder's right to receive any such shares of publicly traded common
stock (or their equivalent) of the Successor Entity would result in
the Holder and its other Attribution Parties exceeding the Maximum
Percentage, if applicable, then the Holder shall not be entitled to
receive such shares to such extent (and shall not be entitled to
beneficial ownership of such shares of publicly traded common stock
(or their equivalent) of the Successor Entity as a result of such
consideration to such extent) and the portion of such shares shall
be held in abeyance for the Holder until such time or times, as its
right thereto would not result in the Holder and its other
Attribution Parties exceeding the Maximum Percentage, at which time
or times the Holder shall be delivered such shares to the extent as
if there had been no such limitation), and such security shall be
satisfactory to the Holder, and with an identical conversion price
to the Conversion Price hereunder (such adjustments to the number
of shares of capital stock and such conversion price

 



 

-11-







 





 

being for the
purpose of protecting after the consummation or occurrence of such
Fundamental Transaction the economic value of this Note that was in
effect immediately prior to the consummation or occurrence of such
Fundamental Transaction, as elected by the Holder solely at its
option). Upon occurrence or consummation of the Fundamental
Transaction, and it shall be a required condition to the occurrence
or consummation of such Fundamental Transaction that, the Company
and the Successor Entity or Successor Entities shall deliver to the
Holder confirmation that there shall be issued upon conversion of
this Note at any time after the occurrence or consummation of the
Fundamental Transaction, as applicable, as elected by the Holder
solely at its option, shares of Common Stock, Successor Capital
Stock or, in lieu of the shares of Common Stock or Successor
Capital Stock (or other securities, cash, assets or other property
purchasable upon the conversion of this Note prior to such
Fundamental Transaction), such shares of stock, securities, cash,
assets or any other property whatsoever (including warrants or
other purchase or subscription rights), which for purposes of
clarification may continue to be shares of Common Stock, if any,
that the Holder would have been entitled to receive upon the
happening of such Fundamental Transaction or the record,
eligibility or other determination date for the event resulting in
such Fundamental Transaction, had this Note been converted
immediately prior to such Fundamental Transaction or the record,
eligibility or other determination date for the event resulting in
such Fundamental Transaction (without regard to any limitations on
the conversion of this Note), as adjusted in accordance with the
provisions of this Note. The provisions of this Section 5(a) shall
apply similarly and equally to successive Fundamental
Transactions.

 

(b) Redemption Right. While any
Notes remain outstanding, no later than five (5) days prior to the
consummation of a Change of Control, but not prior to the public
announcement of such Change of Control, the Company shall deliver
written notice thereof via facsimile or electronic mail and
overnight courier to the Holder (a "Change of Control Notice"). At any time during the period
beginning on the earlier to occur of (x) any oral or written
agreement by the Company or any of its Subsidiaries, upon
consummation of which the transaction contemplated thereby would
reasonably be expected to result in a Change of Control, (y) the
Holder becoming aware of a Change of Control and (z) the Holder's
receipt of a Change of Control Notice and ending twenty-five (25)
Trading Days after the date of the consummation of such Change of
Control, the Holder may require the Company to redeem (a
"Change of Control
Redemption") all or any portion of this Note by delivering
written notice thereof ("Change of
Control Redemption Notice") to the Company, which Change of
Control Redemption Notice shall indicate the Conversion Amount the
Holder is electing to require the Company to redeem. The portion of
this Note subject to redemption pursuant to this Section 5(b) shall
be redeemed by the Company in cash by wire transfer of immediately
available funds at a price equal to the Conversion Amount being
redeemed (the "Change of Control
Redemption Price"). Redemptions required by this Section 5
shall be made in accordance with the provisions of Section 11 and
shall have priority to payments to stockholders in connection with
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(b)
(together with any interest thereon) may be converted, in whole or
in part, by the Holder into Common Stock pursuant to Section
3.

 



 

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

 

(a) Distribution of Assets. While
any Notes remain outstanding, if the Company shall declare or make
any dividend or other distributions of its assets (or rights to
acquire its assets) to any or all holders of shares of Common
Stock, by way of return of capital or otherwise (including without
limitation, any distribution of cash, stock or other securities,
property, Options, evidence of Indebtedness or any other assets by
way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction)
(the "Distributions"), then
the Holder will be entitled to such Distributions as if the Holder
had held the number of shares of Common Stock acquirable upon
complete conversion of this Note (without taking into account any
limitations or restrictions on the convertibility of this Note)
immediately prior to the date on which a record is taken for such
Distribution or, if no such record is taken, the date as of which
the record holders of Common Stock are to be determined for such
Distributions (provided, however, that to the extent
that the Holder's right to participate in any such Distribution
would result in the Holder and the other Attribution Parties
exceeding the Maximum Percentage, then the Holder shall not be
entitled to participate in such Distribution to such extent (and
shall not be entitled to beneficial ownership of such shares of
Common Stock as a result of such Distribution (and beneficial
ownership) to such extent) and the portion of such Distribution
shall be held in abeyance for the Holder until such time or times
as its right thereto would not result in the Holder and the other
Attribution Parties exceeding the Maximum Percentage, at which time
or times the Holder shall be granted such rights (and any rights
under this Section 6(a) on such initial rights or on any subsequent
such rights to be held similarly in abeyance) to the same extent as
if there had been no such limitation).

 

(b) Purchase Rights. While any
Notes remain outstanding, if at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property pro rata to the
record holders of any class of Common Stock (the "Purchase Rights"), then the Holder will
be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete conversion of this Note (without
taking into account any limitations or restrictions on the
convertibility of this Note) immediately prior to the date on which
a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the
record holders of shares of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights (provided, however, that to the extent
that the Holder's right to participate in any such Purchase Right
would result in the Holder and the other Attribution Parties
exceeding the Maximum Percentage, then the Holder shall not be
entitled to participate in such Purchase Right to such extent (and
shall not be entitled to beneficial ownership of such shares of
Common Stock as a result of such Purchase Right (and beneficial
ownership) to such extent) and such Purchase Right to such extent
shall be held in abeyance for the Holder until such time or times as its right thereto
would not result in the Holder and the other Attribution
Parties exceeding the Maximum
Percentage, at which time or times the Holder shall be granted such
right (and any Purchase Right granted, issued or sold on
such initial Purchase Right or on any subsequent Purchase Right to
be held similarly in abeyance) to the
same extent as if there had been no such
limitation).

 



 

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(c) Other Corporate Events. While
any Notes remain outstanding, in addition to and not in
substitution for any other rights hereunder, prior to the
occurrence or consummation of any Fundamental Transaction pursuant
to which holders of shares of Common Stock are entitled to receive
securities, cash, assets or other property with respect to or in
exchange for shares of Common Stock (a "Corporate Event"), the Company shall
make appropriate provision to ensure that, and any applicable
Successor Entity or Successor Entities shall ensure that, and it
shall be a required condition to the occurrence or consummation of
such Corporate Event that, the Holder will thereafter have the
right to receive upon conversion of this Note at any time after the
occurrence or consummation of the Corporate Event, shares of Common
Stock or Successor Capital Stock or, if so elected by the Holder,
in lieu of the shares of Common Stock (or other securities, cash,
assets or other property) purchasable upon the conversion of this
Note prior to such Corporate Event (but not in lieu of such items
still issuable under Sections 6(a) and 6(b), which shall continue
to be receivable on the Common Stock or on such shares of stock,
securities, cash, assets or any other property otherwise receivable
with respect to or in exchange for shares of Common Stock), such
shares of stock, securities, cash, assets or any other property
whatsoever (including warrants or other purchase or subscription
rights and any shares of Common Stock) which the Holder would have
been entitled to receive upon the occurrence or consummation of
such Corporate Event or the record, eligibility or other
determination date for the event resulting in such Corporate Event,
had this Note been converted immediately prior to such Corporate
Event or the record, eligibility or other determination date for
the event resulting in such Corporate Event (without regard to any
limitations on conversion of this Note). Provision made pursuant to
the preceding sentence shall be in a form and substance
satisfactory to the Required Holders. The provisions of this
Section 6 shall apply similarly and equally to successive Corporate
Events.

 

(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 through the first (1st) day immediately
following the earlier of (i) the date of consummation of a
financing that qualifies as a Qualified Financing (as defined in
the Warrants) or (ii) the date that no Notes remain outstanding,
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 Securities) for a consideration per
share (the "New Issuance
Price") less than a price (the "Applicable Price") equal to the
Conversion Price in effect immediately prior to such issue or sale
or deemed issuance or sale (the foregoing a "Dilutive Issuance"), then immediately
after such Dilutive Issuance the Conversion Price then in effect
shall be reduced to an amount equal to the New Issuance Price. For purposes of
determining the adjusted Conversion Price under this Section 7(a),
the following shall be applicable:

 



 

-14-







 





 

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

 

(ii) Issuance
of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the lowest price per
share for which one share of Common Stock is issuable upon the
conversion 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 the conversion or exchange or exercise
thereof" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the issuance or sale
of the Convertible Security and upon the conversion or exchange or
exercise of such Convertible Security less any consideration paid
or payable by the Company with respect to such one share of Common
Stock upon the issuance or sale of the Convertible Security and
upon the conversion or exchange or exercise of such Convertible
Security. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such shares of Common Stock upon
conversion or exchange or exercise of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of the
Conversion Price has been or is to be made pursuant to other
provisions of this Section 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
shares of Common Stock increases or decreases at any time, the
Conversion Price in effect at the time of such increase or decrease
shall be adjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities
provided for such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the
case may be, at the time initially granted, issued or sold. For
purposes of this Section 7(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the Subscription
Date are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 7(a) shall be made if such
adjustment would result in an increase of the Conversion Price then
in effect.

 



 

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(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, (x) the
Options will be deemed to have been issued for the Option Value of
such Options and (y) the other securities issued or sold in such
integrated transaction shall be deemed to have been issued or sold
for the difference of (I) the aggregate consideration received by
the Company less any consideration paid or payable by the Company
pursuant to the terms of such other securities of the Company, less
(II) the Option Value of such Options. If any shares of Common
Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration
other than cash received therefor will be deemed to be the net
amount received by the Company therefor. If any shares of Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration
received by the Company will be the fair value of such
consideration, except where such consideration consists of publicly
traded securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such
publicly traded securities on the date of receipt of such publicly
traded securities. If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration
other than cash or publicly traded securities will be determined
jointly by the Company and the Required Holders. If such parties
are unable to reach agreement within ten (10) Business 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) Business Day
following the Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the Required Holders.
The determination of such appraiser shall be final and binding upon
all parties absent manifest error and the fees and expenses of such
appraiser shall be borne by the Company. Notwithstanding anything
to the contrary contained herein, if any calculation pursuant to
this Section 7(a)(iv) would result in a dollar value that is lower
than the par value of the Common Stock, then such dollar value
shall be deemed to equal the par value of the Common
Stock.

 

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

 



 

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(vi) No
Readjustments. For the avoidance of doubt, in the event the
Conversion Price has been adjusted pursuant to this Section 7(a)
and the Dilutive Issuance that triggered such adjustment does not
occur, is not consummated, is unwound or is cancelled after the
facts for any reason whatsoever, in no event shall the Conversion
Price be readjusted to the Conversion Price that would have been in
effect if such Dilutive Issuance had not occurred or been
consummated.

 

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

 

(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 Adjustment by
Company. The Company may at any time during the term of this
Note, with the prior written consent of the Required Holders,
reduce the then current Conversion Price to any amount and for any
period of time deemed appropriate by the Board of Directors of the
Company.

 



 

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(8) COMPANY
REDEMPTIONS.

 

(a) General. At any time and from
time to time after the Issuance Date, the Company shall: (i) have
the right to redeem all or any portion of the Conversion Amount
then remaining under this Note and the Other Notes (the
"Company Optional Redemption Amount") as
designated in the applicable Company Optional Redemption Notice on
a Company Optional Redemption Date (each as defined below) (a
"Company Optional
Redemption") and (ii) to the extent the Company or any of
its Subsidiaries consummates a Subsequent Placement (the date of
the consummation of such Subsequent Placement, a "Subsequent Placement Date"), the Company
shall be required to use at least fifty percent (50%) of the gross
proceeds raised in such Subsequent Placement to redeem the
Conversion Amount then remaining under this Note and the Other
Notes (a "Company Mandatory
Redemption Amount") on the applicable Company Mandatory
Redemption Date (as defined below) (a "Company Mandatory Redemption"). The
portion of this Note and the Other Notes subject to redemption
pursuant to this Section 8(a) shall be redeemed by the Company on
the applicable Company Optional Redemption Date (as defined below)
or Company Mandatory Redemption Date, as applicable, in cash by
wire transfer of immediately available funds pursuant to wire
instructions provided by the Holder in writing to the Company at a
price equal to the greater of (x) 100% of the Conversion Amount to
be redeemed and (y) the product of (A) the Conversion Amount being
redeemed and (B) the quotient determined by dividing (I) the
greatest Closing Sale Price of the shares of Common Stock during
the period beginning on the date immediately preceding the Company
Optional Redemption Notice Date (as defined below) or the Company
Mandatory Redemption Notice Date, as the case may be, and ending on
the related Company Optional Redemption Date or Company Mandatory
Redemption Date, as applicable, by (II) the lowest Conversion Price
in effect during such period; provided, however, that this clause (y)
shall equal zero dollars ($0) solely in the event that no Equity
Conditions Failure occurs at any time during period commencing from
the applicable Company Optional Redemption Notice Date or the
Company Mandatory Redemption Notice Date, as the case may be,
through the related Company Optional Redemption Date or Company
Mandatory Redemption Date, as applicable (a "Company Optional Redemption Price" or
"Company Mandatory Redemption
Price", as applicable). The Company may exercise its right
to require a Company Optional Redemption under this Section 8 by
delivering prior written notice thereof fifteen (15) Trading Days
prior to the applicable Company Optional Redemption Date (as
defined below) by facsimile or electronic mail and overnight
courier to the Holder and all, but not less than all, of the
holders of the Other Notes (a "Company Optional Redemption Notice" and
the date all of the holders of the Notes received such notice is
referred to as a "Company Optional
Redemption Notice Date"). The Company shall be required to
effect a Company Mandatory Redemption under this Section 8 by
delivering written notice thereof by no later than the first
(1st)
Trading Day following a Subsequent Placement Date by facsimile or
electronic mail and overnight courier to the Holder and all, but
not less than all, of the holders of the Other Notes (a
"Company Mandatory Redemption
Notice" and the date all of the holders of the Notes
received such notice is referred to as a "Company Mandatory Redemption Notice
Date"). Each Company Optional Redemption Notice and each
Company Mandatory Redemption Notice shall be irrevocable. The
Company may not effect more than five (5) Company Optional
Redemptions. Each Company Optional Redemption Notice shall (i)
state the date on which the applicable Company Optional Redemption
shall occur (a "Company Optional
Redemption Date"), which date shall be fifteen (15) Trading
Days following the applicable Company Optional Redemption Notice
Date or, if such date
falls on a Holiday, the next day that is not a Holiday and (ii)
state the aggregate Conversion Amount of the Notes which the
Company has elected to be subject to Company Optional Redemption
from the Holder and all of the holders of the Other Notes pursuant
to this Section 8(a) (and analogous provisions under the Other
Notes) on such Company Optional Redemption Date. Each Company
Mandatory Redemption Notice shall (i) state the date on which the
applicable Company Mandatory Redemption shall occur (a
"Company Mandatory Redemption
Date"), which date shall be fifteen (15) Trading Days
following the applicable Company Mandatory Redemption Notice
Date or, if such date
falls on a Holiday, the next day that is not a Holiday, (ii) the
gross proceeds raised by the Company or its Subsidiary in the
applicable Subsequent Placement triggering such Company Mandatory
Redemption and the date of the consummation of such Subsequent
Placement and (iii) state the aggregate Conversion Amount of the
Notes which the Company has elected to be subject to Company
Mandatory Redemption from the Holder and all of the holders of the
Other Notes pursuant to this Section 8(a) (and analogous provisions
under the Other Notes) on such Company Mandatory Redemption Date.
Notwithstanding anything to the contrary in this Section 8, until
the applicable Company Optional Redemption Price or Company
Mandatory Redemption Price, as applicable, is paid in full, such
Company Optional Redemption Amount or Company Mandatory Redemption
Amount, as applicable, may be converted, subject to Section 3(d),
in whole or in part, by the Holder into shares of Common Stock
pursuant to Section 3. All Conversion Amounts converted by the
Holder after a Company Optional Redemption Notice Date or Company
Mandatory Redemption Notice Date, as applicable, shall reduce the
Company Optional Redemption Amount or Company Mandatory Redemption
Amount, as applicable, of this Note required to be redeemed on such
Company Optional Redemption Date or Company Mandatory Redemption
Date, as applicable, unless the Holder otherwise indicates in the
applicable Conversion Notice. Company Optional Redemptions and
Company Mandatory Redemptions made pursuant to this Section 8 shall
be made in accordance with Section 11. To the extent redemptions
required by this Section 8 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 contained in
this Note, failure of the Company to comply with any notice
requirement hereunder, including without limitation, the conditions
of the Company Mandatory Redemption Notice, shall not relieve the
Company from any other obligation hereunder, including without
limitation, its obligation to comply with a Company Mandatory
Redemption.

 



 

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(b) Pro Rata Redemption
Requirement. If the Company elects to cause a Company
Optional Redemption or is required to cause a Company Mandatory
Redemption pursuant to Section 8(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 a Company Optional
Redemption, or is required to cause Company Mandatory Redemption,
pursuant to Section 8(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 Company Optional
Redemption Amount of Notes which the Company has elected to cause
to be redeemed, or the aggregate Company Mandatory Redemption
Amount of Notes which the Company is required to redeem, as
applicable, pursuant to Section 8(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 outstanding Notes (such fraction with respect to
each holder is referred to as its "Company Redemption Allocation Percentage", and
such amount with respect to each holder is referred to as its
"Pro Rata Company Redemption
Amount"); provided, however that in the event that
any holder's Pro Rata Company Redemption Amount exceeds the
outstanding Principal amount of such holder's Note, then such
excess Pro Rata Company 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 Company Redemption Allocation Percentage and Pro Rata
Company Redemption Amount.

 



 

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(9) 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.

 

(10) RESERVATION
OF AUTHORIZED SHARES.

 

(a) Reservation. The Company shall
initially reserve out of its authorized and unissued shares of
Common Stock a number of shares of Common Stock for each of this
Note and the Other Notes equal to 200% of the Conversion Rate with
respect to the Conversion Amount of each such Note as of the
Issuance Date. So long
as any of this Note and the Other 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 this Note and the
Other Notes, the number of shares of Common Stock specified above
in this Section 10(a) 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 pursuant
hereto (in each case, without regard to any limitations on
conversions) (the "Required Reserve
Amount"). The initial number of shares of Common Stock
reserved for conversions of this Note and the Other Notes and each
increase in the number of shares so reserved shall be allocated pro
rata among the Holder and the holders of the Other Notes based on
the Principal amount of this Note and the Other 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 this Note or any of such holder's Other 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 Holder and the remaining holders of Other
Notes, pro rata based on the Principal amount of this Note and the
Other 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 Reserve Amount (an
"Authorized Share Failure"),
then the Company shall immediately 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 occurrence of such
Authorized Share Failure, the Company shall either (x) obtain the
written consent of its stockholders for the approval of an increase
in the number of authorized shares of Common Stock and provide each
stockholder with an information statement with respect thereto or
(y) 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. Notwithstanding the foregoing, if during any such time of
an Authorized Share Failure, the Company is able to obtain the
written consent of a majority of the shares of its issued and
outstanding Common Stock to approve the increase in the number of
authorized shares of Common Stock, the Company may satisfy this
obligation by obtaining such consent and submitting for filing with
the SEC an Information Statement on Schedule 14C. If, upon any
conversion of this Note, the Company does not have sufficient
authorized shares to deliver in satisfaction of such conversion,
then unless the Holder elects to rescind such attempted conversion,
the Holder may require the Company to pay to the Holder within
three (3) Trading Days of the applicable attempted conversion, cash
in an amount equal to the product of (i) the number of shares of
Common Stock that the Company is unable to deliver pursuant to this
Section 10, and (ii) the highest Closing Sale Price of the Common
Stock during the period beginning on the date of the applicable
Conversion Date and ending on the date the Company makes the
applicable cash payment.

 



 

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(11) REDEMPTIONS.

 

(a) Mechanics. The Company shall
deliver the applicable Event of Default Redemption Price to the
Holder within three (3) Business Days after the Company's receipt
of the Holder's Event of Default Redemption Notice (the
"Event of Default Redemption
Date"). If the Holder has submitted a Change of Control
Redemption Notice in accordance with Section 5(b), the Company
shall deliver the applicable Change of Control Redemption Price to
the Holder (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 three (3) Business Days
after the Company's receipt of such notice otherwise (such date,
the "Change of Control Redemption
Date"). The Company shall deliver the applicable Company
Optional Redemption Price to the Holder on the applicable Company
Optional Redemption Date. The Company shall deliver the applicable
Company Mandatory Redemption Price to the Holder on the applicable
Company Mandatory Redemption Date. The Company shall pay the
applicable Redemption Price to the Holder in cash by wire transfer
of immediately available funds pursuant to wire instructions
provided by the Holder in writing to the Company on the applicable
due date. In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to
be issued and delivered to the Holder a new Note (in accordance
with Section 18(d)) representing the outstanding Principal which
has not been redeemed and any accrued Interest on such Principal
which shall be calculated as if no Redemption Notice has been
delivered. In the event that the Company does not pay the
applicable Redemption Price to the Holder within the time period
required, at any time thereafter and until the Company pays such
unpaid Redemption Price in full, the Holder shall have the option,
in lieu of redemption, to require the Company to promptly return to
the Holder all or any portion of this Note representing the
Conversion Amount that was submitted for redemption and for which
the applicable Redemption Price 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, and in each case the principal amount of this Note or
such new Note (as the case may be) shall be increased by an amount
equal to the difference between (1) the applicable Redemption Price
(as the case may be, and as adjusted pursuant to this Section 11,
if applicable) minus (2) the Principal portion of the Conversion
Amount submitted for redemption and (z) the Conversion Price of
this Note or such new Notes (as the case may be) shall be
automatically adjusted with respect to each conversion effected
thereafter by the Holder to the lowest of (A) the Conversion Price
as in effect on the date on which the applicable Redemption Notice
is voided (B) 85% of the lowest Closing Bid Price of the Common
Stock during the period beginning on and including the date on
which the applicable Redemption Notice is delivered to the Company
and ending on and including the date on which the applicable
Redemption Notice is voided and (C) 85% of the quotient of (I) the
sum of the five (5) lowest Weighted Average Prices of the Common
Stock during the twenty (20) consecutive Trading Day period ending
on and including the Trading Day immediately preceding the
applicable Conversion Date divided by (II) five (5).

 



 

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(b) Redemption by Other Holders.
Upon the Company's receipt of notice from any of the holders of the
Other Notes for redemption or repayment as a result of an event or
occurrence substantially similar to the events or occurrences
described in Section 4(b) or Section 5(b) or pursuant to equivalent
provisions set forth in the Other Notes (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 or electronic
mail 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 the Holder and each holder of the Other Notes based on
the Principal amount of this Note and the Other Notes submitted for
redemption pursuant to such Redemption Notice and such Other
Redemption Notices received by the Company during such seven (7)
Business Day period.

 

(c) Insufficient Assets. If upon a
Redemption Date, the assets of the Company are insufficient to pay
the applicable Redemption Price, the Company shall (i) take all
appropriate action reasonably within its means to maximize the
assets available for paying the applicable Redemption Price, (ii)
redeem out of all such assets available therefor on the applicable
Redemption Date the maximum possible portion of the applicable
Redemption Price that it can redeem on such date, pro rata among
the Holder and the holders of the Other Notes to be redeemed in
proportion to the aggregate Principal amount of this Note and the
Other Notes outstanding on the applicable Redemption Date and (iii)
following the applicable Redemption Date, at any time and from time
to time when additional assets of the Company become available to
pay the balance of the applicable Redemption Price of this Note and
the Other Notes, the Company shall use such assets, at the end of
the then current fiscal quarter, to pay the balance of such
Redemption Price of this Note and the Other Notes, or such portion
thereof for which assets are then available, on the basis set forth
above at the applicable Redemption Price, and such assets will not
be used prior to the end of such fiscal quarter for any other
purpose. Interest on the Principal amount of this Note and the
Other Notes that have not been redeemed shall continue to accrue
until such time as the Company redeems this Note and the Other
Notes. The Company shall pay to the Holder the applicable
Redemption Price without regard to the legal availability of funds
unless expressly prohibited by applicable law or unless the payment
of the applicable Redemption Price could reasonably be expected to
result in personal liability to the directors of the
Company.

 



 

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(12) VOTING
RIGHTS. The Holder shall have no voting rights as the holder
of this Note, except as required by law and as expressly provided
in this Note.

 

(13) RANK.
All payments due under this Note (a) shall rank pari passu with all Other Notes and (b)
except for Permitted Indebtedness, shall be senior to all other
Indebtedness of the Company and its Subsidiaries.

 

(14) NEGATIVE
COVENANTS. Until all of the Notes have been converted,
redeemed or otherwise satisfied in accordance with their terms, the
Company shall not, and the Company shall not permit any of its
Subsidiaries without the prior written consent of the Required
Holders to, directly or indirectly:

 

(a) incur or guarantee,
assume or suffer to exist any Indebtedness, other than Permitted
Indebtedness;

 

(b) 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;

 

(c) 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 this Note and the Other Notes), whether by way of
payment in respect of principal of (or premium, if any) or interest
on, such Indebtedness if at the time such payment is due or is
otherwise made or, after giving effect to such payment, an event
constituting, or that with the passage of time and without being
cured would constitute, an Event of Default has occurred and is
continuing;

 

(d) 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
(including, without limitation Permitted Indebtedness other than
this Note and the Other Notes), by way of payment in respect of
principal of (or premium, if any) such Indebtedness. For clarity,
such restriction shall not preclude the payment of regularly
scheduled interest payments which may accrue under such Permitted
Indebtedness;

 

(e) redeem or
repurchase its Equity Interest (except on a pro rata basis among
all holders thereof);

 

(f) declare or pay any
cash dividend or distribution on any Equity Interest of the Company
or of its Subsidiaries;

 



 

-23-







 





 

(g) 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 or modify its corporate structure or purpose;
or

 

(h) encumber
or allow any Liens on, any of its owned or licensed copyright
rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether
published or unpublished, any patents, patent applications and like
protections, including improvements, divisions, continuations,
renewals, reissues, extensions, and continuations-in-part of the
same, trademarks, service marks and, to the extent permitted under
applicable law, any applications therefor, whether registered or
not, and the goodwill of the business of the Company and its
Subsidiaries connected with and symbolized thereby, know-how,
operating manuals, trade secret rights, rights to unpatented
inventions, and any claims for damage by way of any past, present,
or future infringement of any of the foregoing, in each case, other
than Permitted Liens; or

 

(i) 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 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.

 

(15) AFFIRMATIVE
COVENANTS. Until all
of the Notes have been converted, redeemed or otherwise satisfied
in accordance with their terms, the Company shall, and the Company
shall cause each Subsidiary to, directly or
indirectly:

 

(a) 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,
except for any failures that would not reasonably be expected to
result in a Material Adverse Effect;

 

(b) 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; except for any failures that would not
reasonably be expected to result in a Material Adverse Effect
and

 

(c) maintain, insurance
in such amounts and covering such risks as is required by any
governmental authority having jurisdiction with respect thereto or
as is carried generally in accordance with reasonable business
practice by companies in similar businesses similarly
situated.

 



 

-24-







 





 

(16) VOTE
TO ISSUE, OR CHANGE THE TERMS OF, NOTES; MFN. Any provision
of this Note may be changed or amended with the prior written
consent of the Holder and the Company, and any provision of this
Note may be waived with the prior written consent of the Holder. In
addition, the affirmative vote of the Required Holders 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 or waiver of any provision of all Notes (including this
Note and all Other Notes). Any change or amendment by the Company
and the Required Holders, and any waiver by the Required Holders,
shall be binding all holders of Notes (including the Holder of this
Note and all Other Notes). The Company hereby covenants and agrees
that if, and whenever on or after the date hereof, the Company
amends or modifies any term of any of the Notes held by any Person
(each document amending such terms, an "Amendment Document"), then (i) the
Company shall provide notice thereof to the Holder immediately
following the occurrence thereof and (ii) the terms and conditions
of this Note shall be, without any further action by the Holder or
the Company, automatically amended and modified in an economically
and legally equivalent manner such that the Holder shall receive
the benefit of such amended or modified terms and/or conditions (as
the case may be) set forth in such Amendment Document, provided
that upon written notice to the Company at any time the Holder may
elect not to accept the benefit of any such amended or modified
term or condition, in which event the term or condition contained
in this Note shall apply to the Holder as it was in effect
immediately prior to such amendment or modification as if such
amendment or modification never occurred with respect to the
Holder. The provisions of the foregoing sentence shall apply
similarly and equally to each Amendment Document

 

(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)
and subject to Section 3(c)(iii)), registered as the Holder may
request, representing the outstanding Principal being transferred
by the Holder and, if less than the entire outstanding Principal is
being transferred, a new Note (in accordance with Section 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, 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.

 

(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.

 



 

-25-







 





 

(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) 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 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,
redemption 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) 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.

 

(21) CONSTRUCTION;
HEADINGS. This Note shall be deemed to be jointly drafted by
the Company and all the purchasers of the Notes pursuant to the
Securities Purchase Agreement (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.

 



 

-26-







 





 

(22) 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.

 

(23) DISPUTE
RESOLUTION. In the case of a dispute as to the determination
of the Closing Bid Price or the Closing Sale Price or the
arithmetic calculation of the Conversion Rate, the Conversion Price
or any Redemption Price, the Company shall submit the disputed
determinations or arithmetic calculations via facsimile or
electronic mail 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 or electronic mail (a) the disputed
determination of the Closing Bid Price or the Closing Sale Price to
an independent, reputable investment bank selected by the Holder
and approved by the Company, such approval not to be unreasonably
withheld, conditioned or delayed, or (b) the disputed arithmetic
calculation of the Conversion Rate, Conversion Price or any
Redemption Price to an independent, outside accountant, selected by
the Holder and approved by the Company, such approval not to be
unreasonably withheld, conditioned or delayed. 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.

 

(24) 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 shall 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 five (5) 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.

 



 

-27-







 





 

(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. Any amount of Principal or other amounts due under
the Transaction Documents which is not paid when due shall result
in a late charge being incurred and payable by the Company in an
amount equal to interest on such amount at the rate of five percent
(5.0%) per annum from the date such amount was due until the same
is paid in full ("Late
Charge").

 

(25) 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.

 

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

 

(27) GOVERNING
LAW; JURISDICTION; JURY
TRIAL. 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. 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
set forth in Section 9(f) of the Securities Purchase Agreement and
agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in
any manner permitted by law. 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.

 



 

-28-







 





 

(28) 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 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).

 

(29) 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 the 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.

 

(30) USURY.
This Note is subject to the express condition that at no time shall
the Company be obligated or required to pay interest hereunder at a
rate or in an amount which could subject the Holder to either civil
or criminal liability as a result of being in excess of the maximum
interest rate or amount which the Company is permitted by
applicable law to contract or agree to pay. If by the terms of this
Note, the Company is at any time required or obligated to pay
interest hereunder at a rate or in an amount in excess of such
maximum rate or amount, the rate or amount of interest under this
Note shall be deemed to be immediately reduced to such maximum rate
or amount and the interest payable shall be computed at such
maximum rate or be in such maximum amount and all prior interest
payments in excess of such maximum rate or amount shall be applied
and shall be deemed to have been payments in reduction of the
principal balance of this Note.

 

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

 

(a) "Affiliate" means, with respect to any
Person, any other Person that directly or indirectly controls, is
controlled by, or is under common control with, such Person, it
being understood for purposes of this definition that "control" of
a Person means the power directly or indirectly either to vote 10%
or more of the stock having ordinary voting power for the election
of directors of such Person or direct or cause the direction of the
management and policies of such Person whether by contract or
otherwise.

 



 

-29-







 





 

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

 

(c) "Attribution Parties" means,
collectively, the following Persons and entities: (i) any
investment vehicle, including, any funds, feeder funds or managed
accounts, currently, or from time to time after the Issuance Date,
directly or indirectly managed or advised by the Holder's
investment manager or any of its Affiliates or principals, (ii) any
direct or indirect Affiliates of the Holder or any of the
foregoing, (iii) any Person acting or who could be deemed to be
acting as a Group together with the Holder or any of the foregoing
and (iv) any other Persons whose beneficial ownership of the
Company's Common Stock would or could be aggregated with the
Holder's and the other Attribution Parties for purposes of Section
13(d) of the Exchange Act. For clarity, the purpose of the
foregoing is to subject collectively the Holder and all other
Attribution Parties to the Maximum Percentage.

 

(d) "Bloomberg" means Bloomberg Financial
Markets.

 

(e) "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.

 

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

 

(g) "Closing Bid Price" and "Closing Sale Price" means, for any
security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on the
Principal Market, as reported by Bloomberg, or, if the Principal
Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price, as the
case may be, then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m., New York
Time, as reported by Bloomberg, or, if the Principal Market is not
the principal securities exchange or trading market for such
security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange
or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no closing
bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask
prices, respectively, of any market makers for such security as
reported in the OTC Link or "pink sheets" by OTC Markets Group Inc.
(formerly Pink OTC Markets Inc.). If the Closing Bid Price or the
Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid
Price or the Closing Sale Price, as the case may be, of such
security on such date shall be the fair market value as mutually
determined by the Company and the Holder. 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
23. All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination, reclassification or
similar transaction during the applicable calculation
period.

 



 

-30-







 





 

(h) "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.

 

(i) "Common Stock" means (i) the
Company's shares of Common Stock, par value $0.001 per share, and
(ii) any share capital into which such Common Stock shall have
been changed or any share capital resulting from a reclassification
of such Common Stock.

 

(j) "Common Stock Equivalents" means,
collectively, Options and Convertible Securities.

 

(k) "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.

 

(l) "Convertible Securities" means any stock
or securities (other than Options) directly or indirectly
convertible into or exercisable or exchangeable for shares of
Common Stock.

 

(m) "Default Rate" means 10.0% per
annum.

 

(n) "Eligible Market" means the Principal
Market, The New York Stock Exchange, the NYSE American, the Nasdaq
Global Market, the Nasdaq Global Select Market, the Nasdaq Capital
Market or the OTC QX.

 



 

-31-







 





 

(o) "Equity
Conditions" means
each of the following conditions: (i) on each day during the
applicable Equity Conditions Measuring Period, either (x) all
Registration Statements filed and required to be filed pursuant to
the Registration Rights Agreement shall be effective and available
for the resale of all remaining Registrable Securities including
the shares of Common Stock issuable upon conversion of the
Conversion Amount that is subject to the applicable Company
Optional Redemption or Company Mandatory Redemption, as applicable,
requiring the satisfaction of the Equity Conditions, 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
Conversion Shares issuable pursuant to the terms of this Note and
the Other Notes and exercise of the Warrants, including the shares
of Common Stock issuable upon conversion of the Conversion Amount
that is subject to the applicable Company Optional Redemption or
Company Mandatory Redemption, as applicable, requiring the
satisfaction of the Equity Conditions, shall be eligible for sale
without restriction or limitation pursuant to Rule 144 (assuming
that all Warrant Shares were issued pursuant to a Cashless Exercise
(as defined in the Warrants) 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, commenced 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 Conversion
Shares pursuant to the terms of this Note and the Other Notes and
Warrant Shares upon exercise of the Warrants to the holders on a
timely basis as set forth in Section 3(c) hereof (and analogous
provisions under the Other Notes) and Section 1(a) of the Warrants;
(iv) the shares of Common Stock issuable
upon conversion of the Conversion Amount that is subject to the
applicable Company Optional Redemption or Company Mandatory
Redemption, as applicable, requiring the satisfaction of the Equity
Conditions may be
issued in full without violating Section 3(d) hereof and the rules
or regulations of the Principal Market or any other applicable
Eligible Market; (v) during the Equity Conditions Measuring Period,
the Company shall not have failed to timely make any payments
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, (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, including the
shares of Common Stock issuable upon conversion of the Conversion
Amount that is subject to the applicable Company Optional or
Company Mandatory Redemption, as applicable, Redemption requiring
the satisfaction of the Equity Conditions, in accordance with the
terms of the Registration Rights Agreement or (y) any shares of
Common Stock issuable pursuant to the terms of this Note and the
Other Notes and shares of Common Stock issuable upon exercise of
the Warrants, including the shares of Common Stock issuable upon
conversion of the Conversion Amount that is subject to the
applicable Company Optional Redemption or Company Mandatory
Redemption, as applicable, requiring the satisfaction of the Equity
Conditions, not to be eligible for sale without restriction or
limitation pursuant to Rule 144 and without the requirement to be
in compliance with Rule 144(c)(1) (or any successor thereto)
promulgated under the Securities Act and any applicable state
securities laws; (viii) during the Equity Conditions Measuring
Period, the Company otherwise shall have been in compliance with
and shall not have breached any provision, covenant, representation
or warranty of any Transaction Document; (ix) the Holder shall not
be in possession of any material, nonpublic information received
from the Company, any Subsidiary or its respective agent or
affiliates; and (x) the shares of Common Stock
issuable upon conversion of the Conversion Amount that is subject
to the applicable Company Optional Redemption or Company Mandatory
Redemption, as applicable, requiring the satisfaction of the Equity
Conditions are duly
authorized and listed and eligible for trading without restriction
on an Eligible Market.

 



 

-32-







 





 

(p) "Equity Conditions
Failure" means that
on any applicable date of determination, the Equity Conditions have
not each been satisfied (or waived in writing by the
Holder).

 

(q) "Equity Conditions
Measuring Period"
means each day during the period beginning thirty (30) Trading Days
prior to the applicable date of determination and ending on and
including the applicable date of determination.

 

(r) "Equity Interests" means (a) all shares
of capital stock (whether denominated as common capital stock or
preferred capital stock), equity interests, beneficial, partnership
or membership interests, joint venture interests, participations or
other ownership or profit interests in or equivalents (regardless
of how designated) of or in a Person (other than an individual),
whether voting or non-voting and (b) all securities convertible
into or exchangeable for any of the foregoing and all warrants,
Options or other rights to purchase, subscribe for or otherwise
acquire any of the foregoing, whether or not presently convertible,
exchangeable or exercisable.

 

(s) "Exchange Act" means the Securities
Exchange Act of 1934, as amended.

 

(t) "Excluded
Securities" means
any shares of Common Stock issued or issuable: (i) in connection
with any Approved Stock Plan; (ii) pursuant to the terms of the
Notes or upon the exercise of the Warrants; provided that the terms
of such Notes or Warrants are not amended, modified or changed on
or after the Subscription Date; and (iii) upon conversion or
exercise of any Options or Convertible Securities which are
outstanding on the day immediately preceding the Subscription
Date, provided
that the terms of such
Options or Convertible Securities are not amended, modified or
changed on or after the Subscription Date.

 



 

-33-







 





 

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

 



 

-34-







 





 

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

 

(w) "Group" means a "group" as that term is
used in Section 13(d) of the Exchange Act and as defined in Rule
13d-5 thereunder.

 

(x) "Holiday" means a day other than a
Business Day or on which trading does not take place on the
Principal Market.

 

(y) "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
consistent with past practice), (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, deed of trust, lien, pledge, charge,
security interest or other encumbrance of any nature whatsoever in
or upon any property or assets (including accounts and contract
rights) with respect to any asset or property 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.

 

(z) "Option
Value" means the
value of an Option based on the Black and Scholes Option Pricing
model obtained from the "OV" function on Bloomberg determined as of
(A) the Trading Day prior to the public announcement of the
applicable Option if the issuance of such Option is publicly
announced or (B) the Trading Day immediately following the issuance
of the applicable Option if the issuance of such Option is not
publicly announced, for pricing purposes and reflecting (i) a
risk-free interest rate corresponding to the U.S. Treasury rate for
a period equal to the remaining term of the applicable Option as of
the applicable date of determination, (ii) an expected volatility
equal to the greater of 100% and the 100 day volatility obtained
from the HVT function on Bloomberg as of the day immediately
following the public announcement of (A) the Trading Day
immediately following the public announcement of the applicable
Option if the issuance of such Option is publicly announced or (B)
the Trading Day immediately following the issuance of the
applicable Option if the issuance of such Option is not publicly
announced, (iii) (iii) the underlying price per share used in such
calculation shall be the highest Weighted Average Price of the
Common Stock during the period beginning on the Trading Day prior
to the execution of definitive documentation relating to the
issuance of the applicable Option and ending on (A) the Trading Day
immediately following the public announcement of such issuance, if
the issuance of such Option is publicly announced or (B) the
Trading Day immediately following the issuance of the applicable
Option if the issuance of such Option is not publicly announced,
(iv) a zero cost of borrow and (v) a 360 day annualization
factor.

 



 

-35-







 





 

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

 

(bb) "Parent
Entity" of a Person means an entity that, directly or
indirectly, controls the applicable Person, including such entity
whose common capital stock or equivalent equity security is quoted
or listed on an Eligible Market (or, if so elected by the Required
Holders, any other market, exchange or quotation system), or, if
there is more than one such Person or such entity, the Person or
entity designated by the Required Holders or in the absence of such
designation, such Person or such entity with the largest public
market capitalization as of the date of consummation of the
Fundamental Transaction.

 

(cc) "Permitted
Indebtedness" means (i) Indebtedness evidenced by this Note
and the Other Notes, (ii) trade payables incurred in the ordinary
course of business consistent with past practice, and (iii)
Indebtedness secured by Permitted Liens described in clauses (iv)
and (v) of the definition of Permitted Liens.

 

(dd) "Permitted
Liens" means (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate
proceedings for which adequate reserves have been established in
accordance with GAAP, (ii) any statutory Lien arising in the
ordinary course of business by operation of law with respect to a
liability that is not yet due or delinquent, (iii) any Lien created
by operation of law, such as materialmen's liens, mechanics' liens
and other similar liens, arising in the ordinary course of business
with respect to a liability that is not yet due or delinquent or
that are being contested in good faith by appropriate proceedings,
(iv) Liens (A) upon or in any equipment acquired or held by the
Company or any of its Subsidiaries to secure the purchase price of
such equipment or Indebtedness incurred solely for the purpose of
financing the acquisition or lease of such equipment, or (B)
existing on such equipment at the time of its acquisition, provided
that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such equipment, (v) Liens
incurred in connection with the extension, renewal or refinancing
of the Indebtedness secured by Liens of the type described in
clause (iv) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the Indebtedness being
extended, renewed or refinanced does not increase, (vi) leases or
subleases and licenses and sublicenses granted to others in the
ordinary course of the Company's business, not interfering in any
material respect with the business of the Company and its
Subsidiaries taken as a whole, (vii) Liens in favor of customs
and revenue authorities arising as a matter of law to secure
payments of custom duties in connection with the importation of
goods, and (viii) Liens arising
from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Section
4(a)(ix).

 

(ee) "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.

 

(ff) "Principal
Market" means the OTC QB.

 

(gg) "Redemption
Dates" means, collectively, the Event of Default Redemption
Dates, the Change of Control Redemption Dates, the Company Optional
Redemption Dates and the Company Mandatory
Redemption Dates, as applicable,, each of the foregoing,
individually, a Redemption Date.

 



 

-36-







 





 

(hh) "Redemption
Notices" means, collectively, the Event of Default
Redemption Notices, the Change of Control Redemption Notices, the
Company Optional Redemption Notices and Company Mandatory
Redemption Notices, as applicable, each of the foregoing,
individually, a Redemption Notice.

 

(ii) "Redemption
Prices" means, collectively, the Event of Default Redemption
Prices, the Change of Control Redemption Prices, the Company
Optional Redemption Prices and the Company Mandatory
Redemption Prices, as applicable, each of the foregoing,
individually, a Redemption Price.

 

(jj) "Registrable
Securities" shall
have the meaning ascribed to such term in the Registration Rights
Agreement.

 

(kk) "Registration
Rights Agreement"
means that certain registration rights agreement dated as of the
Subscription Date by and among the Company and the Purchasers
relating to, among other things, the registration of the resale of
the shares of Common Stock issuable upon conversion of this Note
and the Other Notes and exercise of the
Warrants.

 

(ll) "Registration
Statement" shall
have the meaning ascribed to such term in the Registration Rights
Agreement.

 

(mm) "Related
Fund" means, with respect to any Person, a fund or account
managed by such Person or an Affiliate of such Person.

 

(nn) "Required
Holders" means the holders of Notes representing at least a
majority of the aggregate principal amount of the Notes then
outstanding and shall include (i) Empery Asset Management, LP so
long as Empery Asset Management, LP or any of its Affiliates holds
any Notes and (ii) Ayrton Capital LLC so long as Ayrton Capital LLC
or any of its Affiliates holds any Notes.

 

(oo) "SEC"
means the United States Securities and Exchange
Commission.

 

(pp) "Securities
Purchase Agreement" means that certain securities purchase
agreement dated as of the Subscription Date by and among the
Company and the Purchasers of the Notes pursuant to which the
Company issued the Notes and Warrants.

 

(i) "Standard Settlement Period" means the
standard settlement period, expressed in a number of Trading Days,
on the Company's primary trading market with respect to the Common
Stock as in effect on the date of delivery of the applicable
Conversion Notice.

 

(qq) "Subject
Entity" means any Person, Persons or Group or any Affiliate
or associate of any such Person, Persons or Group.

 

(rr) "Subsequent
Placement" means any direct or indirect, offer, sale, grant
any option to purchase, or other disposition of any of its or its
Subsidiaries' equity or equity equivalent securities, including
without limitation any debt, preferred stock or other instrument or
security whether or not such security is, at any time during its
life and under any circumstances, convertible into or exchangeable
or exercisable for Common Stock or Common Stock
Equivalents.

 



 

-37-







 





 

(ss) "Subscription
Date" means January 22, 2018.

 

(tt) "Subsidiary"
has the meaning ascribed to such term in the Securities Purchase
Agreement.

 

(uu) "Successor
Entity" means one or more Person or Persons (or, if so
elected by the Required Holders, the Company or Parent Entity)
formed by, resulting from or surviving any Fundamental Transaction
or one or more Person or Persons (or, if so elected by the Required
Holders, the Company or the Parent Entity) with which such
Fundamental Transaction shall have been entered into.

 

(i) "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 on such day, then on the principal securities exchange or
securities market on which the Common Stock is then
traded.

 

(vv) "Transaction
Document" has the meaning ascribed to such term in the
Securities Purchase Agreement.

 

(ww) "Warrant
Shares" means shares
of Common Stock issuable by the Company upon the exercise of any of
the Warrants.

 

(xx) "Warrants"
has the meaning ascribed to such term in the Securities Purchase
Agreement, and shall include all warrants issued in exchange
therefor or replacement thereof.

 

(yy) "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" function or, if the
foregoing does not apply, the dollar volume-weighted average price
of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at
9:30:01 a.m., New York 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
OTC Link or "pink sheets" by OTC Markets Group Inc. (formerly Pink
OTC Markets 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 23 with the term
"Weighted Average Price" being substituted for the term "Exercise
Price." All such determinations shall be appropriately adjusted for
any stock dividend, stock split, stock combination,
reclassification or other similar transaction during the applicable
calculation period.

 


[Signature
Page Follows]

 


 

 




 

-38-








 






 


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

 


 


	


GT Biopharma, Inc.


 


	

By: 


	

Name:


	

Title:







 


 


 




 

-39-








 










 



EXHIBIT I


 


GT
BIOPHARAMA, INC.


 

 



CONVERSION NOTICE

 


Reference
is made to the Senior Convertible Note (the "Note") issued to the undersigned by GT
Biopharma, Inc., a Delaware 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 or number of Conversion Shares to
be issued upon conversion:

	
 


	

Please
confirm the following information:


	

Conversion
Price:

	
 


	

If
Aggregate Conversion Amount is provided above, 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
and Electronic Mail:

	
 


	

Authorization:

	
 


	

By:

	
 


	

Title:

	
 


	

Dated:

	
 


	

Account
Number:

	
 


	

  (if
electronic book entry transfer)

	
 


	

Transaction Code
Number:

	
 


	

  (if
electronic book entry transfer)

	
 







 




 

-40-








 










 



ACKNOWLEDGMENT

 


The
Company hereby acknowledges this Conversion Notice and hereby
directs ComputerShare Trust Company, N.A. to issue the above
indicated number of shares of Common Stock in accordance with the
Transfer Agent Instructions dated January __, 2018 from the
Company and acknowledged and agreed to by ComputerShare Trust
Company, N.A.

 


 


	


GT Biopharma, Inc.


 


	

By: 


	

Name:


	

Title:







 


 


 


 


 




 

-41-