Exhibit 4.5


 


Unless this certificate is presented by an
authorized representative of The Depository Trust Company, a New York
corporation (“DTC”), to the issuer or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such
other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.


 


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, 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 19(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.


 


CONTINGENT CONVERTIBLE
SUBORDINATED NOTE


 


	
  Date: December 15, 2005

  	
   

  	
  Principal: Up to an Aggregate Amount of U.S. $50,000,000

  



 


CUSIP: 26882D AB 5


 


FOR VALUE
RECEIVED, EPIQ
SYSTEMS, INC., a Missouri corporation (the “Company”),
hereby promises to pay to the order of CEDE & CO. or registered assigns (“Holder”) the amount set out above as the
Principal (as reduced pursuant to the terms hereof pursuant to redemption,
conversion or otherwise, the “Principal”)
when due, whether upon the


 


1

















 


Maturity Date (as defined below), acceleration, redemption or otherwise
(in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at
the rate of 4.00% per annum, subject to periodic adjustment pursuant to Section
2 (the “Interest Rate”), from the
date set out above as the Issuance Date (the “Issuance
Date”) until the same becomes due and payable, whether upon an
Interest Date (as defined below), the Maturity Date, acceleration, conversion,
redemption or otherwise (in each case in accordance with the terms hereof). This
Contingent Convertible Subordinated Note (including all Contingent Convertible
Subordinated Notes issued in exchange, transfer or replacement hereof, this “Note”) is one of an issue of Contingent
Convertible Subordinated Notes (collectively, the “Notes” and such other Contingent Convertible Subordinated
Notes, the “Other Notes”) issued
on the Issuance Date pursuant to the Securities Purchase Agreement (as defined
below). Certain capitalized terms are defined in Section 29.


 


(1)           MATURITY. On the Maturity Date, the Holder shall
surrender this Note to the Company and the Company shall pay to the Holder an
amount in cash representing all outstanding Principal, accrued and unpaid
Interest and accrued and unpaid Late Charges, if any. The “Original Maturity Date” shall be June 15,
2007, as may be extended in accordance with Section 8 hereof or as 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 or
any event shall have occurred and be continuing which 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 days after the consummation of a Change of Control (as
defined in Section 5(a)) in the event that a Change of Control is publicly
announced or a Change of Control Notice (as defined in Section 5(a)) is
delivered prior to the Maturity Date (as may be extended, the “Maturity Date”).


 


(2)           INTEREST; INTEREST RATE. Interest on this Note
shall commence accruing on the Issuance Date and shall be computed on the basis
of a 365-day year and actual days elapsed and shall be payable in arrears on
the first day of each Calendar Quarter and on the Maturity Date during the
period beginning on the Issuance Date and ending on, and including, the
Maturity Date (each, an “Interest Date”)
with the first Interest Date being July 1, 2004. Interest shall be payable on
each Interest Date in cash. From and after the occurrence of an Event of
Default, the Interest Rate shall be increased to 11%. In the event that such
Event of Default is subsequently cured, the adjustment referred to in the
preceding sentence shall cease to be effective as of the date of such cure;
provided that the Interest as calculated at such increased rate during the
continuance of such Event of Default shall continue to apply to the extent
relating to the days after the occurrence of such Event of Default through and
including the date of cure of such Event of Default.


 


(3)           CONVERSION OF NOTES. This Note shall be convertible
into shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), on the terms and
conditions set forth in this Section 3.


 


(a)           Conversion Right. (i)  Subject to the provisions of Section 3(d), at
any time or times on or after the Issuance Date, the Holder shall be entitled
to convert any portion of the outstanding and unpaid Conversion Amount (as
defined below) in increments of at least $100,000 of Principal (or such lesser
amount if such amount represents the remaining


 


2

















 


Principal 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 or similar taxes that may be payable with respect to the
issuance and delivery of Common Stock upon conversion of any Conversion Amount.


 


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


 


(i)            “Conversion Amount”
means the portion of the Principal to be converted, redeemed or otherwise with
respect to which this determination is being made.


 


(ii)           “Conversion Price”
means, as of any Conversion Date (as defined below) or other date of
determination, and subject to adjustment as provided herein, $17.50.


 


(c)           Mechanics of Conversion.


 


(i)            Optional Conversion. To convert any Conversion
Amount into shares of Common Stock on any date (a “Conversion Date”), the Holder shall (A) transmit by facsimile
(or otherwise deliver), for receipt on or prior to 4:59 p.m., New York Time, on
such date, a copy of a duly executed and completed notice of conversion in good
order in the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B)
if required by Section 3(c)(iii), surrender this Note to a common carrier for
delivery to the Company as soon as practicable on or following such date (or an
indemnification undertaking in form and substance reasonably acceptable to the
Company with respect to this Note in the case of its loss, theft or
destruction). On or before the first Business Day following the date of receipt
of a Conversion Notice, the Company shall transmit by facsimile a confirmation
of receipt of such Conversion Notice to the Holder and the Company’s transfer
agent (the “Transfer Agent”). On
or before the third Business Day following the date of receipt of a Conversion
Notice (the “Share Delivery Date”),
the Company shall (X) 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 Depository Trust Company (“DTC”)
through its Deposit Withdrawal Agent Commission system or (Y) if the Transfer
Agent is not participating in 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 Business Days after
receipt of this Note and at its own expense, issue and deliver to the holder a
new Note (in accordance with Section 19(d)) representing the outstanding


 


3

















 


Principal not converted. The
Person or Persons entitled to receive the shares of Common Stock issuable upon
a conversion of this Note shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on the Conversion Date.


 


(ii)           Company’s Failure to Timely Convert. If the Company
shall fail to issue a certificate to the Holder or credit the Holder’s balance
account with DTC for the number of shares of Common Stock to which the Holder
is entitled upon conversion of any Conversion Amount on or prior to the date
which is three Trading Days after the Conversion Date, and if after such
third Trading Day the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the shares of Common Stock that the Holder anticipated receiving from
the Company pursuant hereto (a “Buy-In”),
then the Company shall, within three Trading Days after the Holder’s request
and in the Holder’s discretion, either (i) pay cash to the Holder in an amount
equal to the Holder’s total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s
obligation to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing
Sale Price on the date of the event giving rise to the Company’s obligation to
deliver such certificate. If the
Company shall fail to issue a certificate to the Holder or credit the Holder’s
balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon conversion of any Conversion Amount on or prior to the
date which is five Business Days after the Conversion Date (a “Conversion Failure”), then (A) the Company
shall pay damages to the Holder for each date of such Conversion Failure in an
amount equal to 1.0% of the
product of (I) 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 (II) the Closing Sale Price of the Common Stock on the Share
Delivery Date and (B) the Holder, upon written notice to the Company, may void
its Conversion Notice with respect to, and retain or have returned, as the case
may be, any portion of this Note that has not been converted pursuant to such
Conversion Notice; provided that the voiding of a Conversion Notice shall not
affect the Company’s obligations to make any payments which have accrued prior
to the date of such notice pursuant to this Section 3(c)(ii) or otherwise.


 


(iii)          Book-Entry. 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 physical surrender and reissue of this Note. The Holder and the
Company shall maintain records showing the Principal, Interest and Late Charges
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.


 


4

















 


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


 


(d)           Limitations on Conversions.


 


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


 


5

















 


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


 


(iii)          Contingent Convertibility. Notwithstanding the
foregoing, this Note shall only be convertible: (v) during the period
commencing on the Issuance Date and terminating on January 14, 2005, at any
time after the arithmetic average of the Weighted Average Price of the Common
Stock equals or exceeds 110% of the then applicable Conversion Price for ten
(10) consecutive Trading Days; (w) from and after January 15, 2005, if the
Weighted Average Price of the Common Stock equals or exceeds 110% of the then
applicable Conversion Price on any five (5) consecutive Trading Days during any
calendar year; (x) from and after the Issuance Date, if the Weighted Average
Price of the Common Stock is less than $10.75 (the “Minimum Price”) (subject to adjustment as provided herein) on
any five (5) consecutive Trading Days; (y) if there shall have occurred (A) the
public announcement of a pending, proposed or intended Change of Control that
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, and assuming it
were not cured, would constitute an Event of Default; or (z) upon receipt of a
Mandatory Conversion Notice.


 


6

















 


(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
declared effective by the SEC on or prior to the date that is 60 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 (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and such lapse
or unavailability continues for a period of 10 consecutive Trading Days or for
more than an aggregate of 30 Trading Days in any 365-day period (other than
days during an Allowable Grace Period (as defined in the Registration Rights
Agreement));


 


(ii)           the suspension from trading or failure of the Common Stock
to be listed on the Principal Market or The New York Stock Exchange, Inc. for a
period of five consecutive Trading Days or for more than an aggregate of seven
Trading Days in any 365-day period;


 


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


 


(iv)          at any time following the tenth consecutive Business Day
that the Holder’s Authorized Share Allocation is less than 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);


 


(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, the Securities Purchase Agreement, the Registration Rights Agreement or
any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated hereby and thereby to which the
Holder is a party, except, in the case of a failure to pay Interest, Late
Charges or amount other than Principal when and as due, in which case only if
such failure continues for a period of at least five Business Days;


 


7

















 


(vi)          any default under or acceleration prior to maturity of any
Indebtedness (as defined below) of the Company or any of its Subsidiaries (as
defined in Section 3(a) of the Securities Purchase Agreement) with an unpaid
principal amount in excess of $1,000,000 at the time of such acceleration other
than with respect to any Other Notes; provided that in the case of a payment
default of such Indebtedness, such default is not cured within applicable cure
periods; further provided that in the case of a non-payment default of such
Indebtedness that has not resulted in an acceleration of such Indebtedness
prior to its maturity, only upon acceleration 
of such Indebtedness;


 


(vii)         the Company or any of its Subsidiaries, pursuant to or
within the meaning of Title 11, U.S. Code, or any similar Federal 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;


 


(ix)           a final judgment or judgments for the payment of money
aggregating in excess of $1,000,000 are rendered against the Company or any of
its Subsidiaries and which judgments are not, within 60 days after the entry
thereof, bonded, discharged or stayed pending appeal, or are not discharged
within 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 $1,000,000 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 30 days of the issuance of such judgment;


 


(x)            the Company materially breaches any representation,
warranty, covenant or other term or condition of the Securities Purchase
Agreement, the Registration Rights Agreement, this Note, the Other Notes, or
any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby and hereby to which the
Holder is a party, except, in the case of a breach of a covenant or other term
or condition which is curable, only if such breach continues for a period of at
least ten (10) consecutive Business Days;


 


(xi)           any breach or failure in any respect to comply with
Section 15 of this Note;


 


(xii)          any Event of Default (as defined in the Other Notes) occurs
with respect to any Other Notes; or


 


8

















 


(xiii)         either of (x) the Total Debt to Total
Capitalization Ratio shall exceed .60:1.00 or (y) the Total Debt to EBITDA
Ratio shall exceed 4.00:1.00.


 


(b)           Redemption Right. Promptly after the occurrence of
an Event of Default with respect to this Note or any Other Note, the Company
shall deliver written notice thereof via facsimile and overnight courier (an “Event of Default Notice”) to the Holder. At
any time after the earlier of the Holder’s receipt of an Event of Default
Notice and the Holder becoming aware of an Event of Default, the Holder may
require the Company to redeem all or any portion of this Note by delivering
written notice thereof (the “Event of Default
Redemption Notice”) to the Company, which Event of Default
Redemption Notice shall indicate the portion of this Note the Holder is
electing to redeem. Each portion of this Note subject to redemption by the
Company pursuant to this Section 4(b) shall be redeemed by the Company at a
price equal to the greater of (i) the product of (x) the Conversion Amount to
be redeemed and (y) the Redemption Premium and (ii) the product of (A) the
Conversion Rate with respect to such Conversion Amount in effect at such time
as the Holder delivers an Event of Default Redemption Notice and (B) the
Closing Sale Price of the Common Stock on the date immediately preceding such
Event of Default (the “Event of Default
Redemption Price”). Redemptions required by this Section 4(b) shall
be made in accordance with the provisions of Section 12.


 


(5)           RIGHTS UPON CHANGE OF CONTROL.


 


(a)           Change of Control. Each of the following events
shall constitute a “Change of Control”:


 


(i)            the consolidation, merger or other business combination
(including, without limitation, a reorganization or recapitalization) of the
Company with or into another Person (other than (A) a consolidation, merger,
stock transaction or other business combination (including, without limitation,
reorganization or recapitalization) in which holders of the Company’s voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or
their equivalent if other than a corporation) of such entity or entities, or
(B) pursuant to a migratory merger effected solely for the purpose of changing
the jurisdiction of incorporation of the Company (any of the foregoing (A) and
(B), a “Surviving Change”));


 


(ii)           the sale or transfer of all or substantially all of the
Company’s assets; or


 


(iii)          a purchase, tender or exchange offer made to and accepted
by the holders of more than the 50% of the outstanding shares of Common Stock.


 


No sooner than 15 days nor later than 10 days prior to the consummation
of a Change of Control, but not prior to the public announcement of such Change
of Control, the Company shall deliver


 


9

















 


written notice thereof via facsimile and overnight courier to the
Holder (a “Change of Control Notice”).


 


(b)           Assumption. Prior to the consummation of any Change
of Control, the Company will secure from any Person purchasing the Company’s
assets or Common Stock or any successor resulting from such Change of Control
(in each case, an “Acquiring Entity”)
a written agreement (in form and substance satisfactory to the holders of Notes
representing at least a majority of the aggregate principal amount of the Notes
then outstanding) to deliver to each holder of Notes in exchange for such
Notes, a security of the Acquiring Entity evidenced by a written instrument
substantially similar in form and substance to the Notes, including, without
limitation, having a principal amount and interest rate equal to the principal
amounts and the interest rates of the Notes held by such holder, and
satisfactory to the holders of Notes representing at least a majority of the
principal amount of the Notes then outstanding. In the event that an Acquiring
Entity is directly or indirectly controlled by a company or entity whose common
stock or similar equity interest is listed, designated or quoted on a
securities exchange or trading market, the holders of Notes representing at
least a majority of the aggregate principal amount of the Notes then
outstanding may elect to treat such Person as the Acquiring Entity for purposes
of this Section 5(b). In the event of a Surviving Change, the entity resulting
from or succeeding to the Company in such Surviving Change shall assume the
obligations under the Notes on the same terms and conditions as the Notes and
having a principal amount and interest rate equal to the principal amounts and
the interest rates of the Notes.


 


(c)           Redemption Right. At any time during the period
beginning after the Holder’s receipt of a Change of Control Notice and ending
on the date of the consummation of such Change of Control (or, in the event a
Change of Control Notice is not delivered at least 10 days prior to a Change of
Control, at any time on or after the date which is 10 days prior to a Change of
Control and ending 10 days after the consummation of such Change of Control),
the Holder may require the Company to redeem all or any portion of this Note by
delivering written notice thereof (“Change of
Control Redemption Notice”) to the Company, which Change of Control
Redemption Notice shall indicate the Conversion Amount the Holder is electing
to redeem; provided, however, that the Company shall not be under
any obligation to redeem all or any portion of this Note or to deliver the
applicable Change of Control Redemption Price unless and until the applicable
Change of Control is consummated. The portion of this Note subject to
redemption pursuant to this Section 5(c) shall be redeemed by the Company at a
price equal to the greater of (i) the product of (x) the Conversion
Amount being redeemed and (y) the quotient determined by dividing (A) the
Closing Sale Price of the Common Stock immediately following the public
announcement of such proposed Change of Control by (B) the Conversion Price and
(ii) 110% of the Conversion Amount
being redeemed (the “Change of Control
Redemption Price”). Redemptions required by this Section 5(c) shall
be made in accordance with the provisions of Section 12 and shall have priority
to payments to stockholders in connection with a Change of Control.


 


10

















 


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


 


(a)           Purchase Rights. If at any time the Company grants,
issues or sells any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property pro rata to the all or
substantially all record holders of Common Stock (the “Purchase Rights”), then the Holder will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which the Holder could have acquired if the Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.


 


(b)           Other Corporate Events. Prior to the consummation
of any recapitalization, reorganization, consolidation, merger, spin-off or
other business combination (other than a Change of Control) pursuant to which
all or substantially all holders of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for Common Stock (a “Corporate Event”), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right
to receive upon a conversion of this Note, (i) in addition to the shares of
Common Stock receivable upon such conversion, such securities or other assets
to which the Holder would have been entitled with respect to such shares of
Common Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event or (ii) in lieu of the shares of Common
Stock otherwise receivable upon such conversion, such securities or other
assets received by the holders of Common Stock in connection with the
consummation of such Corporate Event in such amounts as the Holder would have
been entitled to receive had this Note initially been issued with conversion
rights for the form of such consideration (as opposed to shares of Common
Stock) at a conversion rate for such consideration commensurate with the
Conversion Rate. Provision made pursuant to the preceding sentence shall be in
a form and substance satisfactory to the holders of Notes representing at least
a majority of the aggregate principal amount of the Notes then outstanding.


 


(7)           RIGHTS UPON ISSUANCE OF OTHER SECURITIES.


 


(a)           Adjustment of Conversion Price and Minimum Price upon
Subdivision or Combination of Common Stock. If the Company at any time
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 and Minimum Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at
any time 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 and Minimum Price in effect immediately prior to
such combination will be proportionately increased.


 


(b)           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


 


11

















 


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 and
Minimum Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price or Minimum
Price as otherwise determined pursuant to this Section 7.


 


(8)           EXTENSION OF MATURITY DATE AT HOLDER’S OPTION. The
holders of Notes representing at least a majority of the aggregate principal
amount of the Notes then outstanding shall have the right, in their sole
discretion, to require that the Original Maturity Date of all then outstanding
Notes be extended for a period not to exceed three years from the Original
Maturity Date, without the action of any other Person, by delivering written
notice thereof (a “Holder Maturity Date
Extension Notice”) to the Company at any time prior to the Original
Maturity Date, which Holder Maturity Date Extension Notice shall indicate the
Maturity Date, as so extended, of this Note. Within two Business Days of
receipt of a Holder Maturity Date Extension Notice, the Company shall inform
all other holders of Notes that such a notice has been received by the Company.


 


(9)           COMPANY’S RIGHT OF MANDATORY CONVERSION AND OPTIONAL
REDEMPTION. (a) Mandatory Conversion. If at any time from and
after June 10, 2007, the Weighted Average Price of the Common Stock exceeds 200%
of the Conversion Price as of the Issuance Date (subject to appropriate
adjustments for stock splits, stock dividends, stock combinations and other
similar transactions after the Issuance Date) for each of any 20 consecutive
Trading Days (the “Mandatory Conversion
Measuring Period”) and the Conditions to Mandatory Conversion (as
set forth in Section 9(c)) are satisfied or waived in writing by the Holder,
the Company shall have the right to require the Holder to convert all or any
such portion of the Conversion Amount of this Note designated in the Mandatory
Conversion Notice into fully paid, validly issued and nonassessable shares of
Common Stock in accordance with Section 3(c) hereof at the Conversion Rate
as of the Mandatory Conversion Date (as defined below) (a “Mandatory Conversion”). The Company may
exercise its right to require conversion under this Section 9(a) by delivering
within not more than two Trading Days following the end of such Mandatory
Conversion Measuring Period a written notice thereof by facsimile and overnight
courier to all, but not less than all, of the holders of Notes and the Transfer
Agent (the “Mandatory Conversion Notice”
and the date all of the holders received such notice (or are deemed to have
received such notice in accordance with Section 9(f) of the Securities Purchase
Agreement) is referred to as the “Mandatory
Conversion Notice Date”). The Mandatory Conversion Notice shall be
irrevocable.


 


(b)           Pro Rata Conversion Requirement. If the Company
elects to cause a conversion of all or any portion of the Conversion Amount of
this Note pursuant to Section 9(a), then it must simultaneously take the same
action with respect to the Other Notes. If the Company elects to cause the
conversion of this Note pursuant to Section 9(a) (or similar provisions under
the Other Notes) with respect to less than all of the Conversion Amounts of the
Notes then outstanding, then the Company shall require conversion of a
Conversion Amount from each of the holders of the Notes equal to the product of
(I) the aggregate Conversion Amount of Notes which the Company has elected to
cause to be converted pursuant to Section 9(a), multiplied by (II) the
fraction, the numerator of which is the sum of the aggregate principal


 


12

















 


amount of the Notes purchased by such holder pursuant to the Securities
Purchase Agreement and the denominator of which is the sum of the aggregate
principal amount of the Notes and purchased by all holders pursuant to the
Securities Purchase Agreement (such fraction with respect to each holder is
referred to as its “Allocation Percentage,”
and such amount with respect to each holder is referred to as its “Pro Rata Conversion Amount”). 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 Allocation Percentage. The Mandatory Conversion Notice shall
state (i) the Trading Day selected for the Mandatory Conversion in accordance
with Section 9(a), which Trading Day shall be at least 15 Business Days but not
more than 60 Business Days following the Mandatory Conversion Notice Date (the “Mandatory Conversion Date”), (ii) the aggregate Conversion Amount of the
Notes which the Company has elected to be subject to mandatory conversion from
all of the holders of the Notes pursuant to this Section 9 (and analogous
provisions under the Other Notes), (iii) each holder’s Pro Rata Conversion
Amount of the Conversion Amount of the Notes the Company has elected to cause
to be converted pursuant to this Section 9 (and analogous provisions under the
Other Notes) and (iv) the number of shares of Common Stock to be issued
to such Holder as of the Mandatory Conversion Date. All Conversion Amounts converted by the Holder after the Mandatory
Conversion Notice Date shall reduce the Conversion Amount of this Note required
to be converted on the Mandatory Conversion Date. If the Company has
elected a Mandatory Conversion, the mechanics of conversion set forth in
Section 3(c) shall apply, to the extent applicable, as if the Company and the
Transfer Agent had received from the Holder on the Mandatory Conversion Date a
Conversion Notice with respect to the Conversion Amount being converted
pursuant to the Mandatory Conversion.


 


(c)           Conditions
to Mandatory Conversion. For purposes of this Section 9, “Conditions to Mandatory Conversion” means the following conditions: (i) during the period beginning on the date
that is three months prior to the Mandatory Conversion Date and ending on and
including the Mandatory Conversion Date, the Company shall have delivered
shares of Common Stock upon any conversion of Conversion Amounts on a timely
basis as set forth in Section 3(c)(i); provided, however, that the Company
shall be deemed to have satisfied the conditions set forth in this clause (i)
if on not more than two occasions prior to the delivery of the Company’s
Mandatory Conversion Notice the Company has failed to meet the requirements set
forth in Section 3(c)(i) hereof by no more than three days; (ii) on each day during the period
beginning on the date that is six months prior to the Mandatory Conversion Date
and ending on and including the Mandatory Conversion Date (the “Notice Measuring Period”), the Common Stock
shall be listed on the Principal Market or The New York Stock Exchange, Inc.
and delisting or suspension by such market or exchange shall not have been
threatened either (A) in writing by such market or exchange or (B) by falling
below the minimum listing maintenance requirements of such market or exchange;
(iii) during the period beginning on the first Trading Day of the Notice
Measuring Period and ending on and including the Mandatory Conversion Date,
there shall not have occurred (x) the public announcement of a pending,
proposed or intended Change of Control which has not been abandoned, terminated
or consummated, (y) an Event of Default or (z) an event that with the passage
of time or giving of notice, and assuming it were not cured, would constitute
an Event of Default if such event has not been cured prior to the Mandatory
Conversion Notice Date; (iv) on each day of the period beginning on the date of
delivery of the Mandatory Conversion Notice and ending on the Mandatory
Conversion Date


 


13

















 


either (x) the Registration Statement or Registration Statements
required pursuant to the Registration Rights Agreement shall be effective and
available for the sale for all of the Registrable Securities in accordance with
the terms of the Registration Rights Agreement or (y) all shares of Common
Stock issuable upon conversion of the Notes shall be eligible for sale without
restriction and without the need for registration under any applicable federal
or state securities laws; and (v) on each day of the period beginning on the
Mandatory Conversion Date and ending thirty (30) Trading Days thereafter either
(x) the Registration Statements required pursuant to the Registration Rights
Agreement shall be expected to be effective and available for the sale of at
least all of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement or (y) all shares of Common Stock issuable upon
conversion of the Notes shall be eligible for sale without restriction and
without the need for registration under any applicable federal or state
securities laws.


 


(d)           Limitations. If the Company is unable to deliver
Conversion Shares pursuant to a Mandatory Conversion under this Section 9 (such
undeliverable Conversion Shares, the “Blocked
Shares”) as a result of the provisions of Section 3(d)(i) hereof,
then notwithstanding the provisions of Section 3(d)(i) hereof Company shall be
entitled to deliver the Blocked Shares (without being subject to any conditions
hereunder including the Conditions to Mandatory Conversion and the provisions
of Section 3(d)(i) hereof) ninety (90) days after the Mandatory Conversion Date.
The Holder shall inform the Company of the number of Blocked Shares applicable
to such Holder within one Business Day after the Mandatory Conversion Notice
Date. If the Company receives no written notice from the Holder of the number
of Blocked Shares applicable to such Holder by the end of the Business Day
after the Mandatory Conversion Notice Date, the Company may conclusively
conclude that there are no Blocked Shares for such Holder.


 


(e)           Company
Optional Redemption Right.


 


(i)            Company
Optional Redemption. If at any time from and after the aggregate Principal amount of the then
outstanding Notes is equal to or less than $6,000,000, the Conditions to
Company Redemption (as set forth below) are satisfied or waived in writing by
the Holder, the Company shall have the right to redeem all but not less than
all Notes then outstanding (a “Company
Optional Redemption”). The Company may exercise its right of
redemption under this Section 9(e)(i) by delivering a written notice thereof by
facsimile and overnight courier to all of the holders of Notes and the Transfer
Agent (the “Company Optional Redemption Notice”). The Company Optional Redemption
Notice shall be irrevocable. This Note shall be redeemed by the Company
pursuant to this Section 9(e)(i) at a price equal to 110% of the Conversion
Amount (the “Company Optional Redemption Price”). Notwithstanding the foregoing, the
Holder may continue to convert this Note into Common Stock pursuant to Section
3(a) on or prior to the date immediately preceding the Company Optional
Redemption Date. Redemptions required by this Section 9(e) shall be made in
accordance with the provisions of Section 12.


 


(ii)           Company
Optional Redemption Notice. If the Company elects to cause a redemption of
all of the Conversion Amount of this Note pursuant to Section 9(e)(i), then it
must simultaneously take the similar action with respect to the Other Notes. The


 


14

















 


Company Optional
Redemption Notice shall state (A) the Trading Day selected for the Company
Optional Redemption in accordance with Section 9(e)(i), which Trading Day shall
be at least 20 Business Days but not more than 60 Business Days following the
Company Optional Redemption Notice Date (the “Company
Optional Redemption Date”), (B) that all outstanding Notes have been
called for optional redemption pursuant to this Section 9(e) (and analogous
provisions under the Other Notes), and (C) the Company Optional Redemption
Price to be paid to such Holder as of the Company Optional Redemption Date. All
Conversion Amounts converted by the Holder after delivery of the Company
Optional Redemption Notice Date shall reduce the Conversion Amount of this Note
required to be redeemed on the Company Optional Redemption Date.


 


(iii)          Conditions
to Company Redemption. For purposes of this Section 9(e), “Conditions to Company Redemption” means the Conditions to
Mandatory Conversion with the term “Mandatory Conversion Notice” being replaced
by “Company Optional Redemption Notice” and the term “Mandatory Conversion Date”
being replaced by “Company Optional Redemption Date”.


 


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


 


(11)         RESERVATION OF AUTHORIZED SHARES.


 


(a)           Reservation. The Company shall initially reserve
out of its authorized and unissued Common Stock a number of shares of Common
Stock for each of the Notes equal to 100% of the Conversion Rate with respect
to the Conversion Amount of each such Note as of the Issuance Date. Thereafter,
the Company, so long as any of the Notes are outstanding, shall take all action
necessary to reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the Notes,
100% of the number of shares of Common Stock as shall from time to time be
necessary to effect the conversion of all of the Notes then outstanding;
provided that at no time shall the number of shares of Common Stock so reserved
be less than the number of shares required to be reserved by the previous
sentence (without regard to any limitations on conversions) (the “Required Reserve Amount”). The initial
number of shares of Common Stock reserved for conversions of the Notes and each
increase in the number of shares so reserved shall be allocated pro rata among
the holders of the Notes based on the principal amount of the Notes held by
each holder at the time of Issuance Date or increase in the number of reserved
shares, as the case may be (the “Authorized
Share Allocation”). In the event that a holder shall sell or
otherwise transfer any of such holder’s Notes, each transferee shall be
allocated a pro rata portion of such holder’s Authorized Share Allocation. Any
shares of Common Stock reserved and allocated to any Person which ceases to
hold any Notes shall be allocated to the remaining holders of Notes, pro rata
based on the principal amount of the Notes then held by such holders.


 


15

















 


(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 as soon as practicable take all action reasonably
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 60 days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting
of its stockholders for the approval of an increase in the number of authorized
shares of Common Stock. In connection with such meeting, the Company shall
provide each stockholder with a proxy statement and shall use its best efforts
to solicit its stockholders’ approval of such increase in authorized shares of
Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.


 


(12)         HOLDER’S REDEMPTIONS.


 


(a)           Mechanics. In the event that the Holder has sent an
Event of Default Redemption Notice or a Change of Control Redemption Notice to
the Company pursuant to Section 4(b) or Section 5(c), or has received a
Company Optional Redemption Notice pursuant to Section 9(b), then the Holder
shall promptly after receipt of the applicable Redemption Price submit this
Note to the Company (each, a “Redemption Notice”). The Company shall
deliver the applicable Event of Default Redemption Price to the Holder within
five Business Days after the Company’s receipt of the Holder’s Event of Default
Redemption Notice. If the Holder has submitted a Change of Control Redemption
Notice in accordance with Section 5(c), the Company shall deliver the
applicable Change of Control Redemption Price to the Holder concurrently with
the consummation of such Change of Control if such notice is received prior to
the consummation of such Change of Control and within five Business Days after
the Company’s receipt of such notice otherwise. The Company shall
deliver the Company Optional Redemption Amount to the Holder on the Company
Optional Redemption Date. In the event
of a redemption of less than all of the Conversion Amount of this Note, the
Company shall promptly cause to be issued and delivered to the Holder a new
Note (in accordance with Section 19(d)) representing the outstanding Principal
which has not been redeemed. In the event that the Company does not pay the
Event of Default Redemption Price, the Change of Control Redemption Price or
the Company Optional Redemption Price (each, the “Redemption Price”), as applicable, to the Holder (or deliver
any Common Stock to be issued pursuant to a Redemption Notice) within the time
period required, at any time thereafter and until the Company pays such unpaid
Redemption Price (and issues any Common Stock required pursuant to a Redemption
Notice) 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 (or any Common Stock required to be
issued pursuant to a Redemption Notice) (together with any Late Charges
thereon) has not been paid. Upon the Company’s receipt of such notice, (x) the
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


 


16

















 


(in accordance with Section 19(d)) to the Holder representing such
Conversion Amount and (z) the Conversion Price of this Note or such new Notes
shall be adjusted to the lesser of (A) the Conversion Price as in effect on the
date on which the Redemption Notice is voided and (B) the lowest Closing Bid
Price during the period beginning on and including the date on which the
Redemption Notice is delivered to the Company and ending on and including the
date on which the Redemption Notice is voided. The Holder’s delivery of a
notice voiding a Redemption Notice and exercise of its rights following such
notice shall not affect the Company’s obligations to make any payments of Late
Charges which have accrued prior to the date of such notice with respect to the
Conversion Amount subject to such notice.


 


(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(c) or the Company’s
delivery of a Company Optional Redemption Notice pursuant to Section 9(e)
(each, an “Other Redemption Notice”),
the Company shall immediately forward to the Holder by facsimile a copy of such
notice. If the Company receives a Redemption Notice and one or more Other
Redemption Notices during the seven Business Day period beginning on and
including the date which is three Business Days prior to the Company’s receipt
of the Holder’s Redemption Notice and ending on and including the date which is
three 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 Business Day period, then the Company shall redeem a
pro rata amount from each holder of the Notes (including the Holder) based on
the principal amount of the Notes submitted for redemption pursuant to such
Redemption Notice and such Other Redemption Notices received by the Company
during such seven Business Day period.


 


(13)         SUBORDINATION TO SENIOR INDEBTEDNESS.


 


(a)           Subordination. The indebtedness represented by this
Note and the payment of the principal amount and interest and Late Charges
thereon, any redemption amount, liquidated damages, fees, expenses or any other
amounts in respect of this Note are hereby expressly made subordinate and
junior and subject in right of payment (to the extent expressly set forth in
clause (b) below) to the prior payment in full in cash of all Senior
Indebtedness of the Company now outstanding or hereinafter incurred.


 


(b)           Payment upon Dissolution, Etc. In the event of any
bankruptcy, insolvency, reorganization, receivership, composition, assignment
for benefit of creditors or other similar proceeding initiated by or against
the Company or any dissolution or winding up or total or partial liquidation or
reorganization of the Company (being hereinafter referred to as a “Proceeding”), all principal and interest
due upon any Senior Indebtedness shall first be paid in full before the Holder
shall be entitled to receive or, if received, to retain any payment or
distribution on account of this Note, and upon any such Proceeding, any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to which the Holder would be entitled except for
the provisions of this Section 13 shall be paid by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other Person


 


17

















 


making such payment or distribution, or by the Holder who shall have
received such payment or distribution, directly to the holders of the Senior
Indebtedness (pro rata to each such holder on the basis of the respective
amounts of such Senior Indebtedness held by such holder) or their
representatives to the extent necessary to pay all such Senior Indebtedness in
full after giving effect to any concurrent payment or distribution to or for
the holders of such Senior Indebtedness, before any payment or distribution is
made to the Holder or any holders of the Notes; provided, however, that
notwithstanding anything to the contrary, in any event the Holder shall be
entitled to receive and retain all Junior Securities (as defined below).


 


(c)           Certain Rights. Nothing contained in this Section
13 or elsewhere in this Note is intended to or shall impair, as among the
Company, its creditors including the holders of Senior Indebtedness and the
Holder, the right, which is absolute and unconditional, of the Holder to
convert this Note in accordance herewith.


 


(d)           Rights of Holders Unimpaired. The provisions of
this Section 13 are and are intended solely for the purposes of defining the
relative rights of the Holder and the holders of Senior Indebtedness and
nothing in this Section 13 shall impair, as between the Company and the Holder,
the obligation of the Company, which is unconditional and absolute, to pay to
the Holder the principal thereof (and premium, if any) and interest thereon, in
accordance with the terms of this Note.


 


(e)           Junior
Securities. As used herein, “Junior Securities”
means debt or equity securities of the Company as reorganized or readjusted, or
debt or equity securities of the Company or any other Person provided for by a
plan of reorganization or readjustment authorized by an order or decree of a
court of competent jurisdiction in a Proceeding under any applicable law, so
long as in the case of debt securities, such Junior Securities are subordinated
in right of payment to all Senior Indebtedness and to whatever is issued to the
holders of the Senior Indebtedness on account of the Senior Indebtedness, to
the same extent as, or to a greater extent than, the Subordinated Indebtedness
is so subordinated as provided for herein.


 


(14)         VOTING RIGHTS; RESTRICTION ON DIVIDENDS. The Holder
shall have no voting rights as the holder of this Note, except as required by
law, including but not limited to the General and Business Corporation Law of
Missouri, and as expressly provided in this Note. Until the Dividend
Eligibility Date, the Company shall
not, directly or indirectly, declare or pay any dividend or distribution on its
capital stock, other than stock dividends in accordance with Section 7(a).


 


(15)         RANK; ADDITIONAL INDEBTEDNESS; LIENS.


 


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


 


(b)           Incurrence of Indebtedness. So long as this Note is outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, incur or guarantee, assume or suffer to exist any
Indebtedness, other than (i) the Indebtedness evidenced by this Note and the
Other Notes and (ii) Permitted Indebtedness. As


 


18

















 


used herein, “Permitted Indebtedness”
means (A) Senior Indebtedness; and (B) Permitted Subordinated Indebtedness.


 


(c)           Existence of Liens. So long as this Note is outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge, security interest or
other encumbrance upon or in any property or assets (including accounts and
contract rights) owned by the Company or any of its Subsidiaries
(collectively, “Liens”)
other than Permitted Liens. As used herein, “Permitted Liens” means (i) Liens incurred to secure Senior
Indebtedness, (ii) Liens on fixed or capital assets acquired, constructed or
improved by the Company or any Subsidiary, to the extent of Indebtedness
incurred within thirty days for such acquisition, construction or improvement
and incurred within thirty days of such acquisition, construction or
improvement, (iii) purchase money Liens, (iv) carriers’, warehousemen’s,
mechanics’, materialmen’s, repairmen’s and other similar Liens imposed by law,
so long as payment on such Lines is not more than 30 days past due, or (v)
other Liens permitted by the Company’s senior credit agreement in existence on
the date hereof as filed as an exhibit to the Company’s current report on Form
8-K filed with the SEC on February 13, 2004, and without giving effect to
future amendments to or the termination of the credit agreement.


 


(d)           Restricted Payments.
The Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Indebtedness, other than Senior Indebtedness or Pari Passu Indebtedness,
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.


 


(16)         PARTICIPATION. Until the Dividend Eligibility Date,
the Holder shall have no right to participate in any dividends paid or
distributions made to the holders of Common Stock. From and after the Dividend
Eligibility Date, the Holder, as the
holder of this Note, shall be entitled to such dividends paid and distributions
made to the holders of Common Stock to the same extent as if the Holder had
converted this Note into Common Stock (without regard to any limitations on
conversion herein or elsewhere) and had held such shares of Common Stock on the
record date for such dividends and distributions. Payments under the preceding
sentence shall be made concurrently with the dividend or distribution to the
holders of Common Stock.


 


(17)         VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of Notes representing not less than a
majority of the aggregate principal amount of the then outstanding Notes, shall
be required for any change or amendment to this Note or the Other Notes
provided such change or amendment is consented to by the Company, which such
consent may be granted in the sole discretion of the Company. Any change or
amendment to this Note or the Other Notes so approved upon written notice by
the Company of such change or amendment shall be binding upon the Holder and
holders, present and future, of


 


19

















 


this Note and the Other Notes without regard to whether the terms of
such change or amendment are reflected in this Note or the Other Notes.


 


(18)         TRANSFER. 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(c) of the Securities Purchase Agreement, provided
that this Note may be offered, sold, assigned or transferred only in Principal
amounts of $5,000,000 (or the entire remaining Principal amount if less) or increments
of $100,000 in excess thereof.


 


(19)         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 19(d)), registered as the Holder may request,
representing the outstanding Principal being transferred by the Holder and, if
less then the entire outstanding Principal is being transferred, a new Note (in
accordance with Section 19(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) and this Section 19(a), 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 19(d)) representing the outstanding Principal.


 


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


 


(d)           Issuance of New Notes. Whenever the Company is
required to issue a new Note pursuant to the terms of this Note, such new Note
(i) shall be of like tenor with this Note, (ii) shall represent, as indicated
on the face of such new Note, the Principal remaining outstanding (or in the
case of a new Note being issued pursuant to Section 19(a) or Section 19(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)


 


20

















 


shall represent accrued Interest and Late Charges on the Principal and
Interest of this Note, from the Issuance Date.


 


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


 


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


 


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


 


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


 


(24)         DISPUTE RESOLUTION. In the case of a dispute as to
the determination of the Redemption Price or the arithmetic calculation of the
Conversion Rate or the Redemption Price, the Company shall submit the disputed
determinations or arithmetic calculations via facsimile within one Business Day
of 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 Business
Day of such disputed determination or arithmetic calculation being submitted to
the Holder, then the


 


21

















 


Company shall, within one Business Day submit via facsimile (a) the
disputed determination of the Closing Bid Price or the Closing Sale Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or
the Redemption Price to the Company’s independent, outside accountant. The
Company, at the Company’s expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than five
Business Days from the time it receives the disputed determinations or
calculations. Such investment bank’s or accountant’s determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.


 


(25)         NOTICES; PAYMENTS.


 


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


 


(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 to a
U.S. bank or the domestic branch of a foreign bank of immediately available
funds by providing the Company with prior written notice setting out such
request and the Holder’s wire transfer instructions. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next succeeding day which is
a Business Day and, in the case of any Interest Date which is not the date on
which this Note is paid in full, the extension of the due date thereof shall
not be taken into account for purposes of determining the amount of Interest
due on such date. Any amount of Principal or other amounts due under the
Transaction Documents (as defined in the Securities Purchase Agreement) 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


 


22

















 


on such amount at the rate of 15% per annum from the date such amount
was due until the same is paid in full (“Late
Charge”).


 


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


 


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


 


(28)         GOVERNING LAW. 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.


 


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


 


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


 


(b)           “Bloomberg”
means Bloomberg Financial Markets.


 


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


 


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


 


(e)           “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


 


23

















 


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 “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale
Price cannot be calculated for a security on a particular date on any of the
foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case
may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the
Holder are unable to agree upon the fair market value of such security, then
such dispute shall be resolved pursuant to Section 24. All such determinations
to be appropriately adjusted for any stock dividend, stock split, stock
combination or other similar transaction during the applicable calculation period.


 


(f)            “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.


 


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


 


(h)           “Dividend Eligibility Date” means the later
of (x) January 1, 2006, or (y) the date specified in a written notice delivered
no later than December 1, 2005, to the Holder by the Company.


 


(i)            “EBITDA”
means, for any four Calendar Quarter period for any Person, the net income (or
net loss) of such Person and its consolidated Subsidiaries, determined in
accordance with GAAP, plus (i) any provision for (or less any benefit from)
income taxes, (ii) any deduction for interest expense, net of interest income
(iii) depreciation and amortization expense, (iv) the non-cash portion of
compensation expense related to the grant of stock options, restricted stock,
and stock appreciation rights, (v) any other components of net income (or net
loss) which are non-cash and will not convert to cash prior to the final
maturity of this Note, and (vi) costs, fees and expenses incurred in connection
with any acquisition transaction, and as adjusted for the following items (to
the extent that they are reflected in net income or net loss): elimination of:
(v) any net income (or net loss) from discontinued operations as determined in
accordance with GAAP (w) all extraordinary gains and losses determined in
accordance with GAAP, (x) gains and losses from sales or dispositions of
property and equipment or other fixed assets, (y) all non-recurring income and
expense items not incurred in the ordinary course of business to the extent
included in the determination of net income for the relevant determination
period and (z) foreign currency transaction gains and losses, to the extent
included in the determination of net income for the relevant determination
period; provided, however, that if,


 


24

















 


during the four
Calendar Quarter period for which the EBITDA of a Person is being calculated,
such Person has completed an acquisition of an on-going business (a “Target”),
the EBITDA of such Person shall be recalculated to include the EBITDA of such
Target as if such acquisition (including any acquisition completed prior to the
date of this Note but within the applicable period for which EBITDA is being
calculated) had been completed on the first day of the relevant measuring
period. To the extent applicable, all determinations of the components of
EBITDA shall be derived from the Company’s then most recently filed Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, as applicable.


 


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


 


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


 


(l)            “Indebtedness”
of any Person means, without
duplication (A) all indebtedness for borrowed money, (B) all obligations
issued, undertaken or assumed as the deferred purchase price of property or
services (other than trade payables entered into in the ordinary course of
business), (C) all reimbursement or payment obligations with respect to letters
of credit, surety bonds and other similar instruments, (D) 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, (E) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred as financing,
in either case with respect to any property or assets acquired with the
proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) off-balance sheet liabilities retained in
connection with asset securitization programs, synthetic leases, sale and leaseback
transactions or other similar obligations arising with respect to any other
transaction which is the functional equivalent of or takes the place of
borrowing but which does not constitute a liability on the consolidated balance
sheet of such Person and its subsidiaries, and (H) all indebtedness referred to
in clauses (A) through (G) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any mortgage, lien, pledge, charge, security interest or other encumbrance upon
or in any property or assets (including accounts and contract rights) owned by
any Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (I) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (A) through (H) above.


 


(m)          “Issuance Date”
means June 10, 2004.


 


25

















 


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


 


(o)           “Permitted
Subordinated Indebtedness” means Indebtedness that (x) is made
expressly subordinate in right of payment to the Indebtedness evidenced by this
Note and the Other Notes on terms reasonably satisfactory to the holders of Notes representing not less than a
majority of the aggregate principal amount of the then outstanding Notes and
(y) does not provide at any time for the payment, prepayment, repayment,
repurchase or defeasance, directly or indirectly, of any principal or premium,
if any, thereon until at least 91 days after the Maturity Date.


 


(p)           “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.


 


(q)           “Principal Market”
means the Nasdaq National Market.


 


(r)            “Redemption Premium” means (i) in the case
of the Events of Default described in Section 4(a)(i) - (vi) and (ix) - (xiii),
120% or (ii) in the case of the Events of Default described in Section
4(a)(vii) - (viii), 100%.


 


(s)           “Registration Rights Agreement” means that
certain registration rights agreement between the Company and the initial
holders of the Notes relating to the registration of the resale of the shares
of Common Stock issuable upon conversion of the Notes.


 


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


 


(u)           “Securities Purchase
Agreement” means that certain securities purchase agreement between
the Company and the initial holders of the Notes pursuant to which the Company
issued the Notes.


 


(v)           “Senior Indebtedness”
means the principal of (and premium, if any), interest on, and all fees and
other amounts (including, without limitation, any reasonable costs, enforcement
expenses (including reasonable legal fees and disbursements), collateral
protection expenses and other reimbursement or indemnity obligations relating
thereto) payable under the agreements or instruments evidencing, any
unaffiliated, third-party Indebtedness of the Company and its Subsidiaries,
whether now existing or hereafter arising (together with any renewals,
refundings, refinancings or other extensions thereof), which is not made
expressly subordinate in right of payment to the Indebtedness evidenced by this
Note and the Other Notes, provided that the aggregate amount of such Senior
Indebtedness (taking into account the maximum amounts which may be advanced
under the loan documents evidencing such Senior Indebtedness) does not as of
the date on which such Senior Indebtedness is incurred exceed the product of
(i) 3.0 and (ii) EBITDA (the “Senior
Indebtedness Cap”). Without limitation of the generality of the
foregoing and subject to the Senior Indebtedness Cap, Senior Indebtedness shall
include the obligations of the Company to its current senior secured lender,
LaSalle Bank, N.A. and any participants with LaSalle Bank, N.A. in such
Indebtedness (the “Senior Bank Obligations”),
and the Senior Bank Obligations are designated as Senior Indebtedness. The
Company may


 


26

















 


from time to time
designate by written notice to the Holder the obligations, in addition to the
Senior Bank Obligations, which constitute Senior Indebtedness, and, provided
that, at the time that the Senior Indebtedness is incurred (or a commitment to
lend any Senior Indebtedness is made), the aggregate Senior Indebtedness of the
Company does not exceed the Senior Indebtedness Cap, Senior Indebtedness so
designated shall continue to be Senior Indebtedness notwithstanding any
subsequent decline in the Company’s EBITDA.


 


(w)          “Total Capitalization”
means, at any time, the sum of (i) the sum of all amounts (without duplication)
which, in accordance with GAAP, would be included in the Company’s stockholders’
equity (excluding unrealized gains or losses pursuant to GAAP) as required to
be reported in the Company’s then most recent consolidated balance sheet, (ii)
Total Debt and (iii) the cumulative (subsequent to issuance of this Note)
non-cash portion of compensation expense related to the grant of stock
options, restricted stock, and stock appreciation rights.


 


(x)            “Total Debt”
means, on any date, the outstanding principal amount of all Indebtedness of the
Company and its Subsidiaries of the type referred to in clauses (A), (C), (D),
(F) and (G) of the definition of “Indebtedness” along with any Contingent
Obligation in respect of any of the foregoing.


 


(y)           “Total Debt to EBITDA
Ratio” means, as of the last day of any Calendar Quarter, the ratio
of (i) Total Debt outstanding on such day to (ii) EBITDA on such day.


 


(z)            “Total Debt to Total
Capitalization Ratio” means, as of the last day of any Calendar
Quarter, the ratio of (i) Total Debt outstanding on such day to (ii) Total
Capitalization on such day.


 


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


 


(bb)         “Weighted Average Price”
means, for any security as of any date, the dollar volume-weighted average
price for such security on the Principal Market during the period beginning at
9:30:01 a.m., New York Time (or such other time as the Principal Market
publicly announces is the official open of trading), and ending at 4:00:00
p.m., New York Time (or such other time as the Principal Market publicly
announces is the official close of trading) as reported by Bloomberg through
its “Volume at Price” functions, or, if the foregoing does not apply, the
dollar volume-weighted average price of such security in the over-the-counter
market on the electronic bulletin board for such security during the period
beginning at 9:30:01 a.m., New York Time (or such other time as such market
publicly announces is the official open of


 


27

















 


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


 


[Signature Page Follows]


 


28

















 


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


 


	
   

  	
  EPIQ SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Elizabeth M. Braham

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice President and Chief

  
	
   

  	
   

  	
   

  	
  Financial Officer

  
						



 


 


	
  Dated:

  
	
   

  
	
  Countersigned:

  
	
   

  
	
  Wells Fargo Bank, National Association,

  
	
  as Transfer Agent

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized Signatory

  
				



 


29

















 


EXHIBIT I


 


EPIQ SYSTEMS, INC.

CONVERSION NOTICE


 


Reference is made
to the Contingent Convertible Subordinated Note (the “Note”) issued to the undersigned by EPIQ Systems, Inc. (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 Common Stock, par
value $0.01 per share, of the Company (the “Common
Stock”) as of the date specified below.


 


Date of Conversion:


 


Aggregate Conversion Amount to be converted:


 


The undersigned
hereby certifies to the Company that the Company’s conversion of the amount set
forth above in accordance with Section 3(a) of the Note will not directly
result in the undersigned (together with the undersigned’s affiliates)
beneficially owning in excess of 9.99% of the number of shares of Common Stock
outstanding immediately after giving effect to such conversion, calculated in
accordance with Section 3(d)(i) of the Note.


 


Please confirm the
following information:


 


Conversion Price: 


 


Number of shares of Common Stock to be issued:


 


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


 


Name/Address for Issuance:


 


 


 


U.S. Tax Identification Number, if applicable:


 


Broker/Dealer Information for DWAC:


 


Brokerage Name & DTC Participant #


 


Settlement Date                         Broker
Contact                                  Phone
#                       


 


Facsimile Number:


 


30

















 


Authorization:


 


	
  By:

  	
   

  	
   

  
	
  Title:

  	
   

  
				



                


 


	
  Dated:

  	
   

  



Account Number:


(if electronic DWAC/book entry transfer)


 


Transaction Code Number:


(if electronic DWAC/book entry transfer)


 


31

















 


CONVERSION
ACKNOWLEDGMENT


 


&


 


TRANSFER
AGENT INSTRUCTION


 


The Company hereby acknowledges this Conversion Notice
and hereby directs Wells Fargo Bank, N.A. to issue the above indicated number
of shares of Common Stock in accordance with the Transfer Agent Instructions
dated June 10, 2004 from the Company and acknowledged and agreed to by Wells
Fargo Bank, N.A.


 


 


	
   

  	
  EPIQ SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
				



 


32