Exhibit 10.1


 


Execution Copy


 


AMENDMENT NO. 1


TO


SECURITIES
PURCHASE AGREEMENT


 


THIS AMENDMENT NO. 1 TO SECURITIES PURCHASE
AGREEMENT (this “Amendment”) is
entered into as of December 15, 2005, among EPIQ Systems, Inc., a Missouri corporation (the “Company”), and the persons and entities
listed as Holders on the signature pages hereto (each a “Holder” and collectively, the “Holders”), each a record holder of the
Company’s Contingent Convertible Subordinated Notes, issued June 10, 2004
(individually, a “Note” and
collectively, the “Notes”).


 


WHEREAS:


 


A.            The
Company and the Holders have entered into a Securities Purchase Agreement dated
as of June 10, 2004 (the “Original
Purchase Agreement”), pursuant to which the Company issued the Notes
to the Holders in the aggregate principal amount of $50,000,000, all of which
remain outstanding;


 


B.            Each
Holder own beneficially and of record by the principal amount of Notes set
forth opposite the Holder’s name on the signature pages hereto; and


 


C.            This
Amendment is being entered into by the Company and the Holders for the purpose
of amending the Original Purchase Agreement (as hereby amended and as hereafter
amended in accordance with its terms, the “Purchase
Agreement”) and the Notes, in accordance with Section 9(e) of the Original
Purchase Agreement and Section 17
of the Notes.


 


NOW, THEREFORE, the
Company and the Holders agree as follows:


 


1.             PORTAL REGISTRATION.  The
Company will, in accordance with Section 4(r) of the Original Purchase Agreement, use its
reasonable best efforts to apply for and effect the designation of the Notes on
the Private Offerings, Resales and Trading Automated Linkages market (“PORTAL”) as a PORTAL
security.  As soon as the Notes are
designated as PORTAL securities, the Company will (i) appoint Wells
Fargo Bank, N.A. as Note registrar, transfer agent and paying agent for the
Notes (the “Note Transfer Agent”),
and (ii) cause the Notes to become DTC-eligible, in book-entry only form, with The Depository Trust Company (“DTC”).  The Notes will thereafter be held as
fully-registered securities registered in the name of Cede & Co. (DTC’s
partnership nominee) or such other name as may be requested by an authorized
representative of DTC.  One
fully-registered Note issued in the aggregate principal amount of $50,000,000
will be deposited with DTC, or the Note Transfer Agent pursuant to the DTC FAST
procedures.  From and after the effective date of
the PORTAL registration, ownership and transfers of the Notes through DTC
system must be made by or through a participant in DTC (a “Direct Participant”), which will receive a
credit for the Notes on DTC’s records. 
The ownership interest of each actual purchaser of each Note (the “Beneficial Owner”) is in turn to be
recorded on the records of the Direct Participant or those U.S. and non-U.S.
securities brokers and dealers, banks, trust companies and clearing
corporations that clear through or maintain custodial relationships with a
Direct Participant, either directly or indirectly (an “Indirect Participant”).   Upon notification by the Company to the
Holders that all steps required to complete the PORTAL and DTC designations and
qualifications have been completed, each
Holder will physically surrender its physical Note certificates to the Note
Transfer Agent in accordance with the Operational Procedures of DTC.  Upon the effectiveness of the
quotation of the Notes on PORTAL, DTC will act as securities depository for the
Notes.


 


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2.            NOTIFICATION
OF TRANSFER OF BENEFICIAL INTERESTS IN THE NOTES.  From and after the date on which the Notes
are registered with DTC and are thereafter held and traded solely through the
DTC book-entry only system, each Holder and each person who hereafter becomes a
Beneficial Owner of Notes agrees to notify the Company of each transfer of a
beneficial ownership interest in the Notes and, to the extent known, the
transferee Beneficial Owner or agent of the transferee Beneficial Owner.  Notice of transfer of each beneficial
ownership interest in the Notes and the name of the transferee or the agent of
the transferee shall be made in writing, by facsimile or other confirmed
electronic transmission to:


 


	
  EPIQ
  Systems, Inc.

  
	
  501
  Kansas Avenue

  
	
  Kansas City, Kansas
  66105-1300

  
	
  Telephone:

  	
  913-621-9500

  
	
  Facsimile:

  	
  913-621-7281

  
	
  E-mail:

  	
  bbraham@epiqsystems.com

  
	
  Attention:

  	
  Elizabeth M. Braham, Executive Vice President and

  
	
   

  	
  Chief Financial Officer

  



 


3.              AMENDMENT OF NOTE PROVISIONS.  The Notes are hereby amended as follows:


 


(a)           Section 4(a)(xiii) of the Notes is amended to read in its
entirety as follows:


 


(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)            Section 18 of the Notes is amended to read in its
entirety as follows:


 


(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.


 


(c)                                   Section 29(v) of the Notes is amended to read in its
entirety as follows:


 


(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


 


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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 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.


 


4.             AMENDMENT OF ORIGINAL PURCHASE AGREEMENT.  Section 9(g) of the Original Purchase Agreement is hereby
amended to read in its entirety as follows:


 


(g)           Successors
and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Notes.  The Company shall not assign this Agreement
or any rights or obligations hereunder without the prior written consent of the
holders of Notes representing at least a majority of the aggregate principal
amount of the Notes then outstanding, except pursuant to a Change of Control or
Corporate Event (each as defined in Section 5 of the Notes) with respect
to which the Company is in compliance with Section 5 of the Notes.  A Buyer may assign some or all of its rights
hereunder to any purchaser of not less than $5,000,000 principal amount of
Notes (or such lesser amount representing the remaining principal amount of
such Note) without the consent of (but with notice of such assignment to) the
Company, in which event such assignee shall be deemed to be a Buyer hereunder
with respect to such assigned rights and such assignee shall be bound by all
covenants and agreements of Buyer set forth in this Agreement.


 


5.             FORM OF NOTES.  The Form of
Notes, as hereby amended, is attached to this Amendment as Exhibit A.


 


6.             EFFECT
OF AMENDMENT.  Except as specifically
modified or amended by the terms of this Amendment, the Original Purchase
Agreement and the Notes and all provisions contained therein are, and will
continue, in full force and effect and are hereby ratified and confirmed.


 


7.             NOTICE
TO BENEFICIAL OWNERS OF NOTES.  Each
Holder and each future Beneficial Owner of Notes is deemed to have acknowledged
and represented to, and agreed with, the Company, as follows:


 


(a)             Beneficial
ownership interest in the Notes may be transferred only in authorized minimum
denominations of $5,000,000;


 


(b)            Transfers
of beneficial ownership interests in the Notes may only be made to “qualified
institutional buyers” in accordance with SEC Rule 144A and the transfer
restrictions applicable to the Notes in the Purchase Agreement; and


 


(c)             Transfers
of beneficial ownership interests in the Notes are subject to the written
notice requirements set forth in Section 2
of this Amendment.


 


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8.             DEFINED
TERMS.  Capitalized terms used in
this Amendment and not otherwise defined have the meanings given those terms in
the Original Purchase Agreement.


 


9.             EXECUTED
COUNTERPARTS.  This Amendment may be
executed in any number of separate counterparts, each of which are to be an
original and all of which together are deemed to be one and the same
instrument.


 


[Remainder of this page intentionally
left blank]


 


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IN WITNESS WHEREOF,
the parties have duly executed this Amendment No. 1 to Securities Purchase
Agreement as of the day and year first set forth above.


 


 


	
  “COMPANY”

  	
  EPIQ SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Elizabeth Braham

  	
   

  
	
   

  	
  Name:

  	
  Elizabeth M. Braham

  
	
   

  	
  Title:

  	
  Executive Vice President and Chief Financial

  Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  “HOLDERS”

  	
   

  
	
   

  	
   

  
	
  $30,000,000 Principal Amount of Notes

  	
  RIVERVIEW
  GROUP, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Millennium Holding Group, L.P.,

  
	
   

  	
   

  	
  Its managing member

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Millennium Management, L.L.C.,

  
	
   

  	
   

  	
  Its general partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Nolan

  	
   

  
	
   

  	
  Name:

  	
  David Nolan

  
	
   

  	
  Title:

  	
  Executive Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
  $10,000,000 Principal Amount of Notes

  	
  SMITHFIELD FIDUCIARY LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Adam J. Chill

  	
   

  
	
   

  	
  Name:

  	
  Adam J. Chill

  
	
   

  	
  Title:

  	
  Authorized Signatory

  
	
   

  	
   

  
	
   

  	
   

  
	
  $10,000,000 Principal Amount of Notes

  	
  OMICRON MASTER TRUST

  
	
   

  	
  By:  Omicron Capital L.P., as advisor

  
	
   

  	
  By:  Omicron Capital Inc., its general
  partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brian Daly

  	
   

  
	
   

  	
  Name:

  	
  Brian Daly

  
	
   

  	
  Title:

  	
  CFO

  
						



 


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EXHIBIT A


 


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: 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


 


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pursuant to redemption, conversion or otherwise,
the “Principal”) when due, whether
upon the Maturity Date (as defined below), acceleration, redemption or
otherwise (in each case in accordance with the terms hereof) and to pay
interest (“Interest”) on any
outstanding Principal at 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


 


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least $100,000 of Principal (or such lesser
amount if such amount represents the remaining 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


 


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holder a new Note (in accordance
with Section 19(d)) representing the outstanding Principal not
converted.  The Person or Persons
entitled to receive the shares of Common Stock issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date.


 


(ii)           Company’s Failure to Timely Convert.  If
the Company shall fail to issue a certificate to the Holder or credit the
Holder’s balance account with DTC 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


 


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satisfactory to the Holder
and the Company, so as not to require physical surrender of this Note upon
conversion.


 


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


 


(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.


 


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(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.


 


A-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;


 


A-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


 


A-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


 


A-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.


 


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(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
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


 


A-11





















 


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 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


 


A-12





















 


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 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)


 


A-13





















 


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 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


 


A-14





















 


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.


 


(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


 


A-15





















 


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 (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


 


A-16





















 


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 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


 


A-17





















 


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


 


A-18





















 


(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
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.


 


A-19





















 


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


 


A-20





















 


(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 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


 


A-21





















 


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 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”).


 


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(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 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 


 


A-23





















 


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, during the four Calendar
Quarter period for which the EBITDA of a Person is being calculated,


 


A-24





















 


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.


 


A-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”),


 


A-26





















 


and the Senior Bank Obligations are designated as Senior
Indebtedness.  The Company may 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


 


A-27





















 


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


 


[Signature Page Follows]


 


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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

  
						



 


A-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:

  	
   

  
											



 


A-30





















 


	
  Authorization:

  	
   

  
	
   

  
	
  By:

  	
   

  
	
  Title:

  	
   

  
	
   

  
	
   

  
	
  Dated:

  	
   

  
	
   

  
	
  Account Number:

  	
   

  
	
   (if electronic
  DWAC/book entry transfer)

  
	
   

  
	
  Transaction Code
  Number:

  	
   

  
	
   (if electronic DWAC/book
  entry transfer)

  
							



 


A-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:

  
					



 


A-32