EXHIBIT 10.3


 


[FORM OF CONTINGENT CONVERTIBLE SUBORDINATED
NOTE]


 


NEITHER THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL, 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


 


	
  Issuance Date: June 10, 2004

  	
   

  	
  Principal: U.S.
  $            

  



 


FOR VALUE RECEIVED,
EPIQ SYSTEMS, INC., a Missouri corporation (the “Company”), hereby promises to pay to the order of [RIVERVIEW
GROUP, LLC][SMITHFIELD FIDUCIARY LLC][OMICRON MASTER TRUST] or registered
assigns (“Holder”) the amount set
out above as the Principal (as reduced pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, the “Principal”)
when due, whether upon the 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


 


1

















 


defined in Section 4(a)) shall have occurred and be continuing or
any event shall have occurred and be continuing which with the passage of time
and the failure to cure would result in an Event of Default and (ii) through
the date that is ten days after the consummation of a Change of Control (as
defined in Section 5(a)) in the event that a Change of Control is publicly
announced or a Change of Control Notice (as defined in Section 5(a)) is
delivered prior to the Maturity Date (as may be extended, the “Maturity Date”).


 


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


 


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


 


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


 


2

















 


attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B) if required by Section 3(c)(iii),
surrender this Note to a common carrier for delivery to the Company as soon as
practicable on or following such date (or an indemnification undertaking in
form and substance reasonably acceptable to the Company with respect to this
Note in the case of its loss, theft or destruction).  On or before the first Business Day following the date of receipt
of a Conversion Notice, the Company shall transmit by facsimile a confirmation
of receipt of such Conversion Notice to the Holder and the Company’s transfer
agent (the “Transfer Agent”).  On or before the third Business Day
following the date of receipt of a Conversion Notice (the “Share Delivery Date”), the Company shall
(X) credit such aggregate number of shares of Common Stock to which the Holder
shall be entitled to the Holder’s or its designee’s balance account with
Depository Trust Company (“DTC”)
through its Deposit Withdrawal Agent Commission system or (Y) if the Transfer
Agent is not participating in DTC Fast Automated Securities Transfer Program,
issue and deliver to the address as specified in the Conversion Notice, a
certificate, registered in the name of the Holder or its designee, for the
number of shares of Common Stock to which the Holder shall be entitled.  If this Note is physically surrendered for
conversion as required by Section 3(c)(iii) and the outstanding Principal
of this Note is greater than the Principal portion of the Conversion Amount
being converted, then the Company shall as soon as practicable and in no event
later than three Business Days after receipt of this Note and at its own
expense, issue and deliver to the holder a new Note (in accordance with
Section 19(d)) representing the outstanding 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


 


3

















 


voiding of a Conversion Notice shall not affect the Company’s
obligations to make any payments which have accrued prior to the date of such
notice pursuant to this Section 3(c)(ii) or otherwise.


 


(iii)                               Book-Entry.
Notwithstanding anything to the contrary set forth herein, upon conversion of
any portion of this Note in accordance with the terms hereof, the Holder shall
not be required to physically surrender this Note to the Company unless (A) the
full Conversion Amount represented by this Note is being converted or (B) the
Holder has provided the Company with prior written notice (which notice may be
included in a Conversion Notice) requesting physical surrender and reissue of
this Note.  The Holder and the Company
shall maintain records showing the Principal, Interest and Late Charges
converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Company, so as not to require
physical surrender of this Note upon conversion.


 


(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


 


4

















 


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.


 


(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.


 


5

















 


(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;


 


(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;


 


6

















 


(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


 


(xiii)                          either of (x) the Total Debt
to Total Capitalization Ratio shall exceed .55:1.00 or (y) the Total Debt to
EBITDA Ratio shall exceed 3.50:1.00.


 


(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


 


7

















 


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 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


 


8

















 


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.


 


(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


 


9

















 


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 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 respect to each holder is referred to as its “Allocation Percentage,” and such amount
with respect to each holder is


 


10

















 


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) 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.


 


11

















 


(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 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


 


12

















 


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 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


 


13

















 


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 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)                            [INTENTIONALLY
OMITTED]


 


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


 


14

















 


(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.


 


(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.  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


 


15

















 


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.


 


(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(f) of the Securities Purchase Agreement,
provided that this Note may be offered, sold, assigned or transferred only in
Principal amounts of $3,000,000 (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.


 


16

















 


(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
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.


 


17

















 


(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”).


 


(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.


 


18

















 


(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 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.


 


19

















 


(h)                                 “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, 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.


 


(i)                                     “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.


 


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


 


(k)                                  “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


 


20

















 


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.


 


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


 


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


 


(n)                                 “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.


 


(o)                                 “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.


 


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


 


(q)                                 “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%.


 


(r)                                    “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.


 


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


 


(t)                                    “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.


 


(u)                                 “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) 2.5 and (ii)
EBITDA (the “Senior Indebtedness Cap”).  Without limitation of the generality of the
foregoing and subject to the Senior Indebtedness Cap, Senior Indebtedness shall
include the obligations of the Company to its current senior secured lender,
LaSalle Bank, N.A. and any participants with LaSalle Bank, N.A. in such
Indebtedness (the “Senior Bank Obligations”),
and the Senior Bank Obligations are designated as Senior Indebtedness.  The Company


 


21

















 


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.


 


(v)                                 “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.


 


(w)                               “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.


 


(x)                                   “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.


 


(y)                                 “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.


 


(z)                                   “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).


 


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


 


22

















 


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]


 


23

















 


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:

  	
  Tom W. Olofson

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
						



 


24

















 


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:


 


Authorization:


 


	
   

  	
  By:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  
	
  Dated:

  	
   

  
					



 


25

















 


	
  Account Number:

  
	
    (if electronic DWAC/book entry transfer)

  
	
   

  
	
  Transaction Code Number:

  
	
    (if electronic DWAC/book entry transfer)

  



 


26

















 


CONVERSION ACKNOWLEDGMENT


 


&


 


TRANSFER AGENT INSTRUCTION


 


The Company hereby acknowledges this Conversion Notice and hereby
directs Wells Fargo Shareowner Services 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 Shareowner Services.


 


	
   

  	
  EPIQ SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


27